she wants to be respected. if women wathey have to behave that will elicit that. >> sunday night at eight eastern. next testimony from pentagon officials on military technology and the concerns of transferring that technology between international and commercial partners. witnesses also discussed how companies who are contractors with the u.s. military often also work with other governments , and that technology development ends up being transferred to those other nations as well. this services committee hearing is almost 2 hours.

>> mitty will come to order. -- committee will come to order. it is january 19, 2018 remarks on the national defense strategy, secretary mattis warned that quote, our competitive edge has eroded in every domain of warfare. air, land, sea, space, and cyberspace. and, it is continuing to erode. ". much of the erosion has been caused by things we have done to ourselves. sequestration and continuing resolutions come to mind. but part of the erosion in our competitive edge is the result of adversaries and competitors obtaining american technology and intellectual property by legal and often illegal means. it is january, 2018 report,

china's technology transfer strategy found that the peoples republic of china, for example, uses a variety of methods to obtain u.s. technology. including industrial espionage where china is by far the most aggressive country operating in the u.s. cyber theft on a massive scale, deploying hundreds of thousands of chinese army professionals. academia, since 25% of u.s. stem graduates are chinese foreign nationals. china's use of open source information, cataloging for an innovation on a large scale. chinese based technology transfer organizations. us- based associations sponsored by the chinese government to recruit talent. and technical expertise on how to do deals, learned from u.s. firms. that report, noted that the

cost of stolen intellectual property has been estimated at $300 billion per year. most alarming, the i ux found that i will quote, the u.s. does not have a comprehensive policy for the tools to address this massive technology transfer to china. and the u.s. government does not have a holistic view on how fast this technology transfer is occurring. the level of chinese investment in u.s. technology, or what technologies we should be protecting. that is the end of the quote. now, i understand that the di ux report is just one report but based on everything this committee has learned and heard about over the course of this year, those conclusions sound right to me, and it should be alarming. there are several provisions in the upcoming nda a conference which relate to this issue including the modernization of export control regime. this hearing will better equip us to make important decisions in the days ahead.

let me yield to the ranking member for any comments he would like to make. >> thank you. i think the most important part of your statement was that we don't have a strategy to counter what is happening. the chairman is right. the secretary of defense is correct. our advantage in a number of different areas has been eroding. the biggest reason for that, i believe, is that the rest of the world is catching up. there was a substantial >> reporter: of time where it was really just the soviet union and us who were building on a significant level. our military capacity. and we dominated the world economically and militarily post-world war ii for a long period of time. that was never going to last forever. the rest of the world was going to develop ways to grow their economies and technology and eventually turn towards growing the defense. that is what has happened. what happened on our end is we

have not responded to that. our strategy still seems to be based on the notion that we are still dominant so we do not have to worry about these details. i think that is dangerous and we need to develop. i mentioned a couple of key areas, most of which the chairman mentioned. but, to begin with, the process of protecting our technology has long needed reform. items that were not thought of as being national security are. how do we protect that and make sure that adversaries are not purchasing the companies and taking away our technology? i think what the senate added to the defense bill is a great opportunity for us to update that process to help detect the technologies through the process and we have to get that right. and we will try to do that in the next 5-6 weeks, so we definitely want to be in touch so the language is right and what we are doing is correct. the second piece of this is on the cyber piece. we had a briefing yesterday on

a cyber breach and, it was shocking. how disorganized, unprepared, and quite frankly, utterly clueless the branch of the military was that had been reached. in ts day and age, we have not figured out how to put together a cyber policy to protect our assets. in particular, with our defense contractors, who we work with who we store our data but do not have adequate protection. but even with then, the dod, we do not have a clear, cohesive policy to put in place. the third area that we do not have, we do not have an industrial policy. and again, i think this is a legacy of our dominance. we did not have industrial policiesecause we were dominant. an example from my own neck of the woods, bowing. why is there a bus being able to be subsidized? because decades ago, we agreed to allow them.

