Beijing’s Poison Pipeline: The CCP’s Role in the Fentanyl Crisis
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House Foreign Affairs East Asia and Pacific Subcommittee U.S. House of Representatives
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Ami Bera
I do look forward to the various strategies. You know, I've traveled through Southeast Asia, you know, you do have the criminal enterprises along the Mekong River. You can follow some of the chain of flows of the precursors.
Again, very difficult to address because it is very easy to have pill presses, get those chemicals, and make those pills. So again, I'm looking forward to the testimony of the witnesses. Very interested in thinking through what strategies we may have in mind. Certainly sanctions and making sure this is central to any negotiations that we're having with Beijing, but also other strategies here domestically that we could do to again address this issue. So with that, I'll yield back.
Young Kim
Thank you. Other members of the committee are reminded that opening statements may be submitted for the record. And we are pleased to have a distinguished panel of witnesses before us today on this very important topic, and I will introduce them. First, Mr. David Lucky, the director of RAND Rural America Partnership Initiative. Thank you for joining us.
Mr. Steve Yates, the senior research fellow on China and national security policy at the Heritage Foundation. Thank you. Ms. Jongwen Zoe Liu, the Maurice R. Greenberg senior fellow for China studies at the Council on Foreign Relations. I want to thank all three of you for joining us today. The committee recognizes the importance of the issues before us and is grateful to have you here speak with us, and your full statements will be made part of the record.
And I will ask each of you to keep your spoken remarks to five minutes in order to allow time for member questions. So let me now recognize Mr. Lucky for your opening statement.
David Lucky
Chairwoman Kim, Ranking Member Bera, and distinguished members of the committee and subcommittee, thank you for inviting me to testify on the Chinese Communist Party's role in the fentanyl crisis in America. This dire issue directly affects Americans' lives, health, prosperity, and national and homeland security. RAND researchers found that 42% of Americans know someone who died from an illegal drug overdose, most of which involved fentanyl. As background, I led RAND's research and analysis for the Commission on Combating Synthetic Opioid Trafficking and drafting its report, which was released in 2022. And more recently, I led a RAND team that helped inform the 2026 National Drug Control Strategy, which the White House Office of National Drug Control Policy released just last month.
The United States continues to face a superior crisis from illegal drugs, with synthetic opioids, primarily fentanyl, generally detected in the nearly 45,000 overdose deaths in 2025 alone. Despite recent declines, this threat remains crucial to our social welfare and national security. To continue this decline, the President's 2026 National Drug Control Strategy was built upon two mutually reinforcing pillars: a relentless whole-of-government campaign to attack the illicit drug supply and a whole-of-society public health effort to reduce demand and consumption. Cooperation with China, as well as with Mexico and multilateral partners across the international community, is essential to achieving these pillars and reducing deaths from illegal synthetic opioids such as fentanyl. I'll be summarizing my written testimony to focus on the global fentanyl supply chain and efforts to secure it.
Additionally, I'll briefly discuss reducing overdose fatalities and the flow of illegal drugs across US borders, as well as some prevention, treatment, and data issues related to illegal drugs and their use. I'll conclude with some final thoughts concerning the importance of US-China cooperation for reducing the flow of synthetic opioids and their precursors.
Considering this problem holistically, the United States should aim to reduce the supply of, demand for, and harms from synthetic opioids by focusing on aspects of the problem with the greatest return on investment. I suggest it can do that by disrupting the supply chains of transnational criminal organizations and their financing, improving port of entry and state and local level interdiction efforts, and expanding evidence-based treatment and prevention efforts. For this subcommittee specifically, reducing fentanyl trafficking requires coordinated and prioritized unilateral, bilateral, and multilateral diplomatic and economic actions. The global supply chain for synthetic opioids is robust, diversified, and begins with China as the primary source of precursor chemicals. And while Mexican transnational criminal organizations produce and traffic the overwhelming majority of illicit fentanyl entering the United States, China's role remains strategic, using their precursor chemical supply as leverage against the United States.
In attempts at disrupting fentanyl supply, I recommend the following actions. Strengthen bilateral and multilateral relationships to target precursor supply chains that primarily but not exclusively emanate from China. Anticipate shifts in supply chains if there is a reduction in Chinese-produced precursor chemicals. Mandate international reporting of all synthetic opioid precursor exports. Enhance international cooperation on chemical scheduling and global surveillance of the entire synthetic opioid chemical supply chain, and develop trustworthy law enforcement partners in Mexico to improve port and border oversight before precursors reach transnational criminal organizations.
As China is the primary node in the global supply chain for synthetic opioid precursors, the President has designated China as a major drug transit or major illicit drug producing country. Persistent gaps in regulatory oversight, enforcement, and export controls, however, enable illicit production and export. The US government should consider the following actions to address these gaps. First, elevate the issue of Chinese fentanyl precursor trafficking to the highest level of US-China engagement to focus on greater enforcement through increased investigation, indictment, and sanctions of known PRC traffickers. Second, establish a US policy framework to prioritize direct engagement with PRC central authorities, specifically Politburo Standing Committee members and ministerial and presidential level officials.
Create incentives and disincentives for criminal enforcement and reporting of non-compliance. Third, press the PRC for clear regulatory improvements, specifically increase inspection rigor, implement regulatory best practices such as tracking chemical movements, inventory records, and lab logs, and publicize Chinese violations to shame and deter illegal activity. And finally, incentivize the PRC to improve detection at Chinese ports of exit. China claims to have enhanced detection and security at its ports. To the extent that China has and employs these capabilities, the impact on the flow of precursor chemicals is unclear at best, or not being employed to reduce the flow of these precursor chemicals at worst.
Regardless, the PRC should be pressed on this and the world made aware of it. I thank the subcommittee for the opportunity to present this testimony on such an important topic that concerns American lives, our society, and our national security. I look forward to any questions that you may have.
