China's Propaganda and Influence Operations, Its Intelligence Activities That Target The United States, and The Resulting Impacts On U.S. National Security

CHINAS PROPAGANDA AND INFLUENCE
OPERATIONS, ITS INTELLIGENCE ACTIVITIES THAT

TARGET THE UNITED STATES, AND THE RESULTING
IMPACTS ON U.S. NATIONAL SECURITY

HEARING

BEFORE THE

U.S.-CHINA ECONOMIC AND SECURITY
REVIEW COMMISSION

ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
_________

APRIL 30, 2009

_________

Printed for use of the
Uni ted States-Chi na Economi c and Securi ty Revi ew Commi ssi on
Avai l abl e vi a the Worl d Wi de Web: www.uscc.gov

UNITED STATES-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION
WASHI NGTON : J UNE 2009

U.S.-CHI NA ECONOMI C AND SECURI TY REVI EW COMMI SSI ON

CAROLY N BARTHOLOMEW, Chairman
LARRY M.WORTZEL, Vi ce Chairman

Commi ssi oners:
PETER T.R. BROOKES Hon. WI LLI AM A. REI NSCH
DANI EL BLUMENTHAL DENNI S C. SHEA
ROBI N CLEVELAND DANI EL M. SLANE
J EFFREY FI EDLER PETER VI DENI EKS
Hon. PATRI CK A. MULLOY MI CHAEL R. WESSEL

T. SCOTT BUNTON, Execut ive Di rect or
KATHLEEN J . MI CHELS, Associ at e Direct or

The Commission was created on October 30, 2000 by the Floyd D. Spence National
Defense Authorization Act for 2001 1238, Public Law No. 106-398, 114 STAT.
1654A-334 (2000) (codified at 22 U.S.C. 7002 (2001), as amended by the Treasury and
General Government Appropriations Act for 2002 645 (regarding employment status of
staff) & 648 (regarding changing annual report due date from March to J une), Public
Law No. 107-67, 115 STAT. 514 (Nov. 12, 2001); as amended by Division P of the
"Consolidated Appropriations Resolution, 2003," Pub L. No. 108-7 (Feb. 20, 2003)
(regarding Commission name change, terms of Commissioners, and responsibilities of
Commission); as amended by Public Law No. 109-108 (H.R. 2862) (Nov. 22, 2005)
(regarding responsibilities of Commission and applicability of FACA); as amended by
Division J of the Consolidated Appropriations Act, 2008, Public Law No. 110-161
(December 26, 2007) (regarding responsibilities of the Commission, and changing the
Annual Report due date from J une to December).

The Commi ssi on s ful l charter i s avai l abl e at www.uscc.gov.

ii
May 26, 2009

The Honorable ROBERT C. BYRD
President Pro Tempore of the Senate, Washington, D.C. 20510
The Honorable NANCY PELOSI
Speaker of the House of Representatives, Washington, D.C. 20515

DEAR SENATOR BYRD AND SPEAKER PELOSI:

We are pleased to transmit the record of our April 30, 2009 public hearing on
Chinas Propaganda and Influence Operations, Its Intelligence Activities that Target the
United States, and the Resulting Impacts on U.S. National Security. The Floyd D.
Spence National Defense Authorization Act (amended by Pub. L. No. 109-108, section
635(a)) provides the basis for this hearing, stating that the Commission shall examine
the triangular economic and security relationship among the United States, Taipei and
the People's Republic of China, as well as the implications of restrictions on speech
and access to information in the People's Republic of China for its relations with the
United States in the areas of economic and security policy.

The first panel of the day examined the Chinese governments propaganda
directed to foreign audiences, and the extent to which this might affect U.S.-China
relations. Dr. Nicholas J . Cull, professor of public diplomacy at the University of
Southern California, opened the panel with a discussion of Chinas public diplomacy,
which he defined as the process by which an international actor conducts foreign policy
by engaging a foreign public. He identified five components in this process: listening,
advocacy, cultural diplomacy, exchange diplomacy, and international broadcasting, and
maintained that the Peoples Republic of China (PRC) engages actively in all of them. He
also described an effort by the PRC to buy friends by cultivating influential figures in
developing countries, and advised that such efforts could be successful in displacing
western influence and values throughout much of the world. In response, he advocated
renewed efforts for U.S. public diplomacy, particularly through the expansion or revival
of U.S.-supported news broadcasting. Next, Dr. J udy Polumbaum, professor of
journalism and mass communications at the University of Iowa, focused on the role of
journalists within Chinas state-controlled media system. She emphasized that Chinas
media system is not monolithic, and that different institutional actors may have differing
outlooks and interests. She also stated that Chinas reported plan to expand English-
language media outlets does not necessarily represent a systematic effort to enhance the
PRCs foreign propaganda, but might be explained at least in part as bureaucratic empire
building by actors such as the Xinhua state news agency. Finally, Dr. Anne-Marie
Brady, associate professor of political science at the University of Canterbury, New
Zealand, discussed the Chinese Communist Party (CCP)s efforts to take a less visible
hand in direction of the state mediato employ management rather than control
and to make its propaganda more convincing and effective through the adoption of
western practices. Despite this seemingly softer touch, Dr. Brady emphasized the
continuing critical importance of propaganda as the life blood of the Party and its effort
iii
to maintain itself in power.

Witnesses in the second panel examined ways in which the Chinese government
has allegedly sought to levy influence over U.S. institutions. Dr. Ross Terrill, associate in
research with the J ohn K. Fairbank Center for Chinese Studies at Harvard University,
testified about PRC efforts to influence the writings of U.S. opinion-makers such as
academics and think tank researchers. He described both coercive steps, such as the
denial of visas to writers who angered the Chinese government, as well as more subtle
efforts to co-opt scholars and institutions through financial donations made by parties
friendly to Beijings views. In response, he recommended that the United States resist
such efforts to pick winners and losers among academics who study China. Following
these remarks, Dr. Eric Anderson, analyst with Science Applications International
Corporation, described in his testimony alleged efforts by the PRC to gain leverage over
U.S. policy through state-backed investments in the U.S. financial sector. Dr. Anderson
concluded that no signs of such efforts could be found, and that Chinese investments
were benign actions undertaken in the expectation of profitable returns. The last speaker
of the panel, Dr. J acqueline Newmyer, President and CEO of the Long-Term Strategy
Project, analyzed alleged PRC efforts to influence U.S. institutions within the broader
context of PRC foreign policy strategy. In her testimony, she described an active and
coordinated effort by the PRC authorities to manipulate foreign perceptions of Chinas
rise and future course, supporting this assertion with quotations from internal, restricted-
distribution CCP publications. As cited by Dr. Newmyer, these documents called for the
use of public relations weaponssuch as the cultivation of prominent people and
media outlets in other countriesto create a benign and reassuring image of China.

The third panel discussed the extent of Chinese espionage directed against the
United States. Drawing upon 25 years of service with the FBI, Mr. I.C. Smith, a former
special agent with the Federal Bureau of Investigation, observed that the PRC views the
United States as its number one adversary, and he also directly stated his opinion that
the PRC represented the number one threat to the United States. He described the
Chinese model of espionage as relying heavily on seeking to recruit or intimidate
Americans of Chinese heritage into performing tasks on behalf of the Chinese
government. He also noted the decentralized and frequently amateur nature of Chinese
intelligence gathering, particularly as it pertains to the acquisition of technology. Mr.
Smith warned that the large numbers of Chinese students entering the United States
would include many students either encouraged or intimidated by the government into
seeking out technological acquisitions on behalf of the PRC. He advised stricter
reciprocity in dealing with the PRC, to include possibly cutting the number of visas
granted to Chinese students. Dr. J ames Mulvenon, director of the Center for Intelligence
Research and Analysis, Defense Group, Incorporated, focused his remarks on economic
espionage carried out by espionage entrepreneurs who did not possess any formal
intelligence training. He identified the PRC as the largest perpetrator of economic
espionage against the United States, and described extensive mom and pop operations
directed at acquiring technology through secondary market distributors, as well as via
exports that involved the obfuscation of end users. By way of response, he advised that
the United States apply a means-ends test in order to best focus on items that the Chinese
iv
seek to acquire in order to fill gaps in their military capabilities, and to work more closely
with the Hong Kong authorities to block transshipments of dual-use technology.

The hearings final panel examined Chinese cyber espionage directed against the
United States. In his testimony, Mr. Kevin Coleman, senior fellow with the Technolytics
Institute, assessed that we are in the early stages of a cyber arms race, and presented a
stern warning that the United States is not adequately prepared for the level of cyber
threat that it currently faces. He opined that China, in particular, was the source of four
times as many cyber attacks against U.S. targets as any other country. Next, Mr. Rafal
Rohozinski, principal with the SecDev Group of Ottawa, Canada, described his recent
research analyzing a cyber-espionage network called Ghost Net that had infected over
1,200 computers of government and other political entities in 103 different countries. His
organization traced the control servers for this network back to China; and while he could
not conclusively prove PRC government involvement, he opined that aspects of Ghost
Nets activities showed signs of consciously directed intelligence collection whose
effective exploitation would require resources beyond that of a private actor. However,
Mr. Rohozinski counseled against implementing overly restrictive internet security that
would throw the baby of the internets benefits out with the bathwater, and
recommended instead improving awareness of, and training in, existing internet security
practices.

The prepared statements of the hearing witnesses can be found on the
Commissions website at www.uscc.gov, and the complete hearing transcript also will be
made available on the website. Members of the Commission are available to provide
more detailed briefings. We hope the information from this hearing will be helpful as the
Congress continues its assessment of U.S.-China relations. The Commission will
examine these issues in greater depth, together with the other issues enumerated in its
statutory mandate, in its 2009 Annual Report that will be submitted to Congress in
November 2009.

Sincerely yours,

Carolyn Bartholomew Larry M. Wortzel, Ph.D.
Chairman Vice Chairman

cc: Members of Congress and Congressional Staff

v
CONTENTS
_____

THURSDAY, APRIL 30, 2009

CHINAS PROPAGANDA AND INFLUENCE OPERATIONS, ITS INTELLIGENCE
ACTIVITIES THAT TARGET THE UNITED STATES, AND THE RESULTING
IMPACTS ON U.S. NATIONAL SECURITY

Opening statement of Commissioner William A. Reinsch, Hearing Cochair....................1
Opening statement of Commissioner Peter T.R. Brookes, Hearing Cochair..2

PANEL I: CHINAS EXTERNAL PROPAGANDA EFFORTS

Statement of Dr. Nicholas J . Cull, Professor of Public Diplomacy, University of
Southern California, Los Angeles, CA5
Prepared statement....6
Statement of Dr. J udy Polumbaum, Professor of J ournalism and Mass
Communications, University of Iowa, Iowa City, Iowa....19
Prepared statement..21
Statement of Professor Anne-Marie Brady, School of Political and Social Sciences,
University of Canterbury, Christchurch, New Zealand.30
Prepared statement..32
Panel I: Discussion, Questions and Answers ...37

PANEL II: CHINAS EFFORTS TO EXERT INFLUENCE ON U.S. INSTITUTIONS
AND PUBLIC OPINION

Statement Dr. Ross Terrill, Associate in Research, J ohn K. Fairbank Center for
Chinese Studies, Harvard University, Cambridge, Massachusetts64

Statement of Dr. Eric C. Anderson, Senior Policy Analyst; Fellow, New Ideas
Fund, McLean, Virginia.....70
Prepared statement..............73
Statement of Dr. J acqueline Newmyer, President and CEO, Long Term Strategy
Group, Cambridge, Massachusetts................85
Prepared statement .90
Panel II: Discussion, Questions and Answers ..94

vi
vii

PANEL III: CHINAS ESPIONAGE AND INTELLIGENCE OPERATIONS
DIRECTED AT THE UNITED STATES

Statement of Mr. I.C. Smith, Special Agent (Retired), Federal Bureau of
Investigation, Washington, DC111
Prepared statement114
Statement of Dr. J ames Mulvenon, Director, Center for Intelligence Research and
Analysis, Defense Group, Inc., Washington, DC116

Panel III: Discussion, Questions and Answers ..120

PANEL IV: CHINAS CYBER ESPIONAGE DIRECTED AGAINST THE UNITED
STATES

Statement of Mr. Kevin G. Coleman, Senior Fellow, The Technolytics Institute,
McMurray, Pennsylvania.145
Mr. Rafal A. Rohzinski, Principal and CEO, The SecDev Group, and Advisory Board
Member at The Citizen Lab, Munk Center for International Studies, University of
Toronto, Ontario, Canada158
Panel IV: Discussion, Questions and Answers...162

CHINA'S PROPAGANDA AND INFLUENCE
OPERATIONS, ITS INTELLIGENCE ACTIVITIES
THAT TARGET THE UNITED STATES, AND THE
RESULTING IMPACTS ON U. S. NATIONAL
SECURITY

_________

THURSDAY, APRIL 30, 2009

U.S.-CHI NA ECONOMI C AND SECURI TY REVI EW COMMI SSI ON

Washi ngt on, D. C.

The Commi ssi on met i n Room 485, Russel l Senate Offi ce
Bui l di ng at 9:00 a.m.

OPENING STATEMENT OF COMMISSIONER WILLIAM A.
REINSCH, HEARING COCHAIR

HEARI NG COCHAI R REI NSCH: Good morni ng, everyone. On
behal f of our Chai r, Carol yn Barthol omew, who wi l l be j oi ni ng us
l ater, and our Vi ce Chai r, Larry Wortzel , who wi l l al so be j oi ni ng us
l ater, and the other members of the U.S.-Chi na Economi c and Securi ty
Revi ew Commi ssi on, I 'd l i ke to wel come al l of you to thi s heari ng, the
fourth thi s year to exami ne i ssues rel ated to our statutory mandate
from Congress.
Today, we wi l l exami ne i ssues rel ated to the Chi nese
government's propaganda di rected at forei gn audi ences, i ts al l eged
efforts to exert i nfl uence over U.S. i nsti tuti ons and U.S. publ i c
opi ni on, and i ts espi onage and cyber espi onage acti vi ti es di rected
agai nst the Uni ted States.
We're goi ng to be tal ki ng about thi ngs that al l governments do i n
1

one form or another. Governments seek to i nfl uence publ i c opi ni on:
that of thei r own peopl e and that of others. Governments apparentl y
l i ke to be l oved as much as peopl e l i ke to be l oved. What we are
tryi ng to understand today i s how the Chi nese do i t, what tacti cs they
empl oy, and to some extent what the resul ts are?
Many i ssues rel ated to these topi cs have been si gni fi cant poi nts
of controversy i n recent years. For exampl e, are the reported pl ans of
the Chi nese government to substanti al l y i ncrease i ts news coverage
and publ i ci ty efforts di rected at forei gn audi ences a cause for any
concern i n the Uni ted States, or do these efforts represent beni gn
publ i c di pl omacy efforts of the type used by nearl y al l governments?
Does the Chi nese government seek undue i nfl uence over
academi cs and other shapers of opi ni on i n the Uni ted States by
exerti ng personal pressure on them?
What i s the extent to whi ch Chi nese i ntel l i gence operati ons
target control technol ogi es and restri cted i nformati on, and to what
extent do such efforts affect U.S. nati onal securi ty and our future
economi c competi ti veness?
I t's our hope that thi s heari ng wi l l hel p to shed more l i ght on
some of these debates and hel p to better i nform the Commi ssi on as we
prepare our annual report to Congress l ater thi s year.
We're j oi ned today by a number of trul y excepti onal wi tnesses,
experts i n these fi el ds, who wi l l hel p us further expl ore these i ssues.
They i ncl ude academi c authori ti es on Chi nese pol i ti cs and
propaganda, nati onal securi ty experts from the defense consul ti ng
communi ty, a reti red agent of the FBI , and expert researchers i n the
fi el d of cyber securi ty. We wel come thei r presence wi th us today, and
we l ook forward to heari ng thei r vi ews on these i ssues.
Wi th that, l et me turn the fl oor over to my col l eague and the
cochai r for thi s heari ng, Commi ssi oner Peter Brookes.

OPENING STATEMENT OF COMMISSIONER PETER T. R.
BROOKES, HEARING COCHAIR

HEARI NG COCHAI R BROOKES: Thank you, Bi l l , and thank
you for that i ntroducti on. Good morni ng, everyone, and wel come. I 'l l
make a short statement here for the record, and then we'l l get started
wi th thi s morni ng's heari ng.
The topi cs of today's heari ngs have been made al l the more
rel evant and ti mel y by a seri es of recent medi a revel ati ons rel ated to
the Chi nese government's empl oyment of propaganda, i ntel l i gence
operati ons and cyber espi onage i n i ts rel ati ons wi th the Uni ted States.
Earl y thi s year, medi a reports emerged that the Chi nese
government pl ans to spend an esti mated 45 bi l l i on renmi nbi , or
2

approxi matel y 6.6 bi l l i on U.S. dol l ars, to update i ts forei gn l anguage
news servi ce, to i ncl ude pl ans for a 24-hour Engl i sh-l anguage news
network that woul d represent worl d affai rs from the vi ewpoi nt of
Bei j i ng.
Whi l e i t i s the ri ght of every government to seek to peaceful l y
promote i ts vi ews to i nternati onal audi ences, i t i s al so prudent to
exami ne the effects that such propaganda effects coul d have on U.S.-
Chi na rel ati ons.
Even more stri ki ng, however, and of greater concern, have been
recent revel ati ons of al l eged Chi nese espi onage agai nst the Uni ted
States. I n j ust one such exampl e, among many others, earl i er thi s
month, the owner of a fi rm i n Newport News, Vi rgi ni a was sentenced
for i l l egal l y exporti ng Chi nese techni cal data rel ated to systems
components for space l aunch vehi cl es.
Thi s has been fol l owed by al l eged hacker penetrati ons i nto
defense contractor computer systems rel ated to the devel opment of our
most advanced fi ghter, the F-35, as wel l as al l eged mappi ng of the
computer networks that control el ectri cal gri ds wi thi n the Uni ted
States.
Whi l e publ i c i denti fi cati on of the hackers i n these i nstances has
not been concl usi ve, the el ectroni c trai l s i n both i nstances have
reportedl y l ed back to Chi na.
Whether comi ng i n human or el ectroni c form, such espi onage i s
of seri ous concern to both the nati onal securi ty and future economi c
securi ty of the Uni ted States. We at the Commi ssi on hope that our
efforts thi s year wi l l hel p to further cl ari fy these compl ex i ssues for
both the Congress and the broader publ i c.
Wi th that, I 'l l turn i t over to Commi ssi oner Rei nsch who wi l l
commence the fi rst panel today.
HEARI NG COCHAI R REI NSCH: Thank you.
Before I i ntroduce the panel i sts, l et me si mpl y say procedural l y
your enti re statements wi l l be put i n the Commi ssi on's record so we're
hopi ng that you'l l summari ze them, and we've al l ocated seven mi nutes
to each of you to do that.
There s no ti mer I 'm tol d, but j ust watch the l i ghts. Unl i ke
duri ng the Cul tural Revol uti on, red means stop, not go. So the red
l i ght wi l l go on at seven, and si nce there are j ust three of you, you
don't need to stop i n mi d-sentence but take that as a cl ue, and as I
sai d, your ful l statements wi l l be i n the record.
We'l l proceed wi th al l three of you i n the order i n whi ch I 'm
about to i ntroduce you, and then we'l l open al l three of you up to
questi ons when you have concl uded your panel .
The fi rst panel consi sts of Dr. Ni chol as Cul l , who i s Professor of
Publ i c Di pl omacy and Di rector of the Masters Program i n Publ i c
3

Di pl omacy at the Uni versi ty of Southern Cal i forni a. He i s al so
Presi dent of the I nternati onal Associ ati on for Medi a and Hi story, a
member of the Publ i c Di pl omacy Counci l , and has worked cl osel y wi th
the Bri ti sh Counci l 's Counterpoi nt Thi nk Tank.
Much of hi s work has focused on the rol e of cul ture,
i nformati on, news and propaganda i n forei gn pol i cy. He contri buted
the chapter "The Publ i c Di pl omacy of the Modern Ol ympi c Games and
Chi na's Soft Power Strategy" to Owni ng t he Ol ympi cs: Narrat i ves of
t he New Chi na.
He i s al so the author of The Col d War and t he Uni t ed St at es
I nf ormat i on Agency: Ameri can Propaganda and Publ i c Di pl omacy.
Dr. J udy Pol umbaum i s a Professor of J ournal i sm and Mass
Communi cati ons at the Uni versi ty of I owa where she has taught si nce
1989. Her research focuses on j ournal i sm and medi a i n mai nl and
Chi na. She has worked as a newspaper reporter i n Vermont, Cal i forni a
and Oregon. She taught j ournal i sm at the Chi nese Academy of Soci al
Sci ences postgraduate school from 1979 to 1980 and worked as a
wri ter and edi tor for the nati onal Engl i sh-l anguage publ i cati on Chi na
Dai l y duri ng i ts fi rst year of publ i cati on.
She has a bachel or's degree i n East Asi an Studi es from McGi l l
Uni versi ty, a master's from Col umbi a Graduate School of J ournal i sm,
and a doctorate i n Communi cati on from Stanford.
Her most recent book i s Chi na I nk: The Changi ng Face of
Chi nese Journal i sm. Great pun.
Wi nni ng the award for the farthest travel er not onl y for thi s
panel , but I thi nk for al l ti me i n the Commi ssi on's hi story, i s Dr.
Anne-Mari e Brady, who i s an Associ ate-Professor of Pol i ti cal Sci ence
at the Uni versi ty of Canterbury, New Zeal and, who speci al i zes i n
researchi ng Chi nese domesti c and forei gn pol i ti cs.
Dr. Brady has wri tten several books and numerous schol arl y
arti cl es on Chi nese pol i ti cs. She graduated from the Uni versi ty of
Auckl and wi th both a B.A. and an M.A. i n Chi nese and Pol i ti cs. She
recei ved her Ph.D. i n East Asi an Studi es: I nternati onal Rel ati ons from
the Austral i an Nati onal Uni versi ty.
I n 2005, Dr. Brady was awarded a three-year research grant by
the Marsden Fund of the Royal Soci ety of New Zeal and to set up an
i nternati onal research team on the topi c of Chi na's propaganda system.
I n 2008, she researched and produced a BBC radi o documentary:
"The Message from Chi na," whi ch di scusses the moderni zati on of the
Chi nese domesti c and forei gn propaganda system.
So wi th that, why don't we proceed wi th Dr. Cul l and Dr.
Pol umbaum and Dr. Brady i n that order.
Thank you.

4

STATEMENT OF DR. NICHOLAS J. CULL
PROFESSOR OF PUBLIC DIPLOMACY, UNIVERSITY OF
SOUTHERN CALIFORNIA, LOS ANGELES, CALIFORNIA

DR. CULL: Thank you.
I 'd l i ke to thank the Commi ssi on for the i nvi tati on to be here
today and to speak about thi s subj ect because I thi nk i t's a cruci al
subj ect for the i nterests of the Uni ted States and of the West more
general l y, and as you'l l detect, I 'm not an Ameri can. But I feel thi s i s
of concern to your al l i es as wel l as yoursel ves, and the subj ect of
Chi na, Chi na on the move, especi al l y i n thi s fi el d of medi a and publ i c
di pl omacy.
As I see publ i c di pl omacy, i t's di vi ded i nto fi ve el ements
through whi ch an i nternati onal actor conducts forei gn pol i cy by
engagi ng a forei gn publ i c. Those el ements are: l i steni ng; advocacy;
cul tural di pl omacy; exchange di pl omacy; and i nternati onal
broadcasti ng. And Chi na i s movi ng i n al l fi ve of these fi el ds.
I n i ts l i steni ng, i t i s col l ati ng data, conducti ng opi ni on pol l s,
anal yzi ng thi s, and changi ng pol i ci es, changi ng i ts rhetori c, and
feedi ng thi s i nto i ts forei gn pol i cy, devel opi ng a network of embassi es
around the worl d, of posts, expandi ng i ts di pl omati c posts around the
worl d.
I n terms of advocacy, i t's maki ng sure that i t's getti ng i ts
message out, further expandi ng the network of news agency posts.
I n terms of i ts cul tural di pl omacy, we see the amazi ng
i nvestment i n Confuci us I nsti tutes. I t l ooks as i f we'l l be at the total
of 200 worl dwi de by earl y next year. We see l arge-scal e i nternati onal
student recrui tment. We see the expansi on i n i nternati onal
broadcasti ng of the pl an to l aunch the 24-hour news network, and the
new Engl i sh l anguage newspaper that they're tal ki ng about devel opi ng.
We al so see thi s i ni ti ati ve around the worl d to promote Chi na
real l y by buyi ng fri ends, through l avi sh ai d programs, and open-
handedness to devel opi ng nati ons at a ti me when the Uni ted States and
Western al l i es are i ncreasi ngl y aski ng for pol i ti cal reform as a pri ce
for ai d, and I thi nk thi s i s a chal l enge.
I t's i nteresti ng to see when you're anal yzi ng Chi nese rhetori c and
the debate around forei gn pol i cy wi thi n Chi na, how Chi na has l atched
onto the i dea of soft power and i s l ooki ng to l everage soft power, and
of course thi s was real l y obvi ous i n the Ol ympi cs. I t wi l l be obvi ous
agai n i n the Shanghai Exposi ti on.
I feel that Chi na i s doi ng nothi ng i ntri nsi cal l y wrong i n havi ng a
publ i c di pl omacy dri ve to engage the opi ni on of the worl d; i t's a wi se
pol i cy from Chi na's poi nt of vi ew. What woul d be wrong woul d be for
us to i gnore i t, and the appropri ate response of the West shoul d be to
5

meet the overtures for exchange i n the spi ri t i n whi ch they're i ntended
and to accept opportuni ti es to know Chi na better and faci l i tate Chi na's
knowi ng more of the West.
But equal l y where Chi na i s chal l engi ng the Western presence,
where Chi na i s di spl aci ng Western voi ces, and especi al l y i n i ts
di spl acement of thi ngs l i ke Western medi a partners i n Afri ca, whi ch
we are now seei ng, I thi nk that the Uni ted States speci fi cal l y needs to
rai se i ts game i n i ts own publ i c di pl omacy.
I don't thi nk that the Uni ted States needs to expand i ts publ i c
di pl omacy sol el y to keep pace wi th Chi na anymore than i t shoul d do so
sol el y to prevai l over radi cal I sl am, but I do bel i eve that the Uni ted
States needs to expand i ts publ i c di pl omacy because thi s i s an
essenti al el ement of forei gn pol i cy i n the 21st century, and i n an age
when power i ncreasi ngl y rests on publ i c opi ni on, success requi res
effecti vel y engagi ng wi th the peopl e, and anythi ng that thi s
Commi ssi on can do to encourage the rebui l di ng of Ameri ca's publ i c
di pl omacy I thi nk woul d be a wi se i nvestment i n the future of thi s
country and the i deal s on whi ch i t's bui l t.
Thank you, agai n, for i nvi ti ng me here today.
[The statement fol l ows:]

Testimony before the US-China Economic and Security Review
Commission hearing:

Chinas Propaganda and Influence Operations, its
Intelligence Activities that Target the United States and
its Resulting Impacts on US National Security,
30 Apr i l 2009

Dr. Nicholas J . Cull,
Professor of Public Diplomacy, University of Southern California.

The Frame: Public Diplomacy and Soft Power

The phrase Public Diplomacy means simply the process by which an
international actor conducts foreign policy by engaging a foreign public. Though the
term in its present use dates only from 1965, the five core elements of Public Diplomacy
each have much greater antiquity. The foundational element of Public Diplomacy is
Listening: engaging a foreign public by collecting and analyzing its opinions and feeding
that into both the formation and explanation of policy. The second is Advocacy: the
direct presentation of policy and information. The third is Cultural Diplomacy: the
facilitated export of or participation in culture, including sports. The fourth is Exchange
Diplomacy, mutual exchange of personnel, especially students, with a foreign partner.
6

The fifth is International Broadcasting: engaging foreign publics through direct
broadcasting of news particularly. While these forms overlap the basic elements of
Public Diplomacy cohere around distinct infrastructures, time-frames of operation,
sources of credibility and even working practices. The entire structure of Public
Diplomacy works with the policies, culture and values of the society conducting it the
factors which J oseph Nye has famously labeled the Soft Power of an actor. These Soft
Power factors must also be considered in any assessment of an actors Public Diplomacy:
the best Public Diplomacy structures in the world can not sell a bad policy, but an
effective Public Diplomacy structure not only can make good policies known, it can feed
international opinion back into the policy process and make good policies even better.
1

The Origins of Contemporary Chinese Public Diplomacy

There are three basic points of origin for contemporary Chinese Public
Diplomacy. First, is a traditional Chinese concern with issues of image in all
relationships. Second, is the history of external propaganda practiced by the Communist
regime. Third, is the recent realization of the central role that Public Diplomacy and
communication must take in the new world. This last point is the immediate cause of the
policies that writer J oshua Kurlantzick has dubbed Chinas Charm Offensive.
2

Chinese culture places great value on personal image, through the concepts which
the west translates as face (Lian, a concept of personal honor and moral worth, and
Mianzi, a concept of social prestige).
3
Public Diplomacy reflects an extension of these
concerns to the international sphere. Centuries before J oseph Nye, Confucius himself
spoke of attracting by virtue (yide laizhi) and argued that an image of virtue and
morality was the foundation of a stable state.
4
Successive Chinese governments, as well
as Taiwan and Singapore, have deployed foreign policies to the same ends.

The revolutionary government of Mao tutored in the international propaganda
of the Soviet Union was swift to extend its own use of propaganda abroad. The
traditional term for such work is dui wai xuan chuan or wai xuan meaning external

1
For further discussion see Nicholas J . Cull, Public Diplomacy: Taxonomies and
Histories ANNALS of the American Academy of Political and Social Science, Vol. 616,
March 2008, (special issue Public Diplomacy in a changing world,) pp. 31-54 and
J oseph Nye, Soft Power: The Means to Success in World Politics, PublicAffairs: New
York, 2004.
2
J oshua Kurlantzick, Charm Offensive: How Chinas Soft Power is Transforming the
World. Yale: New Haven, 2007.
3
For a classic exploration of the concepts see David Yau-Fai Ho, On the Concept of
Face, American Journal of Sociology, Vol. 81 (4), 1976, pp. 86784.
4
Qing Cao, Selling Culture: ancient Chinese conceptions of the other in legends, in
Stephen Chan, Peter Mandaville, and Rolan Bleiker (eds), The Zen of International
Relations: IR theories from East to West. Palgrave: New York, 2001, pp. 178-202.
7

propaganda.
5
Maos xuan chuan was based on a tightly controlled message. The
regime carefully selected those aspects of China that would be seen abroad, and censored
much of the rest. Favored journalists were allowed glimpses of the nation, while state
journals like Beijing Review showcased achievements. Radio Beijing harangued the
world about the Chairmans monopoly on virtue. The regime sought to export its
revolution by sponsoring Communist Parties in East Asia and later in Africa and Latin
America.
6

The post-Mao reforms launched in 1978 by Deng Xiao Ping included the opening
of China to international exchange and tourism. In 1983 the Ministry of Foreign Affairs
opened an Information Department. Then, in 1989 the house of cards that was Chinas
international reputation came crashing down as the world witnessed images of the
repression of the protests in Tiananmen Square. In the aftermath of the crisis Beijing
engaged the international public relations firm Hill and Knowlton to begin the process of
rebuilding Chinas image abroad. The parallel process of consolidation followed
included the reconfiguration of domestic and international information work under a
single State Council Information Office (SCIO), founded in 1991. Its declared purpose
was to promote China as a stable country in the process of reform, a China that takes
good care of its population, including minorities, and works hard to reduce poverty. It
was a foundation for future work.
7

As the 1990s progressed, Beijing placed renewed emphasis on its international
image. SCIO flourished under the dynamic leadership of the former vice major of
Shanghai, Minister Zhao Qizheng, who led the office from 1998 to 2005.
8
Wary of the
negative spin that the west gave to propaganda, his innovations including dropping the
term xuan chuan in favour of the more benign shuo ming or explaining.
9
He had an

5
For discussion and survey of contemporary work see Wang Yiwei, Public Diplomacy
and the Rise of Chinese Soft Power, ANNALS of the American Academy of Political and
Social Science, Vol. 616, March 2008, (special issue Public Diplomacy in a changing
world,) pp. 257-290.
6
For a survey of the evolution of Chinese PD see Hongying Wang, National Image-
Building and Chinese foreign policy, China: An International Journal, vol. 1, no. 1,
March 2003, pp. 46-72.
7
Ingrid dHooghe, Public Diplomacy in the Peoples Republic of China, in J an
Melissen (ed.) The New Public Diplomacy: Soft Power in International Relations,
Palgrave, London, 2005, pp. 92, 98-99.
8
Erik Eckholm, China admits ecological sins played role in flood disaster, New York
Times, 26 August 1998, p. A1.
9
Todd Crowell and David Hsieh, Beijings spin doctor, Asia Week, 22 September 2000.
In 2005 an anthology of Zhao Qizhengs speeches appeared with the title Xiang Shijie
Shuoming Zhongguo (Explain China to the World). See also Hong Kong daily analyses
officials role in improving Chinas public image, BBC Monitoring International
Reports, 7 J une 2005.
8

uncharacteristic charisma and was prepared to take risks including conceding error and
sharing the stage with potential critics, as when in 2005 he engaged in a sustained
dialogue on religion with the American evangelist Luis Palau.
10
Zhaos determination to
present China to the world was supported at the highest level and in February 1999
President J iang Zemin called for China to establish a publicity capacity to exert an
influence on world opinion that is as strong as Chinas international standing.
11
This led
directly to a number of parallel policies, coordinated through the duel structure of the
Communist Party and SCIO. Zhao was double-hatted as both director of SCIO and of the
International Communication Office of the Central Committee of the Communist Party.
12

In 2005 Zhao Qizheng moved to his present role as dean of the Communication
School at Remin University and a member of the National Committee of the Chinese
Peoples Political Consultative Conference (CPPCC), where he is vice chair of its foreign
affairs committee. Since his departure, the most prominent figure in Chinese Public
Diplomacy has been the director of the Publicity Department of the Central Committee,
Lui Yushan. Director of the Publicity Department since 2002 and a member of the
Politburo since 2007, Lui is a regular source of edicts on matters of propaganda and
international image at home and abroad and has personally taken part in Chinas charm
offensive by conducting international visits such as a trip to Egypt in November 2008.
13

The present director of SCIO is Wang Cheng, who is integrated into the party system
through his duel role as deputy to Lui Yushan in the Party Publicity Department.

During the course of 2007 the Chinese government began to focus explicitly on
Soft Power as a dimension of foreign policy. In February 2007 Soft Power was the
subject of the annual conferences of both the National Peoples Congress (Chinas
parliament) and the Chinese Peoples Political Consultative Conference. Participants
acknowledged the scale of the challenge that lay ahead.
14
The year culminated in
October with a formal call by President Hu J intao at the 17
th
National Congress of the
Communist Party to enhance the Soft Power of Chinese culture though methods
including management of the internet and investment in cultural institutions at home.
The great rejuvenation of the Chinese nation he argued will definitely be accomplished
by the thriving of Chinese culture.
15
The theme has been widely underlined. Typical

10
Luis Palau and Zhao Qizheng, A Friendly Dialogue Between an Atheist and a
Christian, Zondervan: Grand Rapids, Michigan, 2008.
11
President calls for further propaganda work to enhance Chinas image abroad,
Xinhua, 28 February 1999 as cited in Kurlantzick, Charm Offensive, p. 39.
12
The structure may be readily constructed from biographical entries on the Chinavitae
website.
13
For a brief vita see http://www.chinavitae.org/biography/Liu_Yunshan%7C32
14
Li Baojie, Cheng Yifeng and Wang Mian, Soft Power a new focus at Chinas Two
Sessions. Xinhua, 14 March 2007.
15
Hu J intao stressed enhancing Soft Power of Chinese culture, Xinhua, 15 October
2007,
9

explications include an un-attributed article on the Xinhua site of 28 December 2007 with
the title Raise National Cultures Soft Strength. The piece echoed Hu J intao with a call
for raising our cultural propaganda abilities and continuously expanding Chinas cultural
influence, continuing:

The influence of a countrys culture depends on whether it possesses unique
charm but also depends on whether it possesses advanced propaganda methods
and strong propaganda capabilities. Especially in todays informatized society
every country that has advanced propaganda methods and strong propaganda
capabilities can widely spread its cultural ideals and value concepts, and it can
grasp the speaking power to influence the world and popular feeling. Cultural
propaganda capabilities have already become a decisive factor for a national
cultures soft strength.
16

The Message

The central message of Chinese Public Diplomacy is that China is back as a world
power after a two hundred year hiatus; that Chinese culture is admirable and that Chinas
intentions are benign. This last is variously expressed as a peaceful rise
17
and, from
2007, an intent to build a harmonious world.
18
The message comes directly from
Premiere Hu J intao and flows outwards from the party ideological apparatus.

The Audience

The audience for Chinas Public Diplomacy is two fold. The primary audience is
global and seems to include both masses and elites. School children are increasingly
targeted. While all nations are approached, the campaign plainly has special resonance
with the Chinese Diaspora. This said, Chinese Public Diplomacy is also conducted with
a domestic audience in mind. The Chinese government wishes above all to give the
Chinese people the gift of the admiration of the world, to buttress their own legitimacy
and counter any doubt that the CCP might not be the best stewards of Chinas destiny.
Such sentiments may readily be detected in set-piece speeches by Lui Yushan, with their
emphasis on western admiration for Chinese achievement in both its economic success
and management of adversity.
19

16
Raise National Cultures Soft Strength, Xinhua, 28 December 2007 as translated by
BBC Monitoring Asia Pacific as China urges cultural soft strength ethnic unity in light
of party congress, 6 J anuary 2008, p. 1.
17
J oshua Cooper Ramo, Brand China, Foreign Policy Center, London 2007 p. 8-9, online
at http://fpc.org.uk/fsblob/827.pdf see also Zheng Bijian, Peaceful Rise: Speeches of
Zheng Bijian, 1997-2005, Brookings Institution Press, Washington DC, 2005.
18
Li Baojie, Cheng Yifeng and Wang Mian, Soft Power a new focus at Chinas Two
Sessions. Xinhua, 14 March 2007.
19
For a sample text see Liu Yunshan, Lessons, thoughts a speech of 31 J uly 2008,
10

The Mechanisms of Public Diplomacy

i. Listening.

China is certainly listening to the world. We know from official statements that
China is tracking both the course of anti-Chinese sentiment around the world, and
international opinion about China. Negative opinion was a major driver of the rebuilding
of Chinese Public Diplomacy. Positive foreign statements about China are fed back to
the Chinese people as evidence that foreigners admire the accomplishments of Socialism
with Chinese Characteristics and accept China as a world power of the first rank.

China uses opinion polls to track its relationships. Recent innovations include a
poll from 2005 jointly designed and administered with J apanese counterparts to survey
the state of mutual opinion.
20
Other examples of Chinese listening include the flurry of
activity in 2007 to ensure that celebrations of the Year of the Pig did not offend Islamic
nations. More significantly, in the spring of 2007 international anger over Chinas
support for the regime in Khartoum in the face of the Darfur genocide brought a reversal
of Chinese foreign policy in East Africa.
21

The chief mechanism for listening is the growing network of embassies and
consulates across the world. China is investing heavily in developing regional expertise
within its diplomatic corps, sending thousands of its best students overseas to study their
target state and society first hand.
22
Unlike the western penchant for the generalist, the
Chinese Foreign Service encourages officers to work entire careers in their specialist
geographical area. The rising generation of diplomats will be well placed to learn from
their experience and to inject local knowledge into the making of Chinese foreign policy
for years to come.

ii. Advocacy.

Chinas international advocacy includes both the traditional CCP techniques of
leader speeches and articles in the state Xinhua news agency and increasingly western-
style press conferences. Zhao Qizengs institutional reforms included an upgrading of
Chinas ability to address the foreign media. The wake-up call seems to have been the
SARS outbreak of 2002. As Anne-Marie Brady has noted, in the wake of the clumsy
SARS cover-up China began studying spin as practiced in the west, taking the Blair

published on the Qiushi website in October and translated by BBC Monitoring Asia-
Pacific, 23 October 2008 as Chinese propaganda chief views problems, achievements in
2008.
20
Chinese, J apanese NGOs release poll on bilateral relations, Xinhua, 24 August 2005.
21
Shaming China on Darfur, Boston Globe, 31 May 2007.
22
Kurlantzick, Charm Offensive, p. 65-66.
11

government in Britain as one model of how to do it.
23
Moves towards openness and
interactivity were part of this process and hence, in December 2004, Zhao astonished a
gathering of journalists at Beijings Kunlun hotel by presenting them with the names and
phone numbers of the seventy-five spokespersons of every ministry and commission
under the State Council. This, he promised, would be an annual event.
24
Other advocacy
initiatives included the launch of an overseas edition of the Peoples Daily and a number
of English language websites.
25
The domestic and international handling of the news of
the Sichuan earthquake in the spring of 2008 revealed much greater skill.
26

iii. Cultural Diplomacy.

Beginning with the tenure of Zhao Qizheng at SCIO, China has devoted
increasing energy to the field of cultural diplomacy. The CCP leadership seems
particularly concerned to see that Chinese culture receives the admiration that it deserves
around the world. Both the Beijing Olympics of 2008 and forthcoming Shanghai Expo
reflect this. Other initiatives include major exhibitions such as the visit of the Terracotta
Army to London, China Weeks, and tours for artists.

The central project of Chinese cultural diplomacy is the rapidly growing network
of Confucius Institutes around the world. Their title reassuringly emphasizes the glories
of the classical Chinese past rather than the vibrant present (or controversial Communist
history) but the Institutes activities typically emphasize opportunities to get to know
contemporary China rather than its historical abstract. These institutes are (officially)
enterprises shared between the Chinese governments language teaching agency, known
as Hanban, and local institutional hosts (usually universities). The hosts receive a start-
up subsidy from Hanban and provide a home to language teachers supplied by that
agency. In 2006 the government set a goal of establishing more than one hundred
institutes within five years. This target has already been realized and the number seems
likely to break 200 by the end of 2010.
27

23
Brady as quoted in Tania Branigan, China looks to Labour to learn secrets of spin,
The Guardian (London), 21 March 2009, p. 23.
24
China makes public names of government spokespersons for the first time, Xinhua,
28 December 2004, also Hong Kong daily analyses officials role in improving Chinas
public image, BBC Monitoring International Reports, 7 J une 2005.
25
English web platform opens, China Daily, 17 September 2004 on the English site at
http://english.sohu.com a state-private partnership of the China Daily and the private
search engine company Sohu.com.
26
For Liu Yunshan and coverage of the media response to the earthquake see Senior
leader hails media worker covering quake, Xinhua, 17 May 2008.
27
Confucius Institute: promoting language, culture and friendliness, Xinhua, 2 October
2006. In some poorer countries Chinese aid ensures that it is cheaper to be educated at a
Chinese-funded school than within the national system. Kurlantzick, Charm Offensive,
pp. 67-69.
12

iv. Exchange Diplomacy.

Some nations J apan most prominently couch their Public Diplomacy in terms
of exchange, seeking to build reciprocity into as many activities as possible. China is not
limited by such a priority. China certainly participates in mutual educational exchanges,
though one might suspect that the mutuality is seen as a price of access to foreign
institutions and audiences. Recent years have seen a flurry of new bilateral agreements
with partners around the world from Austria to Zimbabwe. Institutions which manage
people-to-people exchanges, such as the Chinese Peoples Association for Friendship
with Foreign Countries, have flourished. China also expanded its recruitment of
international students, bringing twenty percent more with every passing year. The
Ministry of Education expected rolls to top 120,000 by 2008.
28

Exchanges have been used to promote international study of the Chinese
language, lately targeting younger groups of students, providing a steam of foreign
language teachers for overseas service and wooing foreign school principals though trips
to China, as priorities shift from the university to secondary and even primary school
sector. In J une 2007 the Office of the Chinese Language Council declared that 30
million people around the world were now learning Chinese and predicted that this figure
would hit 100 million by 2010.
29
In February 2007 the Premiere of the State Council,
Wen J iabao paid tribute to the value of exchanges in presenting Chinas best face to the
world, noting that they have: fostered an image of China as a country that is committed
to reform and opening-up, a country of unity and dynamism, a country that upholds
equality and values friendship, and a country that is sincere and responsible.
30

One example of exchange is the agreement between China and Russia to
designate 2009 Russian year in China and 2010 China year in Russia, with corresponding
language teaching initiatives. The occasion for the celebration is the sixtieth anniversary
of the Soviet recognition of and friendship treaty with the Peoples Republic.
31

v. International Broadcasting.

28
Number of foreign students in China rises 20 percent annually, Xinhua, 19 J anuary
2006 as cited in Kurlantzick, Charm Offensive, p. 118.
29
Overseas craze for Chinese spreads from universities to schools, Xinhua,26 J une
2007 see also Foreign headmasters follow Chinese language teaching trail, Xinhua, 20
J une 2007 and 110 British headmasters visit China for language teaching co-op.
Xinhua, 27 May 2007.
30
Wen J iabao, Our Historical Tasks at the Primary Stage of Socialism and Several
Issues Concerning China's Foreign Policy. Peoples Daily, 27 February 2007 (translation
Xinhua, 5 March 2007).
31
For coverage see http://www.cctv.com/english/20090321/101135.shtml
13

China has a long history of international broadcasting through Radio Beijing. Its
lead agency in the 21
st
century is Chinese Central Television, whose channel 9
launched in September 2000 broadcasts in English and is intended for foreign
audiences.
32
The channel is carried internationally on a variety of platforms: Rupert
Murdochs Sky satellite to the UK and Fox services in the USA, and Vanuatu in the mid-
Pacific.
33
China has paid particular attention to distribution, seeking out contracts for
local rebroadcast of their media feeds. CCTV 9 has displaced CNN as the prime foreign
feed in several African markets, including Kenya, and Radio Beijing is rapidly
accumulating local affiliates to rebroadcast Radio Beijing on the FM wave band as Africa
moves finally away from shortwave.
34

CCTV has diversified into other languages. 2004 saw the launch of CCTV E&F,
a bilingual French/Spanish feed which split into single language services in Spanish
(CCTV E) and French (CCTV F) in 2007. CCTV is presently hiring staff to launch both
Arabic and Russian language channels towards the end of 2009.
35
While these channels
are fairly easy to view CCTV 9 and CCTV E are both on the Dish satellite within the
United States audiences are reportedly small. CCTV 9 has 90% of its viewers in China,
of which 80% are Chinese wishing to improve their English. The channels, however,
operate as badges of prestige as much as an actual ideological delivery apparatus, and are
not subject to the same market pressures as commercial channels.
36

The content of CCTV 9 has reflected a need to present something close to real
journalism rather than just the litany of achievements and cultural events that once
typified broadcasts. Since 2003 a new openness has been detectible, with CCTV 9
presenting stories about Chinas pollution problems and its energy crisis which would
have previously been swept under the carpet. In the spring of 2004 CCTV 9 announced a
major re-launch to include the employment of foreign anchors and a consultant from the
Murdoch stable, J ohn Terenzio. With disarming honesty the stations controller J iang

32
China to launch all-English channel tomorrow, Xinhua, 24 September 2000.
33
On the Murdoch deals see Danny Gittings and J ulian Borger, Homer and Bart realize
Murdochs dream of China coup, The Guardian, 6 September 2001, p. 3 and Murdoch
gets approval for Chinese TV service, The Australian Financial Review, 7 March 2003,
p. 63; Chinas English international channel to air in Vanuatu, Xinhua, 10 August 2005.

34
On China in Africa see Adam Clayton Powell III, Chinese TV extends its reach into
Africa, 19 December 2005, USC Center on Public Diplomacy web site at
http://uscpublicdiplomacy.com/index.php/newsroom/journal_detail/051219_chinese_tv_e
xtends_its_reach_into_africa/
35
For the recruitment process see http://www.cctv.com/english/20090119/105739.shtml
36
For discussion of audience see Gary D. Rawnsley, China talks back: Public
Diplomacy and Soft Power for the Chinese Century, in Nancy Snow and Philip M.
Taylor (eds), Routledge Handbook of Public Diplomacy, Routledge: London, 2008, p.
286.
14

Heping told the South China Morning Post that: We are taking great efforts to minimize
the tone of propaganda, to balance our reports and to be objective. But we definitely
wont be reporting as much negative domestic news as the Western media.
37

Chinese Public Diplomacy hence seems poised to face the same issues of the
boundary between news and advocacy that have loomed so large in the history of western
international broadcasting, similarly, it now must consider how domestic negatives
should be treated in Public Diplomacy. In February 2007 an article in The Peoples
Daily under the byline of Wen J iabao, declared: We should conduct Public Diplomacy
in a more effective way. We should inform the outside world of the achievements we
have made in reform, opening-up and modernization in a comprehensive, accurate and
timely manner. At the same time, we should be frank about the problems we have.
38

vi. Diplomacy of Deeds

In parallel with the informational engagement with international audiences, China
pays close attention to the diplomacy of deeds, seeking to win friends around the world
by programs of aid and good works: these activities range from aid and development
work to targeted investment. China makes a particular point of not requiring any
political concessions of the sort expected by western donor nations, famously going so
far as to court pariahs like the regime in Sudan or Zimbabwe.
39
Chinese aid sometimes
includes assistance with media development. In Venezuela China has assisted the
development of Hugo Chavezs satellite TV channel Telesur. In Zimbabwe China
provided the equipment to enable radio jamming by the Mugabe regime.
40

A sub-field of Chinas diplomacy of the deed is the entry of Chinese public
figures into the realm of Celebrity diplomacy. Venturing where westerners including
Princess Diana and Angelina J olie have gone before, Chinese celebrities are now
identifying themselves and China with international aid work around the world. The
pianist Lang Lang is now a UNICEF goodwill ambassador and basketball-player Yao
Ming and actress Zhang Ziyi are both goodwill ambassadors for the Special Olympics.
41

37
CCTV international to re-launch, add new languages, BBC Monitoring International
Reports, 6 April 2005, and authors own viewing.
38
Wen J iabao, Our Historical Tasks at the Primary Stage of Socialism and Several
Issues Concerning China's Foreign Policy. Peoples Daily, 27 February 2007 (translation
Xinhua, 5 March 2007).
39
Kurlantzick, Charm Offensive, p. 44.
40
Zimbabwe uses Chinese Technology to disrupt VOA radio signal, BBC
Monitoring, 5 J uly 2006.
41
David Patrick Stearns, Chinese pianist Lang Lang strikes the right keys, Philadelphia
Enquirer, 18 April 2006; Chinese Sensation Ziyi Zhang J oins Special Olympics as
Newest Global Ambassador, PR Newswire, 16 November 2006; Yao Ming appears as
Ambassador to the Special Olympics, Xinhua, 22 J uly 2006.
15

The Professionals.

The history of Public Diplomacy bureaucracies around the world is typically the
history of turf wars and clashing approaches to the business of communication. This was
the case in the old Soviet Union and it has been true in the United States also. While
there are differences in approach between the various elements of Chinese Public
Diplomacy the most obvious being the element of self criticism allowed on occasion at
CCTV 9 no turf war has yet broken into the open, instead, Chinas Public Diplomacy
displays remarkable cohesiveness. One of the more interesting features of Chinese
Public Diplomacy is its ability to rally support among the ordinary citizens and the
international Diaspora, as seen during set-piece confrontations like international criticism
attending the route of the Olympic torch in the spring of 2009. While a certain
uniformity of placards and pro-China rallies suggested official coordination, the scale of
participation among overseas Chinese revealed a popular embracing of the cause.
Chinas presence on the World Wide Web seems to be based on enthusiastic individuals
rather than a state cyber-corps, though the effect is the same.

The Domestic Audience

The indirect domestic audience remains a prime driver of Chinese Public
Diplomacy. This is not surprising. Winning opinion in Kansas will help the Chinese
economy in a round about way, no doubt, but it is the fear of loosing opinion at home that
keeps members of the Politburo awake at night. China is not unique in this. The Soviet
Union ran much of its foreign propaganda to convince the home audience that their
nation was the envy of the world, and U.S. Public Diplomacy also often has its eye on the
domestic market and four year electoral cycle.

The Next Phase

Chinas declared objective is to further expand its cultural and media presence
overseas. Speeches by leaders reveal a belief both that an international media is a badge
of prestige and that further influence flows from the possession of such organs.

As
propaganda minister Liu Yushan put it in an essay published in J anuary 2009:

It has become an urgent strategic task for us to make our communication
capability match our international status. In this modern era, who gains the
advanced communication skills, the powerful communication capability and
whose culture and value is more widely spread is able to more effectively
influence the world.
42

42
Quoted in David Barboza, China aims to create a global news empire, International
Herald Tribune, 15 J anuary 2009, p. 1.
16

Chinas expansion of the Xinhua agency adding bureaus and its plans for a 24
hour news channel and the projected launch of a global English language newspaper are
significant.
43
It is unlikely that the paper will win a wide print readership in the USA,
but an increased flow of Xinhua stories circulating on the world wide web is inevitable
and, with the crisis in western international newsgathering, stories from a Chinese
perspective could easily move to plug gaps, especially in spaces like Latin America and
Africa where not being made in the USA is a palpable asset.

Conclusion:

China is doing nothing wrong in its Public Diplomacy drive. It is wise policy
from Chinas point of view. What would be wrong would be for the west to ignore it.
The appropriate response of the west should be to meet the overtures for exchange in the
spirit in which they are intended and to accept opportunities to know China better and
facilitate Chinas knowing more of the west. Equally, where China is challenging the
western presence, and displacing western voices, as in its drive to accumulate FM radio
affiliates in Africa, the west, and the United States specifically, needs to raise its game. I
will not argue that the United States needs to expand its Public Diplomacy solely to keep
pace with China, any more than it should do so solely to prevail over radical Islam. I
believe that the United States needs to expand its Public Diplomacy because it has
become an essential element of foreign policy in the twenty first century. In an age when
power increasingly rests on public opinion, success requires effectively engaging with the
people. Anything that this committee can do to encourage the rebuilding of American
Public Diplomacy would be a wise investment in the future of this country and the ideals
on which it is built.

Dr. Pol umbaum.

STATEMENT OF DR. JUDY POLUMBAUM, PROFESSOR OF
JOURNALISM AND MASS COMMUNICATIONS, UNIVERSITY OF
IOWA, IOWA CITY, IOWA

43
For coverage of these plans see Vivian Wu and Adam Chen, Beijing in 45 b Yuan
global media drive, South China Morning Post, 13 J anuary 2009, web edition; Peter
Ford, Beijing launching a Chinese CNN to burnish image abroad, Christian Science
Monitor, 5 February 2009, p. 1.
17

DR. POLUMBAUM: I al so woul d l i ke to thank the
Commi ssi on and the Commi ssi on staff for i nvi ti ng us and organi zi ng
thi s very i mportant program.
My i nterest i s i n j ournal i sm and the practi ce of news gatheri ng,
sel ecti on, presentati on. I 'm parti cul arl y i nterested i n the rol e that
i ndi vi dual actors, j ournal i sts themsel ves, have wi thi n a structure that
certai nl y from the outsi de l ooks extremel y authori tari an.
One of your questi ons for thi s panel i s whether di fferent
i nsti tuti onal actors i nvol ved i n external propaganda i n Chi na have
di fferent outl ooks and i nterests. And the answer i s deci dedl y yes.
And I thi nk thi s i s a key, a key understandi ng.
One i mportant mani festati on of these di fferences i s di vergence
between central and l ocal i nterests. Chi na i s a country that
tradi ti onal l y has centri fugal tendenci es, and thi s means, for exampl e,
that l ocal authori ti es may overri de central pol i ci es or preferences
when i t comes to handl i ng news medi a i n di fferent l ocal es.
I thi nk thi s partl y, al though not enti rel y, expl ai ns the contrast i n
access granted to both domesti c j ournal i sts and i nternati onal
correspondents. Last year, after the ri ots i n Ti bet and after the
earthquake i n Si chuan, Ti betan authori ti es, who of course i ncl ude
ethni c Ti betan offi ci al s appoi nted by, and thus benefi ti ng from thei r
associ ati on wi th, the central government were adamantl y opposed to
j ournal i sti c access despi te some vi ews to the contrary i n Bei j i ng, whi l e
Si chuan provi nci al authori ti es al l owed broad access, whi ch, of course,
proved benefi ci al for el i ci ti ng worl dwi de sympathy and rel i ef.
One al so fi nds di fferences across agenci es. At any gi ven l evel
and wi thi n i nsti tuti ons, i ndi vi dual actors, some of whom regul arl y or
occasi onal l y may be i n pi votal posi ti ons, al so possess di fferent
outl ooks and i nterests.
Thi rty years of studyi ng the medi a i n Chi na has i mpressed upon
me that i ndi vi dual agency i s of no smal l i mportance i n Chi na. Thi s
i ncl udes i ndi vi dual efforts to ci rcumvent rul es and, i n fact, contrary to
what one mi ght expect i n a nati on so authori tari an i n structure, the
country i s ful l of scoffl aws, and there are good reasons that the
i rrepressi bl y mi schi evous character of the "Monkey Ki ng" i s such a
bel oved fol k i con i n Chi na.
Medi a i ndustri es and organi zati ons, of course, consti tute a very
i mportant set of i nsti tuti onal actors that may di ffer wi th propaganda
di ctates comi ng from Party and government authori ti es.
Chi na's medi a outl ets are often descri bed as state-control l ed or
offi ci al , but even the most obvi ous standard bearers for the Party and
government are al so sel f-i nterested enti ti es i n thei r own ri ght. So, for
i nstance, cl ai ms or appearances that Chi nese medi a are necessari l y
18

mai dservants of a coherent nati onal strategy can be mi sl eadi ng. They
may be, fi rst and foremost, worki ng i n thei r own organi zati onal
i nterests.
And when the South Chi na Morni ng Post recentl y reported on
thi s tremendous i nvestment i n Chi nese external propaganda efforts that
i ncl uded a bi g chunk of i nvestment for expansi on of Xi nhua News
Agency both i n terms of expansi on of forei gn bureaus and devel opment
of a rather amorphousl y descri bed tel evi si on network, perhaps based i n
Asi a, that coul d be l i kened to Chi na's CNN or Chi na's Al -J azeera,
whereas, some observers l ooked at thi s as a coherent pl an of the
central government and the Communi st Party, I i mmedi atel y thought
thi s i s Xi nhua's empi re bui l di ng.
Xi nhua as an organi zati on has been empi re bui l di ng si nce the
begi nni ng of reforms, and so there are many confl uences and cross-
currents of i nterest I bel i eve goi ng on i n these new pl ans.
Another new devel opment that's gotten a great deal of attenti on
i s the l aunchi ng of a new Engl i sh-l anguage edi ti on of Gl obal Ti mes,
whi ch i s an offshoot of the Peopl e's Dai l y, the fl agshi p newspaper of
the Central Commi ttee, and I thi nk that al so i s a l i ttl e bi t of empi re
bui l di ng on the part of Peopl e's Dai l y.
I n sum, my vi ew i s that the most i mportant rami fi cati ons of
expanded external communi cati on efforts by Chi na may not be
i ntenti onal obj ecti ves at al l , whether they be mal evol ent or beni gn,
al though personal l y I tend to favor beni gn i nterpretati ons.
Rather i n my vi ew, the more i ndi vi dual s, organi zati ons and
i nsti tuti ons i n Chi na are brought i nto the mere effort of tryi ng to do
better at communi cati ng, whi ch i ncl udes central l y the enhancement of
abi l i ti es to deal di rectl y i n forei gn l anguages wi th forei gn peopl es and
cul tures, the more potenti al there i s for enhanced knowl edge,
sophi sti cati on and understandi ng of the rest of the worl d among
Chi nese i nvol ved i n thi s proj ect.
I n other ways, the endeavor to devel op medi a that i n both format
and content are not merel y pal atabl e but compel l i ng to forei gn
audi ences can have posi ti ve resul ts for Chi na i nternal l y.
I n reference to j ournal i sm speci fi cal l y, I woul d argue that
external propaganda efforts i n exposi ng Chi nese medi a workers to
i nternati onal knowl edge, i deas and exampl es create dynami cs that
further encourage professi onal trends i n Chi na's j ournal i sm core.

Prepared St at ement of Dr. Judy Pol umbaum, Prof essor of
Journal i sm and Mass Communi cat i ons, Uni versi t y of Iowa, Iowa
Ci t y, Iowa

19

April 30, 2009
Judy Polumbaum, The University of Iowa
Testimony before the U.S.-China Economic & Security Review Commission, hearing on
Chinas Propaganda and Influence Operations

First, let me thank the Commissioners for inviting me here today, and the Commission staff
for putting together this illuminating program. All of you already are experts on China, but I
hope I can contribute a useful perspective for understanding the production, content and
plans for what China calls external propaganda.

The word propaganda, of course, is anathema to us in the land of the First Amendment
even if all governments, not to mention businesses, religious and educational institutions,
yea, everything from the Pentagon to the American Heart Association, practice it. For good
reason, the Chinese are beginning to translate the term as publicity or information. But
even in Chinese, the term is falling out of favor. The most intrepid investigative reporters in
China see propaganda authorities as adversaries, and try to outrun them!

