China’s Supply Chain Domination: CCP Directed, US Assisted

Fiona Yang
By Fiona Yang
April 22, 2020Zooming Inshare

Narration: Does the supply chain dependence pose a national security threat?

Simone Gao: Can you give us a time estimate [as to] if China cuts its supply today in how long the American people wouldn’t be able to buy generic drugs from its stores?

Rosemary Gibson: I think in a matter of a couple of months we’d be really seeing some problems.

Narration: Rare earth is another vulnerability.

Ms. Gao: Is it easy for China to weaponize such monopoly?

David Wilcox: I don’t think it was easy. This is decades in the making. You can’t flip it overnight.

Narration: And how did the rest of the manufacturing move to China?

Curtis Ellis: It’s this concentration where you had one buyer in America that could dictate to a thousand different businesses in America what they should be producing and selling for. And that one buyer in America could then move production for a thousand companies over to China.

Title: China’s Supply Chain Domination: CCP Directed, U.S. Assisted.

Host: Welcome to Zooming In, I’m Simone Gao. Before the CCP virus pandemic, the global supply chain discussion was purely about economics. Four months into the pandemic, the same discussion now points to only one thing: national security. The pandemic exposed our vulnerabilities, and only now are we starting to realize what a dangerous situation we are in. The massive supply chain migration has gone on for the past few decades. What critical parts of the supply chain have moved away? How did it happen, and most important of all, what does the mastermind behind all this intend to achieve? In this episode of Zooming In, we explore these questions.

Part One, American Medical Dependence

Narration: Since the end of March the amount of infections and deaths turned upward sharply in the U.S.; Naturally, so did the fear of running out of medical equipment.

According to recent documents released by the House Oversight Committee, the Strategic National Stockpile said its medical supplies are nearly depleted. About 90% of its protective gears in the federal stockpile were shipped out to states grappling with the CCP virus.

The medical supplies shortages have a significant background to keep in mind:

First, protective gear was bought off the shelves of  pharmacies and retail stores long before the country became an epicenter. According to a recent survey from the National Community Pharmacists Association, 96% of pharmacists in the country were selling face masks, N95 respirators, and sanitizers faster than they could restock.

Much of the demand in the beginning, though, came from people who wanted to send them to China, either to give to their families or donate them to their home cities.

The Chinese social media platform Douyin, who has the same Chinese parent company as Tiktok, published countless videos about such stories.

Some Chinese Cambodians donated 1.14 million masks to China. On February 16th,  ZTO Express (a delivery company from China) rented a passenger aircraft to send those masks to Yunnan, China. This batch of PPE will arrive in Hubei province, Zhejiang province, and other areas with serious outbreaks.

Just recently, a young Chinese Dubainese anonymously donated 20 tons worth of medical supplies back to China. Those supplies were donated to the First Hospital of Zhejiang province, as well as two other medical institutions.

While these bulk purchases started off well-intentioned, some of them went too far.

A viral video recently posted to Twitter shows a Chinese woman who lives in America gloating about buying up all the masks across several U.S. stores, while loading them onto her pickup truck. She named her video post: I leave nothing for the Americans.

The woman named Hexin Jiang is a purchasing agent who buys products in bulk for resale abroad in Asia.

Hexin Jiang: “It feels so awesome to buy all the masks! I didn’t leave a single mask for the Americans!”

She later went onto boast that what she had done was a “historical moment.”

Host: The video has stoked social media’s wrath, drawing an overwhelming amount of negative comments within the Chinese community over the woman’s selfish actions. But in order to understand this type of behavior, we ought to put it into context: Since January, the Chinese regime has mobilized overseas Chinese to take advantage of the system.

Narration: The Epoch Times reported about the Chinese Communist Party’s United Front Work Department’s encouragement of this behavior. The official website posted a comment, reading “Keep on buying while sending back to China, and try your best to buy as much as possible.” The United Front Work department functions to push the Chinese diaspora to do the party’s bidding.

But simply galvanizing individuals actions can and will not satiate the regime’s voracious appetite. Both Chinese state-run enterprises and private firms joined in on global sourcing.

According to Chinese customs data, China vacuumed up two billion masks in a five-week period starting in January. That is roughly equivalent to two and a half months of global production.

China also imported 400 million pieces of other protective gear, from medical goggles to biohazard coveralls.

