changed the political system there and created a rule of law and democracy, and that could someday happen in China. In the meantime, I do think we need to be vigilant.

And I thank you for the opportunity to testify today.

Mr. HOSTETTLER. Thank you, Dr. Wortzel.

[The prepared statement of Dr. Wortzel follows:]

PREPARED STATEMENT OF LARRY M. WORTZEL

Mr. Chairman, Members of the Committee,

Thank you for the opportunity to testify today on the theft of national security sensitive technology in the United States. As a former military intelligence officer who has tracked the activities of the People's Liberation Army and Chinese intelligence services for 35 years, I know of no more pervasive and active intelligence threat to America's national security than that posed by the People's Republic of China. The manpower available to the Chinese government and its corporations to devote to gathering information in the United States is nearly limitless. There are some 300,000 visitors to the United States from China each year. It is impossible to know if these people are here for study and research or if there are here to steal our secrets.

In 2003, for example, the State Department granted about 27,000 visas to Chinese "specialty workers," the H1-B visa. Some of these were intra-company transfers coming to the United States from US firms operating in China. Indeed, between 1993 and 2003 there were about 40,000 immigrant visas from China a year. The US government has handled about 2,410 asylum cases from China a year. In 2003, there were about 55,000 student visas granted to Chinese students. The sheer magnitude if these numbers presents a great challenge to the Federal Bureau of Investigation, particularly when the US is also concerned about terrorism.

The General Political Department of the People's Liberation Army has a proprietary company, Kaili, or Kerry Corporation, that operates in the U.S. as a real estate and investment company. The General Equipment Department of the PLA operates a proprietary company, Polytechnologies, which has offices here in the U.S. In addition, the Chinese Defense, Science, Technology and Industry Commission operate a proprietary called Xinshidai, or New Era, that has offices in our nation. These technically are independent legal entities, but they were established by the Central Military Commission of China to serve the interests of the military industrial complex. The PLA regularly operates trade fairs to attract American high technology into China.

The Deputy Undersecretary of Defense for Technology Security and Counterproliferation has testified that there are between 2,000 and 3,000 Chinese front companies operating in the United States to gather secret or proprietary information, much of which is national security technology or information.

The nature of the Chinese state complicates the problem of knowing what the large numbers of travelers and students from China are actually doing. China is still an authoritarian, one-party state led by the Chinese Communist Party with a pervasive intelligence and security apparatus. The Chinese government is able to identify potential collectors of information and, if necessary, to coerce them to carry out missions on behalf of the government because of the lack of civil liberties in China. Let me quote the first three sentences of Chapter 1, Article 1, of the Chinese Constitution: "The People's Republic of China is a socialist state under the people's democratic dictatorship led by the working class and based on the alliance of workers and peasants. The socialist system is the basic system of the People's Republic of China. Disruption of the socialist system by any organization or individual is prohibited."

The People's Republic of China is methodical in its programs to gather information from abroad. În March 1986, the PRC launched a national high technology research and development program with the specific goal of benefiting China's medium and long-term high technology development. This centralized program, known as the "863 Program" for the date when it was announced, allocates money to experts in China to acquire and develop bio-technology, space technology, information technology, laser technology, automoation technology, energy technology and advanced materials. The 863 program was proposed by China's strategic weapons scientists to emphasize strategic civil and military technology development. Thousands of students and scientists were sent abroad by China over the years to pursue critical civil and military, dual-use technologies. This practice still continues. When I was at the American Embassy in China and conducted due diligence checks to confirm the nature of Chinese companies seeking to do high technology business in the

United States I most often found that the address identified for a company on a visa application turned out to be a People's Liberation Army or PRC government defense research institute. Thus, the United States faces an organized program out of China that is designed to gather high technology information of military use.