Political scientist Harold D. Lasswell, a propaganda expert who some consider a founding
father of U.S. communication research, famously summed up the communication process as
Who says what to whom in what channel with what effect (The structure and function of
communication in society, in The Communication of Ideas, ed. by L. Bryson; Harper, 1948).
This formula, and the behavioral science orientation from which it arose, presumed a
stimulus-response model that emphasized the power of media institutions to reinforce or
change social behavior through messages directed at a mass of isolated, anonymous
recipients. This approach obviously is outdated in todays world of media convergence,
Twittering, citizen journalists and the active audience. Lasswell indeed was a prolific scholar
who made important and wide-ranging contributions to the study of politics, personality and
culture, but his Who says what to whom in what channel with what effect formulation is
now more of a historical footnote than the mantra for research it once represented.

Nevertheless, in searching for a convenient way to present my thoughts on Chinas external
propaganda efforts, Lasswells string of communication components came to mind as a
useful outlinesupplemented by Daniel Lerners addition (Communication and the Nation
State, Public Opinion Quarterly, v. 37 n. 4, Winter 1973-74) of why (referring to policy) ...
how (technique)... and who talks back (feedback) to the list. Just bear in mind that Im using
an artificial and admittedly simplistic device to parcel out information and ideas that are
interrelated with each other and embedded in the much larger matrices of both Chinese and
global society.

Thus, question one: WHO are the planners and purveyorsthe masterminds, if you will, as
well as the implementersof Chinas external propaganda?

For starters, the Chinese Communist Party and government apparatus. Main guidelines for
media and propaganda ostensibly emanate from the heart of the Party, the Central
Propaganda Departmentwith policies managed and administered through an array of other
agencies, including the State Press and Publication Administration and the State
20

Administration of Radio, TV and Film, as well as units and functionaries assigned to
propaganda and managerial tasks at provincial, municipal, local and workplace levels.

However, much as China is not a monolith, neither are the Party or government or its
agencies seamless unitary entities. Rather, both Party and government feature competing
agencies and interests at national, regional and local levels, and within agencies and units are
varied, and sometimes vying views.

Atlantic correspondent James Fallows has observed from Beijing: Most Americans think
this is an all-powerful central government; most of the time, it looks like a relatively weak,
remote titular leadership trying to tell the equivalent of warlords (provincial governors) what
they should do. I would extend this analogy down through the hierarchy.

Chinas centrifugal tendencies mean, for example, that local authorities may override central
policies or preferences when it comes to handling news media in different locales. In part
(although not entirely), this is behind the striking contrast in the stifling versus enabling of
media coverageboth domestic and foreignduring two major events occurring in
succession last year: the riots in Tibet in March 2008, and the Sichuan earthquake in June.
Tibetan authoritieswho include of course ethnic Tibetan officials appointed by (and thus
benefiting from their association with) the central government, were adamantly opposed to
journalistic access, despite some views to the contrary in Beijing; while Sichuan provincial
authorities allowed broad access, which of course proved beneficial for eliciting worldwide
sympathy and relief.

One of your questions for this panel is whether different institutional actors involved in
external propaganda have different outlooks and interestsand the answer is decidedly yes.
Central-local divergence is just one manifestation. One also finds differences across agencies
on any given level; for instance, the State Council and Foreign Ministry often harbor what we
might consider more enlightened opinions about license for expression and even dissidence
when compared to, say, Public Security and the military. (Sound familiar when it comes to
the U.S. State Department and the Department of Defense? Or the local city council and
police department!)

I would add that within institutions, individual actors, some of whom regularly or
occasionally may be in pivotal positions, also possess different outlooks and interests. And
while structural and organizational forces often exert prevailing influence, individual agency
is of no small importance in China. This includes individual efforts to circumvent rulesand
in fact, contrary to what might expect in a nation so authoritarian in structure, the country is
full of scofflaws. There are good reasons the irrepressibly mischievous character of the
Monkey King is such a beloved folk icon in China.

Another relevant point is that, while Chinas Communist Party and government do have
widespread and pervasive monitoring capacities to conduct surveillance on all manner of
media, the country does not have a systematic pre-publication censorship apparatus (as did
the Soviet Union and most Eastern European countries). This is partly from tradition, and
21

partly because such a system would be simply impossibly to implement in such a vast and
variegated country. Conformity to policy largely hinges on anticipation of consequences.

Media industries and organizations constitute another set of institutional actors that may
differ with propaganda dictates as well as housing differences within. Chinas media outlets
are often described as state-controlled or official, but even the most obvious standard-
bearers for Party and government are also self-interested entities in their own right. So, for
instance, claims or even appearances that Chinese media are maidservants of coherent
national strategy can be misleadingthey may be first and foremost working in their own
organizational interests.

As with individuals in bureaucratic agencies, individual mass communicators also have
varied ideas and approaches to their work that may put them at odds, directly or indirectly,
with official dictates. In the foreword to my recent book China Ink, Aryeh Neier, president of
the Open Society Institute, identifies professionalism as the most important trend today in
Chinese journalism (and numerous other fields such as medicine and law). He writes that,
the professionalism of Chinese journalists is gradually expanding the space in which they
are able to operate... [and] expanding freedom in China.

The sort of journalists we would consider most professional are those who resist orthodoxy in
savvy ways, using unassailable tools of assiduous fact-finding, solid verification and
moderation in language. Such journalists, furthermore, cultivate networks of protection that
buffer consequences of transgression (editors protect reporters in their purview, reporters
look for editors who will go to bat for them, reporters who make mistakes get shifted to the
library, not to a labor camp).

WHAT messages do these actors hope to, and what do they actually, convey?

The content of Chinese media aimed at foreigners long suffered from direct translation of
domestic propagandaso it not only was often replete with misrepresentations,
exaggerations, jargon-laden screeds, and all the other ills of domestic media, but it took no
account of what foreign audiences might find relevant, interesting or even coherent. The first
challenges for external propagandists once China began its reforms and opening up were to
redress these obvious problemswith new training, education and recruitment of journalists
who could write directly in foreign languages. Xinhuas duiwaibu, external news department,
shifted from translation to greater volumes of original reporting and writing in other
languages; and the China Daily was founded with this mode in mind.

When it comes to sensitive issuesTibet, Taiwan, foreign policy, dissidence or human rights
violationsI dont have to tell you that simplistic bombast with intransigent positions still
dominates content, in both domestically and foreign-directed media. My Chinese colleagues
and friends (a goodly number formed over the past 30 years)mostly intellectuals, including
many journalistsare mortified by this practice. Not only for pragmatic reasons (its stupid
and ineffective) but because they, too, long for intelligent coverage and discussion of these
issues.

22

The Chinese government is often seen as being complicit in nationalistically-tinged
reporting, rants aimed at the West, protests about Western media and financial conspiracies
and so forthand clearly there is a vocal constituency for these ideas in China. Again,
though, my colleagues and friends think this stream of communication, which gets lots of
attention both in China and abroad, is childish and counterproductiveand while loud, not
broadly representative of either Chinese elite or mass thinking.

Popular themes, again for domestically as well as international consumption, include
appreciation of Chinas ancient culture along with modernization and dynamism, global
engagement and international citizenship. The 2008 Beijing Olympics, of course, provided a
good vehicle for messages of glorious tradition and vigorous modernization. And just
serendipitously, the fact that the international media recently had given a great deal of
attention to bad news stories of Tibet and Sichuan probably cleared the air for more
positive coverage during the Games (in fact, I heard one U.S. China correspondent say as
much).

A good deal of what goes out to the world pertains to topics, events, issues and also
controversies and problems that journalists want to cover: Real life at the grass roots, human
interest stories, enterprise and investigation. The nature and scope of such stories hinge
largely on content in the domestic media, whose range and diversity undeniably have grown
greatly over the past three decades. Nowadays Chinas domestic media provide the main
leads for most of the important stories that foreign correspondents then pursue. The days
when China-watchers sat in Hong Kong and read tea leaves are long over. The days when
foreign correspondents get scoops have not arrived, however; they are more likely to build on
scoops of domestic reporters.

To WHOM is the communication directed, i.e., who are the purported and actual audiences?

Intended audiences include, most directly, foreigners in Chinatourists, teachers, students,
diplomats, business people; and, interestingly, foreign-language learners (mainly English) in
China. This domestic constituency actually constitutes the largest proportion of China
Dailys circulation, although actual numbers are closely held; and is the main target of a
lucrative stable of English-language weeklies put out by that paper, 21
st
Century, in editions
for elementary, middle school, high school and college students as well as a teachers edition.

Less directly, intended audiences include international correspondents, who pick up leads
and stories from foreign-language as well as Chinese-language media; and ultimately citizens
abroad, including international elites and policymakers. Although Xinhua News Agency
fancies itself an equivalent of Associated Press, Reuters or AFP, U.S. news organizations
certainly do not use its dispatches verbatim, but many news outlets elsewhere around the
world certainly do, and overseas Chinese media make ample use of the China News Service.
The implications of this will depend on your thoughts about audience credulity, and different
people will judge content and sources in different ways; but we have no reason to believe
foreign audiences have any particular susceptibility to Chinese content going directly into
overseas use as opposed to content from any other sources.

23

Some Chinese propaganda functionaries and media managers do seem to have an illusion,
however, that people abroad have an unmet appetite for media content directly from Chinese
sources. This ostensibly is the rationale for the start a couple of months ago of a North
American edition of China Dailywhich strictly speaking is a weekly Monday supplement
folded into papers printed in New York and San Francisco. Frankly, I am baffled at this
development and dont see a marketthose who wish already can read China Daily on the
web, and are not about to use even a daily edition as a substitute for The New York Times or
whatever their regular daily news fare might be. So the best explanation Ive heard is the
current editor wants thisand I suspect its a way of fostering confidence and even garnering
prestige, in response to beliefs (or more properly, delusions) at higher levels that there
actually is a demand for China Daily on Main Street America.

WHY is the communication generated? What policy objectives and other intentions propel
external propaganda efforts?

In terms of broad objectives, some agencies and actors producing media content aimed at
foreigners genuinely hope to explain Chinas policies and programs to outsiders and
engage in conversation with them. I would say this is the primary motivation of middle-aged
and veteran reporters, writers and editors at China Daily.

Regarding the new investments and ambitions for Chinas external propaganda, the desire to
interject Chinas voice and perspectives into the international arena seems to be a genuine
motivation. Perhaps some think expanding external propaganda truly can influence or even
manipulate international opinionand perhaps propaganda authorities have such hopes, but I
dont think most serious journalists actually involved in the external communication sector
believe this.

I have no doubt that propaganda authorities are trying to develop more sophisticated
approaches to international image building, including through external propaganda; but I
think this motivation is less prevalent among the journalists actually generating the news for
foreign audiences. Rather, they are more likely to have an occupational perspective, wishing
to pursue careers that provide them with both intrinsic and extrinsic rewardsideally, both.

I am not of the school that contends that externally directed media, and those working in this
sector, are primarily driven by ulterior motives, e.g., that such media are major conduits for
disinformation, distraction, smokescreens. More realistically, I think, this sector is likely to
be valued for its capacity to generate both tangible and intangible goods for those involved in
itsuch as reputation, influential connections and commercial rewards.

Those actually producing content for foreign audiences, e.g., working as editors, producers,
writers, reporters and even in technical roles, are best positioned to recognize perhaps
unplanned or unintended byproducts of the sectorsuch as its contributions to increasing
professionalism among media workers, and its role in fostering foreign (English) language
learning and, more generally, cosmopolitanism, within China.

24

WHAT CHANNELS carry the communication? More broadly, HOW is the communication
created and disseminated?

The behemoth is Xinhua News Agencys duiwaibu. Xinhua is hoping to both expand its
international correspondent network and build broadcasting capabilitiesit already is
providing video footage for TV. The agency is now looking for native speakers of other
languages to both work in Beijing and serve as correspondents abroad, and the latter is new.

When the South China Morning Post, citing anonymous high-level sources, reported Chinas
plans to invest some $10 billion in expanding external propaganda efforts, including a major
initiative by Xinhua News Agency, I immediately thought: Xinhua empire-building! Xinhua
patently has been building up its empire, in its own interests as much as if not more than in
the national interest, since the reform period began in the late 1970s. Reports say Xinhua
hopes to start its own Asia-based channel, presumably Chinese-language, that some dub the
Chinese Al-Jazeera. The State Administration of Radio, TV and Film reportedly is not
pleased at Xinhuas TV plans.

Broadcasting includes China Radio International (the former Radio Beijing), the international
central television channel CCTV 9, and lots of intermittent attempts, not systematically
tracked, at English-language regional/local programming for both radio and TVoften
enlisting polishing or editing help from foreigners who happen to be teaching English in
the vicinity. China Central TV also set up French and Spanish-language channels before the
Olympics last year, and is said to be planning Russian and Arabic services.

China Daily marked its 25
th
year of publication in 2006. Its experience makes it the lead
candidate for high-profile projects, frustrating the ambitions of the Beijing Youth News,
which had been publishing an English weekly, in a contest for the contract to publish an
English-language daily for the Beijing Olympics. China Daily similarly put out a daily
special when the Asian Games were held in Beijing. Along with the 21
st
Century group,
China Daily also publishes the weekly Shanghai Star; as overt competition to the latter, a
former China Daily journalist started the Shanghai Daily, under the municipal government;
the Shenzhen Daily, started in 1997, is aimed at readers among the concentration of foreign
residents in southern China.

The new English edition of Global Times, which began publishing weekdays on Monday,
April 20, is an offshoot of the Chinese Global Times, or Huanqiu Shibao, a successful (i.e.,
popular and money-making) subsidiary of Peoples Daily, or Renmin Ribao, flagship paper
of the Central Committee. Editors of the English Global Times, acknowledge they are going
after the same audiences as China Daily. They also purport, however, to be different from
China Daily in offering a more independent stance. The Chinese Huanqiu Shibao styles
itself independent; Western observers often label it nationalistic; and it is replete with what
we probably would call news analyses, although they are not labeled as such. Global Times
claims a worldwide staff of correspondentsneither Chinese nor English editions bothering
to clarify that they are the Peoples Dailys correspondents, moonlighting for piece rates!
Global Times editors have told interviewers that no government money went into launching
the English edition. Thats because the Chinese original can afford the investment.
25

The roster of magazines that used to be published in many foreign languages has been cut
down substantiallyBeijing Review remaining as a distillation of documents and major
newseven as the domestic magazine marketplace has burgeoned. Technically, foreign
investment is not allowed in media contentbut in actuality, publications produced by and
aimed at expats, emphasizing arts and entertainment coverage, have strong followings in
Chinese cities.

The adoption and encouraged expansion of a government spokesperson system, the
increasing practice of press conferences, including live televised sessions, at the national
level, and production of central government white papers and plans on controversial issues
most recently, a human rights planare all part of developing a more sophisticated public
relations apparatus for dealing with both the domestic and the foreign press.

The loosening of restrictions on international correspondents prior to the 2008 Beijing
Olympicsand then an extension of the program after the Gamesis sometimes interpreted
as a PR move; but I think it actually is a sign that arguments within central units such as the
Foreign Ministry and the State Council about he ultimate long-term benefits of greater
openness and transparency have made headway.

Media outlets and government agencies have Internet operations of growing scope and
importance. The Internet obviously poses special quandaries for Chinese authorities seeking
to restrict and manage the terrain even as it necessarily expands.

WHAT FEEDBACK is generated, with what results on the communication process?

From the inception of the Peoples Republic, Chinese media organizations have enlisted
foreign experts to polish foreign-language content; and since the beginning of reforms,
have invited foreigners to comment and critiquealbeit with varying degrees of
responsiveness. Some foreigners who have worked at China Daily will swear that all their
advice fell on deaf ears. My experienceI worked at the paper its very first year of
publication, 1981-82, have spent shorter periods there since and have kept up with doings
therehas been quite different.

In general, though, responsiveness to the ostensible target audiences is not a strong suit!

WHAT EFFECTS does the communication produce? What are the implications or results of
Chinas external propaganda efforts, e.g., regarding knowledge, values, attitudes and
behavior of individuals, groups, institutions and/or societies reached directly or indirectly;
impact on media producers, organizations and institutions; influence on international
activities, attitudes and policies, etc.

Heres the real unknown. Should we make a presumption that Chinas external propaganda
amounts to psychological warfare, aimed at political influence, if not diabolical
manipulation? Or shall we believe the assertions that motivations are benign, aimed at
26

sharing viewpoints and information and fostering mutual understanding and cultural
exchange? And in either case, are the efforts successful?

Ultimately, potential influence relies on credibilityand the prerequisite for that of course is
greater media independence. My own research suggests reason to be hopeful, but others have
a bleaker view.

In my view, the most important ramifications of expanded external communication efforts
may not be intentional objectives at all, whether malevolent or benign (although I tend to
favor the benign interpretation). Rather, in my view, the more individuals, organizations and
institutions are brought into the mere effort of trying to do better at communicatingwhich
includes, centrally, the enhancement of abilities to deal directly in foreign languages with
foreign people and culturesthe more potential there is for enhanced knowledge,
sophistication and understanding of the rest of the world among Chinese involved in this
project.

In other ways, the endeavor to develop media that in both format and content are not merely
palatable but compelling to foreign audiences can have positive results for China internally.
Specifically in reference to journalism, I would argue that external propaganda efforts, in
exposing Chinese media workers to international knowledge, ideas and examples, create
dynamics that further encourage professional trends in Chinas journalism corps.
27

Dr. Brady.

STATEMENT OF DR. ANNE- MARIE BRADY, SCHOOL OF
POLITICAL AND SOCIAL SCIENCES, UNIVERSITY OF
CANTERBURY, CHRISTCHURCH, NEW ZEALAND

DR. BRADY : Good morni ng. I t's a great honor and pri vi l ege to
be abl e to speak to you today on my research on Chi na's propaganda
system.
When I l ook at propaganda, the term "propaganda" i n Chi nese i s
not a negati ve term, and my focus i s somewhat di fferent from Dr.
Pol umbaum i n that I 'm l ooki ng at control , the obj ecti ves of the Party
i n managi ng the publ i c sphere, and that's somewhat di fferent from
what the j ournal i sts are doi ng and thi nki ng.
The Party pl aces great i mportance on what they cal l propaganda
and thought work. I n fact, i n the contemporary peri od, i t's actual l y
descri bed as the l i febl ood of the Party. Peopl e often tal k about the
Party's l egi ti macy i n the current era bei ng based on i ts economi c
performance. Wel l , the Party i tsel f sees that i t's not; i t's based both
on economi c devel opment and an i ncredi bl y strong awareness of the
i mportance of managi ng the publ i c sphere.
But what has to be noted about Chi na's propaganda work i n the
current peri od i s al though the i mportance of propaganda work hasn't
changed from the Mao era, the tacti cs have changed and the content
has changed, and what's been very i nteresti ng i n researchi ng thi s topi c
i s di scoveri ng how much Chi na has been l earni ng from the West i n
moderni zi ng i ts propaganda system.
So they've been pi cki ng up techni ques of pol i ti cal publ i c
opi ni on, whi ch ori gi nated i n the West, and those aspects of mass
communi cati on whi ch support the propaganda state, don't undermi ne i t,
and so on.
Chi na di vi des propaganda between forei gn and domesti c
propaganda. However, nowadays, i t's recogni zed that there are enough
forei gners i n the worl d who understand Chi nese that even domesti c
propaganda has to be mi ndful of forei gn audi ences.
I woul d di sagree somewhat wi th what Professor Pol umbaum was
sayi ng about agency when i t comes to forei gn propaganda because
there's a sayi ng i n Chi nese, "wai shi wu xi aoshi ," and what that means
i s that forei gn affai rs i s not a smal l matter. So domesti c j ournal i sts
have a l ot more agency than those who work for Chi na Dai l y and
Xi nhua News Servi ce, Peopl e's Dai l y onl i ne i n forei gn l anguages.
And i t's not to say the j ournal i sts woul dn't want that agency.
28

There's a stati on, CCTV-9, whi ch was supposed to be Chi na's CNN,
and I vi si ted and di d i ntervi ews at that stati on a coupl e of years ago,
and they were a very frustrated bunch of j ournal i sts and edi tors.
They desperatel y wanted to make thei r stati on Chi na's CNN, but
the authori ti es above woul d not l et them. And that i s a probl em for
Chi na's i nternati onal i nfl uence and i ts forei gn propaganda. I f the
Chi nese Communi st Party woul d gi ve i ts j ournal i sts i nvol ved i n
forei gn propaganda medi a outl ets the same amount of freedom that
they have i n the domesti c medi a, i t coul d wel l be a much more
persuasi ve message.
That's what's i nteresti ng about thi s new stati on that's been tal ked
of, that's goi ng to be set up i n ei ther Thai l and or Si ngapore, the stati on
that both my previ ous panel i sts menti oned, because i f that stati on was
al l owed to be l i ke Phoeni x Tel evi si on, whi ch i s regarded as
i ndependent and yet more l oyal than CCTV, that coul d be a very
persuasi ve TV stati on, and not necessari l y to vi ewers l i ke mysel f or
yoursel f, but to one of the mai n i ntended audi ences of Chi na's forei gn
propaganda, and that's the overseas Chi nese.
Chi na has been worki ng very, very hard, si nce 1989, to bui l d the
support of the overseas Chi nese because the Party l eadershi p real i zed
i n 1989 that not onl y di d they not have the support of many Chi nese
outsi de Chi na, but that overseas Chi nese were actual l y supporti ng the
democracy movement i n Chi na, acti vel y i nvol ved i n undermi ni ng the
Party-State.
So the Chi nese government has made a maj or i nvestment i n what
they cal l overseas Chi nese work, "qi aowu gongzuo." And thi s i s one
of the mai n targets, as I sai d, of forei gn propaganda work.
So i f the Party can devel op or support the devel opment of a
stati on that i s more l i ke the Chi nese domesti c medi a, whi ch i s now
doi ng very, very wel l , i t i s very popul ar outsi de the Party papers, the
Chi nese mai nstream medi a has a l ot of support from the readers.
Peopl e make a di sti ncti on; that the j ournal i sts are medi ators
between news and propaganda, and i t's ki nd of an arbi trary di vi de i n
some ways. But the readers thi nk they're readi ng news and they're not
readi ng propaganda.
J ust bri efl y, because I know I have very l i ttl e ti me, the
propaganda system i n Chi na i s huge and comprehensi ve, and
propaganda, the i dea of what consi sts of propaganda, i s much, much
broader than we mi ght normal l y thi nk of i t, and forei gn propaganda i s
si mi l arl y more than j ust news outl ets.
So i t al so i s about contacts between peopl e, PR associ ati ons and
medi a campai gns on topi cs l i ke AI DS. So Chi na's expansi on of i ts
forei gn propaganda i s goi ng to be much broader than thi ngs we're
accustomed to l ooki ng for l i ke TV stati ons and newspapers.
29

Thank you.

Prepared St at ement of Prof essor Anne- Mari e Brady, School of
Pol i t i cal and Soci al Sci ences, Uni versi t y of Cant erbury,
Chri st church, New Zeal and

Overview of Chinas Foreign Propaganda
The Chinese government puts a high value on propaganda work, describing it as the life blood
(shengmingxian) of the Party-State in the current era. The Chinese Communist Party (CCP) has historically
divided propaganda work into two categories: internal (duinei) and external (duiwai), meaning that which
is directed toward Chinese people and that which is directed toward foreigners in China, Overseas Chinese,
and the outside world in general. CCP propaganda specialists also divide propaganda into four types:
political, economic, cultural, and social. Relevant offices within the Chinese Party-State administration
take over responsibility for propaganda work related to their area of expertise.

Chinas foreign propaganda experts are extremely critical of what they call the Western medias
ideological assault on the rest of the world. It is a matter of pride that in the current era, unlike the Mao
years, China does not push its political ideology onto others. Unlike the Mao era, Chinas post-1989
foreign propaganda tends to be defensive, reacting to external criticisms and aimed at upholding Chinas
political status quo. However foreign propaganda targeted at Overseas Chinese and the Taiwanese is
essentially offensive in nature, with strategic goals in mind such as neutralizing support for anti-CCP
forces and promoting Chinese reunification.

The audience for Chinas foreign propaganda is not one and the same, so different messages are promoted
at different groups. The main divide in Chinas foreign propaganda is between Overseas Chinese and non-
Overseas Chinese. The Taiwanese are targeted as a sub-category of China foreign propaganda targeted at
Overseas Chinese. In the following sections I will discuss the themes, audiences, means of transmission,
and institutional actors involved in Chinas contemporary foreign propaganda, as well as Chinas plans to
expand foreign propaganda activities in the future.

Central Level Institutional Actors Involved in Foreign Propaganda
The Central Propaganda Department is in charge of all internal propaganda, while its brother organization,
the Office of Foreign Propaganda, which is more commonly known by its other nameplate, the State
Council Information Office, oversees matters relating to external propaganda. The two bureaucracies are
closely linked and coordinated. In recent years, with the advent of the Internet and Chinas increasing
globalization and internationalization, the boundaries between the two categories of propaganda have been
growing less and less obvious. For example the Office of Foreign Propaganda has been put in charge of
monitoring the Internet both inside and outside China, while the News Department of the Central
Propaganda Department also takes a close interest in developments in the same area, providing guidelines
on the topic in its regular bulletins to propaganda workers around the country. In 2003, due to the
increasing numbers of Chinese-speaking foreigners (either living in China or reading Chinese newspapers
online outside China) and Chinese citizens who speak foreign languages and have access to foreign media
sources, the Central Propaganda Department actually argued that internal propaganda should now be
regarded as the same as external propaganda. This means that Chinese journalists must be mindful that they
now have a foreign audience alongside their domestic audience.

The CCP Central Committee Foreign Propaganda Group which is a top level committee consisting of the
heads of leading foreign propaganda outlets, has a central guiding role in setting foreign propaganda
policies. These are implemented by the OFP/SCIO at the national level and by provincial level foreign
30

propaganda offices at the local level. The OFP/SCIO and its local equivalents direct officials in various
government departments and work units whose interests touch on foreign propaganda, such as foreign
affairs; foreign trade; tourism; Overseas Chinese Affairs; radio and television; the print media; publishing;
cultural, educational, and sporting institutions; as well as State planning, finance, State security, public
security, customs, Taiwan affairs, and banking.

The Office for Foreign Propaganda/State Council Information Office (OFP/SCIO) is tasked with managing
any sensitive news stories on the following topics: foreign embassies, diplomats in China, Overseas
Chinese business people, foreign students, foreign travellers, Hong Kong, Macau, and Taiwanese residents,
especially when they involve loss of life. They also guide the Chinese media during any major events
regarding Tibet, Xinjiang, ethnic minorities, religion, human rights, democracy movements, internal and
external terrorist activities, and Falungong. For extremely serious incidents, only Xinhua News Agency is
allowed to report on them and all other Chinese media must use the Xinhua report word for word.

The OFP/SCIO is also in charge of clarifying and refuting any stories which, while forbidden from being
reported in China, have been reported on in the foreign media. Articles on foreigners are to be sent to the
Ministry of Foreign Affairs for verification. Similarly, stories on Hong Kong, Macau, and Taiwanese
residents are to be sent to the Offices of Hong Kong and Macau, or Taiwan Affairs, while stories on
Overseas Chinese businesspeople should be sent to the Ministry of Commerce. The Ministry of Culture is
in charge of Chinas foreign cultural propaganda, under the leadership of the CCP Foreign Propaganda
Group. Cultural exchanges are regarded as useful way to break through prejudice and establish warm
feelings.

Overseas Chinese
Gaining influence over Overseas Chinese groups outside China in order to turn them into propaganda
bases for China is a key task in foreign propaganda work. The student protests of 1989, which received
strong support from the Overseas Chinese community, alerted the Chinese Communist Party (CCP) to the
fact that many within the Overseas Chinese community were inclined to support democracy activities
within China. Historically Chinas revolutionary movements have always received considerable funding
from the Chinese diaspora and many Chinese revolutionaries found safe haven in Overseas Chinese
communities when the political situation in China became to tense. At the same time, as Chinas economic
reform process continued to expand after 1989, and especially from 1992, China sought to tap in to the
considerable economic resources of the Overseas Chinese as a source of investment and technological
transfer.

After 1989 Chinas propaganda targeted at the Chinese living outside Chinawhether they were PRC
passport-holders or ethnic Chinese who had been residing abroad for generationsaimed to build patriotic
sentiment towards the Chinese Motherland (zuguo), and support for the political status quo. The goal was
to neutralize antagonism towards the CCP government, enhance antagonism towards anti-CCP forces
within China and their adherents in exile, and at the same time, encourage a constructive attitude towards
Overseas Chinese helping to make China rich and strong (fu qiang). These efforts have been remarkably
successful.

The means by which China promotes its foreign propaganda towards the Overseas Chinese community
include: the numerous local Chinese language newspapers, radio and television stations; the Internet,
Chinas own China Central Television channel aimed at Overseas Chinese CCTV 4; as well as through
cultural activities; support for the teaching of Chinese language internationally which includes the rapid
spread of Confucius Institutes; and special activities organized for the Overseas Chinese community such
as conferences and root-seeking (xun gen) cultural tours.

Chinas Xinhua News Service currently provides free content to the Chinese language news media outside
31

China. Formerly Hong Kong and Taiwan-based news groups were the main source of news for Overseas
Chinese, but in the last ten years they have basically been driven out of the market by a plethora of free
Chinese newspapers which derive virtually all their content from the Mainland media. Few Chinese
language newspapers outside China have the financial resources (outside of Taiwan, Singapore or pro-
Falungong papers) to resist the offer of free content. The same goes for Chinese language radio and
television stations abroad, they too now relay Mainland media programmes and exclude other Chinese
language sources. Chinese embassy officials work closely with the Overseas Chinese media in order to
ensure their continued compliance. It should be noted that in the current era, Xinhua reports are virtually
indistinguishable from stories off the wire that might be available from say Reuters, with the exception that
they represent a pro-PRC, pro-CCP viewpoint and match current propaganda guidelines on avoiding taboo
topics. The PRC long ago stopped promoting revolution or its state ideology.

The Internet has become an extremely important means for China to build support with Overseas Chinese
in the last ten years. PRC-based Internet sites are now the leading source of Chinese language and China-
related news for Overseas Chinese. The Internet is also proving to be an extremely effective tool for
guiding and organizing Overseas Chinese public opinion. An example of this was the role of the Internet in
organizing popular protests by Overseas Chinese in 2008 against the perceived bias of the Western media
in its coverage of unrest in Tibetan areas in March 2008 and, a month later, in organizing a series of
worldwide demonstrations in support of China during the Olympic torch relay. These protests and the later
demonstrations were genuine and popular, which shows the effectiveness of Chinas efforts to rebuild
positive public opinion within the Chinese diaspora, but it should be noted that they received official
support, both symbolic and practical. This development matches the rise of popular nationalism within
China since 1989, which has been fostered from the top down, but has a genuine resonance with the
Chinese population.

Despite being genuine popular movements, the protests and demonstrations adopted the slogans of CCP
foreign propaganda directed at Overseas Chinese such as Ai wo Zhonghua or Love China. Thanks to
the Internet, even those who could not attend demonstrations could show their support for China by
attaching a red heart moniker next to the word China to their avatars. This initiative was launched by MSN
China and spread rapidly throughout the Chinese Internet in 2008. MSNs involvement not only
demonstrates how many Chinese companies respond to the CCP propaganda message on patriotism, but it
is also is an indication of how these days the propaganda message is not just promoted directly from
propaganda authorities; rather it is frequently relayed through intermediaries on to a wider audience.

During torch relay demonstrations in cities such as Canberra, San Francisco or Seoul in 2008, Overseas
Chinese were not compelled to turn up and there were no consequences for not taking an interest, but those
who did come were given free matching t-shirts, souvenirs, transport, and in some cases accommodation,
all courtesy of local embassy officials and China-based donors. These demonstrations successfully
drowned out the protests of anti-CCP groups such as Falungong, Tibetan activists and human rights groups
who had hoped to use the Beijing Olympics as a vehicle to promote their criticism of the Chinese
government.

Taiwanese
A sub-group of Chinas foreign propaganda directed at Overseas Chinese is that directed towards the
Taiwanese. The message aimed towards them also aspires to build feelings of patriotism towards the
Chinese Motherland and support for the political status quo, but it is also designed to garner support for the
reunification of Taiwan with the Chinese Mainland. These efforts have also been relatively successful in
recent years.

Some of the means which China employs to promotes its views to Taiwanese audiences include: special
television programmes directed at Taiwanese audiences on CCTV 4; the setting up in 2005 of Strait Star
32

TV a Fujian Province-based satellite station which beams towards Taiwan; study tours for the Taiwanese
elite; joint conferences held on themes which help to build common interest such as Chinese heritage and
Confucianism; and the hosting of large-scale events which promote notions of ethnic unity across the
Taiwan Strait such as commemorations for the birth of Confucius, celebrations for the cult of Mazu (which
is prominent in Taiwan and Fujian) and ceremonies in honour of the Yellow Emperor, the symbolic
ancestor of all Han Chinese.

Foreign Propaganda Targeted at Non-Chinese
Chinas foreign propaganda directed at non-Chinese audiences has undergone major reform in the last
decade. These reforms are indicated by the Chinese medias avoidance of the term propaganda in foreign
language publications to discuss CCP media management, though the term xuanchuan (propaganda)
continues to be used in Chinese. So for example, the CCP Central Propaganda Department (Zhongxuanbu)
is now translated as Central Publicity Department by China Daily and Xinhua and they use terms such as
publicity, information, public relations, cross cultural communication and public diplomacy to
discuss activities which are still classified as waixuan (Foreign Propaganda) in Chinese language
publications. As in its domestic propaganda, China now adapts many of the methods of public opinion
management which originated in modern industrialized societies such as the United States.

Chinas international image was considerably damaged in the eyes of non-Chinese foreign audiences after
1989. Since that date China has worked hard to build constructive international public opinion. The overall
themes of Chinas foreign propaganda work since 1989 and up to the present have been to promote the
image of Chinas social, economic, and political stability; as well as the continuance of Chinas reform and
opening up policies and CCP leadership over the political system. But in particular, promoting the Chinese
economy and encouraging further foreign investment and trade has become the primary task of foreign
propaganda work, particularly after 1992. Throughout the 1990s China was certainly successful in
promoting awareness of its economic growth and enthusiasm for the opportunities which the Chinese
market offered international investors, but perceptions towards the politics of China proved much harder to
shift, at least among Western audiences. It should be noted that beginning in the 1990s and continuing up
to the present day, Chinas prestige began to grow in the developing world.

Promoting a new national image (guojia xingxiang) internationally was one of the key strategic goals of
Chinas 2008 Olympic bid. The new image aimed to allay international fears about Chinas increasing
political, economic and military power, at the same time as projecting awareness of Chinas renewed
strength and prosperity. The two weeks of the August 2008 Olympics were indeed a sporting and PR
triumph for Beijing. Despite the controversies surrounding hosting the Olympics in Beijinghuman rights,
the environment, food safety and other issuesthe Chinese government actually managed to increase its
public approval in China and succeeded in re-shaping its image on the international scene.

There are multiple means adopted for the transmission of Chinas foreign propaganda targeted at non-
Chinese foreigners. These include PRC-based foreign propaganda outlets such as China Daily, CCTV-9,
China Radio International, Peoples Daily online published in translation in a number of languages, and
china.org the main portal for Chinas foreign propaganda, as well as publishers such as the Foreign
Languages Press; but they also include the foreign media and foreign VIPs who China targets to promote
certain views. In the following section I will discuss some of these channels for transmission in more
detail.

CCTV-9 was launched as a 24-hour channel in 2002, and from 2004, it began broadcasting in Spanish and
French. In September 2005, the station was re-launched with much fanfare, though with little noticeable
change to content or style of programming. The goal was to make CCTV-9 Chinas equivalent to CNN, a
global media presence with 24-hour news coverage. However, unlike CNN, which is not (formally at least)
the mouthpiece of any particular government, CCTV-9 is most definitely the mouthpiece for the Chinese
33

governments perspectives on international affairs and the Party-line perspectives on Chinas own affairs.
The station has been granted substantial resources in terms of equipment; but has no editorial
independence. CCTV-9 journalists are under constant pressure to present a positive account of China. In
August 2005, a series of items reported factually on coal mining disasters in China; soon after the
channels leaders received a warning from the Ministry of Foreign Affairs that its reports were harming
Chinas international image. Following this incident, senior editorial staff and journalists were all forced to
write self-criticisms. This is a classic example of the current relative lack of agency of Chinese journalists
involved in Chinas foreign propaganda activities aimed at non-Chinese foreigners. In many ways they are
more constrained than journalists who write for Chinese audiences.

A further channel for Chinas foreign propaganda is the Chinese PR Association, set up in the early 1990s,
which works closely with the Central Propaganda Department towards the goal of optimizing a pro-China
international environment, establishing a positive image of China internationally, and packaging
China. One of the organizations tasks is to act as an intermediary between foreign embassies and
organizations in China with Chinese government departments. The association also takes a behind-the-
scenes role in PR campaigns (targeted at the concerns of Western governments and NGOs) such as the
high-profile anti-AIDS campaign of November-December 2002.

The CCP has a longstanding policy of utilising foreigners in its foreign propaganda work, this is called
using foreign strength to promote China (liyong waili wei wo xuanchuan). Historically, pro-CCP
foreigners have been extremely useful in producing a wide range of propaganda materials, ranging from
books, films and poetry, to public and private lobbying. Soon after J une 4, J iang Zemin instructed foreign
affairs personnel to step up their activities to garner the support of prominent foreigners friendly to
China, to influence Western governments and get them to drop their sanctions against China. Henry
Kissinger and George Bush Senior are commonly cited as being particularly helpful (behind the scenes) to
blunt the effects of sanctions in this period. The foreign friends the CCP has come to value most in the
post-1989 period are prominent foreign figures that can bring commercial and political advantages to
China and the Chinese oligarchy. Public agreement on Chinas political positions is not required, though it
might help business along a little.

In the years since 1989, Beijing has worked hard to get foreigners to promote China. Foreigners based in
China and Western China specialists are often approached by foreign affairs cadres to write articles on
China for the Chinese media. Naturally, only viewpoints which are in accord with the current propaganda
line can be published. China Daily specializes in featuring this type of material, although similar stories
also periodically appear in the Chinese language media. Another tried and true practice in Chinas foreign
propaganda work is to bring in prominent person foreign delegations on all-expenses-paid tours of
China, in the hope that they will go home promoting Chinas point of view. Local propaganda officials are
instructed to host foreign journalists and researchers; do thought work on foreign experts, students,
tourists, Taiwanese, and Overseas Chinese; and increase sister-city exchanges; all in order to create an
international army of friendly propagandists for China.

In 1992, a meeting of foreign propaganda officials was held to discuss techniques for getting Chinas
propaganda materials published in the Western media. Since that meeting there has been a dramatic
increase in materials published abroad. Between 1992 and 2000 over two thousand articles were published
in Taiwan alone. Chinas propagandists try to get foreign newspapers to do Chinas propaganda work; this
is called borrowing foreign newspapers (jieyong haiwai baokan). In order to achieve this, Chinas local
level foreign propaganda officials host approved foreign journalists, take them around approved sites and
give them materials for their reports. Non-approved visits to sensitive sites (if found out) can have foreign
journalists thrown out of China.

In early 2009 Beijing announced that it would invest a further phenomenal 45
34

billion yuan into its main media outlets to strengthen their international news coverage and global
presence. As part of this, Xinhua News Service will increase their overseas bureaus from 100 to 186,
almost enough to have one in every country in the world. The Global Times, an extremely popular People's
Daily-owned tabloid with a strong international focus, will soon set up an English language edition. And
CCTV-9 will set up Arabic and Russian language services.

There are also concrete plans in the next two year to establish an Asia-based television station (Singapore
or Thailand are the likely locations) that would beam global news to the world as told from a pro-PRC
perspective. This new channel would take as its model Phoenix Television, which is beamed via restricted
satellite to the Chinese elite within China and on paid satellite tv outside China. Phoenix is nominally
privately-owned; however its current main investor is the State-owned enterprise China Mobile.

Phoenix has long been regarded by Party propaganda insiders as more loyal than CCTV. The proposed
new channel would similarly be privately-owned and closely tied in to the CCP foreign propaganda
agenda. If it were to follow the Phoenix Television model, which is that of a loyal opposition, this
channel could well be more effective than CCTV-4 or CCTV-9 in building positive international public
opinion for China. It certainly is likely to appeal to Overseas Chinese audiences as will focus on stories
which are close to their interests and not covered elsewhere in such detail, while retaining the crucial
impression of objectivity which CCTV-4 and CCTV-9 often lack. The new channel could also prove to
be appealing to many viewers in the non-Western world such as Africa, the Middle East, South America
and the South Pacific who are attracted to Chinas alternative perspective of global affairs. As such this
new initiative could well have a significant impact in strengthening Chinas soft power internationally.

Panel I: Di scussi on, Quest i ons and Answers

HEARI NG COCHAI R REI NSCH: Thank you very much.
We'l l conti nue now wi th questi ons. Commi ssi oner Fi edl er.
COMMI SSI ONER FI EDLER: Thank you.
I have two questi ons, one of whi ch i s a factual questi on. Coul d
one of you, and perhaps i t's Dr. Brady, di scuss the di fference between
domesti c control and external control s? I n other words, who are the
i nsti tuti onal parti ci pants on the external si de that are di fferent from
the domesti c, and i ncl udi ng wi thi n that the rol e of the Forei gn
Mi ni stry, whi ch has often struck me as subordi nate to other pl ayers?
DR. BRADY : Fi rst of al l , i n contemporary Chi na di scussi on on
these i ssues, they don't use the word "control " anymore. They use the
word "management," "guanl i ."
That's an i mportant di sti ncti on. I t's not j ust an arti fi ci al change
of wordi ng. What i t i mpl i es i s that they are al l owi ng the medi a a l ot
more freedom, and there's thi s tal k of the medi a as a tool , and i n the
past, the medi a had to be the tongue and throat of the Party.
So the medi a as a tool i s a medi a that i s more l i ke the medi a i n
thi s country where i t's i ndependentl y funded and separate from the
state, and yet the government and di fferent agenci es can have a l ot of
i nfl uence i n the medi a. At l east that's how Chi na sees i t. The theori es
of Norm Chomsky are very popul ar i n Chi na. They're sort of sayi ng
35

that works; we want that.
So i n terms of the di fferent agenci es i nvol ved, there's a Central
Propaganda Department whi ch i s ki nd of l i ke the Vati can of Chi na's
propaganda and thought work. I t's a smal l organi zati on, about 300 or
so peopl e, and they're a processi ng stati on for a whol e l ot of other
agenci es that do pol i cy work and al so other groups.
The state organi zati on i s i nvol ved i n the propaganda system
whi ch admi ni sters the pol i ci es so there's a separati on between the
i deas and the pol i ci es and the admi ni strati on. And the Central
Propaganda Department has a brother organi zati on, the Offi ce of
Forei gn Propaganda, whi ch has another namepl ate. Typi cal i n the
Chi nese bureaucracy, you'l l have one offi ce, two namepl ates. I ts other
namepl ate i s the State Counci l I nformati on Offi ce.
Both the Central Propaganda Department and the Offi ce of
Forei gn Propaganda, they have some overl appi ng duti es rel ated to
forei gn propaganda acti vi ti es, whi ch I 've expl ai ned i n my statement.
I t's qui te compl i cated. The Forei gn Mi ni stry has a rol e, too, and they
someti mes come i n on certai n i ssues. I menti oned CCTV-9 and the
j ournal i sts attempt to have some i ndependent vi ews.
An exampl e [of what happens when the j ournal i sts tri ed to be
i ndependent] was i n August 2005. There had been a seri es of coal
mi ni ng di sasters i n Chi na, and i t caused a l ot of attenti on not j ust
outsi de Chi na but wi thi n Chi na, CCTV-9 actual l y reported i n some
detai l and factual l y on coal mi ni ng di sasters, then they got a sl ap on
the hand from the Forei gn Mi ni stry sayi ng you are maki ng Chi na l ose
face. And so the Forei gn Mi ni stry i s a part of what they cal l the
"xi tong," the supra-bureaucracy i nvol ved i n forei gn propaganda.
There are these spi der web-l i ke bureaucraci es over the top-down
state bureaucraci es i n Chi na on di fferent topi cs. There's one on
propaganda as a whol e. There's another on forei gn affai rs. Defense i s
another one. I magi ne these spi der webs l i nki ng a whol e l ot of
agenci es. So Forei gn Mi ni stry i s part of forei gn propaganda
bureaucracy, but i t's not a l eader. But they can step on an i ssue l i ke
that.
One addi ti onal questi on. What rol e do any U.S. compani es pl ay
i n assi sti ng Chi nese agenci es? For i nstance, I have knowl edge of some
Western PR fi rms doi ng cri si s management advi ce. What rol e do they
pl ay?
DR. CULL: Fol l owi ng Ti ananmen, i t was Hi l l & Knowl ton who
rebui l t Chi na's i nternati onal reputati on or worked to do that.
DR. BRADY : Y es. I 'm sure i t's a topi c that the compani es
probabl y want to keep fai rl y secret, but Hi l l & Knowl ton i s one of the
compani es that we know of i nvol ved i n Chi na's PR bi ddi ng to hel p
36

Chi na wi th i ts PR.
Saatchi and Saatchi i s another bi g one. The names go on because
they see Chi na as a market for them. They've got a product. They
want to sel l i t. So i t's j ust another opportuni ty from the poi nt of PR
compani es, and there have been a seri es of conferences where PR
compani es are tryi ng to pi tch to Chi na thi s i s what we can do for you.
COMMI SSI ONER FI EDLER: Are they effecti ve, i n your
j udgment? I s thei r advi ce bei ng taken?
DR. BRADY : I t's very i nteresti ng actual l y. I n a paper I j ust
wrote on the Bei j i ng Ol ympi cs as a campai gn of mass di stracti on, I
ci ted the speech of the CEO of Saatchi & Saatchi i n 1998, and he was
tel l i ng Chi na that they needed to rebrand, and he menti oned the Chi na
brand, and [the concept he was espousi ng] ki nd of sounded l i ke
Fal ungong.
I t was these New Age concepts of thi s anci ent cul ture and so on
and val ues that he coul dn't fi nd el sewhere. But el ements of that were
i ndeed present i n the i mages that Chi na was presenti ng i n the 2008
[Ol ympi cs] Openi ng and Cl osi ng Ceremoni es, i ts anci ent cul ture, and a
very sel ecti ve vi si on of Chi nese hi story, and so on.
That's somethi ng that we have to note as wel l about the forei gn
propaganda today i s that Chi na doesn't promote i ts i deol ogy gl obal l y
al though the Chi na model i s to an extent promoted to countri es l i ke
Cuba and North Korea and possi bl y parts of Afri ca and the South
Paci fi c.
The mai n focus of Chi na's forei gn propaganda i s economi c. The
[message promoted i s that the] Chi nese economy i s doi ng wel l you
shoul d i nvest i n the Chi na market, and so on. That may not be true.
As we know, Chi nese stati sti cs are not al ways rel i abl e.
The other aspect i s Chi nese cul ture and Chi na's perspecti ves on
the worl d. So Chi na has to get that out. Whether i t i s effecti ve or not
i s another story.
HEARI NG COCHAI R REI NSCH: Commi ssi oner Wessel .
COMMI SSI ONER WESSEL: Thank you al l for bei ng here and
for wi nni ng the award for the l ongest travel s to get here. So we
appreci ate your bei ng here today.
I 'd l i ke to fol l ow up on Commi ssi oner Fi edl er's questi on j ust for
a moment i n terms of i nsti tuti ons or compani es that assi st. I t had been
my understandi ng, and Dr. Cul l , you tal ked about the l i steni ng mode,
the pol l i ng, that some years ago, and I haven't updated thi s
i nformati on, that forei gn enti ti es that wi shed to pol l the Chi nese
peopl e had to have thei r questi ons and thei r acti vi ti es, i n fact,
approved by the central government.
But I guess whether i t's Hi l l & Knowl ton or others, they get to
37

l i sten here. I s that sti l l the case?
DR. CULL: That's not my area.
COMMI SSI ONER WESSEL: Okay.
DR. CULL: I 'm i nterested i n what the Chi nese government i s
doi ng overseas.
COMMI SSI ONER WESSEL: Okay.
DR. CULL: We know that they're l i steni ng very careful l y to
what i s sai d i n the Western medi a. Goi ng through speeches by seni or
Pol i tburo fi gures, we can see that they pepper them wi th quotes from
what Western j ournal i sts have sai d what the Western medi a are sayi ng,
and what the worl d's medi a thi nks of Chi na.
COMMI SSI ONER WESSEL: But are they doi ng more acti ve
enterpri se, not j ust doi ng open source revi ew, but l ooki ng at
commi ssi oni ng pol l s--
DR. CULL: Sure, yes
The most famous one bei ng the j oi ntl y commi ssi oned pol l on
Chi nese/J apanese mutual publ i c opi ni on, whi ch produced real l y qui te
al armi ng resul ts of evi dence of the spl i t between those two countri es.
That was one where they actual l y worked wi th the J apanese
government to conduct a pol l .
COMMI SSI ONER WESSEL: Do ei ther of the other wi tnesses
have a comment on that?
DR. BRADY : Y es. Thi s i s somethi ng that I 've l ooked at a l i ttl e
bi t i n my research, and publ i c opi ni on pol l i ng i s a very, very i mportant
part of propaganda work these days, parti cul arl y i n domesti c
propaganda, where i t's sort of l i ke the government wants to i denti fy
what are the probl ems goi ng on i n soci ety and then put some Band-
Ai ds on them i n advance of them becomi ng a bi gger probl em.
I t i s techni cal l y true that forei gn compani es who want to engage
i n soci al sci ence surveys i n Chi na do need offi ci al approval , but rul es
and regul ati ons are one thi ng i n Chi na. What happens on the ground
can be qui te di fferent. But i f a forei gn company i s worki ng wi th a
Chi nese partner, al l these thi ngs are much si mpl er.
COMMI SSI ONER WESSEL: Okay. A separate questi on i s, as
we l ook at the current economi c cri si s worl dwi de and Chi na havi ng i ts
fi nanci al coffers fai rl y wel l stocked and now expandi ng i ts go-out
strategy, are you seei ng that they are abl e to benefi t from the economi c
cri si s i n terms of expandi ng thei r reach overseas? What i mpl i cati ons
i s that havi ng? Each of the wi tnesses, i f possi bl e.
DR. POLUMBAUM: One thi ng I can say i s I recentl y made a
very bri ef vi si t to Bei j i ng and ki nd of checked i n on a coupl e of
organi zati ons i ncl udi ng Chi na Dai l y and the new Gl obal Ti mes ri ght
before the Engl i sh edi ti on was l aunched. And one i mpressi on I have i s
that l arge amounts of money are avai l abl e, not necessari l y from the
38

government, but from, generated wi thi n organi zati ons for expansi on,
and there's a great frenzy to spend i t on somethi ng to do wi th
expansi on wi thout a great deal of thought.
For i nstance, Chi na Dai l y earl i er thi s year l aunched what i t cal l s
a North Ameri can edi ti on, whi ch i sn't real l y a North Ameri can edi ti on.
I t's at thi s poi nt a suppl ement, a weekl y Monday edi ti on to the regul ar
paper, but i s bei ng pri nted and sol d, apparentl y--al though nobody I
know has seen i t--i n San Franci sco and New Y ork. I thi nk 20,000 i n
each pl ace.
There's an evi dent assumpti on on the part of edi tori al
management who l aunched thi s that there i s a demand for thi s i n San
Franci sco and New Y ork, whereas, any of the edi tors, sort of worki ng
edi tors you tal k wi th about thi s, thi nk i t's j ust, wel l , nuts, but they
wel come the expendi ture of the money because i t's hel pi ng them trai n
young reporters to do better, and they've been abl e to hi re some
addi ti onal forei gn edi tors to hel p trai n these reporters and they see i t
as a ki nd of a bui l di ng of experti se wi thi n Chi na Dai l y.
Si mi l arl y, the audi ence for the Engl i sh edi ti on of Gl obal Ti mes
and the purpose of that i s ki nd of amorphous and di ffuse, but the
Chi nese edi ti on, Huanqi u Shi bao, i s very popul ar, very successful , and
a money-maki ng operati on, so there i s money to spend, but not very
wel l thought out as far as I can tel l .
COMMI SSI ONER WESSEL: Okay. My ti me i s up.
HEARI NG COCHAI R REI NSCH: Do you want the others, too, to
comment as wel l or not?
COMMI SSI ONER WESSEL: I f possi bl e, yes.
HEARI NG COCHAI R REI NSCH: I thi nk we can take a mi nute
si nce we don't have too many questi ons. Do ei ther of the other two
wi tnesses want to comment or respond to the questi on?
DR. BRADY : J ust bri efl y. I 'd agree wi th Dr. Pol umbaum.
There's a l ot of money avai l abl e, not al ways a l ot of pl anni ng about
how to spend i t, and there's been a real probl em for these agenci es,
tradi ti onal agenci es i nvol ved i n Chi na's forei gn propaganda acti vi ti es
l i ke Chi na Radi o I nternati onal , Chi na Dai l y, and CCTV-9, i n havi ng
trai ned staff or trai ned j ournal i sts and wi th good forei gn l anguage
ski l l s, and often they'l l get them, they'l l trai n them, and then they'l l go
off to a better pai d j ob el sewhere.
So some of the money, we can assume, i s toppi ng up sal ari es and
then deal i ng wi th the whol e i ssue of benefi ts whi ch are associ ated wi th
j obs i n Chi na. So i t's not necessari l y--i t's l i ke spendi ng on the
Chi nese defense forces as wel l . They've got a l ong way to go.
DR. CULL: I 'm i nterested to see thi s di versi fi cati on wi th the
l aunch of the Russi an versi on of CCTV and the Arabi c versi on of
CCTV thi s year. They're adverti si ng i n the trade papers l ooki ng for
39

peopl e to serve on these TV channel s.
I hope we'l l get i nto--at some poi nt--what we thi nk the obj ecti ve
i s here because I thi nk some of Dr. Pol umbaum's poi nts are very
suggesti ve of what the real pri ori ty i s behi nd thi s. I thi nk that what
emerges when you start l ooki ng at these el ements of Chi nese
propaganda overseas i s that a l ot of what i s i mportant i s that
somethi ng be seen to be done.
And that thi s i s focusi ng on the abi l i ty to say to a domesti c
audi ence Chi nese news i s avai l abl e on the streets of Ameri can ci ti es,
to be abl e to say there are 100,000 peopl e worl dwi de now l earni ng the
Chi nese l anguage i n Chi nese government i nsti tuti ons, to be abl e to say
we have 200 cul tural centers around the worl d, and that these are not
j ust pai d by the Chi nese government, but these are partnershi ps wi th
peopl e who are desperate to l earn about Chi na and to honor the gl ori es
of the Chi nese cul ture. What I 'm tal ki ng about here i s conducti ng
domesti c propaganda by conducti ng forei gn propaganda, and once you
put that frame around what i s goi ng on, i t makes much sense.
I t's much more l i kel y that peopl e domesti cal l y woul d be
i mpressed by 2008 drummers drummi ng i n uni son at the Openi ng
Ceremony of the Ol ympi c Games than the peopl e i n the worl d woul d
actual l y fi nd that an attracti ve thi ng to l ook at. I t's about bei ng seen to
be abl e to di spl ay and about the kudos that come to the Communi st
Party by sayi ng, Look, behol d, we gi ve you the gi ft of the admi rati on
of the worl d.
That i s a bi g thi ng to l ay before your own peopl e, and once that
frame i s put around Chi nese publ i c di pl omacy and propaganda
acti vi ti es, I thi nk a l ot of these odd l i ttl e corners become cl earer and i t
expl ai ns to me why some of these thi ngs are happeni ng i n the way that
they're happeni ng.
DR. POLUMBAUM: I woul d add j ust a l i ttl e si de note here.
The Uni versi ty of I owa where I teach has a Confuci us I nsti tute. I t was
one of the fi rst that was establ i shed i n the Uni ted States.
The onl y awareness we have of any Chi nese offi ci al presence i s
when the i nsti tute was offi ci al l y started, the consul from Chi cago,
Chi nese Consul , came to put up a pl aque and then coul dn't even stay
for a day. He had to go back for busi ness.
Thi s i nsti tute i s basi cal l y run by a l i ngui st, l anguage expert,
ori gi nal l y Chi nese, now an Ameri can ci ti zen, who i s a phenomenal
organi zer of l anguage programs and has used i t to bri ng doctoral
students i n Chi nese l anguage teachi ng from Chi na. So there's a whol e
i nfusi on of young l anguage teachers that turns over every year, and
there are communi ty cl asses and cl asses, extra cl asses i n the
uni versi ty, and i t's seen as a real contri buti on to our academi c
programs.
40

