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Speaker 1: On this episode of the News World. During the pandemic,

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Speaker 1: as the shutdowns prevented businesses from operating at full capacity,

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Speaker 1: the federal government stepped in to assist small business owners

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Speaker 1: with loads to help them stay afloat. The Small Business

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Speaker 1: Administration was responsible for distributing the funds for the Paycheck

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Speaker 1: Protection Program, known as the PPP. The Paycheck Protection Program

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Speaker 1: was initially a three hundred and fifty billion dollars program

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Speaker 1: funded by the two point two trillion dollar Cares Act,

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Speaker 1: which was signed into law by President Trump on March

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Speaker 1: twenty seven, twenty twenty. However, a week ago, the New

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Speaker 1: York Times reported quote, since its creation last year, the

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Speaker 1: Paycheck Protection Program has dispersed seven hundred and eighty billion

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Speaker 1: dollars in forgivable loans to fund ten point seven million applications.

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Speaker 1: With this file of money being distributed by the Small

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Speaker 1: businessmanist who approved financial institutions, there was bound to be

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Speaker 1: some fraud, but what you're about to learn is truly shocking.

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Speaker 1: This funding, meant to help American owned an American owned

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Speaker 1: businesses during the pandemic, also went to Chinese owned and

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Speaker 1: Chinese invested companies, both in the United States and elsewhere

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Speaker 1: to the tune of four hundred and nineteen million dollars.

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Speaker 1: My guest is Emily Delibrier, co founder of Horizon Advisory,

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Speaker 1: and she and her co author Nathan Picarsick have released

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Speaker 1: a report detailing how this happened. One of the reasons

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Speaker 1: we called you is we got involved in looking at

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Speaker 1: a small business administration in the paycheck protection program which

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Speaker 1: automately gave away four hundred nineteen million dollars to Chinese

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Speaker 1: companies or Chinese owned companies, and you did a lot

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Speaker 1: of work on this. You've released a report detailing how

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Speaker 1: this happened, which we will have on our show page.

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Speaker 1: But when did you first sort of sniff out this

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Speaker 1: idea that there was something going on here? One of

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Speaker 1: the big differences we see is not only China's history

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Speaker 1: versus that of the Soviets, but also the degree of

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Speaker 1: integration in the global system today, and because of that,

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Speaker 1: China's ability in a model that may not have worked

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Speaker 1: in the past, to take advantage of international resources and

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Speaker 1: in doing so, to potentially change the outcome that can

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Speaker 1: be expected of its own model. So, based on this

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Speaker 1: is an overall framing and then sorting through Chinese strategic discourse.

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Speaker 1: What we've found over and over, and what we found

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Speaker 1: in particular at the beginning of the COVID pandemic was

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Speaker 1: a line of argument that calls for taking advantage of

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Speaker 1: global crises, of moments of global shock or dislocation to

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Speaker 1: leverage China's relatively insulated government backed approach, in order to

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Speaker 1: secure international resources that might be depreciated, in order to

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Speaker 1: capture market share that might be up for grabs, and

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Speaker 1: just broadly to use the global dislocation and in attention

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Speaker 1: to further China's strategic ambitions. What we also saw looking

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Speaker 1: at actually the two thousand and eight financial crisis model

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Speaker 1: was that China is a dept at very intentionally not

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Speaker 1: only taking advantage of the moment of global crisis, but

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Speaker 1: also taking advantage of the responsive investment, including recovery investment

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Speaker 1: the countries like the US issue. So when the US,

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Speaker 1: in response to either COVID or a financial crisis, goes

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Speaker 1: about investing in infrastructure or giving out recovery loans, Chinese

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Speaker 1: entities are there to be the ones building the infrastructure

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Speaker 1: or supplying the basic inputs for infrastructure, or receiving recovery loans.