Steve Yates
Good afternoon, Subcommittee Chair Kim, Ranking Member Bera, distinguished members of the subcommittee. My name is Steve Yates. I serve as Senior Research Fellow for China and National Security at the Heritage Foundation. The views I express today are entirely my own and do not reflect the views or positions of the Heritage Foundation. I deeply appreciate the subcommittee leadership for inviting me to testify on this urgent issue of both national policy and profound personal importance.
For nearly four decades, I have worked on US national security policy and challenges posed by the People's Republic of China. Never did I imagine that one of these policy challenges would strike my own family so directly. In October of 2023, our family joined the growing circle of American families devastated by fentanyl. Our daughter Christina Marie was just shy of her 25th birthday when she ingested an off-market Xanax laced with fentanyl. From the trauma center to intensive care unit to then hospice, we spent 12 agonizing days fighting to save her.
Ultimately, we had to accept her loss and the hole it left in our lives. In 2026, there is no other issue and no other country that touches the heart of families in every single congressional district represented in this House. I thank you for making this a priority and discussing the full range of tools needed to provide for the common defense for our nation and our families. The questions framing the hearing today are essential: what is China's role in this synthetic opioid supply chain, what is Beijing's diplomatic strategy for dealing with this, and what can the United States do to sharpen our strategy and tools to reduce the flow? Before I dive in, I want to note an important context from my colleagues at the Heritage Foundation and their 2024 backgrounder.
They made clear at the heart of this crisis is a global partnership between America's top geopolitical adversary and the transnational criminal organizations. Chinese precursor chemicals form the backbone of the supply chain killing Americans. Since then, America's taken several important steps: an executive order designating cartels as foreign terrorist organizations, tariffs on China, Mexico, and Canada explicitly tied to fentanyl flows, the Halt Fentanyl Act that permanently scheduled fentanyl analogues, enhanced Treasury sanctions on Mexican banks, Chinese chemical networks, and an executive order designating illicit fentanyl and precursors as weapons of mass destruction. On the PRC side, they have responded with some actions: releasing a white paper, scheduling additional precursors, announcing export licensing controls and holding bilateral meetings. Yet despite these steps, the PRC remains the primary global source of precursors and pill pressing equipment for the Mexican cartels.
China's role in the supply chain is central and ongoing. Chinese precursor chemicals continue to flow to Mexican cartels. Beyond chemicals, Chinese money laundering organizations play a critical role in moving cartel proceeds back to Mexico. Beijing's diplomatic strategy has consistently been one of minimum effort. For years, Chinese officials claimed they lacked information or control, asking United States for detailed intelligence.
This is difficult to accept in the world's most sophisticated surveillance state. In public diplomacy, at times they accuse Americans for blaming China to hide from our own domestic problems. Despite promises made to multiple US presidents, the PRC has not taken strategically significant steps to verifiably stop the flow. This is a choice, not a coincidence. In a country that tightly controls less sensitive matters, they are doing just enough to deflect stronger pressure while signaling this is not a real priority for them or for us.
To achieve meaningful change, the United States must target China's strategic vulnerabilities: access to the American consumer market, access to US financial system, and access to imported energy. The tariffs and sanctions issued in 2025 proved effective in bringing China to the table. Congress should consider legislation to refine and strengthen these tools for the fentanyl fight. With the designation of fentanyl precursors as weapons of mass destruction, we should fully utilize the broad legal, financial, and operational authorities this provides. We should also explore leverage through China's energy dependence, including potential taxes on energy purchases that could fund enforcement and treatment of victims.
Finally, we must dramatically reduce America's dependence on China's pharmaceutical supply chains. Our reliance on China for legitimate medicines creates the very infrastructure that enables the illicit trade. Reshoring and diversifying production will both protect public health and create genuine leverage to demand action on the illicit side.
This crisis has claimed the lives of over half a million Americans in the last decade. It's not simply a drug issue, it's a national security emergency. I thank you for the honor to testify today and I look forward to your questions.
Thank you, Mr. Yates. Now, Ms. Liu, I would like to recognize you for your opening statement.
Zongyuan Zoe Liu
Chairwoman Kim, Ranking Member Bera, and members of the subcommittee, thank you very much for the opportunity to testify. I'm Zongyuan Zoe Liu, I'm the Maurice R. Greenberg senior fellow for China studies at the Council on Foreign Relations. CFR does not take any institutional position, the views here today are my own. Every overdose death is a family tragedy. Overdose deaths fell sharply in 2024, and according to provisional federal data, the decline continued in 2025.
But there's 70,000 Americans still died. That is progress, not victory. The death tolls have fallen, but the supply chain that make illicit fentanyl easy to scale remain adaptive and cross-border. The point is not that China created American demand. The problem is that China-linked chemical, logistics, and financial networks help make illicit fentanyl easier to produce, cheaper to scale, and harder to stop.
The key shift came in 2019, China imposed class-wide controls of fentanyl-related substances, rather than chasing individual analogs one by one. That made direct finished fentanyl export from China harder, but it pushed the risk upstream towards fentanyl precursors and the commercial and financial ecosystem around them. That shift changed the policy problem. Precursor control is not like stopping finished narcotics. Many chemicals have legitimate use and move through commercial channels.
Traffickers do not rely on one fixed recipe. When one precursor is controlled, they can shift to another input, another synthetic route, or another synthetic opioid. Congress therefore needs adaptive enforcement, not static checklist. A senior State Department official has publicly stated that the United States has no evidence Beijing deliberately directs illicit drug shipment into the United States. That distinction matters.
But the problem is not proven central direction, it is a serious supply chain governance failure in China. China has not consistently policed the illicit edges of its chemical, online, logistics, and financial systems. The question then is how the United States can turn that responsibility into measurable Chinese measures. So the Biden administration and the Trump administration used different tools, but not on separate tracks. Biden rebuilt the counter-narcotics channel after San Francisco, giving Washington a way to press Beijing on chemicals and enforcement.