I t al so has matchi ng fundi ng from the uni versi ty so i n no way i s
i t regarded as, and i t actual l y doesn't operate as, an arm of Chi nese
publ i c di pl omacy, but from the Chi nese poi nt of vi ew, i t i s.
COMMI SSI ONER WESSEL: Thank you.
Commi ssi oner Brookes.
HEARI NG COCHAI R BROOKES: Thank you.
J ust to qui ckl y fol l ow on that and then I have another questi on.
So you don't bel i eve that the Chi nese government i s del uded i nto
thi nki ng that there's thi s tremendous i nterest i n Chi nese news
overseas?
Ameri can newspapers are havi ng enough troubl e themsel ves
getti ng peopl e to buy thei r newspapers, but you thi nk i t's more of a be
abl e to return--i t's basi cal l y focused on the domesti c audi ence as
opposed to a forei gn audi ence?
DR. POLUMBAUM: I thi nk there i s some of that del usi on.
HEARI NG COCHAI R BROOKES: Oh, you thi nk they're
del uded?
DR. POLUMBAUM: I real l y do.
HEARI NG COCHAI R BROOKES: The way Dr. Cul l sai d i t i s
that they know what they're doi ng. There's a method to the madness.
He understands that and he real i zes i t's refl ected on the--
DR. POLUMBAUM: I absol utel y agree wi th hi m.
However, I do thi nk that at hi gher l evel s of the propaganda
apparatus, that there i s some overbl own expectati on that forei gn
audi ences have an appeti te for di rect news from Chi na.
I n fact, we know that audi ences are obsti nate; they're resi stant.
They i nterpret. Chi nese audi ences are obsti nate, read between the
l i nes. We certai nl y are. So the i ssue of credi bi l i ty i s vi tal , and peopl e
who get unfi l tered news i nterpret i t i n terms of i ts source. So I woul d
say yes, there's some of thi s del usi on, but i t doesn't expl ai n what's
happeni ng.
DR. CULL: I woul d agree wi th what Dr. Pol umbaum i s sayi ng.
I thi nk that as wi th the former Sovi et Uni on, there are peopl e who
bel i eve thei r own propaganda, and i n the end i n the case of the former
Sovi et Uni on, the l ast peopl e who bel i eved that the Sovi et Uni on was a
great gi ft to the worl d and that everyone l oved i t were the peopl e who
were actual l y payi ng demonstrators to demonstrate i n support of thei r
system on the streets of thi rd-worl d ci ti es.
So, i t's a real l y pecul i ar--the human capaci ty for sel f-del usi on i s
certai nl y present here, but then Chi na i sn't the onl y pl ace where peopl e
del ude themsel ves that the worl d i s fasci nated by thei r way of l i fe and
i s desperate to be j ust l i ke them.
HEARI NG COCHAI R BROOKES: Okay. Dr. Brady, I have
41

another questi on, but I j ust wanted to keep pul l i ng on thi s stri ng for a
moment.
DR. BRADY : I 'd j ust l i ke to add, though, that I do thi nk that
thi s bi g i nvestment has come about because that's come, Chi na very
much feel s that, and the Chi nese popul ati on feel s so the government
feel s, and those i nvol ved i n propaganda work feel , and the popul ati on
are i n great sympathy wi th thi s i dea that the West i s conti nual l y
di storti ng news about Chi na, and that i s an i ssue of great concern and
so Chi na wants to do somethi ng about i t.
They've been tryi ng to do somethi ng about i t for a l ong ti me, and
part of thei r forei gn propaganda work i s about hosti ng forei gn
j ournal i sts i n Chi na, preferabl y ones who don't speak Chi nese and
don't have thei r own contacts there, and maki ng them very wel come i n
every possi bl e way, and the Ol ympi cs, the hosti ng of the forei gn
j ournal i sts, thi s was the pl an. I t di dn't al ways work that way because
the j ournal i sts ended up feel i ng smothered accordi ng to my research.
But Chi na has a number of ways i n whi ch i t tri es to get i ts voi ce
out to the worl d. So i t's not al l about Chi na Dai l y, whi ch i f any of you
read i t, i t's not the ki nd of thi ng you'd want to pay a l ot of money for
on a regul ar basi s. I t's not the New Y ork Ti mes, but i f Gl obal Ti mes
comes out wi th an Engl i sh l anguage versi on, I 'm goi ng to want to read
that because Gl obal Ti mes i s a very i nteresti ng paper i n Chi nese.
So that's an i nteresti ng devel opment and I thi nk that's rel ated to
what I was sayi ng about the medi a as a tool . So movi ng from the
medi a as the tongue and throat of the Party and gi vi ng the medi a some
i ndependence, assumi ng i t's not goi ng to al ways do what you want i t to
do, but that peopl e thi nk i t's goi ng to be--thi nk i t's i ndependent, and so
they want to read i t more, and so Chi na, as I sai d, Chi na real l y wants
to get i ts own voi ce out to the worl d.
I t feel s very hard done by the Western medi a and Western medi a
compani es. So they thi nk i t's worth putti ng a l ot of money i n on al l
sorts of l evel s so that peopl e wi l l hear what they have to say and thei r
perspecti ve on worl d events.
HEARI NG COCHAI R BROOKES: I have a few moments l eft.
Dr. Cul l , i f I understood you correctl y, at the end of your testi mony
you sai d that, and I agree wi th thi s asserti on that the Uni ted States
needs to pi ck up the pace i n terms of i ts publ i c di pl omacy.
DR. CULL: Absol utel y.
HEARI NG COCHAI R BROOKES: What are the costs of not
pi cki ng up the pace or bei ng more effecti ve for the Uni ted States vi s-
a-vi s the Chi nese efforts?
DR. CULL: Wel l , I thi nk waki ng up and fi ndi ng that peopl e's
attenti ons are el sewhere. Rel ati onshi ps are movi ng away from the
Uni ted States, that i nfl uence i s decl i ni ng, and the worl d has moved on,
42

and whi l e the Uni ted States i s busy focusi ng on i ts own economy and
on the Mi ddl e East, Lati n Ameri ca, Afri ca, East Asi a have found other
thi ngs to thi nk about and other peopl e to work wi th, and the
rel ati onshi ps that have fl owed natural l y from Ameri ca's presence i n
those pl aces have decl i ned, and opportuni ti es no l onger exi st for thi s
country, and i nfl uence no l onger exi sts for thi s country.
HEARI NG COCHAI R BROOKES: Okay.
DR. CULL: We're tal ki ng about rel ati ve decl i ne. We're tal ki ng
about bei ng l eft behi nd, and so I see i t as a real l y severe probl em. I t's
about mai ntai ni ng your rel ati onshi ps, and you don't onl y tal k to peopl e
when you want somethi ng from them.
Commi ssi oner Shea.
COMMI SSI ONER SHEA: Thanks very much for bei ng here. Can
you see me?
DR. CULL: Y es.
COMMI SSI ONER SHEA: I got scol ded yesterday by a member
of the Commi ssi on staff for fai l i ng to return thi s book by Professor
Brady. I t's i n the Commi ssi on l i brary so i t's dul y returned, J ohn.
I have two questi ons actual l y. Professor Brady, you menti oned
that the Chi nese l eadershi p i s concerned about the i mpact of economi c
growth on pol i ti cal stabi l i ty. They're al so concerned about publ i c
opi ni on. I was wonderi ng how do you assess thei r efforts marketi ng
the economi c sti mul us pl an, marketi ng what the government i s doi ng i n
response to the gl obal fi nanci al cri si s? How are they provi di ng what
they vi ew as the correct gui dance of publ i c opi ni on, and are they
bei ng successful ?
DR. BRADY : Thi s ki nd of acti vi ty i n Chi na i s al ways done wi th
an opti mi sti c poi nt of vi ew assumi ng they're j ust goi ng to do the best
they can, and how i t's recei ved i s another story. I t's not necessari l y
the focus of the materi al s that I l ook at. I t's thi s i s what we've got to
do and we've got to do i t wel l .
The promoti on of the economi c sti mul us package I thi nk has
been recei ved qui te wel l i nternati onal l y, probabl y because Western
sel f-esteem i s rather battered at the moment as a resul t of the probl ems
i n al l our respecti ve countri es.
So, Chi na, for my country, the Chi nese economy i s very, very
i mportant so there's a great si gh of rel i ef i f i t l ooks l i ke Chi na i s goi ng
to muddl e through because i f they're goi ng to muddl e through, then
they're goi ng to conti nue to want to buy our products.
I n fact, there's been a ten percent i ncrease i n sal es of dai ry
products from New Zeal and, and our dai ry i ndustry i s 30 percent of the
New Zeal and economy. So I thi nk my i mpressi ons are that that ki nd of
43

i nformati on about that program have gone wel l .
But one thi ng we al l know, those of us who l ook at Chi nese
pol i ti cs, i s that the pl an i s one thi ng; what happens on the ground can
be compl etel y di fferent. And that's what i s so i nteresti ng about
Chi na's forei gn propaganda on the economy. We need some
economi sts wi th Chi nese l anguage ski l l s to come and break i t down for
us and do some research on what actual l y happens on the ground and i f
i t real l y works, i f l ocal governments are pocketi ng the money or
actual l y putti ng the money i nto the economy.
When i t comes to the domesti c market and the domesti c
consumers and how they're respondi ng to the economi c message from
the government, the government has to sel l i t wel l because thi s i s such
a tri cky year for Chi na. There are too many anni versari es pl us an
economi c cri si s. They've got to get through thi s year.
COMMI SSI ONER SHEA: So an i nternal propaganda effort I
assume i s i n overdri ve to promote the posi ti ve benefi ts for the
economy?
DR. BRADY : Y es, that's ri ght. Everythi ng i s supposed to be
good i n the economy, and even when you l ose your j ob, i t al l works
out i n the l ong run because you start out wi th thi s whol e new career
that you never woul d have done.
So that's what's goi ng on i n the TV channel s at the moment, and
there's qui te a di fference between the di fferent ki nd of medi ums i n
Chi na.
The newspaper i s one ki nd of audi ence. TV i s the most
mai nstream; i t's the mai n propaganda tool for the masses who don't
necessari l y read Chi nese. There's sti l l a l ot of i l l i teracy i n Chi na.
Radi o i s another audi ence. I nternet i s compl etel y di fferent. The
ki nd of debates you fi nd on the I nternet are much more compl ex and
can be qui te cri ti cal of government pol i cy.
COMMI SSI ONER SHEA: Dr. Pol umbaum or Dr. Cul l ?
DR. POLUMBAUM: I thi nk an i mportant di scussi on that's
starti ng both i n Chi na and al l over the worl d about the Chi nese
economy, and I 'm not an economi st so my take on thi s i s very
superfi ci al , i s what the worl d economi c cri si s means for Chi na's
l onger-term economi c strategy, and I thi nk Chi na suddenl y appears to
be qui te vul nerabl e i n terms of i ts tremendous dependence on an
export-dri ven economy combi ned wi th i ts growi ng dependence on
energy i mports.
So I suspect that there's goi ng to be a conversati on about, even
as Chi na becomes i ncreasi ngl y entangl ed wi th the gl obal economy,
how to decrease these sorts of dependenci es, and how they do i t, of
course, has tremendous i mpl i cati ons for our own economy.
DR. CULL: Al l I woul d add i s that i t's i nteresti ng to see how
44

the Chi nese pol i ti cal di scourse i s poi nti ng to a Western admi rati on for
soci al i sm wi th Chi nese characteri sti cs, and they're sayi ng the West
now acknowl edges that onl y soci al i sm wi th Chi nese characteri sti cs can
do thi s.
COMMI SSI ONER SHEA: Ri ght.
DR. CULL: Li ke the ol d ad for Hei neken beer, onl y Hei neken
can do thi s because i t refreshes the parts other beers cannot reach.
Onl y soci al i sm wi th Chi nese characteri sti cs can do thi s because i t
devel ops a country l i ke no other system ever coul d. I t's i n the
Chi nese pol i ti cal di scourse Westerners are now acknowl edgi ng thi s--
and I 'm seei ng that crop up i n speeches.
Commi ssi oner Mul l oy.
COMMI SSI ONER MULLOY : Thank you, Mr. Chai rman.
The questi on I have i s rel ated to somethi ng Dr. Pol umbaum j ust
sai d. She poi nted out i n passi ng that Chi na does have a l onger-term
economi c strategy. That's her term. Do you both agree wi th that, that
Chi na has a l onger term economi c strategy, Dr. Brady and Dr. Cul l ?
DR. BRADY : Of course. The pl an i s to make Chi na ri ch and
strong. Offi ci al l y, that's the goal , ri ch and strong.
COMMI SSI ONER MULLOY : Do you see that the Uni ted States
has a l onger-term economi c strategy j ust i n passi ng, thi nki ng about i t?
DR. BRADY : That the U.S. has a l onger pl an than Chi na? Wel l ,
Chi na has got such a--
COMMI SSI ONER MULLOY : I f someone sai d to you does the
Uni ted States have an economi c strategy, what woul d you say?
DR. BRADY : Mai ntai ni ng the standard of l i vi ng of the peopl e i n
the Uni ted States.
COMMI SSI ONER MULLOY : What about you, Dr. Pol umbaum?
DR. POLUMBAUM: Agai n, I 'm not an economi st, but nothi ng
comes to mi nd.
COMMI SSI ONER MULLOY : What about you, Dr. Cul l ?
DR. CULL: Thi s i s a great questi on. I n a former l i fe I was a
Professor of Ameri can Studi es, and I 've al so taught Chi nese hi story.
One of the thi ngs that real l y comes home i s the Chi nese perspecti ve i s
so l ong-term and they're pl anni ng 100 years or they cl ai m to be
pl anni ng 100 years, 200 years out, and whereas, i n the Uni ted States,
i t's so frustrati ng to get peopl e to thi nk outsi de of the el ectoral cycl e,
and i n corporati ons, so often they're j ust tal ki ng about the quarter and
what are we goi ng to do to hi t our numbers thi s quarter?
That i sn't somethi ng that you see i n qui te the same way when
you're tal ki ng to peopl e i nvol ved i n busi ness i n East Asi a, i n general ,
and when you're tal ki ng to peopl e who have a sense of Chi na and
Chi nese pol i ti cs. They're tal ki ng--they are now steppi ng back and
45

sayi ng the poi nt of a l ot of thi s Chi nese engagement wi th worl d
opi ni on i s to say Chi na i s back.
COMMI SSI ONER MULLOY : Y es, for purposes of thi s further
di scussi on, they have one and we don't. At l east that's ki nd of the
understandi ng that we've got now. Dr. Ross Terri l l i s goi ng to be on
one of the l ater panel s. He's a professor up at the Fai rbank School at
Harvard.
He tal ks about there's some money bei ng gi ven to U.S. thi nk tanks,
and someti mes by peopl e who have made money i n Chi na, and he says
that someti mes the pri ce of getti ng that money i s an i deol ogi cal
content i nto the thi nk tank's thi nki ng.
These Confuci an I nsti tutes, I don't know a l ot about them, but
the Chi nese government i s fundi ng these, and they have a l ong-term
vi si on as we've al l establ i shed, and they're putti ng money i nto these.
What do you thi nk they thi nk they're goi ng to get for putti ng money
i nto these Confuci an I nsti tutes?
I s there some ki nd of government strategy i nvol ved i n putti ng
money i nto these Confuci an I nsti tutes? Dr. Brady?
DR. BRADY : Thi s i s one of my research areas, and Dr.
Pol umbaum menti oned a mi nute ago that the government's i dea and
then what happens on the ground, i n the uni versi ti es, what they're
thi nki ng i s goi ng on i s di fferent, and I woul d concur wi th that.
The Confuci us I nsti tutes are formal l y part of Chi na's forei gn
affai rs system, and we can trace the trai l back there i f anyone had any
doubts about i t, but the partners of the Confuci us I nsti tutes, i n some
ways they don't want to acknowl edge that real i ty.
COMMI SSI ONER MULLOY : Our partners here, you mean? Or?
DR. BRADY : Wel l , al l around the worl d i n the vari ous
countri es.
And they do have the freedom to pretty much make i t thei r own as
l ong as they don't i nvi te Wei J i ngsheng to gi ve a tal k or anyone from
Fal ungong or any of the known enemi es of Chi na, i n thei r words i n the
government's eyes.
But as l ong as you're j ust teachi ng Chi nese l anguage, that's okay.
But some Confuci us I nsti tutes are i nvol ved i n academi c study and wi l l
have vi si ti ng speakers and so on. So obvi ousl y that's an i nhi bi ti ng
factor, and that's why some uni versi ti es i n New Zeal and have made a
poi nt of sayi ng that we don't want a Confuci us I nsti tute because we
don't want to have any ki nd of constrai nts, but that's ki nd of an
i deal i zed worl d actual l y because then the busi nesses have a say.
They've got a parti cul ar vi ew of Chi na they want too.
So I don't thi nk there i s any puri st worl d where there i sn't
somebody's poi nt of vi ew i nfl uenci ng academi c research and money
comi ng wi thout any stri ngs attached. That's j ust the way the worl d i s.
46

DR. CULL: What I wanted to add to that i s, to confi rm what my
col l eagues have sai d, to say that i t seems that i t's qui te di ffi cul t to
l earn Chi nese at a Confuci us I nsti tute, that they're not necessari l y
parti cul arl y effi ci ent, but where they do seem to be effecti ve i s
provi di ng a focal poi nt for the Chi nese Di aspora, and as a way of
energi zi ng that Di aspora communi ty, they seem to be bei ng very
effecti ve.
I n an odd way, the Confuci us I nsti tute i s l i ke some sort of l unch
date where both parti es are ki nd of hopi ng that the other person i s
goi ng to pi ck up the tab at the end of the meal , and they're orderi ng
more and more stuff, and sayi ng how much they're enj oyi ng i t, and
wai ti ng to see where the check i s goi ng to come. I thi nk that a l ot of
the uni versi ti es that have agreed to have a Confuci us I nsti tute j ust
assume that the three-year contract wi l l keep rol l i ng and that the
Chi nese government wi l l be payi ng for thi s thi ng to happen on thei r
campus.
Because one of the thi ngs that happened i n the UK, for exampl e,
i s that we've started cl osi ng Chi nese l anguage programs wi thi n
uni versi ti es because the argument i s uni versi ti es can't afford such a
rel ati vel y smal l ki nd of enterpri se, whereas, the Chi nese, there's now
four Confuci us I nsti tutes i n London al one, one at the LSE, one at the
School of Ori ental Afri can Studi es, whi ch i s l ess than hal f a mi l e away
from the LSE.
The hope i s the Chi nese government wi l l pay what Bri ti sh
academi a can't, and i t's the same i n other pl aces around the worl d, but
my suspi ci on i s the Chi nese are al so hopi ng that the Western
governments and Western educati onal i nsti tuti ons wi l l pay for Chi nese
cul tural propaganda.
And so we have yet to see what happens to Confuci us I nsti tutes
when the fi rst round of maj or contracts expi re. And the person, the
l i ttl e guy wi th the check comes and puts i t i n the mi ddl e of the tabl e,
who's goi ng to reach when we come to the second round of contracts?
COMMI SSI ONER MULLOY : Thank you.
Commi ssi oner Cl evel and.
COMMI SSI ONER CLEVELAND: Y ou al l have tal ked about the
target audi ence bei ng the Di aspora Chi nese communi ty and the
domesti c communi ty. I 'm i nterested i n whether or not there i s a
regi onal fl avor to propaganda, whether or not there are l onger-term
target audi ences i n Afri ca, Lati n Ameri ca, and i f there i s that l ong-
term Chi nese i nterest i n propaganda on a regi onal basi s, what are i ts
characteri sti cs? How woul d you descri be thei r approaches on a
geographi cal regi onal basi s outsi de the two consti tuenci es that you
tal ked about they're tryi ng to i nfl uence?
47

DR. CULL: Wel l , I thi nk i t's real l y i mportant to l ook at what's
happeni ng both i n Afri ca and i n Lati n Ameri ca i n terms of the way i n
whi ch Chi na i s i nsi nuati ng i tsel f i nto the communi cati ons
i nfrastructure.
I f you l ook at Hugo Chavez' Channel Tel eSUR, you fi nd that
there's Chi nese advi sors, there's Chi nese materi al getti ng on there, and
an awful l ot of Chi nese penetrati on i nto the medi a structures i n Lati n
Ameri ca.
I n Afri ca, i t's even more obvi ous because the Chi nese are buyi ng
up the FM contracts so that, whereas, VOA has been comi ng to Afri ca
over the shortwave, now Afri ca i s turni ng to the l ong wave, and i t's the
Chi nese who are getti ng the contracts.
Now, because Chi na buyi ng contacts for FM rebroadcast i n
Afri ca, i t means that the Uni ted States i s havi ng to pay more and i s
getti ng shut out, and the Broadcasti ng Board of Governors I know i s
very concerned about thi s and needs to focus on getti ng the ri ght sort
of contracts, the ri ght sort of rebroadcasti ng for the Uni ted States.
So thi s i s a very practi cal way, i n answer to Commi ssi oner
Brookes' poi nt, where you can see that Ameri ca i s getti ng shut out.
Ameri can news cannot be heard i f i t's Chi nese news that's on that radi o
stati on, the crowdi ng i nto Ameri ca's, what has hi therto been Western
medi a space.
DR. POLUMBAUM: The onl y thi ng I 'd add i s that i t's my sense
that whi l e there i s a very concerted effort to make i nroads i nto certai n
regi ons and countri es and take advantage of opportuni ti es, that there i s
not a real l y refi ned effort i n terms of adj usti ng content to di fferent
regi onal audi ences.
COMMI SSI ONER CLEVELAND: Y ou agree that the means are
there, but the tai l ori ng of the message has not been devel oped?
DR. POLUMBAUM: Ri ght. There i s, of course, there are some
di sti ncti ons. For i nstance, Xi nhua for a l ong ti me has had i ts French
and Spani sh and Arabi c and Russi an, and there are some experti se
about those di fferent audi ences, but i t's real l y not that di fferent what's
generated.
DR. BRADY : And I woul d concur wi th that, and i t's part of the
atti tude i n many ways wi thi n the Party system and the propaganda
that's promoted towards the Chi nese peopl e about the forei gn other as
i f i t was al l one thi ng, and so, I 've done a l i ttl e bi t of research on
Chi na i n the South Paci fi c and I have yet to come across a Chi na South
Paci fi c pol i ti cs speci al i st. There may wel l be one nowadays, but I 've
been worki ng a l ong ti me tryi ng to fi nd one, l et al one a New Zeal and
pol i ti cs speci al i st. There's a few Austral i an pol i ti cs speci al i sts now.
So Chi na's mai n i nterest i n forei gn affai rs i s frequentl y real l y al l
about the U.S. and the Western worl d i n general . But i t i s certai nl y
48

engagi ng very much wi th the devel oped worl d but not necessari l y
tai l ori ng a parti cul ar message to them. I t's sti l l the same ki nd of bl and
content i f you're l ooki ng at TV programs and CCTV-9. I t's j ust
avai l abl e i n Russi an or whatever the l anguage, Spani sh or French
i nstead of Engl i sh.
But a more effecti ve way of maki ng the content l ocal , as
Professor Cul l menti oned, of becomi ng i nvol ved i n the l ocal medi a
process, and that's part of what's cal l ed "borrowi ng a boat to go out
and onto the sea," i s getti ng forei gn j ournal i sts to promote Chi na as
much as possi bl e because i t i s wel l understood that that's much more
effecti ve than getti ng a Chi nese j ournal i st from Xi nhua to promote the
Party message.
DR. POLUMBAUM: Actual l y a new devel opment wi th the very
l atest recrui tment cal l s from Xi nhua News Agency i nvol ves tryi ng to
recrui t nati ve Engl i sh-speakers or nati ve speakers of other l anguages
abroad as opposed to rel yi ng on Chi nese correspondents, and thi s i s
total l y new, and who knows whether thi s recrui tment wi l l be
successful , but the noti on of havi ng peopl e reporti ng from di fferent
pl aces around the worl d who actual l y know those cul tures and are part
of those cul tures coul d l end a di fferent cast to the content.
Commi ssi oner Barthol omew.
COMMI SSI ONER BARTHOLOMEW: Thank you.
Fi rst, I wanted to thank our wi tnesses.
Thi s i s a very i nteresti ng topi c, and I am tryi ng to pul l together
some of the di fferent strands because some of what I heard you say,
Dr. Cul l , when you were tal ki ng about the frami ng, about i mpressi ng
the Chi nese domesti c audi ence, carri es a very di fferent ki nd of
connotati on than some of what I hear further i n thi s di scussi on whi ch
sounds a whol e l ot l ess beni gn to me when I hear thi ngs about, fi rst,
concern about how Chi na i s bei ng reported i n the West, and then when
I hear about that i t's more effecti ve for forei gn reporters to be carryi ng
the Party's message than i t i s for Chi nese reporters to be carryi ng the
Party's message.
And fi nal l y, Dr. Cul l , what you were menti oni ng about Chi nese
medi a presence, and i n some pl aces control i n Lati n Ameri ca and
Afri ca, i n parti cul ar, and gi ven Chi na's i nterest i n wanti ng to take i ts
ri ghtful pl ace on the gl obal stage, I wondered i f you coul d sort of pl ay
out for me j ust a recent exampl e of how thi s coul d sort of unfol d?
I 'm thi nki ng i n the context of the gl obal fi nanci al cri si s, you're
tal ki ng to the Chi nese sayi ng that poi nti ng to Western admi rati on for
soci al i sm wi th Chi nese characteri sti cs. I 'm not exactl y sure where
they're getti ng that from unl ess they're getti ng i t because they are out
there convi nci ng other peopl e that soci al i sm wi th Chi nese
49

characteri sti cs i s an effecti ve way to do i t. So we know that they are
provi di ng assi stance i n some pl aces, fi nanci al assi stance. How does
that al l fi t together?
DR. CULL: Parti cul arl y, one of the thi ngs that was a source of
posi ti ve reporti ng was Western reporti ng of the earthquake. The i dea
that the West admi red Chi na's response to the earthquake was very,
very wi despread and appeared i n a l ot of medi a revi ews of the year and
l ooki ng back over 2008. They obvi ousl y di dn't repeat Western concern
about peopl e taki ng bri bes to bui l d school s wi th i nsuffi ci ent
retrofi tti ng.
COMMI SSI ONER BARTHOLOMEW: Ri ght.
DR. CULL: We're tal ki ng about very sel ecti ve readi ngs of
Western reporti ng, but what's i mportant, I thi nk that i n a way the deep
Chi nese concern wi th what the West i s sayi ng about them reveal s a
vul nerabi l i ty.
COMMI SSI ONER BARTHOLOMEW: Certai nl y that's one
i nterpretati on. I mean another i nterpretati on woul d be that i n order for
Chi na to take what i t percei ves as i ts ri ghtful stage on the worl d, i t
needs to change the way that peopl e i n the West are thi nki ng about i t,
whi ch to me gets to the basi s of al l of the propaganda.
So the exampl e that I 'm thi nki ng of ri ght now that I thi nk we're
goi ng to see unfol di ng i s thi s whol e i ssue of currency frankl y, not
currency val uati on, Commi ssi oner Mul l oy, but the i ssue of the
comments that have come out by some seni or Chi nese l eaders about
whether the dol l ar i s or shoul d be--
DR. CULL: The uni versal currency, yes.
COMMI SSI ONER BARTHOLOMEW: --the gl obal currency. I
wonder how i f you see the l endi ng that the Chi nese government i s
doi ng to some countri es i n Lati n Ameri ca, i f you see an i ncreased
presence of Chi nese medi a messages i n those countri es, how thi s i s
goi ng to unfol d? Are we seei ng potenti al l y the begi nni ng of a
campai gn where the Chi nese government i s i nterested i n di spl aci ng the
dol l ar as currency, and that there's di fferent l evel s of propaganda that
coul d be goi ng on duri ng the course of the economi c cri si s?
DR. CULL: That hadn't occurred to me.
DR. POLUMBAUM: I thi nk that those statements were ki nd of a
tri al bal l oon. They weren't meant as any sort of programmati c i ntent.
They al so were a way of conveyi ng a Chi nese vi ewpoi nt that was
di fferent, part of thi s whol e emphasi s on expandi ng external
propaganda.
Other than those who have del usi ons that you can shape and
mani pul ate audi ences so easi l y i s to si mpl y have a voi ce, to si mpl y say
Chi na has thi s perspecti ve, Chi na has these i deas, and the fact that
Chi nese hi gh l evel l eaders, the head of the Peopl e's Bank, hi gh
50

government offi ci al s, have had opi ni on pi eces i n the Fi nanci al Ti mes
and The Wal l Street J ournal , I mean thi s i s new and thi s i s a statement,
we have thi ngs to say, we're goi ng to say them. I t doesn't
necessari l y mean that there's a desi gn there. I t's somethi ng to thi nk
about.
Actual l y, there was a l ot of backtracki ng on that statement and
assurances that, no, Chi na was not pl anni ng to propose a new basi s for
currency and so forth.
COMMI SSI ONER BARTHOLOMEW: Dr. Brady.
DR. BRADY : J ust to fol l ow up on Professor Cul l 's tal k about
the posi ti ve accounts of the Western medi a coverage of Chi na's
handl i ng of the earthquake, that i s a l ong-standi ng practi ce. I mean a
typi cal exampl e was after 1989, there were books publ i shed on how
forei gn l eaders sai d Chi na di d the ri ght thi ng on cracki ng down on the
protest movement i n Chi na, and they had statements from Ki ssi nger, i f
I recal l ri ghtl y.
COMMI SSI ONER BARTHOLOMEW: Ri ght.
DR. BRADY : So they do that. I t's a very sel ecti ve coverage of
events often. But al l the negati ve coverage that Chi na got about how
many peopl e di ed because of bui l di ngs that were not bui l t accordi ng to
Chi na's own earthquake standards.
The Chi nese transl ati on of Western medi a reporti ng on Chi na can
be surpri si ngl y cri ti cal . I was shocked a coupl e of weeks ago when the
Chi nese medi a transl ated an i ntervi ew that I di d wi th Guardi an
Weekl y on how Chi na i s copyi ng from the Bl ai r government spi n
doctori ng approach to handl e the medi a; and was i n Cankao Xi aoxi ,
whi ch i s l i ke a top cl assi fi ed newspaper for the el i te, and I had peopl e
e-mai l i ng me i n Chi na sayi ng tel l us more.
COMMI SSI ONER BARTHOLOMEW: Tel l us more of how to do
i t?
DR. BRADY : No, i t's an exampl e of the cri ti cal voi ces i n Chi na
that there are wi thi n the medi a and wi thi n mass communi cati on
departments and j ournal i sm departments who don't have the freedom
that I have as a forei gn academi c to do thi s ki nd of research, and they
know bi ts of the story, and i t's been the advantage for me as an
academi c, forei gn academi c. I can go i n and tal k to l ots of peopl e and
sti ck i t al l together; they can onl y put out l i ttl e bi ts and pi eces.
Thei r resi stance to the management, as the government cal l s i t,
has to be i n pockets, and so, yes, there's di versi ty. There i s a l ot of
di versi ty i n what Chi na i s getti ng. And so part of thi s i nvestment i n
openi ng the Xi nhua bureaus i s to hel p Chi na be more i nformed so that
they don't j ust bel i eve thei r own propaganda, l i ke Gorbachev famousl y
read Pravda every day, and i t tol d hi m everythi ng was fi ne.
So I do thi nk i t's i n some ways another el ement we have to
51

understand i s that Chi na i s maki ng a good choi ce here to understand
better the way the worl d percei ves i t.
COMMI SSI ONER SHEA: Thi s i s a real l y a fol l ow-up questi on
to Chai rman Barthol omew's questi on and Commi ssi oner Brookes'
questi on.
We've heard a number of reasons why Chi na has deci ded to make
substanti al i ncreases i n i nvestment i n i ts forei gn propaganda efforts.
We've heard si mpl e empi re bui l di ng by some Chi nese i nsti tuti ons;
domesti c consumpti on, i t's real l y more about domesti c consumpti on;
we've heard about forei gn audi ences havi ng a huge appeti te for news
about Chi na, and there mi ght be a sense that we're goi ng to provi de
that, ful fi l l that appeti te; al so fi ghti ng back agai nst what i s percei ved
as di storti on by forei gn j ournal i sm.
I was j ust wonderi ng, do the Chi nese ci te speci fi c exampl es of
success stori es, speci fi c exampl es of success stori es of how forei gn
propaganda efforts have hel ped support speci fi c pol i cy goal s i n certai n
countri es, and I woul d be curi ous, are there case studi es that they ci te
as parti cul arl y i l l ustrati ve of how you can be effecti ve i n forei gn
propaganda?
DR. BRADY : The exampl es that were gi ven to me i n research
that I di d i n Chi na was al l about how Chi na patched thi ngs up wi th the
U.S. after 1989, and that was through i ts rel ati onshi ps wi th seni or
fi gures l i ke Ki ssi nger, and so forei gn propaganda, as I see i t, i t's not
j ust about the newspapers and the TV stati ons and the radi o stati ons.
I t's al so about forei gn propaganda i n the Chi nese Communi st
tradi ti on whi ch has, i ncorporated al l forms of mass communi cati on
i ncl udi ng the conversati on. Oral propaganda has al ways been an
i mportant task of a propaganda cadre.
So bei ng abl e to wi n over and persuade a "forei gn fri end," as the
Chi nese cal l those who they get to agree wi th them on some, but not
necessari l y al l poi nts. Y ou don't have to fol l ow the whol e package
these days, but i f you have somethi ng that you can agree wi th i n
Chi na, and you're a promi nent person, then you'l l be a fri end of
Chi na. So thi s was the exampl e that's been repeated to me a number
of ti mes i n Chi na and how thi s ki nd of forei gn propaganda acti vi ty
real l y worked for Chi na and hel ped rebui l d thei r rel ati onshi p wi th the
Uni ted States.
DR. CULL: But thi s i s al so what the Uni ted States has l ost si nce
i ts publ i c di pl omacy capaci ty has been so di mi ni shed si nce the end of
USI A. USI A had peopl e who were goi ng out doi ng thi s person: face-
to-face conversati ons wi th i nfl uenti al peopl e, and that has been put on
to the back foot i n recent years. That shoul d be of concern to every
52

Ameri can.
DR. POLUMBAUM: I thi nk that your questi on i s very
i nteresti ng, and I coul dn't thi nk of speci fi c thi ngs that have been
presented to me as success stori es i n forei gn propaganda, but I thi nk
defi ni ti ons of what success mi ght be real l y vary, and the both domesti c
and forei gn coverage of the Si chuan earthquake presents a very
i nteresti ng case study because for one thi ng i t rei nforces i nterest i n
favor of greater openness because i t was i n l arge part that greater
openness that brought sympathy and support and rel i ef and so forth.
But i t al so i l l ustrates how much some of the best forei gn
reporti ng hi nges on the best domesti c Chi nese reporti ng. Because al l
those stori es about school col l apses and corrupti on, that al l was
generated from the Chi nese press fi rst, and the days when Chi na
watchers si t i n Hong Kong and read tea l eaves are l ong over.
I nternati onal correspondents read the Chi nese press and get most
of thei r most i mportant l eads from the domesti c press.
DR. BRADY : I 'd j ust l i ke to add to that that that's real l y
i mportant because that's part of Chi na frami ng the debates. That's how
they hel p to frame the debates so that news i s no l onger seen as
propaganda.
COMMI SSI ONER SHEA: May I ask another questi on?
HEARI NG COCHAI R REI NSCH: Sure i f i t's short.
COMMI SSI ONER SHEA: Short, yes.
Coul d you j ust gi ve us a l i ttl e better fl avor of what the state, the
provi nci al propaganda offi ces are al l about? Are they j ust sort of PR
offi ces for economi c devel opment? What do they do and how do they
coordi nate wi th the nati onal offi ce?
DR. BRADY : They're a j uni or versi on of the central l evel
organi zati on so they gate keep i f there's a probl em i n thei r l ocal area
and try to stop any bad news comi ng out, and there was a practi ce of
the l ocal j ournal i sts coul dn't tal k about a probl em, but somebody from
another provi nce coul d come and report on i t, and now there's been a
speci al bi l l passed that that's now i l l egal .
But any l ocal government wants to make sure that they don't get
i n troubl e wi th the central government so they're al ways tryi ng to keep
out the bad news stori es and promote posi ti ve stori es about thei r
provi nce, and from a forei gn propaganda poi nt of vi ew as a l ocati on
for forei gn i nvestment and forei gn touri sm and contact and other forms
of contact wi th forei gn countri es.
So they have a wi de range of acti vi ti es. They mi ght be
deputi zed to take over hosti ng some i mportant personage who's been
sent to thei r provi nce, and as I sai d, i t's j ust a j uni or versi on of the
central acti vi ti es.
53

COMMI SSI ONER SHEA: Thank you.
HEARI NG COCHAI R REI NSCH: Commi ssi oner Wessel .
Let me ask a questi on about the l i mi ts of what can be done, and
we've seen here over the years U.S. compani es wary of cri ti ci zi ng
Chi na for fear of retri buti on. We see U.S. news organi zati ons, I thi nk
i t was referred to earl i er, are i ncreasi ngl y getti ng press because of the
I nternet, et cetera, so as a busi ness model , they are havi ng many
probl ems.
We have heard from academi cs i n the past that vi sa opportuni ti es
may be l i mi ted dependi ng on thei r cri ti ci sm of the Chi nese, and before
I thi nk i t was Dr. Cul l who i ndi cated that there's a cei l i ng or--I
apol ogi ze--I don't remember whi ch wi tness--that forei gn j ournal i sts
are getti ng much of thei r cri ti cal i nformati on from Chi nese j ournal i sts
or what appears, meani ng that Chi nese propaganda efforts, what they
are wi l l i ng to, the cei l i ng they're putti ng on reporti ng may be the
cei l i ng on what U.S. j ournal i sts may be abl e to get for fear of
retri buti on.
Has there been any ki nd of mutati on of j ournal i sti c--I don't want
to say i ntegri ty--but standards as i t rel ates to reporti ng on Chi na
because of the way Chi na treats al l of thi s?
DR. CULL: I do have a comment that rel ates to that. And do
you remember when Chri s Patten, the l ast Governor of Hong Kong, was
tryi ng to publ i sh hi s memoi r, I thi nk HarperCol l i ns dropped the deal
because i t was too cri ti cal of the Chi nese and i t was part of thei r
busi ness. They di dn't want to l ose busi ness opportuni ti es i n Chi na.
COMMI SSI ONER WESSEL: Sky News and al l the other.
DR. CULL: Ri ght. But my response to thi s i s to say, wel l , of
course, these are busi ness. We have got to wake up and see thi s
busi ness i nterest i n the news, and Ameri can news has a commerci al
context. I thi nk that there's a need for more news and more news from
vari ous sources.
Thi s i s the vi rtue of a state sponsorshi p of i nternati onal news.
I t's why i t hel ps to have a Voi ce of Ameri ca out there that i s tal ki ng to
the worl d wi thout havi ng to worry about what Rupert Murdoch thi nks,
and i t's the advantage of havi ng a BBC Worl d Servi ce there tal ki ng to
the worl d wi thout havi ng to worry about what Rupert Murdoch thi nks.
Now, those j ournal i sts doubtl ess have thei r own concerns, but
they're di fferent concerns, and i f we have mul ti pl e voi ces out there,
each wi th sl i ghtl y di fferent concerns, sl i ghtl y di fferent cul tures, then
the audi ence i sn't stupi d, and they're abl e to pi ece together real i ty.
But what worri es me i s a restri cti on on voi ces, and of other voi ces
comi ng i n to fi l l the gaps i n that space, and when we l ook at the--I
don't thi nk a l ot of peopl e are goi ng to si t and read Gl obal Ti mes i f i t
54

comes out i n Engl i sh.
I don't thi nk you're goi ng to see peopl e on the Metro i n
Washi ngton si tti ng readi ng the Gl obal Ti mes i nstead of the
Washi ngton Ti mes. What I do thi nk i s that these stori es from a
Chi nese perspecti ve, from Gl obal Ti mes, from Xi nhua, wi l l be on the
I nternet and wi l l be pi cked up by automati c news aggregati on si tes and
wi l l be dropped i nto peopl e's home pages.
When you open up, your Googl e News wi l l be sendi ng you your
news from a Chi nese source because that's the news on thi s subj ect,
and the vol ume of i t wi l l mean, j ust the sheer vol ume of the stuff wi l l
mean that i t wi l l be di sproporti onatel y croppi ng up more and more and
pl ayi ng more of a rol e i n ordi nary peopl e's l i ves.
So I thi nk thi s i s si gni fi cant and wi l l be more a part because of
the way i n whi ch we're now networked and stori es are bei ng passed
around. J ust the vol ume of materi al comi ng on to the network wi l l
make a di fference.
Xi nhua i s i ncreasi ng i ts number of bureaus. What are the
Western news organi zati ons doi ng ri ght now? I t i s getti ng harder and
harder to fi nd good i nternati onal news i n thi s country. Thi s i s a bi g
worry.
COMMI SSI ONER WESSEL: I agree wi th that--but as i t rel ates
to, l et's say, the New Y ork Ti mes or other l arger newspapers here that
have bureaus there, are they bei ng l i mi ted by that cei l i ng i ssue of thei r
abi l i ty to access as wel l as the standards i ssue of concern about
retri buti on i n any way?
DR. CULL: I woul d see that as a research questi on, but J udy--
DR. POLUMBAUM: I don't thi nk--certai nl y the i nternati onal
correspondents from thi s country for reputabl e news organi zati ons do
not compromi se thei r standards. I thi nk one change that has occurred
mi ndful of consequences for Chi nese ci ti zens who may overstep
bounds i s that Western j ournal i sts are much more cauti ous about
deal i ng wi th sources and putti ng sources i n danger, whi ch i s a good
thi ng.
But, I have the hi ghest regard for most of the U.S.
correspondents i n Chi na, and I thi nk that your questi on i l l ustrates the
i mportance of mai ntai ni ng a vi brant i ndependent news medi a of great
i ntegri ty and, of course, our newspapers, whi ch i s the sort of basi s
core of i t al l , are i n cri si s now. But i t does hi ghl i ght thi s probl em.
HEARI NG COCHAI R REI NSCH: Commi ssi oner Fi edl er.
COMMI SSI ONER FI EDLER: Let me ask another techni cal or
factual case study type questi on. Y ou've tal ked about the Si chuan
earthquake. Does anybody know anythi ng about the Chi nese external
response--thi s i s the sort of nexus between domesti c and external --
55

when the Chi nese government cracked down on the mothers and fathers
of the chi l dren who di ed?
I t was fai rl y evi dent i n the i nternati onal press. I wasn't
fol l owi ng i t careful l y enough to see what the offi ci al acti vi ty was
coi nci dent wi th that crackdown. Was there any upsurge i n external
propaganda? Di d they j ust l et i t go and take i t i n the head?
DR. BRADY : The response was no coverage, and that's how they
handl e those ki nd of i ssues. And same wi th the mi l k powder cri si s.
There have been peopl e protesti ng and tryi ng to speak to forei gn
j ournal i sts because they can't get thei r voi ce out i n the Chi nese medi a,
and some have been detai ned. That's not covered i n the Chi nese press.
So these ki nd of sensi ti ve i ssues, they wi l l be l i mi ted coverage--
i t's not l i ke the ol d days where there woul d be absol utel y no coverage
whatsoever; i t woul dn't even be menti oned. Chi na knows that Chi nese
ci ti zens can go onl i ne and get access to i nformati on al ternati ve to the
offi ci al accounts.
So they do, for that reason, there wi l l be an offi ci al account of
al l cri ses that become publ i cl y known, but the Party wants to dampen
down the fi res so after the coverage of the earthquake--the Party
regards the coverage of the earthquake as a great success overal l
because thi s was where they had been prepari ng for awhi l e thi s
concept, as I sai d, as the medi a as a tool and not the tongue and throat.
And so the medi a, accordi ng to the regul ati ons, onl y Xi nhua
shoul d have been coveri ng the Si chuan earthquake because i t's a maj or
cri si s, and they shoul d gi ve out the offi ci al report, but actual l y al l
these j ournal i sts from al l over the pl ace trekked i nto the regi on, and
the central propaganda authori ty's response was, okay, because the
reports were l oyal reporti ng and very much focused on peopl e, and that
sel l s i n Chi na j ust l i ke i t sel l s i n your country and mi ne, very
emoti onal stori es about peopl e.
So the Party came out of i t l ooki ng pretty good. And where
there were probl ems, they dampened down the news and that j ust di dn't
get covered, and the edi tors responded to that requi rement, do not
report on--no more reporti ng on the shoddy bui l di ngs and don't col l ect
the stati sti cs of how many peopl e di ed i n these ki nd of ci rcumstances.
COMMI SSI ONER FI EDLER: I understand that was the domesti c
response.
DR. BRADY : That's ri ght.
COMMI SSI ONER FI EDLER: Are you sayi ng that the external
response--
DR. BRADY : The external response i s Xi nhua doesn't report on
i t.
COMMI SSI ONER FI EDLER: J ust to i gnore i t, l et i t go. So i t
wasn't an affi rmati ve. They took no acti on. So i t was j ust a defaul t
56

posi ti on, not a parti cul ar--
DR. BRADY : Another exampl e of thi s i s the recent cl ash
between U.S. boats and Chi nese boats, and l et's not go i nto detai l
about what ki nd of boats they were, but there was no coverage i n the
Chi nese medi a on thi s for days, but then the Western coverage became
such a "kerfuffel " that fi nal l y Xi nhua rel eased a statement on i t, and
that's a cl assi c exampl e of the rol e of the State Counci l I nformati on
Offi ce. I f an i ssue rel ated to Chi na becomes a maj or i nternati onal
event, somethi ng whi ch normal l y they woul d never have tal ked about
i n domesti c propaganda, then there wi l l be a statement on thi s because
they understand they can't get away wi th sayi ng nothi ng.
HEARI NG COCHAI R REI NSCH: Commi ssi oner Mul l oy.
COMMI SSI ONER MULLOY : Agai n, I want to thank the panel
for comi ng to the heari ng. I t's been very hel pful to us.
Dr. Brady, on page ni ne of your prepared testi mony, and thi s
comes off, we've tal ked about BBC and Voi ce of Ameri ca, and I 'm
tryi ng to, i n my own head, make a di sti ncti on i f there i s one I s there a
reason why we shoul d be concerned about these, the Chi nese
government, government control l ed medi a?
Y ou say there are concrete pl ans i n the next two years to
establ i sh thi s Asi a-based tel evi si on stati on i n Si ngapore or Thai l and.
And then you further tal k about Phoeni x Tel evi si on, whi ch i s
supposedl y pri vatel y owned, but what you say i s that Phoeni x
Tel evi si on, i ts mai n i nvestor i s the state-owned enterpri se Chi na
Mobi l e. So Chi na Mobi l e i s an i nvestor i n thi s pri vatel y owned--who
owns Phoeni x? I s that Mr. Murdoch who owns--
DR. BRADY : Actual l y Chi na Mobi l e i s 20 percent sharehol der.
So they're the next maj or sharehol der. That's a sl i ght typo there. But
the ownershi p of Phoeni x or the Phoeni x model has been the subj ect of
a l ot of debate i n mass communi cati on ci rcl es i n Chi na and peopl e
i nterested i n the Chi nese medi a outsi de because the Chi nese partner--
the founder of Phoeni x i s a very i nteresti ng i ndi vi dual who has very,
very cl ose connecti ons to the Chi nese propaganda system hi msel f, and
then Phoeni x empl oys ex-CCTV personnel .
So these peopl e--who owns i t? I t's j ust l i ke the Chi nese
newspapers today. They are nomi nal l y state owned, but i n fact
effecti vel y pri vatel y owned these days, most Chi nese papers apart from
the Party papers because there's been a commerci al i zati on of the
Chi nese medi a.
The Party needs to mai ntai n thi s nomi nal control so offi ci al l y
they're organs of the state, but, i n fact, they're not goi ng to subsi di ze
papers anymore. They have to make money.
So the Phoeni x model i s rel ated to that commerci al i zati on of the
57

so-cal l ed offi ci al Chi nese medi a i n that you have pri vate busi ness
i nterests, but the personnel and the management are sti l l very much
l ocked i nto the propaganda tradi ti ons wi thi n Chi na and very wel l
aware of the norms and expectati ons, and they are more at ri sk than
CCTV are because CCTV are l i ke fami l y so they can get away wi th
bei ng cheeky to Mum and Dad, but Phoeni x TV can't because of thei r
unusual status; they coul d be j ust tol d to go away.
So Phoeni x coul d be very i nteresti ng as an i nternati onal tel evi si on,
al l the more l oyal to Bei j i ng.
COMMI SSI ONER MULLOY : Thi s new i nternati onal tel evi si on
stati on, Engl i sh l anguage, that they're tal ki ng about maybe i n
Si ngapore, i s that goi ng to be pri vatel y owned and what i s the worry
that we have? Why i s that di fferent from Voi ce of Ameri ca, BBC or
whatever?
DR. CULL: Coul d I answer that, Commi ssi oner? The BBC and
Voi ce of Ameri ca both have charters that requi re bal ance, and they
understand that i f you don't gi ve the bad news, you don't have any
credi bi l i ty, and i f you're not honest and consi stentl y, then you don't
have credi bi l i ty, and there are peopl e wi thi n CCTV who understand
thi s, and there are peopl e wi thi n the Chi nese medi a establ i shment who
understand thi s and are pushi ng to be abl e to say more and to tal k
about Chi na's probl ems.
And we can see, i f you sampl e CCTV-9, you can see that at some
poi nts i t's been getti ng better, and they've had, they've been abl e to get
more of those sorts of stori es l i ke stori es about the envi ronment or
stori es about Chi na's energy probl ems or i nternal di spl acement of
peopl e, the exodus from the countrysi de to the ci ti es, and these stori es
have been on CCTV-9, and then they get pushed back i n favor of j ust
the more formul ai c success story.
So I thi nk that at the moment, thi s new Chi nese channel wi l l be
very di fferent from the BBC and from Voi ce of Ameri ca because i t
won't be al l owed to have true obj ecti vi ty, as Chi nese j ournal i sts al so
understand i t, but were they to devel op that ki nd of obj ecti vi ty, then i t
woul d be a very i nteresti ng thi ng and, I thi nk, a very wel come thi ng.
The more voi ces we have out there, the better.
But state sponsorshi p does not mean state domi nati on or state
edi tori al control everywhere i n the worl d, but i n Chi na, maybe i t does.
There i s certai nl y more pressure appl i ed to peopl e to conform and
operate under condi ti ons of sel f-censorshi p of the message.
Commi ssi oner Barthol omew. Fi nal questi on.
COMMI SSI ONER BARTHOLOMEW: Thanks. And thank you
agai n to our wi tnesses for a very i nteresti ng di scussi on, very
i nteresti ng testi mony, and we appreci ate your travel i ng here.
58

Dr. Pol umbaum, you menti oned that one of the thi ngs that you
see i n Xi nhua and Chi na Dai l y i s a desi re on the part of more seni or
peopl e to professi onal i ze, to get some trai ni ng or to professi onal i ze
the younger peopl e that they have, and yet professi onal i sm i n
j ournal i sm requi res--i s supposed to requi re obj ecti vi ty and
i ndependence. And I wonder how much space do they actual l y have to
promote that i f freedom of expressi on and freedom of the press
potenti al l y contai n some of the seeds of the destructi on of one party
control ?
DR. POLUMBAUM: Wel l , I thi nk that's the quandary, and I
thi nk there are sort of cross-currents of those who feel that the future
l i es i n openness, transparency and professi onal i sm and the sort of
prevai l i ng system tends to favor those who promote management and
control of the press.
But I guess my si mpl est answer woul d be to refer you to my
book, Chi na I nk, but i n the forward to that book, Aryeh Nei er, who i s
the presi dent of the Open Soci ety I nsti tute, i denti fi es professi onal i sm
and professi onal i zi ng trends as the most i mportant trend today i n
Chi nese j ournal i sm and i n other fi el ds l i ke medi ci ne and l aw and
wri tes that the professi onal i sm of Chi nese j ournal i sts i s gradual l y
expandi ng the space i n whi ch they are abl e to operate and expandi ng
freedom i n Chi na.
I woul d say that the sort of j ournal i sts we woul d consi der most
professi onal i n Chi na, and they're not a maj ori ty, but they are a
si gni fi cant core, and I thi nk a very i mportant core, are those who resi st
orthodoxy i n real l y savvy ways, usi ng unassai l abl e tool s of assi duous
fact-fi ndi ng, sol i d veri fi cati on, moderati on i n l anguage, and such
j ournal i sts furthermore cul ti vate networks of protecti on that buffer the
consequences of transgressi on.
Edi tors protect reporters i n thei r purvi ew. Reporters l ook for
edi tors who wi l l go to bat for them. Reporters who make mi stakes get
shi fted to the l i brary as opposed to the l abor camp, thi ngs l i ke that. I
thi nk there i s support for these trends at al l l evel s, and i n the very
process of expandi ng external propaganda and needi ng to trai n an
expandi ng core of j ournal i sts who understand and can negoti ate the
rest of the worl d, these professi onal i zi ng tendenci es can onl y
i ntensi fy.
So, i n an odd way, you coul d say that external propaganda
efforts contai n the seeds of thei r own destructi on maybe, that they
become a val uabl e contri buti on to i nternati onal news coverage and
conversati on and di al ogue and so forth.
I tend to take a posi ti ve vi ew of the worl d. Maybe i t's a matter
of sel f-protecti on or somethi ng, but, I hope that that's the di recti on i n
whi ch thi ngs coul d go.
59

HEARI NG COCHAI R REI NSCH: Let me pursue that for j ust a
second. Y ou're proj ecti ng a gl i de path whi ch has a happy endi ng or
rel ati vel y happy endi ng. Agree or not. How l ong do you thi nk i t's
goi ng to take them to get there? I s thi s a 50-year gl i de path or--
DR. POLUMBAUM: Y es.
HEARI NG COCHAI R REI NSCH: Or a fi ve-year gl i de path?
DR. POLUMBAUM: Chi na has ki nd of compressed the hi story of
the I ndustri al Revol uti on and everythi ng el se so I thi nk i t's a l ong-
term process. I thi nk i t's real l y unreal i sti c to bel i eve for, for i nstance,
those at Xi nhua who want to pl an an expanded network of forei gn
correspondents and correspondents who are nati ves of countri es abroad
and so forth, and an expanded broadcasti ng content, whi ch Xi nhua i s
al ready doi ng.
They al ready have broadcast crews al l over the worl d. They
don't have a stati on. They don't have thei r own channel , but they are
actual l y starti ng to grow thei r broadcast acti vi ti es, thei r vi deo
acti vi ti es, that I thi nk i t's unreal i sti c and even l udi crous to thi nk that
thi s i s goi ng to turn i nto a respected operati on very soon.
But i n the l ong run, I mean the l ong run i s for i ncreasi ng
i nterchange among cul tures, and I al so real l y separate thi s external
propaganda thi ng from i ntel l i gence and spyi ng and al l that. I thi nk i t's
i nteresti ng that you're havi ng, that you're deal i ng wi th these topi cs on
the same day, but I thi nk they real l y are very di fferent spheres.
HEARI NG COCHAI R REI NSCH: Do ei ther of the other panel i sts
want to comment on the gl i de path questi on? We don't need to
comment on the espi onage questi on ri ght now.
DR. BRADY : I woul d j ust say that I thi nk professi onal i sm i n
Chi nese j ournal i sm i s not a new thi ng at al l . What's to be noted
though i s that the Party real l y has strong l egi ti macy these days, and
so the j ournal i sts that I speak to, whether or not they're the
i nvesti gati ve type j ournal i sts or the peopl e who work for CCTV-1 or
CCTV-9 or Chi na Radi o I nternati onal , they're very patri oti c. They
l ove thei r country, and that means the Peopl e's Republ i c of Chi na and
the Chi na that you have today, and that doesn't mean they don't want to
see change. They j ust don't want to see radi cal change.
As j ournal i sts, they're very wel l aware of i nternati onal
percepti ons of Chi na and they don't l i ke the Western, many of the
Western accounts of Chi na. I thi nk that i f we see thi s new channel or
Chi na Gl obal Ti mes comi ng out i n Engl i sh, as an exampl e of the
typi cal Chi nese j ournal i sm that's very popul ar these days, we're goi ng
to see--we're goi ng to see more of Chi na's perspecti ve on events,
perspecti ve that may not be to the tastes of al l of us, but i t does have
an audi ence.
60

HEARI NG COCHAI R REI NSCH: Thank you. And l et me thank
the panel . I agree wi th Chai rman Barthol omew. I thi nk you've been
extraordi nari l y useful and very hel pful to us. I t's an extraordi nary
j ury of experti se. We appreci ate your travel s and your comi ng here.
We appreci ate your shari ng your ti me and your wi sdom wi th us. There
may be fol l ow-up, but i n any event, thank you very much.
We'l l now take j ust a few mi nutes' recess whi l e we change the
namepl ates and i nvi te the next panel up.
[Whereupon, a short recess was taken.]

PANEL II: CHINA S EFFORTS TO EXERT INFLUENCE ON U. S.
INSTITUTIONS AND PUBLIC OPINION

HEARI NG COCHAI R REI NSCH: We'l l reconvene for the second
panel that I woul d l i ke to i ntroduce, and then we'l l fol l ow the same
procedure as wi th the fi rst panel . I 'l l ask the wi tnesses to del i ver thei r
summari es hopeful l y wi thi n seven mi nutes each. Y our ful l statements
wi l l be put i n the record. I 'l l ask you to go i n the order i n whi ch I 'm
goi ng to i ntroduce you, and then we'l l turn to questi ons for al l of you.
Our second panel today consi sts, fi rst, of Dr. Ross Terri l l , who
i s a hi stori an and researcher wi th Harvard Uni versi ty's Fai rbank Center
for Asi an Studi es, a hi stori an who speci al i zes i n modern Chi na. As a
regul ar vi si tor to Chi na from the 1970s, hi s arti cl es have been
publ i shed i n the Atl anti c Monthl y, Forei gn Affai rs, the New Republ i c,
Nati onal Geographi c and other nati onal magazi nes.
He has appeared on CBS News, the Today Show and Ni ghtl i ne as
a commentator on Chi nese pol i ti cs. Dr. Terri l l has al so taught modern
Chi nese hi story and forei gn pol i cy at the Uni versi ty of Texas-Austi n.
He i s the author of the New Chi nese Empi re, whi ch won the Los
Angel es Ti mes Book Pri ze i n 2004. He i s al so the author of Mao: A
Bi ography, and Madame Mao: The Whi t e Boned Demon, among others.
He i s a reci pi ent of the Nati onal Magazi ne Award and the George Pol k
Award.
Dr. Eri c Anderson i s a nati onal securi ty consul tant. As a l ong-
standi ng member of the U.S. i ntel l i gence communi ty, he has wri tten
over 600 arti cl es for the Nati onal I ntel l i gence Counci l , the
I nternati onal Securi ty Advi sory Board, and the Department of Defense.
I n addi ti on, he i s a l eadi ng schol ar on the ri se of soverei gn
weal th funds. Hi s book, Take t he Money and Run: Soverei gn Weal t h
Funds and t he Demi se of Ameri can Prosperi t y, was publ i shed i n March
2009.
Hi s focus on events i n Asi a i s refl ected i n a forthcomi ng text,
The Mi ddl e Ki ngdom Redux: Chi na Looks Forward t o 2020.
Dr. J acquel i ne Newmyer i s Presi dent and CEO of the Long Term
61

Strategy Group, a Cambri dge, Massachusetts-based defense
consul tancy. For the l ast seven years, she's worked wi th offi ces i n the
U.S. government on future securi ty i ssues to i ncl ude research i nto the
strategy behi nd Chi na's mi l i tary moderni zati on; I rani an mi l i tary
concepts of operati on; Chi nese i nformati on management efforts;
Chi nese downsi de scenari os; Chi na's capaci ty for technol ogi cal
i nnovati on; and Chi na's approach to energy securi ty. She has al so
bri efed members of fi ve forei gn defense establ i shments.
She i s currentl y a Seni or Fel l ow at the Forei gn Pol i cy Research
I nsti tute, has al so hel d postdoctoral fel l owshi ps at the Bel fer Center
for Sci ence and I nternati onal Affai rs at Harvard Uni versi ty's Kennedy
School of Government, as wel l as at the J ohn M. Ol i n I nsti tute for
Strategi c Studi es i n Harvard's Department of Government.
Wel come to al l three of you. We'l l begi n wi th Dr. Terri l l .

STATEMENT OF DR. ROSS TERRILL, ASSOCIATE IN
RESEARCH, JOHN K. FAIRBANK CENTER FOR CHINESE
STUDIES, HARVARD UNIVERSITY, CAMBRIDGE,
MASSACHUSETTS

DR. TERRI LL: Thank you, Commi ssi oner.
I 'm del i ghted to be shari ng i n thi s di al ogue wi th you al l on an
i mportant subj ect, constantl y changi ng.
Chi na's goal s i n tryi ng to i nfl uence U.S. academi cs, j ournal i sts,
thi nk tanks and others are twofol d. They want to promote the rosy
si de of Chi na: that Chi na i s a responsi bl e member of the i nternati onal
communi ty; a model U.N. member that's never aggressed and never
wi l l ; a country whose forei gn pol i cy has the twi n ai ms of peace and
devel opment.
And then to conceal the l ess rosy si de: that Chi na l acks the rul e
of l aw; that the professi ons i n Chi na are not autonomous; that Chi na i s
a semi -empi re; and so on.
There's nothi ng wrong wi th seeki ng to i nfl uence publ i c opi ni on.
On the i nternati onal pl ane, i t's the most desi rabl e mode of bendi ng
other nati ons to your purposes; the l east desi rabl e bei ng warfare.
The Chi nese peopl e have as much ri ght to i nfl uence i nternati onal
publ i c opi ni on as the Ameri can peopl e do. The tough i ssue comes
when an authori tari an government tri es thi s abroad for i ts modes di ffer
from democracy's modes.
The Chi nese party-state i s used to maxi mi ze control at home, and
i nternati onal l y and wi thi n thi s country, and that spi l l s over i nto heavy-
handed methods.
Chi nese publ i c opi ni on i s l argel y hi dden. On some questi ons, a
Chi nese wi l l gi ve a pol l ster or reporter a candi d answerI s l i fe i n
62

South Chi na better than l i fe i n North Chi na? On other questi onsI s
Hu J i ntao doi ng a good j ob?-there won't be a candi d answer.
On al l l arge pol i ti cal i ssues i n Chi na, domesti c and i nternati onal ,
publ i cl y expressed Chi nese publ i c opi ni on refl ects the party-state's
pol i ci es.
I t takes a Chi nese student or offi ci al who l i ves i n thi s country
some ti me to real i ze that our government doesn't control what the
newspapers pri nt, that a demonstrati on i n favor of the Dal ai Lama i s
j ust as permi ssi bl e here as a demonstrati on agai nst hi m, that textbooks
here may vary enormousl y from publ i sher to publ i sher and state to
state.
I n Chi na, al l publ i shed book manuscri pts are approved by the
party-state. The edi torshi p of al l publ i cati ons i s chosen or fi red by the
party state.
There are key terms whi ch reveal thi s asymmetry between our
two countri es. I f an Ameri can says somethi ng cri ti cal of Chi na, i t's
sai d, and i t's been sai d of me i n Chi na, I 've hurt the feel i ngs of the
Chi nese peopl e. What thi s real l y means i s that the opi ni on expressed
has hurt the i nterests of the Chi nese government.
The phrase "i nterference i n Chi na's i nternal affai rs" i s very
common. But i nterference i n Chi na's i nternal affai rs i s broad enough
to cover U.S. l aw al l owi ng Fal ungong practi ti oners to protest outsi de
Chi nese consul ates and the Chi nese embassy i n the Uni ted States.
Ameri can vi si tors to Chi na read Chi na Dai l y, whi ch has been
di scussed thi s morni ng. Few are aware that i t's a government
newspaper, but i t's a key l i nk between the Chi nese domesti c pol i ti cal
system and the vi ews of Ameri can publ i c opi ni on. Ameri can vi si tors
to Chi na i n al most al l cases can't read anythi ng el se i n Chi na because
other newspapers are i n the Chi nese l anguage.
So i f Bei j i ng and the Chi na Dai l y can spi n the truth about Ti bet
or North Korea or whatever, opi ni on i n the West may be i nfl uenced
and U.S. pol i cy on these i ssues cast i nto doubt. By total contrast,
Chi nese vi si tors to the Uni ted States, whether they read Engl i sh or
whether they onl y read the many Chi nese l anguage newspapers i n thi s
country, can get a vari ety of opi ni ons about Ameri can l eaders and
about Ameri can pol i ci es.
Someti mes the U.S. si de, U.S. i nsti tuti ons, mi sj udges thi s non-
equi val ence. Last spri ng, pri or to the Ol ympi c Games i n Bei j i ng, the
Ni eman Foundati on at Harvard went far down the path toward havi ng a
workshop not for Chi nese j ournal i sts but for Chi nese publ i c securi ty
offi ci al s on how to handl e the j ournal i sts who were descendi ng on
Bei j i ng for the Ol ympi c Games.
At the l ast moment Ni eman al umni rai sed a few questi ons about
thi s workshop, and i t di dn't occur.
63

Sel f-censorshi p i s a dai l y necessi ty for j ournal i sts i n Chi na. I t
al so can occur i n di l uted form here because peopl e do worry about
thei r next vi sa. They do worry i n research terms, i f they'l l get to a
sensi ti ve spot l i ke say the Musl i m area of Xi nj i ang. They can be
tempted to take the Bei j i ng poi nt of vi ew because of l argesse avai l abl e
-- of whi ch we've heard a bi t al ready thi s morni ng -- for a proj ect,
l argesse comi ng from the Chi nese si de.
Enormous numbers of Chi nese students are on our campuses--an
excel l ent phenomenon. No other authori tari an state has ever had
nearl y as many of i ts ci ti zens resi di ng i n thi s country as Chi na does
today.
The probl em here i s that i t's di ffi cul t for the Bei j i ng government
someti mes to di sti ngui sh cul tural nati onal i sm from the pol i ti cal
i mperati ves of the party-state. As the Ol ympi c torch made i ts way
around several nati ons, Chi nese offi ci al s i n embassi es and consul ates
mobi l i zed patri oti c Chi nese resi dents i n those ci ti es to fend off
demonstrators.
So i nterference i n Chi na's i nternal affai rs i s one thi ng;
i nterference i n the i nternal affai rs of France or South Korea or the
U.S. i s evi dentl y another thi ng.
I t's true there i s someti mes an exaggerati on i n thi s country about
the danger of Chi na's mani pul ati on. There i s a vague race fear of huge
Chi na i n some quarters and that worri es Bei j i ng. The pri or exampl e of
J apan and the memory of ol der Ameri cans i s al so a background factor.
And Chi nese ci vi l i zati on has a seducti ve power that can l ead both to
overesti mati on of Chi na and to fear of Chi na.
The good news i s that i n recent years, there's been an
i mprovement i n how Chi na attempts to i nfl uence publ i c opi ni on i n thi s
country due to more enl i ghtened Chi nese pol i ci es, vi gi l ance on the
part of Congress, of the Ameri can press, and commi ssi ons l i ke yours,
partl y due to the many Ameri can and other Western returni ng Chi nese
students who are worki ng i n the Chi nese bureaucracy, maki ng Chi nese
soci o-cul tural acti vi ti es abroad more sophi sti cated than they used to
be.
Al most every Chi nese I know wel l who has spent ti me i n the
U.S. on a campus, at an embassy or wherever has been substanti al l y
affected by Ameri can val ues of freedom and democracy.
On the whol e, I 'm opti mi sti c about the future di recti on of U.S.-
Chi na soci o-cul tural i nteracti ons. Chi na's i ncreased prosperi ty pl us
gl obal i zati on have on bal ance been good for l i beral i zati on of the mi nd
among Chi nese at home and abroad.
But Ameri can strength and vi gi l ance i s as cruci al tomorrow as i t
has been i n the past. We shoul d not assume that economi c boom has
l ed Chi na to the doorstep of democracy. We shoul d resi st Chi na's
64

pi cki ng of wi nners and l osers among Ameri cans who are deal i ng i n
vari ous spheres wi th Chi na. We shoul d conti nue to be a beacon of
freedom i n our own conduct and i n speaki ng up for freedom around the
worl d.
Thank you, Commi ssi oner.

