China Continues to Subsidize Fentanyl Precursor Chemicals According to US Congress

• Directly subsidizes the manufacturing and export of illicit fentanyl materials and other synthetic narcotics through tax rebates. Many of these substances are illegal under the PRC’s own laws and have no known legal use worldwide. Like its export tax rebates for legitimate goods, the CCP’s subsidies of illegal drugs incentivize international synthetic drug sales from the PRC. The CCP never disclosed this program.

• Gave monetary grants and awards to companies openly trafficking illicit fentanyl materials and other synthetic narcotics. 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.

• Holds ownership interest in several PRC companies tied to drug trafficking. This includes a PRC government prison connected to human rights abuses owning a drug trafficking chemical company and a publicly traded PRC company hosting thousands of instances of open drug trafficking on its sites.

• Fails to prosecute fentanyl and precursor manufacturers. Rather than investigating drug traffickers, PRC security services have not cooperated with U.S. law enforcement, and have even notified targets of U.S. investigations when they received requests for assistance.

• Allows the open sale of fentanyl precursors and other illicit materials on the extensively monitored and controlled PRC internet. A review of just seven e-commerce sites found over 31,000 instances of PRC companies selling illicit chemicals with obvious ties to drug trafficking. 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.

• Censors content about domestic drug sales, but leaves export-focused narcotics content untouched. The PRC has censorship triggers for domestic drug sales (e.g., “fentanyl + cash on delivery”), but no such triggers exist to monitor or prevent the export of illicit narcotics out of the PRC.

• Strategically and economically benefits from the fentanyl crisis. The fentanyl crisis has helped CCP-tied Chinese organized criminal groups become the world’s premier money launderers, enriched the PRC’s chemical industry, and has had a devastating impact on Americans.

Committee Proposed Actions

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 CCP runs the most advanced techno-totalitarian state in human history that “leave[s] criminals with nowhere to hide” and has the means to stop illicit fentanyl materials manufacturers, yet it has failed to pursue flagrant violations of its own laws.

Armed with the knowledge gained in the course of this investigation, the report finds that the United States should:

• Establish a Joint Task Force – Counter Opioids (JTF-CO) that concentrates all non-military elements of state power and executes a coordinated strategy to target the weak points in the global illicit fentanyl supply chain.

• Provide law enforcement and intelligence officials with the statutory authorities, tools, and resources they need to execute their responsibilities, including through enhancing international law enforcement cooperation, appropriately prioritizing fentanyl and anti-money laundering in intelligence and enforcement efforts; and recruiting and retaining top talent to combat the fentanyl threat.

• Strengthen U.S. sanctions authorities and use those authorities in an aggressive and coordinated manner against entities involved in the fentanyl trade.

• Enact and use trade and customs enforcement measures to restrict fentanyl trafficking

• Close regulatory and enforcement gaps exploited by PRC money launderers and fentanyl traffickers.

Former DEA Chief of Operations Ray Donavon submitted his testimony on the fentanyl crisis and China’s source for synthetic drugs. DEA has historically focused investigations on source regions and countries for traditional narcotics, primarily Mexico, Central and South America, and the Caribbean for transshipment.

We have representatives in 90 offices globally to help partner nations fight the proliferation of the drug trade and associated money laundering. Mexican transnational criminal organizations have been DEA’s primary focus in the narcotics trafficking space in recent years, specifically the Sinaloa Cartel formerly headed by the notorious Chapo Guzman, and the Cartel de Jalisco Nueva Generacion currently led by Nemesio Oseguera Cervantes aka El Mencho. These criminal organizations act as the wholesalers and logistical orchestrators of the movement of illicit narcotics over the southern border of the United States.  

Over the last 10-plus years, we saw a significant increase in the number of “super labs,” or high-volume narcotics manufacturing labs, used to mass produce synthetic narcotics in Mexico, and the correlated increase in the adulteration of what we at DEA consider to be “traditional” narcotics, heroin, cocaine, and methamphetamine with fentanyl.  

When these labs were interdicted, extensive evidence of Chinese-produced chemicals (blue barrels with Chinese labeling, bills of lading, etc.) was found.  

We also noted the labs were not only mixing fentanyl into the narcotics supply, but also pressing fentanyl into pills intentionally designed with colors and markings mimicking those of pharmaceutical synthetic opioids such as Oxycontin, Percocet, and other widely known and highly addictive opioids used to treat pain. Now, they are increasingly pressed into non-opioid pills, such as counterfeit Xanax, dramatically increasing the risk of accidental overdose.  

DEA noted a sharp uptick in the use of Chinese precursor chemicals gathered from the super labs as well as a significant increase in Chinese money laundering organizations operating globally in the narcotics trafficking space.

Based on these factors and other intelligence gathered regarding the fentanyl precursor chemical trade DEA responded with the creation of Operation Sleeping Giant. This operation utilized a collaborative Whole of Government approach, utilizing assets from Law Enforcement, the Intelligence Community, and the Departments of Defense, Treasury, and State, as well as the Five Eyes consortium.

Targeted the two primary areas where Chinese criminal organizations were gaining prominence:  manufacture and trafficking in fentanyl precursor chemicals and money laundering. I have had the opportunity to review the investigation conducted by the bipartisan select committee.  

Based on my knowledge and experience I have determined the findings and information with respect to the involvement in this activity by Chinese chemical manufacturers and brokers supported and sanctioned by the CCP and the government of the PRC to be valid and correct.   

The dominant role China plays as the primary fentanyl precursor supplier was demonstrated in early 2020 when the CCP locked down Wuhan Province, where chemical manufacturing, specifically fentanyl precursor production, is concentrated. This lockdown caused the U.S. fentanyl supply to dwindle and prices to skyrocket. 

1. The PRC directly subsidizes the exports of 97% of fentanyl precursors and deadly fentanyl analogs and other synthetic narcotics that are illegal under its own laws. 

2. The PRC rewards companies that openly and notoriously export these illegal drugs with government grants and monetary awards.
3. The PRC and ranking members of the CCP hold ownership interest in some of these companies.
4. The PRC actively protects synthetic narcotic manufacturers and other PRC companies from investigation and prosecution either within China or by the international community.
5. The PRC allows this activity to continue via its controlled and actively monitored communication platforms despite regularly censoring speech that violates PRC law or speaks ill of the CCP in other contexts.
6. The production of synthetic narcotics and fentanyl precursors are illegal under PRC law, but those laws are not enforced effectively.
7. The PRC fails to mobilize the massive government surveillance and security apparatus to stop the manufacture and distribution of these substances.   

The PRC has actively evaded all United States-led efforts aimed at stopping the outflow of fentanyl and fentanyl precursors from China and instead has supported synthetic drug manufacturers’ production and distribution, resulting in the problem continuing to grow in both size and scope.  

In addition, the PRC’s support of fentanyl production has paved a path for more dangerous synthetic drugs to gain a foothold in the United States.

The illicit synthetic narcotics industrial complex in China doesn’t solely produce fentanyl; it also produces methamphetamine, ketamine, and other dangerous drugs like nitazene and xylazine.   

Nitazene is a chemical opioid more potent than fentanyl and 25 times stronger than street heroin.  

Xylazine is resistant to naloxone treatments (also called Narcan, an opioid reversal drug used to treat overdose victims) and when mixed with fentanyl, dramatically increases the risk of death and causes the user’s flesh to rot.   

Sources Reuters, House Select Committee on CCP