U.S. GOVERNMENT PUBLISHING OFFICE

36–214PDF WASHINGTON : 2019

CHINA’S EXPANDING INFLUENCE IN EUROPE AND 

EURASIA 

HEARING 

BEFORE THE

SUBCOMMITTEE ON EUROPE, EURASIA, ENERGY, 

AND THE ENVIRONMENT 

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED SIXTEENTH CONGRESS 

FIRST SESSION 

May 9, 2019 

Serial No. 116–35 

Printed for the use of the Committee on Foreign Affairs 

( 

Available: http://www.foreignaffairs.house.gov/, http://docs.house.gov, 

or www.govinfo.gov 
(II) 

COMMITTEE ON FOREIGN AFFAIRS 

ELIOT L. ENGEL, New York, Chairman 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

KAREN BASS, California 

WILLIAM KEATING, Massachusetts 

DAVID CICILLINE, Rhode Island 

AMI BERA, California 

JOAQUIN CASTRO, Texas 

DINA TITUS, Nevada 

ADRIANO ESPAILLAT, New York 

TED LIEU, California 

SUSAN WILD, Pennsylvania 

DEAN PHILLIPS, Minnesota 

ILHAN OMAR, Minnesota 

COLIN ALLRED, Texas 

ANDY LEVIN, Michigan 

ABIGAIL SPANBERGER, Virginia 

CHRISSY HOULAHAN, Pennsylvania 

TOM MALINOWSKI, New Jersey 

DAVID TRONE, Maryland 

JIM COSTA, California 

JUAN VARGAS, California 

VICENTE GONZALEZ, Texas 

MICHAEL T. MCCAUL, Texas, Ranking 

Member 

CHRISTOPHER H. SMITH, New Jersey 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

SCOTT PERRY, Pennsylvania 

TED S. YOHO, Florida 

ADAM KINZINGER, Illinois 

LEE ZELDIN, New York 

JIM SENSENBRENNER, Wisconsin 

ANN WAGNER, Missouri 

BRIAN MAST, Florida 

FRANCIS ROONEY, Florida 

BRIAN FITZPATRICK, Pennsylvania 

JOHN CURTIS, Utah 

KEN BUCK, Colorado 

RON WRIGHT, Texas 

GUY RESCHENTHALER, Pennsylvania 

TIM BURCHETT, Tennessee 

GREG PENCE, Indiana 

STEVE WATKINS, Kansas 

MIKE GUEST, Mississippi 

JASON PORTER, Staff Director 

BRENDAN SHIELDS Staff Director 

SUBCOMMITTEE ON EUROPE, EURASIA, ENERGY, AND THE ENVIRONMENT

WILLIAM KEATING, Massachusetts, Chairman 

ABIGAIL SPANBERGER, Virginia 

GREGORY MEEKS, New York 

ALBIO SIRES, New Jersey 

THEODORE DEUTCH, Florida 

DAVID CICILLINE, Rhode Island 

JOAQUIN CASTRO, Texas 

DINA TITUS, Nevada 

SUSAN WILD, Pennsylvania 

DAVID TRONE, Maryland 

JIM COSTA, California 

VICENTE GONZALEZ, Texas 

ADAM KINZINGER, Illinois, Ranking 

Member 

JOE WILSON, South Carolina 

ANN WAGNER, Missouri 

JIM SENSENBRENNER, Wisconsin 

FRANCIS ROONEY, Florida 

BRIAN FITZPATRICK, Pennsylvania 

GREG PENCE, Indiana 

RON WRIGHT, Texas 

MIKE GUEST, Mississippi 

TIM BURCHETT, Tennessee 

GABRIELLE GOULD, Staff Director 
(III) 

C O N T E N T S 

Page 

WITNESSES 

Le Corre, Philippe, Nonresident Senior Fellow, Europe and Asia Programs, 

Carnegie Endowment for International Peace ................................................... 7 

Segal, Stephanie, Deputy Director and Senior Fellow, Simon Chair in Political 

Economy, Center for Strategic & International Studies ................................... 18 

Kendall-Taylor, Andrea, Senior Fellow and Director, Transatlantic Security 

Program, Center for a New American Security ................................................. 27 

Cooper, Zack, Research Fellow, American Enterprise Institute .......................... 38 

APPENDIX 

Hearing Notice ......................................................................................................... 69 

Hearing Minutes ...................................................................................................... 70 

Hearing Attendance ................................................................................................. 71 

RESPONSES TO QUESTIONS SUBMITTED FOR THE RECORD 

Resposnses to questions submitted from Representative Pence .......................... 72 

Resposnses to questions submitted from Representative Spanberger ................ 75 

ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD 

Channeling the Tide Report .................................................................................... 78 

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CHINA’S EXPANDING INFLUENCE IN EUROPE 

AND EURASIA 

Thursday, May 9, 2019 

House of Representatives 

Subcommittee on Europe, Eurasia, Energy and the Environment 

Committee on Foreign Affairs 

Washington, DC 

The subcommittee met, pursuant to notice, at 10:01 a.m., in room 

2167 Rayburn House Office Building, Hon. William Keating (chairman of the subcommittee) presiding. 

Mr. KEATING. The hearing will come to order. We are in a different room, I can tell just from the microphones. It is reverberating. The subcommittee is meeting today to hear testimony on 

China’s Expanding Influence in Europe and Eurasia. Without objection, all members will have 5 days to submit statements, questions, extraneous materials for the record, subject to the length and 

limitation in the rules. I will now make an opening statement and 

then turn it over to the ranking member for his opening statement. 

We are holding this hearing today on China’s engagement in Europe and Eurasia as part of a series of hearings being held within 

the Foreign Affairs Committee this week, all of them on China. I 

am pleased that the committee is taking this step in-depth because 

I firmly believe that failing to develop a strategy for engaging with 

an increasingly competitive China, we will be confronted with one 

of the greatest security threats of our generation. 

The goal of today’s hearing is not to preemptively disqualify Chinese investments as illegitimate. Competition after all is the bedrock of a successful capitalist system. However, a core value of 

Western democratic countries is also that competition must be fair 

and everyone must play by the same rules. So as we consider the 

range of China’s economic and financial endeavors across Europe 

and Eurasia today, that is the principle that we must keep in 

mind. And the question we must ask is this, is China playing by 

the rules? Unfortunately, the overwhelming evidence across the 

range of China’s global dealings indicate, really, that at this time 

they are not. 

In today’s hearing, we will be able to assess China’s investment 

in Europe and Eurasia through the Belt and Road Initiative and 

by Chinese companies, with an eye toward understanding the risks 

of accepting these investments when China does not adhere to the 

rules and abide by principles of free and fair competition. There are 

real security and economic risks if we do not take this opportunity 

to reaffirm the rules-based international order. 

And whether it is using Chinese companies to build Europe’s 5G 

networks or investments in ports and critical infrastructure, there 
2 

are real security concerns for NATO and cooperation with our allies. And with the lack of transparency around these deals and evidence of predatory lending, the economic risks are clear. Further, 

we see that China uses their newfound economic ties for leverage 

within Europe to avoid criticism for their human rights record and 

other concerning policies. 

All of this undermines our shared values around democracy and 

the rule of law and the principles and cooperation that we have 

made in the U.S. and share with our allies and have shared for 

more than 70 years. 

Today is an important day because today is Europe Day, May 

9th, the anniversary of the Schuman Declaration which first put 

forth the idea of a unified Europe on peace. We all can appreciate 

and celebrate that today. It is an important day not just for Europe, but for us in the United States as well, because a united Europe is a stronger Europe. These are our allies and closest partners 

in security and in business, and when Europe is stronger, we are 

stronger. 

For our part, we can do more here in the United States to enforce our standards and make sure China is playing by the rules 

here at home. This is our own companies that embrace free and 

fair competition and make our economy stronger and they are not 

pushing and going to be pushed out by the unlevel playing field 

that China has so far been involved in, so that we do not have to 

also leave ourselves more vulnerable to cyber and security threats. 

Europe must do the same, and I am very encouraged by the 

screening mechanism framework which we will hear something 

about I hope that was passed quickly by the EU and went into 

force this year. This is a critical step and we should continue to 

work with the EU and our allies and partners across the region to 

harmonize our screening mechanisms and share information on 

how to watch for risks associated with these Chinese investments. 

We should also recommit to working together to offer alternatives to Chinese investments. Countries are not wrong to want 

to have investments in important sectors in their economies, and 

we have to make sure that alongside of working with governments 

to avoid predatory and unfair Chinese investments, we are also 

there to offer safe alternatives to make our economies and our alliances stronger. 

The U.S. took an important step in this regard passing the 

BUILD Act last year and Europe has announced its similar 

connectivity strategy and spur for greater investment and projects 

around the world. This is something we can work on, I believe, together not just independently. We can do more. 

A troubling poll earlier this year in Germany found that 43 percent of Germans thought China was a more reliable partner than 

the United States on economic partnerships. At a time when Russia and China are actively working to chip away at our alliance 

with Europe and undermine the values and rules that we have 

brought for greater security and prosperity for all of us, this is a 

moment where we must reaffirm our alliance, recommit to trade, 

recommit to investment agreements and reinforce our shared 

standards for rule of law. That is how we operate from a position 

of strength in responding to threats from Russia and China. 
3 

So I would like to thank our witnesses for being here today so 

we can examine these issues carefully and our policy options for 

moving forward in this way. Now I will turn to the ranking member for his opening statement. 

Mr. KINZINGER. Well, I thank the chairman. And I thank the witnesses for being here today. And I want to apologize up front, I 

have another hearing in Energy and Commerce I will have to leave 

for, but that does not belittle the importance of this issue. 

And I think it is important to note that there is no daylight between the Republicans and Democrats, the chairman and I, on this 

threat, this concern. A lot of our differences get a lot of media attention, but there is way more that unites us than actually divides 

us, and so that is important to note. 

When President Xi assumed power in 2013, he set China on an 

ambitious path to increase its regional control while expanding its 

global reach. During the cold war, we had this great battle of ideas 

between capitalism in the West and Communism in the East. This 

has shifted to a battle between democracy versus authoritarianism 

and the United States must respond accordingly. 

We have seen the CCP conduct influence operations around the 

world to affect how media, business, academia, and politicians view 

the Chinese threat. Whether it be Chinese, Russian, or ISIS ideological ideas, we should not be brushing them off without a second 

thought. Yet this is what many countries around the world are 

doing when it comes to China’s debt-trap diplomacy. Through 

State-funded projects such as Made in China 2025 and the Belt 

and Road Initiative, the CCP has found a way to use capitalism to 

benefit the spread of their authoritarian system. 

By offering incentive-laced ideas, China has gained access to European markets which have historically shied away from their system of governance. China has had over 350 mergers, investments, 

and joint ventures across Europe. In many cases, they can access 

critical information about how these systems work or even steal 

sensitive IP. More than half of China’s investments in Europe is in 

the largest economies, Germany, United Kingdom, France, and 

Italy. What concerns me though is that these are linchpins in our 

NATO alliance. 

China has now passed the U.S. as Germany’s largest trading 

partner and they are closing the gap for the EU as a whole. They 

have also bucked American concerns and have stated their willingness to integrate their systems with Hauwei’s 5G networks which 

compromise our intelligence sharing. In the U.K. alone, China has 

invested over 70 billion. They are trying to get a foot in the door 

in anticipation of any Brexit deal that sees the U.K. leaving the 

EU. 

Italy is becoming the first G7 country to sign a memorandum of 

understanding with China to participate in the BRI. While not 

binding, it is a symbolic win for China to secure such a significant 

nation. Chinese companies now either fully own or have sizable investments in Greek and Portuguese ports, a British and Portuguese energy system, and airports in London, Frankfurt, and 

Toulouse. As a result, Chinese influence has pushed countries like 

Greek and Hungary to water down EU statements regarding China’s illegal island-grabbing in the South China Sea. 
4 

Following a massive flow of Chinese investment, the Czech Republic’s President stated that his country would become an 

unsinkable aircraft carrier of Chinese investment expansion. Luckily, amidst growing American and European concerns over China’s 

intention, the CCP has softened their tone and decreased foreign 

investment over the past few months. By no means do I believe 

that they will back down. This gives Congress and the administration time to engage with our European partners to formulate a 

plan as we must be ready for China’s next investment push. 

Again, I thank the chairman for convening this extremely important hearing today and I thank the panel for your commitment in 

testifying for us, and I yield back. 

Mr. KEATING. The chair thanks the ranking member. 

I will now introduce our witnesses. Philippe Le Corre is a Nonresident Senior Fellow in the Europe and Asia Programs at the 

Carnegie Endowment for International Peace and an affiliate with 

the project on Europe and the transatlantic relationship at the 

Harvard Kennedy School Belfer Center for Science and International Affairs. He is a former Special Assistant and Counsellor 

for international affairs to the French Minister of Defense. And 

thank you very much for being here, Mr. Le Corre. 

Stephanie Segal is the Deputy Director and Senior Fellow, Simon 

Chair in Political Economy at the Center for Strategic & International Studies, and the former codirector of the East Asia Office 

at the United States Department of the Treasury. Thank you for 

being here. 

Dr. Andrea Kendall-Taylor is the Senior Fellow and Director of 

Transatlantic Security Programs at the Center for New American 

Security and a former Deputy National Intelligence Officer for Russia and Eurasia at the National Institute Counsel and the Office 

of Director of National Intelligence, thank you. 

Dr. Cooper, Dr. Zach Cooper is a Research Fellow focusing on 

U.S.-China strategic competition at the American Enterprise Institute. He is also an Adjunct Assistant Professor at Georgetown University with an Associate from Armitage International and a National Asia Research Fellow. He previously served at the National 

Security Council and at the Department of Defense. 

I would like to thank all the witnesses for being here today and 

look forward to your testimony. You will have the opportunity, although we are not going to put a clock over your head too harshly, 

to limit your testimony to the range of 5 minutes. Without objection, your prepared written statements will also be part of the 

record. As I stated at the outset, members will be able to forward 

other questions in the future for your response. 

I will now go to Mr. Le Corre for his statements. 
5 

STATEMENTS OF PHILIPPE LE CORRE, NONRESIDENT SENIOR 

FELLOW, EUROPE AND ASIA PROGRAMS, CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE; STEPHANIE SEGAL; ANDREA KENDALL-TAYLOR; AND, ZACK COOPER, RESEARCH 

FELLOW, AMERICAN ENTERPRISE INSTITUTE 

STATEMENT OF PHILIPPE LE CORRE, NONRESIDENT SENIOR 

FELLOW, EUROPE AND ASIA PROGRAMS, CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE 

Mr. LE CORRE. Thank you very much, Mr. Chairman, Ranking 

Member, distinguished members of this committee, thank you for 

inviting me for the second time in a year. And I have to say, this 

hearing takes place in the context of a shift in the attitudes of both 

the United States and Europe toward China’s economic and political rise. 

For the past 2 years, the U.S. has taken a tougher stance in 

dealing with China especially in the field of economic reciprocity 

and violations of international norms of intellectual property. More 

broadly, Washington has taken a consensual bipartisan approach 

vis-a-vis Beijing, which now appears as the main threat to American interests. 

But I also want to stress that Europe, the Europe we are dealing 

with today is not the one we were dealing with 3 years ago in this 

particular context. True, Europe remains divided vis-a-vis the People’s Republic of China, but for the past 3 months a number of important events and developments have taken place. 

First and foremost, on March the 12th, the European Commission published a document called the ‘‘EU-China: A Strategic Outlook’’. The tone and the language of this document is quite different 

from what we are used to, those of us looking at European documents. It labels China as a systemic rival and it lists all the issues 

that are basically in the way of a smooth relationship between 

China and the EU. For example, the role of State-owned enterprises, intellectual property issues, the lack of market access in 

China, 5G, and generally different values and issues that have become a problem, and also in the eyes of European countries. 

Second, in March again, President Xi Jinping visited Europe. He 

visited Italy and he visited France. In Italy, yes, he did sign an 

MOU with the Italian Government on the Belt and Road Initiative, 

but it is only an MOU and I will come back to that in a minute. 

But in France he was welcomed not just by President Macron, but 

also by Chancellor Merkel and the president of the European Commission, Mr. Juncker. 

This is a far cry from the usual attitude, the divided attitude of 

Europeans vis-a-vis China. Of course, you could argue that the Chinese Prime Minister who later came to Europe and countered the 

16 countries, the 16+1 mechanism, but not much came out of this 

except perhaps, you know, it became the 17+1. 

But I think the most important thing to remember is that there 

is a unified position toward China at least represented by the EU. 

The EU-China annual summit took place on April the 11th in 

Brussels in the presence of Premier Li Keqiang, and it concluded 

with a joint communique that sets a date for comprehensive agreement on investment that is also quite important. 
6 

And fourth and last, but not least, in April again, the EU introduced a new screening mechanism as you were referring to, Mr. 

Chairman, on foreign investment after less than 2 years of internal 

discussions. Despite divisions within Europe, no EU country, in the 

end, opposed this new nonbinding scheme. 

At the same time, Chinese investments in the EU have declined 

considerably after peaking in 2016. This is mainly due to restrictions of capital outflows from China and also the fact Chinese investments are mainly in the area of technology and infrastructures, 

particularly as part of President Xi Jinping’s signature project, the 

BRI. I mean the BRI by the way targets not just Europe, but pretty 

much every continent except North America. It is true that 12 European leaders attended the BRI forum in Beijing, but neither the 

German Chancellor or the French President took part. The EU was 

represented, but not by its most senior officials. 

Division remains, but countries in Europe have become aware of 

China’s discourse and feel the need to protect themselves through 

the European Union. The EU today remains one of the strongest 

advocates of liberal and democratic values in the world, many of 

them shared in America, which is why, Mr. Chairman, distinguished members of the committee, I would urge, in conclusion, 

that Congress does all it can to collaborate with Europe to build 

consensus over the immediate security, technological, and 

geoeconomic threats of China’s expansion. 

As the current U.S. administration continues to send mixed messages to America’s oldest and most reliable allies, it is critical that 

Congress takes a leading role in reinforcing a transatlantic dialog 

on China’s global influence. Thank you. 

[The prepared statement of Mr. Le Corre follows:] 
7 

tJ 

CARNEGIE 

ENDOWMENT FOR 

INTERNATIONAL PEACE 

THE GLOBAL THINK TANK 

Congressional Testimony 

Hearing on China's Expanding Influence in Europe 

and Eurasia 

Philippe Le Corre 

Nonresident Senior Fellow 

Carnegie Endowment for International Peace 

Senior Fellow 

Mossavar-Rahmani Center for Business and Government 

Harvard Kennedy School 

Testimony before the House of Representatives Forcil,>n 

Affairs Committee, Subcommittee on Europe, Eurasia, 

Energy, and the Environment 

May 9,2019 

BEIJING BEIRUT BRUSSElS MOSCOW NEW DELHI WASHINGTON 
8 

Introduction 

Chainnan Keating, Ranking Member Kinzingcr, Distinguished Members of this Committee, thank you 

for inviting me to testify before you for the second time. 

This hearing takes place in a context of a shift in the attitudes of both the L'nited States and Europe 

towards China's growing econornic and geopolitical rise, as well as a broader evolution of Beijing's own 

priorities and external strategy. 

For the past seven years, I have been focusing on China's geo-economic outreach with a focus on 

foreign direct investments, and how these arc perceived in Eurasia, including Europe, the Caucasus and 

Central Asia. Eurasia is a complex concept with diverging definitions and has been a playing field for 

competition or cooperation between big powers especially Russia, China, the United States and the 

European Union (EU). 

Although I have also been working on Central Asia, I have decided today to focus my testimony on 

recent developments between China and the European continent. 

While the U.S. has taken a tougher stance in dealing \Cv-ith China's persistent lack of reciprocity in 

economic relations and violations of international norms of intellectual property for some years, 

European countries have recently begun reacting concretely to the economic and security-related 

considerations linked to certain Chinese investments on their soil. The EU's official acknowledgment 

of China as a "systemic rival" in a policy document released this spl"ing marks a departure from 

previously conciliatory language.' 

At the same time, Chinese investments on both sides of the Atlantic have declined considerably after 

peaking in 2016. Beijing is increasingly curbing private outward investment to maintain its stock of 

foreign reserves and to direct capital to domestic use amid a period of economic slowdown. The notable 

exceptions arc foreign direct investments (FDl) connected with President Xi Jinping's flagship strategy 

to achieve technological parity in key industries, Made in Cbina 2025, and investment towards the Belt 

and Road lnitiatit'e (BRl), Xi's other grand plan to connect China to its markets through lar£,>-c-scale 

infrastructure projects. The BRI now counts new European signatories, including Italy, one of the EU's 

founding members, which also became the first G7 nation to sign a Memorandum of Understanding 

with China in March 2019. 

The latter episode has provided an important test for the U.S.-Europe security relationship. Upon the 

urging of American diplomats not to take part in the BRI, Italy has loudly reiterated its allegiance to 

NATO and the underlying Western alliance. Yet is has chosen to defy both the U.S. and EU strategic 

posture in its decision to adhere to the project. 

The greatest challenge is that Chinese investments in strategic sectors can generate economic 

dependence, especially among smaller countries and struggling t'conomies, and this relationship can 

expand into the political realm, as it has on a few occasions that I will mention shortly. 

Against this backdrop, the U.S. and Europe need to consider how they can maintain their security 

relationship to meet mutual challenges, but also how to reconcile diverging strategies for handling the 

emergence of China in order to avoid an escalation of tensions and to build instead a constructive 

relationship with Beijing. 

1 "Communic1nion-EU-China-a-Stmtegic-Outlook.Pdf/' n,farch 12,2019, https:/ /ec.europa.eu/commission/sites/betapolitical/ files I communication-cu-china-a-stnttegic-outlook.pdf. 

1 
9 

Over the brief time of tlus testimony, I will address the following questions and concerns: 

\\7hat is the state of Chinese Foreign Direct Investments in Europe 

Following multiple visits and snmnlits in Europe and the BRl Forum in Beijing, what is China's 

vision towards Europe? 

How is the European Union-and how are individual countries-reacting? 

Is China's grmving econonlic presence translating into political influence in Europe? 

• How is the EU responding to the BRl? 

Overview of Chinese FDI in Europe 

Economic relations between Europe and China have expanded dramatically over the last decade. The 

EU is now China's largest trading partner, and China is the EU's second-largest trading partner after 

the United States. China's annual FDI into the EU skyrocketed from $840 million in 2008 to $42 billion 

in 2017, covering a v.~de range of geographic areas and industrial sectors. The count about doubles 

when including Switzerland, a non-EU country, which has captured the lion's share of Chinese FDT 

·with ChcmChina's acquisition of the agri-business giant Syngenta for $43 billion-the world's single 

largest acquisition by a Chinese company. 

However, data from the last two years indicates that in aggregate terms Chinese FDI into Europe is 

slo\\~ngdown from its 2016 peak. In 2018, Chinese FDI in Europe declined by 40% compared to 2017, 

for a total of $22.5 billion.2 Part of this downward trend relates to fewer "mega-deals" being pursued 

or completed, whereas multi-billion deals were a key feature of total FDI in previous years. Similarly, 

2018 saw a shift away from infrastruct11res, utilities, and real estate projects in favour of more consumerfacing sectors. 

The United Kingdom remained the largest European recipient of Chinese FDI for 2018, followed by 

Sweden, Germany, Luxembourg, and France. Behind the headline of an aggregate fall in FDI, 2018 saw 

sharper increases in a more diverse pool of European countries: Spain, Sweden, Luxembourg, Denmark, 

as well as Hungary, Croatia, Poland, and Slovenia all saw growing investments.' The overall value of 

deals was nothing to remark on, especially for smaller and Eastern European countries, but it is 

sig1uficant insofar as it marks a grmving Chinese presence in a wider range of countries and significantly 

in several EU member states. The British case dcsen'es a close attention as the country prepares to exit 

the union. 

The 2017-2018 decline in FDI in Europe is largely the outcome of the Chinese govetnment's recently 

introduced controls on private capital outflows. Besides the decline in outbound FDI, there has also 

been a considerable wave of divestments, estimated at $5 billion. It includes large private companies 

such as I INA or Dalian \'1/anda that had invested substantially in European countries, but have recently 

sold some of their assets. However, Europe continues to receive most of its FDI from state-owned 

enterprises (SOEs), which made up about 63% of total FDI between 2008-18." Unlike private firms 

2 Hancmann, Huotari, and Kratz. ''Chinese FDI in Europe: 2018 Tn·nds. and Impact of New Screening Policiesn. 

3 Chinese FDI into North America and Europe in 2018 Falls 73% to Six-YeRr Lowof$30 Billion 1 Newsroom ! Baker 

McKenzie," 

~ "EU Reaches Deal on Screening Measures for Foreign Investment," accessed February 24,2019, 

http:/ /counny.eiu.com.czp2 
10 

(which have made up a majority ofFDl in the C.S. for instance), SOEs are less restricted in their ability 

to invest abroad, especially on projects backed by Beijing and compatible with Made i11 China 2025 and 

the BRI5

• On top of this supply-side restriction on FDI, European countries have followed somewhat 

in the TJ.S.' footsteps and began to scrutinize investment, especially from SOEs, with the effect of 

reducing the volume of deals. 

