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Western Hemisphere: China's New Road in the Americas: Beyond Silk and Silver

Thank you, Eric, and thank you to the Council for hosting me today. It’s a great honor for me to be here and to give these first remarks as Eric noted. This is a conversation that could not be more timely. Earlier this month, I accompanied Secretary Pompeo on a trip to South America – a productive trip to Chile, Paraguay, Peru, and Colombia – where he reaffirmed our partnership with these countries and focused on addressing shared challenges in the hemisphere.

This was a historic trip for many reasons, the fifth visit to Latin America by Secretary Pompeo in under a year in the job, the first visit to Paraguay by a sitting Secretary of State since 1965, and that reflects a unique moment in South America and in U.S. relations with the region. In no other part of the world do we have the privilege of strengthening our ties with a region where the interests of our partners relate so directly to our own. As we traveled from Santiago to Asunción, from Lima to Cúcuta on Colombia’s border with Venezuela, I felt, and I think we all felt, the palpable synergy among the United States and these four strong South American partners. We met with four heads of state – with each, we found a sense of shared purpose. We all see the Western Hemisphere as a hemisphere of freedom. “The people of the Americas have a right to democracy and their governments have an obligation to promote and defend it.” That is a quote that comes directly from the Inter-American Democratic Charter, and we work with these and other partners to bring these words to life, because we all know that our peoples deserve democracy, and the opportunity to build our own prosperous futures.

We could see first-hand how the Pacific Alliance and ProSur bring to life the region’s commitment to transparency and good business practices, a commitment that will advance regional prosperity; and how Chile, leading APEC this year, is bringing this Western Hemisphere vision of positive economic engagement to the entire Pacific region.

We found we share – absolutely – a common purpose as together we confront Nicolás Maduro’s destruction of Venezuela, and work together to help the Venezuelan people face down the illegitimate, corrupt, and criminal cohort surrounding Maduro and to help them as they work to restore democracy in their country. We share a common purpose as well as we confront the horrific humanitarian and regional crises Maduro has imposed on the Venezuelan people and on the nearly every country in our hemisphere.

We also found that we share a common purpose as we discussed the scourge of corruption and how the disregard for rule of law risks undermining the region’s efforts to grow its economies and provide security for its citizens.

Our message for the hemisphere, the Secretary’s message during his recent travels, and during his speech in Santiago, and my message for you today is that the United States is deepening its engagement in the region, and joining with the rest of the hemisphere to create an engine for economic vitality, innovation, and growth.

Our economic ties with the countries of Latin America and the Caribbean support livelihoods throughout the hemisphere and reinforce our shared values. Many of you are aware that this region is home to 12 of the 20 countries with whom the United States enjoys free trade agreements.

We remain committed to market-driven, private sector led model of economic development and to fostering long-term prosperity and stability, and the U.S. government is working to support this vision, using tools of economic statecraft, in partnership with U.S. businesses.

Let me offer a few examples of how we support this vision.

Last year President Trump signed the BUILD Act, which will double the amount of development finance we offer around the world, to $60 billion dollars. We plan to leverage this financing in key markets in Latin America and the Caribbean and strengthen U.S. ties with these important neighbors.

The Administration’s America Crece or “Growth in the Americas” program seeks to catalyze private sector energy and infrastructure investments in Latin America and the Caribbean. Since August 2018, we have signed MOUs with Panama, Chile, Argentina, and Jamaica under this initiative; additional agreements are in the works.

None of this can take place in a vacuum. Our companies, many of you, are ready to engage, but they need a level playing field.

This is why we continue to press for market access for U.S. companies, and for fair and reciprocal trade. This is why we continue to demand that all economic actors operating here in the Americas adhere to the highest standards for transparency, anti-corruption, debt sustainability, labor rights, and environmental protection. This is why we support strengthening of legal regimes and the rule of law and support for democratic governance.

However, we know that not everyone plays by the same rules or respects the same norms. Secretary Pompeo addressed this challenge when he said unequivocally that China’s economic engagement in Latin America and the Caribbean has created new challenges; and we want to ensure that our partners consider the risks inherent in closer ties with China. The Trump administration will always base our approach to foreign policy with a clear-eyed view of what is actually happening in the world.