PREPARED STATEMENT OF DR. ROSS TERRILL, ASSOCIATE
IN RESEARCH, JOHN K. FAIRBANK CENTER FOR CHINESE
STUDIES, HARVARD UNIVERSITY, CAMBRIDGE,
MASSACHUSETTS

Chinas efforts to influence U.S. academics, journalists, think tank personnel and other shapers of public
opinion are part of its overall aims in the world. First, to fully recover from a period of reverses to China
from the Opium War to the mid-20th century. Second, to gain time for economic development to make
China an influential great power to match its greatness as a civilization. The soft power thrust has two
proximate goals. First, to promote the rosy side of China's self-understanding: a responsible member of the
international community; with a foreign policy of peace and development; a punctilious UN member that
has never aggressed and never will. Second, to conceal the less rosy side: Chinese society lacks the rule of
law; China is a semi-empire; the professions in China are not autonomous; and so on.

There is nothing wrong with seeking to influence public opinion. On the international plane, it is the most
desirable mode of bending foreigners to your nations purposes, the least desirable being war. The Chinese
people have as much right to influence world public opinion as the American people do. But modes of
influence are crucial. I have often lectured around the world for the USIA and similar agencies, which
openly seek to have U.S. positions understood in foreign countries. The tough issue comes when an
authoritarian government essays this abroad, for its modes differ from a democracys modes.

When Britain, J apan, or France seek to influence U.S. shapers of public opinion, or the U.S. does the same
in those countries, the activity is transparent. It is true that money affects the weight of the efforts. But
essentially it is a case of individuals making arguments to persuade other individuals in an atmosphere of
free exchange of information. That is not true with China. The Chinese party-state is used to maximum
control at home and this spills over into high-handed attempts at control abroad.

Currently, Chinas ideological chief, Li Changchun, is touring various countries with an updated message.
Communication capacity determines influence, he said before leaving Beijing. In the modern age,
whatever nations communication techniques are most advanced, it is that nation whose culture and core
values will spread far and wide, who will have the most power to influence the world. The target of these
arrows, he said, is the international public opinion structure. To those with experience of the PRC, these
are arresting remarks.

Chinese "public opinion" is largely hidden. On some questions a Chinese citizen will give a pollster or
reporter a candid answer ("Is life easier in south China or north China?"). On others she will not ("is Hu
J intao doing a good job?"). On large political issues, domestic and international, publicly expressed
Chinese public opinion reflects Chinese party-state policies. We saw this at the time of the accidental
bombing of the Chinese Embassy in Belgrade in May 1999, and the air collision near Hainan Island in
2001. Anti-American ferocity was evoked, then it was hosed down.

Chinese people can react only to what they are told. They do not know what they do not know. They can
65

readily detect, however, when they must amend their opinions.

It takes a Chinese student or official living in the U.S. some time to realize that the U.S. government does
not control what newspapers print, that a demonstration in favor of the Dalai Lama is just as permissible as
a demonstration against him, that textbooks vary widely in their content from state to state and publisher to
publisher. In China, the appointment of chief editor to all media is made by the government. All book
manuscripts must be signed off on by the government before publication.

Key terms reveal the asymmetry. A wrong opinion expressed by an American about China is said by
Beijing to "hurt the feelings of the Chinese people." This really means the opinion hurts the interests of the
Chinese government. The phrase, "Interference in China's internal affairs" is broad enough to cover U.S.
laws allowing Falungong practitioners to protest outside a Chinese consulate in an American city.

The lack of equivalence between a democracy's dealings with "the other" and an authoritarian party-state's
dealings with "the other" is illustrated by the Beijing newspaper China Daily. American visitors to
Chinese cities read China Daily; little else exists in English. Few are aware that this is a government
newspaper (much improved over recent years). Here is a key link between China's domestic political
system and its influence on American public opinion. If Beijing through China Daily can spin the truth
about Xinjiang, Tibet, or North Korea, opinion in the West may be influenced and U.S. policy on these
issues cast into doubt. By contrast, Chinese visitors to the USA, if they read English - even if they only
read the many Chinese-language newspapers published from New York to California - get a variety of
views on American leaders and American policies. China Dailys role in influencing English-speaking
visitors to China achieves what years of clumsy projects within the U.S. failed to achieve in the 1970s and
1980s.

Sometimes U.S. institutions contribute to confusion by misjudging the U.S.-China non-equivalence. Prior
to the 2008 Olympic Games, the Nieman Foundation for J ournalism at Harvard went far down the path to
offering a workshop for public security officials from Beijing on how to handle the foreign press
descending on Beijing for the Olympics. Not a workshop for Chinese journalists, but one for police on how
to handle journalists. The workshop was cancelled at the last moment after Nieman alumnae raised
questions. Sometimes American intellectuals are more trustful of a foreign government that puts on a good
show than of our own government that operates within a cacophony of debate.

I was once invited to attend a session at the Kennedy School of Government at Harvard where a visiting
official from Qinghua University in Beijing proposed the idea of a journalism-school exchange between
the Kennedy Schools center on that subject and Qinghua. Qinghua had no background in journalism and
the Chinese visitor pitched the project on different grounds. The Chinese government leadership is thick
with Qinghua graduates, he said, and the Kennedy School would be plugged into some very influential
people. Qinghua sought a foot in the door at Harvards center for journalism and public policy. It had the
money for the project. The Kennedy School to its credit took a pass.

Self-censorship, which is a daily necessity for journalists in China, also occurs in diluted form among
American editors, academics, and others dealing with China. Folk worry about their next visa, their access
to a sensitive area like Xinjiang for research, or take a Beijing point of view because of largesse available
for their project from the Chinese side. One of the largest U.S. magazines a few years ago experienced
Beijings veto power over their choice of writer for a China story. The project was underway with myself
as writer and a photographer lined up. But Beijing refused me a visa to visit the relevant sites. The
magazine had to decide whether to cancel the story or pick another (more mellow) writer. They picked a
fresh writer; he got his China visa. The article was published and its twenty million readers had no clue of
Beijings role in the selection of its author.

66

Do these efforts by Beijing influence U.S.-China relations? Far less than they used to. But they can keep
alive an unsettling volatility in the traditional American view of China. One minute, China comes across as
a victim (the Opium War, a poor Third World country that should be given special consideration in
WTO...), and the American side feels sympathy. The next minute, the excited message on the lips of the
American public is, "We Wuzz Robbed" (because the trade imbalance soars, China blames the U.S. for
AIDS, a dangerous effort is made to hide the SARS epidemic...).

Chinese students in huge numbers are on U.S. campuses, an excellent phenomenon. The Soviet Union
possessed no such human bridge into our society; no authoritarian country has ever had so many of its
citizens living in the USA as China does today. The problem here is that recurrently it proves difficult for
Beijing to distinguish cultural nationalism from the political imperatives of the party-state. The Chinese
character "jia" is at once a term for family and part of the term for "state."

As the Olympic torch made its way through several nations, Chinese officials in embassies and consulates
mobilized patriotic Chinese residents in those cities to fend off demonstrators. "Interference in China's
internal affairs is one thing. Interference in the internal affairs of France or South Korea or the U,S. is
evidently another thing. The blind spot is a result of an interconnection, understandable historically,
between Chinese cultural nationalism and the political imperatives of the party-state.

For a time, PRC manipulations within the U.S. were blunt because KMT manipulations were also blunt.
Extremes tended to feed upon each other. The excesses of the McCarthy era inadvertently created a
generation of pro-PRC academics offended by Senator McCarthy. The high-handedness of the Chiang Kai-
shek "China Lobby" in the 1950s and 1960s gave an appealing underdog status to the Chinese Communists
and fed Beijing's victim image long after Normalization in 1979.

Today, the more vigorously the pro-Dalai Lama forces agitate in the U.S., the stronger Beijing responds by
promoting its view of "One China" and its assertion that "Tibet since ancient times has been part of China."
The more blatantly an anti-China or race card message flashes from the U.S., the more strongly is PRC
nationalism unleashed.

The American side sometimes exaggerates the danger from Chinas manipulation. A vague "race fear" of
huge China (its population far exceeds that of the U.S., Russia, and all Europe combined) does linger in
some quarters and this worries Beijing. The prior example of J apan in the memory of older Americans is
also a background factor. Finally, Chinese civilization has a seductive power that can lead both to over-
estimation and fear of China.

A paradox is that as China's influence rises, there is less need for manipulation by Beijing, but as China's
muscle-power grows, more money is available for subtler forms of manipulation. The corruption of power
has been familiar in all Communist systems. The corruption of money is new with China, as this
extraordinary country moves away from Marxism to some unknown future.

A symbiosis occurs between Americans who benefit from business or other success with China and
American institutions. Money may appear from a businessman with excellent connections in China and it is
hard for a think tank, needing funds for its research on China, to decline it. But the money may bring with
it major Chinese ideological input into the program of the U.S. think tank. Not all Americans realize that
U.S. corporations operating internationally are far less tied to U.S. policies than Chinese corporations
operating internationally are tied to Chinese government policies. In the last year or two, Chinese
companies have started making healthy donations to think tanks in Western societies.

The good news is that Beijing's efforts to influence U.S. shapers of public opinion are less heavy-handed
than they used to be. In the 1970s, a delegation of American scholars going to China could be canceled by
67

the Chinese side if merely one member of the group had written an essay unacceptable to Beijing. One
time, a trip by mayors of U.S. cities was cancelled because the American delegation included the Mayor of
San J uan, and Beijing viewed Puerto Rico, not as a legitimate part of the U.S, but as an oppressed colony.
Often the American press and Congress have been more principled in this matter than American academia.
The New York Times, to its credit, never gave in to Beijing over which ads it would accept in the 1970s.

In recent years a secular improvement has occurred, helped by more enlightened Chinese policies,
vigilance on the part of Congress, parts of the American press, and commissions like this one. Partly due to
the many American and other Western Ph.Ds in the Chinese bureaucracy, Chinas sociocultural activities
abroad are more sophisticated than they used to be. Almost every Chinese I know well who has spent time
in the U.S., on a campus, at the Chinese Embassy, or wherever, has been substantially affected by
American values of freedom and democracy.

That U.S. resistance to Chinas attempted manipulations is important is proved by the fact that Chinese
methods are cruder towards smaller powers than toward the USA. Beijing has learned they need to be
fairly prudent in the U.S., and it is to their credit that recently they have been. By contrast, when Hu J intao
visited Australia in 2003, the Chinese embassy in Canberra wrote to Australian newspapers, urging them to
accept no ads from Tibetan groups; and the Chinese ambassador asked the Australian foreign minister to
require two members of the Australian Senate, who had recently heckled President Bush during a speech in
their chamber, to be put behind sound-proof glass for Hu J intaos speech to the Senate. It was like the bad
old days in the U.S. during the 1970s. A smaller country cannot say No as readily as the U.S. can and
should.

On the whole I am optimistic about the future direction of U.S.-China sociocultural interactions. Chinas
increased prosperity plus globalization have on balance been good for liberalization of the mind among
Chinese at home and abroad. But American strength and vigilance is crucial, tomorrow as it has been in the
past. We should not assume that economic boom has led China to the doorstep of democracy. We should
resist Chinas picking of winners and losers among Americans dealing with cultural and intellectual
exchanges with the PRC. We should continue to be a beacon of freedom in our own conduct and in
speaking up for freedom around the world.

Dr. Anderson.

STATEMENT OF DR. ERIC C. ANDERSON
SENIOR POLICY ANALYST; FELLOW, NEW IDEAS FUND
MCLEAN, VIRGINIA

DR. ANDERSON: Thank you. I want to thank the Commi ssi on
members for thi s opportuni ty.
I 'd l i ke to tal k today about my vi ews on Bei j i ng's efforts to
exerci se i nfl uence over the U.S. fi nanci al i nsti tuti ons.
As you're aware, Chi na currentl y mai ntai ns an approxi matel y $2
tri l l i on forei gn exchange reserve. Roughl y hal f of those reserves are
i nvested i n U.S. Treasury notes or other U.S. government bonds.
Another 200 bi l l i on has been made avai l abl e to di rectors of the Chi na
I nvestment Corporati on, Chi na's soverei gn weal th fund.
At fi rst bl ush, these l arge funds bespeak an obvi ous capabi l i ty to
68

i nfl uence deci si on-makers i n Washi ngton and on Wal l Street. I n fact,
however, to date, Chi na has been very cauti ous i n attempti ng to
exerci se thi s potenti al i nfl uence.
I come to thi s concl usi on for a number of reasons, but I 'l l open
wi th the most famous case: Chi na's abi l i ty to exerci se her fi nanci al
nucl ear opti on.
Let me say at the outset that there i s no--repeat--no i ndi cati on
that Bei j i ng i s currentl y engaged i n an effort to sel l off a si gni fi cant
porti on of her U.S. Treasury notes. Whi l e the Chi nese l eadershi p has
recentl y expressed concerns about Bei j i ng's U.S. Treasury hol di ngs
and wants assurances that those i nvestments are safe, there i s no
reason to bel i eve that Chi na i s prepari ng to whol esal e move those
funds el sewhere at l east i n the i mmedi ate future.
I n fact, Chi na i s cl earl y seeki ng a fi x to the current fi nanci al
cri si s i n a manner that may serve to di mi ni sh Washi ngton's domi nant
rol e on that front. I n l ate March 2009, the Governor of the Peopl e's
Bank of Chi na rel eased a paper cal l i ng for the establ i shment of what
he sai d was a super-soverei gn reserve currency, a currency that woul d
essenti al l y repl ace the U.S. dol l ar.
I n hi s paper, the banker sai d that the new currency, reserve
currency, shoul d be control l ed by the I nternati onal Monetary Fund as a
means of avoi di ng what he sai d were the i nherent vul nerabi l i ti es and
systemati c ri sks i n the exi sti ng i nternati onal monetary system.
Despi te the fact that Chi na currentl y hol ds the worl d's l argest
forei gn exchange reserve, thi s proposed new super-reserve currency i s
to be supra-nati onal . As the banker put i t, the gl obal domi nance of a
few currenci es--the dol l ar, the euro and the yen--l eaves the fi nanci al
system more vol ati l e and more vul nerabl e.
Hi s sol uti on, as The Wal l Street J ournal observed, woul d
i ncrease the rol e and powers of the I MF, i ndi cati ng, as The Wal l Street
J ournal put i t, that Chi na and other i nternati onal devel opi ng nati ons
aren't hosti l e to the i nternati onal fi nanci al systems; they j ust want to
have more say i n them.
As i t turns out, The Wal l Street J ournal was ri ght. Duri ng the
l ast week of March, Bei j i ng made i t cl ear Chi na woul d be wi l l i ng to
make more money avai l abl e to the I MF so as to i ncrease the
i nsti tuti on's abi l i ty to assi st nati ons ai l i ng as a resul t of the current
fi nanci al cri si s, but onl y for greater I MF voti ng ri ghts.
As an economi st for Deutsche Bank tol d the J ournal , Chi na sees
thi s as a good opportuni ty to i ncrease Bei j i ng's i nfl uence.
I nternati onal fi nanci al anal ysts watchi ng Bei j i ng's apparent power pl ay
agreed the request seemed reasonabl e, but al so warned that a greater
rol e for Chi na woul d resul t i n greater scruti ny of banki ng practi ces i n
Europe and the Uni ted States.
69

So what does Chi na want? Thi s i s a bi d for a greater voi ce i n
governi ng the i nternati onal fi nanci al system. I t's i ndi cati ve of Chi na's
broader efforts to l evel the pl ayi ng fi el d. Bei j i ng i s not seeki ng to
di ctate or domi nate the conversati on. She's si mpl y attempti ng to
ensure non-Western voi ces have a say at the tabl e.
Whi l e the proposal to move away from the dol l ar to an I MF-
governed speci al drawi ng ri ghts system woul d di mi ni sh Washi ngton's
rol e, Chi na i s not attempti ng to repl ace the Uni ted States. I nstead, i t
does real l y appear that Chi na i s seeki ng to real i ze a rebal anci ng of the
enti re i nternati onal system such that she mi ght be abl e to secure an
ambi guous worl d order, one absent of U.S. hegemony or regi onal
efforts contrary to Chi na's i nterests.
Si mi l ar observati ons can be made about the i nvestment strategi es
that we've seen at the Chi na I nvestment Corporati on. The fi rst two-
thi rds of the soverei gn weal th fund's i nvestment was used to assi st
Chi nese fi rms, pri mari l y banks, i n thei r efforts to compete
i nternati onal l y. As such, an Ameri can observer coul d not be faul ted
for concl udi ng the Chi nese soverei gn weal th fund's expendi ture of
al most 140 bi l l i on had generated l i ttl e peri l or potenti al for
Washi ngton, but then we have the other 70 bi l l i on.
As i t turns out, Chi na's offshore spendi ng vi a the soverei gn
weal th fund has been a pai nful adventure. I n May 2007, Chi na
purchased 9.3 percent of Bl ackstone Group for a reported $3 bi l l i on.
Unfortunatel y, for the Chi nese, what seemed l i ke a good deal soon
went astray. By earl y February of thi s year, Bl ackstone pri ces had
dropped to the poi nt where the Chi nese i nvestors were l ooki ng at an 83
percent l oss on thei r i nvestment.
The CI C's next maj or overseas purchase came on 19 December
2007 when the Chi nese acqui red a 9.9 percent share of Morgan Stanl ey
for a reported fi ve bi l l i on. By 1 March, the 9.9 percent share of
Morgan Stanl ey had decl i ned to a val ue of 4.91 bi l l i on. Of note, thi s
l oss di dn't go unnoti ced i n Bei j i ng.
As the Commi ssi on has heard before, when asked to expl ai n the
CI C's i nvestment i n Morgan Stanl ey, the head of that corporati on went
before the Worl d Bank and sai d, I f we see a bi g rabbi t, we'l l shoot at
i t, but then he al so sai d, Some peopl e say we may have been shot by
Morgan Stanl ey.
Chi na's dal l i ance wi th Western fi nanci al i nsti tuti ons conti nued
i n February 2008 when word of a potenti al CI C deal to pl ace four
bi l l i on dol l ars i n a pri vate equi ty fund operated by J C Fl owers was
l eaked to the press. Li ttl e-known U.S. based J C Fl owers i s run by a
former Gol dman Sachs banker, and i s sai d to focus on i nvestments i n
di stressed fi nanci al i nsti tuti ons, a ski l l CI C may fi nd handy gi ven i ts
shares i n the Ameri can and Chi nese banki ng i ndustry.
70

I n concl usi on, I can fi nd l i ttl e evi dence suggesti ng Bei j i ng i s
engaged i n a wi despread effort to i nfl uence U.S. fi nanci al i nsti tuti ons
and thereby threaten our nati onal securi ty. Rather, I woul d argue
Chi na i s seeki ng to parti ci pate i n the i nternati onal system as an honest
broker who real i zes she has much to l ose by engenderi ng suspi ci on
and/or abetti ng havoc.
My extensi ve study of the Chi nese I nvestment Corporati on's
i nvestment strategi es i ndi cates Bei j i ng i s usi ng her soverei gn weal th
fund to generate profi t for Chi nese taxpayers, not to undermi ne Wal l
Street or the U.S. Treasury.
I n short, I can fi nd no evi dence suggesti ng Chi na i s usi ng her
forei gn exchange reserve to coerce the West. Bei j i ng real i zes
empl oyment of the fi nanci al nucl ear opti on woul d have a devastati ng
i mpact on Chi na's own economi c future. What i s the peri l that Chi nese
affl uence presents to Ameri ca? The peri l for the moment appears
l argel y confi ned to short-term rei nvi gorati on of j i ngoi sti c statements
and proposal s to revi si t protecti oni st l egi sl ati on ai med at preservi ng
Ameri can nati onal securi ty from an amorphous threat.
Over the l onger-term, however, the CI C peri l may be profound.
I t's not that the Chi nese wi l l purchase U.S. soverei gnty--qui te the
contrary. The l ong-term peri l i s that Chi na and many other profi t-
ori ented customers wi l l go shoppi ng for i nvestments offeri ng a greater
return than that provi ded by our U.S. Treasury notes.

PREPARED STATEMENT OF DR. ERIC C. ANDERSON
SENIOR POLICY ANALYST; FELLOW, NEW IDEAS FUND
MCLEAN, VIRGINIA

Testimony of Eric C. Anderson
Senior Policy Analyst
Fellow, New Ideas Fund
before the
U.S. China Economic and Security Review Commission
Hearings on Chinas Propaganda and Influence Operations, Its Intelligence
Activities that Target the United States,
and the Resulting Impacts on U.S. National Security
30 April 2009

Good morning Chairwoman Bartholomew, Vice-Chairman Wortzel and Members of the
Commission. As a long-time China watcher from within the U.S. Intelligence
Community and then as a national security consultant, I thank you for the opportunity to
share my views on Chinas efforts to exercise influence over U.S. financial institutions.

71

As you are aware, China currently maintains an approximately $2 trillion foreign
currency exchange reserve. Roughly half of those reserves are invested in U.S. Treasury
notes or other U.S. government bonds. Another $200 billion has been made available to
the directors of the China Investment Corporation. At first blush, these large sums
bespeak an obvious capability to influence decision makers in Washington and on Wall
Street. In fact, however, to date China has been very cautious in attempting to exercise
this potential influence.

I come to this conclusion for a number of reasons, but please allow me to open with the
most famous case, Chinas ability to exercise financial nuclear option. Let me say at
the outset, there is no, repeat no, indication Beijing is currently engaged in an effort to
sell-off a significant portion of her U.S. Treasury note holdings. While the Chinese
leadership has recently expressed concerns about Beijings U.S. Treasury holdings and
wants assurances Beijing's investments are safe,
1
there is no reason to believe China is
preparing to wholesale move those funds elsewhere in the immediate future.

Chinese officials, in fact, have gone to great lengths to downplay any discussion of the
financial nuclear option. For instance, in August 2007 the Peoples Bank of China
tried to refute rumors of such a plan by releasing a statement declaring Beijing is a
responsible investor in international financial markets and that U.S. dollar assets,
including American government bonds, are an important component of Chinas foreign
exchange reserves.
2
Furthermore, Chinese leaders have been quick to call for Beijing
and Washington to cooperate in efforts to address the current international financial
crisis. As Chinese Premier Wen J iabao told reports in February 2009, the U.S. and China
must fight the financial crisis and promote constructive and cooperative bilateral
relations.
3
Speaking with reporters from the Financial Times on 2 February 2009, Wen
declared, we believe that to maintain cooperation between China and the United States
serves world peace, stability, and prosperity.
4

That said, China is clearly seeking a fix to the current financial crisis that may serve to
diminish Washingtons dominate role on that front. In late March 2009, Zhou
Xiaochuan, the governor of the Peoples Bank of China, released a paper calling for the
establishment of a new super-sovereign reserve currency to replace the dollar. In his

1
Wen J i abao, 13 Mar ch 2009, " We have l ent a huge amount of
money t o t he Uni t ed St at es. I r equest t he U. S. t o mai nt ai n
i t s good cr edi t , t o honor i t s pr omi ses and t o guar ant ee t he
saf et y of Chi na' s asset s. "
2
Si mChi Yi n and Bhagyashr ee Gar ekar , 13 August 2007,
Chi na Says i t wi l l Not Dump U. S. Dol l ar Asset sCent r al Bank
Of f i ci al Says t hey ar e I mpor t ant Component of Nat i on s For ex
Reser ves, The Straits Times, Si ngapor e.
3
____, 2 Febr uar y 2009, Wen: Chi na, U. S. Shoul d Wor k
Toget her t o Fi ght Fi nanci al Cr i si s, Xi nhua, Bei j i ng.
4
____, 2 Febr uar y 2009, Wen: Chi na, U. S. Shoul d Wor k
Toget her t o Fi ght Fi nanci al Cr i si s.
72

paper, Zhou said the new currency reserve system should be controlled by the
International Monetary Fund (IMF) as a means of avoiding the inherent vulnerabilities
and systemic risks in the existing international monetary system.
5
Despite the fact
China currently holds the worlds largest foreign exchange reserve, this proposed super-
sovereign reserve currency is to be supra-national. According to Zhou, the global
dominance of a few currenciesthe dollar, euro and yenleaves the international
financial system more volatile and vulnerable.

Zhous solutionexpand the use of special drawing rights. Special drawing rights
were an IMF creation in the 1960s. Under this system, the supra-national currency has a
value determined by a basket of major currencies. Nations would gain access to these
special drawing rights through increased contributions to the International Monetary
Fund. As the Wall Street Journal observed, this would increase the role and powers of
the IMFindicating that China and other international developing nations arent hostile
to international financial systemsthey just want to have more say in running them.
6

As it turns out, the Wall Street Journal was right on the mark. During the last week of
March 2009 Beijing made it would be willing to make more money available to the IMF
so as to increase the institutions ability to assist nations ailing as a result of the current
financial crisis, but only for greater IMF voting rights. As an economist for Deutsche
Bank told the Journal, China sees this as a good opportunity to increase [Beijings]
influence.
7
International financial analysts watching Beijings apparent power play
agreed the request seemed reasonable, but also warned a larger role for China could
result in greater scrutiny of banking practices in Europe and the United States. They
specifically pointed to a statement Peoples Bank of China deputy governor Hu Xiaolian
made in late March 2009 as evidence of their claim. According to Hu, under the current
situation, [China feels] the IMF particularly needs to strengthen its surveillance of the
economic and financial policies of the major reserve-currency-issuing nations.
8

So what does China want? This bid for a greater voice in governing the international
financial system is indicative of Chinas broader efforts to level the playing field.
Beijing is not seeking to dictate or dominate the conversation, she is simply attempting to
ensure non-Western voices have a say at the table. While the proposal to move away
from the dollar to an IMF-governed special drawing rights system would diminish
Washingtons role, China is not attempting to replace the United States. Instead, it really
does appear China is seeking to realize a rebalancing of the entire international system

5
Davi d Bar boza, 24 Mar ch 2009, Chi na Ur ges New Money
Reser ve t o Repl ace Dol l ar , New York Times, New Yor k.
6
Andr ew Bat son, 24 Mar ch 2009, Chi na Takes Ai mat Dol l ar ,
Wall Street Journal, New yor k, p. A1.
7
Andr ew Bat son, 31 Mar ch 2009, Chi na Seeks Mor e
I nvol vement and Mor e Cl out , Wall Street Journal, New Yor k,
p. A10.
8
Andr ew Bat son, 31 Mar ch 2009,
73

such that, she is able to secure an ambiguous world orderone absent U.S. hegemony
or regional efforts contrary to Chinas interests.

Chinas Sovereign Wealth Fund

Lets return again to Chinas potential financial nuclear option. In this case, I would
like to specifically focus on Chinas alternative investment options should Beijing decide
to walk away from U.S. Treasury notes. In this case, I will focus on the factors that
caused China to establish a sovereign wealth fund. While direct evidence of an internal
political debate concerning Beijings disappointment with the returns offered by U.S.
Treasury notes is unlikely to be found, there is circumstantial reporting suggesting just
such a discussion is underway in China. For instance, in May 2007 Gao Xiping, Vice
Chairman of the National Council for the Social Security Fund, took $3 billion from his
agencys coffers to acquire a 9.9% share in the Blackstone Groupa move now
considered Chinas first sovereign wealth fund investment.

In J uly 2007, an academic from Shanghais Fudan University published a newspaper
article arguing from a rate of return standpointbuying U.S. Treasury bonds is not very
profitable. As such, the scholar continued, China should take its money elsewhere in an
effort to accelerate the countrys rise.
9
In short, there is little doubt Beijing was aware
of the sovereign wealth funds being run from Abu Dhabi, Kuwait, or Singapore.
Furthermore, we have little reason to doubt Chinese leaders were aware of the fact they
could earn a better return on their investment than that offered by U.S. Treasury notes.
(Even if the top leadership was not aware of this situation, one can assume their
economic advisors were suitably informed.) All of which suggests high-level discussions
driving formation of a Chinese sovereign wealth fund were underway long before
Western press sources became aware of the debate.

The second internal political dynamic behind Beijings establishment of a sovereign
wealth fund is to be found with the nations citizens. Western scholars are increasingly
aware of the fact Chinese politicians are susceptible to the winds of change generated by
popular opinion. Absent a strong ideological underpinning, and increasingly cognizant
of the argument its legitimacy hinges on meeting economic expectations, the Chinese
Communist Party seeks to address citizen concerns passed through a growing number of
intermediariesincluding the press and Internet.
10
These citizen concerns appear to
have been one of the elements that led to formation of the Chinese sovereign wealth fund.

Rumors of public pressure to more productively employ Beijings growing foreign
exchange reserves began to appear in early 2007. Writing for the International Herald

9
Song Guoyo, 12 J ul y 2007, Sover ei gn Weal t h Funds Gai ni ng
Popul ar i t y, Shanghai Dongfang Zabao, Shanghai , Chi na.
10
Susan Shi r k, 2007, China: Fragile SuperpowerHow Chinas
Internal Politics Could Derail Its Peaceful Rise, Oxf or d
Uni ver si t y Pr ess, Oxf or d, pp. 79- 104.
74

Tribune, a reporter working from Hong Kong observed, in postings on domestic Internet
message boards and in conversations among educated urban Chinese, critics are
suggesting the central bank should earn higher profits from its vast hoard.
11
One
Chinese blogger is said to have rhetorically asked, China has huge amounts of foreign
reserves, why doesnt the government put more of it into education?
12

So where to invest? Western observers were aware of a debate over the China
Investment Corporations mandate before the institution even opened its doors for
business. In an article published in September 2007 The Wall Street Journal reported the
funds mandate has been the subject of contention among Chinese officials. According
to the Journal, many involved in the [CIC] planning favor passive investments, by
turning money over to professional money managers, with the single goal of improving
returns on Chinasforeign exchange reserves.Other officials are viewing [the CIC] as
a more strategic vehicle, such as to back Chinese state-owned companies as they invest
overseas.
13
At the moment, the truth seems to lie somewhere between these two
extremes.

CIC officials used the first tranche of $67 billion to acquire Central Huijin and thereby
win control of the Chinese governments holdings in the largest three recapitalized,
publicly-listed commercial banksthe Industrial and Commercial Bank of China, the
Construction Bank of China, and the Bank of China. Financial analysts contend the price
of publicly traded shares in these banks suggest CIC received a good deal. The second
tranche was dedicated to recapitalizing two other state-owned banks, the China
Development Bank and the Agricultural Bank of China. An estimated $20 billion was
passed to the China Development Bank, with the ailing Agricultural Bank of China
receiving the remaining $40-50 billion.
14

Why proceed down this path? Commercial gain and the nagging issue of non-performing
loans. In 2001, when China won accession to the World Trade Organization, one of the
stipulations for Beijings admittance was opening the countrys financial industry to
foreign competition. Given the apparently sad state of affairs resident on the balance

11
Kei t h Br adsher , 5 Mar ch 2007, Chi na s Money Woe: Wher e
t o Par k i t Al l , International Herald Tribune, Hong Kong.
Si mi l ar ar gument s appear ed i n Chi nese pr ess st or i es. For an
exampl e see: Song Guoyo, 12 J ul y 2007, Sover ei gn Weal t h
Funds Gai ni ng Popul ar i t y, Shanghai Dongfang Zabao,
Shanghai , Chi na. The aut hor goes so f ar as t o ar gue, f r om
a r at e of r et ur ns st andpoi nt buyi ng U. S. Tr easur y bonds i s
not ver y pr of i t abl e. The ef f ect i ve r at e may even be
negat i ve. I n f act , hi gher ear ni ngs has pr eci sel y been t he
most i mpor t ant r eason why count r i es have cr eat ed sover ei gn
weal t h f unds one af t er anot her .
12
Kei t h Br adsher , 5 Mar ch 2007.
13
Ri ck Car ew, 28 Sept ember 2007.
14
Cl i f f or d Chance, 22 Febr uar y 2008.
75

sheets of Chinas banks, Beijing was granted a five-year grace periodstalling outside
access to the nations financial industry until 11 December 2006.
15
This delay can be
primarily attributed to the fact Chinas banks had long served as a lifeline for struggling
state-owned enterprises. Unwilling to allow these unprofitable businesses to fail, and
thereby suffer the political consequences of massive unemployment, Chinese authorities
had used the banking industrymore specifically, the populations unparalleled savings
rateto maintain liquidity within the unprofitable enterprises. The result was
predictable, a staggering number of non-performing loans.

Beijing has been engaged in an extensive effort to addressand at least nominally
resolvethe non-performing loan problem. The first step was to follow a procedure
used during the 1997-89 Asian financial crisis and transfer some of the non-performing
loans to asset management companies. The second step occurred in 2003, when the
Chinese government established Central Huijinan investment office within the State
Administration of Foreign Exchange. In late 2003, Central Huijin invested $45 billion
from Chinas foreign exchange reserves in 2 banksThe Bank of China and the China
Construction Bank. (A week after announcing this move, the Finance Ministry quietly
decided to write-off a $41 billion stake in the two banks in an additional effort to help
alleviate their non-performing loan problem.
16
)

This fiscal transfer resulted in Central Huijin owning 100% of the Bank of China and
85% of the shares issued by the China Construction Bank. As it turns out, this purchase
gave Central Huijin almost exclusive claim to returns realized from the initial public
offering of these banks in 2005a tidy profit according to some Western analysts. In
any case, Central Huijins realized return on its investments at the end of 2004 was
estimated to be almost $6 billionnot bad for a firm that had been open for little more
than a year.
17

15
Ther e i s consi der abl e debat e as t o Bei j i ng s wi l l i ngness
t o compl y wi t h t hi s r equi r ement . Chi nese banki ng
r egul at i ons concer ni ng out si de par t i ci pat i on i n t he
count r y s f i nanci al syst eml ar gel y el i mi nat e t he possi bi l i t y
of f or ei gn banks openi ng br anches t hat coul d di r ect l y
compet e wi t h domest i c i nst i t ut i ons. For i nst ance, r at her
t han est abl i shi ng br anches, f or ei gn banks ar e r equi r ed t o
i ncor por at e each l ocal oper at i on i n Chi na as a Chi nese-
r egi st er ed company and each of t hese ent i t i es must have $125
mi l l i on i n r egi st er ed capi t al . Second, t he mi ni mumdeposi t s
f or i ndi vi dual s i n t hese compani es i s $125, 000. Fi nal l y,
any f or ei gn bank not l ocal l y i ncor por at ed can onl y of f er
ser vi ces t o busi nesses i n Yuanser vi ces t o i ndi vi dual s can
onl y be done i n f or ei gn cur r ency. ( ____, 5 Sept ember 2006,
Chi na: Def er r i ng a Banki ng Cr i si s, STRATFOR, Washi ngt on
DC. )
16
Kei t h Br adsher , 14 J anuar y 2004, Chi na t o Gi ve Up $41
Bi l l i on St ake i n 2 Bi g Banks, New York Times, New Yor k.
17
Vi ct or Shi h, 16 August 2005, Bei j i ng s Bai l out of J oi nt -
76

The third step in Beijings war on non-performing loans took place on the regulatory
front. In 2003, Beijing sought to resolve the problem of poor business practices
associated with the non-performing loans by standing up the China Banking Regulatory
Commission to supervise and control the countrys financial institutions. This move on
the regulatory front appears to have fallen short of the mark. In 2004 Chinese authorities
resumed their efforts to resolve the non-performing loan problem through further
transfers to the asset management companies. Accordingly, these firms purchased
another $34 billion in non-performing loans from the Bank of China and the Construction
Bank of Chinathis time at 50% of book value.
18

What did all this do for the non-performing loan problem? By 2006, the big four were
reportedly confronted with a non-performing loan ratio of 9.3%.
19
Dollar figures
associated with this statistic remain in dispute. Ernst and Young Global issued a revised
report in May 2006 claiming the big four were then confronted with approximately
$133 billion in remaining non-performing loans.
20
The China Banking Regulatory
Commission stated overall non-performing loans had declined in value to a total of $160
billion. Western accounting firms immediately dismissed this figure by issuing reports
stating the number was likely closer to $475 billion.
21

Given this background on Chinas non-performing loan problemand specifically how
that issue was addressed within the big four financial institutionswe are now ready
for a return to an evaluation of CICs initial purchases. As stated above, the CIC
executive board was apparently caught between those who argued the sovereign wealth
fund be strictly used for profit motives, and those who felt the money should be used to
assist Chinese firms as they venture into the global market. The Chinese Investment
Corporationas any good Chinese bureaucracy will dosought a middle ground,
thereby probably earning a unanimous vote from the board members.

The first evidence of this effort to find a middle ground came in the form of CICs

st ock and St at e- owned Banks, China Brief, Vol ume 5, I ssue
18, The J amest own Foundat i on, Vi r gi ni a.
18
Mi n Xu, 1 Apr i l 2005, Resol ut i on of Non- Per f or mi ng Loans
i n Chi na, The Leonar d St er n School of Busi ness, Gl uckmans
I nst i t ut e f or Resear ch i n Secur i t i es Mar ket s. The aut hor
r epor t s t he Chi na Banki ng Regul at or y Commi ssi on cl ai ms t he
asset management compani es di sposed of al most hal f of t he
l oans acqui r ed bet ween 2000 and 2004 by 31 December 2004.
19
Kent Mat t hews, J i anguang Guo, and Ni na Zhang, November
2007.
20
____, 15 May 2006, Er nst and Young Wi t hdr aws Chi na Bank
NPL Repor t Af t er Acknowl edgi ng Er r or s, AFX News Li mi t ed,
For bes. com.
21
____, 23 August 2006, Chi na s Banks i n Sound Shape: Bad
Loans Dr op, Chi nadai l y. com
77

acquisition of Central Huijin for an estimated $67 billion.
22
A key participant in
Beijings efforts to prepare Chinas financial institutions for foreign competition, Central
Huijin had become a clearing house for funds headed to the countrys ailing banks. The
task, while seemingly unproductive, had been lucrative for Central Huijinas the central
banks investment arm was said to own controlling shares in at least three of the big
four
23
and had engaged in deals that gave the firm significant interest in a number of
smaller banks.
24
Thus a decision to use CIC funds to acquire Central Huijin would turn
these profitable holdings over to the Chinese Investment Corporationa potentially
lucrative moveand further bolster the big fours move onto the commercial realm by
providing monies that could be used to eliminate remaining non-performing loans.

The employment of CICs second $67 billion tranche also played to the political middle
ground. The transfer of funds to the Agricultural Bank of China and China Development
Bank helped ready these financial institutions for market listings, and provided the CIC
with shares that would almost certainly increase in value after the two banks proceed
with initial public offerings.
25
In short, the first two-thirds of the CICs funding was used
to meet its potentially competing missions: assist Chinese firms in their efforts to
compete internationally, and generate capital over the long run using excess foreign
exchange reserves. As such, an American observer could not be faulted for concluding

22
J ason Dean and Andr ew Bat son, 10 Sept ember 2007, Chi na
I nvest ment Fund May Tr ead Sof t l y, The Wall Street Journal,
New Yor k.
23
Bel i nda Cao, 29 Sept ember 2007, Chi na s $200 Bi l l i on
Sover ei gn Fund begi ns Oper at i ons, Bl omber g. com.
24
Cent r al Hui j i n i s known t o have pur chased at l east a 6%
shar e i n Chi na s f i f t h l ar gest bank, t he Bank of
Communi cat i ons ( Rose Yu, 25 Mar ch 2008, Chi na Cent r al
Hui j i n t o Tr ansf er 6. 12%BoComSt ake t o MoF, Dow J ones
Newswi r es) and at l east a 70%shar e i n Chi na Ever br i ght Bank
( ____, 9 November 2007, Cent r al Hui j i n t o I nj ect RMB 20
Bi l l i on i n Ever br i ght , mar ket i nf o. t dct r ade. com) .
25
I n J anuar y 2008, CI C of f i ci al s announced t hey woul d be
i nj ect i ng anot her $20 bi l l i on i nt o t he Chi na Devel opment
Bank. Accor di ng t o a CI C websi t e post i ng, t he cash
i nf usi on wi l l i ncr ease Chi na Devel opment Bank s capi t al -
adequacy r at i o, st r engt hen i t s abi l i t y t o pr event r i sk, and
hel p i t s bank move t owar d compl et el y commer ci al i zed
oper at i ons. ( Ri ck Car ew, 2 J anuar y 2008, Chi na Taps i t s
Cash Hoar d t o Beef Up Anot her Bank, The Wall Street
Journal, New Yor k; see al so, ____, 1 J anuar y 2008, Chi na t o
Shi f t $20 Bi l l i on as Capi t al f or Pol i cy Bank, The New York
Times, New Yor k. ) Qui t e f r ankl y, t hi s f ocus was exact l y what
Lou J i wei had pr omi sed at t he CI C openi ng cer emony on 29
Sept ember 2007t he new i nvest ment company wi l l cont i nue t o
boost t he capi t al of st at e- owned f i nanci al i nst i t ut i ons.
( Bel i nda Cao, 29 Sept ember 2007, Chi na s $200 Bi l l i on
Sover ei gn Weal t h Fund Begi ns Oper at i ons, Bl oomber g. com. )
78

the Chinese sovereign wealth funds expenditure of almost $140 billion had generated
little peril or potential for Washington. But what of the remaining $70 billion?

Chinas Sovereign Wealth Fund Looks West

The first foreign investment ascribed to the China Investment Corporation came almost
six months before the organization was declared officially open for business. In May
2007, China purchased a 9.3% share of the Blackstone Group private equity firm for a
reported $3 billion.
26
According to Chinese authorities, the Blackstone investment came
with no voice in corporate affairs and was said to have been negotiated with a 4.5%
discount on the $31-a-share price listed at the initial public offering on 22 J une 2007.
27

Unfortunately for the CIC investors, what had seemed like a good deal soon went astray.
By early February 2009, Blackstone share prices had declined to the point the Chinese
investors were looking at an 83% loss.
28

In November 2007, the China Investment Corporation announced its second international
investment$100 million in shares acquired during the China Railway Groups initial
public offering. The announcement came as the China Railway Group, a state-owned
construction company, prepared for a listing on the Hong Kong Stock exchange.
29

Western analysts declared the purchase was a cornerstone investment that appeared to
indicate the CIC was continuing with an acquisition strategy focused on Chinese firms
preparing for competition in the global market place. It is too early to determine if
similar off-shore acquisition of shares in Chinese firms will occur, but one suspects
CICs hand in the Hong Kong stock exchangeand further cornerstone investment in
domestic firms preparing to list thereis going to increase over time.

The CICs next major overseas purchase came on 19 December 2007, when the Chinese
acquired a 9.9% share of Morgan Stanley for a reported $5 billion. Coming on the heels
of Morgan Stanleys first-ever reported quarterly loss, the CIC purchase was heralded as
a much-needed cash infusion for the U.S. firm and a welcome indication of Chinas
intention to participate in global markets as a stabilizing force. Morgan Stanley officials
buttressed this assessment by telling the press CIC had agreed to serve as a passive
investoralbeit one they were going to have to pay a fixed annual rate of 9% on a

26
Thi s i nvest ment was under wr i t t en usi ng moni es pr ovi ded by
t he Nat i onal Soci al Secur i t y Fund. ( Chr i s Ol i ver , 27
Sept ember 2007, Chi na Sover ei gn Weal t h Fund Sai d Set For
Launch, Mar ket Wat ch. com, New Yor k. )
27
Kei t h Br adsher and J oseph Kahn, 29 May 2007, I n Chi na, A
St ake i n Bl ackst one Si r s Uncer t ai nt y, New York Times, New
Yor k.
28
Dani el Kr uger , 9 Febr uar y 2009, Chi na s Bl ackst one Pai n
i s Good News f or Tr easur i es, Bl oomber g. com.
29
Ri ck Car ew, 20 November 2007, Chi na s Sover ei gn Weal t h
Fund For ges St r at egy, Hunt s f or St af f , The Wall Street
Journal, New Yor k.
79

quarterly basis for the next 3 years.
30
Chinese Investment Corporation officials refused
to publicly comment on the deal. The silence, perhaps prompted by CICs Blackstone
experience, appears to have been wise. By 1 March 2008, the 9.9% share in Morgan
Stanley had declined in value to $4.91 billion.
31
Of note, this loss did not go unnoticed in
Beijing. When asked to explain CICs investment in Morgan Stanley, Lou J iwei told a
World Bank audience, if we see a big rabbit, we will shoot at it. But, he continued,
some people may say we were shot by Morgan Stanley.
32

Chinas dalliance with Western financial institutions continued in February 2008, when
word of a potential CIC deal to place $4 billion in a private equity fund operated by the
J C Flowers was leaked to the press.
33
The little-known, U.S.-based J C Flowers is run by
former Goldman Sachs banker Chris Flowers, and is said to focus on investments in
distressed financial institutionsa skill CIC may find handy given its shares in the
American and Chinese banking industry. According to news reports, J C Flowers would
be responsible for operation of the fund, CICs would not be involved in day-to-day
management issues.
34

Wary of Western Political Concerns

Given Chinese political sensitivitiesand Beijings concerns about how the world will
treat the China Investment Corporationit only seems fair to ask, what is the CIC
investment strategy? For Lou J iwei, China Investment Corporations executive board
chairman, the public response is academic and obvious: the purpose is to realize a
maximization of long-term investment returns within an acceptable risk range.
35
I
would note Lous comments are in line with his contention CIC will have to earn a
minimum of $40 million a day to meet the interest on bonds used to finance the fund.
This requirement translates into at least $14.6 billion a year in profitsor a return of at
least 7.3% on the $200 billion used to establish CIC.
36
Other Western analysts contend a
more complicated answer is in order. More than one observer has argued, now comes

30
Mi chael de l a Mer ced and Kei t h Br adsher , 19 December
2007, Mor gan St anl ey t o Sel l St ake t o Chi na Ami d Loss, New
York Times, New Yor k.
31
Wi l l i amMel l or and Le- Mi n Li m, 27 Febr uar y 2008.
32
Bob Davi s, 1 Febr uar y 2008, Chi na I nvest ment - Fund Head
Says Focus i s on Por t f ol i os , The Wall Street Journal, New
Yor k.
33
____, 8 Febr uar y 2008, Chi na s Weal t h Fund t o I nvest i n
J C Fl ower s Fund, I ndi ai nf ol i ne. com. See al so: Paul
Mai dment , 8 Febr uar y 2008, Weal t h of Bad Thi nki ng on
Sover ei gn Funds, For bes. com.
34
____, 4 Apr i l 2008, Chi na s CI C Eyes Noncont r ol l i ng
Company St akes, REUTERS, New Yor k.
35
J ason Dean, 1 Oct ober 2007, Can Chi na Fund Meet Tr i cky
Task? The Wall Street Journal, New Yor k.
36
____, 30 November 2007, Chi na Weal t h Fund Seeks t o be a
St abi l i zi ng Pr esence i n Gl obal Mar ket s, Xi nhua, Bei j i ng.
80

the hard part: deploying $200 billion in a way that earns robust returns, satisfies domestic
political leaders, and avoids exacerbating anxiety abroad about the [funds] intentions.
37

So what will the China Investment Corporation purchase? Early investigations of CICs
purchasescondemned as politically motivated by some Western critics of Beijings
sovereign wealth fundfound an executive board apparently operating with little
strategic direction. In an interview with a Financial Times reporter, a source said to have
direct access to Chinese government officials participating in the CIC acquisition
decisions declared the fund lacked a clear strategy, but would soon focus on the natural
resources sector. The source went on to state the CIC would diversify away from the
ailing U.S. financial sector and was seeking approval for this new approach from the
central government. Why natural resources? According to the unnamed source, Chinas
large U.S. dollar holdings were rapidly depreciating and Beijing was seeking to address
this loss by sinking money in the rapidly appreciating commodity markets.
38

This push for diversification appears to have won Beijings approvaland was expanded
to include more than simply natural resources. As noted previously, Chinese officials
have repeatedly promised much of CICs offshore activity would be limited to the
purchase of indexed funds and a portfolio approachmaking many small purchases of
equities, bonds, and other investment options.
39
By February 2008, Lou J iwei had, on
more than one occasion, told Western audiences, the Chinese Investment Corporation
will focus on portfolios rather than target individual firms.
40
In March 2008, J esse
Wang made essentially the same promise, by declaring the CIC would pursue, highly
diversified assets allocation[this] will help spread the risk as much as possible and
increase returns.
41

A study conducted at the Harvard Business School suggests Chinaand most sovereign
wealth fundsare adhering to this strategy. According to Harvard, sovereign wealth
funds are mote likely to invest at home when domestic equity prices are higher, and more
likely to invest abroad when foreign prices are higher. (Good business practice.) In
addition, Harvard found sovereign wealth funds governed by politicians tended to have a
greater likelihood of investing at home, while those relying on external managers display
a lower tendency to follow this pattern.
42
The China Investment Corporation is following

37
J ason Dean, 1 Oct ober 2007.
38
Tan Wei , 30 December 2007, Chi na s CI C l i kel y t o
Di ver si f y away f r omFur t her U. S. Banki ng Sect or I nvest ment s,
Sour ce Says, Financial Times, London.
39
Kei t h Br adsher , 29 November 2007, $200 Bi l l i on t o
I nvest , But i n Chi na, The New York Times, New Yor k.
40
Bob Davi s, 1 Febr uar y 2008.
41
____, 3 Mar ch 2008, Chi na Sover ei gn Weal t h Fund t o
Tar get Range of Asset s: Repor t , Agency Fr ance Pr ess,
Shanghai .
42
Shai Ber nst ei n, J osh Ler ner , and Ant oi net t e Schoar , 2009,
The I nvest ment St r at egi es of Sover ei gn Weal t h Funds,
81

these patterns. In mid-February 2009, the Chinese sovereign wealth fund was found to
be focusing on resources (minerals), property (globally) and fixed income assets (U.S.
Treasury notes).
43
As J esse Wang told reporters, we are interested in basic necessities,
resources, and manufacturing because we want to balance our investment portfolio.
44

By mid-April 2009, China Investment Corporation officers were announcing plans to
expand their investments even further. As Lou J iwei put it, Key countries in Europe are
now welcoming us. So well actively consider that, because we have also discovered
some opportunities.
45

Conclusion

I can find little evidence suggesting Beijing is engaged in a wide-spread effort to
influence U.S. financial institutions and thereby threaten our national security. Rather, I
would argue China is seeking to participate in the international financial system as an
honest broker who realizes she has much to lose by engendering suspicion and/or
abetting havoc. My extensive study of the China Investment Corporations investment
strategy indicates Beijing is using her sovereign wealth fund to generate a profit for
Chinese taxpayersnot undermine Wall Street or the U.S. Treasury. As such, China is
simply following in the footsteps of other nationssome of whom have been operating
sovereign wealth funds for over 50 years.

In short, I can find no evidence suggesting the China is using her foreign exchange
reserve to coerce the WestBeijing realizes employment of the fiscal nuclear option
would have a devastating impact on Chinas own economic future. What then is the peril
the China Investment Corporation presents to America? The perilfor the moment
appears largely confined to short-term reinvigoration of jingoistic sentiments and
proposals to revisit protectionist legislation aimed at preserving American national
security from an amorphous threat. Over a longer course of time, however, the CIC
peril may be profound. It is not that the Chinese will purchase U.S. sovereigntyquite
the contrary. The long term peril is that CICand many other profit-oriented
customerswill go shopping for investments offering a greater return than that provided
by U.S. government securities

Wor ki ng Paper 09- 112, Har var d Busi ness School , Har var d
Uni ver si t y, pp. 3- 4. .
43
Geor ge Chen, 19 Febr uar y 2009, CI C Shi f t i ng Focus,
REUTERS, Hong Kong.
44
Geor ge Chen and Xi e Heng, 4 Mar ch 2009, Chi na s CI C Sees
Oppor t uni t i es i n Nat ur al Resour ces, REUTERS, Bei j i ng.
45
J ason Dean, 18 Apr i l 2009, Chi na Weal t h Fund t o Boost
I nvest ment s, Wall Street Journal, New Yor k.

Dr. Newmyer.
82

STATEMENT OF DR. JACQUELINE NEWMYER
PRESIDENT AND CEO, LONG TERM STRATEGY GROUP,
CAMBRIDGE, MASSACHUSETTS

DR. NEWMY ER: Ms. Chai rman, members of the Commi ssi on,
thank you for the i nvi tati on to speak today on thi s ti mel y subj ect.
My remarks wi l l be centered on how Chi nese i nfl uence
operati ons fi gure i nto a broader strategy for Chi na as i t ri ses. The
subj ect of a broader strategy came up thi s morni ng, and my remarks
wi l l be structured around what the Chi nese are actual l y sayi ng and
wri ti ng i n thei r i nternal reports.
Dr. Brady thi s morni ng menti oned Cankao Xi aoxi , the Reference
News, whi ch i s a branch of Xi nhua, the offi ci al news agency, but i t's
charged wi th reporti ng to hi gh l evel cadres, Chi nese Communi st Party
el i tes, on anal ysi s and data that they must have so i t's got l i mi ted
ci rcul ati on and i t's di stri buted at the hi ghest l evel s.
I 'm goi ng to tal k about what they're actual l y wri ti ng i n reports
that appear i n thi s outl et, and then I 'l l move to where I thi nk thi s
mi ght come from, what the l ogi c behi nd i t i s, and I 'l l offer a
prel i mi nary assessment of how I thi nk the Chi nese are doi ng.
But j ust to gi ve you a previ ew, my answer i s cl earl y yes, the
Chi nese are tryi ng to i nfl uence or shape Ameri can percepti ons of and
pol i ci es toward Chi na, mai nl y up ti l l now i n the di recti on of tryi ng to
reassure us -- to al l ay concerns about Chi na's economi c ri se, mi l i tary
bui l d-up and i ncreasi ng pol i ti cal and di pl omati c i nfl uence.
So l et me begi n by referri ng to an offi ci al Chi nese publ i cati on
addressi ng the need for and character of Chi nese strategi c i nformati on
capabi l i ti es di rected abroad.
Agai n, thi s i s not a pol i cy document, but I thi nk i t's
representati ve of a certai n mi nd-set, and i t's reachi ng and i t's
commi ssi oned by Party offi ci al s at the hi ghest l evel s.
I n February 2009 Reference News publ i cati on, the subj ect of
nati onal publ i c rel ati ons weapons was addressed, and thi s i s how i t
was defi ned, quote:
"By nati onal publ i c rel ati ons, meani ng di al ogues between nati ons
or between a country and rel evant stakehol ders agai nst the backdrop of
competi ti on over power and i nterest."
The arti cl e expl i ci tl y addresses the need to, quote, "set the
agenda for forei gn medi a," under a subhead of the arti cl e cal l ed, quote,
"Medi a Di pl omacy: Breaki ng the Si ege of Publ i c Opi ni on i n the West."
83

The author wri tes, quote:
"I t i s obvi ous that the West sti l l has the upper hand whi l e the
East remai ns weak. Whenever there's an agenda di spute, i nternati onal
publ i c opi ni on wi l l form a force that i nvol ves the West's besi egi ng the
East."
Then the arti cl e goes on to say, quote:
"I nfl uenci ng and setti ng the forei gn medi a agenda ful l y embodi es
a rul e of the game i n modern soci ety--that i s, whoever can i nfl uence
the medi a agenda can i nfl uence the publ i c agenda. The forei gn medi a
are not a taxi on the road that can be fl agged when one needs i t and
shoved away when one does not need i t. I n other words, these peopl e,
these forei gn medi a, al ways have to be cul ti vated. We have to have
rel ati onshi ps so we can depend on them when we need them to report
i n certai n ways.
How? Quote: "Forei gn medi a outl ets shoul d be gi ven speci al
treatment so that they wi l l not be forced to uni te and form a
confrontati onal al l i ance."
I n other words, di vi de them or keep forei gn medi a from uni ti ng
agai nst Chi na, keep them di vi ded. More on how thi s can be achi eved.
Quote: "Provi de them"--these forei gn medi a outl ets--"wi th
speci al i zed i nformati on." Grant them pri vi l eges to encourage posi ti ve
coverage of Chi na.
And then sti l l under the headi ng of, "Breaki ng the Si ege of
Publ i c Opi ni on i n the West," there are general precepts such as, quote:
"When a negati ve event occurs, the authori ti es shoul d not order
the medi a to shut up. Publ i c opi ni on i s l i ke a bi g contai ner. The more
i nformati on you i nj ect, the l ess space there i s for other peopl e's vi ews
and abi l i ty to return fi re."
I n other words, fl ood the zone. Even when there are cri ses
wi thi n Chi na that the Western medi a may have access to, we shoul d
not cl am up. We shoul d report on i t so that we can shape the di recti on
of forei gn reporti ng.
More speci fi cal l y, under the headi ng of "Lobbyi ng," the author
wri tes, quote:
"We need to i nfl uence the i nfl uenti al . I n every country, there
are famous commentators and wri ters, and they are the medi a and
publ i c focus. Wi th the support of these forei gn el oquent speakers and
wri ters, the nati onal publ i c rel ati ons dri ve can yi el d twi ce the resul ts
wi th hal f the effort. I n addi ti on, i t i s necessary to ful l y mobi l i ze
overseas el i tes and overseas Chi nese who are fami l i ar wi th Chi na.
Because they understand the cul tural envi ronment abroad, they can be
good assi stants to Chi na's publ i c rel ati ons."
So where does al l thi s come from, thi s tal k of "si ege of publ i c
opi ni on i n the West" and "nati onal publ i c rel ati ons strategy," "publ i c
84

rel ati ons weapons"? I thi nk i t fl ows from a tradi ti on, a strategi c
tradi ti on that stresses the rol e of i nformati on and percepti ons i n
pol i ti cal and geopol i ti cal i nteracti ons -- that i s, both domesti c pol i ti cs
and forei gn rel ati ons.
I 'd go so far as to say that the Chi nese tradi ti on puts managi ng
percepti ons at the heart of strategy. Thi s i s evi dent from Sun Tzu's
i nj uncti on to know the enemy and know thysel f, whi ch after al l i s
about knowl edge and i nformati on and percepti ons, to the CCP's
extensi ve domesti c propaganda and i nformati on management efforts,
whi ch have been anal yzed and expl ored by schol ars l i ke Anne-Mari e
Brady, Davi d Shambaugh, Dani el Lynch, and Ashl ey Esarey, among
others.
Perhaps most obvi ousl y for our purposes, i t's evi dent i n Deng
Xi aopi ng's famous l i ne that Chi na shoul d bi de i ts ti me and hi de i ts
capabi l i ti es, whi ch can onl y be understood as a cal l to shape the data
that reaches forei gners, i n thi s case, to conceal certai n data, keep
certai n i nformati on from reachi ng forei gners.
And then we have the famous l i ne about Chi na's peaceful ri se,
whi ch was i ntroduced by a Party school offi ci al , or somebody who i s
often descri bed as a Party school offi ci al , and he was, Zheng Bi j i an, i n
2002. He l ater changed the statement to "peaceful devel opment"
because even the term "ri se" was seen as potenti al l y counterproducti ve
to the mi ssi on of reassuri ng forei gners as i t mi ght rai se anxi ety about
Chi na.
So i nstead of tal ki ng about peaceful ri se, because i t i ncl udes the
word "ri se," we now hear about peaceful devel opment. But before thi s
change took hol d, Zheng ki nd of sl i pped up i n 2004, when he went on
Shanghai TV, and i nstead of tal ki ng the way he tal ks to forei gners
about Chi na's peaceful ri se, thi s i s what he sai d, quote--and thi s i s i n a
recent Chi na Quarterl y arti cl e by Dan Lynch--quote:
"Worki ng i n thi s way has i ts advantages," --and worki ng i n thi s
way means tal ki ng about, i n thi s case, Chi na's peaceful ri se--"i n
obtai ni ng greater understandi ng, sympathy and support, i n wi nni ng
di scourse power on the questi on of Chi na's devel opment path, i n
wi nni ng di scourse power i n the i nternati onal sphere. I t i s al l
extremel y advantageous, and there's absol utel y no downsi de."
So thi s i s a pretty stunni ng shi ft from tal ki ng about peaceful ri se
as an earnest descri pti on of what Chi na's present and future traj ectory
i s to tal ki ng about i t as an i nstrumental term that's desi gned to
reassure.
Zheng i s affi l i ated--he's often tal ked about bei ng a Party school
offi ci al , and that's often descri bed as bei ng a thi nk tank, but he's al so
been a propaganda offi ci al si nce the 1960s i n Chi na, and he's part of
that vast propaganda apparatus wi th i ts spi der web that connects
85

di fferent bureaucraci es that Dr. Brady tal ked about thi s morni ng.
So the Party school and Chi nese thi nk tanks i n general are not
l i ke AEI or Brooki ngs. Actual l y, the Chi nese sources tal k about thi s.
I n another recent arti cl e cal l ed, quote, "I t I s Di ffi cul t for Chi nese
Thi nk Tanks to Learn from the Ameri can Model ," the author says,
quote:
"U.S. pri vate thi nk tanks are i n a thri vi ng state. Thi s i s uni que
i n the worl d, a byproduct of the U.S. dual -party el ecti on system,
fundamental l y di fferent from the domesti c condi ti ons of Chi na."
Therefore, and then the author goes on to say, i t's a pi ty we
can't l earn that much from Ameri can thi nk tanks except for maybe
some i nternal organi zati on ti ps because thei r whol e structure and thei r
pl ace i n soci ety i s so di fferent.
I n a di fferent pi ece cal l ed, quote, "Chi na Must Have Strong
Nongovernmental Di pl omati c Power," agai n publ i shed i n a l i mi ted
ci rcul ati on publ i cati on that's meant to anal yze forei gn percepti ons of
Chi na and keep track of them for Chi nese el i tes, the author i denti fi ed
the fundamental di fferences between the U.S. and Chi na i n thi nk tank
real ms and consi dered Chi na to be at a di sadvantage, quote:
"The di versi fi ed nongovernmental forces have provi ded U.S.
di pl omacy wi th mul ti pl e abi l i ti es to set up vari ous agendas. I n the
meanti me, Chi na can do nothi ng but rel y on i ts government's si ngl e-
track di pl omacy. Thi s has pl aced Chi na i n a passi ve posi ti on i n whi ch
i t i s hard to cope wi th the si tuati on as i f i t i s shooti ng mosqui toes wi th
a cannon."
The arti cl e goes on to say that to avoi d embarrassments l i ke the
crackdown on free Ti bet protestors i n the run-up to the Ol ympi cs,
Chi na must unl eash overseas Chi nese nati onal i sts to counter Western
publ i c expressi ons of sympathy for Ti bet.
The general anal ysi s i s the U.S. strategi cal l y benefi ts from
havi ng peopl e who aren't connected wi th the government sayi ng thi ngs
that are favorabl e to the U.S. and cri ti cal of Chi na, and Chi na needs to
counter thi s by depl oyi ng overseas Chi nese and peopl e i n forei gn
countri es.
Wel l , what i s thi s about, thi s tal k of nati onal publ i c rel ati ons
strategy and di scourse power? Wi th regard to the Uni ted States from
the l i nes "bi di ng ti me and hi di ng capabi l i ti es" and "peaceful ri se," we
can be sure that there i s an effort to keep Ameri ca fri endl y, reacti ve,
and reassured about Chi na, but there's al so an emergi ng real i sm i n the
Chi nese wri ti ngs about the feasi bi l i ty of thi s, the conti nui ng
feasi bi l i ty of thi s, as Chi na passes through di fferent stages of
moderni zati on and devel opment and starts to assume rol es associ ated
wi th great powers.
From the document that I quoted on the outset, there's a
86

descri pti on, quote:
"Chi na's publ i c rel ati ons dri ve i s not a competi ti on that i nvol ves
wagi ng a qui ck battl e, but what Chai rman Mao descri bed as a 'l ong
runni ng- battl e.' Accordi ng to Chai rman Mao, a l ong-runni ng battl e
i nvol ves three stages: defense, confrontati on, and counterattack. From
the strategi c l evel of nati onal publ i c rel ati ons, the defense stage
compri ses passi ve defense and acti ve defense. We di vi de the
confrontati on peri od i nto two parts: confrontati on resul ti ng from both
si des bei ng wel l matched i n strength and di al ogue brought about by a
bal ance of power. The counterattack stage i nvol ves attacki ng and
counteri ng."
There's a l ot of di scussi on about whether Chi na can conti nue to
bi de i ts ti me and conti nue i n thi s phase of, quote, "unrestrai ned
modesty that marks the passi ve defense stage or whether i t needs to
proceed to the next stage.
I n terms of Chi na i n the worl d more gl obal l y, as some of the
speakers menti oned thi s morni ng, there appears to be a percepti on i n
Chi na that there's a competi ti on i n the worl d i n the real m of
i nternati onal publ i c opi ni on, and vari ous schol ars i n Chi na have tri ed
to study where Chi na ranks i n thi s gl obal competi ti on, and they have
suggested that they're behi nd the U.S. because the U.S. has, quote,
"i nternati onal mobi l i zati on capaci ty" because we have more fri ends i n
the worl d, but that Chi na can erode that advantage i n three to fi ve
years i f i t properl y, quote, "posi ti ons" i tsel f. I t's a PR term.
Thi s i s the advi ce from Dr. Y an Xuetong, who i s the Dean of
Tsi nghua, but he's wri ti ng i n another one of these i nternal ci rcul ated
hi gh l evel cadre publ i cati ons, quote:
"We may thi nk of reposi ti oni ng Chi na's i nternati onal i denti ty
and expandi ng the homogenei ty between Chi na and other countri es i n
i denti ty. Economi cal l y, Chi na may posi ti on i tsel f as a burgeoni ng
modern country between a devel oped and an underdevel oped country.
Pol i ti cal l y, Chi na may posi ti on i tsel f as democrati zi ng between a
democrati c country and an autocracy. Cul tural l y, Chi na may posi ti on
i tsel f as a Confuci an country between a rel i gi ous and a nonrel i gi ous
country."
I n other words, to maxi mi ze i ts appeal and i ts abi l i ty to wi n
fri ends abroad, i f they can spi n themsel ves i n the ri ght way, they can
overtake the U.S. i n terms of the number of fri ends they have.
J ust to concl ude, how effecti ve i s thi s? I t's tough to measure the
effects because i t requi res addressi ng a counterfactual : woul d we as
the U.S. be doi ng what we're doi ng i n the absence of whatever Chi na i s
attempti ng to persuade us of? I t's di ffi cul t to know, but I can refer
you to an arti cl e, a recent arti cl e by Carsten Hol z, who i s a schol ar i n
Hong Kong, who wrote a pi ece cal l ed "Have Chi na Schol ars Al l Been
87

Bought," whi ch begi ns "Academi cs who study Chi na, i ncl udi ng thi s
author, habi tual l y pl ease the Chi nese Communi st Party, someti mes
consci ousl y and often unconsci ousl y."
Or take the words of a seni or Ameri can schol ar of Chi na, Orvi l l e
Schel l , quote:
"I try to say, 'Okay, here's what I thi nk, what I understand, what
I thi nk I see, have l earned and read.' Then, I try and thi nk through
what the Chi nese government's reacti on wi l l be. And then I try to be
as truthful as I can i n a way that i s respectful and unprovocati ve but
that i s not panderi ng. Chi na has a tremendousl y hi ghl y evol ved
capaci ty to create panderers, both among i ts own peopl e and forei gners
who become i nvol ved wi th them."
So where i s al l thi s goi ng i f Chi na succeeds i n reassuri ng the
U.S. and cul ti vati ng i nternati onal mobi l i zati on capaci ty? I thi nk that's
i n some ways a subj ect for another heari ng, but I don't thi nk we're
doi ng Chi na any favors over the l ong term i f we conti nue to act l i ke
we can be fl attered and persuaded i nto reacti vi ty and a posture of
passi vi ty.
Thanks.