On the other hand, China ranks 59th out of the 62 countries evaluated by tbe Organization for 

Economic Cooperation and Development (OECD) in terms of openness to FDI. Almost half of 

companies sutYcycd in 2018 by the European Chamber of Commerce in China said they missed out on 

business opportunities due to regulatory barriers or market access restrictions, and they expected 

obstacles to increase during the next rive years. It is increasingly evident that many European countries 

are unhappy v,~th the lack of reciprocity and the joint ventures forced upon Eutopean firms to do 

business in China (which often entail a form of technology transfer). Only smaller countries appear to 

continue to view onc·way FDl as a sufficiently good trade-of[ New regulations announced at the recent 

session of the National People's Congress in Beijing might bring more openings for European 

companies in the next year, but the real changes will come when the EC and China finally settle on a 

Comprehensive Agreement on Investment (CAl). 

Recent Developments in EU-China Relations 

The past three months have seen some of the most significant developments and responses to 

challenges in Europe-China relations. These include both increased cohesion at the ETJ-level, especially 

among the largest ETJ members, and divergence on key foreign policies such as adherence to the BRI. 

With regards to the latter, Italy became the first G7 country to fotmally endorse the BRl in l'v1arch. 

Switzerland followed suit on April29. 'l11ey joined 22 other European countries who had already signed 

MoUs: Austria, Bosnia-Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Greece, 

Hungary, Latvia, Lithuania, Luxemburg, Malta, Montenegro, North Macedonia, Poland, Portugal, 

Romania, Serbia, Slovakia, Slovenia, and Ukraine. In the Chinese original conception of the BRI6

, 

Europe is the final destination of this ambitious project, and still represents the largest and most 

attractive consumer market for Chinese products. Having more Eutopean countries signing in to the 

BRl is a major success in the Chinese domestic political context. 1\t the second BRl Forum organized 

in Beijing in April2019, no less than 12 European heads of State and heads of governments attended, 

including those of Austria, Hungary, Italy, Greece, Portugal, the Czech Republic and Malta7 

Thc Balkan countries, with the exception of Croatia, are not EU members. For that reason, they are 

eager for Chinese investments, do not rec1uire a visa for Chinese visitors and have little barriers for FDI 

at all. China is investing massively in this part of Europe. Five of these Balkan states and 11 EU Eastern 

European member states form the 16+1 group, which gathered for its S'h Summit Meeting in Croatia" 

on Aprill0-11 attended by Premier Li Keqiang. Greece has now joined this group, which has been relabelled as 17+1. 

prod1.hul.harvard.cdu/articlc.aspx?articleid=507371234&Country=Italjr&topk:::Economy&subtopic=Forecast&subsubto 

pic=Policy+trcnds. 

5 This includes projects that were not originally part of the BRI when it was created, but have sitKC been labelled as such. 6 Although it still remains a fairly vague global concept. the BRI now includes every continent in the world with the 

exception of N'orth America 7 Notably, leaders of Germany, France and the United Kingdom did not attend the BRI Forum 

3 
11 

On the other hand, larger EU member states are broadly wary of entertaining purely bilateral relations 

with Beijing, and instead favour a coordinated EU approach that can effectively stand up to China as 

an equal power. For instance, France's President Emmanuel Macron summoned German Chancellor 

Angela Merkel and European Commission President Jean-Claude Juncker to Paris on occasion of Xi 

Jinping's state visit in March. Again, Germany's Economy l\iinister told the press from the Belt and 

Road Forum that took place in late April that large EU member states had "agreed" not to sign similar 

deals on a bilateral basis, but as a European bloc. 

Thanks to the alignment of its largest members, the EU has recently taken three main steps on the 

foreign policy stage that signifY a change of attitude towards China. 

Firstly. in March the European Commission, the EC's executive body, issued a "Strategic Outlook" in 

which it labels China as a "systemic rival" and "strategic competitor" and sets out a number of intended 

steps to contrast the lack of reciprocity and \'iolation of international rules. "China is, simultaneously, 

in different policy areas, a cooperation partner ''~th whom the EU has closely aligned objectives, a 

negotiating partner \\~th whom the EU needs to !lnd a balance of interests, an economic competitor in 

pursuit of technological leadership, and a systemic dval promoting alternatiYe models of governance", 

it says. Such language is unusually bold for the EU and captures the concerns of EU institutions and 

several member states with an increasingly felt Chinese presence on its soil and periphery. 

Secondly, on April 5th, the EC concluded the process to introduce a centralized FDI screening 

mechanism and instructed the roughly half of its member states that still lack equivalent domestic 

measures to introduce them too. This investment screening mechanism is a relatively loose, non-binding 

cooperation and oversight system. It encourages sharing :infom1ation across member states about the 

potential for given investments to affect national security and interests, and empowers the Commission 

to weigh in on deals that affect multiple member states or the EU as a whole. The EU screening 

mechanism sets out the goal of gradual convergence of individual member states' regimes and calls for 

monitoring and reporting by member states. Today only 11 of 28 members lack screening measures or 

concrete plans to introduce them. The rapid passing of this new EU measure in just 18 months is 

indicative of heightened concerns over the terms of China's economic expansion. 

Tlus measure is largely perceived as targeting China speci!lcally because it makes provisions for 

dominant characteristics of its investment strategy: a focus on technology and infrastructure sectors, 

state-linked and funded entities and state-led outward projects. Another key featnre of the EU's new 

screening mechanism targets a specific aspect of some Chinese deals, namely that many are executed 

via third parties in other states to conceal the Chinese source of ownership and funding. The measure 

explicitly sets out to pre\'ent the bypassing of national screening by ilwestigating deals within the EU 

linked to Chinese !lrms. By one estimate, this FDI screening mechanism would have covered 92% of 

the value of Chinese FDI flowing into Europe in 2018.8 

Thirdly, the last annual EU-China summit on April 9, 2019, which took place days after the 

announcement of the FDI screet1ing measure, concluded with a stern position by tl1e EU. Although the 

joint statement was lacking in substance, the overall tone of EU leaders was one of frustration and 

scepticism. Juncker remarked on the slowness of progress, which concerned issues such as revisiting 

\'FTO rules and improving reciprocity and IP protection. Brussels called for reciprocity \Vi.th and a 

balanced approach to China. It asked China to addt·ess certain :issues such as its state subsidies to SOEs 

and forced technology transfers. China has agreed to discuss with the EU how to reform the W'TO and 

!;( "Chinese FDI in Europe: 2018 Trends and Impact of Ne-..v Screening Policies" .. 2019, 19. 

4 
12 

open up government procurement to foreign suppliers.] ,ast, but not least, the EU and China did agree 

on concluding a Comprehensive Agreement on Investment by 2020. 

The EU and U.S. share similar goals towards China, and these dev-elopments signal fertile territory for 

EU-U.S. cooperation on this front. However, the Ell is unlikely to endorse the confrontational strategy 

pursued by President Trump, especially since its membership remains ov-erall divided on the subject of 

China. Instead the EU will continue to reiterate its strong interest in a constructive relationship with 

China and to pursue common ground through dialogue and cooperation. 

Chinese FDI and Political Influence in Europe 

Behind the encouraging big picture of concrete steps from Brussels to rebalance the Ell -China 

relationship, Beijing has been making political inroads in several Eumpean countries, v.i.th implications 

for the U.S., NATO, and cohesion on security issues. 

TI1ere are examples of the political influence attached to China's economic presence. The Ell's attempt 

to issue a statement of support for freedom of navigation in the aftermath of the 2016 final ruling of 

the UNCLOS (United Nations Convention on the Law of the Sea) Arbitration Court in The Hague on 

the Philippines' case against China over the South China Sea was revised downward. This had followed 

the refusal of three Ell member countries--Greece, Hungary, and Croatia-to sign onto this joint 

declaration. Portugal, being a major recipient of Chinese FDI in many sectors of its economy, was at 

first relnctant to support the EU's requirement for certain FDI screening procedures and called them 

"protectionist". Again, in 2017 Greece blocked an Ell statement at the UN Human Rights Coun~i.l 

(UN I IRC) condemning China's human rights Yiolations-thc first time the Ell failed to speak with one 

voice at the UNHRC. Hungary similarly refused to sign an EL' joint letter denouncing the reported 

torture oflawyers detained by Chinese authorities. 

But in a clin1atc of rising nationalism, Chinese FD I has also become an issne of rivalry between different 

European states. When rebutting criticisms of their choice to join the BRI, Italian officials claimed that 

other European peers traded more and recch·ed more investment from China, justifying Italy's pursuit 

of its fair share as a national interest. How(,ver, in the same week France secured several times the 

commercial value in agreements with China than Italy did, without signing on to the BRL In this respect, 

competition and disagreement over China has created tensions that further divide EU members at the 

political level. 

Beijing's strategy to sow divisions is an intentional one. It treats EU members differently and creates its 

own circles of friends with regular contacts. From China's point of view, northern European countries 

are one cotnmurtity; southern European countries are another; central and eastern European countries 

are mostly encompassed in this 17 + 1 group. F ranee and the UK, being permanent members of the UN 

Security Council along with China, enjoy more status and beneficial relations with Beijing. Germany is 

recognized by China as the economic powerhouse of the Ell with admirable scientific and technological 

pro\vess. 

China also earns diplomatic points by affording even the smallest states equal status when it comes to 

state visits. In addition to March's meetings with heads of states in Rome and Paris, President Xi also 

visited Monaco, a tiny country with a population of 38,000 people. This could be interpreted as a reward 

for Monaco's granting a Chinese telecommunication company, Huawei, a contract to build its SG 

infrastructure. lt should be noted that Huawei has launched an impressive public relations and lobbying 

5 
13 

campaign across Europe, inviting journalists and politicians to its headquarters and underlining 

repeatedly its separation from the Chinese state and communist party. 

Concerns for Security, NATO, and U.S.-EU Cooperation 

Political influence is not the only challenge to maintaining cohesion among U.S. and European allies. 

Chinese FDI, and its economic presence in European markets also comes with strategic concerns over 

China's pursuit of technological parity (or even superiority), and its established practices of cyber 

espionage and hacking. 

Competition between the U.S. and China to devdop advanced technologies such as Artificial 

Intelligence (AI), robotics, quantum computing, and biotechnology, with strategic and military 

applications, directly implicates Europe. Although European countries have fallen behind both the U.S. 

and China in the technology race, investing in Europe's target industties can still help China to close 

this gap. 

European countries have become more responsh-e to this challenge. The acquisition in 2016 of a 

premier German robotic company, Kuka by Midea Group, a Chinese home appliance manufacturer, 

woke up the Ge1man establishment to the risk that China could threaten its technological pre-eminence 

and national security9 Subsequently, Germany blocked the acquisition of chip maker Aixtron by Fujian 

Grand Chip Investment Fund, revoking an approval it had previously granted due to new evidence 

relating to security and meeting the criteria "security of supply in the event of a crisis, 

telecommunications and electricity, or the provision of services of strategic importance"."' CFIUS has 

come out against the deal and provided the German government with evidence that motivated the 

withdrawal of its prior approval." 

Even without the ED screening system, in 2018 ED members' own FDl screening rules contributed to 

blocking seven deals for a value of $1.5 billion, mainly on national security grounds. 12 Gern1any 

introduced its domestic screening measure in 2017, which was first exercised to block the Chinese 

acquisition of machine tool company Leifcld Metal Spinning AG, whose nuclear and rocket technology 

expertise was deemed sufficient grounds to invoke a national security ban." Shortly before the German 

government had also resorted to investing its own money in 50Hertz Transmission GmbH to averr 

China's State Grid from acquiring a 20% stake in the electricity grid operator. 14 Even Italy, whose 

coalition government appeared to be committed to a strong relationship with China during President 

Xi Jinping's Match visit, is responding to internal calls (largely from Deputy Prime l'vlinistcr Matteo 

9 The Federation of German Industries (BDI) published an important report on the subject in January 2019 

https:/ / english.lxli.eu/ article/ news/strengthen-the-european--union-to-hctter-competc-\.vith-china/ 

10 Guy Chazan~ "Germ~my \\"ithdraws Approval for Chinese Takeover of Tech Group,'~ Financial Tlmes, October 24, 

2016, https:/ /www.ft.com/content/flb3e52c 99b0-1le6-8f9b-70e3cabccfae. 11 «Germany's Ab..·tron Says U.S. Opposes China Deal on Security Grounds/' RtttttrJ; November 18, 2016~ 

https:/ h~-"\v-w.reuters.com/artidc/us:-aixtron-m-a-fujian-usa-idUSKBN13D2Q8. 

12 "Chinese FDl into North .America and Europe in 2018 Falls 73°/0 to Six-Year Low of$30 Billion I Newsroom I Baker 

McKenzie," accessed April16, 2019, https://w,vw.bakermckenzie.com/cn/ncwsroom/2019/01/chinese-fdi. 11 Andrea TI1omas, "Germany Yetoes Chinese Purchase of Business Citing Security Grounds," IPOU Street ]o~tmal,July 26, 

2018, sec. Business, https: / /v.'WW.wsf.com/ articles/ germany-vctoes-chinese-purchasc-of-leifeld-metal-spinning1532624172. 

H nGermany Steps Up Efforts to Rebuff China's Swoop for Assets," July 27 ~ 2018, 

https:/ /-v".Vw.bloombcrg.com/ ne\vs/ articles /2018-07-27 J germany-buys-stake-in-electric-grid-operntor-to-block-chlnese. 

6 
14 

Salvini and his Northern League) to broaden the government's "golden powers" to block deals that 

threaten national security and economic autonomy. 

The U.S. and Europe remain largely divided over Huawei Technologies and the extent of the security 

risks linked to its inclusion in the development of SG infrastructure. The U.K. recently approved 

Huawei as a supplier of SG services but kept it out of critical parts of the network. Germany has similarly 

allowed the telecoms giant, and Italy is debating its position internally but seems to be leaning in favour 

of following its European peers. The U.K. and Germany even set up security evaluation centres to 

monitor Huawei services on their soil, but British intelligence services claimed that even this monitoring 

only had limited capacity to guarantee security. Tn the meantime, recent days have seen revelations that 

software backdoors were found in Huawei equipment as early as 2009 by carrier Vodafone in Italy, and 

that despite recurrences to the contrary they remained in place at least until2011. Although Vodafonc 

said the issue was eventually resolved, this precedent, if further evidence corroborates it, should 

discourage allowing Huawei to operate at least the most sensitive components of SG networks in 

NATO countries. 

While Europeans' concem "'~th Huawci is largely limited to the ability of tl1e Chinese government to 

exploit the company (which ownership system remain unclear") to spy on the countries and conduct 

cyber-attacks, the U.S. is also significantly worried about the effect of sustaining the growth of a critical 

industry in a rival country that could cost U.S. and European fi1ms their technological lead. A key 

motive for the U.S. pressure to ban Huawci that is not well received in Europe is that \Xrestern providers 

shonld be bolstered to win a "SG race". 

Besides the question of I-luawci, Europe has to grapple wid1 Chinese ownership or control of physical 

infrastructure and the security risks that arise from it. Chinese state-owned enterprises (SOE), with 

backing from state funds often under the BRI label, are expanding their control of key European port 

assets and increasingly also rail links and utilities. Therefore, the usc of European ports for U.S. and 

NATO naval operations could be comprotnised, as it may happen in the case of the Israeli port of 

Haifa, which will be operated by Shanghai International Port Group (Sil)G) from 2021. 

NATO as an organization is only starting to look at China as a part of its reflex:ion, but the bigger 

question is whether the Alliance is the ideal forum for this new strategic orientation. In one respect of 

military salience, the emergence of a Russia-China nexus directly affects NATO's primaty mission. The 

Sino-Russian relationship should not be exaggerated, but the rwo countries have been conducting joint 

naval exercises in the Mediterranean, Black Sea, and Baltic Sea. "' Their military leaderships have 

increased their exchanges. On the other hand, intra-European divisions on China may translate into 

lower effectiveness of NATO, making it a weak platform for pursuing a cohesive strategy to contain 

China's ability to ptoject power. 

To conclude, Europe has started re-evaluating its policies with respect to the China challenge. The 

necessary measures for ensuring critical technologies and infrastructures are protected are now largely 

in place, but their implementation and enforcement "ill make the difference between continued 

vulnerability and effective security. Europe also remains divided, with a number of countries at its 

periphery benefiting from Chinese economic assistance. Still, tbe European Union is now standing as 

one of the strongest ad,"ocates of liberal and democratic values in the world, many of them shared on 

"Donald Clarke and Christopher Balding, "\X?ho owns l-luawei?", SSRN, April19, 2019 

https: I I papers.ssrn.com/ sol3 I papers.cfm?a bstract_id=33 72669 16 Erik Hrattberg~ "Time for NATO to Talk About China," Carnegie Europe~ accessed May 5, 2019, 

https:/ I camegieeurope.eul strategiceuropel78684. 

7 
15 

this side of the Atlantic. The rise of China in an increasingly multipolar world should be part of the 

transatlantic discussion. Bearing in mind European sensitivities, the U.S. Congress should use all its 

possibilities to collaborate with Europe to build consensus over the immediate security, technological 

and geo-economic sides of China's expansion. As the current U.S. Administration continues to send 

mixed messages to America's European allies, it is critical that Congress take a leading role in reinforcing 

a transatlantic dialogue on China's global influence. 

********* 

8 
16 

Mr. KEATING. Thank you, Mr. Le Corre, for those comments and 

look forward to coming back to you with some questions about 

some of those comments. 

Ms. Segal, thank you for being here. You may proceed. 

STATEMENT OF STEPHANIE SEGAL, DEPUTY DIRECTOR AND 

SENIOR FELLOW, SIMON CHAIR IN POLITICAL ECONOMY, 

CENTER FOR STRATEGIC & INTERNATIONAL STUDIES 

Ms. SEGAL. Thank you, Mr. Chairman, Mr. Ranking Member, 

members of the committee. Thank you for the opportunity to contribute to today’s hearing. I have submitted my full written statement for the record. My comments today will focus on Chinese investments in the context of the Belt and Road Initiative and China’s strategy to become a global innovation leader. I will conclude 

with a few thoughts on cooperation between the United States and 

Europe. 

While China’s going out strategy can be traced back to the 

1990’s, initiatives under President Xi have focused on strategic and 

geopolitical goals. These include One Belt and One Road, the Asian 

Infrastructure Investment Bank, and Made in China 2025. One 

Belt, One Road, renamed the Belt and Road Initiative, or BRI, is 

China’s most ambitious going out effort to date. Over 125 countries 

have signed BRI cooperation documents and, in April, Italy became 

the first G7 country to sign on. 

Here are the concerns with China’s investment and critical infrastructure and recipient countries’ excessive reliance on debt to finance such investments. To date, European interests under BRI 

are most directly implicated in Central and Eastern Europe. 

Through its 16∂1 format, recently expanded to 17∂1 with 

Greece’s participation, China has increased its activities in the region. Since its inception, criticism of BRI has mounted, particularly 

in the areas of transparency and debt sustainability. One cautionary example is Montenegro where a Chinese-financed highway 

project has sent the country’s debt soaring. 

Moving to another Chinese initiative, Made in China 2025 aimed 

to establish China as a global innovation leader. A report from the 

Council on Foreign Relations notes that Chinese companies have 

been encouraged to invest in foreign companies to gain access to 

advanced technology. Here are the concerns with China’s acquisition of advanced technologies and the potential for China to gain 

unfair competitive advantage that will distort global markets. In 

response to external pressure, China has downplayed the formal 

Made in China 2025 slogan, but there is little doubt that China 

will continue pursuing policies that foster homegrown innovation. 

In recent months, Europe has sharpened its approach to China. 

As Philippe just mentioned, in March, the European Commission 

delivered a strategic outlook to the European Parliament and the 

European Council. Significantly, that report refers to China as an 

economic competitor and a systemic rival promoting alternative 

models of governance, echoing language from the National Security 

Strategy of the United States. 

Recently, Europe has taken steps which reflect the growing appreciation in Europe that the balance of challenges and opportunities presented by China has shifted. As we mentioned, the new EU- 
17 

wide foreign investment screening mechanism mandates information sharing in certain circumstances and incentivizes all EU members to adopt investment screening mechanisms. 

A recent report attributed last year’s decline in foreign investment from China in Europe to greater scrutiny in recipient countries as well as the macro conditions in China. There is also focus 

on export controls to address potential risks from the sale or licensing of sensitive technology. As indicated in the Commission’s strategic outlook, European policymakers are considering modalities to 

address national security risks stemming from outbound investment and emerging technologies, in particular to address the challenges of different jurisdictions between member States, the European Union, and other advanced technology-exporting countries. 

Regarding trade and the WTO, Europe is calling on China to adhere to stronger disciplines on industrial subsidies and is also 

working in the trilateral context with the United States and Japan. 

Just a few comments on cooperation, cooperation between the 

United States, Europe, and other like-minded countries maximizes 

the chances for shaping China’s behavior and protecting U.S. interests. 

Coordination with Europe is essential to ensure problematic investments or technology transfers are not simply diverted from one 

country to another. Such cooperation can take the form of greater 

information sharing as well as ex ante coordination on possible listings of sensitive technology. With respect to trade, cooperation to 

discipline China’s behavior in the area of subsidies, self-declaration 

as a developing country, and digital issues will be necessary to 

shape global outcomes. 

Separate but related, I would like to add that the imposition of 

tariffs, including on U.S. allies on national security grounds, undermines trust in the United States as a reliable partner. China has 

capitalized on U.S. rhetoric and actions. To reset the narrative, the 

United States should remove steel and aluminum tariffs imposed 

under Section 232, and end the threat of new tariffs on autos and 

auto parts, especially on U.S. allies and partners. 

Again, I thank the subcommittee for the opportunity to offer 

these thoughts and I look forward to answering members’ questions. 

[The prepared statement of Ms. Segal follows:] 
18 

CSIS I CENTER fOR STRATEGIC & 

INTERNATIONAl STUDIES 

Statement before the 

House Committee on Foreign Affairs 

Subcommittee on Europe, Eurasia, Energy, and the Environment 

A Testimony by: 

Stephanie Segal 

Deputy Director and Senior Fellow, Simon Chair in Political Economy, 

Simon Chair in Political Economy 

Center for Strategic and International Studies (CSIS) 

May9,2019 

2167 Rayburn House Office Building 

1616 RHOO£ 1SLANO AVENUE NW lEL. (ZOl) UD"i'.O:WO 

WASHINGTON, OC ;?OOJ6 FAX {202.) 775.31'}9 
19 

Segal: Written Testimony, HFAC Europe Subcommittee 05/09/20 19 2 

Introduction 

Mr. Chairman, Mr. Ranking Member, Members of the Subcommittee, thank you for the 

opportunity to contribute to today's discussion on China's expanding influence in Europe and 

Eurasia. I appreciate the opportunity to offer my perspective on this important topic. 

As former United .States Trade Representative Charlene Barshefsky and former U.S. National 

Security Advisor Stephen Hadley wrote recently about China's expanding footprint, "Since 

World War IT, a bipartisan mainstay of United States foreign policy has been preventing the 

emergence of a leading hegemon on the Eurasian supercontinent, where most of the economic 

capacity and population of the world resides." 

With those stakes in mind, my testimony will focus on Chinese investments in Europe and 

Eurasia, including in the context of China's Belt and Road Initiative (BRI), and the response of 

recipient countries as well as the European Union (EU). I will elaborate on areas where greater 

cooperation between Europe and the United States would be beneficial, focusing on investment 

as well as trade-related policies. 

Macroeconomic Context 

To orient the discussion, it's worth considering China's place in the global economy. China's 

gross domestic product (GDP), at over $13 trillion, is second in the world only to the United 

States, while the 28 economies comprising the EU have a combined GDP of $23 trillion. With 

China's economy growing above 6 percent annually according to official statistics, most analysts 

expect it to surpass the United States in size within a generation. In terms of purchasing power, 

China's economy is already the world's largest, having overtaken the United States earlier in the 

decade. China is also the world's largest trading economy, with exports and imports (goods and 

services) equal to $5.2 trillion dollars or about 40 percent ofGDP. While the data have 

established China as an economic giant for most of the 21'' century, it's only in the past five 

years that attention has shifted to China's role as a strategic investor abroad, including in Europe. 