we did that because at the time we had 85% of the global aircraft manufacturing market. we thought well, isn't it cute, airbus wants to compete, doesn't really matter. here we are with that flipped. they have stepped up and competed. now, we have not come through with a sensible idea of what technologies, what industries we need to protect for our own national security. as the chairman will relate, i don't think it is flatware. that seems to be the one thing we wind up debating every year. meanwhile, no offense to those in the pa of the world that consider that important. meanwhile, we are losing core technologies that are critical to defense, and no one really understands exactly why. the last piece of it all that is important is trade. now, we have a somewhat unfocused approach, right now

to how we combat a competitive tray environment. the one thing we definitely should be doing is figuring out how to get on a more level playing field with china. it is not just our trade deficit with china, but it is the strategy that i have put in place to capture core technologies, to steal them in some instances, but a lot of it, they are doing within the wto framework, some of it is outside. we have not put together a conference of strategy for changing that equation, whether it is bringing trade actions against them, whether it is trying to get them to change their policies, it is a reactionary approach right now. so, we need a strategy and i think this hearing is incredibly important and i look forward to testimonies of the witnesses and i think the chairman. >> thank you. please welcome our witness today , michael griffin undersecretary of defense for research and engineering kerry bingham, deputy undersecretary of defense for intelligence.

mr. eric tuning, deputy assistant secretary of defense for manufacturing and industrial based policy, and mr. anthony shalala, national officer for military issues. thank you for being here, without objection, your written statement, looks like there is one, will be made part of the record. and, we will turn it over to you all for comments you would like to make. mr. schneller, you are starting first? >> i believe the early agreement was that i would start. thank you, first of all, ranking member smith, members of the committee. we appeared before you, to discuss the very real chinese adversarial behavior to which you have referred.

and, this is not about the threat of such behavior. this is real behavior. we are here to underscore the urgency with which all of us much focused though she must focus our action to maintain the technological and military dominance. i thank you for the trust you have laced in myself and fellow witnesses to discuss this topic in this open setting. as carefully as we can. we did submit a single joint statement because we wanted to be together rather than separate. we have a common view of this topic. but our conversation today is only a handful of pixels in the entire picture of what we face. it is our deep belief that we must act now. but at the same time, it is my duty to limit my comments to those of a strictly unclassified nature. so, as we go forward, i

welcome, expect, and encourage more detailed discussions in a more restrictive environment. i believe this will be necessary in the months and years ahead. this is not a problem with a short-term fix. we are here, in part, to recognize that this is a whole of government and society problem. and we are here in part to recognize and draw distinctions between adversaries and allies, according to the behavior of the act. no one believes more strongly and i in the value of international partnerships and alliances and the value of international commerce and fair exchange. but the chinese theft of technology and intellectual robbery through the work of others is not unlike the chinese construction of islands to encroach upon the geographic domains of international waters and those of other sovereign nations. it circumvents the autonomy of

nations from a rules-based global order. it is adversarial behavior and its perpetrators must be treated as such. in regard to our technology but also to our larger economy and our nation is a significant and intentional. as referenced in our written testimony, we are taking steps to counter it. the commerce has established, what office in particular, to regain and maintain technological dominance that we, as a nation, have depended upon in the past. we pledge to you to do that and with your help and support, we will. thank you, and i look forward to your questions. i yield to my colleagues. >> chairman thornberry? ranking member smith and all members of the distinguished committee, good morning and thank you for welcoming me here to discuss this important topic.

at the national intelligence officer for military issues, i am regularly tasked with reporting on threats to the u.s. military. there are the visible threats from the military forces and weapon systems. but, u.s. intelligence community also use a less visible, but dual threat on adversaries and competitors that are deliberately working to acquire u.s. research, technology, and talent to improve their own military programs and erode the effectiveness of hours. more broadly, they assess that the foreign country acquisition of u.s. technology through illicit means as well as cheating on trade agreements joint ventures and exploiting scientific collaborations have the potential to erode the u.s. competitive edge. foreign countries, most notably china, are able to acquire and transfer critical u.s. technologies for their

intelligence services, foreign direct investments, joint ventures, open source science and technology acquisition programs, use of insiders, front companies, and scientific and business collaborations. this has potentially far reaching consequences as we have highlighted in the threat testimony, persistent trade imbalances trade barriers, and a lack of market from e policy in some countries probably will continue to challenge u.s. economic security. some countries will certainly continue to acquire u.s. intellectual property and proprietary information illicitly to advance their own economic and security objective. china, for example, has acquired proprietary technology and early-stage ideas through cyber enabled means. at the same time, some actors use largely legitimate legal transfers to gain access to research fields, experts, and key enabling industrial

