The panel’s report also called for the Biden administration to consider revoking China’s status as a favored trading partner if a congressional review finds that Beijing is not complying with its commitments.
China’s focus on enhancing its cyber capabilities over the past decade “poses a formidable threat to the United States in cyberspace today,” according to a report released on Tuesday by a congressional advisory commission. That warning comes on top of the commission’s assessment that Beijing’s trade practices necessitate closer scrutiny from lawmakers and the Biden administration.
The U.S.-China Economic and Security Review Commission’s 2022 Annual Report to Congress assessed a range of threats to the U.S. economy and national security, including Beijing’s cyber warfare and espionage capabilities. The commission—which was created by Congress in 2000 and includes 12 members appointed by Democratic and Republican leaders in the House and Senate—must annually report on “the national security implications of the economic relationship between the United States and the People’s Republic of China.”
The commission’s report noted that Beijing’s desire to become a “cyber superpower” gives China “an asymmetric advantage over the United States in cyberspace due to the [Chinese Communist Party’s] unwillingness to play by the same rules, reflecting a dynamic observable in other areas of U.S.-China relations.” And Beijing’s increasing reliance on cyber operations—to enable information warfare activities, conduct cyberespionage efforts and promote its national security interests by controlling cyberspace—“pose a serious threat to U.S. government, business and critical infrastructure networks in the new and highly competitive cyber domain.”
“The country has achieved this transformation by reorganizing its cyber policymaking institutions, developing sophisticated offensive cyber capabilities and perpetrating cyberespionage to steal foreign intellectual property at industrial scale,” the report said.
Beijing’s cyberespionage operations, in particular—which are “increasingly sophisticated and use advanced tactics,” according to the report—often rely on “vulnerability exploitation and third-party compromise to infiltrate victims’ networks.” And these efforts are further emboldened by the fact that China’s cyber-related legislation “weaponizes the country’s cybersecurity industry and research by requiring companies and researchers to submit all discovered software and hardware vulnerabilities to the government before providing them to the vendors that can patch them.”
To better combat China’s cyberspace operations, the commission recommended that Congress pass legislation to codify “systemically important critical infrastructure,” and also require designated “entities, defense contractors and recipients of federal funding for research and development of sensitive and emerging technologies to undertake enhanced hardening and mitigation efforts against cyberattacks.”
The report also recommended that Congress direct the Department of Homeland Security to “catalog Chinese-sourced surveillance equipment, first responder communication systems and smart cities systems used by state and local governments,” and implement plans to “remove and replace such equipment to protect U.S. interests.”
A report released by Georgetown University’s Center for Security and Emerging Technology last month found that at least 1,681 state and local governments in 49 states purchased information and communications technology and services from five Chinese companies that were banned by the federal government between 2015 and 2021.
Additionally, the commission recommended that the Office of the U.S. Trade Representative create an updatable list of Chinese companies in critical sectors “found to have benefited from coercive intellectual property transfer” that can be used to ban investments in the companies and to deny export licenses to the firms. The report also called for Congress to require the Treasury Department to prohibit investments in Chinese firms involved in “cyber-enabled intelligence collection or theft of intellectual property sponsored by the People’s Republic of China against U.S.-based persons.”
“Urgent questions remain concerning the United States’ readiness for the China cyber challenge, including the adequacy of resourcing for U.S. military cyber forces, the sufficiency of existing protections for U.S. critical infrastructure and the scope of public-private cybersecurity cooperation,” the report said.
Four of the report’s 39 recommendations for Congress addressed China’s cyber capabilities, while the others largely focused on concerns related to Hong Kong, Taiwan, the U.S. economy and national security. The commission’s top recommendation, however, was for Congress to direct the Biden administration to undertake a review of Beijing’s permanent normal trade relations—or PNTR—status approved by Congress in 2000, as China prepared to join the World Trade Organization.
Kimberly Glas, the president and CEO of the National Council of Textile Organizations and the commission’s vice chair, said during a public briefing about the report on Tuesday that when China’s PNTR status was approved to normalize trade relations with Beijing, “there was acknowledgement that the conditions to which China agreed—if it complied with them—would address the systemic trade distortions experienced by U.S. companies and workers, and level the playing field.”
But forced technology transfers, the theft of U.S. intellectual property and market access restrictions have raised concerns about Beijing’s continued PNTR status. Glas said that China’s engagement in these activities has “harmed the U.S. economy, workers and our supply chains, creating significant vulnerabilities to the United States’ economic and national security.”
The report recommended that Congress direct the Biden administration to produce a report “within 90 days” on China’s compliance or non-compliance with the 1999 U.S.-China bilateral agreement on market access. If Beijing is found to be out of compliance with the agreement, the report said that Congress “should consider legislation to immediately suspend China’s permanent normal trade relations treatment.” Revoking Beijing’s PNTR status could lead to the U.S. imposing significantly higher tariffs on Chinese imports.
The release of the commission’s report came after President Joe Biden and Chinese President Xi Jinping held a three-hour meeting on the sidelines of the G20 summit in Indonesia on Monday to discuss a range of U.S.-China issues, including North Korean provocations and Beijing’s increasingly militaristic posture toward Taiwan.