China's foreign assets have been steady as a percent of its GDP; however, the composition of 

assets has changed. In particular, Chinese direct investment abroad has increased both in 

absolute terms and as a percent of China's foreign assets, growing by more than $1 trillion from 

less than $900 billion (14 percent of China's total foreign assets) in 2014 to $1.9 trillion (26 

percent oftoreign assets) at the end of2018. According to the International Monetary Fund 

(IMF), foreign direct investment is a category of cross-border investment associated with a 

resident in one economy having control or "a significant degree of influence" on the 

management of enterprise in another economy. (In statistical practice, ownership of equity by a 

direct investor that entitles it to 10 percent or more of the voting power is used to determine a 

significant degree of influence.) The changing composition of Chinese investment abroad, 

combined with factors detailed below, has stoked concerns about the motivations behind such 

investment. 

China's Motivations 

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Segal: Written Testimony, HFAC Europe Subcommittee 05/09/2019 3 

While China's "going out" strategy can he traced back to the reforms ofZhu Rongji in the late1990s, Chinese outbound direct investment gained momentum following the 2008/09 Global 

Financial Crisis (GFC), as Chinese policymakers sought to diversify their external holdings away 

from U.S. Treasuries and government-backed securities. Whereas the post-GFC shift is generally 

understood to reflect a desire on the part of China to diversify risk and maximize returns, more 

recent initiatives under the leadership of President Xi Jinping have focused attention on possible 

strategic and geopolitical motivations. These include the launch of"One Belt One Road" in 

2013; the creation of the Asian Infrastructure Investment Bank (AIIB) in 2014; and the release of 

"Made in China 2025" in 2015. 

Belt and Road Initiative 

Launched in 2013 as One Belt One Road (OBOR) and renamed Belt and Road Initiative (BRI) in 

2016, BRI is China's most ambitious "going out" effort to date. According to Chinese state 

media, over 125 countries have signed BRJ cooperation documents. In April, Italy became the 

first Group of 7 (G-7) country to sign-on to the BRI, while its incorporation into the Communist 

Party Constitution in 2017 underscores the importance President Xi places on the initiative. 

Given the fragmented nature of projects under BRI, it has been difficult to estimate the total 

capital invested in BRI projects. Data provided in the U.S.-China Economic and Security Review 

Commission's 2018 report suggest that BRJ equity and debt funding topped haifa trillion dollars 

through end-2017, coming from a mix of Chinese policy banks, Chinese state-owned commercial 

banks, the Silk Road Fund, as well as the multilateral AIIB and New Development Bank (NDB). 

Last month, People's Bank of China (PBOC) Governor Yi Gang estimated that Chinese financial 

institutions have provided more than $440 billion for BRI, while Chinese capital markets 

provided another RMBSOO billion ($87 billion) in equity financing for BRI projects. 

To date, European interests under BRI are most directly implicated in Central and Eastern 

Europe. Through its" 16+ I format," initiated in 2012 and recently expanded to" 17+ l" with 

Greece's participation, China has increased its activities in the region. According to CSIS data 

collected before the group's most recent meeting, 70 percent of China's announced deals have 

been in non-EU member states even though they make up only 5 of the 16 (now 17) participants 

and only 6 percent of the group's collective GDP. This disparity reflects the higher bar that 

Chinese firms face within the EU, where procurement and environmental standards are higher 

and altemative sources of investment are more abundant. 

In the longer term, Euwpe's interests may also be impacted by the New Eurasia Land Bridge 

(NELB) Corridor, and to a lesser extent, the China-Central Asia-West Asia Economic Corridor 

(CCWAEC), two of six geographic corridors under the BRI. However, analvsis conducted by 

CSIS's Reconnecting Asia project last year found no significant relationship between corridor 

participation and project activity, with the exception of the China-Pakistan Economic Corridor. 

While five years may be too early to judge the results of a longer-term effort, the analysis 

underscores the challenges of capital deployment and project completion for infrastructure 

investing, notwithstanding Chinese involvement. 

It is possible that BRI projects will ultimately deliver economic benefits to recipient countries; 

however, in addition to the modest tangible results suggested by the analysis to-date, criticism of 

the BRI has mounted particularly in the areas of transparency and debt sustainability. One 

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Segal: Written Testimony, HFAC Europe Subcommittee 05/09/2019 4 

cautionary example is Montenegro, the most recent country to join the N01ih Atlantic Treaty 

Organization (NATO), which has taken on a Chinese-financed highway project that has sent its 

debt soaring and could allow China to access land as collateral. Individual countries, as well as 

the European Commission and international financial institutions have called on China to 

develop "a clearer overarching framework governing BRI investment, better coordination and 

oversight, more focus on debt sustainability of the partner countries, and a transparent 

mechanism for dealing with project disputes, non-performance and debt service problems, as 

well as more open procurement and greater transparency over contracts." 

That collective response implies that the first phase of BRI- one characterized by speed, scale 

and easy access to financing with few visible conditions attached- is likely over. At last month's 

Belt and Road Forum in Beijing, Chinese officials addressed criticisms dogging BRI projects, 

including charges of corruption and privileged treatment of Chinese companies on BRI projects. 

PBOC Governor Yi Gang announced that China will henceforth "let the market play a major 

role" and called on various stakeholders to "work together" to finance the BRI. China's revised 

approach may well make traditional obstacles to infrastructure investment more binding in the 

BRI context. Attracting third party investment will require enhanced disclosures and improved 

project transparency, inc.luding of financing terms, and should also force more disciplined 

decisions on the part of creditors and investors. Of course, these promises will require further 

monitoring. 

Made in China 2025 and its Aftermath 

When announced in 2015, Made in China 2025 (MiC 2025) aimed to upgrade China's economy 

and establish it as a global leader in various innovation industries. Unlike BRI, which aims to 

project Chinese influence outward, MiC 2025 focused domestically and included date-specific 

targets for the domestic content of certain products sold in China. The program sought to 

strengthen China's competitive position in sectors such as next-generation infonnation 

technology and advanced robotics through domestic supports as well as technological 

acquisition. A report from the Council on Foreign Relations in March notes that Chinese 

companies, both private and state-backed, have been encouraged to invest in foreign companies 

to gain access to advanced technology, while much of Chinese investment abroad is directed by 

state-owned enterprises or companies backed by the Chinese government. 

In response to external pressure including from the United States and Europe, China seems to 

have abandoned the formal MiC 2025 slogan earlier this year. However, there is little doubt that 

China will continue to prioritize domestic innovation, not least to reduce its reliance on imports 

of advanced technology. 

The 2014 acquisition of German robotics company KUKA is widely seen as a wake-up call to 

German industry as well as policymakers across Europe with regards to MiC 2025 and China's 

strategic ambitions. Since KUKA 's acquisition by Chinese electrical appliances company Midea, 

and the subsequent dismissal ofKUKA's Chief Executive Officer in 2018, concem has been 

building in Europe that Chinese investment may ultimately undermine European companies as 

China acquires the capacity to domestically produce the high-end components it previously 

imported. In addition, there is concem that China, with its protected market and access to state 

support, will be able to compete on non-market terms, thereby taking global market share and 

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Segal: Written Testimony, HFAC Europe Subcommittee 05/09/2019 5 

driving foreign competitors out of business. Critics of China point to Chinese overproduction in 

steel and solar panels as examples of China's strategy to dominate global markets which could 

play out again in high tech sectors. 

Europe's "Calibrated" Response 

Europe's unique governance structure- with national security authorities vested in individual 

EU member states but much ofthc capacity to track trends and protect the integrity of the single 

market residing in Brussels presents a unique challenge and distinguishes EU members from 

other countries in Eurasia. Notwithstanding significant efforts to take a more consistent approach 

to China, it remains to be seen if Europe can maintain a unified front, a point underscored by 

Italy's recently announced participation in BRI, Greece's membership in "16+1" and ongoing 

discussions related to next generation (5G) communications networks. Having said that, in recent 

months Europe has sharpened its approach towards China while maintaining constructive 

engagement in areas of common interest. 

EU-China Strategic Outlook 

In March of this year, the European Commission (EC) delivered a Strategic Outlook to the 

European Parliament and European Council ahead of President Xi's visit in April. The report 

references "a growing appreciation in Europe that the balance of challenges and opportunities 

presented by China has shifted." It calls on China to accept greater responsibility for upholding 

the rules-based international order, as well as greater reciprocity, non-discrimination and 

openness ()fits system. It also calls for a calibrated approach to China which would 

simultaneously deepen engagement to promote common interests; seek more balanced and 

reciprocal conditions governing the economic relationship; and strengthen Europe's own 

domestic policies and industrial base. 

Most significantly, the report refers to China as "an economic competitor;" and a "systemic rival 

promoting alternative models of governance", echoing language from the National Security 

Strategy (NSS) of the United States which refers to "competitors such as China" and ealls out 

China's ambitions to "expand the reaches of its state-driven economic model". It also warns that 

China is gaining a strategic foothold in Europe by expanding untair trade practices and investing 

in key industries, sensitive technologies, and infrastructure; and it commits the United States to 

working with allies and partners to contest China's unfair trade and economic practices and 

restrict its acquisition of sensitive technologies. Overall, the language in the EC's Strategic 

Outlook represents a meaningful departure from the Joint Statement of the 201

h EU-China 

Summit in 2018, which sought synergies between BRIand the EU and marked the 20th 

Anniversary of the EU-China Science and Technology Cooperation Agreement. 

Investment Screening 

A new EU-wide foreign investment screening mechanism entered into force in April and will be 

fully applied starting in November 2020. The final decision to allow or not a foreign investment 

will remain with the individual member states; however, the EU mechanism mandates 

information sharing in certain circumstances, which in tum incentivizes all EU members to 

develop the capacity to review transactions. In addition to the EU-wide reform, some EU 

members with established mechanisms have recently tightened them, reflecting concerns 

Page5 
23 

Segal: Written Testimony, HFAC Europe Subcommittee 05/09/20 19 6 

stemming from Chinese as well as Russian investment. A joint report from the Mercator Institute 

for China Studies and the Rhodium Group found that Chinese investment in Europe declined 

again in 2018 after peaking in 2016 due in part to greater regulatory scrutiny in recipient 

countries as well as conditions in China. 

Given the nature of the potential national security threat and focus on cutting-edge and dual-use 

technologies, coordination among U.S. allies and partners is essential to ensure potentially 

problematic investments are not simply diverted from one economy to another. Such cooperation 

can take the fonn of greater information sharing, including of classified intelligence as well as 

privileged company information, but only under strict conditions that protect the confidential 

nature of information shared. 

Export Controls 

'With the investment screening mechanism now in place, focus has shifted to the adequacy of 

export controls to address potential risks from "outbound investment," namely the sale or 

licensing of technology or other sensitive information. While multilateral regimes already exist 

to control certain items (e.g., nuclear technology) on a multilateral basis, emerging technologies 

are too new to appear on existing control lists. Delays in listing and controlling a technology can 

pose a potential national security risk; while a decision to control a technology absent 

coordination with other countries is likely to be ineffective. As indicated in the EC's Strategic 

Outlook, European policymakers are considering modalities to address national security risks 

stemming from "outbound" investment and emerging technologies in particular to address the 

challenges of different jurisdictions between member states, the EU, and other advanced 

technology exporting economies. 

World Trade Organization Reform 

Europeans are outspoken in their support for multilateral ism, which they fear is under threat 

from China and its distortive industrial policies as well as from the United States and its 

"America First" policies. U.S. reliance on questionable national security ratiC\llales for the 

imposition of tariffs including on U.S. allies undermines trust in the United States as a reliable 

partner. China has capitalized on U.S. rhetoric and actions, positioning itself as the unlikely 

champion of globalization. China's ability to portray itself as globalization's defender extends 

beyond trade. As just one example from last month's BRI Forum, the PBOC's Yi Gang asserted 

that ''while the BRI originates from China, its opportunities and results belong to the world." To 

reset the narrative, the United States should remove steel and aluminum tariffs imposed under 

Section 232 and end the threat of new 232 tariffs on autos and auto parts, especially on U.S. 

allies and partners. 

Europe appears committed to working with China on WTO refonn while at the same time calling 

on China to endorse and adhere to stronger disciplines on industrial subsidies. Alongside these 

efforts, Europe should continue working in the trilateral context with Japan and the United States 

to advance reform; and should be open to sectoral arrangements, for instance in digital trade, as 

the best way forward. Europe, the United States and other allies and partners should keep 

reciprocity on the table, mindful of the costs and benefits of such an approach. Unified pressure, 

for instance on China's self-declaration as a "developing country" and failure to notify all 

subsidies may be the most effective way forward. 

Page6 
24 

Segal: Written Testimony, HFAC Europe Subcommittee 05/09/2019 7 

Cooperation is Key 

Cooperation between the United States, Europe and other like-minded countries will maximize 

the chances of shaping China's behavior and protecting U.S. interests. There are reasons to 

believe that unified approaches, including pressure on China, can work (see for example, 

changes announced at the Belt and Road Forum to "ensure debt sustainability"). A unified and 

consistent approach could also yield results on difficult issues such as Chinese membership in 

the Paris Club and data disclosure, as reformers in China may well see such actions as also in 

China's best interest. 

At the same time, we should be realistic about the limitations of external pressure to shape 

China's actions. China will not act in a way that it believes to be counter to its interests. 

Cooperation on these issues- for instance, disciplining China's behavior in the areas of 

subsidies, self-designation and even digital trade- is not only desirable but essential in terms of 

shaping global outcomes. 

Again, I thank the Subcommittee for the opportunity to offer these thoughts, and I look forward 

to answering Members' questions. 

Page7 
25 

Mr. KEATING. Thank you, Ms. Segal. 

Dr. Kendall-Taylor? 

STATEMENT OF ANDREA KENDALL-TAYLOR, SENIOR FELLOW 

AND DIRECTOR, TRANSATLANTIC SECURITY PROGRAM, 

CENTER FOR A NEW AMERICAN SECURITY 

Ms. KENDALL-TAYLOR. Chairman Keating, distinguished members of the subcommittee, thank you for the opportunity to be here 

to discuss China’s influence in Europe. I want to begin my statement by briefly highlighting four overarching ideas that I think 

should shape Washington’s approach to competing with China and 

Europe. 

First, is the issue of prioritization. As the United States develops 

its approach to Europe, it must recognize that in the coming decade 

China will be our No. 1 challenge. To effectively compete with 

China, the United States will need strong and cohesive relations 

with Europe. On the security front, the United States and Europe 

must divide and conquer. The U.S. needs Europe to do more to provide for its own security and defense to free up Washington to focus 

on the Indo-Pacific. 

Outside the security realm, the United States and Europe must 

stand together. The U.S. needs Europe as a partner to confront 

China on economic, democracy, and human rights issues globally. 

This arrangement will require a new deal with Europe. Washington will have to accept that greater European autonomy will inevitably transform the transatlantic alliance. And, finally, Washington must realize that now is the time to engage Europe and 

China. As has been said, in the last 2 years and in particularly in 

recent months, Europe has grown more attuned and concerned 

about China. 

So what does China seek to accomplish in Europe? First and 

foremost, China is pursuing its economic interest, but it is looking 

to translate its investment into greater political influence. China 

seeks to use its investment to secure support for China’s interests 

or at least prevent the EU from taking a unified position that is 

at odds with China. 

China is also looking to undermine Western cohesion, weaken democracy norms, and is looking to access European innovation including technologies, intellectual property, and talent that it can 

use to upgrade its industrial capacity. China goes about advancing 

these interests in a number of ways. I elaborate on these tactics 

in my written statement, but they include things like using divideand-rule tactics to weaken European cohesion, leveraging U.S.-Europe fissures, and constructing networks among European politicians, businesses, media, think tanks, and universities to create 

support for pro-China positions. 

I also want to call attention to one additional tactic and that is 

the growing synergy between China and Russia. Relations between 

China and Russia are deepening. Although their approaches to Europe are different and seemingly uncoordinated, taken together 

they are having a more corrosive effect than either would have singlehandedly. So what will China’s growing influence mean for U.S. 

interests? The bottom line is that China’s economic influence in Europe will translate into political leverage. This will affect U.S. in-
26 

terests in a number of areas like U.S. prosperity and competitiveness. It will affect global values and norms from rules governing 

data and privacy to internet freedom, AI, and governance. 

And it is on the issue of democracy where the synergy between 

China and Russia is especially problematic. Russia’s assault on 

democratic institutions weakens some actors’ commitment to democracy, but it is the alternative model of success that China presents and especially the revenue that it brings that gives countries 

the capacity to pull away from the West. 

China’s rising influence also has implications for NATO. China 

does not pose a direct military threat to NATO, but Beijing’s growing presence will interfere with NATO mobility. China’s investments in European ports and its construction of rail lines in particular could hamstring NATO’s ability to move troops and equipment across Europe. This is yet another area where China-Russia 

synergy is concerning. It is not hard to imagine a scenario, for example, where China uses its control of key infrastructure like ports 

and rail to delay a NATO response to Russian aggression. 

And, finally, is 5G. Allowing China to build Europe’s 5G network 

would introduce systemic risk, making Europe more vulnerable to 

things like intellectual property theft, and weaken data privacy, 

things that enable China to continue to steal the know-how that 

enhances its competitiveness. 

So what can be done? There are number of approaches the U.S. 

can take to check Chinese influence. The U.S. should enhance cooperation and coordination with Europe to combat China’s unfair 

and illegal trade and investment practices. By combining our 

shared heft, we can exert much greater leverage on the Chinese. 

The U.S. should engage on norms in new spaces, cyber, artificial 

intelligence, and space. The U.S. should encourage EU and European defense and security initiatives that would better enable the 

United States to prioritize the Indo-Pacific. To counter the adverse 

effects of the Belt and Road, Washington should capitalize on growing disillusion with the Belt and Road, particularly in Central and 

Eastern Europe, and work with Europe to provide alternatives to 

Chinese investment in Europe and beyond. 

And, finally, Congress should enable the U.S. Government to consider China and Russia together as well as separately. Given the 

trend toward deepening China-Russia relations and the significant 

implications that a more robust partnership would pose to U.S. interests, policymakers will have to account for the ways in which 

these players are working together. 

In sum, it is clear that the United States must do more to stand 

up to Chinese threats to U.S. interests, but to do that effectively 

Washington must work with its European allies. Thank you. 

[The prepared statement of Dr. Kendall-Taylor follows:] 
27 

Prepared statement by 

Andrea Kendall-Taylor 

Center fora 

New American 

Security 

Senior Fellow and Director, Transatlantic Security Program 

Center for a New American Security 

Before the 

U.S. House Subcommittee on Europe, Eurasia, Energy, and the 

Environment 

May9,2019 

Hearing on "China's Expanding Influence in Europe and Eurasia" 

Chairman Keating, Ranking Member Kin zinger, distinguished members of the subcommittee, thank 

you for the opportunity to talk with you about China's increasing influence in Europe. In the last 

decade, and especially since 2014, great power competition has returned to Europe. Russia, through 

its meddling and aggression, and China, through its efforts to expand economically, are vying for 

influence and seeking to break the historically strong bonds between the United States and Europe. 

In this testimony I address China's goals and tactics in Europe. \~'hile the focus is on China, I note 

throughout the testimony the growing synergy between China and Russia. I identify the key 

implications ofChina>s growing influence in Europe for U.S. national interests and outline 

recommendations for policy. 

Before I begin, I briefly highlight the overarching ideas that I think should guide Washington's 

approach to great power competition in Europe. 

The United States must prioritize Ch.iaa. As the United States develops .its approach to Europe, 

it must recogni?.e that in the coming decade> China will be the most critical national security and 

foreigu policy challenge. 

To effectively compete with. China, the United States will need strong and cohesive relations 

with Europe. On the security front, the United States and Europe must divide and conquer. The 

United States needs Europe to enhance its military capabilities to better provide for its own security 

and defense (and take on a greater role in places like North Africa). This will free up the United 

States to focus its efforts on the Indo-Pacific. Outside the security realm, the United States and 

Europe must stand together. The United States needs Europe as a partner to confront China on 

economic, democracy, and human rights issues globally. 

Bold 

Innovative 

B1partrsan 
28 

Working effectively with Europe to address a risiJ1g China (and an assertive Russia) requires 

a uNen-~ Deal. u As Europe plays a greater role in security and defense and in confronting China, 

Europe \Vill in turn expect to have the latitude to pursue the policies of its choosing in other 

dimensions. Some of these policies might diverge from those of\X1ashington. \Vashington wilJ have 

to accept that greater European autonomy will 1nev1tably transform the transatlantic alliance. 1 

'X'hile the transatlantic relationship will have to evolve, there arc certain dimensions which must be 

upheld, The United States and Europe must recommit to the democratic foundations upon which 

the partnership rests. Research shows that not only do democratic countries enjoy unusually good 

relations, hut that democracy is the foundation for resilient alliances, Upholding our shat·ed 

commitments to democracy, in other words, will be key to sustaining strong and effective alliances 

in Europe. Likewise, upholding democracy will be key to maintaining the \Vest's competitive edge. 

Other ways of building influence, through economic coercion (China) or military might (Russia), for 

example, are expensive) unsustainable, and unpopular.2 The \'Vest's ability to shape and influence the 

world. through the power of attraction and shared values, rather than coercion and payments, \viii be 

key to the United States' continued, long-term global success. 

Washington tnust realize tbat ..r1ow is the titne to engage Europe on the Chi11a chaUetJge. In 

the last nvo years-and particularly in recent months-Europe has grown more attuned to and 

concerned about China.3 There is a growing appreciation that the "'balance of challenges and 

"Pl'on:unities presented by China has shifted" and that China represents a "systemic rival promoting 

models of governance."'1 A number of factors have driven th1s change. The 

implementation of Made in China 2025-a ten-year plan to speed the development of high-tech 

industries-and SCYcral Chinese takeovers of sensitive European firms have convinced many 

Europeans that China is unlikely to reform its economy or allow greater access to its markets. The 

increasing personalization of the Xi regime, the human rights crisis in Xinxiang, and the gro\\ring 

surveillance of its citizens have clarified the repressive and authoritarian nature of the current 

Chinese regime. 

China's Goals of Concern in Eur~ 

author'itar·ian reg;rn•es,me Chinese Communist Party's (CCP) approach to Europe is 

on power. To that end, China pursues a number of goals 

1 Benjamin Hadtbd and Alina Polyakova, "Is Gojng It Alone the Best \X'ay Fonvard for Europe? \X'hy 

Strategic Autonomy Should Be the Continent's Goal," ForeignA)fdirs, October 17, 201R, 

-/alrope/201R-10-17/going-lt-algne-best-way-fnrward-e!trope. 

2 Stephen M. \Xialt, "Alliance Formation and the Balance of \Vorld Power," !ntematio!lal Seom[y 9, no. 4 (1985): 

J-43. See also Andrea KendaU . .'faylor and Julie Smith, "'Ihe United States' Greatest Strength Over Russia 

and China Is Its Alliance -w:ith Europe," Text, The National Interest, November 9, 2018, 

httpy I /natiqmlinterest,org/fegtnre/lmin•d .. states-·greatest-strength-over-mssifl-and-china-its-alliance-eumpeilllll. 

3 See Andre\v Small, "\'Vhy Europe Is Getting Tough on China," 10reign Affairs, April 3, 2019, 

htqw //royw fqrcignaffairs.mm /articles/china /2019-04..03/why-eumpe-getting-tough-chjna. 

4 European Commission, High RepresentaciYe of the Union for Po reign Affairs and Security Policy, "EOChina- A Strategic Outlook" (Brussels, Belgium: European Commission, March 12, 2019)) 

h~_Lec europa.cu /commission I sites /beta-political/files I communicatiqn-eu-china-a-strategic-outlook pdf, 
29 

jn Europe intended to support regime stability. I highlight those goals that are of most concern to 

lJ.S, interests. 

1. Increasing economic opportunities-especially those that translate into greater political 

influence. Beijjng is interested in a stable, albeit malleable, EU and the large single market that 

underpins it.5 The Belt and Road~ fOr example, offers an outlet for excess industrial capacity} and 

connectivity to European markets can accelerate growth in China's outlying, underdeveloped 

provinces.(• But more than just its pursuit of economic interest, Beijing also seeks to translate its 

economic influence into lasting diplomatic leverage in Europe, as it does in other regions of the 

world. 

