This morning on Capitol Hill, the U.S. House Select Committee On the CCP presented an investigation entitled The CCP’s Role In the Fentanyl Crisis. I was asked to submit testimony for their report, which shows how the Chinese government incentivizes the production of illicit fentanyl ingredients for export. I was honored to be consulted and, as shown in the above video, my reporting was critical to their investigation. That said, I do not agree with all of the committee’s conclusions. Below is my full testimony.
Dear Chair Gallagher, Ranking Member Krishnamoorthi, and distinguished members of the Select Committee On the CCP,
In January, 2018, while reporting my book Fentanyl, Inc., I was the first journalist to go undercover inside Chinese fentanyl operations. Pretending to be a drug trafficker, I infiltrated a lab making fentanyl analogues and other new synthetic drugs in Shanghai. In Wuhan, I visited a company that, by my calculations, sold more fentanyl precursors than any other company in the world.
Fentanyl is the deadliest drug in American history, likely in the history of the world. Nearly 110,000 Americans died from drugs in 2022, the majority from fentanyl.
Chinese chemical companies, most of them operating legally, provide the bulk of the chemicals used to make fentanyl consumed illicitly in the United States, as well as the bulk of the other novel psychoactive substances taken recreationally here. I traveled to China to understand how these companies operate, and what role the government plays in their proliferation. I determined that not only did the government support these companies through a variety of incentives (including grants and subsidies) but also encouraged the export of fentanyl and other dangerous drugs through the tax code.
I started my research by simply googling “Buy fentanyl in China.” Hundreds of company websites came up, and so I created a fake avatar and chatted with salespeople and lab owners on Skype. We discussed prices and shipping methods, and I eventually encountered a lab owner from Shanghai named Dowson Li, who operated a company called Chemsky. He invited me to visit his lab, and so I flew to China a few months later.
After spending the morning vetting me, he called his driver (an intimidating guy with big muscles) who drove us a half hour south of Shanghai to the Chemsky lab, which was based out of a bland, new-construction office park. Inside, it looked not unlike a typical high school chemistry lab, although the chemical smell was overwhelming. I saw a custardy-looking fentanyl analogue being stirred by a mechanical arm in an oversize, round-bottomed flask, as well as kilo bags of synthetic cannabinoids and other chemicals being prepared for export, all of them completely legal to produce in China, though often illegal in their destination countries.
Fentanyl has been banned in China for many years, but chemists like Li operated within a loophole. By subtly tweaking the fentanyl molecule, he produced analogues that were just as powerful and deadly as fentanyl but technically legal.
The lab also specialized in synthetic cannabinoids like K2 and Spice which, though not as well known as opioids, have killed thousands of Americans and others around the world. Li’s lab was not large, but the barrels contained one-kilo bags of these chemicals, ready for shipping, speaking to a tremendous global demand. Though I didn’t buy anything and no money exchanged hands, we left on good terms; after I returned home Li sent me a Skype message on my birthday with a cake emoji.
While in China I also journeyed to Wuhan, visiting a large chemical company called Yuancheng, headquartered in a dilapidated hotel in a central business district. The visit was arranged by a salesman whose Skype handle was “Sean SteroidHormone,” and I received a tour of the company from two young saleswomen who both called themselves Amy.
During the tour, I was shocked to see hundreds of salespeople working at cubicles, most of them fresh out of college, likely chosen for their English abilities. They chatted with Western customers on desktop computers, at workstations decorated with plants and stuffed animals. It resembled a Western office except that they were selling ingredients for the world’s most dangerous drug.
Everyone was friendly. The salespeople showed me pictures of the fake packaging that they used to smuggle the fentanyl precursors across borders, and told me that the countries they most commonly exported to were Mexico and the U.S. Indeed, the vast majority of the illicit fentanyl consumed in the United States is distributed by the Mexican cartels, who source most of their precursor chemicals from Chinese companies like this one.
I also met the CEO of the company, Ye Chuan Fa, who told me that Yuancheng had 700 employees across more than 30 branch offices. In addition to fentanyl precursors, they also specialized in anabolic steroids, another class of “gray market” chemicals that are generally legal in China, but scheduled in the U.S.
Ye Chuan Fa’s English was not good, and I don’t speak Chinese, but when I got home we spoke over the phone through a translator. He said he doesn’t feel guilty that his chemicals are fueling the American fentanyl epidemic, because they are legal in China, and his precursors are not “drugs” but rather “chemical intermediaries” that can be used for a variety of substances. Chemical experts assured me, however, that his precursors are used only to make fentanyl.
Through my reporting for Fentanyl, Inc. I determined that Yuancheng likely bore a large part of the responsibility for the crisis here. Following the book’s publication, the U.S. Attorney’s Office for the Northern District of Texas announced that Ye Chuan Fa (known in Cantonese as Chuen Fat Yip) had been indicted, with a $5 million reward offered for information leading to his capture.
Yet, since he was operating legally in China, and the U.S. and China do not share an extradition treaty, he was never arrested.
In fact, to the contrary, my reporting shows that his company Yuancheng has been repeatedly celebrated by the Chinese government, showered in grants and incentives designed to bolster the company’s business.