But that channel had limited time to prove durable result. Trump added leverage through tariffs and trade bargaining, which elevated urgency and may have accelerated visible Chinese steps. But pressure alone cannot identify suppliers, brokers, shippers, or money launderers. The lesson is that channels and leverage must work together. Diplomacy must produce enforcement, and pressure must be tied to implementation.
My written testimony provided eight recommendations, but for the time available, I'll focus on three congressional levers: oversight, multilateral enforcement, and financial disruption. First, Congress should require regular interagency reporting on proof of reinforcement, not just proof of announcement. When Beijing adds chemical controls, Congress should ask whether those controls have changed behavior. Did they block shipments, shut down bad actors, remove online vendors, and disrupt payments? Second, Congress should fund multilateral enforcement, not just bilateral pressure.
Because the supply chain crosses borders, pressure on Beijing will work best when it is connected to a standing operational channel among United States, Mexico, Canada, and China.
Third, Congress should follow the money. FinCEN reported about 1.4 billion US dollars in suspicious fentanyl-related transactions in 2024. Anti-money laundering enforcement should be central to fentanyl enforcement, especially where high-risk chemical suppliers, buyers, and payment channels intersect. Congress should insist not on promises from Beijing, but on measurable disruption of the networks that make illicit fentanyl scalable. Thank you for the opportunity to testify, I look forward to your questions.
Young Kim
Thank you to all three witnesses for your very comprehensive testimony. I think there were very good recommendations also for Congress as well. Let's dive into those in my first, I'll give myself five minutes of questioning too. First, on the topic of illicit finance and costs of the fentanyl crisis. You know, China isn't just creating the precursor compounds at the heart of the fentanyl trade, PRC entities have also become the go-to money launderers of choice for the cartels.
China has done nothing to stop that though. And we talked about that, you also mentioned that in your testimony. So Mr. Yates, why hasn't the PRC government cracked down on domestic criminals that undertake these activities?
Steve Yates
Well, I think that the short answer to that has to be because it doesn't matter enough to them. They don't stand to lose enough in lack of enforcement. We have taken all of the pain and they have taken all the patients. I think that going for the finances is vital. In the post-9/11 environment, when we were looking at counterterrorism strategy, going after finances was one of the key tools put in place.
And that's why I think the labeling of illicit fentanyl precursors as WMD opens up a range of tools that should, should be used. They can be used as leverage at different points. It was used as leverage in the North Korean negotiations to try to push back on their nuclear weapons program. We designated two Chinese banking entities as primary money laundering concerns. That struck enough of a dependency chord that China brought North Korea to the negotiating table.
Leaving aside where those negotiations went, it proved that leverage can work to force a conversation. It also proved that it mattered enough to us to use what is essentially a financial nuclear weapon. And that, I think, is what we feel like we have faced and they don't feel like they have had to face that. Now, when it comes to can they find things in their own country, again, this is the most modern, tech-advanced surveillance state known to mankind. They can find images of Winnie the Pooh on a protester in Hong Kong.
They can find these things. This is 100% an issue of will and have we made it cost them enough to have to do these things in a verifiable way. They have designated a handful of people and a few companies. We lost half a million lives. Those six people and those few companies couldn't have been responsible for it alone.
Young Kim
Based pharma companies for their involvement in the fentanyl trade. China, however, does not have not taken any legal action against those citizens or companies and continues to fuel that crisis. So, Mr. Lucky, can you talk about how the United States can carry out legitimate law enforcement actions against fentanyl smugglers without PRC government?
Thank you.
David Lucky
Thank you for the question, Madam Chair. First, I would suggest designating money laundering networks as strategic corruption infrastructure using the International Emergency Economic Powers Act. Second, I would recommend establishing a review body for money laundering linked trade based on or similar to the Committee on Foreign Investment in the United States. Leverage economic statecraft to pressure China to cooperate. Conduct cyber-enabled disruption of money laundering organization infrastructure.
Explore alternative mechanisms to the yuan-to-dollar conversion to displace demand for illegal funds. And finally, tailoring cryptocurrency tracing and enhanced analytical capabilities to counter the illegal financing of the transnational criminal organizations.
Young Kim
Thank you. You know, last year, Treasury Department sanctioned multiple PRC firms and drug traffickers for their role in the fentanyl supply chain. Actions like these communicate clearly to Beijing that synthetic opioids are weapons of mass destruction and they must be treated as such. So I want to ask both of you, Mr. Yates, first, can you describe to us the role that sanctions are playing in punishing and enforcing against fentanyl traffickers? And Mr. Lucky, what would happen if the discretionary sanctions from the Fentanyl Sanctions Act were to expire?
We don't have much time, so if you can be succinct, please.
Steve Yates
Very briefly, if it's the broad scope designation of primary money laundering concern, those entities can no longer access the US financial market. It is one of the big three dependencies that China has. They can't function without access to US dollars and our financial system. And so that designation opens up a whole different level of priority for them to engage. The targeted ones at companies and individuals, it is an important signal, but oftentimes what it results in is like when you turn the lights on or off in a room, cockroaches go to a different room.
And so it's an endless effort to go after those.
Mr. Yates.
David Lucky
Thank you, Madam Chair. In addition to just renewing those sanctions, I would recommend strengthening the sanctions and forcing the sanctions, tie those sanctions to enforcement of efforts that the Chinese claim they're making. Let's force China to take action on these by enforcing the rules that they claim they have in place.
Young Kim
Thank you very much. I now recognize Ranking Member Bera for your five minutes questioning.
Ami Bera
Thank you, Madam Chairwoman. Um, complicated and very difficult challenge because a lot of these precursors are used for legitimate purposes as well and then can be used illicitly. I agree with all of you that, you know, follow the money, disrupt the money, go after the criminals, and then use the tools that we have to hold the Chinese accountable for addressing those individuals. Ms. Lu, you talked about a reduction in the number of overdoses. One death is still one too many, as we all point out.