2. Using it!Vestment to secure support--or at least prevent the EU fi'om taldng a unified 

positiotl agair1st-China's interests. China feels it is increasingly able to prevent European 

nations from taking action that directly violates China's core interests) including on human rights 

issues like Tibet) on Taiwan lssues, and on the South China Sea, The Xinjiang issue only 

underscores for China the continued importance of cultivating European countries to prevent 

trouble at the UN and elsewhere. Greece, for blocked an EU statement at the United 

;\lations criticizing China's human rights record in almost certainly because of China's 

growing economic investment in the country. 

3. Undermining Weste111 cobesiotJ. Beijing realized early on that its rising economic clout would 

lead other countries to balance against it. China, therefore, has sought to keep Europe '(on the 

fence" by preventing Europe from firmly aligning with the United States--a dynamic that has 

become increasingly important as the United States has taken a harder line on China. Alignment 

between China and the EU on issues like climate change, multilateralism, and the Iran nuclear 

deal provide fodder for their cooperation. l\1oreover, disagreement within Europe and between 

Europe and the United States diminish the attracti•{eness of the \\!estern d<~mocratic model and 

enables China to portray its centralized authoritarian model as more effective than the 

divisiveness that democracy brings. 

4. Weakening global den1ocratic norms. China, like Russia, views liberal democracy as a threat 

to regime stability and considers \Vestern efforts to promote it as little more than thinly veiled 

attempts by the \Vest to spread influence. Central in this shared Yiew is the belief that weakening 

democracy can accelerate the decline of\X:'estern influence and advance both China's and 

Russja's geopolitical goals. China seeks to cultivate relationships with European countries to 

t-,rradually get them to acquiesce to China's efforts to neuter democracy and human rights 

protections at the UN and remove the "liberal" from the global order. 

5 Thorsten Benner and Thomas \'l{'rlght, "Testimony to U.S. China Economic and Security Review 

Commission, Hearing on: "China's Relations '\Vith U.S. Allies and Partners in Europe and the Asia Pacifid'," § 

U.S. China Economic and Security Review Commission (2018), 

https· //,\'\V"'\V.uscc.gov I sites /defqult/fi!es /l TSCC%20Hearinv Thorsten°/o20Benncr'%20and0

/o20Thomas0/o20 

Wlritrht W'ritten%20Statement April%205°;~2QVo202018 pdf 

6 Daniel Kilman and Abigail Grace, "'Power Play: Addressing China's Belt and Road Strategy" (\'Xi'ashington, 

D.C: Center for a New American Sccurit:y, September 2018). 
30 

5. Accessing innovation. China seeks to dominate the innovation industries of the future. China 

views technological innovation as central to domestic economic growth and military 

modernization-Xi seeks to transform the People's Liberation Army into a fully modernized 

force by 2035. Beijing seeks to use Europe as a source of technology) intellectual property, and 

talent that it can use to upgrade its industrial capacity, especially in domains in which it has not 

yet established its own technological leadership. 

China,s tactics in Europe 

China pursues the following tactics and approaches to advance its goals in Europe: 

1. Using divide and nile tactics to weaken European cohesion. China is undermining the EU 

by negotiating with European governments bilaterally and through the 16+1, which facilitates 

China's ties with Central and Eastern European countries (11 of which are EU members). 

Likewise, the Belt and Road Initiative is weakening European cohesion on China policy as lesswealthy countries in Southern and Eastern Europe welcome Chinese investment while \X1estern 

Europe and Brussels remain cautious. Italy's endorsement of the Belt and Road in March 2019 

introduced another obstacle to European cohesion on China. 

2. Leveraging U.S.-European fissures. China is leveraging tensions in the Western alliance over 

U.S. economic policies, including sanctions on European countries and \Vashington's approach 

to the trade war with China, climate change, multilateralism, and the Iran nuclear deal to paint 

itself as the responsible player on these issues. 

3. Building support for pro-China positions. The Chinese government advnnces support for its 

policies by suppressing voices beyond China's borders that are critical of the Chinese 

Communist Party and promoting supportive ones. Beijing fosters networks among European 

politicians, businesses, media, think tanks, and universities to create layers of active support for 

Chinese interests. These efforts span from the overt to the covert.7 

4. Opportunistically leveraging vulnerabilities to expand ties. China has gone after countryspecific vulnerabilities to increase its economic footprint. Broadly speaking, China has leveraged 

economic crisis (Greece), disenchantment with the persistence of unequal development across 

the European Union (the 16+1 countries)) the discontent of illiberal leaders who are frustrated 

with Western conditions for aid and investment (Serbia)) and pressure to find new economic 

partners post-Brexit (the UK) to expand its influence. 

5. Acquiring European know~how to enhance the con1periti·veness of Chinese products. 

China is acquiring foreign technology through legal and illeg;,U means with the objective of 

dominating the innovation .industries of the future. China uses a range of tools to access 

European innovation, including selective foreign investment, by importing technology and talent 

through mergers and acquisitions-for example a Chinese firm acquired German high-tech 

7 Benner and \X' right, "Testimony to U.S. China Economic and Security Review Commission, Hearing on: 

"China's ReJations with U.S. Allies and Partners .in Europe and the Asia Pacific." 
31 

robotics manufacturer Kuka in 20l6-----or joint ventures \vith \X' estern firms. Industrial espionage 

is also a tool in the Chinese innovation toolbox. 

6. Generating synergies with Russia that amplifj· their individual efforts. Relations between 

China and Russia are deepening. The gro\\--:ing alignment of their values and vision of ho\v the 

wotld should be ordered raise the prospects that Moscow and Beijing will increasingly 

coordinate their effOrts to undcrrninc U.S. influence. Already, Russian and Chinese foreign 

policy tactics Europe in ne\'i·' and synergistic ways. Although their approaches 

arc different-Russia is and China more subtle and risk~averse~and seemingly 

uncoordinated, taken together, they arc having a more corrosive effect than either "\vould have 

single-handedly. 8 

Implications of China's increasing economic and political influence 

China's growing economic influence 1n Europe \Vill translate into political leverage. As China's 

economic and political influence gro\v, lt 1s likely to impact the following U.S. interests ln Europe. 

1. U.S. prosperity and competitiveness. If China's influence continues to gro\v~ it would pose a 

dh·ect threat to U.S. prosperity and competitiveness. Greater Chinese economic and political 

influence would facilitate China's efforts to change the economic and legal rules of the game and 

other standards in ways that privilege Chinese interests. In particular, a lack ofU.S.-European 

cooperation on China's illegal and unfair trade and investment practices would compromise 

America's position as an innovation leader, which is so central to U.S. economic dynamism. 

Likewise, a lack of coordination with Europe on trade rules wouJd facilitate a China-centric 

economic order that prhrileges Chinese finns at the expense of U.S. companies. 

2. Values and norms. China's rapidly increasing political influencing efforts in Europe and the 

self-confident promotion of its authoritarian ideals pose a significant challenge to America's way 

of life. Although China's economic investments address a genuine demand for infrastructure, 

Beijing's strategy is designed to lay the foundation for an alternative order and is already eroding 

international norms and standards. If China's influence continues to grow, Beijing will seck to 

have a greater ~ay over rules governing data and privacy, Internet freedom, AI, and governance. 

The complementarity of China and Russia's actions in Europe is especially problematic for 

democracy.9 Russia's assault on democratic institutions, including electoral interference, the 

spread of corruption, and d.isinfonnation campaigns, weakens some actors' commitment to 

democracy. But it is the a1tcmatlve model of success that China provldes and, more importantly, 

the revenue it brings to struggling governments that give -..veak democracies the capacity to pull 

from the West. In a similar way, China's engagement would likely be less potent without 

efforts to weaken democratic institutions and loosen commitment to democracy. As 

8 Andrea Kendall-Taylor and David Shullman, "Bow Rus~ia and Olina Undermine Democracy: Can the \Vest 

Counter the ·nu-eat?,'' Fore(r;n Afjtfirs, October 2, 2018, https· 1/u:y,rw foreignaftftirs.comlarticles I chine /?018-

1 0-02/how-mssia-and-china-undenninc-demorracy. 

9 Kendall··Taylor and Shullmon, "How Russia and China Undem1ine Democracy: Can the \Vest Counter the 

Threat?'' 
32 

China and Russia continue to pursue their shared values and goals) Western democracy will be 

tested. 

3. NATO. China does not pose a direct military threat to NATO. Nonetheless, Beijing's growing 

presence poses challenges that the .1\lllance will have to address. Most ln1portantly, China's 

investment in European infrastructure has the potential to interfere \Vlth NATO mobility-the 

for NATO to move its troops~ tanks, and other equipment across Europe-which is a 

cru:JcalJssuc that NATO Allies are working to improve. China has significantly increased its 

investment in European portS1 most notably in Greece's Port of Piraeus where the state-owned 

China Ocean Shipping Company owns a majority share of the port. China's investment in other 

infrastructure, like rail, could also diminish NATO mobility. If, for example, Chinese rail lines 

aren't built to carry heavy equipment, this too would hinder NATO mobility. 

ln the longer term, a sustained tleepening of Russia-China relations could create challenges for 

NATO. For example, Russia and China could coordinate the timing of hostile actions in their 

peripheries. If China made moves in the South ClUna Sea at the same time that Russia made 

further incursions into Ukraine, it vmuld seriously complicate U.S. forces'-and therefore 

N ATO's-ability to respond effectively. Less directly, it is not hard to imagine a scenario in 

\Vhich China's economic tactics converge with Russian hybrid tactics in ways that could 

undermine Article 5. For example, China could use its control of key infrastructure like ports 

and rail to delay a NATO response. Beijing could also use the economic leverage it has amassed 

to quietly dissuade an already reluctant NATO member state from responding to a sub-Article 5 

Russian attack, eventually serving to discredit the principle of collective defense. 

4. 5G. 5G will undergird most of the technical applications of the including artificial 

mr<ewlsence, the internet of things, sclf~driving cars, and smart Chinese government 

su!>Siclies havealk>we:d Huawei to unfa.irlv undercut its rivals. which means that alternative 

technologies are nearly one-third more e;pensive, based on reported discounts of between 20 

percent and 30 percent globally. Although less expensive, allowing Cbina to build Europe's SG 

net\vork would introduce systemic risk from Chinese companies, making Europe more 

vulnerable to .intellectual property theft, weakened data privacy, hacking, and other disruptions. 

These vulnerabilities would enable China to continue to pillage technological know-ho\v and 

other information that would enhance China's competitiveness. 

·Moreover, allowing China to build Europe's SG network would give Beijing influence over 

Europe's critical infrastructure and new opportunities for surveillance and cyber-espionage. 

There i;; a very real risk that vulnerabilities in networks, whether the result of poor security 

practkes or the deliberate introduction of a backdoor or a bugdoor--a seemingly benign 

security flaw hidden in programming and that could be introduced via software updates-could 

be wcaponized for leverage and coercive purposes, particularly in a crisis or conflict scenario, 

These vulnerabilities could undermine NATO efforts in Europe. 

Policy recommendations 

10 Kara Frederick, «The SG Puturc Is Not Just About Hua\vd," Pordgn Policy, May 3, 2019, 

https· I I foreignpolicy.com /2019/05/03/ the-5g-future-is-not-just-about-huawei /. 
33 

This Administration has rightly recognized that the United States must do more to stand up to 

Chinese threats to U.S. interests. But while building a national strategy around stratet,..-ic competition 

is wise and \Varranted, the United States is falling short in its execution of that strategy. If the United 

States is going to retain its competith:e edge over countries like China (and Russia), \X'ashington 

must more effecth~ely leverage its European Allies. The current shift in European attitudes towards 

China presents the United States with an opportunity to more effectively engage Europe on China. 

In developing its response to China~s rising influence, Congress should consider the following: 

1. Enha11ce cooperation and coordination with Europe to con1bat China's unfair atJd illegal 

trade and investment practices. The United States and the EU command about 40-percent of 

the \Vorld's global economy. By pooling its resources and influence with Europe, the United 

States \Vcmld be far better positioned to compel China to revise its economic policies. To 

enhance \X.'ashington's position ds-U~vis China, the United States should work with Europe to 

coordinate policies and approaches on: investment screening tools, including strategies and rules 

to protect indigenous research in sensitive sectors; export controls; and the alignment of tariffs. 

2. Engage on norms in new spaces. 11oe United States and the EU, along with democratic U.S. 

allies in Asia, should lead efforts to develop standards and rules for emerging domains, such as 

space, cybcr, and artificial intelligence. 11 

3. Encourage EU and Europea11 defense and security initiatiJTes. The United States should 

encourage EU and European efforts to enhance European capabilities, capacities, and readiness, 

including Permanent Structured Cooperation (PESCO), the European Defense Fund (ED!"), 

and the European Intervention Initiative (E2l). The1'e efforts arc meant to complement, not 

undermine, NATO and would enable European nations to more efficiently and effectively pool 

resources to enhance their security. The United States, therefore, should encourage rather than 

discourage these efforts because they would better enable the United States to prioritize the 

Info-Pacific region. 

4. Capitalize on growing disiDusionment with the Belt and Road There is already growing 

disappointment with the Belt and Road in Central and Eastern Europe. The recent 16+ 1 

Summit in Croatia revealed growing disenchantment w:ith China's inability to make its intentions 

dear, offer the assurances needed, and ultimately to deliver on many of its 

promlses. 12 The United States ad·~...-antage of these concerns and continue to highlight 

the drawbacks and risks associated with some Belt and Road projects, including subpa1·labor 

and environmental stahdards. 

5. Bolster the democratic resiliency of European countries .most at risk of Cbinese 

influence. This would include supporting the development of independent, in-country expertise 

"China's relaUot1S vmh u.s;. allies an<! P'lrtnersin 

12 .Andrcea Brinza, "How China Ble\v Chance in Eastern Europe," Foreign Policy, Aprilll, 2019, 

https: I /foreignpolicy.com /2012/04/11 /bow-chjna-hJew-its-chance-jn-eastern -europe I. 
34 

on China and bolstering investigative journalism and civil society, which can shine a light on 

authoritarian influence and national leaders co-opted by it. The stronger a country's regulatory 

environment, civil society, political parties, and independent media, the less effective China's 

(and Russia's) attacks on democratic institutions will be, and the less appeal the authoritarian 

narrative and model \Vill have. 13 

6. Work with Europe to provide altematives to Chinese investment in Europe and beyond. 

The United States should coordinate with European allies and partners to prioritize locations 

and infrastructure projects in countries in Europe and beyond that are most at risk of predatory 

Chinese invcstment.14 The United States and Europe should also work to develop international 

standards for high-quality infrastructure. 

7. Enable the U.S. govemment to consider China and Russia together as well as 

separately. 15 China and Russia represent their own distinct challenges to U.S. interests in 

Europe. But given the trend toward deepening China-Russia relations and the significant 

implications that a more robust partnership would pose to U.S. interests, policymakers \\ill have 

to account for the ways in which these powers are working together. 'Ibe U.S. government is not 

Institutionally configured to deal "\Vith the challenge posed by greater collaboration and 

coordination between Russia and China. There is expertise on Russia and China, but there are 

few if any efforts that analyze and address the nexus of the combined challenges and threats. 

13 Kendall-Taylor and Shullman, "How Russia and Ch1na Undermine Democracy: Can the West Counter the 

Threat?" 

14 Kliman and Grace, "Power Play: Addressing China's Belt and Road Strategy." 15 Robert Sutter, "U.S. Policy Opportunities and Options," inA:;o.ds oJAttthon.tan(ms: ImplicatioNs rfChitJa-Rnssia 

ed. Richard J. Ellings and Robert Sutter (_\V'ashington, D.C.: National Bureau of Asian Research, 

c ~I\' ORG ~ ' , 0 
35 

Biography 

Andrea Kendall-Taylor 

Senior Fellow and Director ofthe Transatlantic Security Program, Center for a New 

American Security 

Andrea Kendall-Taylor is a Senior Fellow and Director of the Transathntic Security Program at the 

Center for a New American Security (C'NAS). She works on national security challenges facing the 

United States and Europe, focusing on Russia, populism and threat~ to democracy, and the state of 

the Transatlantic alliance. 

Prior to joining CN AS, Andrea served for eight years as a senior intelligence officer. From 2015 to 

2018, she was Deputy National Intelligence Officer for Russia and Eurasia at the National 

Intelligence Council (Niq in the Office of the Director of National Intelligence (DNl). In this role 

Andrea led the U.S. intelligence community's strategic analysis on Rusgia, represented the IC in 

interagency policy meetings, provided analysis to the National Security Council, and briefed the DNI 

and other senior staff for \V'bite House and international meetings. Prior to joining the NIC, Andrea 

was a senior analyst at the Central Intelligence Agency (CIA) where she worked on Russia and 

Eurasia, the political dynamics of autocracies, and democratic dedine. 

Andrea is an adjunct professor at Georgetown University's School of Foreign Service. Her work has 

been published in numerous politjcai science and policy journals, including the Journal of Peace 

Research, Democratization, Journal of Democracy, Foreign Affairs, the W'ashington Post, the 

Washington Quarterly, and Foreign Policy. 

Andrea received her B.A. in pol1tics from Princeton University and her Ph.D. in political science 

from the University of California, Los Angeles. She was a Fulbright scholar in Azerbaijan and 

Kazakhstan, where she conducted dissertation research on oil and autocracy. 
36 

Mr. KEATING. Thank you very much. 

Dr. Cooper? 

STATEMENT OF ZACK COOPER, RESEARCH FELLOW, 

AMERICAN ENTERPRISE INSTITUTE 

Mr. COOPER. Chairman Keating and other distinguished committee members, it is an honor to join you today. I believe that the 

growing transatlantic divide on China policy is a serious challenge 

not just for our policy on Europe, but also for broader American 

grand strategy. Our greatest strength in the competition with 

China is our global network of allies and partners and increasingly 

we are finding that network put under pressure. 

The good news is that there is an emerging and largely bipartisan consensus in Washington on the challenges that the Chinese 

Communist Party poses. The bad news, however, is that this consensus is not yet shared with many of our European allies. Furthermore, there is still no agreement either on this side of the Atlantic or the other or on the Pacific as well about what kind of 

China strategy we should be pursuing. 

Although the United States has identified China as a strategic 

competitor, it has not yet adopted a clear set of objectives for that 

competition. In my written testimony, I describe three areas that 

are undermining transatlantic unity on China, Chinese investments with noncommercial aims, targeted technology acquisition, 

and coercive economic Statecraft. Most notably, our European allies, as has been discussed, have largely chosen a strategy of mitigation rather than exclusion with regard to the Belt and Road Initiative and 5G infrastructure as evidenced by recent decisions in 

London, Berlin, Rome, and elsewhere. 

During a recent trip to Europe to discuss Chinese activities on 

the continent, European leaders expressed concern and frustration 

with some U.S. policies. In particular, they singled out the administration’s criticism of allies and its embrace of unpredictability as 

sources of concern. These divisions make clear that we must do 

more to fashion a united transatlantic strategy on China. 

And with this in mind, I want to suggest three ways in which 

the Congress could help bridge the transatlantic divide on China. 

First, Congress could work with the administration to empower our 

allies and partners to better mitigate the risks of Chinese investment and broader economic Statecraft. Many countries are choosing to accept Chinese investments and infrastructure and technology regardless of U.S. objections. We may not agree with these 

decisions, but we should be helping to mitigate the risks. Therefore, 

Congress could work with the administration to help provide greater technical assistance to allies and partners, not just in Europe 

but elsewhere, to help them manage Belt and Road and 5G technology challenges. 

Second, Congress could encourage cooperation with allies and 

partners on an overall China strategy with clear aims and objectives. We should forge a common position on critical issues such as 

intellectual property theft, market access, technology standards, 

foreign investment review, and human rights concerns. I am encouraged that the House Foreign Affairs Committee is holding five 

hearings this week on China alone and its role globally, and U.S. 
37 

strategy on China in particular, and I think including allies and 

partners in these discussions is absolutely critical. 

Third, Congress could continue to forge a bipartisan consensus 

on China and increasingly to try and broaden that consensus by including the American people in the debate. The BUILD Act, 

FIRRMA, and the Asia Reassurance Initiative were all important 

signals of America’s ability to execute a coherent long-term strategy. But polls suggest that a gap is emerging between views in 

Washington and those in much of the rest of the country. Discussing China policy more directly with constituents would ensure 

that our policies are supported not just inside Washington, but outside as well. 

And, finally, while we must be clear-eyed about the challenges 

that China poses. We should always acknowledge that our concerns 

have to do with the actions of the Chinese Communist Party, not 

with the aspirations of the Chinese people. Upholding the principles of freedom, democracy, and rule of law will strengthen our 

united position and send a clear signal about the seriousness and 

the sustainability of our strategy. 

So I thank you for holding this important hearing and providing 

me the opportunity to testify, and I look forward to your questions. 

[The prepared statement of Mr. Cooper follows:] 
38 

A ,_, AMERICAN 

~ 

,_. ENTERPRISE 

INSTITUTE 

Statement before the House Foreign Affairs Committee 

Subcommittee on Europe, Eurasia, Energy, and the Environment 

on China's Expanding Influence in Europe and Eurasia 

Bridging the Transatlantic Divide on China 

Zack Cooper 

Resident Fellow, Asian Studies 

May 9, 2019 

The American Enterprise Institute (AEI) is a nonpartisan, nonprofit, 501(c)(3) educational organization and does 

not take institutional positions on any issues. The views expressed in this testimony are those of the author. 
39 

Chairman Keating, Ranking Member Kinzinger, and other distinguished committee members, it 

is an honor to join you today to discuss China's expanding influence in Europe and Eurasia. 

I believe that the growing transatlantic divide on China policy poses a serious challenge-not just 

for America's relationships with its European allies and partners, but for US grand strategy more 

generally. 

The United States' greatest strength in the competition with China is our global network of 

alliances and partnerships. It is vital that the United States pursue policies that unite these allies 

and partners in support of our shared interests and a rules-based international order. 

In my view, the greatest challenge to a united transatlantic approach is the growing influence of 

Chinese economic statecraft in Europe. In my comments, I will focus in particular on two 

elements of Chinese economic statecraft-the Belt and Road Initiative and SG technology-that 

are producing discord in our transatlantic relationships. 

I should note at the outset that Congress has long shown leadership on Asia policy, most recently 

through the bipartisan BUilD Act, the Asia Reassurance Initiative Act (ARIA), and the Foreign 

Investment Risk Review Modernization Act (FIRRMA). To this end, I will suggest a number of 

actions that Congress might consider to bridge the transatlantic divide on China. 

The Transatlantic Divide on China 

Over the past two years, the US debate on China has changed rapidly. The good news is that 

there is an emerging and largely bipartisan consensus in Washington on the challenge that the 

Chinese Communist Party poses. The bad news, however, is that this consensus is not yet shared 

with many of our allies in Europe. 

Furthermore, there is still no agreement on either side of the Atlantic (or the Pacific, for that 

matter) about what China strategy we should pursue. Although the United States has identified 

China as a strategic competitor, it has not yet publicly adopted a clear set of objectives and 

desired end states for its China policy. 

Without a clear set of US objectives, many European allies and partners have found themselves 

unsure of how to respond to China's rise. Recently, the Trump administration has attempted to 

convince European countries to reject China's Belt and Road Initiative as well as Chinese 

companies' involvement in domestic SG networks. To date, however, both of these efforts have 

had mixed results, at best. 

During a recent trip to several European capitals to discuss Chinese activities on the continent, 

European government officials and business leaders expressed frustration with US policies. In 

particular, they singled out the administration's criticism of allies and its embrace of 

unpredictability as sources of deep concern. 
40 

My view is that the center of gravity in the US competition with China is the alignment of key 

regional and global players. If this is righ1:, then the success of our policies on China should be 

judged largely by their effectiveness in building a robust coalition of like-minded countries. The 

divisions between the United States and our European allies and partners make clear that we 

must do more to build an effective transatlantic strategy on China. 

The Role of Chinese Economic Statecraft 

China's economic statecraft poses the greatest challenge to a united American and European 

strategy. In recent years, Beijing has developed a series of economic strategies designed to 

pursue its security and economic interests, often at the expense of the United States and its allies 

and partners. China has undertaken both licit and illicit activities in the following areas: 

Investments with Noncommercial Aims. Some Chinese investment practices pose strategic 

challenges for the United States and its partners because they aim to fulfill state objectivessuch as the Communist Party's political or military objectives-rather than commercial ends. 

• Geostrategic Influence Accumulation. Some Belt and Road projects appear to be motivated 

by a geostrategic logic, providing leverage over decision makers in recipient countries. 