Prepared St at ement of Dr. Jacquel i ne Newmyer, Presi dent and
CEO, Long Term St rat egy Group, Cambri dge, Massachuset t s

Mr/s Chairman, Members of the Commission, Thank you for the invitation to speak today on this timely
subject.

My testimony will address how Chinese foreign-directed information operations figure into the Peoples
Republic of Chinas (PRCs) broader strategy as it rises, and my remarks will be structured around what
the Chinese themselves are saying and writing about foreign-directed information operations in their
internal reports. After reviewing a representative sample of the Chinese reports, Ill move to the logic
behind their approach, or where it comes from, and finally, what Chinas aims are, before offering a
preliminary assessment of their success. To give you a preview, my answer is, clearly, yes, the Chinese
Communist Party (CCP) leadership is trying to influence or shape American perceptions of, and policies
toward, China. Mainly, up to now, these efforts have been in the direction of reassurance, to allay US
concerns about Chinas economic rise, military build-up, and increasing political and diplomatic influence.

Let me begin by referring to a Chinese report addressing the need for, and character of, foreign-directed
strategic information capabilities. This article, a kind of roadmap for foreign-directed information
campaigns, appeared in a February 2009 Reference News (Cankao Xiaoxi) outlet, and it was translated by
the American Open Source Center, along with the other articles that I am going to cite today. Reference
News publications come out of a special branch of the official Chinese news agency Xinhua that is charged
with preparing information and analysis for senior cadres. In theory, the circulation of these Reference
News reports is limited to high-ranking Party members. To be sure, I am not about to quote a policy
document but rather an analytical piece. It seems to be representative of a certain cast of mind, however,
as we will see. The article from February refers to national public relations weapons, which it defines:
By national public relations, we mean dialogues between nations or between a country and relevant stake
holders against the backdrop of competition over power and interest.

88

The need to set the agenda for foreign media is explicitly stressed. Under a subhead of the article called
Media Diplomacy: Breaking the Siege of Public Opinion in the West, the author writes:

It is obvious that the West still has the upper hand while the East remains weak Whenever there is
an agenda dispute, international public opinion will form a force that involves the Wests besieging
the East.

And the article proceeds to explain:

Influencing and setting the foreign media agenda fully embodies a rule of the game in modern society
that is, whoever can influence the media agenda can influence the public agenda The foreign
media are not a taxi on the road that can be flagged when one needs it and shoved away when one
does not need it.

In other words, the foreign press has to be cultivated, so that when a crisis strikes, certain outlets can be
counted upon to report favorably on China.

How can this be achieved? Foreign media outlets should be given special treatment so that they will not
be forced to unite and form a confrontational alliance. In other words, divide them, or keep them divided.
The article elaborates on this question, emphasizing the need to provide them with specialized
information That is, grant privileges to encourage positive coverage.

Under the same heading of Breaking the Siege of Public Opinion in the West, the article also offers
general precepts such as,

When a negative event occurs, [the authorities] should not order the media to shut up. Public opinion
is like a big container. The more information you inject the less space there is for other peoples
views and ability to return fire.

In other words, flood the zone.

More specifically, under the heading of Lobbying, the author writes:

We need to influence the influential. In every country, there are famous commentators and writers,
and they are the media and public focus. With the support of these foreign eloquent speakers and
writers, the national public relations drive can yield twice the results with half the effort. In addition,
it is necessary to fully mobilize overseas elites and [overseas] Chinese who are familiar with China.
[Because they] understand the cultural environment abroad, they can be good assistants in Chinas
public relations.

Where does all this come from? Whence this talk of a siege of public opinion, national public relations
weapons, and the like? It flows from a tradition that stresses the role of information in political and
geopolitical interactions that is, in both domestic and foreign strategy. Id go so far as to say that the
Chinese tradition puts managing perceptions at the heart of strategy. This is evident from Sun Zis
injunction to know the enemy and oneself to the CCPs extensive domestic propaganda and information
management efforts, which have been explored by scholars such as Anne-Marie Brady, David Shambaugh,
Daniel Lynch and Ashley Esarey, among others. Perhaps most relevant for our purposes, the emphasis on
information in Chinas strategic culture is evident in Deng Xiaopings famous injunction that China should
bide its time and hide its capabilities, which can only be understood as a call to shape the data that
reaches foreigners, in this case to conceal certain data.

89

In this connection, consider the formulation designed to influence how foreigners understand Chinas
increased power on the world stage, peaceful rise. The line, promulgated by Zheng Bijian in 2002, was
later changed to peaceful development, lest the word rise provoke anxiety and undermine the intended
effect of reassuring foreigners about Chinas trajectory. But before this change took hold, Zheng slipped
up in a September 2004 Shanghai TV appearance, as quoted in a recent China Quarterly article by Daniel
Lynch: Working in this way [touting the peaceful rise] has its advantages in obtaining greater
understanding, sympathy and support, in winning discourse power on the question of Chinas development
path, in winning discourse power in the international sphere It is all extremely advantageous, and there is
absolutely no downside. This is a pretty stunning shift from insisting that peaceful rise is an earnest
description of Chinas present and future to describing the label as instrumental, a tool for winning
discourse power.

Now Zheng is affiliated with the Central Party School of the Chinese Communist Party, but he has been a
senior member of the Partys propaganda apparatus, an extensive network of offices that exists behind the
official bureaucracy, since the 1960s. Zheng is never identified this way in Chinese Western-language
news outlets. Further, the Party School is often referred to as a Chinese think tank. Is this an institution
just like our Brookings or AEI? No. In another recent article called It Is Difficult for Chinese Think
Tanks to Learn from the American Model, the author explicitly notes the differences: US private think
tanks are in a thriving state. This is unique in the entire world, a byproduct of the US dual-party
election system fundamentally different from the domestic conditions of China. Therefore, one is
afraid that what China think tanks can learn from US think tanks is more about micro-level management
and operational models. In other words, because most Chinese think tanks are sponsored by the Party,
while American think tanks are private, all Chinese think tanks can learn from their US counterparts is
internal organizational details.

A different recent piece, China Must Have Strong Nongovernmental Diplomatic Power, published in a
Chinese Peoples Daily [Renmin Ribao] outlet that tracks foreign opinion on China for senior cadres,
reviews the fundamental differences between the United States and China in the think tank realm, and
assesses that China is at a disadvantage:

The diversified nongovernmental forces have provided US diplomacy with multiple abilities to set up
various agendas. In the meantime, China can do nothing but rely on its governments single-track
diplomacy. This has placed China in a passive position, in which it is hard to cope with the situation,
as if it is shooting mosquitoes with a cannon.

The article goes on to say that to avoid embarrassments like the crackdown on free Tibet protestors in the
run-up to the Olympics, China must unleash overseas Chinese to counter Western public expressions of
sympathy for Tibet.

What is this talk of discourse power in the international sphere and shooting mosquitoes about? Well,
with regard to the United States and the lines about biding time, and hiding capabilities and peaceful
rise, we can be sure that there is an effort to keep America friendly and complacent. But there is also
increasing realism in the Chinese reports about the continuing feasibility of this approach as China passes
through different stages of modernization and development and starts to assume roles associated with great
powers.

From the national public relations document that I quoted at the outset, here is a description of a natural
evolution for Chinas foreign-directed information campaigns:

Chinas public relations drive is not acompetition that involves waging a quick battle, but what
Chairman Maodescribed as a long-running battle. According to Chairman Mao, a long-running
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battle involved three stages: defense, confrontation, and counterattack. From the strategic level of
national public relations, the defense stage comprises passive defense and active defense. We divide the
confrontation period into two parts: confrontation resulting from both sides being well matched in
strength, and [then] dialogue brought about by a balance of power. The counterattack stage involves
attacking and conquering.

Within the PRC today, there seems to be significant discussion of whether China can continue to bide its
time or whether China will be compelled to shift its foreign-directed information efforts. The roadmap
article concludes, While we should not demonstrate toughness characteristic of the confrontation stage
and the counterattack stage, we cannot continue making the kind of unprincipled compromises or
maintaining the unrestrained modesty that marks the passive defense stage.

In addition to shifting the message directed at the United States, China may accelerate its wooing of other
countries. Perhaps inspired by the idea of soft power, the Chinese seem to believe that a competition
exists in the realm of international public opinion. A J anuary 2008 analysis by the scholar Yan Xuetong,
published in a journal of the Chinese Institute of Contemporary International Relations (CICIR), a think
tank with ties to the Ministry of State Security, which oversees Chinese counterintelligence, argues that
if a country has relatively many strategically friendly countries, it is likely to win support from other
countries. According to Yan, the United States has an advantage in allies, or international mobilization
ability, but this can be eroded in three to five years if China properly positions itself or manipulates
impressions of Chinas identity:

We may think of repositioning Chinas international identity and expanding the homogeneity between
China and other countries in identity. Economically, China may position itself as a burgeoning
modern country, being between a developed and underdeveloped country. Politically, China may
position itself as a democratizing country, between a democratic country and [an autocracy].
Culturally, China may position itself as a Confucian country, between a religious and a nonreligious
country

I have been talking about Chinese intentions up to now. To conclude, I would like to turn to an assessment
of effects. But effects are difficult to measure, in part because any judgment requires addressing the
counterfactual question, Would we have acted as we have in the absence of Chinese foreign-directed
information campaigns? As a preliminary answer, let me adduce the article Have China Scholars All
Been Bought, by the Hong Kong-based professor Carsten Holz. Holz begins, Academics who study
China, which includes the author, habitually please the Chinese Communist Party, sometimes consciously,
and often unconsciously. Consider, too, the words of one of the most senior American scholars of China,
Orville Schell:

I try to say, Okay, here is what I think, what I understand, what I think I see, have learned and read.
Then, I try and think through what the Chinese governments reaction will be And then I try to be
as truthful as I can in a way that is respectful and unprovocative but that is not pandering. China has a
tremendously highly evolved capacity to create panderers both among its own people and foreigners
who become involved with them.

Where is all of this going if China succeeds in reassuring the United States while increasing its
international mobilization ability? Thats a subject for a different hearing, I think. Thank you again, and I
look forward to your questions.

Panel II: Di scussi on, Quest i ons and Answers

HEARI NG COCHAI R REI NSCH: Thank you very much.
91

We'l l begi n wi th Commi ssi oner Wessel .
COMMI SSI ONER WESSEL: Thank you al l for bei ng here, and a
very i nteresti ng fol l ow-on panel .
Dr. Anderson, I want to make sure that I don't mi si nterpret what
you sai d and get comments al so from the other panel i sts. Y ou seem to
i ndi cate that Chi na was not wi l l i ng to use i ts vast reserves, that that
woul d be shooti ng i tsel f i n the foot. But there are some who bel i eve
that the mere threat of goi ng to baskets of currenci es, that the goi ng to
speci al drawi ng ri ghts, the enhanced power at the I MF, et cetera,
si gnal s a shi ft i n the bal ance of economi c power between maj or
nati ons, Chi na bei ng one of them.
And that seems to have sent some shock waves through pol i cy
ci rcl es. We've seen a change, a dramati c change, I thi nk, i n the way
that the U.S. i s approachi ng the questi on of the val uati on of Chi na's
currency. We are seei ng a number of maj or U.S. enti ti es--compani es--
conti nui ng thei r efforts to engage i n the Chi na market and to di mi ni sh
U.S. responses to certai n trade acti ons by the Chi nese, shal l we say.
So how do we fi t al l thi s? I s Chi na, i n fact, usi ng i ts reserves,
i ts ri si ng power, to change that bal ance? And al so, Dr. Newmyer and
others, what i mpact i s that havi ng on our i nsti tuti ons here, both our
compani es whi ch are l obbyi ng i n some ways for the Chi nese because of
thei r i nterest there, the questi ons we had of the earl i er panel about
whether i t's Hi l l & Knowl ton or others, thei r access to our process and
how they mi ght affect i t?
DR. ANDERSON: I 'l l try to gi ve you the short answer to a very
l ong questi on.
COMMI SSI ONER MULLOY : Short answer, yes. Thank you.
DR. ANDERSON: The Chi nese have an i nteresti ng quandary,
and they're not al one i n thi s. Al most any maj or hol der of l arge forei gn
currency reserve worked under the same assumpti on, that you i nvested
i n the safest pl ace you coul d fi nd, and you made sure that you were
abl e to access that money qui ckl y i n the event you need i t for a
fi nanci al emergency.
That made us the favori te pl ace to i nvest. I t wasn't an effort to
persuade Washi ngton. I t was an effort for central bankers to act
prudentl y. What we're seei ng the Chi nese do i s devel op an opti on that
i s suffi ci ent to provi de the same l evel of securi ty but not l eave them as
dependent on what they now percei ve to be a very vul nerabl e Ameri can
economy, and that proposal i s very forthri ghtl y bei ng fl oated wi th thi s
I MF speci al drawi ng ri ghts i ssue.
I f you've been watchi ng over the l ast month, the Chi nese and
now the I MF, and I 'm not surpri sed at the I MF del i ght wi th thi s, have
suggested that they i ncrease the reserve access wi thi n the I MF from
250 bi l l i on to a tri l l i on dol l ars, essenti al l y setti ng up over a l onger
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term the abi l i ty for these nati ons who have the l arger forei gn exchange
reserves to i nvest somepl ace el se and somepl ace that they bel i eve i s of
greater stabi l i ty because you have a mul ti nati onal consorti um si tti ng
behi nd those funds.
So the Chi nese have i ni ti al l y stated that they woul d be wi l l i ng to
move about $40 bi l l i on i nto that fund, a rel ati vel y smal l change i n the
worl d we're tal ki ng about here, but i t's a si gnal , and i t comes at the
end of now three months of si gnal s from the Chi nese sayi ng that they
are di spl eased wi th what they see as our fi nanci al management,
di spl eased wi th what they see as probabl y the i nstabi l i ty of the U.S.
currency over a l onger term.
I had one of my Chi nese counterparts tel l me, what I see i s the
Uni ted States government pri nti ng money hand over fi st to essenti al l y
create i nfl ati on that wi l l render our debt worthl ess. I t's not a Chi nese
suspi ci on hel d i n sort of thei r own l i ttl e worl d. That has been
expressed el sewhere. The Europeans have offered equal l y profound
statements about what they thi nk we're up to here.
So when I l ook at what the Chi nese are doi ng i n that i nvestment
opti on and i n the statements that are comi ng, parti cul arl y from Wen
J i abao, you see the warni ng si gns bei ng offered, but you don't see
acti on that shoul d cause us to be nervous at thi s poi nt. Rather I woul d
argue i t's sort of a prudent deci si on on thei r behal f, and they're gi vi ng
us a chance to do somethi ng about i t.
I wi l l tel l you that i f you l ook at the i nvestment strategi es that
are bei ng exerci sed wi thi n the CI C, the Chi nese I nvestment
Corporati on, thei r soverei gn weal th fund, they're far l ess subtl e, but
then they've been very bl unt and tol d us that they need to earn $40
mi l l i on a day i n essenti al l y i nterest i n order to pay for that fund. I t
was borrowed from the Chi nese ci ti zenry.
And as a resul t, they wi l l not i nvest i n the U.S. fi nanci al
i ndustry unti l they see some stabi l i ty appear on that front. I nstead,
they are taki ng thei r i nvestment i nto Europe where they bel i eve there
are more stabl e opti ons. They're movi ng i nto the commodi ti es market,
and i f you haven't started purchasi ng ri ghts i n copper, you shoul d.
COMMI SSI ONER WESSEL: Let me j ust i nterrupt there for a
moment. Y ou say i t's greater stabi l i ty on the European market or i s i t
greater recepti vi ty to Chi nese i nvestments, and we sti l l have a CFI US
overl ay, shal l we say, and the Europeans seem to be wel comi ng forei gn
capi tal wi th fewer concerns?
DR. ANDERSON: The Europeans were l ate to the game. The
Germans, the French, and to some extent surpri si ngl y even Great
Bri tai n was very rel uctant to al l ow the soverei gn weal th funds i n, and
the Chi nese were very bl unt. They sai d i f you're unwi l l i ng to do that,
there are another 150 nati ons where we mi ght be abl e to spend our
93

money.
I t wasn't unti l the fi nanci al cri si s reached the status that i t has
that the Europeans suddenl y deci ded maybe i t woul d be a good i dea to
wel come wi th open arms thi s outsi de i nvestment. I woul d note they're
not al one. The J apanese are al so now offeri ng tax i nducements
i ntended to draw i n these forei gn weal th funds. So the mani pul ati on,
i f you wi l l , i s not based si mpl y on addressi ng a Chi nese audi ence, but
on an abi l i ty to draw any forei gn i nvestor that you can get i n and offer
the market that's avai l abl e.
The Chi nese have been payi ng attenti on; they offered a number
of comments when we came up wi th the FI NSA regul ati ons. Thei r
parti cul ar concerns focused on ownershi p and speci al treatment for
forei gn governments. I woul d note that they were not uni que i n thei r
comments. The Bri ti sh response was very si mi l ar, and the Germans
al so offered fai rl y scathi ng remarks when they l ooked at that
l egi sl ati on.
I woul d note, however, I l ooked at the CFI US i nvesti gati ons over
a ten-year peri od, and when you do the cal cul ati on, the number of
mergers and acqui si ti ons by forei gn governments or forei gn enti ti es
wi thi n the Uni ted States versus the number of CFI US i nvesti gati ons,
over a ten-year ti me peri od, you have a greater l i kel i hood of bei ng
struck by l i ghtni ng than bei ng subj ected to a CFI US i nvesti gati on.
So the Chi nese aren't terri bl y concerned about what's happeni ng
there. They shoul dn't be.
Commi ssi oner Fi edl er.
COMMI SSI ONER FI EDLER: A coupl e of qui ck questi ons. Does
anyone know how many academi cs have been deni ed vi sas sti l l ?
DR. TERRI LL: Duri ng what peri od?
COMMI SSI ONER FI EDLER: Wel l , I know i n the '80s and earl y
'90s, there were many. The questi on i s i n the l ast fi ve years.
DR. TERRI LL: Y es, i n the bad ol d days of the 1970s, when
there were del egati ons typi cal l y goi ng to Chi na, the Chi nese woul d
someti mes say Mi ss X or Mr. Y i s not acceptabl e, and then our si de
had to make the di ffi cul t deci si on whether to go wi thout those two
peopl e or not to go at al l , and someti mes the deci si on went one way
and someti mes the deci si on went another.
I n more recent years, i t's j ust been i ndi vi dual s i ncl udi ng mysel f
who have been deni ed vi sas, but there woul d be dozens, ei ther rel ated
to peopl e worki ng i n sensi ti ve areas l i ke Ti bet or Xi nj i ang or wanti ng
to do so or peopl e who have wri tten somethi ng unacceptabl e to Bei j i ng
on a sensi ti ve subj ect.
But the more common mode i s not to deny the vi sa, but not to
say yes or no, and the date say of the conference or whatever comes
94

and goes and, of course, the Ameri can person doesn't go to the
appoi ntment because hi s vi sa di dn't come through.
COMMI SSI ONER FI EDLER: That's an effecti ve deni al .
DR. TERRI LL: Wel l , i t's a Chi nese mode of deni al .
COMMI SSI ONER FI EDLER: Di d you have somethi ng?
DR. NEWMY ER: Y es. Coul d I j ust say one other thi ng?
Denyi ng a vi sa or not answeri ng i s a pretty overt si gnal , and there are
more subtl e thi ngs that can be done, that are done, to cul ti vate fri endl y
academi cs or desi rabl e ones and excl ude others, and thi s has to do wi th
granti ng access to archi ves, research opportuni ti es, i ntervi ews.
So there are some academi cs i n the U.S. who have over the l ong
term been gi ven access to formerl y secret documents or have seen
archi ves that were cl osed, and thi s has been very good for them and
thei r academi c careers, and they're grateful , and who knows whether
thi s compromi ses thei r i ntegri ty, but i t's certai nl y a more cl ever or
behi nd-the-scenes way of reachi ng out and extendi ng i nfl uence to
academi cs, and i t's much more subtl e obvi ousl y than the whol e vi sa
tool .
J ust to answer your questi on, Commi ssi oner Wessel , about the
i nfl uence over U.S. compani es. I thi nk cl earl y, as many peopl e have
acknowl edged, the Chi nese are very di fferent as an autocrati c state
from many former, other autocrati c states that the U.S. has ever deal t
wi th, and so the ways that they proceed to shape us and i nfl uence us
are di fferent from the ways that we are fami l i ar wi th from the Sovi et
Uni on.
They're not heavy-handed, and i n the case of a l ot of commerci al
rel ati onshi ps, they're ki nd of pushi ng on an open door because
busi ness peopl e are i ncl i ned to favor stabi l i ty, conti nui ty, and Paci fi c
rel ati ons because i t's good for busi ness and commerce. So I thi nk i n
thi s whol e real m of fi nance and busi ness, i t's di ffi cul t to tel l what
they're doi ng that's dri ven by profi ts and what they're doi ng that's
pri mari l y dri ven for strategi c reasons, but to the extent that they're
maki ng i nvestments i n U.S. fi rms, they're encouragi ng a tendency
that's al ready l atent, to say, wel l , we shoul d j ust pursue engagement
and have good rel ati ons and stabi l i ty wi l l be good for everybody
because that's j ust sort of the economi c or the busi ness approach to
forei gn affai rs general l y.
Let me ask another questi on. There have been a l ot of rumors
wi th no evi dence goi ng around over the l ast si x months that the
Chi nese enti ti es--some are maki ng contri buti ons to U.S. thi nk tanks i n
amounts of money that have not been seen before. Let's j ust say that.
Do we have any evi dence for thi s?
DR. TERRI LL: Someti mes i t's done covertl y, but i f we take the
95

Western worl d i n general , there's no doubt that we have cases. For
i nstance, a few months ago, a Chi nese company gave hundreds of
thousands of dol l ars to the Lowy I nsti tute i n Sydney, Austral i a, and i s
now on board as a maj or contri butor to the Lowy I nsti tute.
DR. NEWMY ER: Y es, there are centers, a l ot of i mportant thi nk
tanks, and even uni versi ty i nsti tuti ons i n the U.S. that are funded by
Chi nese donors, and they're not al ways offi ci al . They someti mes have
behi nd the scene ti es to offi ci al s, but to be fai r, thi s i s not somethi ng
that i s uni que to Chi na. The Saudi s have done thi s for a l ong ti me.
There's a book cal l ed I vory Towers on Sand by Marti n Kramer that
descri bes i t.
COMMI SSI ONER FI EDLER: Oh, yes, I 'm not sayi ng they're the
onl y ones i n the worl d. I t's a new phenomena i s al l I 'm sayi ng.
DR. NEWMY ER: For Chi na.
COMMI SSI ONER FI EDLER: Y es.
DR. NEWMY ER: Rel ati vel y new.
COMMI SSI ONER FI EDLER: Y es. There are those who argue
that thi s was done l argel y through U.S. corporati ons before, but now
i t's not, and that the Chi nese are getti ng i nto i t themsel ves because
they want more di rect i nfl uence.
So i f you can l ater send any l i st that you've got of exampl es of
that, I 'd appreci ate i t because I haven't seen any evi dence of i t.
DR. TERRI LL: Mi ght I add a footnote to that? The more
common mode that I thi nk we'l l see i s that Ameri can busi nessmen who
have done wel l i n busi ness wi th Chi na wi l l come up wi th l arge
donati ons for an Ameri can thi nk tank desi gned on terms that wi l l gi ve
ful l wei ght to the Chi nese government poi nt of vi ew.
That's a very l ogi cal pattern for the Ameri can busi nessman and a
very typi cal way i n whi ch the Chi nese government woul d l i ke to
cooperate because they are not techni cal l y i nvol ved wi th the thi nk tank
themsel ves.
COMMI SSI ONER FI EDLER: Wel l , that buys somebody the
characteri zati on, one, ei ther of fri end, good fri end or great fri end;
ri ght?
Commi ssi oner Wortzel .
VI CE CHAI RMAN WORTZEL: I want to thank the three of you
for bei ng here and for your testi mony.
Dr. Anderson, I 'd be i nterested i n any di scussi on or l i ght you
coul d shed on soverei gn weal th funds and thei r rel ati onshi p wi th other
government-l i nked, whether i t's Hong Kong or offshore banks and
funds, and any coordi nati on between these other enti ti es that seem
pri vate and the soverei gn weal th funds and thei r acti vi ti es.
96

For Dr. Terri l l , i s the Chi nese Embassy or the consul ates acti ve
i n stayi ng i n touch wi th students on campuses, and i f any of you are
aware of i t, how are they usi ng these new Confuci us I nsti tutes to
i nfl uence what i s goi ng on?
Dr. Newmyer, or any others of you, Commi ssi oner Fi edl er tal ked
about i nvestments i n thi nk tanks and uni versi ti es. We know, for
i nstance, that the Uni versi ty of Georgi a's Nonprol i ferati on I nsti tute's
operati ons i n Chi na are ful l y funded by a Chi nese government
organi zati on, but, for i nstance, the CSI S sponsors, has a strategi c
partnershi p wi th an enti ty that bel ongs to the Mi ni stry of State
Securi ty, and they sponsor a resonant fel l ow from that i nsti tuti on.
Brooki ngs has a strategi c partnershi p wi th a Chi nese i ntel l i gence
communi ty-control l ed organi zati on. Carnegi e has a strategi c
partnershi p. To my knowl edge, Heri tage, AEI , and Cato may be the
onl y thi nk tanks i n Washi ngton that don't have those. But how do
these strategi c partnershi ps i nhi bi t obj ecti ve wri ti ng or do that?
DR. ANDERSON: I 'l l open wi th the soverei gn weal th fund. I n
the trai nee si tuati on, you have ki nd of an i nteresti ng probl em because
there's cl earl y a bureaucrati c battl e taki ng pl ace over who gets to
manage a maj ori ty of the forei gn exchange reserve.
The soverei gn weal th fund, the CI C, was carved out of those
reserves and then set up as a separate organi zati on that took over for
Central Hui j i n. Central Hui j i n was runni ng essenti al l y reorgani zati on
of the Chi nese non-performi ng l oan probl em.
The soverei gn weal th fund rel ati onshi p between those two are
such that the Chi nese soverei gn weal th fund now owns Central Hui j i n
and owns the shares wi thi n the Chi nese banks that have been publ i cl y
l i sted, a profi tabl e venture, by the way. Thi s was actual l y an astute
busi ness move on thei r behal f.
The probl em that we have i n breaki ng out between where the
i nvestments are taki ng pl ace i n a soverei gn weal th fund, the decl ared
soverei gn weal th fund, and other i nsti tuti ons wi thi n Chi na i s the
acti vi ty that we see resi dent wi thi n SAFE, the State Admi ni strati on for
Forei gn Exchange.
They apparentl y have deci ded that they're not goi ng to render up
al l of the abi l i ty to go i nvest outsi de of the country, and so they
al most di rectl y compete wi th the Chi na I nvestment Corporati on, and
you can see, and i t comes across occasi onal l y i n reporti ng, the debate
that's taki ng pl ace as to who gets to ul ti matel y own al l of thi s, and one
gets the feel i ng that SAFE i s goi ng to eventual l y try to reach back
down and put CI C back underneath thei r auspi ces. I suspect that that
wi l l eventual l y happen.
Y our questi on concerni ng the rel ati onshi ps on offshore
i nvestment, thi s i s a real probl em area for Wal l Street, i n parti cul ar.
97

The Chi nese I nvestment Corporati on, for i nstance, i n pl aci ng $4
bi l l i on wi thi n J C Fl owers put that money i nto essenti al l y a hedge fund,
i f you wi l l , a trust that goes and i nvests for them.
They have tol d Fl owers and company that they have no i nterest
i n managi ng the corporati on, and that they onl y expect a return, that
they're not goi ng to exerci se i nfl uence.
I woul d tel l you that there was a precedent that took pl ace
yesterday that every soverei gn weal th fund manager i s goi ng to noti ce
across the pl anet, and that was the deci si on by Cal pers to vote agai nst
retenti on of the Bank of Ameri ca di rectorate, al l 18 members of the
Bank of Di rectorate. Cal pers, for any organi zati on outsi de thi s
country, i s consi dered to be an Ameri can soverei gn weal th fund, and
thei r deci si on to di rectl y i nput on the Board of Di rectors' vote wi l l
probabl y be exerci sed now by other organi zati ons.
The Norwegi ans al ready proceeded down that path. I suspect the
Chi nese wi l l fol l ow sui t eventual l y. They wi l l tel l you i t's j ust good
fi nanci al management. Y ou're l ooki ng out for your i nvestors' concerns
so that's what they're goi ng to do.
The bi gger probl em on tracki ng Chi nese i nvestment wi thi n thi s
country i s somethi ng cal l ed "dark pool s." And that i s the si tuati on on
Wal l Street whereby trades are matched up vi a computer systems that
are not publ i cl y announced someti mes for 24 to 36 hours after they
transpi re.
Fi ve years ago about fi ve percent of the busi ness on the street
was done usi ng dark pool s. The most recent esti mate I saw was
somewhere around 40 percent, and there i s an esti mate that that wi l l
conti nue to i ncrease because i t's very effi ci ent. I t's an effecti ve way
to do busi ness, and i t matches up l arge swaps of money wi th l arge
avai l abl e stocks, i f you wi l l . We don't know--
HEARI NG COCHAI R REI NSCH: Let me i nterrupt for a second.
We're runni ng out of ti me here, and I want to make sure that al l
commi ssi oners have a chance to have thei r questi ons answered.
Can we, maybe you can have a si debar on that? Y ou asked a
second questi on; di d you not?
COMMI SSI ONER BARTHOLOMEW: I 'm actual l y next on
questi oni ng, and I 'm goi ng to defer that chance and l et the wi tnesses
answer Larry's second set of questi ons under my ti me.
HEARI NG COCHAI R REI NSCH: Can we go then to your second
questi on and we'l l come back to Dr. Anderson l ater?
VI CE CHAI RMAN WORTZEL: Al l ri ght. My second questi on
was for Dr. Terri l l on the Chi nese Embassy and how i t operates on
campus?
And the thi rd was for Dr. Newmyer pri nci pal l y on how strategi c
partnershi ps affect operati ons.
98

DR. TERRI LL: Wel l , the Chi nese Embassy--
COMMI SSI ONER BARTHOLOMEW: Excuse me, Dr. Terri l l . I
j ust want to add one other i ssue i nto that mi x, and that i s al though I
was thi nki ng about i t i n the context of deni al of vi sas, Dr. Newmyer,
you were menti oni ng about access to research materi al s. How i s that
on campus? How i s i t bei ng percei ved on campus as peopl e are ei ther
getti ng access to thi ngs or bei ng deni ed access to thi ngs?
I s i t i ndeed creati ng a competi ti ve di sadvantage for certai n
categori es of graduate students as they move forward i n thei r careers?
I thi nk i t i s al l part of the same thi ng.
Dr. Terri l l .
DR. TERRI LL: I t's more of a probl em for the younger ones
because they have thei r whol e careers ahead. I t's more of a cat and
mouse game wi th the ol der ones because after awhi l e, the Chi nese
government woul d l ook very stupi d, for i nstance, to make a fuss over
me comi ng i nto the country; they woul d probabl y end up l osi ng more
than they coul d gai n.
But thei r i nfl uence over what graduate students here wi l l choose
as thei r topi cs can be consi derabl e on the archi ve questi on.
Y es, the Chi nese Embassy and consul ates do keep i n very cl ose
touch wi th the students. A l ot of i t i s beni gn, j ust l i ke the French
consul ate i n Boston keeps i n touch wi th students from Pari s. Where i t
becomes probl emati c i s what happened wi th the Ol ympi c Torch i n San
Franci sco, that the Chi nese students are mobi l i zed by the consul ate to
i nterfere wi th the Ameri cans who are sayi ng thi ngs, i n our normal ki nd
of fashi on, i n the streets, about an i ssue and the Chi nese grab the
posters from them and stop them.
So i t's as i f i n '99 wi th the acci dental bombi ng of the Embassy i n
Bel grade or i n '01 wi th the EP-3 i nci dent, when the Chi nese converged
on the Ameri can Embassy i n Bei j i ng, i t's as i f the Bei j i ng Embassy got
the Ameri cans from every provi nce i n Chi na to come and combat the
Chi nese protest. Y ou know, we don't do thi ngs l i ke that.
They do do thi ngs that way. The Confuci us I nsti tutes are very
much i n evol uti on and money i s goi ng to be the key. J ust very
recentl y, the l ast coupl e weeks, i n Bri tai n, the Chi nese deci ded they
woul d pay the ful l sal ary of the co-di rector, not j ust the London
I nsti tute payi ng hal f and Chi na the ful l . So thi s i s goi ng to be the
typi cal chal l enge we have to face.
The extra money i n Chi nese pockets i s good i n that they don't
have to do some of the PR work they used to do i n a very cl umsy way.
But the extra money al so means that there wi l l be new modes for thei r
work.
HEARI NG COCHAI R REI NSCH: We sti l l have not gotten to
Larry's questi on about the thi nk tanks. Coul d we do that?
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DR. NEWMY ER: Coul d I j ust qui ckl y tackl e that? Y es. I thi nk
that the answer i s the effect of these partnershi ps between thi nk tanks
l i ke Carnegi e and Brooki ngs i s huge i n terms of the way i t sets the
research agenda for the thi nk tanks and the thi ngs they tal k about and
don't tal k about, and I thi nk the fact that there i s no rel ati onshi p that I
know of wi th AEI i s not for l ack of Chi nese efforts.
And the same wi th the Harvard Kennedy School and, i n fact,
there are ti es. But I thi nk the i nteresti ng thi ng i s we're onl y havi ng,
the Commi ssi on i s onl y havi ng thi s heari ng on Chi nese i nfl uence
operati ons now and there are very few books about these words that
come up al l the ti me i n Chi nese wri ti ngs, publ i c rel ati ons strategy,
war, i nformati zati on war, not i n the mi l i tary real m, but i n the
di pl omacy real m.
The fact that Zheng Bi j i an, thi s guy who came up wi th the term
"peaceful ri se," there's a Chi na Quarterl y arti cl e about the term and i ts
change to "peaceful devel opment" that doesn't even menti on that he's a
propaganda offi ci al from the 1960s. He's been a propaganda offi ci al .
We never hear that a l ot of the i nsti tuti ons i n Chi na that we tal k
about as thi nk tanks are actual l y part of the Mi ni stry of State Securi ty,
whi ch i s responsi bl e for counteri ntel l i gence. I t i s the hi ghest l evel s of
the pol i ti cal mi l i tary el i te i n Chi na, and we tal k about i t l i ke i t's
Brooki ngs.
So I thi nk that the i mpact i s huge of these rel ati onshi ps and
connecti ons, and Ameri cans are by nature tryi ng to be democrati c and
conci l i atory and engagi ng, and so there are j ust thi ngs that we don't
tal k about because i t's not pol i te.
And then the other i nteresti ng thi ng I thi nk about the Chi nese
students on campus i s the way that i t may be the case that i nstead of
becomi ng more open by exposure to the U.S., thei r nati onal i sm i s
bei ng fuel ed. Thi s has been my experi ence from anecdotal l y al l the
Chi nese students that I 've tal ked to at Harvard, around Harvard. I f you
hang out at Harvard these days, you hear that Ameri ca i s i n decl i ne,
that maybe that's a good thi ng, that i t's fi ne for there to be a di fferent
ki nd of mul ti pol ar worl d.
I f you're a Chi nese student at Harvard, you hear that, and you
come from Chi na and you're proud, and I thi nk some of your
nati onal i sm gets rei nforced. I t's not that the experi ence makes you
more open to the West and freedom. I t makes you more proud of bei ng
Chi nese and more convi nced that Chi na has a certai n pl ace i n the
worl d that i t shoul d occupy soon.
HEARI NG COCHAI R REI NSCH: Does thi s mean we shoul d be
i nvesti gati ng Harvard? I s that what you're suggesti ng?
DR. NEWMY ER: I t's not j ust Harvard. I j ust happen to l i ve i n
Cambri dge, but I thi nk thi s i s a general academi c phenomenon.
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HEARI NG COCHAI R REI NSCH: I see. I suspect some of my
col l eagues mi ght want to do that, but anyway Commi ssi oner Mul l oy.
COMMI SSI ONER FI EDLER: I t's a waste of ti me.
COMMI SSI ONER MULLOY : Thank you, Mr. Chai rman.
I remember readi ng a book--I thi nk i t was by J i m Mann. Mr.
Mann was our correspondent for Los Angel es Ti mes i n Shanghai for a
number of years. He's wri tten a number of i nteresti ng books, but thi s
one, I thi nk was cal l ed the The Chi na Paradox.
DR. NEWMY ER: Fant asy.
COMMI SSI ONER BARTHOLOMEW: Chi na Fant asy.
COMMI SSI ONER MULLOY : Chi na Fant asy. I remember
readi ng that when I went to hear hi m speak, he descri bed Washi ngton
thi nk tanks as I thi nk somethi ng l i ke pecul i ar i nsti tuti ons that seem to
refl ect the vi ews of those who pay them.
So when I was readi ng Dr. Terri l l 's testi mony, and he was
tal ki ng about weal thy Ameri cans who made a l ot of money i n Chi na
putti ng money i nto a number of thi nk tanks, and then he says further
that two Chi nese compani es--I presume these Chi nese compani es are
government-owned compani es or government control l ed--have started
maki ng heal thy donati ons to thi nk tanks i n Western soci eti es.
So the i ssues that we're tal ki ng about I thi nk are pretty i mportant
because i f these thi nk tanks are hel pi ng shape publ i c pol i cy i n the
Uni ted States, we at l east ought to know somethi ng about the
connecti ons and the type of vi ews of whoever i s payi ng them l i kes
espoused.
Dr. Terri l l , do you want to respond, and then Dr. Newmyer.
DR. TERRI LL: I 'l l start wi th one poi nt. The way to ni p thi s i n
the bud i s to have a l ook at the agenda for the semi nars and
conferences that come out of thi s thi nk tank. Now, we may have--we
have had conferences where you have someone from the NPC i n Chi na,
the Nati onal Peopl e's Congress, and then someone from the Congress
here.
Wel l , the NPC i s not a l egi ti mate parl i ament. No one has el ected
these peopl e, but i t l ooks as i f you're havi ng someone from the
Ameri can si de and someone from the equi val ent functi on on the
Chi nese si de. That's what's goi ng to happen i f the money i s comi ng i n
one way or another from the Chi nese si de, and you have these murky
peopl e as sponsors and parti ci pants. Dr. Newmyer has gi ven exampl es
of peopl e who, i t's not known are they from the Chi nese mi l i tary or
where are they from?
And i n Ameri ca at a conference, i t's pretty transparent who are
these peopl e; they have thei r reputati ons. Somethi ng di fferent i s goi ng
to happen i f the money comes i nto thi nk tanks from the Chi nese si de.
COMMI SSI ONER MULLOY : Do you have anythi ng you want to
101

say, Dr. Newmyer? There's j ust one fol l ow-up. Then, I want to ask Dr.
Anderson.
I n your page ten of your testi mony, you're tal ki ng about the
Chi nese i nvestments i n Ameri ca and they've got al l thi s money. As
we've tracked through the years, of course, they've got a l ot of thi s
money by very mercanti l i st trade pol i ci es i ncl udi ng under pri ci ng thei r
currency, whi ch they then get the dol l ars that they get by runni ng a
huge trade surpl us and rei nvest i t back i n our Treasurys, whi ch we di d
a heari ng on i n February, and there's some suggesti on that that
contri buted to the current gl obal fi nanci al cri si s.
So what I was struck by, and I know many members of Congress,
i ncl udi ng Presi dent Obama when he was a member, cosponsored
l egi sl ati on to say that the underpri ced Chi nese currency i s an export
subsi dy, and Chi nese commentators al l woul d say that's protecti oni st
l egi sl ati on.
So I was very i nterested that you tal k about there's a worry about
protecti oni st l egi sl ati on, and I j ust wondered what are you tal ki ng
about, and what woul d be protecti oni st i n your mi nd? Woul d that ki nd
of l egi sl ati on be protecti oni st? I s there somethi ng el se you have i n
mi nd?
DR. ANDERSON: From the Chi nese perspecti ve, the bi ggest
concern i s a restri cti on on thei r abi l i ty to i nvest wi thi n thi s country
and speci fi cal l y a restri cti on that l i mi ts a government enti ty i nvesti ng
wi thi n thi s country. They woul d cal l that protecti oni st l egi sl ati on.
Y our questi on on the currency val uati on, I can tel l you that the
Chi nese response i s twofol d. One, they go back to the Bretton Woods
agreement, that they say i f you l ook at the underl yi ng pri nci pl es i n
Bretton Woods, i t was the i dea that the core supported the peri phery
and devel opment wi thi n the peri phery, and that's what they conti nued
wi th, as far as they're concerned, what they di d wi th thei r devel opment
process.
And then they pi ck up thei r pi eces, and thi s i s somethi ng that's
goi ng to be thrown i n our face repeatedl y now, and they poi nt to the
deci si on that was made duri ng the '97-98 Asi an fi nanci al cri si s where
the Chi nese chose not to deval ue thei r currency and thereby fi nal l y put
a stop to what was goi ng to be runaway deval uati on of al l the Asi an
currenci es.
And they took i t i n the shorts, qui te frankl y. They pai d much
hi gher pri ces for the i mports that were requi red i n order to run thei r
factori es, so that i n the short-term they coul d, at our behest, by the
way, hel p mai ntai n the val ue of the Asi an currenci es and restabi l i ze
that marketpl ace.
They're now l ooki ng at us i n bewi l derment and sayi ng here's
what we have done, and, yes, we mai ntai n the stri ct control over our
102

currency, but, one, i t's to prevent i nfl ati on i n our own country; two,
we have al l owed a fl oat. They've al l owed about a 20 percent fl oat, i f I
remember, over the l ast year i n the val ue of that currency. And they're
goi ng to mai ntai n stri ct control on i t because what they're tel l i ng us
over and over agai n i s that when requi red, we behave l i ke a
responsi bl e i nternati onal pl ayer, and now we're l ooki ng at you and
we're l ooki ng at the way that you regul ated your economy and tel l i ng
you i t di dn't work there and so why shoul d we fol l ow i n your model ?
And so we have a probl em on our hands.
HEARI NG COCHAI R REI NSCH: Commi ssi oner Sl ane.
COMMI SSI ONER SLANE: Thank you.
Dr. Anderson, I j ust wanted to fol l ow up on a questi on that
Commi ssi oner Wortzel asked you. I t's hard for me to bel i eve that when
the i nterest bi l l comes due on the sti mul us next year, that we're not
goi ng to see si gni fi cant i nfl ati on i n our country. I t seems l i ke the
warni ng si gns that you tal ked about i ndi cate that the Chi nese are goi ng
to start shi fti ng some of thei r i nvestment i nto the EU.
Can you tal k about that and the effect that i t wi l l have on our
economy?
DR. ANDERSON: I have, I thi nk, what some peopl e woul d cal l
the mi sfortune of spendi ng a l ot of ti me tal ki ng to Nouri el Roubi ni ,
"Dr. Doom." And I al so moonl i ght as an economi st so you can throw
bri cks at me.
The basi c probl em we have i n thi s country i s that I thi nk i n some
senses we've forgotten that money i s a commodi ty and that there i s
onl y a certai n amount of i t avai l abl e, and we have tremendous
competi ti on for access to that commodi ty. The l argest competi tor
these days i s the U.S. government, and the U.S. government i s tryi ng
to sti mul ate consumer spendi ng.
I n order for the U.S. government to conti nue down that path
wi thout creati ng tremendous i nfl ati on, we have to get somebody to buy
our Treasury notes. Okay. That somebody has been the Chi nese and
the J apanese pri mari l y. We don't have the domesti c savi ngs to do that.
Shoul d our Treasury notes be no l onger of i nterest to outsi de
consumers, to the Chi nese, to anybody el se si tti ng off our shores, the
cost of borrowi ng i n thi s country i s goi ng to i ncrease. The
conservati ve model s wi l l tel l you that the cost of that i ncrease wi l l be
somewhere around 50 basi s poi nts. So i nstead of si x percent, you'l l
pay 6.5 percent for a l oan.
The gri mmer model s that start to l ook at what's comi ng start at
150 basi s poi nts, and probabl y the most popul ar ri ght now wi th the
economi cs communi ty are 300 basi s poi nts.
So i f you're l ooki ng at a sti mul us package that has to survi ve
over ti me, you need one that does not cause the cost of borrowi ng i n
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thi s country to go from si x percent for an auto l oan to ni ne percent
because now you're goi ng to have the same probl em we have today.
Consumers wi l l not spend when they start l ooki ng at that ki nd of cost.
That's the consequence of the Chi nese pul l i ng out of our
economy i f they bel i eve that i t i s not a stabl e pl ace to pl ace thei r
currency.
DR. NEWMY ER: Can I j ust fol l ow up because I thi nk we're
equal l y pol i ti cal sci ence Ph.D.s and therefore equal l y economi sts on
thi s panel ?
I actual l y thi nk that for the Chi nese, as l ong as thei r reserves are
as bi g as they are, thei r reserve hol di ngs, there aren't that many
opti ons for them other than U.S. Treasuri es. And they've tri ed to
di versi fy a l i ttl e and they've moved i nto commodi ti es, and i t's possi bl e
that as thei r exports go down, the si ze of thei r surpl us wi l l go down,
al though they've al so cut back thei r i mports. So they're sti l l runni ng
bi g surpl uses.
And they can't real l y shi ft to the EU. As l ong as they want to
try to keep thei r currency l ow by buyi ng somethi ng, by steri l i zi ng thei r
surpl uses, they can't real l y shi ft to the EU because then they're ki nd of
hostage to, for i nstance, the I tal i an government's current fi nanci al
pol i ci es. I mean there's no equi val ent of the dol l ar i n the EU.
Pol i ci es are hostage to or determi ned by the i ndi vi dual member
states. So the Chi nese actual l y, I don't thi nk we have to be so
nervous. I thi nk thi s i s a l i ttl e bi t of a red herri ng, and I thi nk we,
maybe you're tal ki ng about i t too much, thi s i dea that there's a bi g
threat-- the mutual l y fi nanci al l y assured destructi on-- hangi ng over us.
I f they move out of the U.S. Treasuri es, they don't have any other
opti ons at thi s poi nt.
DR. ANDERSON: I woul d have agreed wi th that statement ri ght
up unti l the poi nt where we al l agreed that the I MF needed to have a
tri l l i on dol l ar fund avai l abl e for l oani ng out to other countri es and
suddenl y you have di rect competi ti on to U.S. Treasury notes.
DR. TERRI LL: My Chi nese fri ends gi ve another reason why
they're not goi ng to sel l thei r Treasuri es--because the dol l ar woul d go
down and the val ue of thei r Chi nese exporti ng to the Uni ted States,
whi ch i s cruci al to thei r economy, woul d col l apse around them.
I t's not wi thout i nterest that i n l ast October, whi ch I spent i n
Shanghai , the heads of two of Chi na's top four banks sai d words to the
effect that Ameri can economi c strength i s good for Chi na.
And there's a bi g gap between the students at Harvard or
Berkel ey, who are i nfl uenced by thei r Ameri can professors on
Ameri can decl i ne, and the vi ews i n the Chi nese Communi st Party. The
Chi nese Communi st Party nei ther wants nor bel i eves i n Ameri can
decl i ne.
104

HEARI NG COCHAI R REI NSCH: Commi ssi oner Cl evel and.
COMMI SSI ONER CLEVELAND: I thi nk Professor Newmyer's
comments were probabl y most consi stent wi th mi ne i n terms of
bel i evi ng that there are not a l ot of other opti ons, but I 'd l i ke, i f
possi bl e, Mr. Anderson, i f you woul d cl ari fy or expand upon where
you thi nk the Chi nese actual l y coul d go. And a tri l l i on dol l ars at the
I MF, as we al l know, i s not actual l y real money; i t's cal l abl e capi tal .
And so i t doesn't di rectl y compete wi th U.S. Treasuri es i n the short
term.
I t may affect the governance agenda at these i nsti tuti ons and
some of the pol i ci es that the i nsti tuti ons pursue, but i t's not di rect
competi ti on for U.S. Treasuri es. So i f you'd l i ke to add to your
comments about what the al ternati ves are i n terms of where the
Chi nese mi ght i nvest and, Dr. Newmyer, and Dr. Anderson, i f you
coul d speak to that as wel l .
DR. ANDERSON: Sure. I 'l l respectful l y di sagree wi th you,
ma'am. The probl em that we're runni ng i nto, and i t's now started to
recei ve coverage wi thi n the Ameri can fi nanci al press, i s the fact that
the I MF fund i s goi ng to pay an i nterest rate. I t's a bond i ssuance i n
order to fund that. And because i t's a bond i ssuance, there wi l l be
i nterest that's associ ated.
And as somebody tol d me, al l you have to do i s pay 50 basi s
poi nts above what the U.S. Treasury notes are offeri ng, and when
you're l ooki ng at $40 bi l l i on i nvestments, peopl e wi l l be i nterested i n
movi ng thei r money el sewhere. So there i s an opti on there.
The Chi nese as--and sort of the i ndi cator that I use for peopl e on
where the Chi nese may be movi ng thei r money otherwi se i s to fol l ow
the soverei gn weal th fund i nvestments and where they actual l y have
opportuni ti es to go i nto forei gn countri es and i nvest.
The parti cul ar case i n poi nt that I l i ke to l ook at i s where the
Norwegi ans have been wel comed, and the Norwegi ans have the most
opaque or the most transparent fund si tti ng out there. The Norwegi ans
now own--one of my fri ends wi l l tel l me--fi ve percent of
approxi matel y every maj or corporati on wi thi n Europe. So i t's not a
focused i nvestment wi thi n a parti cul ar country; i t's spreadi ng your
weal th out amongst a l arge number of other opportuni ti es that are
avai l abl e.
COMMI SSI ONER CLEVELAND: But cl ari fy what that means.
Fi ve percent of a l ot of compani es sounds l i ke a si gni fi cant i ssue.
What does i t actual l y mean i n terms of dol l ars gi ven the si ze of the
reserves the Chi nese are si tti ng on perhaps? I t's mi sl eadi ng to suggest
that fi ve percent i s--wel l , go ahead. Sorry.
DR. ANDERSON: Okay. No, no, no. I use two exampl es when
I 'm tryi ng to expl ai n thi s, and one of them i s to l ook at where the
105

Si ngaporeans have i nvested thei r funds over the l ast fi ve years now.
There's a di sti nct i nvestment trend there.
The Si ngaporeans are not buyi ng Treasury notes, by the way,
nor, by the way, are the Norwegi ans. They're goi ng the opposi te
di recti on. They've taken thei r $300 bi l l i on forei gn, thei r $300 bi l l i on
soverei gn weal th fund and used i t to i nvest anywhere but U.S.
Treasury notes essenti al l y, and they coul d i f they so choose. So coul d
the Si ngaporeans.
To use the model s that are avai l abl e from Harvard and Y al e i n
thei r endowment funds, i t's a di vestment, and you di vest as far as you
can, and so the concern becomes what other opti ons are avai l abl e at
the ti me? So we're now l ooki ng at a Chi nese i nterest i n, for i nstance,
real estate i n thi s country, whi ch has drawn si gni fi cant i nterest when
you can pay 40 cents on the dol l ar.
We're l ooki ng at si gni fi cant Chi nese i nterest i n purchasi ng
commodi ti es of al l vari eti es, not j ust copper. We're al so l ooki ng at the
acqui si ti on of oi l ri ghts.
So there's an i nterest i n spendi ng that money el sewhere that i s
useful for Chi na's l ong-term devel opment, and as you take funds away
from us, i t's not goi ng to happen overni ght. I t's not one of these
thi ngs where I 'm tel l i ng you that tomorrow morni ng, the i nterest rates
are goi ng to go through the cei l i ng.
What I 'm tel l i ng you i s that those i nterest rates are goi ng to start
goi ng up over a l onger ti me peri od as those funds move el sewhere.
COMMI SSI ONER CLEVELAND: But you j ust i denti fi ed two
sources where they're movi ng that are both U.S.--I mean for better or
for worse--both U.S. opportuni ti es i n terms of U.S. real estate and --
DR. ANDERSON: What they're not doi ng i s putti ng the money
i nto our Treasury notes. That's the probl em. By acqui ri ng real estate,
you're not putti ng that money back i nto the government's hands to
make i t avai l abl e to avoi d the i ncreased cost of i nterest.
COMMI SSI ONER CLEVELAND: Some of us vi ew capi tal i sm as
a posi ti ve thi ng, but--
DR. NEWMY ER: J ust qui ckl y, yes, they have a l ot of cash and
they need to fi gure out how to keep i t growi ng, but they al so have a
huge probl em. Thei r sti mul us package was a bi gger share of thei r GDP
than ours was, and i t's l i kel y to be l ess effi ci ent and l ess successful
because i t was al l ocated to state-owned enterpri ses and road
constructi on and i nfrastructure proj ects whi ch provi de temporary
empl oyment, but they're not a source of growth and i nvestment goi ng
forward i nto the future.
What the economi sts prescri be for them i s a much more robust
domesti c consumpti on economy, whi ch they can't swi tch to overni ght
even i f they wanted to. I t's not cl ear to me that they want to because
106

i t woul d mean a si gni fi cant l oss of control for the Party whi ch has a
l ot of resources at i ts di sposal i n the center ri ght now, and to have a
robust domesti c economy woul d i nvol ve a much more i ndependent
banki ng i nfrastructure, rul e of l aw for contracts, etc.
Thei r growth so far has l everaged Western rul e of l aw because
i t's been export l ed, but to have a robust domesti c economy that woul d
i nsul ate them from thi s ki nd of downturn, they woul d need to change a
l ot, and i t's not cl ear that they can or want to.
DR. ANDERSON: I f I coul d for a mi nute. A comment on the
Chi nese sti mul us package because--
HEARI NG COCHAI R REI NSCH: A bri ef comment, pl ease.
DR. ANDERSON: Y es, si r. We've seen a l ot of popul ar medi a
comment i n thi s country on thi s. I 'l l gi ve you the source I thi nk i s
rel ati vel y rel i abl e i n the worl d of capi tal i sm. The Wal l Street J ournal
bel i eves that the Chi nese sti mul us proj ect was the most effecti ve
passed to date, and i n that sti mul us package, we have movement
avai l abl e that pushes them towards the consumer economy whi ch i s
real l y what we want them to do, and i t's i n a number of pl aces, not j ust
i nfrastructure devel opment, but al so i n the heal th care programs and
reti rement programs, and i n the educati on i nvestments.
HEARI NG COCHAI R REI NSCH: Commi ssi oner Barthol omew i s
goi ng to have the l ast word.
COMMI SSI ONER BARTHOLOMEW: J ust to say that i t's a very
i nteresti ng di scussi on, but to ti e i t di rectl y back i nto the topi c at hand
that we have been deal i ng wi th, what stri kes me i s that there's a debate
about the real i ty of the threat. I n some ways, that's besi de the poi nt.
One of the questi ons to my mi nd i s that the l everage that the
Chi nese government gets from the percepti on that they mi ght i ndeed
make fi nanci al deci si ons that coul d have an i mpact, that we are seei ng
cases where the Uni ted States government i s not taki ng acti on on
thi ngs that mi ght be i n the U.S. i nterest because they are concerned
that the Chi nese mi ght deci de that they no l onger want to buy our debt.
So the percepti on of how they're usi ng that and the l everage that
they're getti ng out of that i s, I thi nk, a cri ti cal l y i mportant pi ece of
how we deal wi th thi s gl obal fi nanci al cri si s.
DR. TERRI LL: That's true, Commi ssi oner, but doesn't i t al so
i l l ustrate that we now are i n a certai n i nterdependence wi th the
Chi nese?
For i nstance, they coul d say, What i f Ameri cans stopped goi ng
i nto Wal -Mart and buyi ng those photo al bums and those shoes? Y ou
and I know that's not goi ng to happen here because the pri ce i s good,
the qual i ty i s reasonabl e, and Ameri cans, short of some maj or cri si s i n
the worl d wi th Chi na, are not goi ng to stop buyi ng those thi ngs.
I thi nk we're i n thi s i nterdependence wi th the Treasuri es on thei r
107

si de, wi th thei r products i n our stores on our si de, and I take some
heart from thi s because there are good si des to the i nterdependence,
too.
COMMI SSI ONER BARTHOLOMEW: Dr. Terri l l , I thi nk you're
absol utel y ri ght on that i nterdependence, and i t's i nteresti ng that as
Ameri cans i ndeed di d stop buyi ng, al though they have not compl etel y
stopped buyi ng at pl aces l i ke Wal -Mart, that producti on i n Chi na has
shut down i n a number of pl aces. I thi nk i t demonstrated somethi ng
that some of us started tal ki ng about ten or 15 years ago, that as
Ameri cans were l osi ng j obs because they were l osi ng manufacturi ng
j obs overseas, thei r abi l i ty to purchase was goi ng to be di mi ni shed. So
there i s an i nterdependency i n al l of that.
HEARI NG COCHAI R REI NSCH: Let me thank the panel for a
very i nteresti ng and enl i ghteni ng and occasi onal l y heated conversati on
whi ch has been very useful to us. We appreci ate your ti me wi th us and
thank you very much.
We're now goi ng to recess unti l 1:15 when we'l l begi n wi th the
fi nal two panel s for the day.
[Whereupon, at 12:20 p.m., the heari ng recessed, to reconvene at
1:20 p.m., thi s same day.]