I think it's my understanding that we are starting to see an increased impact in Europe, in Australia, and other parts of the world. Is that an accurate statement?
Zongyuan Zoe Liu
Yes, but so far we do not really have concrete evidence directly connected the causality.
Ami Bera
Okay. And as we increase the penalties and we go after the criminals, we go after the cartels, I guess to either Mr. Yates or Mr. Lucky, are we seeing those cartels starting to diversify? And I guess the gist of my question is this has to be a multilateral coalition and effort of multiple nations working on this. Are you seeing...
Steve Yates
Well, certainly when enforcement at our border in the to the south increased, there was a migration of some of these flows to Canada. And then we began to see a little bit more of the flow down from Canada in the United States. And when we start enforcing the transport by air, it moves to sea and other ways. It's a constant effort. That part I think we just have to accept as part of the challenge of illicit narcotics and sort of organized crime operating in a modern world.
I still think that there is value in pressing very, very hard at the source. And I think that there's it's definitely the case that this has begun to move to other societies. It was very conspicuous for the first several years of this crisis that it was almost entirely in the United States, overwhelming our healthcare system, overwhelming any kind of treatment, overwhelming law enforcement. But it has started to show up in other countries of Asia, other parts of Europe. And we also need to get at an issue of how it is counted.
Someone can go to the emergency room or trauma unit for a lot of different reasons. A little bit like COVID that it can be there can be multiple factors. And it's only if there was a crime scene that a medical examiner's report is required. And so we're probably undercounting in a lot of different ways. And so how we factor this is important.
But also we would probably know more in other countries if they were accounting more effectively too.
Ami Bera
And and again, the intent of my question is if we're going to use sanctions, the sanctions will be much more effective if our European allies, other Asian allies, others are with us applying the same pressures and point. Is are we seeing fentanyl utilization in China increasing or, you know, are they feeling the pain that so many American families are feeling?
David Lucky
Representative Bera, while I haven't done research specifically on that and as we all know China is a very closed society and we don't have that information, what we think we're seeing is very limited use of fentanyl within China. Getting back to your previous question though, again we haven't done specific research on this, but what I'm seeing is the transnational criminal organization starting to diversify. And one of the main challenges of synthetic opioids is the ability to produce novel substances very quickly and very easily. As we've had this fentanyl crisis in the United States, to this point it's largely passed Europe. Europe might be in the next phase of this with nitazenes.
That might be the next stage of this problem. And then what we're on the very leading edge of is a class of drug called orphines, which sounds very much like morphine and other opioids that we've heard about, but it's a different class of drugs and that might be the next challenge that we're facing.
Ami Bera
And then just again thinking about the prevention, education, treatment side of things, I do want to make we should do everything we can to address the front end, the supply side, but we should also do everything to on the prevention side. I worry a lot about the counterfeit medications that may be legitimate medications that are coming across that are now laced with fentanyl and the accidental deaths that are that are taking place. I don't have a lot of time, but if there are strategies and things that that we should be thinking about that.
David Lucky
Sir, that's a great question. And and our view at RAND is we view this wicked problem as an ecosystem made up of three main components in the equation: reducing the supply, reducing the demand, and reducing the harms from these illegal substances. And we need action across all three aspects of that to have the greatest effect on the problem.
Young Kim
Gentleman's time is up. I now recognize the gentleman from Guam, Representative Moylan, for your five minutes of questioning.
James Moylan
Thank you, Madam Chairman. Thank you to the panel. Appreciate your testimonies. And a lot of our conversation deals with the these bad drugs coming into CONUS. But as you know, for Guam, we're on the INDOPACOM side, even closer to China.
And we still get those drugs there. I'm wondering, with your interest and your understanding, is there something you can help us with, being so far from CONUS, with the protection against the first island chain, especially the second island chain, where we are seeing these drugs have a great effect on our communities? And it's doing what the, I guess, the PRC wants it to do. So I appreciate your all your inputs, if you'd like to start first, sir, to the left.
David Lucky
Sir, while I don't have specific recommendations for Guam, I think the recommendations that I would suggest regarding this problem for the rest of the United States and the rest of the world apply equally to Guam as elsewhere.
Steve Yates
I think it's vital to increase the state-to-state-to-territory collaboration on the homeland security kind of challenges. Trying to keep the information sharing about how these things are transported is ever-changing. It's going to be a constant effort to try to keep up with what are the dominant lines of trafficking of these different kinds of substances. You definitely are on the front end of tourism and other kinds of things that will connect the the region. And you are also a throughput into US sovereign territory that gets used by these places.
But whether it's DEA and homeland security collaboration, I think that there are lessons at the state and territory level where people are closer to where the action is happening, closer where the families are, that you might actually have some best practices shared better there. And you would know better than I would what venues would improve that kind of collaboration.
Zongyuan Zoe Liu
Yeah, thank you for the question. I visited Guam last year myself. And the route that I took was a surprisingly convenient, I have to say. The route that I took was from Beijing, jumping on an airplane to Seoul, Korea. And if I didn't get on the plane from Beijing, I could have get on the plane from Yantai.
So the point I'm trying to make is that the supply chain dynamic from China to Guam is surprisingly close and short. And that flight go to Korea only took less than an hour. This is why I recommend Congress to conduct inter- request interagency information disclosure and, more importantly, trying to follow up whenever China put on something under control, try to see if it has changed the behavior or not. And secondly, I think it's very important to increase supply chain transparency, especially multilateral cooperation effort. Thank you.
Thank you, all of you. Thank you, Madam Chair.
Speaker 8
Great. Let me now recognize the gentleman from Rhode Island, Representative Amo.