My colleague today, Mr Maynard Anderson, will discuss some of the ways that our government and industry can defend against intelligence gathering by China through defensive counterintelligence and security education programs. It is also important to know that we have other programs to screen out people coming to the United States to gather our trade or military secrets. In January 1998, the VISAS MANTIS program was developed to assist the American law enforcement and intelligence communities in securing U.S.-produced goods and information that are vulnerable to theft. Travelers are subject to a world-wide name-check and vetting procedure when they apply for visas. The security objectives of this program are to prevent the proliferation of weapons of mass destruction and missile delivery systems; to restrain the development of destabilizing conventional military capabilities in certain regions; to precent the transfer of arms and sensitive dual-use items to terrorists; and to maintain United States advantages in militarily critical technologies. This program operates effectively and can vet a Chinese student in as few as 13 days. Non-students may take longer, as many as 56 days. However, I can tell you based on my trip to China two weeks ago that the American Embassy in Beijing and the Consulate in Guanzhou are able to process and vet in about two weeks visas for non-student travelers who fully and accurately outline the purpose and itinerary of their trip. The government also operates a "technology alert list" to identify legal travelers from China that may benefit from exposure to advanced U.S. technology with military application.

Many provinces and municipalities in China now operate high technology zones and "incubator parks" specifically designed to attract back Chinese nationals who have studied or worked overseas in critical high technology areas. When students or entrpreneurs return with skills or knowledge that the central government deems critical they are given free office space in the parks, loans, financial aid, and administrative help in setting up a business designed to bring in foreign investment and technology. Their companies are given tax holidays. Innovative programs such as at Beijing's Zhongguancun High Technology Park and Guangzhou's High Technology Economic and Trade Zone get central government help. These are admirable programs that will develop entrpreneurial skills among well-educated Chinese citizens. However, as students and employees of U.S. companies return home, it is important to know that they are not taking back American economic or military secrets. Good counterintelligence and industrial security programs are very important to U.S. security given this threat.

Mr. Chairman, the enforcement of intellectual property protection laws in China is spotty and inconsistent at best. This is one of the major complaints of American high technology companies about China's compliance with its obligations under the World Trade Agreement. It will certainly be a subject discussed by President Bush and Chinese President Hu Jintao this week. The tendency to steal intellectual property and high technology secrets in China is worsened when ijntellectual property laws are not enforced there. And the problem is further exacerbated when centralized Chinese government programs, such as the “863 Program” I mentioned earlier in my testimony, are specifically designed to acquire foreign high techology with military application. This only creates a climate inside China that rewards stealing

secrets.

I believe that U.S. government security, intelligence and law enforcement agencies must focus on the national security. They should be looking for acts of espionage and for violations of the Arms Export Control Act or the Export Administration Act. When it comes to corporate or industrial espionage that is not a matter of national security, I believe that the government owes American companies a good legal infrastructure to protect trademarks, patents and copyrights; a system of education on industrial security; and a strong effort to ensure that China meets its own obligations to create a rule of law that protects the right of ownership and intellectual property. However, I do not believe that American intelligence or security agencies should focus on forms of economic espionage that do not involve national security information. From the standpoint of Congressional action, my view is that the Congress should reconsider the Export Administration Act with a view toward ensuring that its provisions meet the needs of 21st century technology. The 1979 Export Administrtion Act expired in 2001. The Senate passed a new Act in 2001, but no revision passed the House. And the Executive Branch must regularly review the Commodity Control List to ensure that appropriate national security controls on exports do unduly restrict the ability of American industry to compete in the world market. Generally, technologies that are widely available on the world market and

not unique to the United States should not be unduly restricted unless they can be subject to mulitlateral controls.

Finally, we cannot become paranoid and suspect that every traveler, student and businessman from China is a spy or is out to steal technology. Prudent law enforcement programs, counterintelligence programs, security education and industrial securty programs are important means to protect our nation.

Thank you for your invitation to testify today.

Mr. HOSTETTLER. Mr. Anderson.