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Speaker 1: So based on this. When the US government released the

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Speaker 1: list of paycheck Protection Program recipients this summer, it was

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Speaker 1: an enormous list. We went through a sample of them

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Speaker 1: of about twenty thousand companies and looked for Chinese owned

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Speaker 1: or significantly Chinese invested companies that may have received the

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Speaker 1: loans and who they were, and what their ties were

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Speaker 1: to the Chinese system and how much money they got.

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Speaker 1: And as you mentioned, we found a really non trivial

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Speaker 1: sample of over one hundred and twenty five Chinese companies,

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Speaker 1: including state owned companies and government invested companies, and companies

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Speaker 1: tied to China's military military civil fusion system benefiting from

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Speaker 1: this program that was intended to help out US small businesses.

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Speaker 1: To what a stent though? Were they simply legitimately taking

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Speaker 1: advantage of a program the way we had set it up. Oh,

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Speaker 1: it's not that, you know, trying to broke the US law.

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Speaker 1: Here are these companies broke any laws. It's that and

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Speaker 1: this pretty typical of the US and in ways that

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Speaker 1: you know, sometimes are in our interests and sometimes are not.

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Speaker 1: That we as a country sought to disperse money and

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Speaker 1: do so in as quick away as possible and didn't

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Speaker 1: put up safeguards because it doesn't know as a system.

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Speaker 1: Seemed to cross our minds that a recovery investment program

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Speaker 1: could actually be used as a part of a competitive

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Speaker 1: ambition to take advantage of our system. I'm thinking about

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Speaker 1: putting the other a paper or true corruption, which just

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Speaker 1: doesn't strike me it necessarily is. Washington State sent nine

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Speaker 1: hundred million dollars in unemployment payments to Nigeria because several

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Speaker 1: Nigerian cyber gangs had figured out how you could apply,

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Speaker 1: and so they would go and hack somebody's SO security

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Speaker 1: number and then apply as that person, and the people

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Speaker 1: from as far away as Florida who were getting unemployment checks,

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Speaker 1: except the person wasn't in Florida. The check was actually

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Speaker 1: ending up in Nigeria and in California, which of course

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Speaker 1: is a much bigger state. We think that they lost

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Speaker 1: thirty two billion dollars in false unemployment claims, largely though,

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Speaker 1: unlike Washington State, which the Nigerians found largely to criminals

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Speaker 1: who are in jail who worked out systems where they

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Speaker 1: would have their girlfriend or boyfriend go pick up the

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Speaker 1: checks and they would track down false names and a

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Speaker 1: lot of cases they weren't false names. The most recent

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Speaker 1: example was the Boston bomber got fourteen hundred dollars in

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Speaker 1: jail while appealing to the death family. So there's something

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Speaker 1: out here that's peculiarly American in throwing money around on

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Speaker 1: such a scale that you know, and I wanted to

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Speaker 1: approach it from the other side, which is all of

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Speaker 1: these were answer crux, you know, And it sounds to

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Speaker 1: me like in the case of the Chinese, they weren't

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Speaker 1: being crooked. They were doing exactly what the system asked

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Speaker 1: them to do, and they happen to be legally eligible.

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Speaker 1: Is that a fair statement. That's exactly fair. There were

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Speaker 1: not safeguards put on the program they would have prevented this.

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Speaker 1: The spirit of this program was to provide capital to

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Speaker 1: players who couldn't receive capital anywhere else. So to have

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Speaker 1: a Chinese state owned company or state backed company receive

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Speaker 1: these loans definitely goes against the spirit of the program,

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Speaker 1: but by no means the letter of it. So this

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Speaker 1: was entirely listed. But so as you look at all this,

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Speaker 1: since you have a pretty good sense of both sides

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Speaker 1: of the equation, as long as they're integrated into the

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Speaker 1: world economy, is it practical to write laws that would

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Speaker 1: say this doesn't apply if you're not an American, or

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Speaker 1: this doesn't apply if you're companies, because in a lot

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Speaker 1: of cases, my guess is they actually had companies physically

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Speaker 1: in America. Yes, so these were US headquartered company. The

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Speaker 1: distinction is though, so for example, the companies on this