Gabe Amo
Thank you, Madam Chair. Thank you, Ranking Member. Thank you to our witnesses for being here. Mr. Yates, thank you for sharing your very personal story and thank you for your work. The scourge of the opioid crisis has stolen far too many lives.
Across my home state of Rhode Island, too many families have an empty seat at the dinner table. Too many high school reunions have a classmate missing.
Too many children are growing up without a parent, and too many communities are carrying the weight of a preventable loss. Over 150 Rhode Islanders died of opioid overdoses last year. While we're making headway, there's still more work to do. Thanks to the work of Rhode Island's overdose task force, first responders, healthcare providers, and harm reduction organizations, overdose deaths have declined. We have also expanded the use of overdose reversal medications like naloxone to save lives.
Just last December, quick-thinking Providence firefighters used naloxone to save seven college students who overdosed at a house party. I'm leading the bipartisan Having Overdose Protection Equipment, or HOPE Act, with Congressman Addison McDow to ensure that these life-saving medications are readily available in public spaces. But expanding access to naloxone alone is not enough to end this crisis. If we're serious about ending this crisis, we also have to stop these drugs before they reach our communities, a sentiment I've heard echoed in this hearing today. That means confronting the flow of precursor chemicals used to manufacture synthetic opioids.
China remains a major source of the precursor chemicals fueling this epidemic. While progress has been made in disrupting supply chains, traffickers continue to adapt faster than governments. The drugs entering our communities today are more potent, more unpredictable, and more deadly than ever. In the last few months, Rhode Island has seen a spike in opioid deaths from these new drugs, which are ten times more potent than fentanyl: cyclorphine and spirochlorphine, drugs that can require multiple doses of overdose reversal medications to survive. We need stronger international cooperation, better intelligence sharing, and sustained pressure on criminal networks moving precursor chemicals and synthetic opioids around the world.
Now, historically, we've worked with China to combat the flow of precursor chemicals from China, but the Trump administration has derailed our bilateral efforts and cooperation. The Trump-Xi summit in Beijing last month was an opportunity for the president to make progress, but we haven't seen any changes or updates on this urgent matter. So, Dr. Lu, what steps should the United States have pursued during the summit with China, and what can we do going forward with them and other international partners to disrupt precursor chemical supply chains and prevent these substances from reaching the Western Hemisphere?
Zongyuan Zoe Liu
Thank you very much for your question. I'd say the most important thing, number one recommendation I'd say, is to strengthen targeted sanctions in addition to just broad sanctions. I'd say Congress should support targeted sanctions against not just Chinese but foreign chemical suppliers in general. Part of the reason is because even if we cut off suppliers from China, there are other places such as India that remain to be major suppliers to international API markets. And then, to directly answer your question with regard to what happened during the Trump-Xi summit, I'd say that has been a following, at least in May up so far, there have been two announcements, again, announcements, nothing proven in terms of action yet, but two announcements coming from Chinese authorities with regard to tightening control of chemical materials flowing outside, flowing from China.
But again, this is why I think Congress should ask not just about proof of announcement, really following up with regard to actions.
Gabe Amo
Thank you. What we're also seeing from the Trump administration is harm to programs aimed at combating the opioid crisis. The administration has cut grant programs and fired expert staff working to combat the opioid crisis and respond to new synthetic drugs at the CDC and SAMHSA. And they're proposing cuts to the International Narcotics Control and Law Enforcement grant programs that target the fentanyl supply chain by funding training, equipment, and other investigative capabilities in partner countries.
So, Dr. Lu, how would the cuts to these programs and the firing of our expert staff impact the US ability to counter the flow of fentanyl precursors?
Zongyuan Zoe Liu
Unfortunately, funding cut directly reduce not just the expertise that can identify the flow of fentanyl trafficking, but also just the human power that can we afford to literally put people on the ground, put people in the lab, put people in the hospital, put people staffing schools to educate the children. And this funding cut directly affect how we can educate our children in terms of the danger of early drug addiction. And this is where I want to address Representative Bera, your question with regards to what extent China is suffering from fentanyl crisis. I have to say, China, this is where China has a comparative advantage relative to America. They have within China's education system, counter-narcotic start from kindergarten level.
And this is why I think Congress should fund not just funding program for hospitals, for preventative cares, but also fund school programs that can make sure our children are aware of the danger.
Speaker 11
Thank you. I appreciate that sentiment and our work to protect our children and people of all ages from this terrible drug is so important. And so I am very grateful for your work and I yield back.
Sheri Biggs
Thank you. I now recognize the gentlelady from South Carolina, Representative Biggs.
Thank you, Madam Chair, and I'm grateful for our witnesses for being here today. So many families across the nation and across my district have lost loved ones because of fentanyl, the fentanyl crisis. I was sitting here, Mr. Yates, when you were talking about your personal story and thinking of people that I know personally that have lost children or children that have lost parents or as late as Saturday, I was at an event and talked to a gentleman who had just lost his wife who I had recently met within the past year. And the stories are heart-wrenching and they're real and they're happening in our own backyard and it's it's critical that we do something about it. Many American biotech and pharmaceutical companies, they're operating clinical trials in China.
And to me, that raises concerns about whether those trials operate with the same oversight over safety and ethics standards as trials that we hold here in the United States. If the FDA then approves these products despite safety and ethics concerns, they should enter the United States, they could enter the United States and cause harm to the individuals that we've been discussing already. So, Mr. Yates, should the FDA tighten the requirements for approving chemicals that underwent clinical trials in China in your professional opinion?
Steve Yates
Well, I do think that having better standards, better transparency, better accountability across the board is going to matter in anything that has to do with exchange from China. Quality control is a major concern of having China as the dominant supplier of a lot of medical goods. I lived through the irony of my daughter being put in the ICU by illicit fentanyl and the primary pain relief treatment for the brain swelling due to oxygen deprivation was legal fentanyl. And so we have these dual-use areas. And so having the standards for the legal system doesn't protect you from the illicit supply chain.