TESTIMONY OF MAYNARD ANDERSON, PRESIDENT, ARCADIA GROUP WORLDWIDE, INC., AND FORMER DEPUTY UNDER SECRETARY OF DEFENSE FOR SECURITY POLICY

Mr. ANDERSON. Thank you, Mr. Chairman. I too have submitted a statement for the record. With your permission, I will summarize. Mr. HOSTETTLER. Thank you.

Mr. ANDERSON. Thank you, sir.

We have proved that collectors representing foreign adversaries and friends use espionage, theft and other illegal means to take advantage of the United States and cause unauthorized disclosure of protected information.

We also need to recognize that there are ethical failures of trusted personnel who are prepared to traffic in information and technology because they are greedy or because they are susceptible to foreign pressure, and they are threats as well.

The United States is an open society and a prime target of collectors because it produces more intellectual property than any other nation in the world and does, to some extent, a poor job of protecting it. World changes, producing new alliances and new friendships internationally create more vulnerabilities to our technology. America may have won the Cold War, but we are losing ground economically to those who would pilfer our commercial secrets.

National security and economic strength are indivisible, and the real test in this world of military and economic contests for supremacy may not be who first develops technology but rather who is the first to use it effectively. Technology's application is the key, particularly in an area of dual-use technology.

Integration of the management, protection and use of technology is an objective to ensure that we determine what needs to be controlled, what can be controlled, and employment of the most important control mechanisms. It is imperative that we determine accurately whether any other nation wants our technology and whether any other nation has it already, because we can't afford to spend resources to protect things that don't need protection. We need to balance the protection of real secrets while maintaining the competitive position of American industry in the world market.

It would seem prudent, therefore, to use all current legal remedies available to enforce contracts and personnel actions, to enhance enforcement opportunities against current Government and contractor employees who break trust, to establish new standards and requirements for our foreign visitors, particularly students and researchers, and to ensure, probably most of all, that our citizens know what is expected of them.

The easiest, least-expensive and most effective protection technique is education. All custodians of protected information should be subjected to continuing education concerning threats,

vulnerabilities and protection of information so that they understand the consequences of its unauthorized disclosure, which are obviously jobs, loss of profits and diminished national security.

Everyone should be made aware that national security is every citizen's responsibility.

Thank you, Mr. Chairman.

Mr. HOSTETTLER. Thank you, Mr. Anderson.

[The prepared statement of Mr. Anderson follows:]

PREPARED STATEMENT OF MAYNARD ANDERSON

In the 1985 report entitled, "Keeping the Nation's Secrets," The Stilwell Commission wrote that given the extraordinary importance of advanced technology to our nation's military capabilities, its loss to a potential adversary by espionage, theft or other unauthorized disclosure can be crucial to the military balance.

That is perhaps more true today. There is a great deal of support for the assumption that national security and economic strength are indivisible. Both military and economic security will depend on effective countermeasures. United States economic competitiveness is a national security issue. However, as attempts are made to ensure proper protection to truly sensitive information and technology, the competitive position of American industry in the world market must be maintained. Care must be taken to balance control with tolerance for contributions to technology development.

The United States produces more intellectual property than any other nation and, in the opinion of many, does the poorest job of protecting it. Efforts to acquire unclassified technology by illicit means is common partly because the risk of exposure and severe penalties to the perpetrators are much lower than conventional espionage. And, those who seek our protected information have generally been described as "adversaries" or potential adversaries. It is ore likely that the greatest challenge to the United States technology and industrial base comes from United States friends and allies. One of the most expedient and least expensive ways for any nation to increase its industrial capability is by theft from the United States, the most lucrative target in the world. Our competitors are not unaware that the real test of success in this world of military and economic supremacy may not be who first develops technology but rather who is first to use it effectively.

As an "Open Society," the United States offers invited or illegal visitors almost unlimited opportunities to take advantage of our accomplishments. Large numbers of immigrant workers along with foreign exchange students and visitors, combined with a perception