Beijing’s communist government is supporting illicit trade in deadly fentanyl by offering tax rebates and other incentives to manufacturers in China, according to a bipartisan report by the House Select Committee on the Chinese Communist Party.
An investigation by the committee, based on data gathered from the Chinese government’s internet, revealed extensive links between fentanyl trafficking and the Chinese government which is under tight control by the CCP.
The government “directly subsidizes the manufacturing and export of illicit fentanyl materials and other synthetic narcotics through tax rebates,” the report states.
“Many of these substances are illegal under the PRC’s own laws and have no known legal use worldwide,” the report says. “Like its export tax rebates for legitimate goods, the CCP’s subsidizing of illegal drugs incentivizes international synthetic drug sales from the PRC. The CCP has never disclosed this program.”
The findings of the report mark the first time direct connections between the Beijing government and illicit exports of fentanyl and related products have been disclosed.
“The CCP are not just bystanders. They are prime movers,” former Attorney General William P. Barr said Tuesday during a committee hearing on the report.
“They are knee-deep in actively sponsoring, encouraging and facilitating the production and export of fentanyl and fentanyl precursors for distribution in the U.S.,” he said.
Mr. Barr said the United States is sustaining a casualty rate from drug overdoses comparable to those suffered in a world war.
During the Trump administration, pressure on Beijing led to a halt in direct shipments of the deadly synthetic opioid that authorities say has killed more than 100,000 Americans a year, mainly through drug overdoses.
Instead, exports of Chinese fentanyl, which is extremely potent and can be hidden in small packages, and the precursor chemicals used to make it, shifted to Mexico, where drug cartels operate, officials have said.
Committee Chairman Mike Gallagher said at the hearing that President Ronald Reagan once said, “if you want more of something, subsidize it.”
“Through its actions, the Chinese Communist Party is telling us that it wants more fentanyl entering our country. It wants the societal chaos and devastation that has resulted from this epidemic. And yes, it wants more dead Americans,” said Mr. Gallagher, Wisconsin Republican.
The committee probe used open-source intelligence-gathering methods to reach its conclusions. The methods included data collection from government websites and documents, undercover communications with Chinese drug-trafficking companies and work with experts on the matter.
The report states that the Chinese government regards support for fentanyl export as a form of asymmetric warfare that is part of its communist ideological battle with the United States and the West.
The report quotes from the 1999 book by two PLA colonels called “Unrestricted Warfare,” which urges the military to use all forms of warfare to achieve its strategic goals, including “drug warfare — obtaining sudden and huge illicit profits by spreading disaster in other countries.”
“The PRC-sourced illicit fentanyl and fentanyl precursors have indeed ‘spread disaster’ in the United States,” the report states.
Key findings from the investigation reveal that the Chinese government provided grants and awards to companies “openly trafficking illicit fentanyl materials and other synthetic narcotics,” the report states.
“There are even examples of some of these companies enjoying site visits from provincial PRC government officials who complimented them for their impact on the provincial economy,” the report said.
A committee aide who briefed reporters on the report said the CCP provides government subsidies to Chinese companies that manufacture fentanyl precursors and other synthetic narcotics.
The subsidies are provided in the form of rebates for value-added taxes that are used to promote other goods like electric vehicles.
“We now know it does the same for illegal synthetic narcotics, and we know these subsidies work,” the aide said.
The government incentive program has been in place since 2018 and committee investigators determined that it supports at least 17 Illegal synthetic narcotics, 14 deadly fentanyl forms.
The government also owns stakes in several Chinese companies tied to drug trafficking, including a prison linked to human rights abuses that owns a drug-trafficking chemical company.
Another publicly traded Chinese company was found to be hosting thousands of solicitations for open drug trafficking on its websites.
China’s role in the U.S. fentanyl crisis was raised during the summit between President Biden and Chinese President Xi Jinping in California last November. The two leaders agreed both nations would resume discussions on curbing Chinese exports of fentanyl, which China cut off in August 2022 to protest the visit to Taiwan by then-House Speaker Nancy Pelosi.
China’s government had denied any role in supplying fentanyl to the United States.
Chinese Embassy spokesperson Liu Pengyu said China, at the United States’ request, cracked down on fentanyl-related criminal activities at the source in 2019 and stepped up drug controls after the November summit.
“It is very clear that there is no fentanyl problem in China, and the fentanyl crisis in the United States is not caused by the Chinese side, and blindly blaming China cannot solve the U.S.’ own problem,” Mr. Liu said.
Last year, a Foreign Ministry spokeswoman criticized Biden administration sanctions on Chinese companies for their role in fentanyl exports and said Americans’ demand for drugs is the main cause of the fentanyl problem.
The House report said China has failed to prosecute cases involving illicit exporters of fentanyl and precursor chemicals.
Instead of investigating drug trafficking, Chinese security services have failed to cooperate with U.S. law enforcement agencies and in some cases notified Chinese targets of investigators of American law enforcement probes, the report said.
Additionally, despite appeals from the Biden administration to curb fentanyl-related exports, China’s government is allowing the open sale of fentanyl precursors and other illicit drug materials to be sold on the Internet, which is strictly controlled in China.
Committee investigators found in a review of seven e-commerce sites in China more than 31,000 instances of Chinese companies selling controlled chemicals used by drug traffickers.
“Undercover communications with PRC drug trafficking companies (whose identities were provided to U.S. law enforcement) revealed an eagerness to engage in clearly illicit drug sales with no fear of reprisal,” the report says.
Extensive Chinese censorship of all online references to domestic drug sales is not matched to international sales. For example, the Chinese words for “fentanyl” and “cash on delivery” are blocked. But no similar electronic curbs are in place for the export of illicit narcotics from China, the report said.
The report said China “strategically and economically” benefits from the fentanyl crisis that has helped Chinese organized crime groups prosper as leading global money launderers while enriching the Chinese chemical industry.
“While the PRC government publicly acknowledged in November 2023 that the trafficking of fentanyl precursors and other illicit narcotics materials in the manner described above is illegal under Chinese law, the Select Committee found thousands of PRC companies openly selling these illicit materials on the Chinese internet—the most heavily surveilled country-wide network in the world,” the report says.
The report recommends that the U.S. government take a series of steps to counteract Chinese fentanyl exports.
One recommendation is to set up a joint task to counter opioids that would concentrate all non-military elements of U.S. power toward a strategy to destroy the global fentanyl supply chain.
Other findings call for new authorities for law enforcement and intelligence agencies to prioritize targeting fentanyl trafficking; and strengthened U.S. sanctions against those involved in the fentanyl trade.
The government also should enact and enforce trade and customs restrictions on fentanyl trafficking and close regulatory and enforcement gaps that are being exploited by Chinese criminals engaged in money laundering and fentanyl trafficking.
In May 2023, the Treasury Department imposed sanctions on 17 entities in China and Mexico for their role in fentanyl trafficking.