And that's why to me, the most important strategic move has to be strategic decoupling from China on the pharmaceutical supply chain, at least minimizing overdependence. If we have a diversity of dominant supplies, we'll have a diversity of enforcement mechanisms that will make Beijing's lack of enforcement, lack of standards on this illicit supply chain stand out better. And it's less of a US versus China issue as it's best practices by many countries versus one that is not a responsible stakeholder.
Sheri Biggs
Thank you for sharing that. My background is in healthcare. I'm also a psych mental health practitioner. So I've seen these stories, real-life stories, up close, and it is very personal to me. And given that and the focus of today's hearing, I want to highlight a bill that I'll be introducing very soon to counter the biotech threats from China.
As someone still serving in uniform, I know we can't afford to wait until the threat is already on the battlefield in our own communities, as we've already discussed. And China isn't waiting. It's racing ahead in the biotech field, and I think we can all see that. It's very relevant. So in order to collect genetic data and strengthen its military or create diseases that are harder to detect and to treat, the National Security Commission on Emerging Biotechnology warned that if America does not act quickly, we could fall behind in ways that we may never recover from.
So I would like input from all the witnesses. Do you believe that Congress needs to act now to make sure that America is prepared for this actual threat?
David Lucky
Thank you, Representative Biggs. I absolutely think that the United States should do everything it can now to get ahead of that problem and all other associated problems in this space. With the looming approach of artificial intelligence and artificial general intelligence and the likelihood that there will be far more synthetic opioids coming to the scene, everything that we can do now to prepare for that and mitigate problems associated that we should take.
Thank you.
Steve Yates
I strongly support that line of thinking. I think if you look at what has been proposed with this Pax Silica collaboration on high-tech issues, I think that there's a similar logic that should follow biotech. And ultimately, the logic behind it is getting the world's most advanced responsible stakeholders to accentuate cooperating among each other, to set sort of the rules of the road, be transparent and accountable with one another. And if China wants to rise to meet those standards, then maybe you consider having China on the inside, but you need to earn your way in to the circle of trust by performance. And that there's enough gravity among the wealthy, developed, strategically and technologically advanced countries to move this along.
And I think we have new interests among our Arab allies in the Middle East, parts of Europe, and other key countries in Asia that could form the bedrock for this. And hopefully that positive agenda of setting standards and effective performance is a way of inducing China to behave better, together with the stick that we have with penalties for failure.
Zongyuan Zoe Liu
I support the idea that Congress should act now and take all the measures possible to reduce our vulnerabilities in the context of protecting American lives. But the caveat here is that drug development doesn't only happening here in the United States, unfortunately. And what we, our vulnerability not just because we are necessarily losing innovative edge, is also because in the current context of AI-enabled drug development, China simply has way much more data, way much more industrial power, industrial capacity, industrial policy capacity than us. So from that point of view, I do think this is a very urgent issue. However, we do not necessarily, we cannot completely cut China out of this entire supply chain.
Now, I wanted to highlight another point.
Thank you. I'm sorry, but I'm out of time, so I'll yield back.
Thank you.
Young Kim
Thank you. So we're going to go for a second round of questioning and I'd like to talk about China. You know, they already know they are facing tremendous legitimate criticism for their role in the fentanyl supply chain, but you will hear Chinese propagandists, they say that they have listed certain specific chemicals and precursors to block their sale abroad. But they make those announcements like every now and then, every few months, often following diplomatic meetings like you, Ms. Lu, you mentioned when President Trump met Xi in San Francisco. They even organized I think it was Biden's time, they had a working group on fentanyl.
I don't know what progress we've made, but you know, in the last surely after Trump and President Xi summit in China last month, Beijing controlled an additional three precursor chemicals. So what we want to hear is what is the next step that Beijing should take to show it is in good faith working with the United States on this issue? You asked that we should be asking for interagency information or even demand real action instead of just making announcements. And you mentioned the two summits since announcement that made since the two summits took place. But I think there is much more that PRC could be doing to crack down on fentanyl trade from creating the like know your customer requirements or closing down the known fentanyl producers, preventing PRC illicit financing of the cartels and more.
So could you talk to us, all three of you can talk about this, couldn't China close these precursor factories anytime that it wanted to? Why isn't Beijing doing it? And just because China is incrementally banning certain precursors, does that mean China is responsibly cracking down on drug trade? I threw many out there, so any of you can address those issues.
Zongyuan Zoe Liu
Thank you very much for the question. Theoretically speaking, yes, Beijing can. But in practice, there is this old Chinese saying, wherever there is a policy from top, there is always a countermeasures from bottom. And this is why I say a fentanyl crisis, especially with regard to the supply chains, is really a governance failure inside China. China hasn't been consistently policing the entire supply chain.
And on top of that, because of biotech as well as pharmaceutical industry is a key area of industrial policy. As a result, you have local government incentivized industrial firms at local level. They compete against each other. From that point of view, it's very hard for the local government to police their own companies, period. So from that point of view, I'd conclude by saying that this is why we need to demand follow up, to demand change in behaviors.
Thank you.
Steve Yates
I think to a certain extent, we often impose our logic on our counterparts when we're engaged in negotiation. I think it's useful to remember that President Obama, President Trump, President Biden, now President Trump again have all interacted with Xi Jinping about this topic. He has lied to all of them about enforcement.
At some point we have to draw the conclusion that we're dealing with essentially a mafia that's not getting out of the business. And so it's only going to change if we are making it have to adjust its behavior. The President, I know, has raised it at a personal level with Xi Jinping. We've had interagency groups that have worked back and forth. There is some cooperation that happens.
Usually it will be intelligence that China will provide us to enforce in our country. But it's odd that they can provide the intelligence to find these individuals in the United States, but are somehow not able to find factories that have to operate at a scale to kill half a million people. So these cannot be things that are hiding underground. They are findable. And so it's a question of will.