processes that could, over time, erode america's long-term competitive advantages. foreign actors, notably china and russia recognize that acquiring technology is absolutely essential to achieve their strategic goals. they want to develop weapons systems that strike farther, faster, harder, and more precisely as a means to erode the traditional pillars of u.s. literary strengths and challenges the united states in all domains. this pursuit of advanced weapons systems could lead to new means of wear fur, especially robotic and autonomous systems, operating across land, sea, air, and space domains. in this capacity, u.s. has monitored foreign countries acquisition of technology outside of their own indigenous development programs. analysis of technology transfer almost intuitively, includes tracking a countries

acquisition and the key technology or component openly or illicitly, but also includes understanding of how technical specification, design and engineering skills, and manufacturing and production techniques. these kind of technology transfers can allow a country to speed up or lower the cost of development projects because they can bypass or trim the development stages. these acquisitions cannot only improve foreign military capabilities, but can also accrue to the economic benefits. china is the embodiment of the military technology transfer challenge. china's government has a conference of strategy for technology modernization to bolster as china's international image and the national economic growth and improve its military modernization. and technology acquisition from the united states is definitely part of a comprehensive strategy. for some time, patient has

articulated industrial policy and long-term objectives contained a number of conference of national development plans such as its well-known five-year plans and it made in china 2025 initiative. in these plans, beijing has shown is interested in acquiring technology and expertise that is a critical economic or national security importance to the united states. in its most recent five-year plan, patient identified its most critical technology priorities, including clean energy, aerospace and research, computer and information technology, and manufacturing. china is therefore prioritizing investments and acquisition of critical future technologies that will be foundations for future innovations, both for commercial and military innovations, like artificial intelligence, robotics, autonomous vehicles, augmented and virtual reality, financial technology, and editing. these technologies make it difficult to draw a line

between commercial and military applications. these technologies are also likely to be foundational for future innovations for the next wave of competitive technology products. china's development strategy is multifaceted, and it is supporting infrastructure is robust. they use multiple doctors to acquire the skills and know- how. they have -- i will highlight a few of these for you. one is ventures, mergers, and acquisitions. china is accruing, in part, investments and acquisitions of u.s. companies. which hit a record level in 2016 before dropping somewhat in 2017 and again in the first half of 2018. china's aggregate investment in u.s. technology over the past decade from 2007 to 17, totaled approximately $40 billion and was about $5.3 billion last year. and because the chinese party is intimately involved in

planning the supporting companies, there is a great deal of coordinated investments along with other vehicles and technology transfer to accomplish china's larger state goals. another vehicle our research partnership and academic collaboration. foreign governments often use every means at their disposal to advance in the technological areas and their exploitation of academics and researchers at u.s. colleges, national laboratories, and other institutions is one of those means. china actively seeks partnerships with government laboratories to learn about, and acquire specific technology. and the skills necessary to run such facilities china also used collaboration and relationships with universities to acquire specific research and access to high-end research equipment. another venture is science and technology investments. beijing has made this cushy long-term state investment.

china leverages international collaboration to keep pieces of this infrastructure to gain technology and know-how. in 2017, china spending on research and development was estimated at $279 billion. more than 70% from 2010. another mechanism are talent recruitment programs. beijing runs multiple talent recruitment programs, specifically focused on recruiting global expert who can facilitate the transfer of fallen technology, intellectual property, and know-how to advance china's science, technology, and military modernization goals. -- china uses these programs to recruit western trained experts to work in china for these programs. beijing also has employed western trained returnees to implement important changes in

it science, engineering and math curriculum. to foster greater activity and apply the skills at china's top- tier universities. another mechanism is the legal and regulatory environment. china consciously uses its regulations in ways that can disadvantage u.s. companies and advantage its own. they use the form ownership restrictions such as formal and informal restrictions to require technology transfer from u.s. companies to chinese entities. china's government also uses his administrative licensing and approval process to force technology transfer in exchange for the numerous approval needed to establish and operate a business in china. we also assessed china will use cyber espionage and bolster its cyber attack abilities to support national security

priorities which include technology acquisition. the private sector experts continue to identify ongoing cyber activity from china, the most detected cyber operation against u.s. private industry are focused on industry and the contractors or iq communication firms and products and services to put government and private sectors networks worldwide china's technology transfer mechanisms are paired with the parallel strategy of military civilian infusion that expands syllable -- industrial based for a national infrastructure connecting the pla for the manufacturing enterprises and government agencies under the state council universities and sector firms. the collaborative partnerships that will support beijing's rapid military modernization.