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Speaker 1: list that are state backed or owned by Chinese state

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Speaker 1: owned players, they have sources of capital elsewhere, there's no

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Speaker 1: reason US recovery funding should be bailing them out. I

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Speaker 1: think two key points out here. The first is that

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Speaker 1: in some cases these are companies tied to the Chinese

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Speaker 1: military or Chinese military civil future system. This is a

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Speaker 1: US adversary, and so yes, it seems practical and necessary

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Speaker 1: for there to be language written in that a company

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Speaker 1: that's owned by an entity that the US Department of

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Speaker 1: Defense has identified to be tied to the Chinese military

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Speaker 1: should not be receiving US recovery funding. And then the

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Speaker 1: other point is, just if we follow the chain of

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Speaker 1: this money, some of the recipient companies are invested in

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Speaker 1: or owned by the Chinese state, and in some of

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Speaker 1: the cases they also are donating money to the Chinese government.

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Speaker 1: COVID recovery program, which means that because money is fungible,

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Speaker 1: US recovery funds are going, albeit indirectly, to subsidizing the

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Speaker 1: Chinese government and the Chinese government COVID recovery investment, which

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Speaker 1: you know, maybe is all well and good if we're

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Speaker 1: in this cooperative kumbaya world of COVID recovery, But the

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Speaker 1: counterpart we're dealing with here China is using COVID as

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Speaker 1: a competitive opportunity, was stockpiling Ppe at this point was

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Speaker 1: doing precisely the reverse of cooperating in response to the pandemic.

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Speaker 1: So while it's certainly difficult to write in the careful

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Speaker 1: language that might be necessary to put in safeguards for

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Speaker 1: this kind of money, and while it's certainly difficult to

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Speaker 1: have the kind of vetting that we might need to

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Speaker 1: actually track down which our Chinese owner invested companies, it's

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Speaker 1: very possible at a first order, it's not that difficult.

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Speaker 1: And this is also I would argue that this kind

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Speaker 1: of safeguarding and vetting is not only necessary and valuable

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Speaker 1: for something like paycheck protection program, but also for investment

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Speaker 1: in sign tific and technological companies. Money going for US innovation,

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Speaker 1: other preferential policies or tax credits or other programs that

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Speaker 1: are fundamentally part of efforts to foster a US industry,

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Speaker 1: US science and technology and compete in the global system.

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Speaker 1: So I mean, to some eastend, I guess you could

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Speaker 1: actually have a registry if you will, of Chinese own companies.

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Speaker 1: It might be actually smart of us to do that anyway, Oh, absolutely, yes,

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Speaker 1: and it would be smart of us to do And

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Speaker 1: this is also something where there's just a huge information

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Speaker 1: gap and there's so much information fragmentation. So like the

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Speaker 1: federal government needs this, but local governments need this just

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Speaker 1: as much, if not more. And it's something where simply

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Speaker 1: having a database led by the federal government would be

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Speaker 1: a relatively low lived thing that could have outsize effect

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Speaker 1: for all parties within US governments. It seems to me

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Speaker 1: that privacy rights of Chinese owned companies are inherently different

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Speaker 1: than the privacy rights of American owned companies inside the

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Speaker 1: United States, And therefore we could make a condition of

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Speaker 1: operating in the US you have to register so that

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Speaker 1: we can track who you are and what you're doing. Yes, absolutely,

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Speaker 1: I mean, do you see them in that sense as

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Speaker 1: an inevitable long term adversary. Yes, China sees US as

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Speaker 1: a long term adversary, and in Beijing is very deliberately

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Speaker 1: and very explicitly competing to overtake or leap frog or

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Speaker 1: one up the US however we want to put it,

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Speaker 1: and it seems to me inevitable that if another party

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Speaker 1: is trying to compete with us, then we inter and

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Speaker 1: have to compete with them. It's a great line from

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Speaker 1: Trotsky who says that you may not care about war,

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Speaker 1: but war cares about you. And in that sense, if

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Speaker 1: the other team is determined to compete, by definition, you're

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Speaker 1: in a competition. Precisely the second they're not passing the

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Speaker 1: ball they're trying to shoot. That's a very different dynamic.