A F T E R N O O N S E S S I O N

PANEL III: CHINA S ESPIONAGE AND INTELLIGENCE
OPERATIONS DIRECTED AT THE UNITED STATES

HEARI NG COCHAI R BROOKES: Good afternoon. Wel come or
wel come back. We're goi ng to commence the thi rd panel now as soon
as I fi nd the bi ographi es.
J oi ni ng us for today's thi rd panel on "Chi na's Espi onage and
I ntel l i gence Operati ons Di rected at the Uni ted States" i s Mr. I .C.
Smi th and Dr. J ames Mul venon.
Mr. Smi th j oi ned the FBI i n 1973 and served as a Speci al Agent
unti l 1998. Duri ng thi s ti me, he saw assi gnments i n St. Loui s,
Washi ngton, D.C., Mi ami and Li ttl e Rock. He al so served as Legal
Attach i n Canberra, Austral i a wi th responsi bi l i ty for i ndependent
nati ons of the South Paci fi c.
He was al so posted to the State Department as Chi ef of
I nvesti gati ons, Counteri ntel l i gence Programs. Duri ng the course of hi s
career, he was i nvol ved wi th a number of hi gh profi l e espi onage cases,
i ncl udi ng those of Larry Wu Tai Chi n and Katri na Leung.
108

Al so j oi ni ng Mr. Smi th on the panel i s J ames Mul venon, no
stranger to our commi ttee. He i s the Vi ce Presi dent of Defense Group,
I ncorporated's I ntel l i gence Di vi si on and Di rector of i ts Center for
I ntel l i gence Research and Anal ysi s.
A speci al i st on Chi nese nati onal securi ty i ssues, Dr. Mul venon's
research focuses on Chi nese mi l i tary devel opment, defense research
and devel opment organi zati ons and pol i ci es; strategi c weapons
programs; and the mi l i tary and ci vi l i an i mpl i cati ons of the i nformati on
revol uti on i n Chi na.
Thank you both for j oi ni ng us today. I f you woul d, si nce we
have your wri tten statements, whi ch wi l l be submi tted i n ful l i nto the
record, i f you coul d keep your comments to seven to ten mi nutes, i t
wi l l al l ow us the maxi mum ti me for questi ons and answers.
Mr. Smi th, i f you woul d l i ke to proceed.

STATEMENT OF MR. I. C. SMITH
SPECIAL AGENT ( RETIRED) , FEDERAL BUREAU OF
INVESTIGATION, WASHINGTON, DC

MR. SMI TH: Thank you, Commi ssi oner.
Let me begi n by stati ng the obvi ous. The Peopl e's Republ i c of
Chi na i s nei ther the peopl e's nor i s i t a republ i c. The PRC i s an
oppressi ve, total i tari an pol i ce state that's governed by the Communi st
Party that al l ows l ess than fi ve percent of i ts popul ati on to become
members. The Chi nese Communi st Party has, i n effect, become the
new royal ty whose pri mary goal i s to retai n power.
As a growi ng awareness of the threat posed by Chi na gai ns, wel l ,
hopeful l y, some momentum, I suspect that even thi s Commi ssi on i s
di vi ded as to where the maj or emphasi s of our attenti on shoul d be.
There i s, of course, the pervasi ve vi ol ati on of human ri ghts and
ci vi l l i berti es of i ts own peopl e. There's the oppressi ve occupati on of
Ti bet. There are the repeated vi ol ati ons of copyri ght and other trade
and economi c rel ated matters. Then there i s the dai l y del uge of cyber
attacks targeti ng the i nfrastructure of our nati onal securi ty.
The Chi nese make pol i ti cal mi schi ef for our nati on at every
opportuni ty, and there i s a massi ve attempt to obtai n by any means thi s
nati on's technol ogy. Regardl ess of one's emphasi s, there i s enough
reason for worry that there shoul d be concern for al l of us. There i s
no doubt the Chi nese vi ew the Uni ted States as i ts number one
adversary. The total i ty of the threat by the Chi nese i s the greatest
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threat to our nati onal securi ty that we face today.
Now from the standpoi nt of thi s panel 's porti on of the heari ngs,
we shoul d note that never has thi s country faced such massi ve attacks
on vi rtual l y al l fronts from a si ngl e country as we see from Chi na ri ght
now.
But from the standpoi nt of the human aspects of that effort,
there's a cl ear di sti ncti on between past and present adversari es. That
i s the Chi nese al most total dependence of those of a l i ke ethni ci ty to
accompl i sh thei r goal s. Further, not al l Chi nese spi es steal technol ogy
and not al l restri cted technol ogy acqui red by the PRC i s stol en by
i ntel l i gence offi cers.
I ndeed, i f one l ooked at those i nvesti gati ons that have been i n
the publ i c eye, the two most promi nent cases where there i s l i ttl e
doubt there was a PRC i ntel l i gence servi ce presence, and that woul d be
the Larry Wu Tai Chi n and Katri na Leung matters, nei ther of those
cases i nvol ved the acqui si ti on of technol ogy.
Conversel y, i f one l ooks at a number of other hi gh profi l e
i nvesti gati ons such as Wen Ho Lee, Peter Lee, Mi n Guo Bao, whi ch
i nvol ved hi ghl y cl assi fi ed technol ogi es, there i s no apparent PRC
i ntel l i gence servi ce presence, and thi s even appl i es to Chi Mak, where
the government and medi a asserti ons that he was a l ong-ti me
i ntel l i gence offi cer are l ess than cl ear to me.
Thi s si mpl y serves to confuse the whol e i ssue. One may ask
somethi ng of an academi c questi on: I s i t trul y an i ntel l i gence
operati on i n the absence of an i ntel l i gence servi ce? Wel l , oftenti mes,
i t's practi cal l y i mpossi bl e to determi ne i f any acti vi ty i s trul y bei ng
run by the PRC's i ntel l i gence servi ces or i s thi s bei ng run by an
academi c or even busi ness i nterest?
The ol d sayi ng that i f i t "wal ks l i ke a duck and quacks l i ke a
duck and l ooks l i ke a duck, then i t's probabl y a duck" si mpl y doesn't
appl y to Chi nese operati ons.
Further, I 'm sti l l convi nced that the Chi nese col l ecti on effort
remai ns hi ghl y decentral i zed, even wi th the i mpl ementati on of i ts
hi ghl y touted 863 Program, wi th l i ttl e coordi nati on between the
mi l i tary and ci vi l i an i ntel l i gence agenci es, academi c i nsti tuti ons, and
i ncreasi ngl y busi ness i nterests where there i s as much tendency to
compete as there i s to cooperate.
But whi l e i n the past, I 've opi ned that the Chi nese have been
much better at col l ecti ng i nformati on than putti ng i t to use, I get the
i mpressi on that they have i mproved consi derabl y i n thei r abi l i ty to
i mpl ement thei r i l l -gotten technol ogy i nto weapons systems by maki ng
use of dual -use technol ogy as i t can have both ci vi l i an and mi l i tary
appl i cati ons.
Now, the pri mary rol e of the Chi nese i ntel l i gence and securi ty
110

servi ces i s to ensure the Chi nese Communi st Party remai ns i n power.
That appl i es to both the ci vi l i an i ntel l i gence agenci es, the MPS and
the MSS, and that's one of the real l y enduri ng characteri sti cs of
Communi sm i n general and certai nl y appl i es to the Chi nese.
As a resul t, these servi ces are gi ven status and pri vi l ege far
beyond thei r counterparts i n the West. They're al so gi ven i mmense
power and they are the si ngl e-most feared part of Chi nese soci ety.
Unl i ke the PLA, where conscri pts are an i ntegral part of i ts ranks, the
ranks of the MPS and MSS are much more sel ect, and i t i s wi thi n thei r
own sel f-i nterest to ensure that the Chi nese Communi st Party remai ns
i n power.
And i t's these servi ces and especi al l y the MSS that are at the
forefront of the espi onage and i ntel l i gence operati ons wi thi n the U.S.,
and they're an arrogant, confi dent and freewheel i ng servi ce whi ch can
have no doubt that they have the compl ete confi dence of the Chi nese
Communi st Party's l eadershi p.
My experi ence i s that there i s oftenti mes l i ttl e speci fi c targeti ng
of i nformati on or technol ogy by the Chi nese, but i nstead they take the
approach that j ust get the i nformati on to us and we'l l sort i t out l ater.
But there's al most a total dependence on Chi nese Ameri cans to
accompl i sh thei r technol ogi cal acqui si ti on effort. The Chi nese don't
j ust hope that Chi nese Ameri cans--and that's the overseas Chi nese
from thei r standpoi nt--wi l l ai d i n thei r efforts. They don't j ust expect
that thi s wi l l occur; they si mpl y assume that al l ethni c Chi nese wi l l be
of servi ce to mother Chi na.
The Chi nese si mpl y can't envi si on that an ethni c Chi nese coul d
have l oyal ti es to any other country but thei r own. They are, after al l ,
Chi nese.
But thei r consi derabl e successes have l argel y centered around
fi rst generati on Chi nese Ameri cans who were born i n Chi na, made
thei r way to the Uni ted States, but have retai ned a strong cul tural
i denti ty and fami l y ti es to thei r homel and.
The Chi nese have been l argel y unsuccessful i n gai ni ng the
support of second generati on and beyond Chi nese Ameri cans who many
ti mes even rej ect the Chi nese l anguage and cul ture and are more
i nterested i n becomi ng Ameri cani zed than havi ng di vi ded l oyal ti es.
But we as a country make i t rel ati vel y easy for the Chi nese. We
al l ow them to purchase our compani es; to send l i teral l y thousands of
students to study i n thi s country i n al l di sci pl i nes. Del egati ons have
al most a free rei n i n travel i ng about the country, and pol i ti cal l y we
haven't shown any pol i ti cal wi l l to puni sh the Chi nese for thei r
frequent vi ol ati ons, acti vi ti es such as the Hai nan I sl and i nci dent, the
harassment of our shi ps i n i nternati onal waters, and such.
Our approach seems to be, even i ncl udi ng Ti ananmen Square,
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was to get the i nci dent out of the news as qui ckl y as possi bl e. I
bel i eve, i n my vi ew, that i t's ti me for thi s country to practi ce a stri cter
reci proci ty i n deal i ng wi th the PRC, and whi l e we, as a country, l ook
at l ong-term goal s as the next el ecti on cycl e, the Chi nese have no such
obstacl es i n pl anni ng for the future.
They wi l l si mpl y stay the course, gri nd away, eventual l y
expecti ng to wear you down unti l they obtai n whatever goal they're
seeki ng, and ri ght before I l eft, I remembered a quote by Sun Tzu so I
went back i n--and that shoul d be requi red readi ng, by the way, for
everybody deal i ng wi th Chi na and counteri ntel l i gence and what have
you--but he made thi s comment wri tten 2,500 years ago:
"For to wi n 100 vi ctori es and 100 battl es i s not the acme of
ski l l ; to subdue the enemy wi thout fi ghti ng i s the acme of ski l l ."
I fi rml y bel i eve the Chi nese are sti l l practi ci ng that advi ce from
Sun Tzu of over 2,500 years ago.
Thank you.

PREPARED STATEMENT OF MR. I. C. SMITH
SPECIAL AGENT ( RETIRED) , FEDERAL BUREAU OF
INVESTIGATION, WASHINGTON, DC

Let me begin by stating the obvious. The Peoples Republic of China is neither the peoples nor is it a
republic. The PRC is an oppressive totalitarian police state that is governed by the Communist Party that
allows less than five percent of the population to become members. The Chinese Communist Party has
become, in effect, Chinas new royalty whose primary goal is to retain power.
As the growing awareness of the threat posed by China gains, hopefully, some momentum, I
suspect, even this Commission is divided as to where the major emphasis of our attentions should be.
There is the pervasive violation of human rights and civil liberties of its own people, there is the oppressive
occupation of Tibet, there are the repeated violations of copyright and other trade and economic related
matters and there is the daily deluge of cyber attacks targeting the infrastructure of our national security.
The Chinese make political mischief for our nation at every opportunity and there is the massive attempt to
obtain, by any means, this nations technology. Regardless of ones emphasis, there is enough reason for
worry that should be of concern for all of us. There is no doubt the Chinese view the United States as its
number one adversary. The totality of the threat by the Chinese is the greatest threat to our national
security that we face today.
From the standpoint of this panels portion of these hearings, Chinas Espionage and Intelligence
Operations Directed at the United States, we should note that never has this country faced such massive
attacks, on virtually all fronts, from a single country as China does right now. But, from the standpoint of
the human aspects of that effort, there is a clear distinction from past and present adversaries, that is, the
Chinese almost total dependence on those of a like ethnicity to accomplish their goals. Further, not all
Chinese spies steal technology and not all restricted technology acquired by the PRC is stolen by
intelligence officers. Indeed, if one looks those investigations that have been in the public eye, the two
most prominent cases where there is little doubt there was a PRC intelligence service presence, Larry Wu
Tai Chin and Katrina Leung, neither of those cases involved the acquisition of technology. Conversely, if
one looks at a number of other high profile investigations such as Wen Ho Lee, Peter Lee, Min Guo Bao,
etc., which involved highly classified technologies, there is no apparent PRC intelligence service presence.
And this even applies to Chi Mak, where government and media assertions that he was a long-time
112

intelligence operative are less than clear to me.
This simply serves to confuse the whole issue. One may ask something of an academic question,
Is it truly an intelligence operation in the absence of the presence of an intelligence service? Often times
it is practically impossible to determine if an activity is truly being run by the PRCs intelligence services,
or is this being run by academic or even, business interests. The old saying that if it walks like a duck,
quacks like a duck and looks like a duck, then its probably a duck, doesnt apply to Chinese operations.
Further, Im still convinced that the Chinese collection effort remains largely decentralized, even after the
implementation of its highly touted863 Program, with little coordination between the military and
civilian intelligence agencies, academic institutions and increasingly, business interests where there is as
much a tendency to compete as there is to cooperate. But while in the past Ive opined that the Chinese
have been much better at collecting information than putting it to use, I get the impression that they have
improved considerably in their ability to implement their ill-gotten technology into weapons systems by
making use, for instance, of dual use technologies that can have both civilian and military applications.
The primary goal of the Chinese intelligence and security services is to ensure the Chinese
Communist Party remains in power. That applies to both the civilian intelligence agencies, the Ministry of
Public Security, the Gonganbu as well as the Ministry of State Security, the Guojia Anquanbu. This is one
of the enduring characteristics of Communism in general and certainly applies to the Chinese. As a result,
these services are given status and privileges, far beyond their counterparts in the West. They are also
given immense power and they are the single most feared part of Chinese society. Unlike the Peoples
Liberation Army, where conscripts are an integral part of its ranks, the ranks of the MPS and the MSS are
much more select and it is within their own self interest to ensure that the CCP remains in power. It is
these services, and especially the MSS, that are at the forefront of the espionage and intelligence operations
within the US, an arrogant, confident and freewheeling service which can have no doubt that they have the
complete confidence of the CCPs leadership.
My experience is that there is, often times, little specific targeting of information or technology by
the Chinese, but instead, they take the approach that just get the information to us and we will sort it out
later. But there is an almost total dependence on Chinese-Americans to accomplish their technological
acquisition effort. The Chinese dont just hope that Chinese-Americans, the Overseas Chinese from their
standpoint, will aid in their effort, they dont just expect that this will occur, they simply assume that all
ethnic Chinese will be of service to mother China. The Chinese cant envision that an ethnic Chinese could
have loyalties to any other country but their own. They are, after all, Chinese!
Their considerable successes have largely centered about first generation Chinese-Americans who
were born in China, made their way to the United States, but who have retained a strong cultural identity
and family ties to their homeland. The Chinese have been largely un-successful in gaining the support of
second generation, and beyond, Chinese-Americans, many of whom even reject their Chinese language and
culture and are more interested in becoming fully Americanized without divided loyalties.
But we, as a country, make it relatively easy for the Chinese. We allow them to purchase our
companies, to send literally thousands of their students to study in this country in all disciplines,
delegations have almost a free rein in traveling about the country and politically, we havent shown any
political will to punish the Chinese for their frequent violations and activities, i.e. the Hainan Island
incident, undervaluation of their currency, the harassment of our ships in international waters, the sudden
cancellation of ship visits to Hong Kong, etc. Our approach, even including Tiananmen Square, was to get
the incident out of the news as quickly as possible. I believe its time for this country to practice a stricter
reciprocity in dealing with the PRC. And while we, as a country, look at long term goals as the next
election cycle, the Chinese have no such obstacles in planning for the future. They will simply stay the
course and grind away, eventually expecting to wear you down until they obtain whatever goal they were
seeking.
I look forward to our discussion.

HEARI NG COCHAI R BROOKES: Thank you, Mr. Smi th.
Dr. Mul venon.
113

DR. JAMES MULVENON, DIRECTOR
CENTER FOR INTELLIGENCE RESEARCH AND ANALYSIS
DEFENSE GROUP, INC. , WASHINGTON, DC

DR. MULVENON: Thank you, Mr. Chai rman. As a way of
i ntroducti on and di scl ai mer, gi ven my current responsi bi l i ti es, I have
cl earl y prepared my comments very careful l y, and I wi l l answer your
questi ons careful l y. I 'l l try not to parse too much. But I certai nl y
don't want my comments i n any way to refl ect on any of my wi se and
generous sponsors i n the U.S. government or any of the work that we
do for them.
The good news i s that there's pl enty of materi al avai l abl e on thi s
subj ect i n the publ i c real m, and I bel i eve that anal yti cal j udgments can
be made based on that as wel l as other experi ence anal yzi ng thi s type
of materi al .
I have three poi nts. I thi nk, Mr. Chai rman, that even open
source materi al reveal s that Chi na i s one, i f not the l argest, perpetrator
of economi c espi onage agai nst the Uni ted States ri ght now. I
personal l y mai ntai n a spreadsheet of rel evant economi c espi onage
cases, not al ways easy to assembl e. Often these arti cl es are onl y i n
obscure state and county l evel newspapers across the Uni ted States.
There's no central i zed reposi tory of them, but I count at l east 25
cases si nce 2004 that fi t the rough pattern of what we woul d descri be
as Chi nese economi c and technol ogi cal espi onage agai nst the Uni ted
States.
I know of no other forei gn power wi th a si mi l ar record. I t may
be symptomati c of a l ack of professi onal i sm on the Chi nese si de, or i t
si mpl y may be refl ecti ve of what i t i s, whi ch i s the scal e of the
acti vi ty.
There are certai n patterns i n these cases that I fi nd anal yti cal l y
i nteresti ng. I echo the comments of my col l eague here on the panel
al though I woul d note the surpri si ng presence of a l arge number of
Tai wanese Ameri cans as wel l as natural i zed ci ti zens of Tai wan
background i nvol ved i n these economi c espi onage cases that are
cl earl y meant to benefi t Chi na, and so I thi nk that we need to take a
more expansi ve defi ni ti on of the categori es of peopl e we're l ooki ng at
because the Chi nese system has shown a propensi ty, i n my vi ew, to tap
i nto networks of overseas Chi nese broadl y defi ned.
Second, I woul d note that i n many of these cases what we're
descri bi ng are mom and pop operati ons, often bei ng run out of
i ndi vi dual 's homes. They have set up compani es cl earl y for the
conduct of thi s behavi or, but i t i s a company i n name onl y. I t's a
mai l box; i t's si mpl y operati ng out of thei r apartment.
114

Thi rdl y, I woul d note that i n terms of the technol ogy acqui si ti on
that we fi nd troubl i ng, more often than not our defense contractors,
our cl assi fi ed defense contractors, and other manufacturers of
sensi ti ve equi pment are often not di rectl y i nvol ved.
My experi ence has been that those compani es have excel l ent
securi ty practi ces i n terms of I TAR control s and the physi cal control
of thei r technol ogi es, but i nstead that we often see i n these cases
Chi nese taki ng advantage of a secondary market of di stri butors. Y ou
can even on a dai l y basi s fi nd thi ngs on eBay frankl y that whi l e may
not be state-of-the-art si mpl y woul d benefi t the Chi nese system.
Often i n these cases, we fi nd them obfuscati ng the end user, and
there are l ayers here that I thi nk are i mportant about how easy i t i s for
them to obfuscate the end user, and that has a l ot to do wi th our own
weaknesses, parti cul arl y i n the area of Chi nese l anguage i ssues, and
I 'l l come to that at the end when I tal k about some of the remedi ati on
that I thi nk we coul d make.
But the strategi c goal s from the Chi nese si de for thi s economi c
espi onage I thi nk are fai rl y cl ear. Thei r state i nnovati on pl anni ng
documents speci fi cal l y di scuss the extent to whi ch they need to
acqui re technol ogy from abroad, both l i ci tl y and i l l i ci tl y, i n order to
fund thei r i nnovati on process.
Chi na, i n my vi ew, i s on the ful crum poi nt of a strategi c
transi ti on i n terms of i ts i nternal economy as wel l as i ts sci ence and
technol ogy prowess. For 20 years, as you know, Mr. Chai rman, Chi na
has been l argel y an export processi ng zone for other country and other
mul ti nati onal compani es to then export technol ogy and equi pment and
goods out of Chi na. But the Chi nese l eadershi p has made i t very cl ear
for as l ong as you can go back that they resi st thi s dependency at a
strategi c l evel ; they bel i eve that Chi na i s poi sed to become a strategi c
i nnovator i n a wi de vari ety of sectors.
But that i nnovati on requi res i nputs of hi gh-end and state-of-the-
art technol ogy and know-how that mul ti nati onal compani es I thi nk to a
l arge extent have wi sel y deci ded to not export to Chi na, and so, we
coul d tal k about semi conductors and trends there of thi ngs that have
been wi thhel d and technol ogi es that have been wi thhel d and
capabi l i ti es that have been wi thhel d, but Chi na cl earl y wants to push
that wi th the ul ti mate goal of i mport substi tuti on, of creati ng a cl ass of
nati onal champi on Chi nese compani es that can then suppl ant those
mul ti nati onal compani es, both i n the Chi nese market as wel l as
gl obal l y.
We can hi ghl i ght compani es l i ke Huawei and others that have
al ready successful l y done that.
My second poi nt woul d be that the open source evi dence cl earl y
suggests that most of these cases that the i ndi vi dual s i nvol ved are not
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trai ned espi onage agents as we woul d defi ne them wi th tradecraft
trai ni ng and other professi onal trai ni ng, but i nstead are what I woul d
term espi onage entrepreneurs.
I n other words, these are peopl e, these are i ndi vi dual s who by
hook and crook have ei ther through networks and connecti ons come
across access to vari ous technol ogi es or have devel oped rel ati onshi ps
wi th Chi nese government or non-government i ndi vi dual s that have
expressed i nterest, and then for pri mari l y fi nanci al reasons have gone
out to try and acqui re the very technol ogi es that are desi red.
And I make thi s poi nt--I woul d tel l one story. There was a case
i n the Stanford Uni versi ty area of a woman who had been a student,
who had been, because she was a PRC nati onal had been charged wi th
hel pi ng escort PRC del egati ons when they vi si ted Stanford. I n the
course of those duti es, had escorted and hosted a del egati on from
NORI NCO, the Chi nese ordnance manufacturer, and then on her
i ni ti ati ve or perhaps a l i ttl e bi t of coaxi ng, she and her husband then
began attendi ng defense i ndustri al equi pment aucti ons i n the
Cal i forni a area, were abl e to acqui re 15,000 arti l l ery bl ade fuse
cutters, and then based on that acqui si ti on then contacted some of the
peopl e that they had been hosti ng as students duri ng those del egati on
tri ps to Stanford Uni versi ty.
That to me i s a more accurate model for understandi ng what's
goi ng on wi th Chi nese economi c espi onage than one i n whi ch we have
establ i shed front compani es, trai ned agents usi ng professi onal
tradecraft to try and acqui re, the ki nd of model we may have seen
previ ousl y wi th the Russi ans and others.
Now, on the one hand, we see mul ti pl e redundant taski ng i n thi s
model , and so thi s i s both good news and bad news, to be cl ear. The
good news i s that they are not professi onal s; the bad news i s that I
woul d argue that the nature of that type of economi c espi onage and
those patterns are very, very di ffi cul t for our system to track, whi ch i s
trai ned to observe patterns of more professi onal tradecraft, and that a
l ot of what's goi ng on wi th the Chi nese si de, i n fact, goes underneath
that radar, and I 'l l tal k about that i n a mi nute.
One thi ng that I woul d l i ke to debunk i f you wi l l based on my
personal observati on i s a monol i thi c model i n whi ch we envi si on the
Chi nese system as sort of some facel ess person stroki ng a whi te
Persi an cat i n thei r l ap i n thei r fl oati ng vol cano i sl and headquarters.
I n my vi ew, we proj ect that monol i th onto the Chi nese system to
cogni ti vel y cover our own l ack of data. I nstead, when you real l y get
under the hood of many of these cases, you see bi tter ri val ry, you see
mul ti pl e redundant taski ng, you see i ndi vi dual s and compani es bei ng
tasked to compete wi th one another to acqui re the same technol ogy.
I n other words, i neffi ci enci es i n the way they do that potenti al l y
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rai se thei r operati onal securi ty profi l e to the poi nt where you mi ght
actual l y noti ce what's goi ng on. So when you get under the hood, you
even fi nd Chi nese i nsti tutes and Chi nese government enti ti es
competi ng wi th one another to acqui re the same technol ogi es, and so I
woul d submi t for your revi ew that we shoul dn't proj ect that monol i th
onto the Chi nese system.
But that what I 'm descri bi ng i s actual l y a more di ffi cul t
si tuati on. I t's easi er to understand a monol i th. I t's easi er to track a
monol i th. I t's easi er to ascri be i nternal rati onal i ty to a monol i th than
the si tuati on I 'm descri bi ng.
And so we see a pattern of smal l compani es, mom and pop
compani es, overseas Chi nese organi zati ons, dedi cated to sci ence and
technol ogy cooperati on. Thi s i s l argel y the mi l i eu of the U.S. sci enti st
i nvi ted to Chi na to speak at a conference and then gets hi t at mul ti pl e
l evel s by i nterl ocutors seeki ng the answers to speci fi c questi ons.
And fi nal l y, because of our open soci ety, a fai rl y i ntense open
source i ntel l i gence gatheri ng effort di rected at the defense technol ogy
i nformati on system, the nati onal technol ogy i nformati on centers, and
so on and so forth.
My fi nal poi nt woul d be that I woul d attri bute the success of
Chi nese economi c espi onage to date therefore as attri butabl e not to
thei r prowess but to our own i nternal probl ems. The pri mary chal l enge
that I often see, and as a Chi nese l i ngui st and as someone who runs a
team of Chi nese l i ngui sts, i t's the chal l enges of the Chi nese l anguage
as Chi na's fi rst l i ne of nati onal defense, i ts fi rst l ayer of encrypti on,
thwarti ng our abi l i ty as a system to even get i n and understand a l ot of
the acti vi ty that's goi ng on.
Second are the wel l -known weaknesses of our export control
system. I n parti cul ar, thi s pressure from the Chi nese si de bl ami ng the
trade defi ci t on our hi gh tech export control s, but al so the weaknesses
i n that export control system i n terms of bei ng agi l e and ni mbl e
enough to keep up wi th the pace of technol ogi cal change and to real l y
correctl y i denti fy what i s the state of the art.
I woul d al so submi t to you that our export control system i s
overl y focused on the state of the art and doesn't appl y a means-ends
test to why the Chi nese are requi ri ng a speci fi c pi ece of technol ogy.
There are pi eces of technol ogy, I woul d argue i n the record, that the
Chi nese are tryi ng to acqui re that are 20, 25 years ol d that are
mai nstays of exi sti ng U.S. defense systems, but come nowhere cl ose to
bei ng consi dered state-of-the-art, and yet a means-ends test woul d
correctl y i denti fy those as cri ti cal gaps i n the Chi nese system.
Our l egal system unfortunatel y i n thi s area gets bound up very
much on i ssues of i ntent, whi ch means i f you have a si ngl e pi ece of
paper, a si ngl e e-mai l , a si ngl e phone cal l from a Chi nese actor, i n
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whi ch they say, hey, we can't do thi s, that's i l l egal , that's excul patory
and therefore undermi nes the i ntent and therefore reduces the i ncenti ve
for the AUSA i n the case to want to pursue i t.
I n addi ti on, we have the probl em wi th Hong Kong, whi ch was
establ i shed as a separate customs enti ty duri ng the handover for the
Chi nese for very sort of nobl e and pure reasons, but has now become a
very troubl i ng transshi pment poi nt for Chi nese economi c espi onage,
and because of i ts nature as a separate customs enti ty i s not governed
by the restri cti ons that we have on exports to Chi na.
And then fi nal l y, as Mr. Smi th menti oned, the comprehensi ve
nati onal securi ty chal l enges we face i n terms of cyber espi onage, and
here I thi nk the probl ems are very known, both cyber espi onage as a
vehi cl e for espi onage i n and of i tsel f but al so as a vehi cl e for
obtai ni ng sensi ti ve technol ogy. And l et me stop there.
Thank you.