the long-term consequences, the most immediate and visible effect may be related to particular military technologies. the long-term consequences could much broader. a decline of the united states advantage and can technology could affect our ability to set global norms and regulations for technology. control access to technology for military purposes and reap the economic benefits we derive from commercialization. if u.s. were to lose it ecological edge, the associated loss of influence would have far-reaching implications beyond scientific disciplines to include economic social political and security dynamics. within the od and i, we are facilitating the information exchange among the organizations responsible for the analysis of technology transfer, because this issue is global and multifunctional in nature. we collaborate closely across the intelligence, counterintelligence and law

enforcement communities. as well as other national agencies. and, multiple ad hoc groups, and formal groups working on a specific technology transfer issues. we regularly develop the collection requirements and provide warning in the war form of intelligent products of threats associated with technology transfer. this concludes my overview of the threat of military technology transfers and i will now turn to my colleagues with remarks. for these four activities on the u.s. and measures we are taking to deter them. thank you very much. >> thank you. chairman thornberry, ranking member smith and members of the committee, it is a privilege to be back although it is a bit of a different viewpoint from down here. i was really honored to support you and all of the work you do and was fortunate to see firsthand the partisan approach that you took of national security. in my new role, i support the undersecretary of defense as he

carries out his lead responsibilities in the department on behalf of the secretary for both intelligence and security. executing the national defense strategy, including its direction to protect the national security innovation base. as you heard from my colleagues, the department of defense is facing unprecedented threat to his technological and industrial based putting at risk the capabilities critical to maintaining our military advantage. china, in particular, has made it a national goal to acquire foreign technologies to advance its economy, and a modernized military. it is comprehensively targeting advanced u.s. technology. and the people and research institution that underpin them. it is a long game, using a variety of different methods to steal our information, circumvent our processes and exploit the scene. across the defense intelligence and security enterprise that the u.s. see overseas, we are

making significant changes in our approach to industrial and information security, as well as to counterintelligence. i welcome the opportunity to follow-up with you to discuss additional initiatives we are undertaking that will provide you with a more holistic picture. in our unclassified form, i will touch briefly on for key lines of effort. first, we are elevating the private sectors focus on security through an initiative called deliver uncompromised. we must have confidence that industry is delivering capabilities, technologies, and weapon systems that are uncompromised by our adversaries from cradle to grave. it is no longer sufficient to only consider cost, schedule, and performance when acquiring defense capabilities. we must establish security of the fourth pillar in defense acquisition. and create incentives for industry to embrace security for a major factor in the competitiveness for u.s. government business. second, through the defense

security service, we are implementing a more comprehensive approach to industrial and information security. we are transitioning from a compliant checklist based national industrial security program to a risk-based approach informed by the threat and the department technology protection priorities. however, safeguarding our clear defense contractor only protects part of our industrial base. increasing ease of access to large amounts of unclassified and government data in a defense industrial base offers opportunities for exploitation, which in abrogation can be as damaging as a breach of classified information. to narrow this gap between protecting classified information and the unprotected unclassified information, we are developing a program protection plan to cover, controlled unclassified information. including identifying the policy and resources necessary to do this. third, using authorities provided by this committee for the fiscal year of 2011, in

section 1696, we are strengthening the integrity of the supply chain as well as establishing information sharing with your defense contractors. fourth, we are enhancing the counter intelligence capabilities better addressed the nontraditional collection method being employed by our adversaries. we are adding security and counterintelligence personal resources to the defense security service, and ntis, air force, office of special investigations. our defense components are augmenting their collection and analysis capabilities to be a more competent some understanding of threats to our technology to improve our technology reviews and transactions. lastly, we are increasingly relying on our partnership with the fbi, not just increasingly but we must rely on the partnership with the fbi, homeland security and other departments to actively leverage both our individual and collective authorities to