• National Champion Industries. China often uses its industrial policies to support domestic 

industries at the expense of foreign firms, including in sectors with military applications. 

• Dual-Use Facilities. Some Chinese infrastructure investments have multiple possible uses, 

providing China with potential overseas military basing options. 

Example: China has used its economic leverage with individual European Union member 

countries to restrict statements on human rights and others contentious issues. In 2017, the EU 

drafted language criticizing China for its human rights record. The statement was intended to be 

released at the United Nations Human Rights Council, but for the first time the EU failed to agree 

on a public statement. Public reports suggested that Greece and Hungary led efforts to block the 

statement, with the Greek foreign minister opposing "unconstructive criticism of China." Both 

countries took similar actions in 2016 to prevent an EU statement criticizing China's South China 

Sea policies. After one successful Greek intervention, the Chinese Foreign Ministry publicly 

congratulated "the relevant EU country for sticking to the right position." Observers believe that 

Chinese funding for projects in Greece and Hungary have provided Beijing leverage to disrupt a 

united European policy on China. Some worry that China could use additional leverage through 

the emerging "17+1" grouping or other bilateral and multilateral ties to similarly divide Europe. 

Targeted Technology Acquisition. China's theft or forced transfer of intellectual property and 

technology is a growing concern among governments and businesses worldwide, but it has been 

a particular concern in the United States and Europe. 

2 
41 

• Industrial and Cyber Espionage. China has engaged in commercial espionage, including statedirected hacking, to strengthen domestic industries. Chinese technology companies and 

state-owned enterprises have reportedly assisted in some of these activities. 

• Disguised Capital Funds and Shell Companies. Chinese involvement in acquisitions and 

investments, particularly in high-technology startups, have allegedly been hidden to obscure 

ties to foreign organizations. 

• Market Access Restrictions. Many companies have been forced to choose between Chinese 

market access and the transfer of critical technologies or trade secrets to Chinese firms. 

Example: Germany and China are engaged in a high-technology economic competition as China 

attempts to execute its Made in China 2025 vision, which is modeled on Germany's lndustrie 4.0 

plan. German experts have suggested that China has conducted industrial espionage against the 

car manufacturing, renewable energy, chemistry, communications, optics, X-ray technology, 

machinery, materials research, and armaments industries. Several cases of Chinese espionage 

have reached German courts, and many other cyber intrusions have been reported against 

German companies. Yet, most incidents do not reach the press because companies do not wish 

to disclose their vulnerabilities or risk business opportunities in China. In recent years, the 

German government has taken more aggressive defensive steps, including publicly stating that a 

Chinese hacking group was behind intrusions against high-technology German firms. In just one 

month, a single German telecommunications firm reported more than 30,000 Chinese cyber 

intrusions. Similar behavior also continues elsewhere in Europe and around the globe.1 

Coercive Economic Statecraft. China has used its economic influence-including Chinese market 

access-to pressure foreign leaders, presenting a strategic challenge to its trade partners. 

• Deliberate Corruption Campaigns. China has allegedly paid individuals and interest groups to 

influence political processes in foreign countries, including on US territory. 

• Deniable Trade Measures. China has engaged in disguised embargoes and boycotts to 

influence foreign businesses and governments on security matters. 

• Explicit Economic Pressure. China has openly used economic leverage to force other countries 

to alter their foreign policies, often pressuring specific foreign companies and sectors. 

Example: In 2010, the Norwegian Nobel Committee awarded the Nobel Peace Prize to Chinese 

dissident liu Xiaobo. At the time, Liu was in jail for "inciting subversion of state power" by calling 

for political reforms in China. In response to the Nobel Prize award, the Chinese government 

1 For a deeper discussion of Chinese economic statecraft, see Zack Cooper, Understanding the Chinese Communist 

Party's Approach to Cyber-Enabled Economic Warfare, Foundation for Defense of Democracies, September 2018, 

http://www.fdd.org/analysis/2018/09/05/understanding-the-chinese-communist-partys-approach-to-cyberenabled-economic-warfare. 

3 
42 

instituted economic punishments against Norway. Subsequently, the Norwegian Seafood Council 

claimed that Norway's share of the Chinese salmon market fell from 92 percent to 29 percent. 

Furthermore, Beijing stopped negotiations with Oslo on a free trade agreement, and China 

reportedly denied some Norwegian individuals visas. Relations between the two countries did 

not improve until2016, when Chinese Foreign Minister Wang Yi stated, "Norway deeply reflected 

upon the reasons why bilateral mutual trust was harmed, and had conscientious, solemn 

consultations with China about how to improve bilateral relations." A Norwegian scholar 

concluded, "The Chinese government can effectively use economic sanctions to affect the foreign 

policy positions of democratic governments ... China has become too big to fault." China has 

conducted similar economic coercion campaigns against most US allies in Asia, so we should 

expect that these types of activities will continue and could increasingly target Europe. 

Bridging the Transatlantic Divide on China 

Many policymakers in Washington are deeply concerned about the impact of Chinese economic 

statecraft, both at home and abroad. In particular, China's Belt and Road Initiative and the 

growing role of Chinese companies in SG networks have triggered substantial anxiety. For a 

variety of reasons, Chinese companies are unlikely to build major infrastructure or SG networks 

in the United States, so the focus has shifted to Chinese activities in Europe and elsewhere. 

Most European countries have taken a different approach; they are focused on mitigation rather 

than exclusion. For example, the United Kingdom and Germany appear to be adopting mitigation 

strategies with regards to Chinese involvement in SG networks. And Italy has recently become 

the first G7 country to sign on to the Belt and Road Initiative. Smaller European powers have also 

welcomed Chinese investment and sought to mitigate the risks, with varying levels of success. 

How can Congress ensure that the United States and Europe develop a more unified approach 

on China? 

First, Congress could work with the administration to empower our allies and partners to better 

mitigate the risks of Chinese economic statecraft. Many countries are choosing to accept Chinese 

investment in infrastructure and technology, regardless of US objections. Therefore, the United 

States should help our allies and partners to better mitigate the risks inherent in these types of 

projects. In a recent report, I worked with scholars from the Center for a New American Security 

and the Brookings lnstitution2 to describe seven concerns with Chinese infrastructure projects: 

• Erosion of National Sovereignty. In a number of cases, Beijing has obtained control over 

foreign infrastructure through equity arrangements, long-term leases, or multi-decade 

operating contracts. 

• Lack of Transparency. Many projects feature opaque bidding processes and financial terms 

'Daniel Kliman, Rush Doshi, Kristine lee, and Zack Cooper, Grading China's Belt and Road, Center for a New 

American Security, April 8, 2019, http://www.cnas.org/publications/reports/beltandroad. 

4 
43 

that are not subject to public scrutiny. 

• Financial Unsustainability. Chinese lending has sometimes increased the risk of debt default 

or repayment difficulties, while certain completed projects have not generated sufficient 

revenue to justify the cost. 

• Local Disengagement. Projects often use Chinese firms and labor for construction, which does 

little to transfer skills to local workers, and sometimes projects involve inequitable profitsharing arrangements. 

• Geopolitical Risks. Some projects financed, built, or operated by China compromise the 

recipient state's telecommunications infrastructure or security architecture. 

• Environmental Damage. Some projects have proceeded without adequate environmental 

assessments or have caused severe environmental damage. 

• Corruption. In countries that already have high levels of kleptocracy, Chinese projects have 

reportedly involved payoffs to politicians and bureaucrats. 

To guard against these dangers, Congress should work with the administration to ensure that our 

allies and partners have access to technical assistance and support in their negotiations with 

Beijing and with Chinese enterprises. The goal should be to ensure that any Chinese projects 

adhere to the same standards and expectations that we would have of other actors. This means 

that countries should permit only high-quality projects that are sovereignty upholding, 

transparent, financially sustainable, locally engaged, geopolitically prudent, environmentally 

sustainable, and corruption resistant. Funding additional engagement by experts capable of 

providing technical assistance in Europe and elsewhere could therefore prove highly beneficial. 

Second, Congress could help encourage cooperation with allies and partners on an overall China 

strategy. The lack of agreement, not only between the United States and Europe but also among 

other allies and partners, threatens our ability to protect our interests and uphold the rules-based 

international order. Too often we have allowed China's strategy to divide the United States from 

some of its allies and partners. Nowhere has this been more evident than in Europe over the past 

few years. China has been nimble in adapting its messaging, so we must also be more deft in our 

diplomacy. 

Congress has an important role to play in forging a new strategy, and I am greatly encouraged 

that the House Foreign Affairs Committee is holding five hearings this week alone on China's 

global role and US strategy. Broadening these efforts by including allies and partners in these 

discussions is a logical next step. At the end of the day, Europe and the United States share similar 

interests regarding intellectual property theft and market access restrictions in China. We should 

be working together through the World Trade Organization and other international 

organizations-including the G7-to forge a common position on these issues. Similarly, we 

should be coordinating closely on technology standards, foreign investment restrictions, and 

s 
44 

human rights concerns. Congress has a central role to play in these discussions, and I am 

encouraged by this committee's renewed focus. 

Third and finally, Congress should continue to forge a bipartisan consensus on China policy and 

to broaden that consensus by directly engaging the American people. Our allies and partners want 

a consistent approach. that endures across the US government and from administration to 

administration. In this regard, the BUILD Act, ARIA, and FIRRMA are important signals of 

America's ability to execute a coherent long-term strategy. Ensuring that China policy remains an 

area of largely bipartisan agreement is crucial to retaining the support of allies and partners; it 

should therefore be a top priority in the years ahead. 

One area of particular concern is whether a gap is opening between Washington's views of China 

and perspectives in the rest of the country. Several recent polls have found that the American 

public is less concerned about China's rise than are leaders in Washington. Therefore, American 

political leaders must discuss China policy directly with their constituents. This would help ensure 

that our China policy is broadly understood and supported not just inside Washington, but 

outside as well. 

Congress and the administration's recognition of the long-term character of strategic 

competition with China has been commendable and underscores the importance of securing the 

enduring support of the American public at large. While we must be clear-eyed about the 

challenges, we should also acknowledge that our concerns have to do with the actions of the 

Chinese Communist Party, not the aspirations of the Chinese people. Upholding the principles of 

freedom, democracy, and rule of law will strengthen our position in this long-term competition. 

Doing so will also send a signal about the seriousness and sustainability of a more realistic 

approach to China's rise and set American policymaking on a surer footing over the long term. 

Thank you for holding this important hearing today and providing me the opportunity to testify. 

I look forward to your questions. 

6 
45 

Mr. KEATING. Thank you, Dr. Cooper. I will now recognize myself 

for 5 minutes for questions. 

And I would like to get back to what I mentioned in the opening 

statement that about the screening process that is now underway, 

and in particular what can the U.S. do, if anything, to be more influential in that process themselves so it is just not a unilateral EU 

process in screening? 

Mr. Le Corre? 

Mr. LE CORRE. Thank you, Mr. Chairman. I do believe the lack 

of information has been an issue for the past few years when it 

came to Chinese investments in Europe and infrastructures, especially in ports, airports fields. I do believe there is a lack of knowledge about the political system in China as well as the economic 

strategy. The Belt and Road Initiative which has been mentioned 

a few times already today is still a fairly vague project that originally targeted Europe, but now is looking at across the world. 

And I think some of the sort of work that has been done in 

Washington and other parts of America on sort of looking forward 

to this new superpower that is China, it could be, you know, it 

could be shared with Europeans where the level of sinology, unfortunately, is not what it was. So, generally, I think more information on what China is about and on the risks in the technology 

fields, for example, as well as infrastructures, what it would mean 

to have, you know, the Suez Canal—— 

Mr. KEATING. So, essentially, it is information from us that—— 

Mr. LE CORRE. Yes. 

Mr. KEATING [continuing]. Would be helpful as well. 

So, I am just curious too, just anyone that might want to comment on this. It was referenced about Italy’s decision as just being 

a memorandum of understanding and trying to downplay that. But 

what risks does that take and with Italy moving forward? Anyone 

that wants to jump in on that would be helpful. 

Dr. Cooper? 

Mr. COOPER. Yes, so I was just in Rome right after the decision 

on the memorandum of understanding was made, and I think 

Philippe is absolutely right that, yes, it is just a memorandum of 

understanding and the real question will be what kinds of projects 

do we see the Italians engaging in. 

But I think the question that many of us should be asking is 

whether the Italian Government has the support it needs to actually be able to provide the oversight for those projects. And when 

I was in Rome, there were a lot of questions asked about the government’s ability to do that and so this is where I think we can 

be very helpful. We know a lot about some of the challenges we 

have seen with Belt and Road, with the lack of transparency, with 

environmental protections, financial arrangements, and we should 

be helping our allies like Italy that are engaging in Belt and Road 

projects so that they make sure that, fine, they sign a memorandum of understanding, but let’s actually make sure that the 

projects they get are high-quality, high standards, just like the 

projects that we would expect from any other country. 

Mr. KEATING. Yes. It was mentioned too, if I could just skip topics too a little bit, would the reaction—I was just in Europe, I 

think, about 6 weeks ago, myself. And I cannot understate the feel-
46 

ing of the European leaders—I do not think we recognize that 

fully—with the tariffs imposed. Not just the tariffs themselves, but 

the rationale that was given that they are a security risk of the 

U.S. and they are taking that to heart, frankly, and how deep is 

that fissure? 

And, No. 2, if we move ahead with automobile tariffs or something, how much more deeply will the fracturing occur between the 

U.S. and the EU countries in that respect and what will be the 

ramifications, in your opinion? 

Ms. Segal? 

Ms. SEGAL. So, if I could also go back just to the question you 

asked about the concern or the implications of Italy signing the 

MOU, I would like to highlight the fact that it is a G7 country. And 

when we think about different mechanisms for coordination, to 

have what could be a potentially dissenting voice in the G7, I 

think, is another thing that is problematic. 

As far as the impact of tariffs and how deeply it is felt, I have 

had a similar impression in our trips to Brussels and also to member States and I think, there, it is important to recognize that 

when Europe looks at the risks stemming from China, they may 

have less of a focus on national security risks as compared to the 

sentiment here in the United States, but there is more of an emphasis on the economic security risks. 

And if their main concern with China is its ability to use its 

State-driven model and to push that out to distort global markets 

and trading relationships, the fact that the United States is then 

relying on tariffs imposed under the guise of national security, I 

think in their perception that has the same sort of distortive effect 

on the trading relationship and that is their rationale for why they 

see that so problematic. 

Mr. KEATING. Great. My time is past and I will now recognize 

the ranking member, Mr. Kinzinger. 

He was here a minute ago. The chair will recognize Representative Pence. 

Mr. PENCE. Thank you, Chairman Keating and Ranking Member, 

for convening this. To all the witnesses, I say thank you for being 

here today. 

Dr. Kendall-Taylor, I was very intrigued by an article you and 

your colleague, Dr. Shullman, wrote titled, ‘‘How Russia and China 

Undermine Democracy.’’ In this article, you both wrote, ‘‘Russia 

and Chinese actions are converging to challenge a U.S.-led global 

order.’’ You do not argue that China and Russia are acting in a coordinated manner with one another, but that their actions are converging in new and synergistic ways. 

Your example of Serbia was well taken. I think you described 

quite well how Russian and Chinese actions there are destabilizing 

and reinforcing one another. While you and your co-author used 

Serbia as an example, it is not unique in facing this challenge. Russia and Chinese actions are undermining the sovereignty of countries across Europe. While this is something Europe is waking up 

to, I am concerned about the potential for Russia and China’s currently uncoordinated and unintentional strategies becoming just 

that coordinated. 
47 

As you say in your article, ‘‘The countries’ strategies have become 

mutually reinforcing in power, if perhaps unintended, in different 

ways.’’ Dr. Cooper, you stated that Congress could help encourage 

cooperation with allies and partners on an overall Chinese strategy. Republican leader McCaul and Chairman Engel, Championing 

American Business Through Diplomacy Act, H.R. 1704, is a good 

step in countering Chinese debt-trap diplomacy and I am a proud 

co-sponsor of the legislation. 

My questions are to all of you. What would be the implication for 

U.S. policy in Europe and beyond if the currently unintended efforts of Russia and China become unintentional, and what specifically should Congress’s response be to a coordinated Russian and 

Chinese effort in Europe? 

Ms. KENDALL-TAYLOR. Thank you for the question. I also share 

your concern. And of the issues that I think that I am looking at 

today, the growing relationship between Russia and China, I think, 

is one that causes me the most concern. So when we look down a 

whole kind of spectrum, all areas, all dimensions of their relationship, the trajectory is toward closer relations. 

So in economic terms, China has become Russia’s single, most 

important trading partner. They are the single, largest purchaser 

of Russian oil and gas. Military ties, Russia continues to sell China 

advanced military systems. They are exercising together for the 

first time with the Vostok–2018 exercise where Russian and Chinese soldiers exercise together. 

Certainly, the political ties between Putin and Xi are very close, 

but it does not stop there. We increasingly see this grow into deeper levels of government in ways that provides, I think, a very kind 

of solid foundation. And the key is, so we have thought of this as 

an issue where Russia and China are united in their discontent, 

that they have these shared grievances, but my concern is that as 

we see these repeated interactions that this relationship turns into 

something more deep, meaningful, and sustainable. 

And you can think about Russia’s relationship with Iran as an 

example. That had historically been a relationship where there was 

significant mistrust. But given their interactions over the JCPOA 

and in close operations on the battlefield in Syria, that is now a 

very close relationship. 

So my point is that it is because of the repeated interaction, this 

has the ability to turn into something. And I will also note that the 

DNI in his annual threat assessment has marked this as an issue 

where we are seeing increasing coordination and collaboration between the partners. 

Simple solutions to drive wedges between them will be ineffective. Russia looks at the United States and is more suspicious and 

concerned about our efforts to destabilize his regime. There is a 

very immediate threat that he feels and the immediacy of that 

threat is more important than the much longer-term threat that I 

think he views coming from China. 

And so, he would prefer to trade that risk and he has put his 

lot in with the Chinese. And particularly after 2014 he sees no opportunities in the West, and so I think you see Mr. Putin increasingly willing to become the junior partner. So given his deep sus-
48 

picions of the United States, driving a master wedge between Russia and China is going to be a very difficult thing to do. 

And so, I think this is an issue that needs more investigation 

and more thought because certainly labeling both as adversaries, 

although is an important and I think right strategy, it also has the 

unintended consequence, I think, of pushing them closer together. 

So one of the things I highlight is to look for opportunities to 

drive mini-wedges, and so the Arctic could be one such place where 

they have interests that are at odds, perhaps in the Middle East 

where they compete for energy and military sales and other things. 

I think it is a series of things that the United States will do some 

kind of careful diplomacy I think will be required to put the brakes 

on the relationship. 

And also, I highlighted in my testimony today for the Congress 

to enable the U.S. Government to look not just at Russia and at 

China, but to consider them in a combined framework so that we 

are thinking through how what we are doing might affect the relationship between them. 

Mr. PENCE. Well, thank you, Doctor. I yield back. 

Mr. KEATING. The chair recognizes the vice chair of the committee, Representative Spanberger. 

Ms. SPANBERGER. Thank you very much, Mr. Chairman. Thank 

you to the witnesses today for being here. 

To followup a little bit on what Dr. Kendall-Taylor has written, 

you recently wrote in the Foreign Affairs that empowering U.S. ally 

populations to stand up against foreign subversion would be the 

most effective weapon against Chinese and Russian influence. And 

the success of the strategy does rely on the strength of our historic 

transatlantic ties and our shared value. 

But I am very concerned over the fact that of February 2019, 

Gallup poll across 133 countries showed that Chinese leadership 

had a higher approval rating than in the United States. And then 

in pivoting over to what Mr. Le Corre was saying, my question is 

as we are looking at many of the larger EU States such as France 

and Germany, and as they wish to adopt a coordinated EU approach to China that allows their countries to effectively stand up 

to China as an equal partner, and Mr. Le Corre in your testimony 

you talked about the European Commission’s recently issued strategic outlook when they look at China as a systemic rival and a 

strategic competitor, my question is, what should the U.S. role be 

in supporting or facilitating the coordinated EU approach which 

would provide a greater opportunity to mitigate China’s influence 

in Europe, and ideally by extension positively impact the United 

States’ challenges that we are facing with China? And I will open 

it up to Mr. Le Corre or Dr. Kendall-Taylor or the other two witnesses as well. 

Mr. LE CORRE. Thank you, Congresswoman. I think, you know, 

the EU remains the most efficient body that we have in Europe 

when it comes to advocating values and democracy and the rule of 

law and norms which are—in fact, Congressman Pence was referring to Serbia earlier. Serbia is not part of the European Union and 

that is one of the reasons why both Russia and China are using 

it as some kind of playing field. 
49 

In Western Europe and I would say in the whole of the EU, you 

have a difference set of values. And the fact that the high-speed 

train project between Hungary and Serbia has not even started has 

a lot to do with the fact the European Commission started an investigation in Hungary when Hungary did not actually go through 

the normal competition rules, and therefore on the Serbian side 

they have not even started either. 

I think, you know, again the fact that all of the EU members 

supported the screening mechanism, supported the EU-Asia 

Connectivity Strategy is a sign that people are sort of waking up 

in many cases. I would say as well that if you look at things from 

a Chinese perspective, they are trying to sort of divide the EU by 

dealing with countries on a separate basis, the 16∂1, now 17∂1 

mechanism, and a good example. The U.K. is another good example 

if the U.K. is to leave the European Union. And then they also 

tried to have a 5∂1 mechanism with Southern Europe. 

So by having the EU as a strong sort of entity—and the European Commission is actually mainly a trade body but is now handling investment quite interestingly, it was not part of its mission 

originally—I think that is the best thing that the United States 

could do. 

Ms. KENDALL-TAYLOR. Maybe I will just chime in with a much 

broader point on the cohesion issue. And I mean, I think it is probably recognized here, but the cohesion and the unity between the 

United States and Europe is key. Both Russia and China want to 

break it. Those are both kind of explicit goals. Both Russia and 

China seek to break the transatlantic unity. And I think Russia, 

but especially China, realized very early on that its rise would trigger balancing in the West and it has done everything that it can 

to influence Europe to make sure that Europe sits on the fence. 

The worst thing from China’s perspective is if Europe is firmly 

aligned with the United States and so where there is that break 

in unity, that is a good-news story from China’s perspective, because if the United States and Europe could combine our collective 

heft, we hold, the U.S. and the EU, 40 percent of global GDP. So 

if we are going to lean on China to change its unfair trade practices 

and all of these other things that we are so concerned about, it has 

got to come from a unified position. 

And I think the problem is just as you say, the trust for the 

United States right now is really stymying cooperation, and what 

we see then in Europe is that they are looking to kind of go it on 

their own. So far, I think their attitude has been that they are 

going to look to improve their own capacity and not build a joint 

approach with Europe. And that is going to be problematic, because 

as China is putting pressure on both of us, if we fill some holes, 

they are going to pop up somewhere else. And so, you know, in 

terms of stealing technology and global supply chains it has got to 

be a unified approach. 

Ms. SPANBERGER. Thank you very much. I am out of time. But 

I did want to State for the record that, Dr. Cooper, I will be submitting another question to you because I was particularly struck 

by your comment that there is a bipartisan consensus related to 

China within Washington, within the government, but we really 
50 

need to bring the American people into that conversation. I look 

forward to following up with you on that. Thank you. I yield back. 

Mr. KEATING. The chair recognizes the ranking member, Mr. 

Kinzinger. 

Mr. KINZINGER. Thank you, Mr. Chairman. And again, thank you 

all for being here. I will get right to it. The access to Chinese 5G 

from companies like Huawei in Europe remains a primary concern 

for the United States. 

Dr. Cooper, what would 5G inclusion in NATO-member countries 

mean for transatlantic security? 

Mr. COOPER. Well, I think we are going to see that it means 

when we are deploying forces abroad, especially flowing them 

through Europe, that there are going to be greater risks to those 

forces because Russia, potentially, could gain access to that information as Dr. Kendall-Taylor said. And the Chinese likely will 

have some access to that information depending on which parts of 

the 5G backbone Huawei and ZTE are involved in. 

But I would say that I think that is going to be a reality. Even 

if the Brits and the Germans go along with us on 5G, which is looking unlikely at the moment, other countries in Europe are going to 

accept them. So we are going to have to come up with a mitigation 

strategy to manage that risk. 

Mr. KINZINGER. Thank you. Expand a little on what the potential 

harm to NATO operations could be in that case. 