We recognize the obvious: China is and will remain a significant trade partner for the United States and for many other countries in the region. President Trump has prioritized ensuring fair and reciprocal trade with China, and we have seen that when China plays by international standards, it can play an important role in helping countries develop their own potential. However, in Latin America and the Caribbean, we have seen that China too often departs from these international standards, and when it does, its opaque practices enable corruption, erode good governance, and challenge state sovereignty.

We’re all getting over the hangover left by gross corruption; we understand how it steals money from the pockets of taxpayers, distorts public spending, undermines faith in politics and public institutions, and hurts the men and women determined to put in an honest day’s work and earn an honest return for their efforts. Peru led the way in making that the message of last year’s Summit of the Americas. It’s a good message. As we work together to clean up corruption in the Americas, we must guard against it from entering from abroad.

The government of China, and Chinese firms, have engaged in behavior in the hemisphere that undermines the sovereignty and national security of both the United States and democratic partners in the Americas.

As the President’s National Security Strategy (NSS) states: “For decades, U.S. policy was rooted in the belief that support for China’s rise and its integration into the post-war international order would liberalize China. Contrary to our hopes, China expanded its power at the expense of the sovereignty of others. China gathers and exploits data on an unrivaled scale and spreads features of its authoritarian system, including corruption and the use of surveillance.”

Since China joined the WTO in 2001, we have been waiting for it to subscribe and follow international best practices that support good governance, like our Foreign Corrupt Practices Act. These are rules that many companies and entrepreneurs throughout Latin America, regardless of market share or size – strive to emulate.

Repeatedly, we have seen China fail to meet those expectations. China has blocked other countries from access to its markets, even as it seeks to expand in countries around the world. The Chinese government forces foreign firms that want to operate in China to share proprietary information and transfer technology.

Chinese firms steal intellectual property. Our Department of Justice has recently revealed examples of this behavior, including Huawei officials stealing proprietary information from a major U.S. telecom provider.

This behavior persists in the region, even as the hard work and research of people in our country, and throughout the hemisphere, is stolen, copied, and abused. The United States asks its partners in the Americas to hold China and others to account and not to allow China to play by its own rules.

To do otherwise would be like showing up to a soccer match and sitting idly by while the referee pulls only yellow and red cards on your team, while looking the other way as the opponent hacks away at your star players.

The Chinese Government abuses legal due process. As if stealing intellectual property were not enough, when the United States attempted to hold the perpetrators of such crimes to account, and issued an international warrant in the case of Ms. Meng, China reacted by making a mockery of international law and due process. After Canada detained Ms. Meng on a warrant, China reacted by arbitrarily arresting two Canadian citizens and resentencing a third to death on drug charges. Moreover, it sought to damage Canada’s economy by limiting agricultural imports, all in an effort to force Canada to release Ms. Meng. The international community cannot yield to such manipulation, wherein China retaliates for legitimate law enforcement actions by arbitrarily arresting and prosecuting our citizens. It would sound like a poor movie script, were it not completely true. The U.S. has promised, and will ensure, that Ms. Meng is given every due process and right under our laws.

As we look ahead toward an increasingly digital, and interconnected world economy, attempts to exploit open economic markets to illicitly transfer technology, gather data on an unprecedented scale for exploitative and coercive purposes, or export the pervasive use of surveillance technologies to repress human rights pose an existential threat to the freedoms and to our societies.

Our economies depend on connectivity and high-speed internet and unparalleled processing of vast volumes of data. And with this digital economy, the Administration has taken a very close look at the next generation of technology with a focus on national security.

Given the transformational nature of 5G technology, procurement and deployment decisions made now will have a generational impact on national security, on our economies and our societies. As such, we encourage partners – in this hemisphere and globally - not to commit to any one system or vendor until they are able to compare and contrast available technologies, and fully factor security and national security into procurement decisions. The United States seeks to promote a global 5G ecosystem that supports our shared interests and values. And our administration is not alone in this approach.

