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China in Focus: Innovation & Espionage

China in Focus: Innovation & Espionage

Since the rapprochement between the People’s Republic of China and the United States of America during the Nixon administration, tensions between the two powers has been on the rise. This was evidenced when Bin Wu, a Chinese spy ordered to steal weapon-related technology, was told that “the U.S. was one of the major enemies of China and that China was preparing for a “long battle.”[i]

As specified by the Chinese People’s Liberation Army’s strategy paper, “war is not only a military struggle, but also a comprehensive contest on fronts of politics, economy, diplomacy, and law.”[ii]Taking this into account, it becomes apparent that the Chinese strategy for economic espionage is part of greater holistic approach. 

In accordance with the Economic Espionage Act of 1996, economic espionage occurs when one steals, duplicates or receives a trade secret “knowing that the offense will benefit any foreign government.”[iii]Though the state-sponsored cyber espionage has received more attention in recent years, China has been engaging in economic espionage directed at the U.S. for many decades. In fact, the Intellectual Property Commission Report states that in addition to being theglobal leader in using cyber methods to steal intellectual property, China accounts for the majority of global intellectual property theft.[iv]The fact that actors affiliated with the Chinese military and government have systematically infiltrated the computer systems of over one hundred U.S. companies and stolen hundreds of terabytes of data, including all forms of trade secrets, such as proprietary technology and manufacturing processes, highlights the breadth and extent of the Chinese cyber espionage directed at the U.S. firms[v].

A core issue for the United States is that Chinese actors are not only global leaders in economic espionage, they are also sponsored by the government. The U.S. House Intelligence Committee notes that, “there is a concerted effort by the government of China to get into the business of stealing economic secrets to put into use in China to compete against the U.S. economy.”[vi]According to Larry Wortzel, the former Commissioner of U.S.-China Economic and Security Review Commission, Chinese intelligence agencies support economic espionage as it can “improve competitive edge, cut R&D timetables, and reduce costs” for Chinese firms and companies.[vii]Chinese leadership considers the first two decades of the 21st century to be a window of strategic opportunity for China to focus on economic growth, independent innovation, scientific and technical advancement. China's “National Medium and Long Term Plan for Science and Technology Development (2006-2020)” is a self-styled “grand blueprint of science and technology development” for the “great renaissance of the Chinese nation.”[viii]Additionally, it promotes a policy of “indigenous innovation” that involves “enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies.”[ix]Industries identified in China’s blueprint are the primary targets of Chinese economic espionage activities directed at American firms. Indeed, the economic espionage activities against American firms were starting to increase just as National Medium and Long Term Plan for Science and Technology Development was rolled out.[x]Specifically, China's state council places emphasis on the acquisition and development of technologies from industries such as “biotechnology, space technology, information technology, laser technology, automation technology, energy technology and advanced materials.”[xi]These technologies are generally considered critical to what the World Economic Forum calls The Fourth Industrial Revolution, an era characterized by “ubiquitous, mobile supercomputing, intelligent robots, self-driving cars; neuro-technological brain enhancements, and genetic editing.”[xii]In this vein, the National Medium and Long Term Plan for Science and Technology Development lays out the key intelligence objectives of the Chinese government. Wortzel points out that “[t]he strong correlation between compromised U.S. companies and those industries designated by the Chinese government as “strategic industries” further indicates a degree of state sponsorship, and likely even governmental support, direction, and execution of Chinese economic espionage.”[xiii]Wortzel further elaborates by identifying at least 7 Chinese intelligence agencies that can collect information for the state-owned industrial sector, which include, “the Ministry of State Security and its local or regional state security bureaus, the Public Security Bureau, the intelligence department of the People’s Liberation Army (PLA), or Second Department, the PLA’s Third, or Electronic Warfare Department, a PLA Fourth Department that focuses on information warfare, trained technical collectors from the General Armaments Department and the General Logistics Department of the PLA, the technical intelligence collectors of the military industrial sector and the Commission of Science Technology and Industry for National Defense and the Communist Party Liaison Department PLA General Political Department”, thereby complicating U.S. counterintelligence efforts against Chinese economic espionage.[xiv]