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Speaker 1: To what degree do you think they may have done

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Speaker 1: this deliberately, that's a more difficult question. So there are

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Speaker 1: a number of Chinese subsidy type programs that involve collecting

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Speaker 1: information on international law, for example, or US litigation practices

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Speaker 1: and intellectual property protection practices that and I'm saying he's

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Speaker 1: an example, because what they do is that they create

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Speaker 1: a corpus of information for Chinese companies that can potentially

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Speaker 1: allow them to circumvent or take advantage of US policies

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Speaker 1: simply by making that information and that kind of almost

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Speaker 1: advisory input available. It's possible that if there wasn't some

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Speaker 1: sort of program for information sharing, there was at least

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Speaker 1: guidance that publicized within China that this program was available.

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Speaker 1: That doesn't necessarily seem like the most probable answer. I

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Speaker 1: think it's more probable this program was there, it was

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Speaker 1: in company's interests to take advantage of it, and so

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Speaker 1: they did, and that in this particular case, it wasn't

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Speaker 1: a guided, coordinated effort. In other cases of taking advantage

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Speaker 1: of US recovery investment, like, for example, the role China

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Speaker 1: played in US infrastructure construction after the financial crisis, I

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Speaker 1: think you actually do see more intentional Chinese government support

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Speaker 1: for that effort, including in the context of preferential policies

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Speaker 1: for companies going out to build infrastructure abroad. But that's

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Speaker 1: a different story in one where there's more time and

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Speaker 1: there's more of an apparatus already available. Aren't we seeing

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Speaker 1: a similar kind of long range strategic thinking when we

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Speaker 1: get in our pursuit of trying to reduce carbon from

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Speaker 1: the cars. When we cheerfully start talking about electric cars

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Speaker 1: as our future, isn't it. In fact, the Chinese will

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Speaker 1: have the huge advantage in all the elements of production

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Speaker 1: for electric cars. Yes, absolutely, all the way along the

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Speaker 1: electric vehicle industry chain, Beijing has pretty much global control.

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Speaker 1: When you start with the critical mineral inputs, so cobalt

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Speaker 1: and lithium and graphite, China is the dominant international player.

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Speaker 1: And then all down that industry chain moving into fuel

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Speaker 1: cells and then into batteries, Beijing is just position to win,

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Speaker 1: and we're focused very much on the farthest downstream, which

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Speaker 1: you know, it's a function, needless to say, of US

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Speaker 1: innovative and technological capacity. But what it means is that

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Speaker 1: we are building a foundation on Chinese inputs, and therefore

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Speaker 1: that we're dependent on China for this new industry that's

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Speaker 1: increasingly going to be the dominant one on the roads.

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Speaker 1: And of course the next beat is that China's also

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Speaker 1: built now electric vehicle brands that are intended to compete

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Speaker 1: with US and other international ones. So you end up

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Speaker 1: with they are a half generation or more ahead of

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Speaker 1: us in the means of production. We're adopting a policy

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Speaker 1: which maximizes their relative advantage as we try to get

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Speaker 1: away from fossil fuels, which is our relative advantage. So

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Speaker 1: it's almost if you had designed this as a Chinese

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Speaker 1: strategic planner, but you could hardly get a better policy

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Speaker 1: fit from a Chinese perspective? Am I missing something that's

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Speaker 1: precisely it? That's the perfect framing of it. So I

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Speaker 1: have a hunch you're going to be really busy because

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Speaker 1: they're not going to go away. They're going to be

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Speaker 1: a very serious competitor. They have a huge advantage over

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Speaker 1: us in strategic planning. We have a huge advantage over

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Speaker 1: them and opportunistic adventurism, and it'll be interesting to see

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Speaker 1: over a fifty year period which works, you know. Yeah.