Australia, New Zealand, Japan, and the Czech Republic have incorporated national security concerns when developing regulations to safeguard the integrity of their telecommunications networks and critical infrastructure. Our close ally Canada is conducting a robust 5G security review. I’m aware that several of our partners in Latin America are also considering implementing similar regulations or review processes into their procurement and foreign direct investment screening practices as well. We applaud that effort and the United States stands ready to assist.

China’s view of government control over networks and information flows is vastly different from the open, democratic traditions of the United States and most countries in the Western Hemisphere, including the promotion and defense of free speech and human rights.

We have significant concerns over the intimate relationship between China’s intelligence services and its businesses. When we look at China’s National Intelligence Law, it provides that “any organization or citizen shall support, assist, and cooperate with state intelligence work in accordance with the law, and maintain the secrecy of all knowledge of national intelligence work.”

Let me reiterate this point. China’s national intelligence law compels any Chinese company to cooperate with China’s intelligence service. With none of the checks and balances that countries like ours have – independent courts, opposition parties, free press. This means that any data transiting through China or processed by a Chinese company is potentially available to the Chinese government, by law, with total secrecy and no legal limitations on its collection or subsequent use.

Citizens living in democracies in the Western Hemisphere could potentially have their entire digital identity under the control and surveillance of an authoritarian government. For example, as cities purchase closed-circuit television systems and surveillance tools to enhance transportation and security, like through China’s Smart Cities initiative, that information is potentially available to the Chinese government. Other governments relying on those same technologies with so many strings attached need to rethink whether they want Chinese firms and, indeed, the Chinese government to replicate some of those same practices, and in so doing, erode protection of human rights in the hemisphere and cede national sovereignty.

In contrast to China’s systematic manipulation of data and internet traffic for state purposes, the United States supports and defends the multi-stakeholder model of Internet governance against attempts – by any nation - to develop state-centric governance models.

Similarly, development finance should not result in unsustainable debt. Beijing uses debt diplomacy to create dependencies, which may seem negligible today but will eventually constitute a very real leverage over governments and societies and pose a challenge to state sovereignty. We have seen in other regions of the world China launching initiatives aimed to create alternatives to Western models of development and governance.

In the Western Hemisphere, we expect –and should demand- that infrastructure development projects feature transparent procurement processes, uphold environmental and social safeguards, and foster inclusive growth in line with the high standards of international financial institutions.

As a hemisphere of predominantly open economies, and private sector-driven free enterprise, it’s important to remember that China does not operate that way.

The government outright owns many of China’s largest companies and investment groups. Even many private Chinese firms generally align with state priorities because they are required to comply with national industrial policies and laws that have incentives to pursue state-articulated industrial policy objectives. The Government of China, and Chinese companies, simply operate by fundamentally different norms and ideology than do the Americas.

When a U.S. company shows up overseas, governments know that the Foreign Corrupt Practices Act binds them. They are not showing up with bags of cash and false promises of massive infrastructure projects delivered on the cheap. Our courts would hold violators accountable for such actions. We have strong institutions, strong referees, and civil society that holds officials and the private sector accountable.

Chinese firms quite simply do not adhere to the same standards of behavior.

You saw this quite clearly at the Coca Codo Sinclair dam in the jungles of Ecuador. Built by a Chinese state-owned company, the dam was supposed to solve Ecuador’s energy needs.

The dam now runs at half capacity. The project included Chinese government loans. China also received 80 percent of Ecuador’s oil at a discount and then resold that oil at a profit.

Nearly every top Ecuadorian official involved in the dam’s construction is either imprisoned or the Ecuadoran courts have sentenced them on bribery charges. Ecuador is now looking for assistance to pay off or buy out the Chinese debt.

We applaud the swift action by President Moreno’s government to bring to justice those responsible for enriching themselves at the expense of the people. We hope that others look to this example, to fight corruption and impunity.

I would be remiss if I did not mention Venezuela, particularly how China’s practices are playing out in that country. Venezuela continues to face an immense humanitarian crisis caused by years of corruption and mismanagement by the former Maduro regime.