You know, there's for any of us that have been dealing with China for a long time in the bad old days and maybe still to today, when you were engaged in a political crime you could be put to death and your family was forced to pay for the bullet. Who has been forced to pay for the bullet in China for what they've done to us? And if they did it, they would publicize it. They would want to be seen doing good. The people that have been designated so far haven't even been convicted.
So to me it all comes down to will and maybe we keep thinking we can negotiate a way out, but we can't.
David Lucky
Thank you, Madam Chairwoman. First of all, I think it's very easy or much easier to change regulations or change laws than it is to enforce these laws. I'd like to add that the chemical production in China is the largest in the world. It's about four-tenths of the entire chemical production on the planet, larger than the combined chemical production of the United States and the European Union. With that, that chemical industry is roughly two trillion dollars of business.
And I'd like to note that these illegally diverted chemical precursors make up only tens of millions of dollars or about one one-hundred-thousandth of the total amount of these chemicals that are produced. So we need to be realistic about our expectations. Yet with that, a single 55-gallon drum of chemical precursors can make perhaps millions of doses of illegal fentanyl that can kill Americans. And additionally, while we're concerned about fentanyl and fentanyl precursors now, we don't know what's coming next. And I'll just add where I started.
The proof is in the pudding. We need to see enforcement on these actions if we're to believe that China is taking steps that we expect them to take.
Ami Bera
Thank you. So Mr. Lucky, you talked about where the majority of the chemical industry in the world exists and we know vast majority of the precursor chemicals for fentanyl are coming out of China. A lot of these chemicals have dual use as well. So I guess I would ask each of the witnesses, it's not my impression that there was an initial intent as they were building this industry to say, okay, these precursors are going to go into fentanyl and fentanyl's going to intentionally cost American a number of lives. Criminals are very creative.
They realize the profit margin in this was great. Because intent matters. But now that we know the impact of what these chemicals do, we do have to compel them to say, maybe that wasn't your intent, but this is what's happening.
These chemicals are originating within China, and we have to do everything we can to stop or at least disrupt the flow of those chemicals to the extent possible. I do worry about, you know, legitimate companies, legitimate American companies or European companies buying these dual-use chemicals and then those chemicals getting diverted. So I'd be curious about strategies on we've got to go to the source and we've got to make sure they do the enforcement and hold them accountable for doing those enforcements, especially if they're aware of quote-unquote legitimate chemical companies that are doing illegitimate actions. We've got to go after those folks. How do we track those?
And we haven't talked a lot about the pill presses as well. Is that another strategy of who's creating these pill presses, who's buying these pill presses? Is there, I think the chairwoman alluded to, you know, who's the end purchaser? Are they a legitimate purchaser? How do we make sure?
To me, those are also strategies I think we ought to think about. And then Ms. Lu, you touched on just going after China in and of itself may not solve this because you're starting to see industry prop up in India and elsewhere that, you know, so it's got to be a whole of government affair. I guess I'd ask any of you to, are we thinking about that correctly?
Zongyuan Zoe Liu
Yeah, Ranking Member Bera, thank you very much for the question. I completely agree with your assessment. On the one hand, there is no coherent grand strategy inside China saying that they are going to develop the world's largest chemical industry and pharmaceutical industry in order to poison American minds. However, their lack of acknowledgment, their aloofness to not just their industrial policies' impact on American industries, but also on the illicit fentanyl supply chain, that matters a lot. So this is why Congress should pressure China in terms of not just giving us promises, but also act.
Now the problem becomes how to act. If China can impose export controls and demand end-user license verification on rare earth material, they can probably do that as well. Now the problem of going down that route is that it's probably going to trigger a lot of negative consequences across the entire pharmaceutical supply chain precisely for the reason you mentioned, because a lot of these chemical ingredients, they are not just APIs, they are input to other materials. So from that point of view, I think we should be very careful in terms of what are the chemical ingredients that is most critical and very unlikely, very hard to be substituted to make synthetic fentanyl.
Ami Bera
And just to follow up on that, I assume we can identify two or three very critical elements as opposed to targeting 40 elements, two or three that are critical to the chemical nature of fentanyl and target those.
Steve Yates
Well, I think that the answer to that today is yes, but that's going to be a moving target. And that's why I think trying to build up the infrastructure to be able to monitor the flow of the material, but also to monitor the interaction with finances and other tools are going to be vital because there will be a fentanyl 2.0, so to speak. And so it's vital that we solve some of these issues in this current stage because there will be more. But ultimately, I think we have to begin at the beginning. We have an overdependence.
There is a monstrously large manufacturing supply chain in one country. That by itself creates a number of challenges. You don't have to be for or against China, China good or bad, it's a bad idea no matter what. And I still though think that beginning to address the problems does begin there because they are so large. Yes, there will be ancillary markets that pop up elsewhere, but if you demonstrate seriousness and effect with China as it is now, that will shape the behavior of the governments in the other jurisdictions about working with us and enforcing in the early stages before it gets too big.
Ami Bera
Just a slight follow-up question. You know, one of the things I worry about, and I think Mr. Yates, you alluded to, you know, in the methamphetamine space, we went after Sudafed, right, and clamped down on Sudafed. The chemical nature of meth has changed dramatically in terms of how the, and it's become more toxic in terms of neurocircuitry and everything else. And I do worry about that component of it. And Mr. Lucky, you've alluded to some of that as well, that, you know, if we go after the fentanyl today, you will then get fentanyl 2.0 or 3.0.
And I think we're seeing some of that in our own streets. You know, I've read about in Philadelphia a much more addictive and destructive form of fentanyl starting to pop up.