Another example of medical equipment hoarding was exposed in Australia, according to The Sydney Morning Herald. Throughout January and February, the and Risland Australia, two Chinese government-backed property companies based in Sydney, hoarded millions of personal protective equipment, or PPE items. The stash included 3 million face masks , more than a million pairs of gloves, 800,000 hazmat suits, thermometers, hand sanitizer, and other medical items for shipment to China throughout January and February.

Host: That was well before the coronavirus permeated through the United States. The United States was oblivious about China’s hoarding of medical supplies partially because falsified data coming out of China made the outbreak seem less serious than it truly is. When the United States and the rest of the world started to see the true scale of this pandemic, another shocking realization followed in the wake of the disease. Not only were there not enough PPE in stock, but no one had the ability to produce them either.

Narration: Before the CCP virus first broke out, China made half the world’s masks. That production has since expanded nearly 12-fold, with the nation now producing 116 million masks a day, according to the New York Times. Since the outbreak, the Chinese Communist Party has directed pharmaceutical manufacturers to prioritize domestic needs by selling masks straight to the government for distribution.

The CCP similarly coerced foreign companies inside China.

A New York post report detailed one instance relayed by a senior White House official. Executives from 3M recently revealed that, in January, the Chinese government began blocking exports of medical supplies produced by their factories in China. (NY post)

Things took an even darker turn after Chinese industries resumed production. In early March, China’s state news agency Xinhua threatened the Trump administration to tread lightly, else China could ban pharmaceutical exports and plunge the U.S. “into the hell of a new coronavirus epidemic.”

In response to the threat, Sen. Tom Cotton (R-Ark.) and Rep. Mike Gallagher (R-Wis.) introduced a bill on March 18, the Protecting our Pharmaceutical Supply Chain from China Act. The bill aims to end U.S. dependence on China for pharmaceutical products.

And just how reliant are we on China for medicines?

At a Senate Committee hearing in February, former FDA commissioner Scott Gottlieb explained in detail the extent of China’s dominance:

According to the U.S. Department of Health and Human Services, U.S. hospitals and pharmaceutical firms rely on Chinese manufacturers. The products range from the active pharmaceutical ingredients (API) to finished drugs.

As of last year, 97% of antibiotics sold in the U.S. came from China.

Much of the actual formulation of finished drugs is done outside China and often in India. However, the starting and intermediate chemicals are often sourced in China.

According to a report from the US-China Economic and Security Review Commission, China’s chemical industry accounts for 40 percent of global chemical industry revenue. These chemicals create choke points in the global supply chain for medicines.

To date, America has virtually lost the ability to produce critical medicines such as penicillin and doxycycline without these chemicals. That’s because the last penicillin fermentation plant in the U.S. closed in 2004.

Host: Before China became the dominant supplier for medicines, the world was in a much different place. In the 1990s, the U.S., Europe, and Japan manufactured 90% of the global supply of the key ingredients for medicines and vitamins. However, the CCP changed this global picture dramatically. How did it come about? I interviewed Rosemary Gibson, Senior Advisor of the Hastings Center and author of “China Rx: Exposing the Risks of America’s Dependence on China for Medicine”.

Ms. Gibson: It happened for a couple of reasons. One, the United States had a law allowing generic drugs, which means that drugs that have been off on patent with patent protection, they’re no longer on patent protection to make them cheaper for people. So manufacturers wanted a cheaper way to make them and so they moved East. That began in the 80s, late eighties early nineties. The other very important event was when the United States opened up free trade with China in 2000 and China, joined WTO in 2001 it’s remarkable in China RX, that’s I noticed a pattern that when we opened up free trade with China and they joined the WTO within a year or two, that’s when we lost the last aspirin plant in the United States. It’s when our last penicillin plant closed. It’s when our last vitamin C plant closed. It’s when a very important blood thinner called heparin when us companies began to source the raw material from China. So the trade policy who knew its trade policy has such a profound impact and our medicine supply, but it’s not just trade. What we saw, and there’s a chapter in China RX about the penicillin and vitamin C, cartels, China was cheating it dumped product, sold it to the United States and other countries at below market prices and drove out the other producers.

Ms. Gao: Right. And after that, what did they do?

Ms. Gibson: Then they raised, then they raised prices and they have global dominance. Okay. This was a consistent pattern that when it was Propent a Ceylon, the last US plant shut down in 2004 and that was the year that we’d have data to show in China RX. That’s the year when China began dumping it on the global market. And that even drove out producers in India. So India depends on China for very important antibiotics as well because of these unfair trade practices. And of course China subsidizes its domestic companies making it very difficult for companies and other countries to compete.