The United States and our regional partners, including the Organization of American States, and the Lima Group, have declared our solidarity with interim President Juan Guaidó, the National Assembly and the Venezuelan people. In total 54 countries around the world support Juan Guaidó and a democratic transition in Venezuela.

And yet, China continues to prop up Nicolás Maduro, despite his complete failure to secure the welfare of the Venezuelan people.

China is one of Venezuela’s top foreign creditors. It is estimated to have given Venezuela more than $60 billion dollars in loans since 2007, flouting the oversight of the Venezuela National Assembly. China made these loans in an effort to gain access to oil resources and construction contracts.

Venezuela has been forced to repay much of this lending in the form of in-kind shipments of oil, further exacerbating its production crisis and constraining the resources available for helping the Venezuelan people get out of the current, government-made economic catastrophe.

Chinese firms are supporting Maduro in other subtly pernicious ways. According to media reports, Chinese telecom giant ZTE helped the Maduro regime build a database and create a mobile payment system for use as a voter identification card. The “fatherland card” has become a tool for Maduro to monitor citizens and allocate scarce resources to his loyalists.

The fatherland card illustrates how China exports technological know-how that can help authoritarian governments track, reward, and punish citizens through a system of digital surveillance. The use of a sole identity card in Venezuela as a tool of control and repression is similar to the Communist Party’s worsening crackdown on ethnic and religious minorities including the Uighurs in Xinjiang Province, China. Since April 2017, one million Muslims and ethnic minorities have been detained in internment camps. The Communist Party has exhibited extreme hostility to all religious faiths since its founding. We have received reports of deaths and allegations of torture from within these camps. With China’s ubiquitous and arbitrary use of intrusive high-tech surveillance systems, collection of biodata, and increased numbers of embedded security personnel in the region, the Communist Party has clearly turned Xinjiang into a “police state.” We will continue to call attention to, and demand accountability for, those who commit human rights violations.

While touting “non-intervention,” China has hypocritically intervened by supporting corrupt business practices and cronyism in Venezuela, precipitating and prolonging the suffering of the Venezuelan people. Even as the Venezuelan people demand change, even as the Lima Group condemns Chinese interference in Venezuela, China stands by Maduro and his brutal gang of thugs. Chinese lending has helped destroy what was once one of the region’s greatest economic successes. This should serve as a powerful lesson to us all of the corrosive power of China’s so-called “unconditional” lending.

To conclude, I would like to emphasize that not every Chinese investment project is malign or comes at the expense of sovereignty. If Chinese companies operate on a level playing field with foreign companies within China , internationally, in ways where they play by the rules, respect environmental and labor standards, avoid predatory loans, and breed more – not less – stability, we – and I think the Americas - would welcome fair competition with China. A mere promise of “high-quality development” won’t cut it when China’s track record is so poor.

I want to end today with a positive example of how the region is coming together to advance shared goals for economic prosperity and good governance, of how the Americas have signaled this region will set its own rules and drive its own future.

Last month there were two important votes at the Inter-American Development Bank: one to recognize Venezuela’s Juan Guaidó administration representative, and one to insist that representative have the right to participate freely in their annual meeting.

We saw regional and international partners step up to support international democratic norms and the participation of Guaidó’s representative. Instead of working in consensus with IDB members, China refused to recognize recognizing Guaidó’s representative. In response, the region came together and cancelled the annual Board of Governors meeting of the Inter-American Development Bank that was scheduled to host in Chengdu, China.

Thankfully, we will hold the next IDB annual meeting here in the Western Hemisphere – in Guayaquil, Ecuador this summer. We support these efforts by our partners in the hemisphere to look after their long-term economic interests.

Every government in the region has the right to make decisions about their own economic prosperity as sovereign nations. And they have decisions to make about the investment climates they seek to foster and the strength they wish to instill in their democratic institutions. Those decisions are theirs to make without malign foreign interference.

Our positive vision is to forge and strengthen partnerships that build on our shared values and common goals – making our region more prosperous, more secure, and more democratic. We can and must harness this positive momentum to grow our economies and face regional and global challenges together.

Thank you.