Panel Flags China Risks in Biotechs, Quantum, Legacy Chips, Taiwan

People look at a sample from China Telecom Quantum Group during the Mobile World Congress in Shanghai earlier this year. (Hector Retamal / AFP / Getty Images)

Key Points

• A report advises the U.S. to protect biotech, quantum, and semiconductor supply chains from China’s dominance.
• China controls 99% of heavy rare earths and 80% of basic ingredients for antibiotics and fever reducers.
• The commission recommends creating an “economic statecraft” entity and strengthening the biotech pharma supply chain.

The U.S. needs to up its game in protecting its biotech, quantum and foundational semiconductor supply chains so that China isn’t able to weaponize its dominance in these areas the way it did with rare-earth minerals earlier in the year, according to an annual report released Tuesday from a panel of security and economic experts that advise Congress.

That was among the 28 recommendations the U.S.-China Economic & Security Commission made to Congress to better navigate the intensifying rivalry between the two countries.

“China now possesses a hyper-charged, state-directed ‘industrial commons’ for manufacturing without historic parallel,” said Reva Price, the commission’s chair, on Tuesday. “Without swift and focused action, the U.S. could face a future where we depend on China for access to the most cutting-edge innovations in fields from medicine to robotics.”

The report follows a fragile truce between the two geopolitical rivals after the U.S. withheld from China the computer chips used for artificial intelligence and Beijing cut exports to the U.S. of rare-earth minerals critical to autos, semiconductors and military equipment.

Over the last five years, China has intensified its efforts to both become more self-reliant and establish its dominance in critical areas. It showcased its leverage this year by unveiling expanded export controls on rare-earth minerals and processing technology.

Beijing controls 70% of rare-earth mineral mining, the bulk of its processing, and 99% of heavy rare earths needed for technology, industrials, and defense equipment.

Despite the one-year detente, Leland Miller, co-founder of the China Beige Book and a member of the commission, warned that this piece of leverage isn’t something Beijing is going to “ever trade away.” Instead, he said, it is likely to extend these types of restrictions to other sectors where it has been building leverage.

“The message should be loud and clear in the U.S. and to allies and partners, that we need to do something about it immediately and quickly,” Miller said on Tuesday.

The commission highlighted other supply chains that Beijing could leverage such as biotech and pharmaceuticals, where it has been making rapid gains, as well as printed circuit boards crucial to all electronics, foundational or legacy semiconductors, and quantum computing.

China, for example, controls 80% of the basic ingredients that go into antibiotics and fever reducers. It controls roughly half of global production of printed circuit boards.

Another risk: China’s heavy investment into its manufacturing industry is resulting in a flood of low-cost, more advanced exports, creating what some describe as a “China Shock 2.0” that threatens other countries’ domestic industries.

The commission’s recommendations to Congress to address these growing concerns include creating a consolidated “economic statecraft” entity to fix essentially “feudal states” that argue about what to prioritize.

One approach, the commissioners suggested, could be to integrate the Commerce Department with the intelligence community. It could be much like the integration of the Treasury Department with the intelligence community after the 9/11 attacks to enable a faster and more coordinated response to terrorism.

Also recommended: Assessing the mix of incentives at play—with the Commerce Department in charge of both promoting American business and overseeing export controls that restrict U.S. sales in the name of national security.

The panel also wants Congress to find ways to keep Beijing from evading export controls and sanctions, possibly by using a rental model for advanced chips or incorporating tracking technology.

It also wants Congress to strengthen the biotech pharma supply chain by reducing dependence on Chinese active pharmaceutical ingredients and getting access to more data to assess other risks. Other recommendations include increasing protection of the U.S. power grid from threats posed by Chinese-made components and increasing funds for U.S. space initiatives.

The panel also wants Congress to push a *“*Quantum First” by 2030 national goal to gain advantage in cryptography, drug discovery, and materials science.

China has been increasing investment in science by 6% to 7% a year—a “staggering” amount, according to Michael Kuiken, a commissioner who is also a member of Anthropic’s National Security and Public Sector Advisory Council.

“This is all about the trendline and it’s exponential in a lot of places and in the U.S. it is plateauing at exactly the wrong time,” he said.

The commission also raised concerns about Beijing’s moves geopolitically, including around Taiwan and in the Pacific islands and around the Philippines. China is wielding its economic leverage—through ports, logistics hubs and surveillance outposts—for greater military access and security influence and intensifying military activities around Taiwan, according to the commission.

“These aren’t just moves to exert pressure and have presence to make a point,” said Randall Schriver, a commissioner who is also chair of the Institute for Indo-Pacific Security. “They’re actually rehearsing certain aspects of an amphibious invasion, communication links, logistics support, etc. That all decreases warning time significantly if they choose to take the step of going from coercion to actual attack.”

The panel’s warning: Though there’s no indication that China is planning an imminent invasion, the U.S. and its allies and partners can no longer assume that a Taiwan contingency is a distant possibility for which they would have ample time to prepare.

Write to Reshma Kapadia at reshma.kapadia@barrons.com