protect the nation critical technology. through these four, we can mitigate the threat critical to our military advantage and by doing so, deliver on, capabilities to -- we recognize that strong relationships with industry across the interagency with our allies and partners are essential for that success. we thank you for your continued focus on the threat your understanding of the impact to our war fighters and their capabilities and your dedication to support our programs and give us the resources necessary to maintain the advantage. i look forward to your questions. >> mr. chairman, ranking member smith, members of the committee, thank you for the opportunity to speak with you this morning. i share with the principal advisor the secretary of defense for acquisitions -- this includes assessing the national security impact of foreign investments. our national defense strategy outlines a handful of critical technologies necessary for maintaining u.s. military

dominance in an era of great power competition. give abilities with unique military applications, like missile defense, and nuclear forces department of defense will continue to act as our nations sole developer and technological. those emerging technologies with military and commercial uses like artificial intelligence you will also need to be a fast follower and adapter of commercial sector innovation. therefore, for structured modernization requires support from both our heritage and legacy and commercial defense industrial base. chinese industrial policies of economic aggression, such as investment driven technology transfer, and eight legal intellectual property theft pose a multifaceted threat to our entire national security innovation base. a threat with the potential to create those long and short- term impact. in the short term, their

attempts to steal intellectual property, compromise our defense supply chain, and create economic dependence is a sub- tier of our industrial base, chips away our relative military technological advantage. over the longer-term, spurred on by strategic initiatives like one held one road, civil military fusion, and made in china 2025, this potential for china to erode our underlying innovation and industrial advantage. the engine of our national defense has always been the strength of our economy. chinese policies seek to extract from western institutions, leverage our education system to develop its own workforce and use subsidies and nontariff barriers to prevent competition and they are able to create national change. these national champions enjoy protected domestic market, what will you to their advantage, and enable them to grow. then use all the elements to place their national commercial champion at the top of critical market and industries globally. with commercial national actors are director -- directed to

compete while given every subsidy and benefit that the communist government can provide with the goal of marginalizing u.s. companies. combating these predatory economics require a whole nation approach, to both protect and promote american industry as well as our like- minded allies and partners. for our defense industrial policy protect -- this includes modernization of a complementary protection measures of export controls, as well as increasing the private sectors focus in cyber security. on the promote side of the ledger, we need to make sure the department is a customer choice for emerging technology providers, this required acquisition processes that operate at the speed of relevance, as well as budget stability so we can send a clear demand signal to industry. thank you very much for the opportunity to testify on this important topic and i look forward to answering your questions. >> let me just ask, as i

mentioned at the beginning, one of the issues with which we will deal in conference is a modernization of the city's process. that has been added to the senate defense authorization bill, there is an effort in the house to not only update that but export the control regime, which may be considered fairly soon in the house, but regardless, this issue is before us, and what guidance can you -- any of you give us as far as the updating of export controls? >> i will take that first. i'm sure my college would also like to add on. we think of the export controls as complementary tools for protecting national security. secretaries identified three gaps in the current regime, specifically around tech

transfers through joint ventures, access to technologies through noncontrol and investments, and expanded review of real estate purchases so we can protect investment near sensitive military side. what i suggest is that recognizing that they need to work in concert to address these three gaps. >>, i would like to make, in the process we look at one deal at a time, we don't look at the overarching pattern of such purchases or investments. i think it is the broader pattern which is actually a greater concern. we also don't look at the investments or investment candidates from a perspective of the intelligence gathering opportunities it offers. for example, every firm today,

which even if it is not in a technology critical so, so she let me go to that extreme. such firms all have highly networked software systems, controlled by commercial operating systems, every time there is a software update to such an operating system, it affords another intrusion path into domestic networks. we don't look at chinese investments from the perspective of the mischief that might be made simply by having foreign ownership and in some places, control of such avenues. so, i will leave it at that, that is as far as i want to go at that point. >> my conclusion from that is we need to update the export controls, but it doesn't fix all of the problems. >> it does not remotely stop it in my opinion.

>> mrs. smith? -- mr. smith. >> i mentioned that having an industrial policy is the key technology that we should protect. that is easy to say, it is incredibly complicated to implement. in terms of how you do that. but, just what ideas would you have in terms of what an industrial policy would look like if we basically cured our trade policy and our internal investments to make sure we were protecting certain core technologies, i realize you could write a book and answer this question, please don't. but if you could just give us a little bit of framework of what an intelligent industrial policy would look like because i don't think, i think the president has a vague idea of the problem, and then it is just all over the place in terms of how to solve it. what would a moat -- more coherent approach look like?