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Speaker 1: It's also it's clearly not an accident that, for example,

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Speaker 1: the next generation of automotive development is one where China

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Speaker 1: is positioned to have advantage. And that's because China has

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Speaker 1: for decades targeted what they call emerging industries and has

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Speaker 1: targeted their entire industry chains the beginning at the necessary inputs,

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Speaker 1: and it's what we're seeing in semiconductors, but we're also

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Speaker 1: poised to see the same in other renewable energies, industrial

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Speaker 1: internet systems, all the things that we talk about as

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Speaker 1: the part of the next industrial revolution. I mean Injiesian

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Speaker 1: pay very openly, it wasn't secret, laid out an entire

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Speaker 1: plan for the next twenty to thirty years and said

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Speaker 1: these are the industries we need to dominate. Yes, and

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Speaker 1: the made in twenty twenty five plan comes out in

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Speaker 1: twenty fifteen with a set of industries those themselves aren't new,

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Speaker 1: and they date back to, for example, the Medium Long

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Speaker 1: Term Development Plan of two thousand and six. And the

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Speaker 1: degree of continuity and long term planning that you get

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Speaker 1: when the plan for two thousand and six to two

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Speaker 1: twenty then leads perfectly into the plan for twenty fifteen

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Speaker 1: twenty twenty five, and then turn into the new plan

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Speaker 1: to take us a twenty thirty five. And they're marching

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Speaker 1: very carefully along at competitive strategy that is framed around

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Speaker 1: leap frogging the US. Yeah, and I don't think I've

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Speaker 1: seen any parallel counterpart, even at the level of saying

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Speaker 1: this is what the Chinese are doing. I mean, it's

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Speaker 1: kind of like we're cheerfully bumbling along and they're over

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Speaker 1: here working methodically. I don't want to pretend that the

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Speaker 1: Chinese don't have huge problems, including demography odd enough, but

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Speaker 1: I do think that there's a formidableness to their focus.

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Speaker 1: And I also think the degree to which we've allowed

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Speaker 1: our education system to decay is one of the largest

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Speaker 1: advantages the Chinese have, because we're just literally not going

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Speaker 1: to be able to produce enough people to compete with them. Yes, exactly,

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Speaker 1: And I think that also captures the asymmetry of strong

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Speaker 1: industrial foundation from the Chinese side versus the cutting edge

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Speaker 1: innovative capacity from the US side. We are producing the

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Speaker 1: brilliant minds, but that entire army, if you will, of

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Speaker 1: engineers and if people with strong vocational skills and advanced

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Speaker 1: basic capabilities, is not necessarily coming out of our education system.

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Speaker 1: And China's entire competitive approach rests on taking advantage of

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Speaker 1: both domestic and international innovative resources and then competing for

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Speaker 1: their application and for their scaled application. And that's what

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Speaker 1: today's tech race is about. But if we're not producing

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Speaker 1: the scale, we can't do anything about it. Yeah, No,

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Speaker 1: I think that's right. Well, we want to stay in

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Speaker 1: touch with you because I think you're doing some of

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Speaker 1: the most interesting thinking. Then I really appreciate you taking

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Speaker 1: the time so to give us an overview from a

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Speaker 1: totally different angle. I hope as you produce new studies

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Speaker 1: and new research, you'll stay in touch, give us a

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Speaker 1: chance to occasionally educate our listeners by dropping back in

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Speaker 1: seeing what you're thinking. I would love to thank having me,

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Speaker 1: thank you to my guest Emily la Bruyere. You can

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Speaker 1: read Horizon Advisor's report on our show page at newtsworld

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Speaker 1: dot com. News World is produced by Gingwish three sixty

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Speaker 1: and iHeartMedia. Our executive producers Debbie Myers, our producer is

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Speaker 1: Guardzi Sloan, and our researcher is Rachel Peterson. The artwork

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Speaker 1: for the show was created by Steve Penley. Special thanks

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Speaker 1: to the team at Gingwish three sixty. If you've been

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Speaker 1: I'm newt Gingridge. This is Newtsworld