Chairman Moolenaar’s Opening Statement: China’s Chip Smuggling is a Threat to America

Today, Select Committee on China Chairman John Moolenaar delivered his opening statement at the Select Committee’s hearing titled “China’s Campaign to Steal America’s AI Edge.”  

As prepared for delivery.

"China’s smuggling of advanced AI chips is a pervasive threat facing law enforcement. In several cases over the past year, the Trump Administration disrupted multiple smuggling rings that sought to arm China with advanced American AI chips. 

"Just last month, the Department of Justice announced a $2.5 billion chip smuggling case, which would be the largest export control violation in U.S. history. The alleged smugglers went to great lengths to cover their tracks. One of them was Super Micro co-founder Wally Liaw. He and his alleged conspirator used a hair dryer to remove Supermicro serial-number labels, and then put those labels on fake server boxes. They even created fake AI servers to fool U.S. enforcement officers into thinking the chips were in Southeast Asia when they’d already been smuggled to China. 

"Why is China so desperate to acquire U.S.-designed chips? The reason is obvious. AI is a truly transformative technology. It’s already changing how we fight wars, run our government, and operate companies. 

"It is essential for the United States to maintain a decisive lead in the AI race. We cannot afford a future where Beijing dominates this technology.

"In a new report released this morning, the Select Committee documents how China currently depends on the United States and our allies across all parts of the AI technology stack. China’s AI ecosystem depends on the Western semiconductor manufacturing equipment required to make advanced AI chips. They rely on western AI chips to develop their most advanced AI models. They rely on western AI models to develop their own models and AI services.

"To try to keep up in the AI race, Chinese companies are buying what they legally can under existing export control regimes and stealing what they cannot. This pattern of legal purchases and theft is happening at every layer of the AI technology stack. 

"Let’s start with the bottom of the stack. Beijing has funneled billions of dollars into their domestic chipmakers so that they can control their supply chain. Yet at the same time, Chinese chipmakers continue to rely on U.S. and allied semiconductor manufacturing tools to make their chips. As of now Chinese chipmakers remain unable to produce 5 nanometer chips at scale, putting them at least 7 years behind the leading edge. 

"That is why Chinese chipmakers are the world’s biggest customers for chipmaking tools, buying $38 billion in foreign tools in 2024 alone. The country buying the most tools today is China and that means one day we might depend on China for our own chips. We cannot allow that to happen. 

"Let’s move onto the next layer of the AI tech stack – the chips themselves. Despite billions in government subsidies, China’s best chips are far inferior to our cutting-edge semiconductors. Nor are they keeping up in quantity. Huawei proudly announced recently that it will produce 750,000 of its 950PR chips—but that figure amounts to less than one week of quality-adjusted U.S. AI chip production. 

"Given the sheer quality and quantity gap, Chinese AI companies continue to rely on American chips. As the founder of Chinese AI champion DeepSeek has said, “Our problem has never been funding, it’s the embargo on high-end chips.” 

"So, it should come as no surprise that Chinese AI firms are doing everything they can to legally and illegally acquire U.S. chips. To work around export controls, Chinese companies are building billion-dollar AI supercomputers in countries like Malaysia and then accessing that compute power remotely through the cloud. They’ve also resorted to outright chip smuggling. 

"Estimates of China’s illegally obtained chips range anywhere from tens of thousands of chips to several hundred thousand chips. 

"Finally, the last layer of the AI tech stack are the models themselves. American AI labs like OpenAI continue to produce the best proprietary models in the world, using tens of billions of dollars’ worth of AI chips. 

"That is why Chinese labs are resorting to unauthorized distillation attacks to extract information from our best AI models. Since they don’t have enough AI chips to develop the models on their own, they prefer to simply steal them from their American competitors. Anthropic, OpenAI, and Google have all verified that this is happening. 

"The pattern is clear. China is dependent on our tech stack to continue their AI development. China is willing to buy what they can, and steal what they cannot, to advance their AI ambitions. The task for Congress is to pass legislation that will stop China’s multiprong effort to legally and illegally acquire America’s tech stack to use it against us. 

I look forward to hearing from our witnesses."