PANEL III: Di scussi on, Quest i ons and Answers

HEARI NG COCHAI R BROOKES: Thank you very much.
Commi ssi oner Wortzel has to l eave a l i ttl e earl y so I 'm goi ng to
turn to hi m fi rst.
VI CE CHAI RMAN WORTZEL: I want to thank both of you for
your testi mony.
I thi nk you're ri ght. Both of you tal ked about economi c
espi onage and real l y there have been few espi onage prosecuti ons, but a
l ot more for economi c espi onage or acti ng as a forei gn agent. So I 'd
l i ke both of you, i f you coul d, to di scuss what Congress mi ght do to
make i t easi er to pursue Chi nese espi onage here.
I 'd al so l i ke your thoughts on whether we can i nfer state
i nvol vement by i ntel l i gence servi ces from the type of cyber or human
penetrati on and the i nformati on extracted?
Mr. Smi th, you tal ked about reci proci ty. I t's been a l ong ti me
si nce a di pl omat or a mi l i tary attach was expel l ed from ei ther
country, but i f we real l y sti ck to reci proci ty, then we're goi ng to l ose
some pretty good operators out i n Chi na because they'l l do the same,
and I woul d wel come your thoughts on that.
MR. SMI TH: Thank you.
Let me start wi th the reci proci ty i ssue. At thi s gi ven ti me, we
don't know, the State Department doesn't know, Chi nese don't know,
how many students they got i n thi s country.
Now one of the l essons that you l earn i s-- there's an
i nvesti gati on that ki nd of demonstrates thi s to some degree--the Wu
Bi n i nvesti gati on i nvol ved the fel l ow who was getti ng the ni ght
goggl es down i n Norfol k area. But what they di d wi th hi m i s that he
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was somethi ng of an academi c i n the l i beral arts area, but because of
hi s stance on Ti ananmen Square, somethi ng l i ke thi s, essenti al l y the
MSS l eaned on hi m and sai d, okay, they sai d what we're goi ng to do i s
you have a choi ce: you can ei ther go to the Uni ted States and set up a
front company or you can go to j ai l .
And by the way, we're goi ng to l et your gi rl fri end go wi th you,
and so they sweetened the pot, and sure enough--he sai d, wel l , I don't
know anythi ng about technol ogy. They sai d that's not i mportant. Go
there. Al l ri ght. And so essenti al l y thi s i s what I see happeni ng wi th
a l ot of these Chi nese students. Thi s i s where I tal k about the
reci proci ty.
I thi nk a l ot of these Chi nese students, and i t goes back to my
ti me when I used to run that program for the FBI , i s that they were
wi l l i ng to sel l thei r soul to the devi l j ust to come to study i n thi s
country. So what you have, these are not trai ned i ntel l i gence offi cers.
But they are--and what actual l y the Chi nese do, they ki nd of fl ood the
market. They know that every one of these Chi nese students, and
that's both J -1s and F-1s, because you got to remember the Chi nese
compl etel y control the vi sa process comi ng out of the embassi es and
the consul ates there.
Y ou have a harri ed consul ar offi cer who the onl y rol e that real l y
a forei gn servi ce offi cer pl ays i n that process i s he si gns the okay after
the Forei gn Servi ce Nati onal tel l s hi m where to si gn.
These peopl e are normal l y very j uni or, probabl y the fi rst or
second assi gnment overseas. They probabl y don't even speak the
l anguage so they become total l y dependent on these Forei gn Servi ce
Nati onal s, and these Forei gn Servi ce Nati onal s woul dn't be worki ng
for the Ameri can Embassy i f they di dn't have some sort of
accommodati on wi th the i ntel l i gence servi ce.
So what you end up wi th, these students, they actual l y control
who comes out of Chi na, and I wi l l guarantee you that they, a l arge
percentage of these peopl e have reached some sort of accommodati on
wi th the Mi ni stry of State Securi ty. Wel l , what happens i s not al l of
them are goi ng to end up provi di ng i nformati on. The Chi nese know
that, but a substanti al number of them wi l l .
One of the thi ngs that we di scovered when I was sti l l wi th the
FBI , when the Chi nese students fi rst started comi ng over here, i s that
the Xerox paper bi l l s for academi c i nsti tuti ons went up dramati cal l y
when the students started showi ng up. Wel l , you can ki nd of ti e two
and two together and that sort of thi ng.
Thi s i s the reci proci ty, though, Larry, that I 'm thi nki ng about.
What do we have? 5,000 students studyi ng i n Chi na? Wel l , maybe we
ought to have, say, okay, we ought to work out some arrangement here.
Wel l , i f you have 100,000 over here and we have 5,000 over there,
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and by the way, they j ust can't go anywhere and study anythi ng i n
Chi na, maybe we shoul d take a stance that we woul d make i t a l i ttl e bi t
cl oser. Maybe i nstead of havi ng 100,000, maybe they shoul d onl y
have 50,000 here, come up wi th some number or somethi ng of that
sort.
Same thi ng wi th travel i ng del egati ons. I f you travel to Chi na as
a del egati on or somethi ng l i ke that, you're ti ghtl y control l ed. Here
they wander around the country al most wi thout any escort at al l from
the U.S. government.
Another good exampl e i s you can't even--a Chi nese nati onal can't
even wal k up to an Ameri can Embassy i n Bei j i ng or the consul ates i n
Shanghai or Shenyang, any pl ace l i ke thi s, because they have Chi nese
guards there. So even access to the Ameri can Embassy or somethi ng
l i ke that i s ti ghtl y control l ed.
Now I real i ze thi s woul d be rather draconi an, but thi nk what
woul d happen i f we suddenl y put up a fence around the Chi nese
Embassy here on Connecti cut Avenue, and we started taki ng names of
who woul d go i n there. Thi s i s the sort of thi ng that I 'm tal ki ng about
from reci proci ty i n i t as wel l .
But there were some other areas, too, that--
VI CE CHAI RMAN WORTZEL: Whether there's any better tool s
or more effecti ve tool s that Congress coul d l egi sl ate that woul d hel p
pursue economi c or other forms of espi onage?
MR. SMI TH: Okay. The espi onage i ssue i s terri bl y di ffi cul t
because of the way the Chi nese operate. They aren't goi ng to be doi ng
the dead drops under the bri dges as you saw i n the Robert Hanssen
case or somethi ng l i ke that. Most of the i nformati on that goes out of
there i s actual l y del i vered by some other means i nto Chi na i tsel f.
For exampl e, even i f you go back and l ook at the Larry Chi n
case, and thi s i s publ i c knowl edge, i s that hi s handl er never met hi m i n
the Uni ted States. He travel ed to Toronto, there was a brush pass, he
passed off the fi l m, and thi s sort of thi ng l i ke that as wel l .
So i t's terri bl y di ffi cul t to make an espi onage case, and from a
tradi ti onal standpoi nt because you j ust don't have that pi ece of
evi dence, that document or somethi ng l i ke thi s. Even i n the Larry
Chi n case, the government di dn't have i t. I t depended on a very
cruci al i ntervi ew, and probabl y had he kept hi s mouth shut for another
ten mi nutes, he'd have been home free. When he fi nal l y made the
confessi on, he was not convi cted because of the tangi bl e evi dence. He
was convi cted because of hi s own statements, that sort of thi ng.
So I thi nk i n many respects, Larry, i t's goi ng to be terri bl y
di ffi cul t to prosecute true espi onage cases wi th the Chi nese. So that's
why I thi nk prosecutors, and correctl y so, are resorti ng to other thi ngs
l i ke Forei gn Agents Regi strati on Act, the economi c espi onage rel ated
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i ssues and stuff l i ke thi s.
DR. MULVENON: Commi ssi oner Wortzel , I woul d onl y offer a
coupl e of poi nts to your questi ons. One on the congressi onal si de. I
thi nk that the FBI i n i ts Chi na campai gn, i ts dramati c and aggressi ve
recrui ti ng of more speci al agents on the Chi na counteri ntel l i gence
mi ssi on i s defi ni tel y a step i n the ri ght di recti on. I woul d encourage
Congress i n that respect to conti nue to support the FBI 's efforts i n that
area. That's a tough recrui t, parti cul arl y i f you're l ooki ng for peopl e
who are both cl earabl e and who potenti al l y have Chi nese l anguage
capabi l i ty. I know that from personal experi ence.
But i n paral l el al so, the somewhat mal i gned i ntel anal yst
program wi thi n the Bureau i s actual l y the pl ace where you're more
l i kel y to fi nd peopl e wi th Chi nese l anguage capabi l i ti es who are
bui l di ng up an el ement of i nsti tuti onal memory and experti se and are
not subj ect to the vagari es of the promoti on patterns of bei ng a speci al
agent i n the FBI where you may not stay on that mi ssi on for your
enti re career, and so those two programs i n paral l el have, i n my vi ew,
gotten off to a good stop but requi re conti nued congressi onal support.
On the cyber si de, you've asked, of course, the most di ffi cul t
questi on, whi ch i s i nferri ng state i nvol vement whi ch, of course, gets
back to thi s i ssue of the cyber attri buti on probl em, whi ch i s i ncredi bl y
di ffi cul t.
I woul d say that not onl y i s the attri buti on probl em hi stori cal l y
and techni cal l y di ffi cul t, but i s now made probabl y worse by the
publ i ci ty surroundi ng Chi na ori gi n i ntrusi ons i n the U.S. systems
because now every other adversary that we face understands that i t's
probabl y i n thei r i nterests to route thei r computer network expl oi tati on
acti vi ti es through the l egi ons of unsecured Chi nese servers i n order to
pi n the tai l on the Chi nese donkey.
And so at the end of the day, I usual l y appl y a who benefi ts "cui
bono" cri teri a, whi ch i s I l i ke to l ook at the speci fi c materi al i tsel f
that was purl oi ned and then ask mysel f who woul d benefi t from
acqui si ti on to that materi al , and then come to a rough concl usi on
because I thi nk i f we conti nue to try and fi nd some sort of a si l ver
bul l et on the techni cal si de that wi l l i mprove attri buti on, we'l l j ust be
basi cal l y spi nni ng our wheel s forever.
VI CE CHAI RMAN WORTZEL: Thank you very much.
I have a coupl e questi ons here. I guess I 'l l get some of them and
then perhaps some i n the next round as wel l . I open thi s up to the
panel .
So a reasonabl e questi on to ask i s how many Chi nese assets are
currentl y i n the Uni ted States? I real i ze i t's goi ng to be di ffi cul t to
come up wi th a very speci fi c number, but i t's a reasonabl e questi on for
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a congressi onal panel or Congress to ask. What are we tal ki ng about
here?
MR. SMI TH: Wel l , there was a defector i n Austral i a, and he
made a publ i c statement that the MSS and the other i ntel l i gence
agenci es for Chi na had a thousand peopl e there.
Wel l , I don't thi nk he was tal ki ng about a thousand badge-
carryi ng MSS or MI D/PLA offi cers, somethi ng l i ke thi s. I thi nk he,
what he was thi nki ng about was probabl y a l ot of these students who
were compromi sed i nto cooperati ng and the front compani es and thi ngs
of that nature.
I woul dn't have a cl ue. I don't, probabl y of the badge-carryi ng
types, the true MSS offi cers and stuff l i ke that, I don't know.
Probabl y no more than 50 or so, and that's j ust a guess, and I haven't
seen any numbers i n years.
But on the other hand, I woul d thi nk that you're tal ki ng about
hundreds of peopl e who potenti al l y came over here who had reached
some sort of accommodati on wi th the MSS, i n parti cul ar, before they
were al l owed to come out of there.
Now, you got to remember somethi ng. A l ot of these peopl e,
they aren't acti vated ri ght away. They come here and they say we wi l l
cal l you when we need you, and they do cal l them, and some of the
peopl e are here l i teral l y for years before they get the cal l .
Thi s was one of the secondary revel ati ons of the Chi n
i nvesti gati on. We were somewhat surpri sed, and the other thi ng i s that
thei r stati on i n l i fe was not al ways what we expected. Y ou woul d
expect that peopl e comi ng here woul d be academi c or they have
mi l i tary experti se or somethi ng l i ke that. Not the case at al l . They
may be a taxi dri ver, but they wi l l have reached that sort of
accommodati on wi th the Chi nese. I t woul d have to be thousands
probabl y total at thi s poi nt.
HEARI NG COCHAI R BROOKES: Ori gi nal l y you sai d hundreds;
now you're sayi ng thousands. I real i ze you don't have a speci fi c
number.
MR. SMI TH: Wel l , i n sum. When you tal k about a hundred, you
can say a thousand, but 2,000 woul d be thousands or somethi ng of thi s
amount.
MR. SMI TH: I real i ze thi s i s a pl ay on words, but i f you thi nk
about that, how many students we've had come over here, how many
have remai ned here si nce normal i zati on--what--30 years or so of
normal i zati on now--i s that a l ot of these never go back. So they are at
l east potenti al l y, they wi l l have reached some sort of agreement wi th
thi s. So I thi nk i t probabl y i s i n the l ow thousands.
HEARI NG COCHAI R BROOKES: Okay. Dr. Mul venon, do you
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have any thoughts on that at al l ?
DR. MULVENON: I thi nk, Commi ssi oner, i t's i mpossi bl e to
know. I remember duri ng the context of the Cox Commi ssi on goi ng
around the mul berry bush about 3,000 front compani es; 5,000 front
compani es.
As someone who i s l ooki ng pretty careful l y, as Commi ssi oner
Fi edl er was, at thi s i ssue, my i nsti ncts tol d me that the numbers were
actual l y much, much l ower. I t was a useful heuri sti c to thi nk about the
total number of Chi nese regi stered compani es i n the Uni ted States and
then l ook for patterns among those compani es, and that's what we were
doi ng, tryi ng to fi nd common offi cers of those compani es wi th
compani es i n Hong Kong that we knew were associ ated wi th bad
behavi or and thi ngs l i ke that.
But I thi nk, I thi nk, i n a sense, we're sort of on a wi l d goose
chase by tryi ng to nai l down those numbers. I woul d be much more
content to have a better process pi cture of how thi s acti vi ty i s carri ed
out, to know what those patterns l ook l i ke, to be abl e to spot those
patterns, to trai n peopl e on a systemati c basi s to l ook for those
patterns, because I thi nk the ki nds of numbers we'd be tal ki ng about,
even wi th Chi nese regi stered compani es i n the Uni ted States, woul d
si mpl y overwhel m our abi l i ty from a resource perspecti ve to even go
after i t. I thi nk there are more effi ci ent ways to do i t.
HEARI NG COCHAI R BROOKES: Wel l , the reason I ask because
obvi ousl y i t's tryi ng to fi gure out what sort of resources we shoul d put
towards i t.
DR. MULVENON: Ri ght. I mean I thi nk--
HEARI NG COCHAI R BROOKES: I f we're deal i ng wi th very
smal l , l i mi ted number of assets, then that woul d hel p you to scope the
type of resources you shoul d put after thi s, but i f we don't real l y
know, that's somethi ng we probabl y shoul d be tryi ng to fi nd out.
DR. MULVENON: I thi nk, for i nstance, i f you took the numbers
from my testi mony and sai d fi nd me another country where you have
25 prosecuted cases i nvol vi ng somewhere between 50 to 100 peopl e,
fi nd me another country i n the l ast fi ve years where we have those
ki nds of l evel s, I thi nk i t's fai rl y easy to pri ori ti ze where the resources
shoul d go for the Bureau.
HEARI NG COCHAI R BROOKES: Or the si ze of the resource, of
course: i s that the ti p of the i ceberg or i s that the i ceberg?
DR. MULVENON: Ri ght.
HEARI NG COCHAI R BROOKES: That's the bi g questi on.
Commi ssi oner Fi edl er.
Dr. Mul venon, si nce you rai sed i t and si nce none of us actual l y
want to go back to the errors of the Cox report, i s there any source i n
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the government--thi s i s for ei ther of you--that has a l i st of Chi nese
compani es operati ng i n the Uni ted States?
DR. MULVENON: I don't know of one, but I woul d say that the
basi s of my data and probabl y the smart, market-based base of the data
for the government woul d be si mpl y to use Dun & Bradstreet or
Lexi sNexi s because that i s a data fi el d i n those databases. I thi nk i t
woul d be a waste of our taxpayer money to reproduce what Dun &
Bradstreet and Lexi sNexi s have al ready done for commerci al purposes.
COMMI SSI ONER FI EDLER: I mi ght take i ssue wi th you on the
ci tati on on that. So, from a counteri ntel l i gence poi nt of vi ew, we
don't even know what the uni verse i s wi thi n the government?
MR. SMI TH: At one poi nt, the FBI had rough stati sti cs on those
sorts of thi ngs, as does Customs. I 'm assumi ng that someone sti l l has
a l i st of those compani es. I 'm assumi ng.
COMMI SSI ONER FI EDLER: Y ou are assumi ng.
MR. SMI TH: Because, l i ke I say, I 've been reti red for a number
of years.
COMMI SSI ONER FI EDLER: I haven't found i t yet actual l y, and
I 've asked a l ot of wi tnesses thi s, and I don't thi nk i t's a cl assi fi ed
i ssue. I j ust don't thi nk i t exi sts.
Secondari l y, i f you were to make a j udgment, ei ther of you, what
produces the l argest take for the Chi nese? Cyber i ntrusi ons or human
i ntel l i gence gatheri ng operati ons? The most i mportant take, forget
l argest.
MR. SMI TH: I , and I 'm not as fami l i ar wi th cyber acti vi ti es as
perhaps the good doctor i s, but my i mpressi on i s i f you l ook at the
technol ogy, that's pretty cl earl y been ti ed to HUMI NT operati ons, that
those have been very, very successful for them.
I f you l ook at thi ngs l i ke the neutron i ssue i nvol vi ng the Ti ger
Trap case i nvol vi ng Mi n Guo Bao and thi ngs of thi s nature, that as
wel l , I thi nk that's been very, very good, good for them.
DR. MULVENON: Commi ssi oner Fi edl er, coul d I beg your
i ndul gence and answer the questi on perhaps a sl i ghtl y di fferent way?
COMMI SSI ONER FI EDLER: Y es.
DR. MULVENON: Whi ch i s to say that wi thout knowl edge about
the scal e of ei ther, al though I woul d poi nt out that the prosecuted
cases usual l y i nvol ve a fai rl y fi ni te number of chi ps or ni ght vi si on
goggl es or cameras or thi ngs al ong those l i nes, I 'm more troubl ed by
the cyber i ntrusi ons because they are acqui ri ng pl ans, know-how, other
bl uepri nts, other ki nds of i nformati on that woul d al l ow them to then
devel op the producti on capaci ty to produce thei r own equi pment.
I thi nk i n many ways what we see from the Chi nese si de,
parti cul arl y i n defense el ectroni cs, i s the i l l i ci t acqui si ti on of the
hi gh-end mi l i tary-speci fi c technol ogi es and components that the
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Chi nese i nformati on revol uti on i s not capabl e of produci ng.
I f the Chi nese mi l i tary needs advanced swi tches and routers for
thei r fi ber opti c networks, they buy i t from Huawei . But i f they need a
travel i ng wave tube or an anal og to di gi tal converter wi th a hi gh
temperature range or somethi ng l i ke that, there i s no commerci al
anal og for that componentry i n the Chi nese economi c revol uti on, and
i n my vi ew, that's why they've been dri ven to try and steal that.
But when you steal i t, then i t rel i es on your abi l i ty to do reverse
engi neeri ng as to whether you have any l ong-term benefi t from i t.
Now, you coul d drop that i nto an exi sti ng system, you mi ght even
bui l d i t i nto your producti on of those systems, but i n the back of your
mi nd, you're al ways goi ng to know there's a dependency there.
But i f there i s cyber, you're steal i ng i n fact the abi l i ty and the
know-how to be abl e to produce si mi l ar types of equi pment ad nauseam
and to i nnovate. To me, that's the more troubl i ng acqui si ti on.
COMMI SSI ONER FI EDLER: One other questi on. Are our
counteri ntel l i gence resources, general l y speaki ng, up to the task that
we face?
MR. SMI TH: I 'm troubl ed at ti mes by thi s i ssue, and l et me gi ve
you a very bri ef exampl e. Two or three years ago, I was up i n New
Y ork, and I was actual l y i nvol ved i n a court case, and I tal ked to the
Chi nese squad supervi sor i n New Y ork, and I sai d somethi ng about the
Larry Chi n case, and she wasn't fami l i ar wi th i t. That bothered me.
One of the other thi ngs that I 've seen i s that there doesn't seem
to be the same emphasi s on the trai ni ng of thi ngs l i ke the l anguage or
the cul ture, the hi story of Chi na, and thi ngs of that nature that I saw,
that happened to me when I was getti ng i nvol ved wi th the busi ness and
stuff l i ke thi s.
We took every course that we coul d. We went to State
Department. We went to the Smi thsoni an, DI A, anythi ng, any course
that we coul d come up wi th to hel p us know more about Chi na. I don't
see that same commi tment by the agent personnel that has been--or
even the emphasi s by the FBI on that thi ng, and I thi nk thi s i s--you
have to understand the other si de before you can real l y successful l y
attack i t.
DR. MULVENON: I woul d l argel y agree. The peopl e I 've deal t
wi th i n the Chi na counteri ntel l i gence worl d i n the U.S. government,
they understand the threat. They're aggressi vel y pursui ng i t as best
they can. I t's uni forml y been a posi ti ve experi ence for me deal i ng
wi th them.
But the structural weakness i n the system, and I keep comi ng
back to thi s, and admi ttedl y thi s i s my bi as as a Chi nese l i ngui st, i s
the l anguage because so much of the i nterpretati on of what's goi ng on
i n a gi ven si tuati on i s l i ngui sti cal l y based.
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There's a l ot of ambi gui ty, parti cul arl y i n the tradecraft, about
communi cati ons and thi ngs l i ke that, that someone who has had two,
three years of Chi nese i s si mpl y not goi ng to be abl e to pi ck up the
nuances that go i n there.
At the same ti me, I offer the fol l owi ng cauti on because I have
been i nvol ved i n some of the l i mi ted trai ni ng that's gone on, and I
refer to one of Mul venon's i ron l aws, whi ch i s an experi ence I 've had
from the Department of Defense, whi ch i s the val ue of any bri efi ng on
Chi na i s i nversel y proporti onal to the number of Sun Tzu quotes i n the
bri efi ng.
So whi l e I admi t that Sun Tzu i s an i mportant cul tural backdrop
for understandi ng the Chi nese, there i s an extent to whi ch because of
the gaps i n our understandi ng, that i nstead we use these cul tural
excepti onal i st sort of stand-i n model s for a l ack of data about what's
actual l y goi ng on i n actual tradecraft and behavi or and patterns, and so
we can get a l i ttl e too wrapped around the Sun Tzu axl e, i f you wi l l ,
but i t was i nstructi ve for me to read i t, and I woul d poi nt out that
every Chi nese uni versi ty I ever studi ed i n, every mi l i tary offi cer I 've
ever spoken wi th, those sources, the 36 Stratagems i n Sun Tzu are the
l i ngua franca of that communi ty.
I t's the base strategi c sort of canon for that communi ty, and so
much of how they tal k to one another and thi nk about probl ems i s bui l t
out of that canon. So i t's i mportant for us to understand. I t's j ust i t
shoul dn't be the onl y thi ng.
COMMI SSI ONER FI EDLER: I nteresti ng answer, but you di dn't
answer my questi on. Are we up to i t or are we not?
DR. MULVENON: I woul d say we coul d sti l l do more.
Commi ssi oner Wessel .
COMMI SSI ONER WESSEL: Thank you, gentl emen, for bei ng
here.
Dr. Mul venon, i t's good to see you agai n here, and I understand
the i mpedi ments for our anal ysi s from l ack of Chi nese l anguage ski l l s
si nce I have none, but I 'd al so say that there i s so much open source
that the dots are not bei ng connected.
I 'l l gi ve you an exampl e, that i n a recent meeti ng, some of our
cyber securi ty speci al i sts were unaware that Huawei and Symantec had
a j oi nt venture i n Hong Kong where we were bei ng abl e to share
certai n network securi ty i ssues, whi ch shoul d never have been al l owed
to happen, and our experts shoul d have known about that to be abl e to
use that i nformati on to enhance our securi ty.
Let me ask two somewhat di sti nct questi ons. Fi rst i s we heard
earl i er today i n panel s about the benefi ts of Chi nese students comi ng
here i n the sense of understandi ng a free press, understandi ng that
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thei r access to i nformati on at home i s not as robust as maybe they
woul d l i ke or we woul d l i ke.
And, Mr. Smi th, you poi nted out the converse si de of that, whi ch
i s there are a l arge number of students here who may be acti ng adverse
to our i nterests.
What's the proper bal ance? I understand you sai d that
reci proci ty, but are we better off wi th havi ng the students here i n
terms of what they bri ng back home i n terms of U.S. val ues,
democracy, freedom of the press, et cetera, are we l osi ng more vi s-a-
vi s the espi onage i ssues? That's number one.
Number two and separate i s we've seen a l ot of very seni or U.S.
offi ci al s who when they l eave government go i nto the pri vate sector
and advi se through vari ous enti ti es. What ri sks do you thi nk there are
for those that have gone on to the payrol l of the Chi nese di rectl y or
i ndi rectl y? What ki nd of l eakage do you thi nk there i s i n terms of the
benefi t of the knowl edge they've gai ned and how that may assi st? I
don't say they're shari ng speci fi c documents, but thei r overal l
knowl edge base certai nl y has tremendous val ue.
Both questi ons i f possi bl e.
MR. SMI TH: On the fi rst i ssue i nvol vi ng Chi nese students, and
I certai nl y appreci ate the benefi ts, and thi s i s one of the thi ngs we
di scussed very earl y on when Chi nese students were al l owed to come
to the Uni ted States, perhaps i t's the di sci pl i nes themsel ves that shoul d
be scruti ni zed more cl osel y. As of now, most of the peopl e that are
i nvol ved, ci vi l ri ghts i ssues and stuff l i ke that, these are the peopl e i n
the l i beral arts di sci pl i nes and stuff l i ke thi s so you coul d say, yes,
you coul d have al l the students you want to come to the Uni ted States
to study j ournal i sm you want to, but you aren't goi ng to be abl e to
study some hard sci ence.
Perhaps that's somethi ng that they shoul d l ook at and from that
standpoi nt. I woul d actual l y cut the number of them frankl y, and by
the way, I don't, I thi nk that, I don't thi nk that Chi na has got the
hi ghest number of Chi nese students here anymore. I thi nk i t's I ndi a or
one of the other countri es now.
COMMI SSI ONER WESSEL: Y es.
MR. SMI TH: And certai nl y there's a very l arge number of
Tai wanese i n the country as wel l .
COMMI SSI ONER WESSEL: J ust as a rel ated questi on, from
your experi ence, how much abi l i ty i s there for our offi ci al s to track
these students? Many, as I understand, come here and then change
di sci pl i nes. Because you sai d we shoul d have a di sci pl i ne-ori ented
approach potenti al l y. Wi l l that system work?
MR. SMI TH: Practi cal l y i mpossi bl e. Y ou can't keep up wi th al l
of them. Fi rst of al l , there's a l ot of the academi c i nsti tuti ons resi st
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any sort of a FBI presence or anythi ng l i ke that deal i ng wi th those
students. They tal k about academi c freedoms and certai nl y those are
l egi ti mate i n that regard. So i t's extraordi nari l y di ffi cul t.
One ti me, and I thi nk I can safel y say thi s, the total Chi nese
program, the number of agents that were assi gned, and thi s was before
we started havi ng a l arger i nfl ux of anal ysts, the total Chi nese program
probabl y consi sted l ess, no more than 50 or 60 peopl e for the FBI .
And that's when you had several hundred, i f you l ook at al l of
the offi ci al s that were here on di pl omati c passports, you l ook at the
consul ates and the U.N. mi ssi on and U.N., and what have you, not
counti ng the students, del egati ons, stuff l i ke thi s, you were absol utel y
overwhel med wi th them. So i t's practi cal l y i mpossi bl e. Y ou can't
have a--l i ke even a 20-to-one rati o between an agent and 20
i ndi vi dual s to l ook at. I t goes much, much hi gher than that.
COMMI SSI ONER WESSEL: And as to the questi on of l eakage,
both your vi ews and Dr. Mul venon, l eakage i n terms of former seni or
U.S. offi ci al s who have i nformati on that mi ght be val uabl e?
MR. SMI TH: Any ti me that you're tal ki ng to someone, i f you
ask a questi on, you're provi di ng i nformati on, and any ti me that there i s
a rel ati onshi p of that sort, parti cul arl y i f i t's a pai d rel ati onshi p, there
i s goi ng to be l eakage and i t's goi ng to depend on the i ndi vi dual .
Frankl y, I 'm troubl ed by i t, and I --not onl y i nvol ved wi th Chi na
but the whol e government i n general . I thi nk there shoul d be a
moratori um of several years before you are al l owed to go back and
work i n the area that you worked for i n the government or somethi ng
l i ke that, not onl y a coupl e a years, what i t i s now, that sort of thi ng.
But there i s no doubt that there wi l l be l eakage, and frankl y I
fi nd i t troubl esome that you had former government empl oyees who,
they l i ve good l i ves and good pensi ons and stuff l i ke thi s from the
government, and al l of a sudden they go back and they are on the
payrol l of someone i f they're not somethi ng that has an adversari al
rel ati onshi p. I fi nd that troubl esome.
COMMI SSI ONER WESSEL: Dr. Mul venon.
DR. MULVENON: On the Chi nese student i ssue, agai n, I 'm
goi ng to dodge and obl i que away from you. I t's a trui sm, and the
Nati onal Academy of Sci ences and other peopl e have noted thi s, that i f
we were si mpl y to uni l ateral l y restri ct the access of forei gn students to
our hard sci ences programs, most of them i n the Uni ted States woul d
col l apse, and frankl y that says more about us than i t does about them
i n the sense that I 've al ways decri ed the l ack of resources and
i nnovati on that was goi ng on i n terms of our nati onal i nnovati on
system.
I mean we are enti rel y dependent at thi s poi nt i n the hard
sci ences on forei gn graduate students, forei gn-born graduate students,
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and I don't know what we need to do at the educati on l evel to change
that pattern, but that does not bode wel l for the future i nnovati on of
the Ameri can economy and our i nfrastructure.
That sai d, I do agree that we coul d have better control s on that
front. I am remi nded, though, of the outcry from the uni versi ty sector
when the Patri ot Act restri cti ons came out on moni tori ng forei gn
students i n uni versi ti es, and thi s was, from a uni versi ty perspecti ve, at
the l east defensi bl e ti me i n U.S. hi story to throw up roadbl ocks, and
yet they di d.
I 'm al so remi nded of the acti vi ti es i n the Federal Regi ster a
number of years ago about deemed exports, about tryi ng to change the
deemed export regul ati ons to refl ect that i f an i ndi vi dual was worki ng
i n a graduate l ab on a pi ece of technol ogy that woul d have requi red a
deemed export l i cense i f i t was shi pped abroad, that the same rul es
shoul d appl y wi thi n a graduate l ab i n a uni versi ty i n the Uni ted States,
and of course Commerce was del uged by hundreds of l etters from
uni versi ty presi dents descri bi ng how thi s woul d cri ppl e thei r
programs.
I understand thei r poi nt of vi ew, but my poi nt woul d be that the
programs woul d not have been cri ppl ed i f we had had a si mi l ar i nfl ux
of U.S. ci ti zen graduate students i n those hard sci ence programs. The
uni versi ty presi dents were wri ti ng pri mari l y from a perspecti ve of
thei r dependency on forei gn students, and I thi nk that that's the core
root of the probl em rather than from an enforcement perspecti ve.
On the l eakage i ssue, I have no opi ni on.
Chai rman Barthol omew.
COMMI SSI ONER BARTHOLOMEW: Thank you very much.
Thank you, gentl emen, for your testi mony, and both of you for the
servi ce that you have provi ded i n your di fferent capaci ti es.
Fol l owi ng up j ust very bri efl y on Commi ssi oner Fi edl er's
questi on about cyber, I was thi nki ng about how cyber coul d be
changi ng the very nature and extent of tradi ti onal espi onage i n terms
of i nformati on gatheri ng so we're havi ng one l evel of di scussi on about
what i s goi ng on on the ground at the same ti me that what's goi ng on
on the ground coul d very wel l often be made obsol ete by the fact that
you don't need peopl e i n a pl ace i n order to gather the i nformati on, but
ti me wi l l tel l on that.
I wondered i f you coul d, parti cul arl y Dr. Mul venon, you
menti oned how on economi c espi onage, i t's not professi onal s doi ng the
espi onage. I t's often mom and pop operati ons, both that and U.S.
sci enti sts who are i nvi ted to speak at conferences, as a way to get
access to i nformati on.
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Can you tal k a l i ttl e bi t about the taski ng? Who i s i t? Who i s
determi ni ng what these mom and pop operati ons shoul d be l ooki ng for?
How are those assi gnments bei ng gi ven out? Thi s Stanford student
that you menti oned, the Stanford area student that you menti oned, I
mean I suspect that they di d not know that goi ng to these aucti ons and
buyi ng these bl ades was somethi ng that they woul d j ust thi nk up on
thei r own. So where are the marchi ng orders comi ng from?
DR. MULVENON: Wel l , and here there's an i nteresti ng change
i n the Chi nese system wi th regard to defense i ndustri al producti on and
research faci l i ti es. I n 1998, the central government i n Chi na l argel y
cut these i nsti tutes and factori es l oose from state subsi di es, and they
were tol d you need to go and devel op spi noff commerci al thi ngs to be
abl e to cover more of your costs. I t was part of a general reform
movement i n 1998.
As a resul t, many of the numbered defense i ndustri al i nsti tutes
and factori es associ ated wi th the mai n defense i ndustri al sectors i n
Chi na began prol i ferati ng a set of commerci al compani es associ ated
wi th those i nsti tutes. Now, these are not front compani es. There are a
separate cl ass of compani es that I woul d correctl y l abel front
compani es. These are genui ne commerci al concerns that are deri vati ve
of these. They are col l ocated wi th them. Often the way we fi nd them
i s because we transl ate thei r street address and then we al l , l o and
behol d, we di scover that they're i n the same wal l ed compound as thei r
i nsti tute or factory sponsor.
But those commerci al compani es, whi ch have anodynel y
soundi ng names, that don't say No. 23 ordnance factory, are often the
venue for contacti ng these compani es for RFQs or, you know, for
request for quote or request for bi d on vari ous thi ngs.
And i n the Bri dey [ph] case, for i nstance, the Stanford case, i t
was i nteracti ons wi th a commerci al company associ ated wi th
NORI NCO, and so whi l e nobody--they woul d have been horri bl y nai ve
to not understand that they were deal i ng wi th the ordnance mi ni stry,
but they were cl earl y bei ng contacted by enti ti es that were associ ated
wi th the del egati ons they had hosted.
And so, but the actual commerci al transacti ons themsel ves are
often as mundane as si mpl y recei vi ng a fax sayi ng here i s the shoppi ng
l i st of thi ngs that we're i nterested i n wi th no cl ear di recti on as to
where they're goi ng to fi nd them, and then rel yi ng on the natural
entrepreneurshi p and aggressi veness of the peopl e that they've
contacted.
What I woul d hi ghl i ght, however, Commi ssi oner, i s that often
they're not the onl y peopl e wi thi n the network that are bei ng gi ven thi s
si mi l ar taski ng, and that thi s i s a di stri buted network i n whi ch there i s
redundant mul ti pl e taski ng, and often i t's who i n the words of
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Stonewal l J ackson--"get there fi rstest wi th the mostest."
And so that's very di fferent than a model i n whi ch you have a
di rected front company i n whi ch you've expended si gni fi cant assets
setti ng up cover for and then bri ngi ng i n peopl e under fal se pretenses
who have professi onal tradecraft to run that, to run that.
COMMI SSI ONER BARTHOLOMEW: Dr. Mul venon, that fax
ori gi nates somewhere, and what I 'm tryi ng to understand i s who i s i t
who has thei r eye on the pi cture of what i t i s that needs to be
acqui red? I mean are these i ndi vi dual compani es i n Chi na that are
abl e to di rect assets? We'l l use "assets," for want of a better word
here. Or where i s thi s i ni ti ated?
DR. MULVENON: I thi nk i t's both bottom up and top down. I
mean we know from open sources that there i s a l evel of hi gh-l evel
state coordi nati on on S&T procurement that goes on at the Bei j i ng
l evel , whether i t's i n the Mi ni stry of Sci ence and Technol ogy, whether
i t's i n the former COSTI ND, whi ch i s now cal l ed SASTI ND, under the
Mi ni stry of I ndustry and I nformati zati on, whether i t i s deri vati ve of
the 863 Program, whi ch i tsel f was the resul t of hi gh-l evel state
coordi nati on to i denti fy key future technol ogy gaps that Chi na needed
to push.
There i s that central i zed system that i s very focused on
i denti fyi ng those ki nds of gaps and di recti ng resources towards them
i ncl udi ng the i l l egal technol ogy acqui si ti on from abroad, and we've
acqui red sources over the years that have been transl ated that
descri bed thi s process i n some detai l .
At the same ti me, there i s i nnovati on goi ng on at the bottom
l evel where peopl e are for thei r own materi al i st i nterests tryi ng to
acqui re thi ngs that they know woul d be val uabl e and then goi ng to fi nd
customers for i t at hi gher l evel , at hi gher echel on, and so I thi nk both
of those processes worki ng at the same ti me, but i n a much more
di stri buted, di ffuse way i n executi on than we woul d probabl y ascri be
i f we were si mpl y descri bi ng a Chi nese monol i th.
HEARI NG COCHAI R BROOKES: Commi ssi oner Vi deni eks.
COMMI SSI ONER VI DENI EKS: My questi on was basi cal l y
asked by Chai rman Barthol omew. I t was an i denti ty questi on.
Frequentl y, the government puts out a request for i nformati on, and
then the resul ts are used to put together the sol i ci tati ons or other
documents.
The questi on basi cal l y i s who, whi ch organi zati onal component
i n PRC, accumul ates thi s scattered or grai n-of-sand type of
technol ogi cal i nformati on? I s there a speci fi c central i zed outfi t?
DR. MULVENON: I f you're tal ki ng about uncl assi fi ed U.S.
defense i nformati on, there are a number of organi zati ons that are
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easi l y i denti fi abl e, some of whom have offi ces here i n the nati onal
capi tal regi on. Such, for i nstance, i s the Chi na Defense Sci ence and
Technol ogy I nformati on Center, whi ch i s subordi nate to COSTI ND and
al so to the General Armaments Department i n vari ous ways.
Thi s i s an organi zati on whose sol e organi zati onal purvi ew i s the
vacuumi ng up of l arge vol umes of forei gn uncl assi fi ed defense
i nformati on, and for an open soci ety l i ke ours wi th l arge numbers of
techni cal publ i cati ons and thi ngs l i ke that, al l you need to do i s l ook
frankl y at the customer i nformati on of who i s requesti ng mi crofi che
from DTI C and NTI S and other organi zati ons i n the U.S. government
that are charged wi th di ssemi nati ng l arge vol umes of mi crofi che of
uncl assi fi ed i nformati on to see those patterns, to see those fl ows.
Each of the defense i ndustri al sectors i n Chi na, ordnance,
avi ati on, aerospace, shi pbui l di ng--I 'm goi ng to forget one--each of
those have i nsti tutes and centers devoted towards the same ki nd of
sci ence and technol ogy i nformati on centers, i s what they're often
cal l ed, and thei r rol e i s to systemati cal l y subscri be to and col l ect the
techni cal R&D j ournal s i n Engl i sh that are associ ated wi th thi s, and we
know thi s from a vari ety of sources, not the l east of whi ch i s that when
you l ook at Chi nese l anguage techni cal R&D j ournal s i n the defense
area, very robust footnotes of U.S. techni cal R&D j ournal s.
Now, I woul d submi t to you that i ndi vi dual Chi nese sci enti sts
who don't speak Engl i sh are not themsel ves i ndependentl y acqui ri ng
subscri pti ons to al l these j ournal s. That may be true, but much l i ke
our own system, i t's much more effi ci ent to have cl eari nghouses of
these ki nds of j ournal s, and then there are j ournal s that we have seen
i n the Chi nese l anguage j ournal s i n the footnotes that are cl earl y
summari es of forei gn techni cal R&D j ournal s. I n other words--
COMMI SSI ONER VI DENI EKS: May I ? Y our answer then i s
that there are several of these cl eari nghouses?
DR. MULVENON: Ri ght.
COMMI SSI ONER VI DENI EKS: And they act more or l ess i n a
coordi nated fashi on or i ndependentl y? That woul d be a qui ck questi on.
The other questi on to Mr. Smi th i s what shoul d we recommend to
Congress that we do i n a free soci ety?
MR. SMI TH: I 'm not as confi dent that there i s that great a
coordi nati on back there. I j ust can't i magi ne that a professor from the
Harbi n I nsti tute of Technol ogy i s coordi nati ng at the same l evel as
NORI NCO or some busi ness i n Guangzhou. I thi nk i t's pretty
fragmented.
Now they have a mechani sm set up to coordi nate thi s, but l et me
tel l a qui ck story, and then l et me get the answer to that as wel l , and i t
i nvol ves the front compani es. I spent several days, two or three years
ago, wi th an MSS offi cer who--thi s i s after I reti red--who i s charged
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wi th setti ng up a front company.
I t was i nteresti ng about what one of the i nteresti ng
characteri sti cs of the front company i s. The Chi nese expect them to be
sel f-sustai ni ng. They pay thei r own way. I t's unl i ke those that maybe
the FBI , the CI A sets up where we j ust keep funnel i ng money to them,
and i t's great di ffi cul ty at ti mes someti mes showi ng that these are
actual l y l egi ti mate compani es when they aren't real l y maki ng any
money.
The Chi nese front compani es have to pay thei r own way, and
what s i nteresti ng about that, i s that the Chi nese real l y don't care how
much money the i ndi vi dual s runni ng that front company make
themsel ves. Thi s i s one of the thi ngs that, for exampl e, that happened
i n the Wu Bi n case, and i t happened wi th thi s MSS offi cer that I was
spendi ng thi s ti me wi th.
They don't real l y care how much money they make i ndi vi dual l y
as l ong as they start funnel i ng thi s i nformati on back to Chi na. The
other thi ng was that I found somewhat stri ki ng i s the fact that they
di dn't real l y have speci fi c targeti ng.
Now go back agai n to the Wu Bi n case, he was gi ven a l i st of
technol ogi es that they wanted. They tol d hi m to memori ze them, and
then they took the l i st back away from hi m. Wel l , i t had 30 pi eces of
technol ogy on the l i st, and the onl y thi ng he remembered i s somethi ng
l i ke buy radar or somethi ng el se, and he ended up getti ng i n troubl e
for ni ght vi si on goggl es, that as wel l .
Same thi ng happened wi th my fri end, the MSS offi cer. I sai d,
What di d they tel l you speci fi cal l y? He says, Anythi ng to do wi th
the U.S. mi l i tary. What di d you do? He sai d, I went to j unkyards.
I bought anythi ng to do wi th U.S. mi l i tary on i t. I bundl ed i t up and
shi pped i t back there. I sai d, Wel l , what happened back there? He
says, Wel l , he says--and you got to remember the system i n Chi na i s
absol utel y corrupt. So i t goes back there, he gets thi s shi pment of
j unk, and they say--I 'l l use thi s nameWang, i s doi ng good. Wel l ,
see, Wang made hi s boss l ook good.
So he then reports i t up to a hi gher l evel , and they say Wang's
boss i s l ooki ng good because Wang i s real l y produci ng thi s thi ng, and
i t goes al l the way up through the system. Everybody--and i t's corrupt.
I t's j unk, al l they're getti ng, but the poi nt was that they are sendi ng
thi s stuff back there to them. So that as wel l .
So thi s i s, I thi nk, how a l ot of these front compani es actual l y
operate, and the Chi nese, there agai n, they fl ood the market and
eventual l y somebody i s goi ng to come up wi th that good pi ece of
i nformati on, that good pi ece of technol ogy.
COMMI SSI ONER VI DENI EKS: So at whi ch poi nt i s i t
espi onage? At whi ch poi nt i s thi s i nformati on gatheri ng for marketi ng
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purposes? Woul d that depend on the organi zati on whi ch recei ves i t,
the i nformati on?
MR. SMI TH: I s i t espi onage at that poi nt? No.
COMMI SSI ONER VI DENI EKS: Whether i t i s or i s not
espi onage?
MR. SMI TH: I t's probabl y not, al most certai nl y not, especi al l y
i f they're getti ng i t from j unkyards. One of the i nteresti ng thi ngs
about Chi na i n the l anguage standpoi nt i s the ol d busi ness--and the
doctor can speak to thi s much better than I --but there's no real phrase
i n Chi nese i nvol vi ng i ntel l i gence gatheri ng. The word "qi ng bao sou",
ki nd of l i ke i nformati on gatheri ng, somethi ng l i ke thi s, that i s real l y
what you see them doi ng more so than actual l y i ntel l i gence
i nformati on. I t's i nformati on gatheri ng.
DR. MULVENON: I n fact, Commi ssi oner, when I 'm i n Chi na, I
often transl ate the ti tl e of my organi zati on as the Center for
I nformati on Research and Anal ysi s.
COMMI SSI ONER VI DENI EKS: Thank you.
Cochai rman Rei nsch.
I can't resi st a comment or two, whi ch wi l l not surpri se Dr.
Mul venon. I thi nk your poi nt on the students i s wel l -taken. I j ust
woul d comment that l ooki ng at the state of our current educati on
system, whi ch i s somethi ng you al l uded to, we cannot si mul taneousl y
be a worl d i nnovati on l eader and thi nk that we're goi ng to do i t sol el y
on the basi s of Ameri can students.
Looki ng at i t hi stori cal l y, the great strength of thi s country for
200 years has been i mmi grati on. I t's been bui l t on i mmi grants,
certai nl y i n my fami l y, and I thi nk that of most everybody here. I
thi nk that's where our future l i es too.
I thi nk peopl e wi l l tel l you, most peopl e wi l l say, that i f you
l ook parti cul arl y at the students that are comi ng here to get advanced
degrees or even undergraduate degrees, the benefi ts we accrue from
them whether they stay here or they go back vastl y outwei gh the costs,
whi ch i s not to say the costs are zero, whi ch Mr. Smi th al l uded to, but
I don't thi nk there's anywhere near a bal ance here.
On the deemed export i ssue, Dr. Mul venon, I remember and have
heard very wel l the comments of the academi cs on that subj ect. What
you haven't real l y noted I thi nk from the other standpoi nt i s the real
probl em wi th that has al ways been the cost/benefi t rati o. The
government was pouri ng a l arge amount of ti me and energy and
resources i nto a process that rej ected maybe one or two peopl e a year,
because they di dn't have i nformati on real l y that was much more
extensi ve than the i nformati on that was avai l abl e when the vi sa was
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granted i n the fi rst pl ace, and these were mostl y peopl e who had vi sas
and were tryi ng to convert because they were l eavi ng academi a and
getti ng a j ob.
There are better ways to deal wi th thi s probl em and certai nl y
more cost effecti ve ones than to create thi s enormous process that ends
up i denti fyi ng maybe one person i n a year.
So one of the thi ngs that I thi nk has been l acki ng i n thi s
di scourse i n the past, and i s sti l l l acki ng, i s any sense that thi s i s a
ri sk management probl em. Most peopl e approach thi s as a zero ri sk
probl em, and i f you approach i t as a zero ri sk probl em, you can't
possi bl y wi n.
I f you approach i t as a ri sk management probl em, then you're
goi ng to put your resources where they'l l do the most good, and you'l l
be abl e to accompl i sh somethi ng. Thi s has been frankl y one of my
compl ai nts about the FBI over the years. They never understood that.
Now l et me ask a questi on havi ng fi ni shed wi th the rant. For Dr.
Mul venon, you sai d an i nteresti ng thi ng way back. Y ou al l uded to
Hong Kong, and I 'd l i ke to pursue that wi th you for j ust a moment. I
certai nl y woul d agree that there i s a theoreti cal ri sk wi th respect to
Hong Kong. I t's obvi ous, and you stated i t.
I 'm not aware of a l ot of practi cal probl ems, and I 'm wel l aware
of the extent to whi ch the Hong Kong government has gone to try to
make sure that there aren't any probl ems. Has somethi ng happened i n
the l ast year that I don't know about?
DR. MULVENON: Si r, I woul d submi t that i t i s a si gni fi cant
probl em, and that i t may not be refl ected i n the data you're seei ng, but
when the equi pment i s transferred to Hong Kong, there are therefore
no restri cti ons on i ts transshi pment to the mai nl and, and that a l arge
percentage of the export control cases that I have seen have i nvol ved
Hong Kong transshi pment.
HEARI NG COCHAI R REI NSCH: Okay. That's useful . I thi nk
I 'd l i ke to get more i nformati on about that. We'l l do i t offl i ne.
DR. MULVENON: Maybe we coul d tal k about that offl i ne.
HEARI NG COCHAI R REI NSCH: We'l l do i t. Y es, we'l l do i t as
a si debar.
Thank you.
COMMI SSI ONER SHEA: Thank you both.
I j ust want to fol l ow up on a questi on that Chai rman
Barthol omew asked, and I thi nk you, Dr. Mul venon, responded to what
I was thi nki ng of aski ng you.
I n a smal l way, I 'd l i ke you to sort of ampl i fy, both of you, on i t,
thi s noti on of entrepreneuri al espi onage. I t seems l i ke the noti on of
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peopl e i n the Uni ted States tryi ng to get access to i nformati on that
they thi nk some sponsor i n Chi na mi ght be i nterested i n, i t seems very
si mi l ar to the patri oti c hacker associ ati ons wi thi n Chi na that j ust hack
i nto U.S. si tes, perhaps not state-sponsored i n any way, but thi nki ng
that the i nformati on that they mi ght gather woul d be useful to
somebody.
Coul d you quanti fy thi s entrepreneuri al espi onage? I s i t hal f of
what's goi ng on or to what degree are we tal ki ng here?
DR. MULVENON: I woul d j ust say, for i nstance, si nce 2004, as
an exampl e, we have a handful of what I woul d descri be as pure
espi onage, di rected at U.S. secrets wi th tradecraft and everythi ng el se,
but 25 cases of thi s entrepreneuri al espi onage. And so there's
basi cal l y a seven or ei ght to one rati o.
So I thi nk i t's the domi nant form wi th the fol l owi ng caveat,
whi ch i s we don't know what we don't know, i n a "Rumsfel di an" sort of
way, whi ch i s that I fear that most of the peopl e that we have ensnared
i n these i nvesti gati ons are ones who are j ust too damn stupi d to begi n
wi th, and my questi on i s what have the smart peopl e gotten away wi th
that we don't know about? Because gi ven the l anguage barri ers and
everythi ng el se, i t woul d be fai rl y easy to fl y under the radar.
COMMI SSI ONER SHEA: Mr. Smi th, do you have anythi ng to
add?
MR. SMI TH: One of the thi ngs that 60 years of communi sm
hasn't done for the Chi nese peopl e and that's dampened thei r
entrepreneuri al spi ri t. They're sti l l i nterested i n maki ng money j ust
l i ke they're sti l l i nterested i n gambl i ng. Some of these thi ngs that the
communi sts say they're goi ng to get ri d of, wel l , they haven't.
From the standpoi nt of prosecuti on, thi s i s where I thi nk that--
and perhaps i t's not so much i t's a l egi sl ati ve i ssue--i s that from the
standpoi nt that there shoul d be a great deal of di scussi on on how they
shoul d approach these. I don't thi nk i t's necessary for the government
to try to prove, for exampl e, as they di d i n the Chi Mak case, that he
was an i ntel l i gence operati ve.
The poi nt was that he had stuff that shoul dn't be l eavi ng the
country and he was l eavi ng the country wi th i t. Leave i t at that. And
I thi nk there shoul d be a greater emphasi s, not onl y from the
standpoi nt of prosecuti on, but al so from the standpoi nt of the
i nvesti gati ons themsel ves, to--parti cul arl y deal i ng wi th the Chi nese,
that espi onage i s a terri bl y di ffi cul t statute to prosecute, and i t's a
terri bl y di ffi cul t statute to i nvesti gate--take a step back and go wi th
what you got.
And that's what I thi nk you see i s happeni ng to a l arge degree
wi th these 25 or so i nvesti gati ons. They woul d prefer to have
espi onage cases, but they j ust aren't there. And I 'm not even sure that
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they are there, much l ess the fact that i t's a matter they j ust can't prove
them.
COMMI SSI ONER SHEA: Okay. Thank you.
HEARI NG COCHAI R BROOKES: Commi ssi oner Mul l oy.
COMMI SSI ONER MULLOY : Thank you, Mr. Chai rman. I want
to thank the wi tnesses, both of you, for bei ng here. Mr. Smi th, I want
to say speci al thanks to you for your servi ce to our country i n the FBI
for many years.
MR. SMI TH: Thank you.
COMMI SSI ONER MULLOY : I see we've tal ked about espi onage
here, and that they targeted technol ogy. The Chi nese have targeted
technol ogy as part of the espi onage. That's what we've been tal ki ng
about. But I see two ways i n whi ch the technol ogy i s movi ng out of
thi s country wi thout espi onage at a very rapi d pace.
Our abi l i ty, so much of our R&D i s ti ed to the manufacturi ng
sector of our economy. And the manufacturi ng sector of our economy
i s bei ng outsourced due to, I thi nk, some pretty sophi sti cated trade
strategi es bei ng used, and when the manufacturi ng l eaves, now the
R&D i s movi ng.
I went to a bi g research park ri ght outsi de of Bei j i ng and saw the
seri ousness of purpose wi th whi ch the Chi nese are tryi ng to move up
the technol ogy l adder, and I thi nk, Dr. Mul venon, you tal ked about
that, that they want to be an i nnovati on soci ety. They cl earl y tal k
about i t.
So I see the trade strategy as bei ng part of movi ng technol ogy as
an i ssue, and then the other thi ng I see i s years ago, many of these
Chi nese students that came here stayed here. More and more they
offer i ncenti ves to bri ng those students back, and because the Chi nese
economy i s growi ng so rapi dl y, and ours i s not, they're more i ncl i ned
to do that.
I don't thi nk Ameri cans are stupi d, and I thi nk they can do
sci ence and technol ogy. We used to do i t back i n the '50s. I remember
when Sputni k went up, we were al l goi ng to school on Saturdays to
l earn math and sci ence. Many of my fri ends went on to great careers
i n math and sci ence.
They weren't ethni c peopl e; they were Ameri can born, and they
di d al l ri ght. But I thi nk so much has gone on i n our state uni versi ti es
that i t's easi er to bri ng these forei gn students i n for some reason.
Maybe they have peopl e from the forei gn country i n charge of the
research and then they bri ng i n thei r own peopl e. I don't know.
But I thi nk there i s somethi ng goi ng on wi th regard to that, and
j ust woul d you both comment on those two aspects of movi ng
technol ogy out of the country because our whol e standard of l i vi ng and
our abi l i ty to have superi or mi l i tary i s based on the fact that we're
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more advanced i n technol ogy and sci ence than other peopl e?
Anyway, Mr. Smi th and then Mr. Mul venon.
MR. SMI TH: One of the great di ffi cul ti es i n doi ng a damage
assessment i n an espi onage i nvesti gati on i s what I l i ke to tal k about,
the i ndi rect access. Now, for exampl e, i n the Katri na Leung case, we
can come up wi th a pretty good i dea of what type of i nformati on she
had access to by i denti fyi ng that i nformati on that the agent handl er
had. I t's i ni ti al s on documents, case assi gnments, thi s sort of thi ng.
But what's extraordi nari l y di ffi cul t to come up wi th i s the
i ndi rect access, the casual conversati on he had wi th a col l eague at a
meeti ng, a fi l e that he l ooked at on someone's desk that he wasn't
supposed to, that wasn't real l y assi gned to hi m, thi s sort of thi ng.
Same thi ng happens i n the busi nesses. Y ou know--what was i t--
three or four years ago--that the Chi nese were al l owed to purchase the
tel ecommuni cati ons fi rm down i n Carol i na. Wel l , i f they get access to
that fi rm, they get access to not onl y the technol ogi es there then but
al so the mi nds and the thoughts of the engi neers and stuff l i ke thi s. So
there, agai n, i t's hard to come up wi th exactl y what they're comi ng up
wi th.
I can tel l you that i f there's a factory bui l t i n Chi na, regardl ess
of the safeguards that you thi nk are there, i f you're goi ng to have
Chi nese nati onal s i n that factory, you're goi ng to l ose somethi ng.
Wi thout any hesi tati on, you're goi ng to l ose somethi ng, and that's j ust
the pri ce of doi ng busi ness, I guess, and I thi nk most U.S. busi nesses
at thi s poi nt have made the deci si on, wel l , i t may be worth i t. I 'm not
as convi nced now as I was perhaps a few years ago that thi s i s correct.
DR. MULVENON: Mr. Commi ssi oner, I 'm struggl i ng to
remember the exact ci tati on, but someone sent me a study that was
recentl y publ i shed that shows that 75 percent of the Chi nese students
that come to the U.S. are sti l l stayi ng here, and i f I fi nd i t, I can send
i t to you.
COMMI SSI ONER MULLOY : Thank you. That woul d be
hel pful .
DR. MULVENON: I thi nk the troubl i ng dynami c that I 've
noti ced i n the trade rel ati onshi p i s that because of the demands of
market access, because of the desi re of so many mul ti nati onal s from so
many di fferent countri es to get i nto Chi na, that that gi ves the Chi nese
government i ncredi bl e amount of l everage. That many of the
mi ni stri es that are now the regul ators of i ndi vi dual sectors had
spawned previ ousl y commerci al compani es whi ch are now competi tors
and J V partners for those mul ti nati onal compani es comi ng i n.
But what's been cl ear over the l ast fi ve years i s the coi n of the
real m to get i nto Chi na, to get that market access, to get that J V
rel ati onshi p, has been to establ i sh an R&D l ab wi thi n Chi na, and the
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numbers vary, somewhere between 750 and 1,500 of these R&D l abs.
I n my experi ence tal ki ng to peopl e who run these R&D l abs,
agai n as Agent Smi th sai d, a cost of doi ng busi ness, i s that i n al most
al l cases the students are routed through these l abs and through these
trai ni ng courses, and that a very, very smal l percentage, i f any, of
those i ndi vi dual s actual l y are retai ned by the company that set up the
R&D l ab.
And so they're basi cal l y trai ni ng areas for peopl e to usual l y then
go back to i ndi genous Chi nese compani es, and there i s some
frustrati on among mul ti nati onal executi ves who have to deal wi th thi s
si tuati on because they know they're trai ni ng peopl e for thei r
competi ti on, but they al so know that the establ i shment of that l ab was
a qui d pro quo to get i nto the market, and that i s al l part of thi s, i n my
vi ew, nati onal i nnovati on strategy on the Chi nese si de whi ch says that
there has to be thi s peri od where they aggressi vel y and systemati cal l y
try and acqui re that ki nd of technol ogy.
COMMI SSI ONER MULLOY : Thank you both. That was terri fi c
to get that i nformati on on the record. Thank you.
HEARI NG COCHAI R BROOKES: Okay. Thank you.
I have another questi on. We'l l be fi ni shi ng up here i n the next
fi ve mi nutes or so, but Mr. Smi th, are potenti al assets devel oped i n the
Uni ted States?
MR. SMI TH: Oh, of course.
MR. SMI TH: When you had a l arge i nfl ux of Chi nese students,
for exampl e, I vi ewed them as a counteri ntel l i gence possi bi l i ty and not
so much as a counteri ntel l i gence probl em.
HEARI NG COCHAI R BROOKES: So not al l of them are
recrui ted before bei ng sent overseas?
MR. SMI TH: Oh, yes, but what you do i s you try to recrui t those
that have been reached through some sort of accommodati on. That's
real l y the i dea behi nd--
HEARI NG COCHAI R BROOKES: But are there other assets that
are recrui ted here i n the Uni ted States for Chi nese i ntel l i gence?
Who was doi ng that and how, what methods are they usi ng to recrui t
peopl e?
MR. SMI TH: Y ou mean from the U.S. si de or from the other
si de?
HEARI NG COCHAI R BROOKES: Oh, whoever. Even i f they
were Chi nese nati onal s or Ameri cans, who i s recrui ti ng them and how
are they recrui ti ng them?
MR. SMI TH: I 'm a l i ttl e bi t uncl ear. Are you tal ki ng about--
HEARI NG COCHAI R BROOKES: I 'm tal ki ng about the Chi nese
government.
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MR. SMI TH: The Chi nese government. I t seems to me that most
of the cases where there were non-ethni c Chi nese i nvol ved--the Ronal d
Montaperto case, for exampl e, he was a vol unteer. He became so
enamored wi th them or somethi ng l i ke thi s that he began to provi de
i nformati on and somethi ng of that sort as wel l .
But what I thi nk they do, and what I know they do, i s that they
wi l l fi nd those peopl e that have for whatever reason a strong cul tural
i denti ty, the fami l y ti es back there or somethi ng l i ke thi s, and you got
to remember, thi s i s not a hard pi tch recrui tment type thi ng. These
peopl e are never gi ven the tradecraft and thi ngs l i ke that. The onl y
thi ng they want for them i s to j ust establ i sh a rel ati onshi p.
I t goes back to thi s busi ness I tal ked about very earl y i n thi s
heari ng, i s that they don't l ook at i t as a four-year cycl e and thi s sort
of thi ng. They l ay the groundwork for years and years i n advance for
some sort of cooperati on. At some poi nt, they wi l l expedi te a vi sa,
they wi l l do somethi ng, they wi l l do these favors. They'l l i nvi te them
to the consul ate, Chi nese New Y ear party, but at some poi nt, they may
ask a favor.
They escal ate that favor, thi s sort of thi ng, and that's how that
process takes pl ace. Real l y speaki ng, peopl e don't even real i ze they're
bei ng recrui ted.
Chai rman Barthol omew.
I want to go back agai n, Dr. Mul venon, i n parti cul ar, the i ssue of
economi c espi onage, and my questi on mi ght not be as cl ear as i t
shoul d be because my brai n i s not as cl ear as i t shoul d be on these
thi ngs, but there has been a debate on and off or some di scussi on on
and off wi thi n our own i ntel l i gence communi ty about--we don't use our
i ntel l i gence assets for economi c espi onage, i n part, of course, because
who woul d deci de whi ch compani es woul d be the benefi ci ari es of
whatever i nformati on was gathered and how woul d that determi nati on
happen.
Y ou menti oned state-owned compani es and spi noffs of state-
owned compani es, some of whom are competi tors wi th each other.
Who i s i t who i s determi ni ng who gets access or what the economi c
espi onage acti vi ti es are, these cl eari nghouses, for exampl e? I f
massi ve amounts of i nformati on i s bei ng sucked up, i s the i nformati on
i n those cl eari nghouses avai l abl e to anybody i n the Chi nese busi ness
worl d who i s i nterested i n getti ng access to what's been gathered?
DR. MULVENON: Wel l , Commi ssi oner, I woul d say i t depends
on the source, but, for i nstance, j ust to gi ve you a speci fi c exampl e, an
organi zati on l i ke the Chi nese Defense Sci ence and Technol ogy
I nformati on Center, whi ch publ i shes a l arge amount of materi al i n
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Chi nese that i s deri vati ve of the materi al that they col l ect from abroad,
some of those j ournal s that they publ i sh are openl y avai l abl e. Y ou can
go to a mi l i tary bookstore i n Bei j i ng and wal k i n and buy thei r j ournal
or thi ngs al ong those l i nes.
But they al so then for a vari ety of reasons, someti mes not pushed
by espi onage, but al so by a desi re to obfuscate the fact that they've
commi tted some sort of i ntel l ectual property ri ghts vi ol ati on, the
category, for i nstance, of nei bu publ i cati ons i n Chi na. A si gni fi cant
number of publ i cati ons that are nei bu, i n other words, i nternal
di stri buti on onl y, to Chi nese ci ti zens, are di sgui si ng the fact that they
are, i n fact, i l l egal copi es of copyri ghted Western and U.S. materi al ,
and so, for i nstance, you can wal k i nto a Chi nese mi l i tary bookstore
and see the transl ati on seri es of al l of our j oi nt doctri ne publ i cati ons.
Al l of those were i l l egal l y copi ed. Al l of those were transl ated
i n ways where they shoul d have gotten royal ti es or books that are
publ i shed by peopl e at NDU and other pl aces, where they're j ust
si mpl y vi ol ati ng the i ntel l ectual property.
So there's a certai n cl assi fi cati on that those thi ngs are
di stri buted through, but those ki nds of organi zati ons are the ones that
acqui re and transl ate them, and i t's qui te obvi ous to me from
harvesti ng a l ot of thi s materi al that the numbers of transl ators that
they have worki ng on doi ng thi s compared wi th the numbers of books
that our own system transl ates every year i s j ust orders of magni tude
di fferent.
I t j ust gi ves you a sense of the scal e of the operati on. So there
i s general i zed access, I thi nk, to a l ot of thi s materi al , parti cul arl y the
open source based materi al , and i f you go to speci al i zed bookstores,
S&T bookstores, other thi ngs, you'l l fi nd an awful l ot of thi s materi al
that's openl y avai l abl e for di stri buti on, and there's a whol e gray
economy, i f you wi l l , very si mi l ar to the DVD pi rati ng and the CD
pi rati ng and everythi ng el se, but i n thi s case i t's S&T pi rati ng, i f you
wi l l , of thi s ki nd of materi al .
COMMI SSI ONER BARTHOLOMEW: Coul d a company l i ke
Huawei , j ust hypotheti cal , deci de that i t wants access to a certai n ki nd
of research that i t bel i eves i s bei ng done by an Ameri can competi tor,
an Ameri can company, coul d somebody at Huawei go somewhere
wi thi n the Chi nese government to request assi stance i n getti ng access
to certai n ki nds of i nformati on?
DR. MULVENON: A company l i ke Huawei , whi ch I 've spent a
l ot of years studyi ng, i s a very speci al organi sm, but they work very
cl osel y, for i nstance, i n col l aborati ve research, and there i s open
source evi dence of col l aborated co-wri tten arti cl es between Huawei
researchers and researchers from numbered defense i ndustry research
i nsti tutes, for i nstance.
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So they're cl earl y operati ng i n that worl d i n whi ch they woul d be
abl e to tap i nto the ki nd of open source deri ved i ntel l i gence of U.S.
and other S&T research as part of bei ng i n that worl d.
COMMI SSI ONER BARTHOLOMEW: I 'm aski ng you to go
beyond the open source deri ved i nformati on and go other sources.
DR. MULVENON: Huawei may not be the best exampl e for that
then because most of, i f not al l of, what they produce i s commerci al l y
anal ogous routers and swi tches. Huawei does not produce equi pment
that we woul d regard as governed under muni ti ons l i sts or export
regul ati ons, and so there woul d be no reason for Huawei researchers i n
that context to want to acqui re that ki nd of i nformati on.
Now, you coul d i nstead l ook at an organi zati on that i s i nvol ved
i n mi ssi l e producti on or thi ngs al ong those l i nes where they woul d
want to have i nformati on about speci fi c seekers or somethi ng l i ke that.
Because they are i n the defense i ndustri al system; therefore, they have
al l the purvi ew i n the worl d, parti cul arl y i f they're worki ng on a
program that i s desi gnated by the General Armaments Department or
someone el se as part of those programs.
We know from thei r RDT&E process that forei gn i ntel l i gence
col l ecti on of defense S&T i nformati on i s a key component of that
process, and so i t's i ntegrated i n that sense, much better i ntegrated
than, I woul d argue, than even i n our own system, where my personal
experi ence has been U.S. defense i ndustri al compani es not havi ng a
terri bl y good understandi ng of even what our own i ntel l i gence record
i s about forei gn S&T devel opments.
COMMI SSI ONER BARTHOLOMEW: Okay. Thank you.
HEARI NG COCHAI R BROOKES: Thank you. Thank you, Mr.
Smi th, Dr. Mul venon.
I 'l l concl ude thi s panel . We'l l begi n agai n at 3:00 p.m.
[Whereupon, a short recess was taken.]

PANEL IV: CHINA S CYBER ESPIONAGE DIRECTED AGAINST
THE UNITED STAETS

HEARI NG COCHAI R BROOKES: Good afternoon. Wel come.
Wel come back. We're goi ng to convene Panel I V today, whi ch i s
"Chi na's Cyber Espi onage Di rected Agai nst the Uni ted States."
We're pl eased to be j oi ned by two panel i sts: Mr. Col eman; M.
Rohozi nski . Mr. Col eman i s a l ong-ti me securi ty technol ogy executi ve
wi th an extensi ve background i n busi ness operati on technol ogy. He
has frequentl y been i ntervi ewed and quoted i n di verse publ i cati ons
such as Busi ness Week, Washi ngton Technol ogy Revi ew, USA Today.
He al so mai ntai ns a bl og at the Web si te DefenseTech.org that
focuses on coveri ng i nci dents and devel opments rel ated to cyber
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warfare.
Mr. Rohozi nski i s a Pri nci pal wi th the SecDev Group and the
former Di rector of the Advanced Network Research Group, Cambri dge
Securi ty Programme.
He i s al so a founder and Pri nci pal I nvesti gator of the OpenNet
I ni ti ati ve where he di rects the works of ONI researchers i n the Mi ddl e
East and former Sovi et Uni on. He's al so co-edi tor of ONI 's gl obal
comparati ve study of network survei l l ance and censorshi p i n 45
countri es.
I n cooperati on wi th the researchers from ONI and the Uni versi ty
of Toronto Ci ti zens Lab, Mr. Rohozi nski was the author of the March
2009 report "Tracki ng GhostNet: I nvesti gati ng a Cyber Espi onage
Network." Thi s report detai l s a vast el ectroni c spyi ng operati on that
has i nfi l trated hundreds of government and pri vate offi ces around the
worl d i ncl udi ng those of the Dal ai Lama.
Mr. Col eman, i f you'd start. I f you'd keep your testi mony to
seven to ten mi nutes, that wi l l al l ow a maxi mum ti me for questi ons and
answers.
Pl ease proceed.

STATEMENT OF KEVIN G. COLEMAN, SENIOR FELLOW
TECHNOLYTICS, MCMURRAY, PENNSYLVANIA

MR. COLEMAN: Thank you.
Fi rst of al l , I real l y appreci ate the opportuni ty to address the
Commi ssi on on such a cri ti cal i ssue to our nati onal economy and our
nati onal securi ty.
Every computer that i s out there i s a potenti al cyber weapon,
wai ti ng to be l oaded and used by cri mi nal s, by terrori sts or by rogue
nati on states, and unti l we accept that preface, we wi l l not have the
securi ty necessary to defend our nati on or our busi nesses.
I n our report, we tal ked about a study that was j ust done. I n
preparati on for thi s, I asked Sol uti onary, an organi zati on that we deal
wi th for a number of years to pul l some numbers for us, and whi l e
cyber attacks i s probabl y the most i l l -defi ned term you're goi ng to
fi nd, we opened i t up and sai d j ust tel l us about acts of cyber
aggressi on, somebody doi ng somethi ng to the system they shoul dn't be
doi ng, such as reconnai ssance.
They were abl e to go back for the enti re fi rst quarter and pul l the
numbers for us, and i n the month of March, thei r customer base, whi ch
i s nonmi l i tary, non-maj or government enti ti es that they work wi th on
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securi ty and moni tor thei r fi rewal l s and such, experi enced 128 acts of
cyber aggressi on per mi nute from Chi na. That's 4.6 ti mes hi gher than
the next cl osest nati on.
Those attacks al l came from I P addresses i n Chi na. Now who's
behi nd that? We don't know. And we wi l l be very l ucky to ever get to
a poi nt where we can actual l y do that i nvesti gati on because, qui te
frankl y, i t requi res i nternati onal cooperati on and some type of
l egi sl ati on or regul ati ons that mandate transparency and openness to
conduct these i nvesti gati ons, to fi nd out who the parti es are behi nd
these.
I t coul d be a rogue nati on state. I t coul d be a terrori st group.
What's i nteresti ng i s--we actual l y covered thi s on the Cyber Warfare
bl og at DefenseTech.org--Hezbol l ah i ssued a press rel ease about the
formati on of thei r cyber uni t. Now, I 'm not i n the i ntel l i gence and
defense communi ty, but I mi ssed the whol e transi ti on when terrori st
groups start doi ng press rel eases about expansi ons.
Thi s i s j ust unprecedented, the amount of organi zati ons that are
fl ocki ng to cyber. Does anybody know what a B-1 Steal th bomber
costs? I t's about $1.5 bi l l i on. Anybody know what a cyber weapon
costs? Y ou can get i t on eBay for about $30.
There was an i nteresti ng e-mai l I got that sai d there wi l l be an
organi zati onal DDOS, a di stri buted deni al of servi ce, attack agai nst
any web si te you want for $500.
Thi s i s a commerci al enterpri se, a cri mi nal enterpri se, that's
worki ng on thi s stuff as wel l as rogue nati on states and mi l i tari es.
Y ou can t di sti ngui sh between them. There's a bl ur between the
commerci al si de and the busi ness si de and the i ndi vi dual and the
defense si de. We can't separate that out.
I n fact, there's a graphi c that we use i n our presentati ons and
bri efi ngs that show al l these cul mi nati ng i n what's cal l ed a cyber
threat, and you can't anal yze who's behi nd i t and where the threat
real l y l i es unti l we get to that next l evel of cooperati on and
i nvesti gati on.
I n prepari ng for thi s, I tri ed to l ook at thi s and fi gure out how
we coul d present ei ght to ten years of anal ysi s that we've been worki ng
on si nce my days at Netscape wi thout comi ng across as an al armi st,
but the numbers speak for themsel ves.
How many of us woul d accept at our home, somebody wal ki ng
around tryi ng to open a wi ndow to our house? That keeps goi ng on
day after day after day and tryi ng each door to make sure i t's cl osed
and i t's l ocked. That's cyber reconnai ssance. That's the scans and the
probes.
How many organi zati ons do you thi nk that woul d accept day
after day after day somebody wal ki ng i nto thei r offi ces, openi ng up a
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fi l e cabi net and taki ng hundreds of fi l es and wal ki ng out the door?
After about the second one, you probabl y have guards there and pol i ce
and there woul d be some offensi ve acti on taken to stop that.
Why i s i t that we turn a bl i nd eye when i t's el ectroni c but, boy,
i f i t's a physi cal fi l e that gets stol en, that's a whol e di fferent i ssue?
I thi nk I 'l l end there and I l ook forward to your questi ons.
Thank you.

PREPARED STATEMENT OF MR. KEVIN G. COLEMAN, SENIOR
FELLOW, TECHNOLYTICS, MCMURRAY, PENNSYLVANIA

145

The U.S. China Economic and Security
Review Commission

Opening Statement

of

Kevin G. Coleman, Senior Fellow at Technolytics

April 30
th,
2009

2009
The Technolytics Institute
4017 Washington Road
Mail Stop #348
McMurray, PA 15317
www.technolytics.com
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2

The Technolytics Institute (TTI) has an international reputation for excellence in cyber security,
cyber warfare and cyber terrorism that extends over the last decade. This program has included
past and present thought leaders within the fields of computer hardware, computer software,
networking and internet technology and supportive disciplines. TTI has sponsored and funded
ground breaking research that has helped define the field of cyber aggression and continues to be at
the forefront of investigation with our proprietary sources and methodologies.

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U.S.-China Economic and Security Review Commission

About: The Commission was created on October 30, 2000 by the Floyd D. Spence National
Defense Authorization Act for 2001 1238, Pub. L. No. 106-398, 114 STAT. 1654A-
334 (2000) (codified at 22 U.S.C. 7002 (2001), as amended by the Consolidated
Appropriations Act, 2008 (regarding changing the annual report due date from June
to December), the Treasury and General Government Appropriations Act for 2002
645 (regarding employment status of staff) & 648 Pub.L. No. 107-67, 115 STAT.
514 (Nov. 12, 2001); as amended by Division P of the "Consolidated Appropriations
Resolution, 2003," Pub L. No. 108-7 (Feb. 20, 2003) (regarding Commission name
change, terms of Commissioners, and responsibilities of Commission); as amended
by Pub.L. No. 109-108 (enacted Nov. 22, 2005) (regarding responsibilities of
Commission and applicability of FACA).

Purpose: To monitor, investigate, and submit to Congress an annual report on the national
security implications of the bilateral trade and economic relationship between the
United States and the Peoples Republic of China, and to provide recommendations,
where appropriate, to Congress for legislative and administrative action.
Public Law 109-108 directs the Commission to focus its work and study on the
following eight areas: proliferation practices, economic transfers, energy, U.S. capital
markets, regional economic and security impacts, U.S.-China bilateral programs,
WTO compliance, and the implications of restrictions on speech and access to
information in the Peoples Republic of China.

Hearing: Chinas Propaganda and Influence Operations, Its Intelligence Activities that Target
the United States and the Resulting Impacts on U.S. National Security

Co-Chairs: Commissioner William Reinsch and Commissioner Peter Brookes

Date: Thursday, April 30th, 2009
Location: Room 485, Russell Senate Office Building
Delaware and Constitution Avenues, NE
Washington, DC 20510

Panel V: Chinas Cyber Espionage Directed against the United States

This document provides a discussion of the employment of computer network exploitation by PRC
state or state-affiliated entities to obtain information from the U.S. government, contractors, and
industrial computer networks.

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OPENING STATEMENT
It is both an honor and a privilege to be here today and address such a critical issue that is central
to the national security interests of the United States. During the later stages of my tenure as Chief
Strategist of Netscape, the company that pioneered the commercialization of the Internet, I became
awakened to the darker side of what we were creating. From that point on I began my research and
analysis efforts in the areas of cyber security, cyber espionage, cyber terrorism and cyber warfare
which continues to this day. Chinas military strategists view our dependence on space assets and
information technology as soft ribs and a strategic weakness. That begs the question what are
they basing their view on?

Less than a week ago I was to be face to face with my Chinese counterparts or cyber adversaries if
you will, that I have researched and analyzed for years. The Chinese representatives included Mr.
Hou Yinming, Delegation Leader and Former Director of the prestigious Zhang Ya Da Electronic
Research Center, Major General Wang Baocun, PLA (ret), Professor Wang Xiangsui, Director of the
Beijing University of Aeronautics & Astronautics Center for Strategic Studies and co-author of
Unrestricted Warfare and finally Mr. Shen Weiguang, referred to as the father of Chinas
information warfare. At the last minute, only one Chinese panelist was allowed. The others were
denied permission to attend by their government bosses. Clearly, they were concerned about the
opposing panelists and there may have been other considerations as well. I might add timing was
bad for them given the disclosure of their scanning of the power grid and the discovery of a cyber
spying network in 103 countries.

Id like to start by discussing current observations before moving to ongoing initiatives. For far too
long, cyber attacks, cyber terrorism and cyber warfare have been perceived as too complex an issue
and a risk that could not be managed. Many others believe that until we experience the massive
disruption that will surely follow a successful cyber attack, we do not possess the intestinal
fortitude to take the actions necessary to help mitigate this risk. Another contingent believes
reports of these threats are overblown and need not be addressed. It is my belief that this threat is
real and we must take a proactive posture on acts of cyber aggression and espionage. For over two
decades, China has been attempting to do what the Soviet Union never accomplished; covertly
acquire western technology, then use it to move ahead of the west. I offer the following three
observations that I feel are critical when discussing acts of cyber aggression and espionage.

1. Cyber espionage is a serious and evolving threat that demands immediate attention. In a
report authored by Cambridge University it said that sophisticated computer attacks have been
"devastatingly effective" and that "few organizations, outside the defense and intelligence sector,
could withstand such an attack." We have all heard the comments and warnings from Dennis C.
Blair - Director of National Intelligence, General Kevin Chilton - Commander of U.S. Strategic
Command, MI5 the Intelligence Service in the United Kingdom and many others throughout the
world have even warned of successful cyber espionage activities against hardened systems that are
said to have been traced to China. Perhaps the most troubling acknowledgement came when the
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Wall Street Journal broke the story about the Chinese and Russians conducting cyber intelligence
reconnaissance and mapping the nations electrical power grid.

There are other reports of malicious code being found in the computer systems of oil and gas
distributors, telecommunications companies, financial services industries and other pieces of our
infrastructure. In February of this year I warned of acts of cyber terrorism against our water
treatment and distribution systems in my presentation at the United Nations. Former CIA operative
Robert Baer has publically stated that the foreign intelligence service has been probing our
computers, our defense computers, our defense contractors, our power grids, and the telephone
system. ... I just came from a speech at the National Defense University and they were hit by the
Chinese trying to get into their systems." What will it take before we realize the serious nature of
these acts of espionage and again I must ask What constitutes an act of cyber war? I asked that
question a long time ago, former DHS Secretary Chertoff asked that question again in November of
2008 and we still do not have an answer!

2. At the 10th National People's Congress in 2003, the Chinese army announced the creation of
"information warfare units." General Dai Qingmin said internet attacks would run in advance of any
military operation to cripple enemies. Clearly cyber intelligence is a critical component of Chinas
military arsenal. Cyber espionage officially arrived on Capitol Hill when two Republican
congressmen, Rep. Frank Wolf of Virginia and Rep. Christopher Smith of New Jersey, went public
with the news that in 2006 and 2007 their office computer networks had been breached by Chinese
hackers. And also when Commerce Secretary Carlos Gutierrez, who was in China on a trip with a
U.S. trade delegation last December, had his laptop slurped by Chinese cyber operatives. Not much
happened after those two events. It was seen as just two of the many covert acts that take place in
networks that connect the billions of computers and related devices globally. Perhaps the recent
discovery of a vast Chinese cyber espionage network (code named GhostNet) that penetrated 103
countries, infected nearly 1,300 computers, and continued to infect at least a dozen new computers
every week, will provide the wake-up call. I ask Solutionary, a security advisory client of ours and
top ranked managed security services provider (MSSP) to pull some data about acts of cyber
aggression that were tied to China. In March of this year, their security operations center (SOC)
identified 128 acts of cyber aggression against their clients every minute that were tracked back to
IP addresses in China. These acts should serve as a warning that clearly indicates just how far along
Chinas cyber intelligence collection capabilities are.

3. Hardware is just as susceptible as software is to hackers through the inclusion of malicious
logic; and the consequences of such an attack could be serious! One year ago this month, I wrote on
a blog site (DefenseTechs Cyber-Warfare) about the growing number of concerns over backdoors
and malicious code or circuitry hidden inside of counterfeit hardware and software -- all the way
down to the BIOS and instruction set inside of integrated circuit chips. Last month we saw a flurry
of articles about vulnerability in the BIOS of microprocessors that could be exploited to gain control
over the computer. Hidden malicious circuits provide an attacker with a stealthy attack vector.
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Commercial suppliers are increasingly moving the design, manufacturing, and testing stages of
Integrated Circuit (IC) production to a diverse set of countries, which is making the securing of the
IC supply chain infeasible. Together, commercial off-the-shelf (COTS) procurement and global
production lead to an increasing risk of covert hardware/firmware based cyber attacks.

The extraordinary effort required to uncover such high-tech covert acts combined with the massive
number of chips we would have to test and validate from a circuitry and microcode perspective, as
well as the need to scan through tens of millions of lines of code and validate each software instance
on billions of devices come together to make ensuring the integrity of our systems nearly
impossible. Security must be designed and built in, not tested for after the fact. In support of that
statement, researchers at the University of Illinois at Urbana-Champaign demonstrated how they
altered a computer chip to grant attackers backdoor access to a computer. This is not the casual
attacker! The level of effort would make this a tool for intelligence services of nation states.

If we are to ensure the integrity of our critical systems and information infrastructure, status quo is
not good enough. Many organizations do not have the technical capabilities to evaluate the threat
of cyber espionage or the budget to implement the advanced defensive measures needed to protect
their information assets. You would think that the fact that IP and data theft cost businesses an
estimated $1 trillion in 2008 would be a call to action. However, at this point the call to action has
been unanswered. Based on the sum of my experience, research and our analysis I would offer the
following three suggestions to help mitigate the risks associated with acts of cyber aggression and
espionage. Given this is a public hearing, I will leave my recommendations vague as not to risk any
compromise to the security these measures could provide.

1. We need to examine in detail and further quantify the risk that the global supply of
components, sub-assemblies, assemblies, sub-systems and systems pose to the integrity of our
critical information infrastructure and our highly computerized military. It would be extremely
difficult for the United States to create the computer and related equipment necessary to build and
support our critical information infrastructure and our technologically advanced military. If we are
not going to build everything we need here at home, then we need to advance the current testing
and validation tools and techniques as well as our system covert compromise monitoring and
detection capabilities. Refer to our report - Cyber Threat Analysis Report on the Global Supply
Chain National Security Issues.

2. We need to take any and all actions necessary to ensure our military has access to a
continuing supply of new offensive and defensive cyber capabilities that are required and will
continue to be required to defend our nation. This is not a one-time investment. Continuous
investment will be necessary to respond to the ever changing global supply of computer technology.
Chinese authors believe the United States already is carrying out offensive cyber espionage and
exploitation against China. China therefore must protect its own assets first in order to preserve
the capability to go on the offensive. While this is a highly unpopular statement, WE ARE IN THE
EARLY STAGES OF A CYBER ARMS RACE AND NEED TO RESPOND ACCORDINGLY!
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This race was intensified when China created Kylin, their own hardened server operating system
and began to convert their systems back in 2007. This action also made our offensive cyber
capabilities ineffective against them given the cyber weapons were designed to be used against
Linux, UNIX and Windows. Refer to our report - RED SOS.

3. Cloaking capabilities, pass-through servers, compromise web sites and remotely controlled
zombie computers make tracking and identifying the source of attacks and those behind them an
extremely difficult task. We need to develop and advance the concept of Digital DNA. This concept
catalogs the characteristic signatures associated with the cyber attack artifacts (code). In addition
to these technical capabilities, we need to establish a framework for international cooperation for
the investigation of cyber attack.

In Conclusion
We top the global chart of military spending, with China and Russia ranking second and third.
Chinas strategists believe the United States is dependent on information technology and that this
dependency constitutes an exploitable weakness. There are reasons to believe that China and
Russias militaries are collaborating and cyber warfare is one area that not only lends itself to
remote collaboration, but there is soft and medium intelligence that this has and is occurring. Last
year Col. Gary McAlum, chief of staff of the command's Joint Task Force for Global Network
Operations at U.S, Strategic Command, quoted approvingly from a new report Technolytics had
produced saying, China aims to achieve global electronic dominance by 2050. This conclusion
was drawn prior to the massive decline in the U.S. economy. As the U.S. funding for research and
development has slowed substantially, Chinas has increased. We are in the process of updating the
report referenced by Col. McAlum and at this time it appears the new projected date for Chinas goal
of electronic dominance is in the late 2020s or early 2030s. They will simply be able to outspend
the United States and the rest of the world much as we outspent the Soviet Union in the cold war.

At this time, the United States is the most technologically sophisticated country in the world. It is
that distinction that makes acts of cyber aggression so dangerous. It is critical to our nations future
to take any and all actions necessary to ensure the integrity of our critical information
infrastructure and our sensitive systems. I struggled with the best way to summarize over a decade
of learning and the best way to communicate how real the threat of cyber aggression is, as well as
the severity of these types of threats without sounding like an alarmist. The nature of this threat is
such that this is not a one-time fix. The continued advancements of cyber attack techniques
coupled with the rapid evolution of cyber weaponry requires continuous vigilance and the real-
time creation of innovative defensive mechanisms. China is laser-focused on dual-use technology
that caters to military and public use at the same time. President Hu Jintao has promised to "blaze a
path of development with Chinese characteristics featuring military and civilian integration." The
USCC 2008 report stated that The U.S. government has not established any effective policies or
mechanisms at the federal level to retain research and development facilities within its borders. I
believe what I have presented here is the result of that shortcoming. The issue that China is behind
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acts of cyber aggression against the United States is not the most concerning. It is the fact that we
currently do not know how extensive the problem of cyber espionage is today and where this will
lead to tomorrow!

Thank you for the opportunity to provide my perspective on the many challenges facing our nation
from acts of cyber aggression. In doing so, I tried to be mindful that this administration has only
been in place for a few months and new or changing policies surrounding cyber security will likely
arise in coming months. I look forward to answering your questions and working with you in the
future.

Appendix A Question from USCC

Q. As best as can be determined from unclassified sources, what is the extent of computer hacking and
computer network exploitation (CNE) that originates in China and is directed against the systems of the U.S.
government and/or U.S. firms? Do you have personal experience of cyber espionage activity that you could
discuss?

The accurate response to this question is WE DONT REALLY KNOW! While there have been reports, some
highly publicized, a vast quantity of these are not officially reported. A former US special agent with over 20
years of service stated he saw over 100,000 systems completely compromised and hundreds of thousands of
files infiltrated. One study suggests that open acknowledgement of a breach results in between 1% and 5%
decline in stock price for a corporation. That in and of itself is one reason why many of these events are not
reported. One troubling attack was when hackers were able to glean the sensitive information of up to
12,000 visitors to the Oak Ridge National Laboratory. In a recent conversation about this and other cyber
attacks with Gary Clayton, CEO of Privacy Compliance Group, he stated Recent reports from Australia,
Canada and the United States regarding the coordinated efforts of the Chinese to target key infrastructure,
throw into sharp focus the necessity for better coordination among the government, industry and individuals
to protect our infrastructure and our personally identifiable information. Today, the Chinese are targeting
the Pentagon and the Dalai Lama. Tomorrow, the targets will be ordinary citizens, their personal data and the
businesses upon which we rely. Unfortunately, most Americans are simply unprepared for the chaos and
financial disaster that such attacks will cause. We need to address security awareness!

Q. Who/what are the entities in China involved in cyber espionage? What evidence, if any, exists to link
such activity to Chinese state and/or state-sponsored entities? What are the major Chinese institutions
involved in the development of Chinese cyber espionage capabilities?

The PLA has cyber warfare capabilities that in my opinion equal that of the United States and Russia. This is a
three horse race (U.S. plus China plus Russia) and it is a dead heat. While at Netscape I became aware that
China had a group that reviewed, monitored and filtered content based on guidelines set by the Chinese
government. I have posted on my cyber warfare blog that this group has possibly been redeployed as a cyber
militia. I also worked with U.S. Strategic Commands working group on cyber militias. In addition, the
National University of China has Defense Technology advanced programs in place and is the strategic advisor
to the PLA on Cyber Warfare. The Ministry of Science and Technology (MOST) is the lead organization in
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9

defining science and technology plans and policies, drafting related laws, regulations and department rules,
and guaranteeing the implementation for China. Part of their initiatives deal directly with cyber capabilities.