>> i will not address any of the back-and-forth chatter in the current environment because we are talking about a long- term strategy here. we need to recognize that whether they are specific defense products or not, many things underlie our industrial base. i might, from a large list, as you said, pick up microelectronics. we worry about that from the point of view of having a trusted supply. kerry mentioned that in her comments. we want to know that we have an end to end supply of defense equipment, and i would also say commercial equipment that we can trust. the difficulty in the micro tronic arena is that an area in

which the u.s. once reigned supreme thanks to now 20 some years of chinese investment, domestic u.s. manufacturers no longer, in all cases, make the best microelectronics. so, we should be unsurprised when others elsewhere or anywhere in the world no longer seek to buy from us, but seek to buy the best. >> and i shift focus on my question a little bit to help with that. as i mentioned, some of this is inevitable. the rest of the world was going to catch up. i think a lot of people underestimate the impact that world war ii had on several decades of the entire industrialized world got blown off of the face of the map and we were the last ones standing. if you will fight a war it is always good to win, it is even better to win on the road. and, that left us in a very very strong position. for several decades. but that was highly unusual.

so, even if china was not doing all of this nefarious stuff, and i agree, we have to go after them. we will have to compete, and we also, i think part of our industrial policy, is some of what we will need we will have to get from someplace else. so, would you say, in my conclusion is, we need allies and people who -- i don't think there is anything built in america that is entirely made of american parts or anywhere for that matter. that does not rely on some sort of supply chain. what could we do better to make that aspect of it work? countries that we can trust and work with? >> i will get off of the previous -- previous path and refer to my opening remarks. not drawing distinction in our industrial policies. between friends and allies and partners, and people who behave in that manner. it is in our interest to make it easy for our allies and

partners to cooperate and collaborate with us as opposed to making it easy for them to collaborate with china, and it is in our interest in my opinion for us to make it more difficult for the chinese to work with us. during the cold war, there was a whole of nation policy. such that the idea of doing a commercial deal with the soviet union were words that did not fit in one sentence. we do not have such policies today. >> i will stop there. i have gone on too long. go ahead. >> a tactical example of where that collaboration is taking place. the nda -- a partnership between the united states, australia, canada, and the uk. we are using that to do a couple of things. how can we work together to create a foreign direct investment screen, so we can

work in concert against predatory economics from on allied nations, but also to identify areas that we can do industrial biz collaboration to benefit us more broadly. >> thank you. >> if i can tackle that, from the foxhole that i said, it is not my job to go she is my job to make it not easy for trying to get these technology. i had on four key pieces. security in addition to cost schedule and performance. it is not right now, and it will be incredibly complex to do. we have to put it into regulations. second, the transition and i will hit on at any moment. the integrity of the supply chain and create -- expanding resources. it was amazing to me to see the approach we take is very much checklist based. go into a clear defense contractor, do you have the alarm, the locks, the safe? it was not looking holistically at what is the technology or capabilities that you are

provided to the government, what is a threat, what are your vulnerabilities. so now, based off of dod's critical technology priority list, going into these companies that work in these areas that look holistically for all of these pieces, it will be uncomfortable for industry but we need them as a partner if we want them to deliver on compromise. >> thank you. >> thank you for holding this hearing on such an important topic. establishing and maintaining our military's technological edge is imperative in order to increase the effectiveness and lethality on the battlefield while protecting our troops. the department must encourage and protect research and innovation from being stolen by state and nonstate actors. i am concerned by the assessments provided today. but i'm hopeful by the attention being provided by chairman thornberry and the house services committee. first i would like to welcome back secretary carry engine as an alumni of this committee, we appreciate your service and wish you the best.