Narration: Over the years, the CCP has weaponized pharmaceutical manufacturing. What does it mean to the American public and why is China’s dominance extremely dangerous? Ms. Gibson had this to say.

Ms. Gibson: What we’re seeing with regard to the masks is that companies that were producing masks for the US and other countries, those company manufacturers were ordered not to export masks because they were needed in China. And that’s understandable. But this is a consequence of the global supply chain being concentrated in a single country. If there is an outbreak in other countries, where are the masks going to come from? This is why one of the recommendations in China RX is that we diversify our manufacturing base, that we get supplies from multiple countries and in some cases we’re going to have to each develop our own manufacturing capability. Because if there’s an outbreak in Europe or Canada or Australia, now we’re in the future. Each country is going to want to keep products for their own people and that’s perfectly understandable, but it leaves everybody else vulnerable.

Ms. Gao: Can you give us a time estimate [as in] if China cuts its supply today, in how long the American people wouldn’t be able to buy generic drugs from its stores?

Ms. Gibson: That’s hard to tell. It might vary and it depends on inventory and we’re not hearing transparency from companies. They may not want to raise concern among the public, but I think in a matter of a couple of months we’d be really seeing some problems if it persists and if demand persists in China.

Bumper: Coming up, apart from medicines, China has another lethal dominance. Stay tuned.

Part Two, China’s Crucial Mineral Monopoly

Narration: Along with pharmaceuticals, there is another supply which China controls, which is integral to our modern life. That supply is rare earths. There are two things you need to know about rare earth. First, Rare earths are needed in making advanced electronics, from cell phones to high-tech weaponry. Two, China produces most of the rare earth in the world today.

Again, this was not the case three decades ago.

Back in the 80s, the U.S. was the largest producer of rare earths. The nation was self-reliant and produced rare earth oxides as well as the magnets essential to both civilian and military electronics.

Since 2000, however, China has cornered the market on rare earths production along with the high-tech components that depend on it.

From 2014 to 2017, China supplied 80% of the rare earths imported by the U.S.

The U.S. Geological Survey reports that as of 2018, China provided 80% of worldwide production. However, many of these imports are now on hold because of the CCP virus outbreak.

Host: There’s no doubt the China-centric global supply chain poses a major strategic problem for the U.S. How did we get here? I asked David Wilcox, President and CEO of Evolution Metals Corp…

Mr. Wilcox: Well, if we look at how we got here, the Chinese have subsidized a significant portion of what we call in the United States critical minerals. So as identified by the United States government, there’s 35 of these critical minerals. Around half of these are 100%, mined and/or refined by China. So when we look at how we got here as a whole, to your question, Simone, the Chinese were very specific in a strategy where they knew without these little metals, minerals, we couldn’t fully manufacture a complete product, which puts a bottleneck on the supply chain. And so by allowing these industries not to work, by allowing the Chinese to subsidize a product that we weren’t actually subsidizing, we end up in the situation that we’re in today.

Narration: The U.S. disadvantage today owes especially to China’s monopolizing the processing capacity of rare earths.

According to the Wyoming Mining Association, rare earths are notoriously difficult to process and refine, because they aren’t found in large quantities or veins like other minerals such as gold. These critical minerals need to be separated from one another using a variety of mining and processing techniques.

Extracting the rare earths also adds environmental complications, which further increases the costs.

The Chinese regime identified these problems years ago and gradually turned that to its own advantage.

Here’s how they do it: Illegal and undocumented production is commonplace in China and accounts for 20 to 40% of Chinese production, according to the U.S. Geological Survey (USGS).

China’s lax environmental standards combined with low labor costs and a raft of government subsidies have allowed it to slash rare earths production costs. In this way, it has undercut many processors in the West to the point of bankruptcy.

The California Mountain Pass Mine closure is an exclamation mark in that takeover.

In 2015, Molycorp, an American mining corporation, shut down its production at California’s Mountain Pass Mine. It was the last remaining rare earth mine in the U.S.

Once China became a monopoly in rare earth production, it is not surprising that it started to weaponize it. China’s threat to cut off rare earth exports to the U.S. became evident at the height of the US-China trade war:

In May, 2019, a Chinese official warned that “products made from China’s rare earths should not be used against the country’s development.”

The comment came after Chinese communist leader Xi Jinping visited a major rare earth mining and processing facility in Jiangxi Province in May.

The two instances were taken as a veiled threat aimed at both the U.S. and its technology sector that are dependent on the materials.