Q. What are the primary targets of such hacking and CNE activities? What government, infrastructure,
economic, and scientific institutions and/or interests are being targeted by such activity? What are the
implications for U.S. national security and economic competitiveness resulting from the loss of data and
intellectual property in these areas?

I struggle to identify any computer that is not a target or potential target for cyber attack. Individuals are
attacked for personal information and their computers become an unwilling participant in a botnet. A bot is a
type of malicious software which allows an attacker to gain control over the affected computer. The affected
computer is then referred to as a zombie because it is not under the complete control of the owner/user. A
botnet is a collection of zombie computers under the control of the attacker. Corporate computers are
attacked for Intellectual Property and customer lists. One study I saw suggests that around 80 percent of an
organizations value now rests in its information. The Director of National Intelligence reported before
Congress that Intellectual Property and data theft in 2008 totaled $1 Trillion Dollars. It is all tied together.

The ability for foreign companies to advantageously compete against U.S. companies through cyber espionage
impact our economy and our ability to support research and development and investment in defending our
nation. Critical infrastructure control computers are compromised and mapped for possible attacks by
terrorist groups or rogue nation states. A computer is a cyber weapon waiting to be loaded and used. Based
on over a decade of work in their area without legislative standards for computer and systems security, our
national security is at great risk and will remain so!

Q. Can you identify and explicate past case studies of PRC cyber espionage that would serve to
illuminate Chinese intelligence operations within the United States?

Just look in the recent press and you will find plenty of examples. I was contacted by a security consulting
company for advice when they uncovered a bot attached to an Oracle data base of a U.S. Company. Based on
the information I was provided, the bot was said to have collected what I would categorize as competitive
information and send it to an IP address in China. I ask Solutionary, a top ranked managed security services
provider (MSSP) to pull some data about acts of cyber aggression against their clients that were tied to China.
Their security operations center (SOC) on average, identified 128 acts of cyber aggression per minute that
were traced back to IP addresses in China.

Q. Are you able to identify particular U.S. vulnerabilities (networks, infrastructure, etc.) that you believe
need to be addressed? Are there any practices or policies that you could recommend to the U.S. Government
to improve cyber security?

With the continuous discovery of vulnerabilities, the opportunity to compromise systems is always present.
April 14, 2009 (Computerworld) Microsoft today released eight security updates that patch 23 vulnerabilities
in Windows, Internet Explorer, Excel and other software in the company's portfolio -- a collection of fixes one
researcher called "insane." You can prove a computer has been hacked and compromised. It is nearly
impossible to prove a computer has not been compromised. We do not know how bad the problem is
because many organizations do not disclose these security events. Mandatory reporting along with a
classification of event type is required to properly track these malicious attacks and see if our preventative
measures are working.
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10

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The following is a list of research that will be published in the near future.
1. International Policy on Cyber Aggression
2. Advanced Cyber Counter Intelligence
3. Advanced Cyber Counter Measures
4. Cyber Intelligence Acquisition Infrastructure
5. Cyber Threat Assessment 2009
155

Pl ease proceed.

STATEMENT OF MR. RAFAL A. ROHOZINSKI, PRINCIPAL AND
CEO, THE SECDEV GROUP AND ADVISORY BOARD MEMBER
AT THE CITIZEN LAB, MUNK CENTER FOR INTERNATIONAL
STUDIES, UNIVERSITY OF TORONTO, ONTARIO, CANADA

MR. ROHOZI NSKI : Fi rst of al l , thank you very much for the
honor of appeari ng before your commi ttee.
Thi s i s the fi rst ti me that I 'm appeari ng, but not the fi rst ti me
that my partners and I from the OpenNet I ni ti ati ve or from the
I nformati on Warfare Moni tor have had the pl easure to come before you
to tal k about Chi nese practi ces i n cyberspace.
Most recentl y l ast year we tal ked about Chi nese practi ces of
survei l l ance agai nst the TOM- Skype pl atform as wel l as censorshi p
and compl i ci ty of U.S. compani es i n censorshi p i n Chi na i tsel f.
We are an evi dence-based organi zati on, and I wi l l try to keep my
remarks down to the facts deri ved from the recent GhostNet study
i tsel f.
The GhostNet study for most of you, for those of you who have
not fol l owed the news or seen the report, was a cul mi nati on of a ten-
month i nvesti gati on whi ch uncovered a computer network of 1,200
computers around the worl d, 103 countri es, al l of whi ch bel onged to
mi ni stri es of forei gn affai rs, embassi es, i nternati onal organi zati ons
and medi a organi zati ons.
The network i tsel f was speci fi c and targeted, focusi ng on these
targets i n parti cul ar. The mai n command and control servers for the
network were l ocated i n mai nl and Chi na and the control i nterface to
the network i tsel f was i n Chi nese. Note, I di d not say that thi s was a
Chi nese run network; however, al l the ci rcumstanti al evi dence does
poi nt to a network whi ch, i n effect, i s Chi nese operated.
Why we undertook thi s i nvesti gati on--and I thi nk thi s i s
i mportant to understand--we l ooked at persi stent al l egati ons of
Chi nese cyber espi onage agai nst non-governmental groups. However,
many of these al l egati ons, at l east i n the i nformati on that's avai l abl e i n
open sources, do not construct a proper attri buti on or evi denti ary
chai n. They are al l egati ons wi thout evi dence whi ch i n my mi nd i s
conspi racy.
So we set out wi th thi s i nvesti gati on to try to create that
evi dence chai n and that ki nd of attri buti on. We had a hypothesi s i n
our acti on whi ch i s somewhat peri pheral to thi s Commi ssi on but
i mportant to understand. The hypothesi s was thi s: that the
156

sophi sti cati on of cyber attacks agai nst targets whi ch had a l ower
abi l i ty to defend themsel ves woul d themsel ves be l ess sophi sti cated
and therefore better and easi er for us to be abl e to di scover.
I n other words, we di d not focus on cyber attacks agai nst U.S.
i nterests or Canadi an i nterests, but rather we l ooked at attacks agai nst
thi rd parti es, i n thi s case, the Ti betan communi ty and I ndi a i tsel f.
We were al so afforded a hi gh l evel of access to the Ti betan
communi ty whi ch l ed us to run a very careful forensi c i nvesti gati on.
That forensi c i nvesti gati on i ncl uded both bei ng abl e to understand how
the Ti betans were handl i ng thei r documents, i n other words to excl ude
the possi bi l i ty that the documents that were l eaki ng i n a manner other
than through cyber, and al so to be abl e to capture i n real ti me
techni cal data that woul d veri fy whether or not documents were
movi ng.
We were abl e through our i nvesti gati on on the fi el d, i n the fi el d,
i n the Ti betan communi ti es, i n I ndi a, not onl y to veri fy the fact that
thei r computers had been mal i ci ousl y i nfected by a vari ety of vectors,
but we were al so abl e to observe documents bei ng moved off those
computers of a sensi ti ve nature.
Now, when I say that, I woul d say that wi th a very strong
qual i fi cati on, and that qual i fi cati on i s that those documents that were
bei ng moved were not random documents that were si mpl y stri pped out
of those computers because a vi rus happened to be downl oadi ng
anythi ng.
They were targeted documents, and i n the case of one parti cul ar
document that we're abl e to i denti fy, i t contai ned a confi denti al
negoti ati ng posi ti on that the Dal ai Lama was prepari ng for wi th
negoti ati ons wi th Chi na i tsel f.
I woul d say j ust very bri efl y that the i nvesti gati on had three
phases. One was the fi el d col l ecti on core component whi ch I 've
al ready menti oned. There was another component where we actual l y
anal yzed the techni cal data from the fi el d i n our l aboratori es.
From that, we were abl e to di scover thi s much broader network
whi ch encompassed not j ust the Ti betan communi ty but 1,200 other
enti ti es. Some of those enti ti es were l ocated i n the Uni ted States.
They mai nl y focused on Sol i dari ty networks that worked wi th the
Ti betan communi ty but di d al so i ncl ude some commerci al enti ti es wi th
government ti es.
Our i nvesti gati on of those parti cul ar cases seems to i ndi cate that
those were dri ve-by expl oi ts rather than i ntended expl oi ts. Other
targets i n the U.S. i ncl uded forei gn mi ssi ons. The embassi es of I ndi a,
for exampl e, the Paki stani mi ssi on to the U.N., were al l targeted
successful l y and penetrated. However, whether we consi der those to
be U.S. i nterests or i nterests l ocated on U.S. soi l I thi nk i s a questi on
157

that we have to l ook at.
What are the fi ndi ngs of our i nvesti gati on? And I 'm wi l l i ng to
tal k about these i n greater detai l duri ng open sessi on. Number one,
the network that we di scovered does not fi t the profi l e of a cyber cri me
network, but rather seems to be targeted to the gatheri ng of sensi ti ve
pol i ti cal i ntel l i gence.
I n other words, there was not enough i nformati on whi ch woul d
have been readi l y expl oi tabl e by cyber cri mi nal s to make i t worthwhi l e
to go through the troubl e of both i nfecti ng these machi nes and then
reduci ng the target set down to a target set that actual l y coul d yi el d
what usual l y cyber cri mi nal s l ook for, whi ch i s personal data or
bl ackmai l data.
Secondl y, the systems that were penetrated were of a sensi ti ve
but uncl assi fi ed nature. We have no i ndi cati on that cl assi fi ed
networks wi thi n these i nsti tuti ons were penetrated. However, the
machi nes that were penetrated contai ned, for exampl e, vi sa appl i cants
to one of the countri es i n questi on; the mai n fi nanci al database of a
parti cul ar embassy; the computer bel ongi ng to the mi l i tary attache, the
seni or consul ary offi ci al .
So thi s was data whi ch coul d be combi ned or penetrati ons whi ch
coul d be combi ned and used for other i ntel l i gence purposes.
The pri mary vector of i nfecti on was a soci al l y-engi neered e-
mai l , whi ch i s extremel y di ffi cul t to defend agai nst i n techni cal terms.
Now, I 'l l devi ate for one qui ck second here. Because attackers were
abl e to take ful l control of an affected computer, rather than havi ng to
fake an e-mai l message wi th whi ch to i nfect someone, they coul d
actual l y resend a l egi ti mate e-mai l message between two trusted
parti es usi ng a secure connecti on, and that's why thi s parti cul ar
network operated so wel l , i s that i t essenti al l y used an exi sti ng system
of trust to propagate i tsel f i n a rather l ow-tech method.
The network was l ocated i n Chi na and on a vari ety of servers i n
Chi na, none of whi ch were password protected. Now some peopl e have
cri ti ci zed thi s and sayi ng, wel l , why was i t hi di ng i n pl ai n si ght; why
was i t not more covert? The si mpl e answer i s thi s: thi s was a
di sposabl e, bui l t-to-purpose col l ecti on network, one of perhaps
hundreds that exi st.
I n other words, the resources to bui l d i t weren't i nvested i n the
technol ogy; they were i nvested i n the expl oi tati on si de of i t.
Thi s l ast concl usi on l eads us to bel i eve that the system was
actual l y purpose-bui l t to target a certai n profi l e of actors, that i s those
possessi ng a l ow l evel of forensi c abi l i ty and medi ocre practi ces i n
i nformati on securi ty.
Thi s was hi l l bi l l y SI GI NT, but i t was targeted agai nst a
communi ty that real l y coul dn't defend i tsel f agai nst i t very wel l .
158

We al so have a hi gh degree of confi dence that the attackers were
l ocated i n Hai nan I sl and i n Chi na. Thi s i s because as part of our
i nvesti gati on, we actual l y i nfected oursel ves. We set up somethi ng
known as a honeypot computer and were therefore abl e to observe the
behavi or of the attacker for an extended peri od of ti me.
Of the sampl e set of what's known as entry I P addresses, 100
percent of them corresponded to Hai nan I sl and, Chi na. Moreover, the
possi bi l i ty, because i f an attacker was usi ng somethi ng cal l ed a proxy,
the vi cti m woul d have to be onl i ne, the i ntermedi ary vi cti m woul d be
onl i ne, and the attacker woul d have to be onl i ne. Coordi nati ng al l
three acti vi ti es at the same ti me i s very, very di ffi cul t, and i n our
esti mati on hi ghl y i mprobabl e.
Our i nvesti gati on was unabl e to concl usi vel y prove whether or
not the government i nterests or cri mi nal i nterests were behi nd the
network. However, our suspi ci on i s that thi s was a operati on whi ch
was essenti al l y outsourced to thi rd parti es, essenti al l y thi rd-party
actors possessi ng the equi val ent of a l etter of mark, l egal pi rates of the
state, whi ch had ei ther some contractual arrangements or had some
assurance of fi nanci al remunerati on or reward i n return for
mai ntai ni ng a speci fi c ki nd of network such as thi s.
A caveat: i s there an al ternati ve expl anati on for thi s parti cul ar
network, one perhaps that doesn't fal l so conveni entl y i nto a cyber
espi onage theory? Y es, there i s. I t i s possi bl e that a parti cul arl y
cl everl y constructed vector moved among the di pl omati c communi ty
because the di pl omati c communi ty does tal k to themsel ves. They do
use e-mai l .
Topi cs of common i nterest such as the si tuati on of Ti bet or the
Bei j i ng Ol ympi cs woul d be probabl e cause for a message to move that
way. However, the pattern of i nfecti ons i s over a peri od of two years.
The target set that was harvested at the begi nni ng of the network i s
not what the network l ooks at i ts concl usi on. The attacker essenti al l y
pared down and sel ected hi s targets i nto speci fi c baskets. That
consci ous process of doi ng i t argues agai nst a coi nci dental i nfecti on.
Some tentati ve concl usi ons, and on thi s I 'l l end. Thi s
i nvesti gati on l eads us to the concl usi on that do-i t-yoursel f si gnal s
i ntel l i gence i s now very much a real i ty. I t does not cost a l ot of
money; you can essenti al l y l aunch an attack of the ants and get an
awful l ot of return for a very l ow cost.
The fact that the attackers were abl e to use thi s l ow-tech
technol ogy means that thi s network expl oi tati on techni que i s avai l abl e
to anyone. However, i t's i mportant to say that whi l e the col l ecti on
network was l ow tech, was uncompl ex, the requi rements that woul d be
needed to be put i n pl ace to expl oi t the i nformati on gathered through
that do requi re a scal e l arger than a smal l NGO.
159

Why? Li ngui sti cal l y, 103 di fferent targets, i ncl udi ng the Pri me
Mi ni ster's Offi ce of Laos, the I srael i Consul ate i n Hong Kong, the
Russi an Embassy i n Bei j i ng, the I rani an Forei gn Mi ni stry, requi res
both l i ngui sti c ski l l s as wel l as domai n experti se i n terms of bei ng
abl e to know what to l ook for and what to make out of i t.
And on that, I wi l l end my remarks.
Thank you.

Panel IV: Di scussi on, Quest i ons and Answers

HEARI NG COCHAI R BROOKES: Thank you very much.
Commi ssi oner Wessel . Chai rman, Commi ssi oner.
COMMI SSI ONER WESSEL: Thank you, gentl emen, for bei ng
her today, and unfortunatel y I guess we're not goi ng to be abl e to get
i nto al l the depth of i nformati on that both of you possess because thi s
i s a fasci nati ng and ti mel y subj ect.
I want to understand from both of you, i f I can, you referred to i t
somewhat as hi l l bi l l y techni ques, but i ndi cated that the techni ques are
matchi ng the target, meani ng that i t--correct me i f I 'm wrong--that for
more secure i nstal l ati ons that there's cl earl y the opportuni ty to have
more aggressi ve and technol ogi cal l y profi ci ent techni ques.
Do you bel i eve that any, that al l of our commerci al i nterests,
si nce we've now seen defense contractors, the el ectri c gri d, et cetera,
do you bel i eve that everythi ng here i s at ri sk?
MR. COLEMAN: Absol utel y. The percentage of dol l ars that are
spent on i nformati on securi ty i s mi nuscul e compared to the overal l I T
budget and ri sk management budget i n most organi zati ons.
We l ooked at thi s awhi l e back, and we have what's cal l ed "stupi d
metri cs," and we came up wi th one. The physi cal al arm i ndustry was
si x ti mes the si ze of the i nformati on securi ty i ndustry. So once agai n
we're more i nterested i n protecti ng our physi cal assets, not thi nki ng
about the di gi tal assets.
MR. ROHOZI NSKI : I thi nk there's a questi on of possi bi l i ty and
probabi l i ty. I f you're aski ng me about the possi bi l i ty of expl oi tati on
and more sophi sti cated fashi ons, absol utel y. Take a l ook at how much
of our hardware i s presentl y prepared abroad. Take a l ook at the sal es
patterns of compani es l i ke Huawei that we tal ked about i n the l ast
sessi on and the opportuni ty to i mbed mal i ci ous code at the sort of
hardware l evel i nto cri ti cal i nfrastructure certai nl y exi sts.
The questi on i s how probabl e i s that? And I thi nk that's
somethi ng that we don't have a very good data on at the moment.
COMMI SSI ONER WESSEL: How do we get at that questi on
si nce, agai n, you know, the publ i c has become al armed, as
pol i cymakers have, wi th al l thei r recent revel ati ons, whi ch
160

unfortunatel y are somewhat ol d and a l i ttl e dated i n terms of getti ng
i nto the publ i c domai n?
We seem to have a probl em between DHS, FBI , NSA and others
j uri sdi cti onal l y i n terms of determi ni ng what's the best way of
addressi ng thi s probl em. Understandi ng that Chi na i s a l ocati on for a
l ot of thi s, i t's a l arger probl em of course. What do you see the
chal l enge? Do you see that there's--what's the best approach for
resol uti on i f there i s one?
MR. ROHOZI NSKI : Wel l , I thi nk there are two thi ngs that need
to be addressed qui te i ndependentl y. One i s standards wi thi n the
i ndustry for actual l y bei ng abl e to vet whether or not i mbedded code
exi sts on equi pment that's brought i n from abroad. At the moment, i t's
done rather ad hoc and on an i nsti tuti onal basi s or i nsti tuti on by
i nsti tuti on basi s.
Some are better at i t; some are worse at i t. And I don't thi nk
there's an across-the-board set of standards that can be fol l owed.
Secondl y, I thi nk there's the whol e i ssue of si mpl y openi ng up
i nformati on securi ty, i n effect, decl assi fyi ng a l ot of the si l os that
currentl y exi st around i t. Had we not publ i shed the GhostNet report, i t
woul d be hi ghl y unl i kel y that i t woul d ever see the l i ght of day i f i t
was passed through one of the formal i nsti tuti ons, si mpl y because
there's a great deal of concern and sensi ti vi ty around the sort of ways,
means, techni ques that i t may reveal , and I thi nk that's a bi g probl em
as you consi der as l egi sl ators thi s i ssue.
COMMI SSI ONER WESSEL: Mr. Col eman.
MR. COLEMAN: Actual l y I 've wri tten about thi s parti cul ar
topi c. I t's my opi ni on that DHS owns nati onal securi ty i nsi de the
Uni ted States i n cyber, not the mi l i tary. I n fact, there's a pi ece of
consti tuti onal l aw cal l ed the Posse Comi tatus Act that forbi ds mi l i tary,
uni formed mi l i tary, bei ng used agai nst our own ci ti zens, and that coul d
be actual l y appl i ed to the computer assets of busi nesses and
i ndi vi dual s.
So i t's goi ng to be a combi ned effort, and that's why I was very
i nterested i n readi ng Senator Rockefel l er's proposal that he put out as
to the organi zati onal structure and what they were goi ng to be
chartered wi th.
COMMI SSI ONER WESSEL: But are we at a poi nt now where
you thi nk we're up to the task of addressi ng thi s or are we way behi nd
the curve?
MR. COLEMAN: We are way behi nd the curve.
HEARI NG COCHAI R BROOKES: Commi ssi oner Shea.
COMMI SSI ONER SHEA: Thank you, both, for your testi mony.
I j ust have a questi on di rected to Mr. Col eman. Readi ng your
161

wri tten testi mony before the heari ng, you wri te that there are reasons
to bel i eve that the Chi nese and Russi an mi l i tari es are col l aborati ng
and cyber warfare i s one area that not onl y l ends i tsel f to remote
col l aborati on, but you suspect that thi s i s and has occurred, and I was
j ust wonderi ng i f you coul d ampl i fy that a bi t i n a publ i c forum?
MR. COLEMAN: Sure. There i s no secret that Chi na and Russi a
have been pl ayi ng ki nd of l i ke war games goi ng back and forth. Thi s
i s j ust another aspect of mi l i tary operati ons for Russi a and al so for
Chi na.
The more concerni ng poi nt about the Russi an and Chi na
col l aborati on i s there's an organi zati on cal l ed RBN, the Russi an
Busi ness Network. Basi cal l y i t's organi zed cri me. There was a ti me,
and we recei ved several communi cati ons from peopl e who were
l ooki ng at thi s, that i ndi cated that a conti ngent of RBN, whi ch i s
supposedl y control l i ng the l argest botnet i n the worl d ri ght now,
moved some of i ts operati ons over to Chi na.
Now that coul d be construed as sayi ng, okay, maybe they're
l earni ng from RBN on how to manage and create these botnets.
There was another pi ece of concerni ng i nformati on that came out
al ong the same l i nes, and that's 70 percent of the computers i n Chi na
have al ready been compromi sed, and i f you j ust run the numbers of
what they're expecti ng the number of computers to be, at the end of
thi s year, they wi l l now have the possi bi l i ty of havi ng over 200
mi l l i on computers compromi sed wi thi n thei r country that coul d be used
i n ti me of confl i ct agai nst an adversary.
So I thi nk wi th the organi zed cri me component pl us the j oi nt
mi l i tary exerci ses that are goi ng on, i t's a reasonabl e concl usi on that
they're at l east tal ki ng.
MR. ROHOZI NSKI : I 'd l i ke to add to that, and j ust ful l
di scl osure, for the l ast fi ve years, I 've been runni ng a NATO-Russi a
contact acti vi ty wi th the Russi an Nati onal Securi ty Counci l around the
i ssue of i nformati on securi ty and actual l y worki ng wi th those parts of
the Russi an government that are i nvol ved i n both the doctri nal
devel opment of cyber war as wel l as the doctri ne of i nformati on
securi ty, the Russi an Federati on i tsel f.
I 'l l make a coupl e of observati ons that may be sal i ent to your
parti cul ar questi on. Fi rst of al l , yes, there i s Russi a-Chi na
col l aborati on, but i t happens i n fai rl y stri ct and fai rl y wel l -defi ned
al l eys, especi al l y on the state to state l evel .
There i s a Russi a-Chi na cryptographi c treaty that has basi cal l y
al l owed both of them to devel op i nteroperabl e standards i n
cryptography as wel l as to devel op cryptography as a sci ence and as an
art for nati onal securi ty purposes, whi ch i s separate than that whi ch
occurs el sewhere. That has both commerci al i mpl i cati ons as wel l as
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nati onal securi ty i mpl i cati ons.
Y es, there i s a l ot of col l aborati on on i nformati on securi ty
through the Shanghai Cooperati on Organi zati on, certai nl y i n terms of
harmoni zati on. At the same ti me, there's a great deal of competi ti on.
Let's not forget that Russi a i s conti guous terri tori al l y wi th Chi na.
There's an awful l ot of worry about Chi nese encroachment, parti cul arl y
i n the Far East.
There i s al so i ntense competi ti on over the energy markets of
Kazakhstan, the water resources of Taj i ki stan, and i n a sense of
strategi c competi ti on over Afghani stan and other cri ti cal areas wi thi n
that.
So the Russi ans, my feel i ng, and havi ng met wi th them j ust l ast
week at a retreat where we were tal ki ng about exactl y thi s parti cul ar
i ssue, i s that they feel that they're bei ng pushed towards Chi na because
they cannot get a di al ogue around i ssues whi ch they see as bei ng
cri ti cal i n the cybersphere wi th the U.S.
There's a great deal of concern about the U.S., about the U.S.-
centri ci ty of the I nternet, and a great deal of fear that the whol e
questi on of I CANN, ri ght now as i t's bei ng di scussed, wi l l somehow
bri ng the whol e I nternet much cl oser i nto the U.S. orbi t than i t al ready
i s ri ght now.
Thei r maj or di pl omati c push, whi ch you'l l probabl y see i n the
next few months, wi l l be to i nternati onal i ze governance of the
I nternet, basi cal l y to try to push i t towards the I TU and other such
mechani sms where they feel they have a much more equi tabl e voi ce on
that.
That's what's happeni ng on the state l evel . On the sub-state
l evel , i n terms of col l aborati on of cri mi nal gangs, you know, the
I nternet i s--and the I nternet or cyberspace--i s a domai n whi ch i s open
to col oni zati on, and very often cyber cri mi nal s wi l l move to a
j uri sdi cti on where they have the most protecti on through the absence
of exi sti ng l aws or the abi l i ty to prosecute cri mes.
So what my esteemed col l eague was menti oni ng to me i s l ess an
acti ve cooperati on of Chi na and Russi a, wri t l arge, capi tal l etters wi th
an excl amati on mark, than i t i s the fact that Russi an cri mi nal s have
found i t conveni ent to operate from Chi nese domai n space si mpl y
because of the fact that they are much l ess subj ect to detecti on and
prosecuti on than they are i n Russi a at the present.
COMMI SSI ONER SHEA: Okay. Thank you very much.
HEARI NG COCHAI R BROOKES: I open thi s up to the panel .
Obvi ousl y, our i nterest i s Chi na as the U.S.-Chi na Commi ssi on, but i s
Chi na our l argest cyber probl em? Or i s there another country that's--
MR. COLEMAN: The data that we had, 4.6 ti mes the number of
attacks more than the next cl osest country, cl earl y i ndi cates that Chi na
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i s a probl em. But I woul d submi t that we better be l ooki ng much
broader than that and l ooki ng at the whol e i ssue around the governance
of cyber securi ty and the i nvesti gati on.
I t's a three-headed, I guess, who's number one i s anybody's guess
at any poi nt i n ti me. The U.S., Chi na and Russi a are i n the top three
spots i n the cyber arms race i s the way we assess them.
HEARI NG COCHAI R BROOKES: We often hear that i t's very
di ffi cul t to track these attacks or aggressi on back to thei r ori gi ns, and
that many of them seem to end i n Chi na. Do we have any sense of how
many, what percentage of thi s sort of aggressi on may go beyond Chi na
that do not ori gi nate i n Chi na i n terms of--
MR. ROHOZI NSKI : Wel l , I can gi ve you a stati sti c.
MR. ROHOZI NSKI : Because at present, 51 percent of al l
mal ware i s actual l y ori gi nati ng from Chi na, whi ch means that 49
percent i s not, but you have to put that i nto perspecti ve. The
perspecti ve i s thi s: Chi na i s becomi ng the most popul ous I nternet
nati on i n the worl d. 17 percent of the current I nternet i s Chi nese. The
vast maj ori ty of that i s young. The vast maj ori ty of that fal l s wi thi n
the 20 mi l l i on man army whi ch i s fast becomi ng unempl oyed because
of the gl obal recessi on.
They are di gi tal l y promi scuous. They are experi menti ng. So
much of what they do i sn't so much cri mi nal i n i ntent as i t i s si mpl y a
ki nd of scatteri ng around to see what they can do on the I nternet whi ch
i s not descri bed by l aw.
HEARI NG COCHAI R BROOKES: How woul d thi s sort of
troubl i ng Chi nese cyber acti vi ty, how woul d we break that down i n
terms of percentages? I don't know i f anybody has l ooked at thi s i n
terms of cri mi nal , other sort of--I don't know how you woul d
characteri ze the sort of thi ng, the mi schi ef that peopl e are i nvol ved i n,
espi onage, mi l i tary rel ated? I mean has anybody l ooked at thi s i n
terms of how al l thi s cyber acti vi ty breaks down categori cal l y?
MR. COLEMAN: Absol utel y not. Unti l we get to that next l evel
of i nvesti gati on beyond the si mpl e I P address that coul d be one of a
compromi sed server, we won't know that. So once agai n, that's why
I 'm sayi ng that we have to treat thi s, whether i t's organi zed cri me,
whether i t's state sponsored, whether terrori st sponsored, we have to
treat i t al l under one governi ng set of rul es and regul ati ons and
cooperati on to fi nd those numbers out.
MR. ROHOZI NSKI : Y es. Commi ssi oner, you put your fi nger on
I thi nk the hol y grai l that exi sts ri ght now, and that's cal l ed how do we
attai n si tuati onal awareness i n cyberspace so that we can actual l y
know what's goi ng on i n order to take i ntel l i gent deci si ons, and I don't
thi nk we're there yet by any means.
164

HEARI NG COCHAI R BROOKES: I s anybody even outsi de of
North Ameri ca l ooki ng at these sort of i ssues because others have
probl ems as wel l cl earl y?
MR. COLEMAN: I do know Germany i s l ooki ng at i t. I 've
recei ved some i ndi cati on Bri tai n i s as wel l .
HEARI NG COCHAI R BROOKES: Anybody l ooki ng at i t
aggressi vel y or tryi ng to get thei r arms around thi s i n terms of these
metri cs and si tuati onal awareness?
MR. COLEMAN: I n my opi ni on, the most aggressi ve i s U.S.
Strategi c Command. They're l ooki ng at i t. I have the utmost respect
for the work that they're doi ng. I was j ust out there i n J anuary and I 'l l
be there agai n l ater next month. They're worki ng on thi s di l i gentl y.
MR. ROHOZI NSKI : I woul d say that most advanced economi es
are taki ng thi s on very aggressi vel y. Agai n, I can't speak to Chi na
di rectl y, but I can speak to Russi a, and I know that thi s has become
pri ori ty i tem number one, and there's a great deal of i nteragency
coordi nati on around i t.
HEARI NG COCHAI R BROOKES: I read your report, and I
appl aud you for i t, not bei ng a person of compl etel y understandi ng
cyber worl d, but to me i t made qui te a bi t of sense.
Are there any other networks or other sort of schemes al ong
these l i nes that you've come across besi des thi s one you've publ i shed
about?
MR. ROHOZI NSKI : We conti nuousl y do i nvesti gati ons of thi s
sort so I can say there are at l east hal f a dozen that we've l ooked at
personal l y. One thi ng that I woul d say that emanates from thi s report
i tsel f i s the GhostNet Network that we wrote up was onl y one of seven
mal i gnant i nfecti ons that we di scovered. I t j ust so happened that thi s
i s the i nvesti gati on trai l that we coul d report on as opposed to the
others whi ch were dead ends.
That's why i n my remarks, I sai d thi s i s the attack of the ants.
These are essenti al l y di sposabl e networks that can be rapi dl y
constructed, and I thi nk that's the trend that we have to be aware of.
HEARI NG COCHAI R BROOKES: Coul d you descri be to a
certai n extent the other networks, other mal i ci ous code that you came
across besi des GhostNet? Were they al l rel ated to Ti bet or were there
other i ssues here as wel l ? Were they al l Chi nese or ci rcumstanti al l y
Chi nese?
MR. ROHOZI NSKI : I n thi s case, we were l ooki ng at Chi nese
ones and they had a very si mi l ar modus operandi . I t's j ust that we
coul d not fol l ow the attri buti on chai n. But there i s a compl etel y
separate acti vi ty, whi ch al so I thi nk baffl es us at ti mes, but whi ch i s
very preval ent outsi de of North Ameri ca where both Chi nese and
Russi an i nterests are i nvol ved, and that i s i n the use of deni al of
165

servi ce attacks as a way of si l enci ng operati on and/or other pol i ti cal l y
acti ve groups.
We have seen thi s repeatedl y occur i n Central Asi a and other
countri es, and when we have l ooked at track back i nvesti gati ons i n
terms of who was i nvol ved, general l y speaki ng, there was one common
poi nt of i nterest, and that i s the i ndi vi dual s that were behi nd i t al l had
some experi ence or some educati on i n Russi a, pi cki ng up essenti al l y
techni ques from a communi ty that's there.
But what's i nteresti ng about i t wi th rel ati on to Chi na i s that
we've seen those techni ques essenti al l y bei ng taken up now by Chi nese
hacki ng gangs, a Burmese, Vi etnamese and others. So there i s a
propagati on of techni que.
HEARI NG COCHAI R BROOKES: Chai rman Barthol omew.
COMMI SSI ONER BARTHOLOMEW: Thank you. Thank you to
both of our wi tnesses, and Mr. Rohozi nski , we al ways appreci ate
heari ng from the OpenNet I ni ti ati ve and what you guys are doi ng.
I thi nk I agree wi th Peter on the questi on of attri buti on. I thi nk
that we're frequentl y tol d that one of the concerns i n the event of a
cyber attack i s that i t's not goi ng to be easy to fi gure out who i t i s,
who's l aunched the attack, and that i t's possi bl e that the pl ace that
l aunched the attack l aunched i t through somebody el se, and how we
deal wi th that i n the context of a worl d where cyber warfare i s
i ncreasi ngl y l i kel y to be a real chal l enge.
But I want to get to two thi ngs. Can you tal k a l i ttl e bi t more
about what you're tal ki ng about on deni al of servi ce attacks that
peopl e or nati on states are somehow, they're l earni ng how i t works i n
order to be abl e to use i t to si l ence thei r own opposi ti on? Where i s
that ki nd of knowl edge comi ng from? I s i t peopl e onl i ne watchi ng i t
take pl ace and fi guri ng out how to do the same thi ng? I s there some
sort of acti ve shari ng of experti se?
MR. ROHOZI NSKI : I t's an underground economy. Y ou coul d go
onl i ne, and you coul d i n a sense order cri meware that al l ows you to,
fi rst of al l , set up your own botnet and then al so target i t and sel l i t to
others, and that economy exi sts because of the fact that there's a
market for i t.
Y ou know we i n North Ameri ca are used to a cul ture where you
try to out-communi cate your opponent. I n many other parts of the
worl d i t's al l about si l enci ng your opponent. So there's a market for
that ki nd of technol ogy, and i t's not j ust i n pol i ti cs; i t's al so i n medi a.
I f you want to be the most popul ar onl i ne source, wel l , you can
ei ther have the best content or you can make sure your competi tor
doesn't get i t out. Up to a few years ago, i n several countri es where
we studi ed, you actual l y saw newspaper arti cl es or newspaper
adverti sements sayi ng buy yoursel f a botnet. $20 wi l l get you thi s
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ki nd of attack; $500 wi l l get you that ki nd of attack.
COMMI SSI ONER BARTHOLOMEW: Then I want to take that
i nto thi s comment that had been made about Russi an organi zed cri me
operati ng i n Chi nese domai n space. I thi nk the percepti on of a number
of us has been that the Chi nese have ti ghter control over thei r
computer networks over there, over thei r content certai nl y, that's
taki ng pl ace, and we know that they have the abi l i ty to shut down
when Chi nese ci ti zens are communi cati ng thi ngs that they don't want
communi cated from person to person over the computer.
I s i t real l y possi bl e that Russi an organi zed cri me coul d be acti ng
through Chi nese space wi thout the Chi nese government bei ng aware of
i t and/or al l owi ng i t to happen?
MR. ROHOZI NSKI : I thi nk you i denti fi ed a very i mportant
characteri sti c of the Chi nese concern. They are very concerned about
the content space. They're not so concerned about moni tori ng the
behavi or on thei r networks from a cyber cri me poi nt of vi ew.
My i mpressi on from havi ng spoken to my Russi an i nterl ocutors
i s that they've spent an awful l ot of ti me devel opi ng capaci ty for bei ng
abl e to survei l thei r i nternal network, speci fi cal l y for acti vi ti es, not
the content l evel . I t's not what they care about. There's no great
fi rewal l of Russi a.
Whereas, the Chi nese have i nvested an enormous amount of
experti se, ti me and effort i nto moni tori ng what i s actual l y exchanged
on the I nternet i n terms of the content l evel whi l e they have not real l y
expl oi ted what i s actual l y done on the I nternet at the protocol l evel .
So I thi nk that's the di fference.
COMMI SSI ONER BARTHOLOMEW: So the expl oi tati on by
Russi an organi zed cri me or the use that they're doi ng i s of--
MR. ROHOZI NSKI : Of the actual hardware and servers
themsel ves.
COMMI SSI ONER BARTHOLOMEW: Of the hardware, okay.
MR. ROHOZI NSKI : So, for exampl e, you know, one of the
command and control servers for the GhostNet was l ocated on a gov.cn
server. When we l ooked at that server and we used a techni que cal l ed
"techni cal scouti ng," whi ch means we di dn't hack i t, we si mpl y took a
l ook what's on i t, we al so found i t servi ng al l sorts of other mal ware
that I 'm sure the system admi ni strator was never aware of.
Y ou don't real l y see that ki nd of thi ng i n Russi a. I thi nk i f the
Russi an Mafi a deci ded to bl og i n Chi na, they woul d probabl y be
pi cked up qui cker than i f they used an i ntermedi ary node to attack the
Uni ted States.
COMMI SSI ONER BARTHOLOMEW: Very i nteresti ng.
Thank you very much.
HEARI NG COCHAI R BROOKES: Commi ssi oner Vi deni eks.
167

COMMI SSI ONER VI DENI EKS: Good afternoon. I 'm not a
computer-type guy so my questi ons may be a l i ttl e bi t off the wal l .
What woul d the overhead costs be? I real i ze there's a probl em, a
securi ty probl em. I n order to fi x i t software-wi se, what woul d roughl y
the overhead factor be to a smal l offi ce versus a bi g offi ce?
MR. COLEMAN: I don't thi nk they can fi x i t. And l et me tel l
you why. I woul d actual l y l ook at what Chi na has done so that they
are not suscepti bl e to attacks from the Uni ted States or any other
adversary.
They've done two thi ngs that are very strategi c, and when you
l ook at them, i t's al so an economi c i ssue for us. The fi rst i s the
Chi nese Government devel oped thei r own securi ty hardened server
operati ng system (Kyl i n) under very stri ct control s to el i mi nate the
threat of preprogrammed back doors. Second, they devel oped thei r
own mi croprocessor for the same assurances. That woul d be very
di ffi cul t to do i n the U.S.
COMMI SSI ONER VI DENI EKS: I thi nk i t woul d be a huge
economi c i ssue the way i t sounds. I f you've got a bi g probl em, i t's got
to be fi xed, the i ni ti al entry l evel for the cri mi nal i s mi nor, or the spy,
whoever, you know.
MR. COLEMAN: Sure. Chi na created thei r own operati ng
system, and i t's cal l ed Kyl i n, K-Y -L-I -N. I t was a l ong-term
i ni ti ati ve, started back i n I bel i eve 2000 or 2001. They've announced
that they're goi ng to start mi grati ng thei r busi ness and cri ti cal
i nfrastructure i n government systems over to that operati ng system.
I t was 100 percent devel oped i n Chi na under very stri ct control s
and i t's hardened. We don't have that.
The second thi ng they di d was to el i mi nate the hardware
possi bi l i ty of a compromi se. They're devel opi ng thei r own nati onal
mi croprocessor chi p that Kyl i n wi l l actual l y run on top of. So they
wi l l have hardened hardware and hardened software so that they woul d
be abl e to address i t.
Now, i f you take a l ook at the open source l i ke Li nux
envi ronment, i t's very di ffi cul t to pol i ce mi l l i ons upon mi l l i ons of
l i nes of code. We don't have what I woul d cal l a known, sol i d, good
base to go from.
We al ready know that there's been massi ve compromi ses i n terms
of I thi nk the total number was 700,000 counterfei t processors came
i nto the Uni ted States and were sei zed by U.S. and Customs l ast year.
We know that $76 mi l l i on worth of confi scated counterfei t Ci sco
networki ng hardware was comi ng i nto the Uni ted States and actual l y
was di stri buted, and some of that made i t i nto the Defense Department
and Washi ngton, D.C. organi zati ons because they were set up as a
smal l busi ness i n the Uni ted States and they resol d that.
168

We al so know that we've got counterfei t chi ps i n space. So we
don't have that sol i d footi ng that we can bui l d from. We woul d have to
start over.
COMMI SSI ONER VI DENI EKS: We don't have a central i zed
securi ty safeguard system?
MR. COLEMAN: Y es. We do not have a central i zed securi ty
safeguard system.
COMMI SSI ONER VI DENI EKS: Si r, you want to comment,
pl ease?
MR. ROHOZI NSKI : Y es, I 'd j ust l i ke to comment, wi th several
observati ons perhaps.
COMMI SSI ONER VI DENI EKS: Y es.
MR. ROHOZI NSKI : Fi rst of al l , we cannot see securi ty as a
sol uti on. Y ou have to see i t as a process, as a way of thi nki ng. So
there i s no technol ogy fi x that can be appl i ed across the board i n order
to sol ve the probl em that we have here.
However, that bei ng sai d, I thi nk the fi el d of i nformati on
securi ty ri ght now i s far too focused on engi neers and far too focused
i n the hands of engi neers. We are a technophi l i ac soci ety.
COMMI SSI ONER VI DENI EKS: Are we pl ayi ng thei r game? My
questi on woul d be: i s creati ve destructi on the answer?
MR. ROHOZI NSKI : I thi nk so. The answer I woul d gi ve to your
questi on, whi ch i s somewhat i ndi rect, i s to say that we have to see
network securi ty as separate from cyber securi ty, and cyber securi ty
real l y needs to be broadened to i ncl ude not j ust the technol ogy
aspects, but al so an appreci ati on that the most successful expl oi ts that
we've seen are ones that empl oy soci al means, not purel y technol ogi cal
means, and unti l we get a good sense of that, and that may take a
DARPA-l i ke i ni ti ati ve, i f you l i ke, to bui l d a new fi el d of
cybersecuri ty, we're goi ng to be mi ssi ng the boat and basi cal l y wasti ng
bi l l i ons of dol l ars l ooki ng for the next best wi dget that wi l l sol ve our
probl em.
COMMI SSI ONER VI DENI EKS: Thank you, si r.
MR. COLEMAN: I f I coul d add somethi ng?
COMMI SSI ONER VI DENI EKS: Y es.
MR. COLEMAN: Y ou brought up the soci al engi neeri ng aspect
of thi s. The number one topi c ri ght now i s H1N1, the swi ne fl u.
We've al ready started to see phi shi ng and mal i ci ous e-mai l s and Web
si tes to i nfect peopl e usi ng that type of content draw them i n. That's
the soci al engi neeri ng that i s so di ffi cul t to guard agai nst.
COMMI SSI ONER VI DENI EKS: I f we were an autocrati c country
and we were to say, okay, we i ncrease the penal ti es by ten and we
make everyone buy new hardware and do somethi ng wi th the software,
okay, woul d that ki nd of a process, i s i t feasi bl e to some countri es,
169

maybe not here but somepl ace el se?
MR. COLEMAN: I don't thi nk i t's feasi bl e here. I t mi ght be
feasi bl e i n a very smal l country, but the i nfrastructure requi rements to
bui l d the manufacturi ng of mi croprocessors and al so the i nfrastructure
around networks as wel l as j ust the techni cal capabi l i ti es of wri ti ng al l
the software woul d go beyond the means of most countri es.
MR. ROHOZI NSKI : I woul d onl y add to that that I thi nk that
cyberspace i s a si ngl e-most val uabl e asset that the U.S. has as part of
i ts publ i c di pl omacy and gl obal engagement, and you certai nl y don't
want to throw the baby out wi th the bath water by creati ng an i sol ated,
super-secure network that doesn't serve that purpose.
COMMI SSI ONER VI DENI EKS: So we're struck wi th tryi ng to
create a counter process, a securi ty process, to try to protect what we
have?
MR. COLEMAN: Y es.
MR. ROHOZI NSKI : Correct.
COMMI SSI ONER VI DENI EKS: Thank you, si r. Thank you.
HEARI NG COCHAI R BROOKES: Commi ssi oner Mul l oy.
COMMI SSI ONER MULLOY : Thank you, both, for bei ng here.
Mr. Col eman, i n your testi mony on page seven, you tal k about
we need to, you say, you know, about di gi tal DNA and some techni cal
fi xes to thi s probl em, but then you say i n addi ti on to these techni cal
capabi l i ti es, we need to establ i sh a framework for i nternati onal
cooperati on for the i nvesti gati on of cyber attack.
Woul d i t make sense--and I remember we rai sed thi s i n another
heari ng--woul d i t make sense to try and get a conventi on? I mean i n
my youth I was i n the Forei gn Servi ce, and I remember worki ng on the
fi rst U.N. Conference on the Human Envi ronment i n Stockhol m. And
so you real i zed there was a probl em, so you set a meeti ng, and then
you get everybody thi nki ng for a coupl e years what do you want to get
out of that meeti ng, and someti mes then you force peopl e to i denti fy
the i ssues and then maybe even devel op an outcome, a conventi on, that
coul d try to head off the probl em?
I s there any thi nki ng about that out there as far as you know, or
does that sound l i ke a sound i dea or a fool i sh i dea or somethi ng that
maybe we coul d even thi nk of recommendi ng to the Congress?
MR. COLEMAN: Actual l y, I thi nk that's an excel l ent i dea, and
to the poi nt, l ast month when I presented before the Uni ted Nati ons on
cyber terrori sm, I cal l ed on the Uni ted Nati ons to take thi s on because
we're goi ng to need al l the countri es that are currentl y attached to the
I nternet to real l y understand thi s and create thi s gl obal reposi tory of
known threats as wel l as regul ati ons that we can appl y and cooperati on
so we can do the i nvesti gati on so I can answer your questi on, what
percentage was organi zed cri me; what percentage was mi l i tary
170

functi on?
MR. ROHOZI NSKI : Thi s i sn't a new questi on. I n fact, over the
past ten years, there have been several attempts to try to create a
gl obal normati ve regi me around cyber cri me, cyber terror and the
governance of cyberspace.
The European Conventi on on Cyber Cri me was one such
i ni ti ati ve by European countri es. There have been several such
i ni ti ati ves that have been started by the U.N., i ncl udi ng the Techni cal
Worki ng Group. The I TU has al so taken i t on.
I n fact, the absence of bei ng abl e to come to a consensus has
meant that some of these i nternati onal organi zati ons have taken i t onto
themsel ves to create appropri ate mechani sms for harmoni zati on.
I TU created, for exampl e, somethi ng I TU cal l ed I mpact Al l i ance,
whi ch i s a federated i ntel l i gence shari ng network for cyber cri me. The
probl em i s that the conventi on i tsel f has been stymi ed for the l ast
seven years by a l ack of engagement by the U.S. i n i ssues whi ch many
countri es have seen as bei ng cri ti cal to di scuss.
So, whereas, for exampl e, some l ower l evel i ssues of cyber cri me
have been di scussed, when these countri es have wanted to tal k about
broader i ssues of I nternet governance or nati onal securi ty i n
cyberspace, the answer has been we don't di scuss those i ssues because
we don't have any capaci ty i n cyberspace whi ch, of course, you know
i s not the case.
The other probl em that exi sts here i s that i t's not j ust the
conventi on that needs to happen, but there has to be a harmoni zati on
of l ocal nati onal l aws that actual l y descri be what a cyber cri me i s.
I n Russi a, for exampl e, there's a l aw on I T cri me, not cyber
cri me, whi ch encompasses copyri ght, whi ch i ncl udes trademark, et
cetera, but whi ch excl udes some of the thi ngs that the U.S. codecs
concerns as bei ng cri me, whi ch means they run i nto a probl em, that
even i f the FBI passes a request through a thi rd-party sayi ng, hey, we
suspect that a cyber cri me was commi tted j uri sdi cti onal l y i n your
terri tory, very often the country comes back and says, wel l , I 'm sorry,
thi s i s not consi dered to be a cri me or we haven't descri bed i t yet i n
l egal terms; therefore, we cannot cooperate wi th you.
Mul ti pl y that probl em 140 ti mes and you see the scal e that we're
deal i ng wi th. We're i n very earl y days.
COMMI SSI ONER MULLOY : Thank you, both.
HEARI NG COCHAI R BROOKES: Commi ssi oner Wessel .
Let me fol l ow up on that questi on, i f I can, and go back a bi t to
the chi p and Kyl i n software, et cetera, hardened software, whi ch qui te
frankl y I hadn't heard about before. What you were j ust tal ki ng,
though, about i s real l y a vol untary framework. I f the questi on i s about
171

government-sponsored espi onage, about asymmetri c warfare, et cetera,
no conventi on i s goi ng to real l y stop that.
The questi on i s we have a gl obal i zed suppl y chai n now. Whether
i t's the Chi nese chi p and Kyl i n software or whether i t's the fact that I
don't thi nk we make many, i f any, hard dri ves or anythi ng el se here,
the fact i s that wi th a gl obal i zed suppl y chai n, i t can be ei ther done
through hardware or software, and we have a fai rl y porous system.
So whi l e we may be abl e to get to the attri buti on i ssues or the
prosecuti on i ssues on a l evel as i t rel ates to commerci al cri mes, et
cetera, i f we're tal ki ng about governmental espi onage or asymmetri c
warfare, i s there an answer? Y ou know what I hear i s there's no
answer. There i s, you know, i f we try and do what TI and others have
done wi th hardened chi ps, you know, et cetera, et cetera, we're goi ng
to be several generati ons behi nd what i s, i n fact, the l eadi ng- edge
technol ogy.
So we can do somethi ng that's very myopi c around our defense
needs, but as we l ook at the commerci al sector, whether i t's banks,
el ectri ci ty gri d, or et cetera, what I 'm heari ng today i s there's no way
to protect oursel ves. Am I ri ght or am I wrong?
MR. COLEMAN: Fi rst of al l , the threat that we're seei ng
evol ves and changes I woul d say dai l y. Y ou know what was
i nteresti ng a few years back i s, oh, we've seen that, done that, moved
on to somethi ng el se. The way the I nternet works, and the whol e
preface around the I nternet, was thi s open shari ng of i nformati on.
I don't thi nk anybody who was at the ori gi nal ARPANET desi gn
meeti ngs ever thought we'd be doi ng fi nanci al transacti ons goi ng over
thi s. Therefore, the protocol s and everythi ng el se that we're basi ng
thi s on were not devel oped wi th securi ty i n mi nd.
Securi ty has to be bui l t i n, not bol ted on at the end, and that's
where we are today. We keep tryi ng to bol t thi s thi ng on at the end,
and, you know, l i ke I sai d, i n about 2002 to 2004, we saw such a
si gni fi cant change i n the l evel of sophi sti cati on and professi onal i sm
around these attacks, we actual l y saw QE comments i n some of the
code fragments that were l eft behi nd from one attack, and an
i nteresti ng note, we were abl e to i denti fy the hacker because he had a
common mi sspel l i ng i n hi s notes, and we actual l y Googl ed the
mi sspel l ed word, and we found hi m on a bl og. So--hey, whatever gets
you there at thi s poi nt i n ti me. But the bottom l i ne here i s I thi nk
unti l we recogni ze that al l the i nvestment i n the I nternet has been a
great l earni ng experi ence, and we've al l benefi ted from i t, we need to
take the next step and come up wi th a protocol that repl aces the one
that's i n pl ace so we have securi ty bui l t i n.
MR. ROHOZI NSKI : I 'l l take a sl i ghtl y di fferent tact on thi s one.
I 'm a great fan of General Matti s, who I heard speak a coupl e weeks
172

ago, and hi s contenti on i s there's no such thi ng as asymmetri c warfare.
Warfare i s the hi story of adaptati on. When Hanni bal marched hi s
el ephants across the Al ps, when the Bri ti sh depl oyed the machi ne gun
agai nst the Zul us, or when the fi rst tanks rol l ed across the trenches,
these were asymmetri c because they changed the nature of the two
actors that were engaged i n a contest over pol i ti cal means and other
thi ngs.
So I thi nk we need to do away wi th that. The fact i s that
cyberspace i s an asymmetri c advantage because i t l evel s the pl ayi ng
fi el d for actors that otherwi se woul d be faced wi th a great deal of
economi c, pol i ti cal and mi l i tary domi nance from a parti cul ar actor,
whi ch i n thi s case i s the Uni ted States. They've correctl y i denti fi ed;
they correctl y targeted. We shoul d not be surpri sed.
I thi nk the probl em that we have i s how do we separate wi thi n
thi s new envi ronment that's emerged si gnal from noi se. What shoul d
we concentrate on whi ch i s a cri ti cal securi ty i ssue? What shoul d we
j ust l et go because i t's part of the background, part of the fri cti on that
we experi ence i n real l i fe and whi ch shoul d be part of cyberspace to
begi n wi th?
That si gnal to noi se fi l ter i s dependent upon si tuati onal
awareness. That's where we don't have a capaci ty and that's where we
do need a DARPA-l i ke i ni ti ati ve to hel p bui l d that capaci ty across the
techni cal sci ences, across the regul atory frameworks, across the
techni cal means that we need to have.
What I woul d cauti on agai nst i s thi s focus on secure fi rst, bui l d
the wal l , real l y starts to push us towards throwi ng out the baby wi th
the bath water, and I thi nk we have to real l y be very careful about
that.
COMMI SSI ONER WESSEL: Y es, I understand. But do you
thi nk STRATCOM i s l ooki ng at i t that way i n terms of the si gnal to
noi se rati o, how they address the i nformati onal i zed warfare i ssues that
they're concerned wi th, but not throw the baby out wi th the bath water
for the non--for the external s, i f you wi l l ?
MR. ROHOZI NSKI : I thi nk General Cartwri ght and hi s
col l eagues do an awful l ot of thi nki ng about these thi ngs, and I thi nk
they work wi thi n the same ki nd of constrai nts, techni cal and otherwi se,
as we al l do. But they are, yes. I woul dn't presume to speak on thei r
behal f, but I do know that these are i ssues that are foremost i n the
mi nds of peopl e who are on the sharp end of the sti ck wi th thi s.
HEARI NG COCHAI R BROOKES: Chai rman Barthol omew.
COMMI SSI ONER BARTHOLOMEW: Thanks.
Y ou menti oned what we need i s a DARPA-l i ke i ni ti ati ve on these
i ssues. I s the Chi nese government runni ng thei r own versi on of a
173

DARPA-l i ke i ni ti ati ve? I mean there can be an asymmetry, not
necessari l y i n how thi ngs are pl ayi ng out, but there can certai nl y be an
asymmetry i n terms of how aggressi ve a government i s bei ng i n
devel opi ng i ts own capabi l i ti es to undertake certai n acti vi ti es.
MR. ROHOZI NSKI : I woul d make two observati ons on that.
One, i n terms of the amount of R&D dol l ar and attenti on that has been
pl ayed by al l l evel s of Chi nese government, i ndustry, mi l i tary and
others on what they cal l the "i nformati zati on space" has been
consi derabl e.
That wi l l not necessari l y take the form of a DARPA si mpl y
because the i nsti tuti ons are di fferent, but certai nl y they have correctl y
i denti fi ed thi s domai n as the domai n i n whi ch Chi na must master to
become a worl d power i n the 21st century.
My other observati on, however, i s as fol l ows: havi ng been a
student of authori tari an bureaucrati c systems, they are general l y much
l ess fl exi bl e, much l ess adaptabl e, i n terms of taki ng an advantage of
resources that they put i nto a parti cul ar area.
I thi nk there i s where a U.S.-type approach, or our approach,
whi ch i s much more fl exi bl e, maybe more chaoti c, real l y does have an
advantage.
COMMI SSI ONER BARTHOLOMEW: But how do we deal wi th
the fact that what you i denti fi ed wi th GhostNet was qui te a l ow-tech
i ni ti ati ve you've sai d? I n other words, i t di dn't need to have a l ot of
money thrown at i t. I t perhaps needed some sort of focused attenti on
on how to create i t or a smart cl ever group of peopl e who were tasked
wi th doi ng somethi ng.
I guess I 'm tryi ng to understand that or to hypothesi ze i t's not
necessari l y about throwi ng resources at somethi ng, but i t i s how to
thi nk creati vel y about how to do thi s, and i t's i nteresti ng to me that i t
i s an authori tari an government that seems to have been more
successful at thi nki ng creati vel y about thi s l ow-tech way to try to get
away wi th somethi ng.
MR. ROHOZI NSKI : I 'l l gi ve you a two-part answer on that. The
fi rst one i s maybe the hi gh-l evel academi c answer, and that the
Chi nese at l east on thei r strategi c l evel are al l chi l dren of Confuci us
and Sun Tzu. They thi nk i n terms of stratagems and strategi es. I f you
l ook at mi l i tary doctri ne and state doctri ne, i t's very much framed i n
that parti cul ar context.
That i s very much about taki ng and l ooki ng three steps ahead. I
thi nk we have a tendency of focusi ng on tacti cs, techni ques and means,
and not real l y thi nki ng strategi cal l y beyond the four-year cycl e, no
matter what that four-year cycl e may be.
The more practi cal l evel answer i s that l ook who i s doi ng thi s
ki nd of stuff i n Chi na. I t's the 25-year-ol ds. Those 25-year-ol ds or
174

17-year-ol ds have 40-year-ol d fathers who happen to be worki ng
wi thi n i nsti tuti ons. Very often the opportuni sti c expl oi tati on of a
parti cul ar l ow-tech approach i s deri ved through that chai n, compl etel y
i nformal l y, rather than through somebody si tti ng i n commi ttee and
deci di ng l et's bui l d 500 botnets that we're goi ng to use to attack the
Ti betan communi ty.
COMMI SSI ONER BARTHOLOMEW: But i f you can attri bute
back to, say, Hai nan I sl and but not necessari l y attri bute back to who i t
i s who mi ght have been worki ng on Hai nan I sl and and doi ng thi s, i t's
di ffi cul t to know where the trai ni ng was, who was trai ned and where
they got thei r trai ni ng, those 25-year-ol ds even.
MR. ROHOZI NSKI : What I was very careful i n my oral remarks
to di sti ngui sh between was the col l ecti on network and the expl oi tati on
network. The col l ecti on network coul d have been outsourced. I n other
words, the person provi di ng what I cal l ed "hi l l bi l l y" SI GI NT may be
compl etel y unaware the purposes to whi ch that network i s bei ng put.
The expl oi tati on part of i t, i n other words, knowi ng what
documents to request, how to expl oi t those documents further, how to
grow the network out, that, i n my esti mati on, requi res an awful l ot
more thi nki ng, resources and del i berati ve acti on.
COMMI SSI ONER BARTHOLOMEW: Okay. Thank you.
MR. COLEMAN: To answer your questi on about the DARPA
program i n Chi na, i t's referred to as Program 973, and we've gi ven Mr.
Dotson a copy of the Kyl i n report that we di d, and we l i st several
areas of technol ogy that we're concerned about that they're devel opi ng
advances too. So you may want to get that and take a l ook at that.
HEARI NG COCHAI R BROOKES: Thi s has been very
i nformati ve, but one of the purposes of thi s panel i s cyber espi onage
out of Chi na. So to what extent do you thi nk that we have a probl em
wi th thi s and to what extent do you thi nk that pri vate busi nesses are
addressi ng i t based on the Chi nese threat?
MR. COLEMAN: I thi nk we have a seri ous probl em wi th the
amount of what we cal l data exfi l trati on. We've heard that some
esti mates between 20 and 27 terabytes of data went out of the Pentagon
back i n 2007. That's not the recent attacks that we've heard about. We
know that the Mi ni stry of Defense over i n the UK had a massi ve attack
wi th a l ot of data l oss. I n fact, the stats I saw a report that showed 75
percent of the Royal Navy was compromi sed. So a l ot of i ntel l i gence
about thei r systems and everythi ng el se went out.
DI SA, the Defense I nformati on Servi ces Agency, I bel i eve i t i s,
publ i shed a report that tal ked about sol i ci tati on techni ques, and they
actual l y i denti fy i n order what the pri mary and secondary and thi rd
and fourth and fi fth targets are i n terms of technol ogi es that these
175

organi zati ons are goi ng after.
I f you l ook at i t, and my col l eague here poi nted i t out, we do
stupi d thi ngs. We've got peopl e that real l y j ust don't understand the
fundamental s of i nformati on securi ty and because of that they cl i ck on
the wrong l i nks and compromi se thei r systems.
Unti l we fi x the peopl e probl em, whi ch i s a much harder and
bi gger probl em, the espi onage agai nst our corporati ons i s goi ng to
conti nue and i t's goi ng to get worse.
MR. ROHOZI NSKI : I 'l l speak onl y to the evi dence to whi ch I
have di rect access rather than tryi ng to specul ate what the NSA may or
may not know.
I n the GhostNet i nvesti gati on, the average l ength of i nfecti on for
any of the systems that we saw was between 140 and 600 days, and
these were not undefended networks, whi ch means that even wi th
consi derabl e resources bei ng put agai nst defendi ng these ki nds of
attacks, neverthel ess, the attacker was abl e to mai ntai n control over
these computers for a si gni fi cant amount of ti me.
We al so noted that i n the computers or i n the systems that we
had access to, there were mul ti pl e i nfecti ons, whi ch means that i t
wasn't j ust one GhostNet, i t was a mul ti pl e of GhostNets. So I 'd l eave
you to that as a way of extrapol ati ng the possi bl e scal e of the probl em.
Anyone el se? Al l ri ght. Wi th that, I wi l l cl ose the panel and
thank our panel i sts today for j oi ni ng us.
MR. COLEMAN: Thank you.
HEARI NG COCHAI R BROOKES: Wi th that, the Commi ssi on i s
adj ourned.
[Whereupon, at 4:00 p.m., the heari ng was adj ourned.]
176

China's Propaganda and Influence Operations, Its Intelligence Activities That Target The United States, and The Resulting Impacts On U.S. National Security

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