David Lucky
Thank you, Ranking Member Bera. Interestingly enough, throughout Southeast Asia, China is the leading producer of precursors for methamphetamines as well. So the chemical industry in China is obviously not just producing precursors for synthetic opioids, but precursors for other illegal drugs. And while we need to press China on enforcing the regulations and laws that it has in place, we also need to be working with international bodies such as the United Nations Office on Drugs and Crime and the International Narcotics Control Board to assist them in getting ahead of the next crisis that we might be facing. Because, for example, the chemical industry in India, while not nearly as large as that in China, is even less regulated than that in China.
So what comes next could be in fact worse than what we're seeing now.
Young Kim
Thank you. Great. Let me recognize Representative Moylan for your additional questions.
James Moylan
Thank you, Madam Chair. I'm just reviewing this report here. The Chinese, according to China Committee report, the Chinese government directly subsidized the export of at least 17 illegal narcotics that have no legal use. The PRC government even owns multiple fentanyl exporters. And this, of course, is not the behavior of a state that's working in good faith with the United States to crack down on fentanyl trade.
So we're talking here about a government that is directly supporting a supply chain of death that kills tens of thousands of Americans per year. And the State Department reported in September that this support is still ongoing. So Mr. Lucky, do you see any signs of China discontinuing this activity in support of fentanyl trade?
David Lucky
Thank you for the question, Representative Moylan. I'd just focus on the fact that while I haven't done specific research on this recently, it's perceived that most of the traffickers of these precursor chemicals that are being used to produce illicit fentanyl are not large organizations. It's not major criminal organizations, and in fact, it's likely very small single-person or single-family run organizations. So the challenge is far greater than it might first appear, which makes redoubling the efforts even more important. On the other hand, regarding criminal money laundering, Chinese money launderers are perhaps the largest money launderers in the world.
And so that would be a larger body of criminals that would be more easily affected by sanctions.
James Moylan
Thank you. Mr. Yates, when most picture the drug trade, they think of secret drug labs in the dark corners far away from law enforcement, but in China, factories producing fentanyl precursor appear from the outside to be perfectly legitimate business. They have open doors, receptionists, and the like. Couldn't you say Beijing is allowing the trade that is killing so many Americans to happen in the open?
Steve Yates
It's hard for me to judge that fairly because I feel personally affected. I feel an intent where others may not see the intent, but I think the net effect is the same. The what the Select Committee on Strategic Competition with China found was an immense amount of evidence that the government had written into its own regulations to reimburse the value-added taxes that were related to these transactions. And so when you have illicit gangs engaged in something, that's one thing, but when you have the actual government writing code that gives tax rebates to the companies that are involved in something that is illegal in China and illegal to export, it gets back to that fundamental question: are you negotiating with a government counterpart in good faith? And my answer is no.
James Moylan
Thank you. Doctor, what specific indicators would you demonstrate that Guam is at an elevated risk due to our strategic geographic location as a destination or transit point for the flow of precursor drugs?
Zongyuan Zoe Liu
Thank you for the question. Number one measurement is purely geographic distance. Guam is simply very close to the PRC homeland. And number two, just looking at the the condition of hospital facilities on Guam, and that literally makes Guam vulnerable. And thirdly, looking at human trafficking as well as the flow of people, even not just talking about human trafficking, just natural flow of people.
If Chinese people were able to walk the line and then go across Mexican border, come to US mainland, then there is another possible route if they could potentially get a visa and then land in Guam through transit hubs like Seoul, and then the natural consequences could be imagined if that tourist visa holder turned out to be a drug trafficker. So from that point of view, geography, the condition of hospital and healthcare, as well as visa or the the blurred boundary between illegal and legal immigrant makes Guam vulnerable.
James Moylan
Thank you. What do you think we can how can we deter possible exploitations by transnational criminal organizations?
Zongyuan Zoe Liu
There are two perspective I'd say. One is from counter money laundering perspective, and this is where I think the PRC would have strong incentive to work with America because money laundering and directly related to Chinese capital flight. And then secondly is about pressing China to reduce their industrial subsidies to the chemical industry.
Thank you. You know, recognizing how deadly fentanyl is, you would think in a normal scenario, China could do more to block a broader list of these chemicals which obviously can be used for fentanyl production. So do you think it should be something that United States negotiators should be doing?
Zongyuan Zoe Liu
Thank you for the question. I think China would not want to change it, simply will not change because of external pressure.
China will change only if it realized that there is a cost for not just the Chinese people, but also for Chinese policymakers as well as for the Communist Party of China. And that cost would come from not just negotiation, but also pressure and leverage. Now pressure and leverage comes not just from tariff, but also through targeted sanctions. And the reason I emphasize targeted sanctions is because China has been actively building an alternative payment system that is based in renminbi. If China were able to broaden its renminbi-based financial system, that is going to make China very hard to be deterred and very hard to be sanctioned.
I'm not saying that a renminbi-based financial system is going to make China immune to US sanctions, but it's going to significantly weaken our sanction power.
Steve Yates
I strongly support the idea of expanding the list. I think that it allows for some discipline to be imposed upon the legitimate industries. And if there's accountability there, it's ultimately the legitimate industries that the illicit networks are parasitical beneficiaries. And so we might have a better chance of having people who are in the legitimate business having more power and will to enforce than talking to a government negotiator.
Thank you.
David Lucky
Thank you, Madam Chairwoman. I would recommend first of all scheduling illicit drugs and all precursors that are known to be used in the manufacture of those illicit drugs. And secondly, to the point of China's geostrategic interests, we need to provide incentives to make them want to comply and disincentives if they don't.
Young Kim
Thank you very much for those wonderful responses to all of our questions. I want to thank the members for participating and I want to thank the witnesses for your valuable testimony. Thank you so much. The members of the subcommittee may have some additional questions for the witness and we will ask you to respond to those in writing. Pursuant to committee rules, all members may have five days to submit statements, questions, and extraneous materials for the record, subject to the length limitation.
So without objection, the committee now stands adjourned. Thank you again for joining us.
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