In fact, the Chinese Communist Party historically took pleasure at reminding geopolitical rivals of its monopoly.

During their 2010 standoff over the disputed Senkaku Islands, China cut off rare earth exports to Japan. Chinese officials maintained it was merely introducing export quotas to protect the environment.

Host: Is it easy for China to weaponize such monopoly?

Mr. Wilcox: I don’t think it was easy. If you look at the historical fact patterns of what they’ve done, this is decades in the making. And as I was saying in your previous question, Simone, you can’t flip it overnight. You can’t reverse, this is a strategy that Beijing has pursued for a very, very long time. And as we’ve overlooked certain things, within many different sectors, or you said that, you know, it makes sense for us to bring mining assets away from the United States, away from North America. We have allowed this situation to happen.

And I think it’s very important to point out right now with, you know, what’s going on in the world and the outsourcing that we’ve done within, you know, China as a whole. You know, we look at what’s happening with coronavirus right now. We look at the medicines that the Chinese control and what could happen if they were to cut us off. And this is, you know, it’s blanket across a lot of industries. And it’s a very scary thing to realize how much time it takes to turn this around.

Bumper: Coming up, how the consolidation of Mass Merchandising Drove the US to China

Part Three, China and Mass-Merchandising Victimization

Narration: If there’s one image that captures the coronavirus panic seeping through America, it would be the empty store shelves where household staples usually sit.

Every day, retail workers are struggling to restock toilet paper, eggs, produce, and canned goods as fast as the items fly off the shelves.

In an age of instant shopping, these empty shelves mean that the basic supply chain at large is under stress.

According to the New York Times, Walmart is adjusting its supply routes to keep up.

About 10% of the giant rolls of paper that are used to make the toilet paper sold in U.S. stores come from China and India.

Those imports have now been delayed because of the broader bottleneck of shipments from Asia.

Other products such as seafood, apple juice, and garlic are heavily sourced from China, and are likely to take a hit as well.

According to the Global Port Tracker report released on March 10, these supply challenges may have a longer and larger impact on U.S. imports than expected.

Even with Chinese producers now back online, it doesn’t mean the crisis has passed.

That’s because the crisis is a fundamental one of business relations and ethics.

As the world’s biggest retailer, Walmart’s huge reliance on Chinese imports goes way back.

In 1996, Walmart began its retail operation in China through a joint venture agreement.

With the help of cheap labor costs and government subsidies in China, Walmart began competing directly, on its own shelves, with its national, household brand suppliers.

Host: How did this happen? At CPAC 2020, Curtis Ellis, chair of America First Policies, told me this.

Mr. Ellis: Walmart was one company, one retailer that controlled such a huge part of the American retail market, mass merchandising that they could go to any producer, somebody producing padlocks, gym lockers, notebooks for schools, clothing, whatever, whatever people buy and wear. And they say, okay, sell to us. If you sell to us, we’ll be able to sell to the entire nation of America and you won’t need any other customers and you don’t have to worry about anything else.

And everybody thought, what a great idea. I want to sell to Walmart, my homework is done, I’m home free. But then Walmart would say, okay, well this is the price we’ll pay. We want to sell it at X price retail. So we’re going to pay you one half X price. And if you can’t produce it at that price in your little factory in Sheboygan, Wisconsin, I know somebody in Shenzhen, China, which will. And so Walmart helped outsource American industries to China. So it’s this concentration where you had one buyer in America that could dictate to a thousand different businesses in America what they should be producing and selling for. And that one buyer in America could then move production for a thousand companies over to China. So we had a concentration and consolidation in America, which then on a global level led to the consolidation and concentration in China.

And that’s the danger. So to unwind this, we now see that Walmart and the big retailers in America see the danger of being dependent on China. But we’re going to have to now allow a thousand companies in America to flourish. And we’re going to have to think about [whether it is] good to have just one mass merchandise retailer in America or three.

Narration: According to an EPI report, Walmart was responsible for eliminating 200,000 U.S. jobs in total from 2001 to 2006. The process is virtually the final step in America’s surrender to a China-centric business model.

Host: In light of the coronavirus pandemic, more and more people are now saying the time has come for the U.S. to distance itself from China economically, industrially, and strategically. Will this happen, and if so, in how long? We cannot be sure, except for one thing: If the nation continues to finance the Chinese communist regime’s unfair trading systems, our economy and health security will be in peril. Thanks for watching Zooming In, I’m Simone Gao. See you next time.

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