and so appropriately, the first question begins with you. the question is, is additional legislation needed to protect particular technologies and associated intellectual properties with military applications, if so what technologies are in the greatest need of protection, why would legislation be necessary to protect them, and how should such legislation provide such protections? >> thank you. good to be back here. a couple of areas i would highlight, there is a section 806 on extending the ability for us to strengthen the supply chain, i think that is a very good measure and we are implementing those processes to be able to do that. on the resource front, we will have to work with the committee on the specific of this but on the counterintelligence areas that we talked about, greater analysis that we will have to do with our industry partners to understand where the threats and vulnerabilities are,

network additional resources. with the reform more of the final legislation comes out of the that will crease demand on our intelligence capabilities, so that will require additional resources, but as we go through this delivering on compromise in transition, as we look at how we implement protections on controlled, unclassified information, we made to come back to specific legislative proposals and we will work with you on that. mac ever going would like to respond? if not, a general question for everybody, again, is this primarily a nation state? what about transnational criminal organizations, multinational corporations or national groups. what do they pose in transfers to the u.s. intellectual property and technology? >> those are important issues

as well, but the bulk of all of the information we have gathered is that china is the big problem. i think we need to focus our efforts on first taking care of the big problems, and then absolutely we cannot afford to neglect other areas, such as you suggest. but, we have to prioritize. >> particular issue identified, china the confucius institutes, they are located at 103 different colleges and universities across the united states. many of these are located adjacent to adjacent to -- there identified as a member of the committees of the party of china, it is a very important propaganda, is anyone familiar with what is being done to identify these institutes as to their motives?

>> speaking to your original and second question, i would agree with my colleague that this is predominantly a state act problem, or at least that is the largest, most looming problem within that. with slight additional amplification about multinational corporations, when you have state owned enterprises, our framework does not necessarily capture the blurred line between multinational corporations and a state actor. we are familiar with the institutes as one more visible representation of china's global president -- presents including in the united states. and, consistent with my earlier remarks i would note that it is one of many many footprints that beijing has in, near, and

on our campus and research institutes that it uses as ways to overtly and less overtly collect and maintain awareness on these institutions. >> thank each of you, and i appreciate your service to our country. mr. gallego. >> thank you. the congress has been hearing about this. now, even more so. i am dismayed that i am hearing about the diagnosis but not necessarily the way to fix it. in the marine corps, you have a couple of options. protect yourself, you have your body armor, your kevlar. more importantly you have your rifle and the best way to stop somebody from attacking you is to look tougher and make sure they know the consequences if they attack you. i feel when we are dealing with

this issue that we are talking about how to only play defense, what are our offense of options to actually make our quote unquote enemy understand that if we do these types of actions that it will be painful and to a certain degree, i don't want to trigger a war, but we have to be able to have a deterrent so that they have to make a rational calculation whether or not they will engage in the type -- type of conduct. if not, this will happen every year, i will have the same briefing, and all we will be talking about is what happened and what we can do to stop them. i don't know who wants to take the question first, but i would like to hear some ideas, or if we have to take this to a classified setting, that is fine, but i would love to hear it. and welcome back, as well. >> if i can start, from an industrial security perspective, that is what i am here to represent my focus is on clear defense contractors

and i outlined the areas come the supply train integrity, counterintelligence. two other areas, we are branching out, and as we highlighted, there is a deep concern with the cyber data exfiltration issue. and it is one that the chinese in particular are targeting. so, one of the directions that my boss and our secretary has given to defense security is to come up with the plan and policies for how we control with an industry the unclassified information get to make -- have personal information. that is one of the areas we are heading. the other one i agree with you on, we are playing defense right now, particularly in the cyber domain and we have to be playing more offense, working with the fbi, leveraging their authorities on the law- enforcement front, but that will require further conversation with you on some of the authorities and resources. >> at the classified though she

unclassified level, i will say that it is through possibly firm in the future, and other mechanisms, it is our choice as a nation and it is a matter of national policy as to whether or not we allow investments of any magnitude and scope by china in this country. >> my point that i guess i have made is that you are all describing defensive protocols and methods. and, it does not really matter to the chinese or to our foreign adversaries if they know that they can get around our defenses and there is no consequences. what are we actually doing to change the rationale, the calculations that they will actually do these types of things that are illegal? what is our pushback? >> obviously, the administration's investigation into property theft would be an

example of that. i think more broadly, if we think about the offense of measures we can take from an industrial-based perspective, what are we doing to promote our own industrial biscuit abilities? i think that, from a perspective starts with the recognition that going forward we will have to not only remain the sole developer for military applications, but form acquisition processes that we can leverage the benefit of our entire economy, right? and become a customer that is able to attract the best of both the industrial base as well as emerging commercial technology providers. >> thank you, i yield back. >> thank you. pick you for having this important hearing, think you for being here.