Yuancheng claims to synthesize over 11,000 different chemicals, everything from fake Viagra to synthetic cinnamon, and also claims to develop new chemicals in the biotechnology sphere. For this reason, in 2011 the company was certified by China as an official New and High Technology Enterprise company, which makes it eligible for tax breaks, rebates, and R&D reimbursements. That year the company was also honored with a “Economic Construction Leading Enterprise” award from Hubei province, and in 2016 was a finalist in a contest honoring Wuhan’s top entrepreneurs.
Between 2012 and 2015, Yuancheng received resources and support from China’s Ministry of Science and Technology through the Torch Program, called by the Huffington Post, as “the most successful entrepreneurial program in the world.”
Yuancheng also received financial incentives through federal incentive programs called the Spark Program and the Innovation Fund, both of which are also administered by the Ministry of Science and Technology. In 2012 the Innovation Fund awarded Yuangcheng 500,000 yuan (US$70,000) for a project entailing the “oxidation of cinnamic acid (crystalline) with a new silver/copper catalyst.” A year later, for a patent, the company received 50,000 yuan through a technology innovation program sponsored by Hubei’s Xiaonan district.
Yuancheng has also long operated sub-companies, with different names, but also owned by Ye Chuan Fa. Some of these companies have listed addresses in “special industrial zones” offering government-subsidized land and rent, shared manufacturing infrastructure, and other resources. “China has been very generous in building these industrial parks as attractions for companies,” Gary Hufbauer, a trade expert at the Peterson Institute for International Economics, told me. “It’s a nice break, certainly on the land, and maybe even the building.”
It is perhaps not surprising that Yuancheng has been in the government’s favor, considering that Ye Chuan Fa’s daughter, Ye Si, appears to be a member of the Communist Party. In Fentanyl, Inc. I reported that a 2016 Yuancheng press release read, “Comrade Ye Si will be the leader of the new economy of the city, and a leader in the innovation field.” (“Comrade” implies she is a member of the Communist Party, along with nearly ninety million other Chinese.) Ye Si is also an influential member of her father’s organization; in 2014 she became the Yuancheng’s legal representative, and in 2019 Ye Chuan Fa told me that she specializes in his company’s real estate holdings.
Yuancheng is not the only Chinese chemical company making fentanyl products or novel psychoactive substances that has received support, incentives, and/or grants from the government. In Fentanyl, Inc. I identify others, including 5A Pharmatech Co., led by Yan Xiaobing, who was accused by the U.S. of distributing fentanyl and indicted in September, 2017.
But perhaps the most insidious way China has promoted the export of fentanyl products and other novel psychoactive substances is through Value Added Tax (VAT) rebates. These are tax reimbursements given to companies for tax money already paid during the production of their products.
During my reporting for Fentanyl, Inc. I found that many Chinese companies exporting dangerous drugs to the United States and Mexico were eligible for VAT rebates, ranging from 9-13 percent. This information, which I began gathering in 2018, was openly available on the Chinese State Taxation Administration website, hd.chinatax.gov.cn. By searching, say, “3-methylfentanyl,” I learned that this fentanyl analogue (which has never been approved for legitimate medical reasons) received a 13 percent rebate. The synthetic cannabinoid JWH-018 also received a 13 percent rebate. Fentanyl itself got a 9 percent VAT rebate, though by early 2019 that rate had been raised to 10 percent.
It’s unclear how many companies selling fentanyl products have utilized these rebates, but Yuancheng is one of them: Ye Chuan Fa told me that his company takes advantage of VAT rebates for every chemical it sells.
It is unclear if China is still offering VAT rebates for the export of deadly drugs. That’s because, following the publication of Fentanyl, Inc., the Chinese State Taxation Administration website stopped making this information publicly available.
China has clearly not been a reliable partner in helping fight the U.S. drug epidemic. That said, China has acquiesced to some U.S. requests in the realm of drug policy. In 2019 the country banned all fentanyl analogues, and recently President Xi vowed to crack down on the country’s export of fentanyl precursors to illicit actors. I believe this will have some effect, because, unlike in many countries, drug traffickers in China tend to operate within the law. But even if fentanyl precursor exports from China slow, the trade could simply move to other countries with looser controls, like India.
Having escaped from China unscathed, nowadays I give presentations to universities, awareness coalitions, and behavioral health organizations around the country. I show slides from my undercover reporting, and discuss how we can slow the fentanyl crisis, which I believe can be accomplished through education initiatives and greater access to medication assisted treatment.
Meanwhile, across the globe, Yuancheng continues to operate, and Ye Chuan Fa is free. He remains frustrated by my expose, however, and claims I pulled the wool over the eyes of both Presidents Trump and Biden, whose administrations have sanctioned him. In a June, 2022 declaration submitted to the U.S. District Court in North Texas, Ye Chuan Fa accused me of being a “secret agent who worked for the U.S. government,” and also of working for “Coca-Cola and Pepsi.” Both accusations are absurd, the latter particularly so.
So, why did he say this? It turns out that, in addition to making fentanyl precursors, Yuancheng also makes a preservative for colas, which Ye Chuan Fa believes was stolen by Coke and Pepsi. They were only able to do so, he claims, with my assistance.