Mr. COOPER. Well, there has been a statement recently by a 

number of retired four-star commanders both in Europe and in the 

Pacific suggesting that increasingly our forces will use battle networks that include 5G networks. Those 5G networks obviously it 

would be better if we and our allies and partners controlled them. 

I think the reality though is if you are looking in Eastern Europe, 

Huawei is already in a lot of those networks, inside the 3G and 4G 

networks, and they are definitely going to be inside the 5G networks that are going to buildupon them. 

So the Chinese are going to have some access to technology about 

U.S. forces as they flow through Europe and maybe through Asia 

as well. 

Mr. KINZINGER. There has been a controversy surrounding the 

firing of British Defence Minister Gavin Williamson as he took the 

fall for the leak of a potential deal between Britain and Huawei on 

5G integration. 

Dr. Cooper, what should this action tell us about Britain’s relationship with China? 

Mr. COOPER. Well, I do not know all the details and of course 

there has been a lot of speculation in the press about what happened with the firing. I think one question is what the decisions 

are being made within GCHQ on 5G technology. There has been 

some discussion that suggests that the British feel confident that 

they can manage the 5G challenge of having Chinese companies inside their 5G networks because they think they have been able to 

manage the 3G and 4G challenge. I think we do not know yet because we have not seen the public statements exactly where GCHQ 

has come out, but I hope that we will have a better understanding. 

And I know Secretary Pompeo is just returning from a trip to London to talk about those issues. 
51 

Mr. KINZINGER. And what do you think that means for the future 

of British and Chinese economic engagement on controversial topics? 

Mr. COOPER. Well, there has been no question that the British 

have been trying to get increased Chinese investment in London. 

I think we have seen the same thing in Berlin and elsewhere and 

that is going to be a challenge. And we have seen this outside of 

Europe as well, where the Chinese have substantial economic involvement, they gain substantial leverage and they are often willing to use it. 

And so, we should not be surprised when many of our friends are 

put in a difficult position and they are basically offered either Chinese investment or technology, or the decision to side with us on 

security issues. So I think increasingly our friends are going to be 

put in this kind of tough position and we are going to have to work 

to make sure that they make the decisions we want, but also that 

we keep the alliances together by not putting too much pressure on 

them politically that puts them in a difficult position. 

Mr. KINZINGER. And Montenegro has seen their debt rise from 63 

percent to 80 percent over the past few years as the result of a deal 

with China to construct a 103-mile long highway from the Adriatic 

to Belgrade. Unfortunately, the project is not complete and the IMF 

has warned Montenegro to avoid any further loans. 

And a question again for you, Dr. Cooper, what would be the 

ramifications of China making Montenegro default on its loans for 

the bridge project? 

Mr. COOPER. Well, this is the much-discussed debt-trap diplomacy question and I think many of us will have views. Some people 

think that we have not seen a lot of debt-trap diplomacy other than 

a few cases. But what we definitely have seen is an increase in 

debt that the Chinese often hold that allows them to gain access 

to infrastructure and in some cases to either gain leases for 99 

years on that infrastructure or to basically take over ownership. 

And so, we should all be very concerned, I think, about the kind 

of debt agreements that countries make in making sure that the 

recipient countries when they enter into agreements know whether 

they can handle the debt level or not. And I think in Serbia and 

Montenegro this has been one of the major issues with the Chinese 

investment. The debt levels are very high and it is not clear that 

the payoff and the infrastructure is going to be worth the sacrifice 

those countries are making. 

Mr. KINZINGER. Thank you. And again, even though my questions were just to you, I thank all four of you for being here and 

providing your expertise. And I will yield back to the chairman. 

Mr. KEATING. Thank you very much. The chair recognizes Representative Cicilline from Rhode Island. 

Mr. CICILLINE. Thank you, Mr. Chairman. And thank you to you 

and the ranking member for this important hearing. Thank you to 

our witnesses. 

I think we all recognize that the United States must have a 

clear-eyed approach to China that seeks cooperation where we can, 

but also ensure that we are able to compete where we must, and 

of course defend our interests where necessary. We have to be 

smart and we have to continue to invest in education, infrastruc-
52 

ture, technology, and job training here at home and we need to 

work with like-minded countries in Europe and elsewhere to stand 

up for international norms, our rules-based world order, and defend 

fundamental human rights. 

Sadly, working on a coordinated approach with Europe is difficult given the Trump administration’s erratic policies and often 

confusing rhetoric toward Europe, but I think this is where Congress has a particularly important role to play and make clear that 

we will not allow any transatlantic rift to prevent transatlantic cooperation in the face of an emerging China. 

And so, my first question is, the Chinese Government sponsors 

intellectual property theft through means such as forced technology 

transfer and cyber espionage and it has caused an estimated tens 

of billions of dollars in annual losses for American companies. Efforts by the United States thus far to deter these practices have 

had little or no impact. And I am wondering what steps European 

governments might be taking to address this issue if there is an 

opportunity for more cooperation between the United States and 

some of our European allies to help protect U.S. intellectual property. 

Are there things that Congress should be doing in this regard? 

Maybe Dr. Taylor, if we could start? 

Ms. KENDALL-TAYLOR. I do not focus explicitly on the kind of economic coercion side of this, but as we have been talking about with 

the investment screening mechanisms and the need for coordination between the United States and Europe, I would say that is 

kind of the most important, from my perspective, is that we are 

kind of sharing information about what the nature of the threat. 

In a lot of these countries too there is not a lot of good capacity 

and area expertise on China, so kind of working with especially at 

the country level vice at the European level, if we are working at 

the national level of government, helping to build the capacity incountry to understand the nature of the threat to help improve 

their kind of national level legislation. But I think, really, it is the 

coordination piece that we are in lock-step so that we can break 

down that kind of squishing mechanism, I would say, or seeping 

mechanism. 

Mr. CICILLINE. Thank you. 

Ms. KENDALL-TAYLOR. But I will let my colleagues who might 

have some more specific ideas. 

Mr. CICILLINE. Sure. 

Ms. SEGAL. I would just add on trade-related issues and economic 

issues and I would include the protection of IP, that it is important 

then for the United States to be working with other like-minded 

countries. There is a trilateral mechanism between the United 

States, Japan, and the European Union to address a number of 

trade related issues including some in the digital economy space, 

and I think we need to leverage those mechanisms. Because as has 

been pointed out previously, our ability to influence China’s behavior is going to be maximized by bringing together allies and partners and really isolating China when it is behaving poorly and is 

a bad actor. 

Mr. LE CORRE. I would just add, Congressman, that the fact the 

Europeans and the Chinese are now looking at a bilateral invest-
53 

ment treaty as are the Americans and the Chinese, although I understand it is not making much progress, is an interesting opportunity for both sides of the Atlantic to cooperate on IP as well as 

technology, the issue of technology transfers which is as damaging 

to European companies as to American companies. 

And, in fact, referring to reports by the American Chamber of 

Commerce in China as well as the European Union Chamber of 

Commerce in China, you have the same feeling that companies are 

both affected, I mean on both sides affected by this issue. So I 

think it is the right moment to start a kind of conversation on 

norms and on market access. 

And I understand there is some, you know, potential there from 

the Chinese side as well since the recent session of the Chinese 

Parliament that they might actually reduce technology transfer requirements to certain investments inside China. 

Mr. CICILLINE. Thank you. 

And, finally, Freedom House has ranked China as not free. And, 

actually, in Freedom House’s 2019 survey of democracy around the 

world, China ranked as one of the least free countries in the world, 

as you know, stamping out dissent, throwing those who speak out 

in prison, and extraordinary surveillance and an effort to stamp 

out free speech and free thought, and while at the same time gobbling up lots of data about its citizens. 

And as China emerges as a growing power, the United States, in 

my view, has to speak out against these violations of human rights. 

But sadly, in many instances, European Governments have been 

more vocal than the United States. I wondered if you would share 

what your thoughts are on the impact and the kind of message it 

sends when the United States fails to speak out forcefully and 

what can Congress do to promote stronger transatlantic condemnation of human rights abuses and the kind of role that as China’s 

power rises and as they emerge, this human rights record of course 

has a greater impact on a greater number of people. 

Mr. LE CORRE. Congressman, I think it is a serious issue that 

needs to be addressed and perhaps in the context of the G7. Unfortunately, the United Nations has become a complicated venue for 

big nations to express their views on this for reasons that were expressed earlier with, you know, interference and setting the role of 

China and Russia as permanent members of the Security Council. 

I think, you know, again, in Brussels there is a will to express 

strong views on Xinjiang, on human rights records in China, and 

again there should be some kind of discussion on both sides of the 

Atlantic to make it a stronger stance. 

Mr. CICILLINE. Thank you. I see my time has expired. 

Thank you, Mr. Chairman. I yield back. 

Mr. KEATING. The chair recognizes Mr. Wright from Texas. 

Mr. WRIGHT. Thank you, Mr. Chairman. I thank all of you for 

being here today. 

Ms. Segal, you mentioned something earlier that had been discussed a great deal and that is the impact of the tariff situation 

on our allies. We need to maintain strong alliances and not create 

a situation that would make dealing with China more appealing. 

At the same time, we have an obvious need to from time to time 

review all our trade agreements and trade situations to make sure 
54 

that they are working the way they were intended and, more importantly, to make sure that they are fair to the American people. 

So how do you suggest we reconcile those two goals that we 

maintain strong alliances, but we also have these agreements that 

are fair to the American people? 

Ms. SEGAL. Thank you very much for that question, because I 

agree a hundred percent with the fact while the U.S. is looking out 

for national security interests as it should, it also needs to look out 

for its economic security and its economic interests. My comment 

was more related to the mechanisms that we use, and in particular 

the mechanism of the 232 tariff is one that is based on a national 

security concern. 

So to the extent that that is the rationale for the imposition of 

those tariffs, I think that is one of the pieces that is of concern to 

Europe, but also of concern to many of us that look at the impacts 

of that on the system. And here there are spill-over effects to the 

United States invoking national security concerns as the basis for 

a protectionist policy and there is concern that once the United 

States does that, that basically opens the floodgates for others to 

do it and to use it against us, which would be not in our best interest economically. 

Mr. WRIGHT. Right. 

Dr. Cooper, would you have any comment on that? 

Mr. COOPER. Well, the only thing I would add is I was in Europe, 

and overnight before some of our meetings the U.S. Trade Representative put on tariffs on some of our European allies. And I 

have to tell you, it made the discussions the next day much more 

difficult on asking the Europeans to work with us on 5G and on 

Belt and Road. And so, I think everything that Ms. Segal said is 

exactly right. We have got to think hard before we put tariffs on 

our friends. 

And I understand what the President’s logic is, but the downside 

in Europe is that often it looks like the Chinese are coming with 

money and with technology and investment, and we have got to 

provide something positive in response and I just do not think tariffs are the right way to do that. 

Mr. WRIGHT. OK. 

And, Dr. Kendall-Taylor, I have a large Czech population in my 

district and I am co-chair of the Czech Caucus. And we know that 

the Czech President is very cozy with the Chinese, but that is 

mainly a ceremonial office. Do you see any—and I will also open 

this up to you, Mr. Le Corre—concern there that the President of 

the Czech Republic is so cozy with them? 

Ms. KENDALL-TAYLOR. I think, broadly speaking, what is of concerning is where we see democratic backsliding in Europe leading 

to closer relationships with Russia and China. So even in the academic research there is some good research that demonstrates that 

kind of shared regime-type provides a solid foundation for cooperation. And so, when we are thinking about the democratic backsliding and the rise of populism in Europe, it is not just a democracy and human rights issue, it is a national security issue. 

And I think we will have to be highly attuned to where we see 

some of this backsliding taking place, whether or not that is creating kind of shared foundation where maybe it did not exist before 
55 

for closer relationships between those countries and countries like 

Russia and China. So, yes, it is a concern. 

Mr. WRIGHT. Thank you. 

Mr. Le Corre? 

Mr. LE CORRE. Thank you. If I may just add, I think there is actually a debate going on in Prague, a much stronger debate than 

in many European countries, about the relationship with China. 

The fact the Czech President has had dealings with China through 

a number of advisors, one of them being Chinese and currently 

under house arrest in China, has sort of raised an awareness 

among the media and the think tank community in the Czech Republic, which I think is quite healthy. On top of the fact the Czech 

Republic is in, you know, situated in the middle of Europe, Eastern 

Europe, and there is a new government, and the Prime Minister 

has expressed very different views about China and Russia than 

the President who, as you suggested yourself, is more of an honorary figure. 

Mr. WRIGHT. OK, great. Thank you very much and I yield back. 

Mr. KEATING. Thank you. The chair recognizes Representative 

Wild from Pennsylvania. 

Ms. WILD. Thank you, Mr. Chair. And thank you to the witnesses 

for being here this morning. 

I have, as I know many people do, significant interest and concern about cybersecurity and the use of surveillance by the Chinese. Recently, in my home district office, I was visited by a young 

family who are Uyghurs and—I think I am pronouncing that correctly—it was a husband, a wife, and their three young daughters, 

two of whom had been born in China, one of whom was born in 

Pennsylvania. And they described for me that the wife parents 

have been sent to a detention camp where they are—where they 

have both lost considerable weight, are receiving some kind of daily 

injections, are being generally mistreated. 

They shared with me that the Uyghurs make up approximately 

11–1/2 million of the Chinese population. And they described for 

me the use of facial recognition technology that is being widely 

used to recognize the Uyghur people and that according to them, 

many are being taken right off the streets of China and sent to 

these detention facilities, or I do not even know if that is the right 

word. I honestly knew nothing about this until I had the visit from 

these people. 

But it caused me to do a little bit of followup reading and my 

understanding is that Chinese authorities and companies have developed and deployed tens of millions of surveillance cameras as 

well as facial, voice, iris, and other biometric collection equipment. 

And these technologies are believed to be used to target and track 

movements and internet use of ethnic Tibetans and Uyghurs, 

among others, and reports that I have seen suggest that Chinese 

companies have exported these kinds of systems to 18 countries at 

least. 

So my question is this and for Dr. Cooper or Dr. Kendall-Taylor 

or whoever feels qualified to answer it, what are the risks associated with these Chinese exports especially with respect to jeopardizing information that we share, the U.S. shares with our allies in 

Europe, as well as with respect to global human rights and indi-
56 

vidual privacy rights and what can we do in the cybersecurity and 

surveillance space to prevent this technology from being used in an 

abusive way? 

Mr. COOPER. Well, thank you for the question, Congresswoman. 

I think this is an important issue and something we have not 

talked about enough in the last few years. And I think the human 

rights community has done an amazing job of bringing this to light 

and some pretty courageous journalists as well. 

It is incredibly difficult to report now in Xinjiang. Even for the 

best reporters based in China, there are a lot of roadblocks to them 

reporting on the kinds of stories that you are talking about. And 

the U.S. Government’s estimates at the moment are that between 

one and three million Uyghurs are in detention in northwestern 

China, which is a tremendous number of people, and it is hard to 

believe that this story hasn’t garnered more attention. I think we 

do not—— 

Ms. WILD. That by the way was exactly my reaction. 

Mr. COOPER. Yes, exactly. And I think the human rights community here has been working incredibly hard to bring attention to 

this issue. I do not think we have seen a lot of great policy answers 

from anyone around the world other than bringing more transparency to the behavior that we are seeing occurring. And the one 

area where I think this touches the most on Europe is the current 

concern that some of us have that whether the Chinese are using 

the 17∂+1 institution or it is Germany or Italy or London’s desire 

to have more Chinese investment, that we might see European 

countries not being as willing to speak out on these issues as we 

would want them to be. So I hope that we can address this in a 

coherent, united manner with our European allies. 

Ms. KENDALL-TAYLOR. And could I just add one point? 

Ms. WILD. Sure, please do. 

Ms. KENDALL-TAYLOR. I agree with everything that Zack just 

said. But it really, I mean it is such an important question and I 

am so glad that you raised it, because China is exporting its authoritarian tactics and that will create an environment more conducive to authoritarianism all around the globe. 

And so—and we should also note that in addition to the Belt and 

Road Initiative, there also is a component of this they are calling 

the Digital Silk Road and that will be an important vehicle through 

which they will be able to export and share some of these surveillance and other authoritarian best practices. 

And the other concern here is 5G. So why would we allow the 

Chinese Government to be building our 5G networks? Why would 

we put that responsibility in the hands of a government that has 

a long track record of surveillance and a track record of human 

rights abuses, and so that should raise concerns for all of us. 

And so if we are hesitant or it seems like the direction that this 

is going particularly in Europe is that some of these countries for 

obvious reasons do not want to outright ban Huawei, but if we can 

move toward kind of an objective list of criteria for selecting vendors that would address some of these issues and that are true to 

our values in the United States and Europe, that provides a more 

objective way, I think, for making decisions. 
57 

And that would, because of all of the abuses that you have highlighted, effectively screen out Huawei and other providers. 

Ms. WILD. Thank you for that very useful information. I have 

dozens of questions I would love to ask you, but unfortunately my 

time is up. But I would like to followup at some point. Thank you. 

Mr. KEATING. Thank you, Representative Wild, for those insightful questions. The chair recognizes Representative Burchett. 

Mr. BURCHETT. It is Burchett, Mr. Chairman. 

Mr. KEATING. Burchett, sorry. 

Mr. BURCHETT. Burch like the tree, and ett like I just ett breakfast. 

Mr. KEATING. This is the European influence, I think. 

Mr. BURCHETT. I guess it is. 

Mr. KEATING. It is overtaking me this morning, I apologize. 

Mr. BURCHETT. That is all right. 

And thank you all for being here. I guess I would, you know, 

dealing with China, it seems that they have a tendency, maybe it 

is just my opinion, but they exploit either our stupidity, greed or 

arrogance, or a combination of all those things. And, Dr. Taylor, 

and I note you all are on the screen and currently I am on the 

screen, and I am wondering if that screen is made in China. 

But, Dr. Taylor, in your testimony you mentioned the importance 

of European initiatives such as permanent structured cooperation, 

PESCO, and the European Defense Fund to better prioritize issues 

pertaining to China in the Indo-Pacific region. These two initiatives 

and a potential EU army seem to be more duplicative and a competitor to NATO. Would it not make more sense for our NATO allies to just to pony up and spend more than 2 percent of their GDP 

on defense rather than waste money on silly and unworkable initiatives? 

Ms. KENDALL-TAYLOR. I agree that the 2-percent is an important 

benchmark that all our European allies should be working toward. 

I think even when you talk to NATO officials that most of them 

are confident that the initiatives that I have talked about, PESCO, 

the European Defense Fund, and others, are not duplicative, but 

complementary to what NATO is achieving. And as long as they 

are rolled out in ways that are consistent and supportive and not 

redundant with what NATO is doing, then I think the United 

States should be encouraging rather than discouraging European 

efforts to do more for their own security and defense. 

I will also note that things like the EI2 initiative, France’s European—what is it, EI2—European Intervention Initiative, also has 

the goal of doing more and allowing Europe to play a greater role 

in places like North Africa. Again, the more that our European allies can help us police and secure not only Europe, but places like 

North Africa, it allows the United States to pivot and focus more 

on the Indo-Pacific. 

Mr. BURCHETT. OK. And this is, I guess, for the entire committee. I am not sure who would be the most qualified to answer, 

but anybody that feels like they should, please do. 

You know, in Tennessee I was in the State legislature and there 

was an initiative to have these toll roads put in. And I am not 

going to debate the merits of those, one way or the other, but there 

was—I actually had put an amendment on the bill that said that 
58 

they needed to be, at least one end of the toll road needed to be 

owned by an American entity, and immediately the support for the 

bill dropped. And that made me wonder too about the reports that 

Chinese companies currently own and have access to about 10 percent of the ports in Europe. 

And I was fortunate enough to go to Israel for 4 days and I noticed that their deepwater port was, in fact, constructed by the Chinese, which to me is very alarming. What is behind their strategy 

to gobble up these ports in Europe? Is it purely economic or do they 

have some long-term security interests? I think I probably know 

the answer to that, but I would like to hear what you all say. 

And could you all discuss the specific security risk to NATO allies of Chinese access to these European ports? Thank you all. 

Ms. SEGAL. Thank you for the question. I can start and maybe 

others will have their own views on this. I think the fact that 

China is investing abroad and has increased its investment abroad 

in and of itself is not the primary concern. The concern are the potentially strategic motivations behind that investment. And the difficulty then for recipient countries, including the United States and 

in Europe, is to differentiate which are those investments that an 

entity in China is making for its own economic interest and the recipient country is benefiting because it is getting capital that then 

fuels its economy, and which are the investments that actually go 

beyond that are of geostrategic import and have a strategic interest. 

And that is what these whole, the motivation behind these investment screening mechanisms like CFIUS like what has been 

adopted now at an EU-wide level in Brussels, that is what those 

mechanisms are designed to suss out. And so, I think it is important to differentiate those two. And the fact that this debate is 

being had and that the recipient countries are not sensitized to 

look out for what might be the strategic motivations behind these 

investments, that is the important balance to strike between progrowth investments and investments—— 

Mr. BURCHETT. Excuse me, but, you know, it is kind of like up 

here when we talk about we are going to form a study committee 

and do some studying and is just going to sit on some shelf somewhere. Are they actually doing anything when they say that or is 

it just the money that they are getting? Because I have read some 

reports that some of the ports and projects that they have done, 

they will pull out or they will do subpar labor that what we would 

consider the standard here by our labor folks in this country. 

Ms. SEGAL. Right. And so those are related issues. One are the 

strategic kind of national security concerns which these mechanisms would pick up, the other is the quality of that Chinese investment. And the concerns behind Belt and Road investments are 

of both categories, but is actually that quality question and the 

debt sustainability question that is also something for recipient 

countries to think about. 

And so, among the initiatives that the U.S. has taken both to encourage allies to strengthen investment screening mechanisms is 

also an effort to get countries to strengthen their mechanisms for 

just evaluating the economic worth of such projects. So if what 

China is offering is an investment but one that comes with it 
59 

strings that require Chinese workers to be used, come with it returns back to China that actually make the project not viable in 

the country, those are things that recipient countries when they 

are making their decisions about who to award the contract to, 

they should be sensitized to that and then make their decisions 

based on that sort of information. 

Ms. KENDALL-TAYLOR. And maybe just really quickly to highlight 

the security concerns as we talked about, NATO mobility will be 

key when we are talking about Belt and Road infrastructure, so 

with the ports and rails in particular Chinese investment in those 

provide the capacity for China to slow a NATO response that 

makes it. They have the ability then to leverage to complicate our 

movement of people and troops across Europe and that is something that NATO is going to have to grapple with. 

Mr. BURCHETT. Thank you. 

Mr. Chairman, I apologize for running over, brother. Thank you. 

Mr. KEATING. Those were great questions. I think also that we 

could followup beyond the ports and look at the rail and the testimony that was given before about how that screening mechanism 

did help or has helped delay and give greater scrutiny to the rail 

line between Hungary and Serbia too. So it would be interesting to 

see how that has worked and been effective. 

Representative Costa from California? 

Mr. COSTA. Thank you very much, Mr. Chairman. I appreciate 

this important hearing. 

I am one of those that believe that Russia and China’s interests 

do align and they are increasingly so. While they may not as you 

have testified today be coordinated to the degree that would further 

make their efforts more effective, clearly, I think we need to be concerned about it. I have some questions that really deal with the 

comments that I think the four of you made, and that is that for 

a more effective use of our ability to deal with both China and Russia that we need to be coordinated with our European allies. I 

think there was a consensus by all of you in that statement. And 

certainly, we know that Russia, going back to 2013 when General 

Gerasimov was talking about their strategies to undermine Western democracies by using the election process in Europe to destabilize that economy and also to undermine NATO as a defensive for 

all us, not only the Europeans but for the United States, and they 

have done that. They have been interfering in European elections 

for years and of course in our elections in 2016. 

So, I want to understand with all the challenges that Europe is 

facing with populism, with nationalism, with the refugee challenges that they are getting from the Middle East and from Africa, 

how you believe we can better coordinate our efforts with our European allies—they are not our adversaries, they are our allies where 

we share so many common values—in the backdrop of the comments that we have been making about NATO? Even though three 

administrations have agreed that 2 percent-plus is necessary for 

the NATO countries to commit to, but you add as you testified the 

steel and aluminum tariffs, you know, commenting that the basis 

is national security when these are our NATO partners. Very contradictory not to mention insulting, the potential of imposing auto 

tariffs, which is crazy, I mean the largest export of cars made in 
60 

America is BMW, and that the statement that Europe is an adversary by our President, and then you add to that the cheerleading 

of Brexit that has taken place in this country by some, how can 

any of you on the panel articulate what our current administration’s policy is toward our European allies? 

