US committee finds China is subsidizing American fentanyl crisis

WASHINGTON, April 16 (Reuters) - China is directly subsidizing production of illicit fentanyl precursors for sale abroad and fueling the U.S. opioid crisis, a U.S. congressional committee said on Tuesday, releasing findings from an investigation it said unveiled Beijing's incentives for the deadly chemicals.

China continues to provide subsidies in the form of value-added tax rebates to its companies that manufacture fentanyl analogues, precursors and other synthetic narcotics, so long as they sell them outside of China, the House of Representatives' select committee on China said in a report.

"The PRC (People's Republic of China) scheduled all fentanyl analogues as controlled substances in 2019, meaning that it currently subsidizes the export of drugs that are illegal under both U.S. and PRC law," the report said, adding that some of the substances "have no known legal use worldwide."

The report cited data from the Chinese government's State Taxation Administration website, which listed certain chemicals for rebates up to 13%. It additionally currently subsidizes two fentanyl precursors used by drug cartels - NPP and ANPP, it said.

According to the Chinese government website, the subsidies remain in place as of April, the report said.

China's embassy in Washington said China was sincere in drug control cooperation with U.S. authorities and had a special campaign underway to control fentanyl and precursor chemicals and crack down on illegal smuggling, manufacturing, and trafficking activities.

"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," embassy spokesperson Liu Pengyu said in an email.

The U.S. State Department did not respond to a request for comment.

Mike Gallagher, the Republican chair of the bipartisan select committee, told a hearing on the issue on Tuesday that China's incentives suggest Beijing wants more fentanyl entering the U.S.

"It wants the chaos and devastation that has resulted from this epidemic," Gallagher said.

Fentanyl is a leading cause of drug overdoses in the United States. The U.S. has said that China is the primary source of the precursor chemicals synthesized into fentanyl by drug cartels in Mexico. Mexico's government also has asked China to do more to control shipments of fentanyl.

China denies the allegation, and says the U.S. government must do more to reduce domestic demand.

The U.S. and China launched a joint counter-narcotics working group in January, following an agreement between U.S. President Joe Biden and Chinese leader Xi Jinping in November to work to curb fentanyl production and export.

U.S. officials have described the initial talks as substantive, but have said much more needs to be done to stem the flow of the chemicals.

The committee also said in its report that it found no evidence of new criminal enforcement actions by Beijing.

Ray Donovan, a former senior Drug Enforcement Administration official, told the hearing that the November agreement had not changed China's support for the illicit chemical industry's supply to the Western hemisphere.

"We need to apply more pressure," Donovan said.