Mr. LE CORRE. I can start to have a go at it, but it is not an easy 

answer to make. 

You know, I think, there is no evidence that there is coordination 

between Russian and Chinese actions in Europe. That there is a 

Chinese sort of—— 

Mr. COSTA. No, but there could be in the future. 

Mr. LE CORRE. There could be. And certainly, if you look at 

Greece, for example—— 

Mr. COSTA. There interests align in a number of areas. 

Mr. LE CORRE. Right, so the issue is really for countries such as 

Greece, Portugal that are NATO members as well as members of 

the—— 

Mr. COSTA. And Italy. 

Mr. LE CORRE. And Italy, they have been repeating that they remain, you know, involved in the alliance and the EU, but there 

might be some discussions to be having at NATO level on what it 

means for countries that are selling some of their national assets 

including, for example, the National Grid of Portugal—— 

Mr. COSTA. Right. 

Mr. LE CORRE [continuing]. To a nation like China, or to sell 

some of its territories in the Azores in the middle of the Atlantic 

to a Chinese scientific center. 

Mr. COSTA. We have been very concerned about that, many of us, 

and we have tried to make those concerns known to the Department of Defense on that. But please, what is our policy? Can you 

articulate our policies toward Europe, our allies? 

Ms. SEGAL. I do not know if I want to articulate our policy not 

being a member of the administration, but I do think what you 

have identified is that there is a tension between the security 

issues and how we should be engaging with European partners and 

economic issues on how we engage. 

Mr. COSTA. I think the Secretary General when he spoke to a 

joint session of Congress put it well. It is nice to have friends. And 

these relationships that we have had with our European allies for 

decades, the longest peacetime period in Europe, the last 70 years, 

in over 1,000 years is the result of these coordinated alliances that 

we have with NATO, with the European Union. 

And so I mean, I think you are struggling to suggest what the 

policy is part of the problem. We do not have a coordinated, clear 

policy toward our European allies. If we did, we would have a 

much more, I think, thoughtful address toward China and how we 

are dealing with China. I mean, I think that is the answer to the 

question. 

Mr. COOPER. Can I just make one very brief comment? I think 

there is a philosophical question about what we think leads to 

greater alliance cooperation and contributions. I think the administration’s belief is you get more alliance coordination and cooperation when the leader of the alliance pushes its allies hard. I think 
61 

a lot of the academic literature would say that you get allies cooperating more when they think there is a higher threat. 

So I think that is where a lot of this disjuncture is between the 

administration’s strategy and what we are actually seeing from Europe. So as the Europeans get more concerned about Russia, they 

will contribute more to NATO. If they are not deeply concerned, 

they are not going to contribute up to the 2-percent level or beyond. 

Ms. KENDALL-TAYLOR. Maybe just a really quick comment. I 

think what the strategy has been and it has been articulated by 

people like Assistant Secretary of State Wess Mitchell before he resigned, I mean, so this administration has rightly set out this vision of strategic competition putting China front and center. But 

where we break down and fall apart is by not prioritizing Europe 

and that relationship. 

And there has been a belief that we have to go after our European allies and correct imbalances in our relationship and once we 

correct those imbalances, then this administration, I think, incorrectly believes that we can pick up where we were and move on to 

confront China. So I think in my mind that is what the policy has 

been, China front and center, but with the incorrect assumption 

that if we bash our allies and correct the imbalances that then we 

are in a better place to address China. 

Mr. COSTA. Well, and I think that is the feeling that you are receiving that the chairman and I receive when we go to Europe. We 

have been there two or three times this year and this is the constant questions that we are asked as to what really is our policy 

toward our allies to, you know, we used to be consistent in terms 

of our approach and they could always count on us, and there is 

a deep feeling today that that is no longer the case. 

And then therefore why should we cooperate with you if you are 

not going to be that friend, as the Secretary General stated last 

month that it is nice to have friends. And now that is all being undermined, I believe, and it is being questioned, unnecessarily so. 

No one disagrees with the 2-percent expenditure. 

Let me just ask one final question, if I might, Mr. Chair? 

Mr. KEATING. It is all right. Mr. Guest. 

Mr. COSTA. Because this is something that you and I have talked 

about. Would it—do you think if this subcommittee worked closer 

together with the European Parliament, they are having elections 

this month, and the European Commission as we go forward to address some of these issues that we are talking about today that 

that would be constructive and more helpful in terms of our partnership? 

Mr. LE CORRE. If I can answer to that I think it would be an excellent idea for one simple reason. I believe many of the new mechanisms that have been introduced, which I was describing earlier, 

were originated in the European Parliament. The status economy, 

the market economy status that was denied to China by the EU 2 

years ago originated, again this decision originated by the European Parliament and there are strong members of the European 

Parliament that have been sort of supporting, you know, actions for 

China, for example, especially on the reciprocity issues and intellectual property. 
62 

So I think, you know, obviously this is a transition year, Congressman. There is going to be elections very soon. This country 

knows about elections too. And so it is going to be a difficult year 

for engaging with the European Parliament, but I believe from October again there will be new committees and people that will look 

very thoroughly into the issue of Chinese influence in Europe. 

Mr. COSTA. Well, the chairman and I have expressed interest in 

doing so and I thank you for—I have exceeded my time, but we will 

followup on that. 

Mr. KEATING. Thank you, Mr. Costa, for your work. And the 

chair thanks Mr. Guest for being patient through that questioning, 

and now the chair recognizes Mr. Guest from Mississippi. 

Mr. GUEST. Thank you, Mr. Chairman. 

Before I begin my question, I have a report from the Center for 

International Private Enterprise entitled, ‘‘Channeling the Tide: 

Protecting American Democracies Amid a Flood of Corrosive Capital.’’ This was published last fall. This report examines the impact 

on the government norms, practices, and economic values in the 

countries that have received Chinese investment. 

I ask by unanimous consent this report be inserted into the 

record. 

Mr. KEATING. Without objection. 

[The information referred to follows:] 

Mr. GUEST. My question to the witnesses on the panel, as I understand it, the Chinese are using basically a multifaceted approach to either gain or to expand influence not just in Europe but 

around the world, things such as investment, trade, technology, 

education through the Confucius Institutes, but what I would like 

to talk about and focus my question on is the growing Russian-Chinese relationship. 

Of course, we see that in Latin America, particularly as it relates 

to Venezuela, where you have an unholy alliance, if you will, between Russia, China, and Cuba as they are continuing to prop up 

the Maduro regime. But I believe at least two of the witnesses here 

spoke of that in your written testimony. 

Ms. Kendall-Taylor, I think you said on page 5, you said ‘‘The relationship between China and Russia are deepening. The growing 

alignment of their values and visions on how the world should be 

ordered raises the prospect that Moscow and Beijing will increasingly coordinate their efforts to undermine U.S. influence.’’ 

And it was also addressed by you, Mr. Le Corre, I think on page 

7, you actually referred to it as the ‘‘emergence of a Russia-Chinese 

nexus and it directly affects NATO’s primary mission. The relationship should not be exaggerated, but the two countries have conducted joint naval exercises.’’ You also talk about military exchanges or military leadership exchanges. 

And so, my question to the panel and anyone can answer is, how 

concerned should we be about this growing nexus, as you referred 

to it, Mr. Le Corre, between China and Russia as we can see them 

continuing to work together and to work against American interest? 

Mr. LE CORRE. Thank you, Congressman. I think, you know, the 

issue is to be looked at not just in Europe, but globally. Certainly 

if you look at the Belt and Road Initiative a lot of it has to do with 
63 

Central Asia, for example, and parts of Asia that are under Russian influence. So I would say there is a real concern there. 

And the people of some of the Central Asian countries are very 

wary about the rise of China and the economic rise of China, and 

somewhat the Russian umbrella that used to be their protectorate, 

you know, and I am thinking of Kazakhstan and Tajikistan, for example, is no longer there because it is basically this collusion going 

on with China. 

As far as Europe is concerned, I think, you know, America should 

basically, you know, rise again in the eyes of many of these European citizens and offer an alternative narrative to the authoritarian narrative that is now sort of coming up in, you know, from 

China or from Russia. And, you know, this is like Greece, should 

basically look toward Western values and not toward, you know, 

authoritarian values, and unfortunately these are the values that 

China is bringing when investing in some of these countries. 

Ms. KENDALL-TAYLOR. We talked about it a little bit earlier kind 

of all of the ways in which the relationship is growing, and I think 

as has been talked about the implication of that growing relationship is significant and I would put that close to the top of the No. 

1 issue, or close to the top of the issues that I am concerned about. 

So in a world of great-power competition, there are three and the 

United States is not going to be alone on the side with one. We 

have talked about how the growing relationship, I think, is serving 

to undermine democracy particularly in Europe, but it is also the 

way that they are creating an alternative to democracy. 

China in particular demonstrates that the road to prosperity and 

democracy no longer runs through the United States. They are exporting their best practices. President Putin is showing other leaders that if, you know, that you can stand up to the United States 

and it is emboldening other leaders across the world. 

But it is more than a democracy and human rights issue. It is 

very much a national security issue. And I have given a couple of 

examples, I think, of how that synergy or how their coordination 

could affect the United States. But, really, at the most basic level 

you could imagine a scenario where Russia and China decide to 

make moves in their respective spheres of influence at the same 

time. 

So what happens and the United States would, and NATO in 

particular would struggle to respond to coordinated moves between 

Xi Jinping in the South China Sea and Putin in Europe. That 

would severely strain U.S. military capacity to respond to those 

challenges. 

So I think these are the types of things—that certainly is a long 

way off, but I think these are the types of things that policymakers 

need to be thinking about now, because we have to plan for those 

contingencies and also work to prevent the closening relationship 

from coming to fruition in ways that would have that much of a 

consequence. 

And I think there, when we talk about the importance of values 

and democracy, I mean getting our own house in order and providing an alternative, an attractiveness of a democratic model that 

other countries will want to emulate I think is one of the most important ways, that is kind of a two-for-one. It helps deter all of the 
64 

kind of a hostile, malign actions that both Russia and China are 

taking both in the United States and Europe. 

So it is a two-for-one, but these are the types of things that I 

think we need to be thinking about now. 

Mr. GUEST. Thank you. I yield back, Mr. Chairman. 

Mr. KEATING. Thank you very much. The chair recognizes and 

we are going to let him—give him a chance to sit down, Representative Gonzalez from Texas. Thank you for joining us. I know it has 

been a busy morning. Representative Gonzalez. 

Mr. KEATING. Thanks. He is yielding back. 

Just following up with what Representative Guest said, I think 

one of the key aspects of this morning’s, among many, testimony 

from our witnesses was the concern for this growing relationship 

coordination and collaboration between Russia and China. And I 

think it makes the issue even more compelling from a U.S. standpoint of why we have to work hard to strengthen our existing relationship with our European Union coalition partners, that we have 

control over more than we do dealing with the activities of China 

and Russia. 

And I think that is one of the more important messages of this 

morning, also even beyond Europe and Eurasia to have the U.S. 

proactively get involved in providing alternatives and having a 

stronger role to try and combat that growing influence together it 

is important. 

I would just as part of my closing, and then I know that the vice 

chair has some final comments and perhaps a question as well, just 

one thought I had digging down to a specific and I am worried 

about the fractures that occur and that I see occurring in Europe. 

I understand Congress has a critical role going forward and we are 

exercising that in this committee and in the larger Foreign Affairs 

Committee. We are doing it in Armed Services and so many of our 

other committees trying to project that and actually have been, I 

think, in this short period of time very successful in doing so. 

But I want to give an example of something I hear from time to 

time and it is nothing to undercut our alliance with the U.K., our 

great ally, but we hear conversations from the administration, even 

from other members, talking about having a bilateral trade agreement with U.K. 

And even though they have to wait for Brexit to get over for anything like that to occur, having these discussions and having discussions about, you know, fast tracking when the time comes or 

prioritizing a bilateral agreement with U.K. but not having that 

kind of discussion with the rest of the EU, I see that as a growing 

concern of mine in terms of how that can fracture our relationship 

particularly during these difficult times of dealing with the Brexit 

issue. 

Could you comment on how that kind of discussion, although it 

might be well-intended, could have an unintended effect of further 

fracturing our relationship with the rest of the EU, which after all 

is 80 percent of our trading partners in Europe? If anyone wants 

to comment on that. 

Mr. LE CORRE. Mr. Chairman, I do not know if you are referring 

to the missed opportunity of a meeting between the Secretary of 

State and the German Chancellor, but that was certainly not well 
65 

taken in Germany. But meanwhile, I understand Secretary Pompeo 

went to London. 

Obviously, from my point of view as somebody looking at China, 

I think there are real concerns about the bilateral relationship between China and the U.K. As we have discussed earlier, the level 

of Chinese involvement, economic involvement in Britain is much 

higher than in any European country already, and the U.K. is certainly the U.S.’, you know, oldest ally and there is a very strong 

link between the two countries. 

On the other hand, as you pointed out, 80 percent of the trade 

is done with the rest of Europe. And there is an integrated European market that is working quite well, and in fact, the pro-European sentiment has increased over the past 2 years ever since the 

referendum in the U.K. decided for Britain to leave, apparently. 

But it hasn’t been done yet and the process is not completed. 

So I think, you know, looking at the European Union as a strong 

partner is something the U.S. should certainly do and the U.K. 

should try to be, I mean, you know, looked at as a European country not as a standalone country. It will remain part of Europe. In 

fact, you know, British officials do say that on a regular basis and 

I cannot see otherwise in terms of geographics. And, you know, visa-vis China or vis-a-vis Russia, I think, you know, the relationship 

will remain close between the EU and the U.K. and between the 

U.K. and the U.S. So, you know, I think these two things should 

be done in parallel. 

Mr. KEATING. Great. 

Ms. Segal? 

Ms. SEGAL. Just to add to that, I think as your question references it has been a very complicated process between the EU and 

the U.K. ever since the Brexit vote and that issue is still not resolved. And I would make the argument also on the basis of what 

is in the U.S. national interest that we do not really want anything 

that is going to result in a destabilizing resolution of that issue. 

So any sort of interference that actually complicates and potentially destabilizes the outcome of how that Brexit vote is resolved 

is actually harmful to the United States. 

Mr. KEATING. Yes. Well, I hope that our friends in Europe know 

from this committee and from a very strong bipartisan standpoint 

that we are sensitive to the issues that they are dealing with, particularly with elections coming up and dealing with the Brexit 

issue. 

And that as a Congress I can speak for this committee as well 

as the full committee, we are sensitive to that issue. We are not 

taking our relationship with our closest allies and our coalition for 

granted and we will continue to adopt that attitude, because the 

attitude is important too as substance in many instances as we see 

now. 

I now yield to the vice chairman of the committee who may have 

a final comment and a question. 

Ms. SPANBERGER. Thank you, Mr. Chairman. 

We have talked a lot today about 5G technology threaded 

throughout the conversation, but I did want to followup just in a 

closing statement with a question. 
66 

So as we talk about 5G technology, recognizing the potential that 

it holds to transform telecommunications as we know it resulting 

in huge, potentially huge economic benefits to our citizens and 

American companies, we are facing challenges with companies that 

have close ties to the Chinese Government such as Huawei that are 

currently leading global competitors in early 5G equipment and 

software production. 

According to NATO’s Cooperative Cyber Defence Centre of Excellence, Huawei’s growing influence as a leading supplier of 5G technology in Europe could be exploited by China to engage in espionage, monitor foreign corporations and governments, and ultimately support Chinese military operations. 

My question as we close out this discussion is how can we ensure 

that the United States and our allies are not left behind by these 

technological advances and forced to choose between putting our 

data at risk and waiting around for the rest of the market to catch 

up, and how can we improve the competitiveness of U.S. companies 

in this space, specifically how can non-Chinese companies compete 

with Huawei given that its telecom networks typically cost 20 to 

30 percent less than our competing products? 

Ms. KENDALL-TAYLOR. So I think all of the kind of advantages 

that Huawei has you have rightly noted. Currently, the discounts 

that European companies are offered are somewhere in the realm 

of 20 to 30 percent. So Huawei is able to come in and because of 

the subsidies they receive from the State they are offering their 

services at a much discounted price. 

They are also vertically integrated, I understand, which means 

that Huawei is providing a soup-to-nuts solution that other providers just are not doing and they are ready to go now. So there 

is very valid concerns in Europe, I think, that by banning Huawei 

that we would delay the deployment of 5G networks in Europe. So 

there are all of these considerations and figuring out how to 

counter it, I think, is something that will be and has to be front 

and center in terms of priorities now. 

There is some really excellent work that is being done at the 

Center for New American Security and there should be a memo 

that is coming out soon that lays out a whole host of recommendations that would also address what the United States should be 

doing in terms of its own kind of domestic posture. And one of the 

things that you highlighted is rightfully making sure that the 

United States is prioritizing and investing in 5G as a foundation 

for American competitiveness. And we have to be able to offer an 

alternative and that is just not where we are at the moment. 

And it also highlights the need to work very closely with likeminded countries in Europe to do things like as we have already 

talked about, creating this objective screening criteria. So if countries in Europe are reticent to taking sides, which they are, they 

do not want to have to be seen as choosing between the United 

States and China, then going down this route where we are coming 

up with these objective criteria that providers have to meet in 

order to be allowed to be the provider of choice. That is an objective 

approach then, which essentially would screen out Huawei given 

all of the human rights and surveillance considerations that you 

highlighted. 
67 

There are other opportunities too, making sure that 5G networks 

are secure by design from the start. And I think it is also incumbent on the United States to continue to make the case with Europeans about what our rationale is. Because there is obviously concerns by the Europeans that we are being protectionist, that we 

want to keep Huawei out, given the huge kind of economic and 

competitiveness implications that any country will have in being 

the 5G provider. 

So leaning on the intelligence community perhaps to be more forward-leaning where they can in terms of sharing intelligence or the 

rationale for why we are making the decisions that we can. We 

have seen that was really useful, for example, with the INF treaty. 

It took the intel community a very long time to share the information and data that was ultimately able to get the Europeans to 

come along with us, so that could be kind of a best practices case 

study that we could learn from. 

So, I think, generally speaking, there is a whole host and it is 

not a simple solution, but I would hopefully as soon as the CNAS 

report is out, would kind of recommend it to others because I think 

it has some really excellent suggestions. 

Ms. SPANBERGER. Thank you, Dr. Kendall-Taylor. 

Dr. Cooper? 

Mr. COOPER. Just one more comment to add on this. I think one 

of the challenges here is that the U.S. approach has largely been 

to exclude Huawei and ZTE and others from the U.S. market and 

there are lots of good reasons for that. But the reality is, is that 

is not going to work in Europe. It will work in some places in Europe, but broadly I think the Europeans are going to decide to mitigate the challenges inherent in Chinese 5G technology just the way 

they have in 3G and 4G. And so, I think we are going to have to 

come up with an approach and we might not like it, but one that 

accepts that we are going to be in a risk-mitigation world. 

And the problem we have is that we have spent so much time 

in the last few months explaining to our friends that you cannot 

mitigate the risk, that now when we come back and say, ‘‘Well, 

here, let us help you mitigate it,’’ it is a little confusing to them. 

And so we have got to shift our strategy, I think, pretty quickly 

and be just as nimble as the Chinese have been in changing how 

they talk about Huawei and 5G technology in general. 

Ms. SPANBERGER. Thank you. 

Mr. Le Corre? 

Mr. LE CORRE. Thank you. Just a few comments. I think I agree 

with what Dr. Cooper just said. It is very difficult to change Europe 

when it comes to dealing with Chinese telecommunication companies. They have been there for quite some time and in many cases 

they have invested. They have hired local people. Not very many, 

in fact, and that may be a point that should be underlined that 

they have not created a lot of jobs, for example, and it is mainly 

about bringing technology into Europe. 

So investment might be the answer, because as we know Huawei 

was the first to invest in 5G technologies, you know, almost 10 

years ago, and so the rest of the world and the West in particular 

has not done very much. So I would say that, you know, within 

each European country, especially those strong NATO allies of the 
68 

United States and strong EU members, you know, there is a debate 

inside these countries within the security agencies, the defense establishments, let’s say, and also, you know, the foreign ministries, 

the economics ministries, and the business community. 

But I would say sort of the sort of the very heavy-handed discourse coming out of China and which you pointed out yourself, or 

the other Congresswoman, I am sorry, the surveillance mechanisms, all this, this is not really helping China’s image. And again, 

you know, information and explanation of what 5G actually is and 

what it is going to mean to live in a connected house in a connected 

city, smart city, that is something that people will need to know 

about and having, you know, counter offers will be critical. 

Ms. SPANBERGER. Thank you. I yield back, Mr. Chairman. 

Mr. KEATING. Well, thank you. I want to thank our witnesses. I 

will tell you, this was an excellent hearing, excellent testimony and 

in a time when the full committee is looking at many of the challenges coming from China, we spent most of this morning looking 

at what the future challenge will be, not just the present, and I 

think that was very helpful to us as a committee and certainly 

helpful as a Congress. So thank you very much for your participation and we will look forward to further communications and any 

questions the members might have in writing. Thank you. 

[Whereupon, at 11:53 a.m., the subcommittee was adjourned.] 
69 

APPENDIX 

SUBCOMMITTEE HEARING NOTICE 

COMMITTEE ON FOREIGN AFFAIRS 

U.S. HOUSE OF REPRESENTATIVES 

WASHINGTON, DC 20515-6128 

Subcommittee on Europe, Eurasia, Energy, and the Environment 

William R. Keating (D-MA), Chairman 

May 9, 2019 

TO: MEMBERS OF THE COMMITTEE ON FOREIGN AFFAIRS 

You are respectfully requested to attend an OPEN hearing of the Committee on Foreign Affairs, to be held 

by the Subcommittee on Europe, Eurasia, Energy, and the Environment in Room 2167 of the Rayburn House 

Office Building (and available live on the Committee website at https://foreignaffairs.house.gov/): 

DATE: 

TIME: 

SUBJECT: 

WITNESS: 

Thursday, May 9, 2019 

10:00 am 

China's Expanding Influence in Europe and Eurasia 

Mr. Philippe Le Corre 

Nonresident Senior Fellow 

Europe and Asia Programs 

Camegie Endowment for lntcmational Peace 

(Former Special Assistant for International Affilirs to the French D~fense Minister) 

Ms. Stephanie Segal 

Deputy Director and Senior Fellow 

Simon Chair in Political Economy 

Center for Strategic & International Studies 

(Former Codirector of the East Asia Office at the US. Department of the Treaswy) 

Andrea Kendall-Taylor, Ph.D. 

Senior Fellow and Director 

Transatlantic Security Program 

Center for a New American Security 

(Former Deputy National Intelligence Officer.for Russia and Eurasia in the Office of the 

Director of National Intelligence) 

Zack Cooper, Ph.D. 

Research Fellow 

American Enterprise Institute 

(Former Assistant to the Deputy National Security Adviser for Combating Terrorism at 

the National Security Council) 

By Direction of the Chairman 
70 

COMMITTEE ON FOREIGN AFFAIRS 

MINUTES OF SUBCOMMIITEE ON ____ E_u_rop.:..e,_&_rasltl_.:..' E_n_ergy.;:;..•_•n_d_th_e_E_n_vi_ro_n,.,._n_t ___ HEARING 

Day Thursday Da~ __ ......::_0:::5/0.:::.9.:.:V:.:::.'1:...9 __ ~Room, __ __,2:.:1.:::.6.:..7 __ _ 

Starting Time _ ___.1-"-0.,·0""0 __ Ending Time __ 1""1'"":5::.:2:..__ 

Recesses __ L_to __ )L_to_)L_to_)L_to_)L_to_)L_to_) 

Presiding Member(s) 

Keating 

Check all of the following that apply: 

Open Session I1J 

Executive {£!_used) Session D Televised liJ 

TITLE OF HEARING: 

Eleetronkally Recordt!.Utaped) 0 

Stenograpbk: Record li.l 

China~ Expanding Influence in Europe and Eurasia 

SUBCOMMITTEE MEMBERS PRESENT: 

See attached 

NON-SUBCOMMIITEE MEMBERS PRESENT: (Mark with an • if they are not members of full commillee.) 

HEARING WITNESSES: Same as meeting notice attached? Yes m NoD 

(if "no", please list below and include title, agency, department, or organization.) 

STATEMENTS FOR THE RECORD: (List any statements submilledfor the record) 

Phlllipe Le Corre 's Testimony 

Stephanie Segal's Testimony 

Andrea Kendall-Taylor's Testimony 

Zack Cooper's Testimony 

"Protecting Democracies Amid A Flood of Corrosive Capital" Submitted by Mr. Guest 

QFRs from Ms. Spanberger 

QFRs from Mr. Pence 

TIME SCHEDULED TO RECONVENE----

or 

TIME ADJOURNED __ 1_1_:5_2 __ 
71 

HOUSE COMMITTEE ON FOREIGN AFFAIRS 

EUROPE, EURASIA, ENERGY, AND THE ENVIRONMENT SUBCOMMITTEE HEARING 

.J:....JY-::S/<.NT MEMBER PRES!! NT MD,4BER 

X William Keating, MA X Adam Kinzinger,IL 

X Abigail Span berger, VA Joe Wilson, SC 

Gregory W. Meeks, NY Ann Wagner, MO 

Albio Sires, NJ James F. Sensenbrenner, Jr., WI -- Theodore E. Deutch, FL Francis Rooney, FL 

X David Cicilline, Rl Brian K. Fitzpatrick, PA 

X Joaquin Castro, TX X Greg Pence, IN 

Dina Titus, NV X Ron Wright, TX 

X Susan Wild, PA X Michael Guest, MS 

X David Trone, MD X Tim Burchett, TN 

X Jim Costa, CA 

X Vicente Gonzalez, TX 
72 

RESPONSES TO QUESTIONS SUBMITTED FOR THE RECORD 

Question: 

Questions for the Record from Representative Greg Pence 

Subcommittee on Europe, Eurasia, Energy and Environment 

China's Expanding Influence in Europe and Eurasia 

May 9,2019 

There has been a documented decline of Chinese investments in Europe since 2016. 

Is this investment decline primarily in state-owned enterprise? 

Is it possible that China has found or will find alternative vehicles of investment in 

response to growing awareness? 

Answer: 

Mr. Le Corre did not submit a response in time.fhr printing. 

Question: 

According to documents publicly available on the Department of States Bureau of Energy 

Resources (ENR) website, "ENR works together with the European Commission and EU 

member states to promote projects that will increase diversity of supply. The European Union 

committed $363 million to priority infrastructure projects with the purpose of integrating 

European gas and electricity markets to achieve more efficient markets, more resilience to supply 

shocks, and improved energy security" 1

• 

However, in the China context, I am concerned that these projects are designed with the sole 

intent to reduce reliance on the source of the energy- Russia- and not also on potential Chinese 

control of the infrastructure transiting the energy throughout Europe. A focus on Russia is 

prudent and necessary but should not be the only concern. 

The Three Seas Initiative2 aims to realign Europe's energy infrastructure North to South away 

from the current East to West orientation i.e. from Russia into Europe. This is an important 

initiative. 

Understanding that presently, most Chinese investments are in port, road, and rail infrastructure 

projects and digital infrastructure like 50, with respect to energy infrastructure and your point 

about Russian and Chinese convergence and synergy -do we risk, as the saying goes, "winning 

the battle" with respect to Russia's coercive use of energy only to "lose the war" to China's 

control of Europe and Eurasia's energy infrastructure? If so, how do we make this point with our 

European and Eurasia partners and our NATO allies with respect to their energy infrastructure? 

1 ·https://\V\\W.state.gov/documents!organization/279199 .pdf 2 https·//v.;ww . .atlanticcouncil.org/blogs/nC\V-atlanticist!the-three-seas-initiative-explained 
73 

~: 

Dr. Kendall-Taylor did not submit a response in time for printing. 

Question: 

There has been a documented decline of Chinese investments in Europe since 2016. 

• ls this investment decline primarily in state-owned enterprise? 

~: 

Ms. Segal: According to data from China's State Administration of Foreign Exchange, total 

outbound foreign direct investment (FDI) from China increased in the wake of the Global 

Financial Crisis and peaked in 2016 at $216 billion. Since then, a combination offactors 

including tighter controls on capital outflows, changing macroeconomic and financial conditions 

in China, and more rigorous screening by recipient countries, have led to a sharp reduction in 

outbound FDI, to $138 billion in 2017 and $96 billion in 2018. In addition, starting in 2017 

China's effort~ to curb capital outflows appear to have also shifted the source ofFDI flows 

toward state-owned enterprises (SOEs), especially those working under China's Belt and Road 

Initiative. Chinese FDI in Europe has followed a similar trend, but peaked in 2017 due to a single 

transaction: state-owned China National Chemical Corporation's (ChemChina) acquisition of 

Swiss agrochemical and seeds company Syngenta for $43 billion. Inclusive of this transaction, 

and based on data from Rhodium Group, Chinese FDI in Europe totaled $46 billion in 2016, $80 

billion in 2017, and $23 billion in 2018. 

Joint research by Rhodium Group and the Mercator Institute for China Studies estimate that 

roughly 60 percent of Chinese FDI in the EU since 2000 originated from Chinese state-owned or 

sovereign entities. The heightened scrutiny of foreign investments involving state-controlled 

entities under the EU's new foreign investment screening mechanism is likely to result in the 

decline of Chinese SOE and other state-backed investments in Europe. 

Question: 

Is it possible that China has found or will find alternative vehicles of investment in 

response to growing awareness? 

~: 

Ms. Segal: The U.S. Foreign Investment Risk Review Modernization Act of2018 (FIRRMA), 

explicitly expands coverage of transactions subject to review by the Committee on Foreign 

Investment in the United States (CFIUS) to any "transaction, transfer, agreement, or 

arrangement, the structure of which is designed or intended to evade or circumvent the 

application of this section ('Definitions'), subject to regulations prescribed by the Committee". 
74 

Similarly, the European screening mechanism calls on member states to identify and prevent 

cases of"circumvention" with an eye to identifying non-EU ultimate owners. EU member states 

are also encouraged to consider risks from changes to the ownership structure and key 

characteristics of a foreign investor. Despite these efforts, minimizing circumvention through 

innovative transaction structures or other means will require ongoing official sector efforts to 

disseminate information to relevant parties and to incentivize compliance. 
75 

Question: 

Questions for the Record from Representative Abigail Spauberger 

Subcommittee on Europe, Eurasia, Energy and Environment 

China's Expanding Influence in Europe and Eurasia 

May 9,2019 

In your oral testimony, you mentioned there was bipartisan consensus on China and the 

challenges it presents from an economic and security perspective. However, you noted that to 

make progress in addressing these challenges, we need to bring the American people into the 

conversation. 

• In your assessment, how can we broaden this conversation to include the American 

people and build their understanding of the threat that China poses? 

Answer: 

Dr. Cooper: The Trump administration's 2017 National Security Strategy called China a 

"strategic competitor" and suggested that China had sought to "erode American security 

and prosperity."1 Yet, in 2018, more Americans said that China was a partner than a rival 

(by 50% to 49%).2 Furthermore, only 39% of Americans responded that they viewed China 

as a critical threat, placing China behind international terrorism (66%), North Korea 

(59%), and Iran (52%). Conversely, half of international relations scholars believed that 

China's rise was one of the top three most important foreign policy issues, compared to just 

16% for international terrorism and 18% for proliferation of weapons of mass 

destruction. 3 And 69% of international relations scholars thought East Asia would be the 

most important strategic region in 20 years).4 

Why is there such a gap between public and policymaker perceptions? One reason is that 

when American leaders give major speeches about China, they tend to do so in foreign 

capitals or in Washington DC. What we need, however, is a deeper discussion at the local 

level about some of the challenges and opportunities that China's rise has created. The 

American people tend to worry first about local economic issues, rather than broader 

international concerns. For example, 72% of Americans report anxiety that a trade war will 

1 "National Security Strategy of the United States of America," The White House, December 2017, 

https://www.whitehouse.gov/wo-content/uploads/20 17 /12/NSS-Final-12-18-20 17-0905.pdf. 2 Karl Friedhoff and Craig Kafura, "American Views toward US-Japan Relations and Asia-Pacific Security," 

Chicago Council on Global Affairs, Aprill7, 2018, https://www.thechicagocouncil.org/publication/american-viewstoward-us~iapan-relations-and-asia-pacific-security. 

3 "Snap Poll X (Embedded in 2017 Faculty Survey," Teaching, Research and International Policy (TRIP), December 

6, 2018, https://trip.wm.edn/charts/#/fullreport/44. 4 "Ibid. 
76 

hurt their local economy and 68% think that China is an unfair trade partner.s Therefore, 

addressing the local impact of China's economic rise should be the first topic on the agenda 

with the American public. This should include discussions of policies that can help protect 

American economic security, such as greater protections against intellectual property theft 

and unfair state subsidies that damage U.S. competitiveness. 

• What topics or elements of this threat do you believe should, or could, resonate most with 

Americans? 

Answer: 

Dr. Cooper: As noted above, polls show that the American people are more concerned 

about China as an economic competitor than a security threat. According to a 2018 poll 

conducted by the Pew Research Center, Americans fear China's economic strength more 

than its military strength, by a 2-to-1 margin (58% to 29%).6 More specifically, polls find 

that the following issues are the most serious concerns among Americans: China's holdings 

of U.S. debt (89%), cyberattacks (87%), environmental impact (85%), job losses (83%), 

trade deficit (82%), human rights policies (79%), territorial disputes (77%}, and tensions 

with Taiwan (63%}.7 

There is little partisan divide in these views, but Republicans tend to express greater 

concern about job losses, debt levels, the trade deficit, and cyber attacks while Democrats 

worry more about China's environmental impact, tensions with Taiwan, and human rights. 

As of 2018, there was evidence that these concerns were converging as views of China 

became more unfavorable across the political spectrum. a Thus, it makes sense to talk with 

all Americans about the economic challenges posed by China's rise, while also connecting 

these to security and human rights concerns that are emerging simultaneously. One way to 

do so is to highlight issues that cross economic and security boundaries, such as intellectual 

property theft, joint venture requirements, market access restrictions, information 

security, and the spread of surveillance technology. 

5 Karl Friedhoff and Craig Kafura, "China Not Yet Seen as a Threat by the American Public," The Chicago Council 

on Global Affairs, October 2018, https://www.thechicagocouncil.org/sites/default/files/report china-not-seen-asthreat-by-american-public 20181 012.pdf; Dina Smeltz, et. al., "What Americans Think about America First," The 

Chicago Council on Global Affairs, October 2, 2017, https://www.thechicagocouncil.org/publication/whatamericans-think-about-america-first. 

6 Richard Wike and Kat Devlin, "As Trade Tensions Rise, Fewer Americans See China Favorably," Pew Research 

Center, August 28, 2018, https://www.pewglobal.org/20 18/08/28/as-trade-tensions-rise-fewer-americans-see-chinafavorably/. 

7 Ibid. 

8 "Americans and Favorability Ratings of22 Countries (Trends)," Gallup, accessed May 21, 2019, 

httvs://news.gallup.com/poll/247562/americans-favorability-ratings-countriestrends.aspx?g source=link newsv9&g campaign=item 247559&g medium-copy. 
77 

Question: 

• How can we, in Congress, do a better job of communicating both the threat that China 

poses and the need for certain actions to protect, sustain, and improve U.S. economic and 

security interests worldwide? 

Answer: 

Dr. Cooper: I believe the American people-and our allies and partners abroad-need to 

hear a clear and coherent message from their political leaders. One first step is for more 

elected leaders and policy experts to travel outside their capitals to listen to and talk with 

constituents about their concerns relating to China. The data suggests that the divide 

between the American public and the expert community is greatest outside the economic 

arena. Therefore, it is vital that American leaders connect the concerns surrounding China's 

economic behavior with issues relating to security and human rights. Standing up for key 

principles, such as the rule of law, freedom of expression, democracy, and fair economic 

exchange can demonstrate how American values are linked to American interests. Doing so 

also helps to make clear that our concerns are related to the actions of the Chinese 

Communist Party, not the aspirations of the Chinese people. 

We should also make clear that these concerns are not just ours alone. We should be 

pushing back together against China for its unfair behavior, working hand in hand with our 

friends. Too often, U.S. concerns have been handled in a bilateral manner with China, 

leaving our allies and partners on the sideline. For example, we should be working together 

through the World Trade Organization to help foster a common position on issues like 

unfair state subsidies and market access restrictions. And we should be coordinating more 

closely to develop a coordinated approach to foreign investment screening and network 

security. Changing Chinese behavior in these and other areas will be difficult, especially if 

the United States is isolated from its allies and partners. We therefore need to engage not 

only the American public, but also the publics of like-minded countries, to build a strong 

and sustainable coalition. 
78 

ADITIONAL MATERIALS SUBMITTED FOR THE RECORD 

CHANNELING THE TIDE 

Protecting Democracies Amid A Flood of Corrosive Capital 

CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE SEPTEMBER 2018 

INTRODUCTION & SUMMARY 

BY ANDREW WILSON, CIPE EXECUTIVE DIRECTOR 

CIPE I 2018CHANNELING THE TIDE 

There is an alarming trend occurring worldwide that threatens democracy and free market principles. A growing volume 

of evidence indicates that many forms of capital emanating from authoritarian nations are having a corrosive effect on 

democratic institutions and private enterprise in recipient countries. The largest impact is seen in emerging markets and 

fragile economies. 

China and Russia are among the most assertive donor nations offering funding and development assistance that appear 

to, not only exploit governance gaps in countries with weak or corrupt structures, but also make the gaps wider. In many 

cases, citizens in the recipient countries have no voice in the !ending and spending deals, huge agreements are not welldocumented, and countries have lost ownership of key resources to the donors. In short, few benefit and there is little 

oversight. It is also important to analyze patterns associated with foreign investment in developing democracies. China's 

overseas investments and funding pledges have increased by more than eleven thousand percent since 2001.11 Foreign 

investments by Russia appear to be on a much smaller scale and often are not well-tracked but seem highly strategic 

and typically leverage propaganda to amplify results. 

The Center for International Private Enterprise {CIPE) uses the term "corrosive capital" to more clearly label financing 

that lacks transparency, accountability, and market orientation flowing from authoritarian regimes into new and 

transitioning democracies. This report by CIPE outlines top areas of concern to our experts on the ground and global 

partners and is supported by new proof and examples that show how "corrosive capital" is making fragile states more 

vulnerable to economic or political manipulation, and thus endangering democracy. The report also lays out potential 

actions to help mitigate the damage to foundations of democracy. 

CIPE chose the term "corrosive capital" carefully, as the wording clearly reflects the wide-ranging effects opaque capital 

can have on developing democracies. These effects range from the relatively benign consequences associated with "high 

risk" capital (that may tolerate a degree of corruption) to highly corrosive government directed investment and finance, 

which advances authoritarian foreign policy goals at the expense of local institutions and western geo-political interests. 

The term "corrosive capital/' therefore, recognizes that as with chemical acidity, authoritarian capital can have its own 

"pH" level when it comes to its effect on democratic institutions. 

CJPE's approach to combatting the effects of corrosive capital centers around identifying specific governance gaps in 

countries where democracy is at risk, then working with local partners to design and implement local projects to help 

close the gaps, as well as Walker, Christopher and Jessica ludwig, 

foster dialogue among civil society, the private sector, and lawmakers. Frequent examples of governance gaps include: 

uneven enforcement of local labor and environmental regulations, unreliable rule of law, insufficient checks and 

balances over government decision-making and expenditures, and ineffectual or inactive civil society. 

1 Charles Wolf, Xiao Wang, and Eric Warner, China's Foreign Aid and Government-Sponsored Investment Activities, RAND 

Corporation, 2013. 
79 

In the 2017 report Sharp Power: Rising Authoritarian Influence, the National Endowment for Democracy (NED) identified 

the subtle effect of the strategic use of soft power tools by authoritarian states on democratic institutions worldwide. 2 

Corrosive capital, in its higher states of "acidity," has become an effective instrument to complement these efforts. 

Consequently, there is a pressing need in weak democracies for local projects that reduce the disruptive effects of 

corrosive capital. The goal of CIPE's projects, and others, is not to stem the flow of funds, but rather to create 

institutional safeguards in the recipient countries that make the continued receipt of potentially corrosive capital less 

disruptive to democratic governance and rule of law. 

Proven policy responses to the threat posed by corrosive capital do exist and can be implemented at the local level. The~ 

include improved standards of informed consent by governments taking on foreign debt, greater transparency and 

fairness in public procurement, improved disclosure of sovereign debt, and higher standards for budget transparency. 

Policy advocacy by civil society1 including the business community and other stakeholders, is an effective strategy for 

pushing governments to implement reforms that improve accountability and transparency, while creating a fair playing 

field for all businesses. By empowering these domestic reform constituencies to demand better governance, democracy 

programming can harness the positive effects of all capital} regardless of origin} and strengthen democratic institutions 

that safeguard the interests of citizens. 

REGIONAL EXAMPLES Europe: 

Russia is reasserting its influence in the Western Balkans. While Serbia, Montenegro, Macedonia, and Bosnia and 

Herzegovina have chosen to integrate with the European Union (EU) both politically and economically, Russia has been 

exploiting their still-weak governance to sway them away from Western integration. In the last decade, Russia has 

grown from a peripheral economic power to a significant player in the region. Although the share of Russian economic 

investment is small, ranging between 6.5% and 10% of the region's GOP, Russia's influence is disproportionate, due to 

high concentration in strategic sectors such as energy, banking, mining, infrastructure, and real estate. 3 Moreover, 

Russia exerts indirect control over the recipient countries, who depend on the import of Russian raw materials and owe 

debt to Russian banks. 

An over-reliance on Russian energy imports and investments has made the governments of the Western Balkans 

particularly susceptible to pressure on strategic decisions. Examples include energy market diversification, economic 

liberalization, NATO and EU expansion, and Russian sanctions. 

Balkan and international actors have underestimated the importance of Russia's economic footprint, resulting in a 

failure to recognize the extent ofthe associated risks. Russian FOI channeled through offshore zones and tax havens 

such as Cyprus remains largely hidden, which means that countries on the receiving side are not necessarily prepared for 

the potentially negative effects on governance. The Russian government's ability to use FDI as a foreign policy tool has 

been overlooked. Western investors cannot compete with Russia, which maintains control over its corporate citizenry. 

Also, while Western countries invest in diverse assets, Russian companies focus primarily on strategic and more 

vulnerable sectors. 

In partnership with the Center for the Study of Democracy from Bulgaria, CIPE has begun working with civil society and 

business leaders throughout the Balkans to document the extent of Russian economic and political influence. CIPE has 

also identified governance gaps that Russian capital exploits. Moving forward, CIPE will work with stakeholders in the 

region to help engage in a systemic dialogue with respective governments to close these governance gaps. Such gaps are 

linked to both legislation and implementation of anti-corruption laws, competition policy, public procurement laws, and 

anti-monopoly laws. 

2 "Chapter One: From 'Soft Power' to 'Sharp Power,"' Sharp Power: Rising Authoritarian Influence~ National Endowment for 

Democracy: 2017, 22. 3 Vladimirov eta!, Russian Economic Footprint in the Western Balkans," 2018. 
80 

EXPlOITING GOVERNANCE GAPS 

Russia's economic footprint in the four Western Balkan countries has visibly expanded over the past decade. Russian 

companies have invested close to $3 billion' in the four countries, half of which has gone to Montenegro, a hub for 

Russian investment in real estate and tourism. Russian FDI stock in Montenegro accounts for nearly 30% of the recipient 

country's annual GOP. 

FIGURE 4: RUSSIAN INVESTMENT IN BALKAN COUNTRIES AND 

CORRESPONDING GOP ESTIMATES 

RU$$IAH Fl>l STOCK A$ $II ARt Of GOP 1"1 

30% 

IS'l< 

<'00$ 2006 2007 lOGS 2009 2010 2011 2012 lOll 2014 lOIS 2016 

Moreover, Russian state~owned and private energy companies dominate the region's oil and gas sectors. These firms 

gained influence through a series of privatization deals for lucrative assets, such as Serbian companies Naftna lndustrija 

Srbije (NIS) and Beopetrol, as well as the Bosnian firms Rafinerija Nafte Brod (oil refinery) and the Modrica motor oil 

processing facility. These countries remain almost entirely dependent on supplies of Russian natural gas, allowing the 

Russian state-owned company Gazprom to charge some of the highest prices for gas in Europe. Russian companies also 

have taken advantage of the closed nature of regional oil and gas markets to solidify their dominant position, 

successfully exploiting delays in market liberalization and an unwillingness to advance diversification projects. These are 

among the governance deficits Russian companies have exploited to their benefit. Further, Russia has attempted to lock 

regional governments into large scale energy projects that exceed their administrative capacities, such as the recently 

cancelled South Stream pipeline.' These projects not only sidelined efforts by regional governments to diversify but 

exposed them to significant financial risk. Non~transparent privatization procedures, in which asset vaJuations did not 

stem from objective economic assessments, have enabled Russian businesses to expand their economic presence in key 

industries. In most cases, these companies have not complied with the terms of privatization agreements, leading to 

losses for taxpayers and state budgets alike. Meanwhile, preferential regulatory treatment, including tax regimes and 

energy subsidies, allows Russian companies to register enormous profits, expand their market share and minimize tax 

payments. 

4 V!adimirov et al, Russian Economic Footprint in the Western Balkans, 2018. 5 Ibid 
81 

Æ 

To exploit these governance loopholes, Russia has attracted local power brokers by offering government-sponsored 

business opportunities at premium returns.6 These intermediaries in turn have benefitted from further business 

opportunities or Russian support for their political objectives. Ultimately, the concentration of power in small, influential 

economicMpolitical networks creates vulnerabilities that Russia can exploit to sway decision-making. 

Finally, to amplify the effect of its economic footprint, Russia has deployed an array of traditional soft power 

instruments, including media presence, support for pro-Russian domestic civil society and political parties, and high-leve 

political visits and statements. These tools have been used to support both current governments and opposition groups, 

depending on what suits Russia's ends. In Bosnia and Herzegovina, Russian political support has exacerbated internal 

divisions on both the economic and political fronts, successfully diverting the country from its path toward NATO and EU 

accession. 

SERBIA: Serbia is the most visible manifestation of Russia's economic footprint in the Balkans. Russian entities have 

gradually taken over the Serbian energy sector. Russian entities, directly or indirectly, affect as much as 10% of the 

economy, where corporate presence is measured by volume of revenues and assets controlled by Russian companies in 

Serbia. 

There are two main interconnected factors in Russo-Serbian relations that have laid the foundations for Russia's 

expanded power in the country. One is Russian support for Serbia's non-recognition of Kosovo's declaration of 

independence, and the second is a 2008 energy agreement that included Gazprom's takeover of Serbia's largest state 

owned company, oil and gas firm NIS. The indirect Russian influence has different forms, including local companies' 

dependence on Russian raw material imports such as natural gas; debts accumulated for gas supply; and domestic 

companies' dependence on exports to Russia and Russian-controlled bank loans. 

The Russian economic footprint is most obvious in the energy sector, where Gazprom and Lukoll dominate the oil and 

fuels markets. Serbia is almost fully dependent on natural gas imports from Russia, and local politically-connected 

intermediaries prevent supply diversification and market liberalization. 

MONTENEGRO: The last decade has seen a significant level of economic engagement by Russian companies and 

individuals in Montenegro. Vital economic ties have been sustained despite the fact that bilateral political relations 

worsened as this small Adriatic country stepped up its efforts to complete the NATO accession process. The 

deterioration of political relations between the two countries culminated in an alleged failed coup attempt in 2016 and 

the Russian backing of the opposition Democratic Front(DF) party. Even so, Russian investment flows never dropped 

below 10% of total FDI and accounted for almost 30% of Montenegro's GOP, as noted earlier. 'Russia has exploited 

governance gaps to take advantage of Montenegro's lucrative privatization opportunities and to extract state subsidies 

in Montenegro. In addition, Russia has assertively tried to meddle in Montenegro's domestic politics. Russia supports 

political parties, launches media attacks against Montenegro's government and allegedly organized street protests and 

attempted a coup d'etat before the country joined NATO. 

Montenegro's largest company, the Podgorica Aluminum Plant (KAP), was once part of the metal empire of an 

influential Russian private investor who is reported to have close ties to the Russian government. In 2014, bankruptcy 

procedures were initiated after KAP accrued more than $300 million in debt. 8 The aluminum plant, which used to 

contribute approximately 15% of Montenegro's GDP, 51% of exports, and employed 2.3% of the population, has shrunk 

significantly since then. A court claim involving hundreds of millions of USD was launched in late 2016 by the Russian 

businessman against the government of Montenegro and could put the country at serious financial risk. 9 

6 Ibid 

7 1bid 

8 Dusica To movie, "Montenegro Sells Bankrupt Aluminum Plant," Balkan Insight, June 11, 2014. 9 "Russia's Deripaska sues Montenegro for lost aluminum investment," Reuters, December 7, 2016.