With respect to the methodologies employed, the Chinese government has taken a holistic approach by using open source collection, R&D centers and human intelligence. Open Source Collection (OSINT) methodology uses publicly available foreign source information. Chinese government has successfully established The National Science and Technology Library which operates an online retrieval system of the vast holdings of member libraries providing access to 4.9 million foreign journals, 1.8 million foreign science and technology conference papers, 900,000 foreign dissertations and reports and 11 million foreign patents.[xv]The systematic and meticulous use of publicly available foreign sources makes it possible for Chinese industries to shorten their R&D timelines and for the Chinese government to successfully implement its intelligence and information network or quinbao.[xvi]The Chinese government also actively incentivizes foreign firms to set up R&D centers in China through highly favorable governmental regulations and laws designed to obtain foreign advanced technology and promote Chinese technological innovations. These R&D centers pose a considerable opportunity for economic espionage due to the increased risk of illegal technology transfer through methods such as eavesdropping and wiretapping, which can be included in the field of signal intelligence (SIGINT). With respect to human intelligence (HUMINT), the State Administration of Foreign Experts Affairs in China maintains a large database to identify and contact foreign experts in various fields of expertise including approximately 440,000 foreign experts, half of whom come from Japan or the West, that work in China on an annual basis.[xvii]These experts are sources of  knowledge on technological matters, which presents another opportunity for a massive transfer of technology and know-how. Furthermore, the Chinese government has sponsored and used advocacy groups based in the U.S. or China as another effective means for gathering intelligence on the science and technology of foreign firms. For example, the Silicon Valley Chinese Engineers Association “aims to establish channels to allow members to engage in China's rapid economic development.”[xviii]Moreover, China possesses a key advantage in that “the state has great power to compel citizens to cooperate and a far reach to retaliate if citizens in China refuse to do the state's bidding,” as “[t]he legal system in China still responds to the direction of the Chinese Communist Party.”[xix]

With regards to the Chinese strategy to collect intelligence, “only a small percentage is for actually clandestine work,” which makes it more difficult for American intelligence services, like the FBI, that are “looking for the classical intelligence man” according to James Lilly, who had served as the U.S. Ambassador to China from 1989 to 1991.[xx]The conventional Chinese methodology to collect intelligence, commonly referred to as “thousand grains of sand” method, relies on a broader group of untrained amateur agents that engage in economic espionage. These agents can be from a variety of backgrounds, such as: visiting scientists, students, businesspeople and academic scholars. Journalist David Wise draws the following analogy: “If a beach was an espionage target, the Chinese would send in a thousand tourists, each assigned to collect a single grain of sand. When they returned, they would be asked to shake out their towels. And they would end up knowing more about the sand than anyone else.”[xxi]

For that reason, U.S. counterintelligence efforts has been “simply overwhelmed” by the Chinese strategy, according to John Fialka, an investigative reporter for the Wall Street Journal.[xxii]James Lilley, the former U.S. ambassador to China and CIA station chief in Beijing during the 1970s states that “The FBI is ensnarled in a cess pool of Chinese agents and their cases are all stuck at first base.”[xxiii]Accordingly, it is crucial for U.S. counterintelligence to more efficiently collect information of Chinese espionage perpetrated against American companies and firms. Yet, American agencies are haplessly paralyzed by budget constraints, especially when compared to the well-funded Chinese strategy.

To that end, I suggest that the various intelligence and counterintelligence agencies, notably the CIA and the FBI, coordinate their efforts with a view towards crafting a comprehensive strategy to counter China's economic espionage. For example, it is the role of the FBI to investigate a foreign agent while he or she is on U.S. soil, but the CIA would have to take over the investigation once the individual travels to a foreign country. The inefficiency of these practices should lead the intelligence community to re-consider them. Furthermore, the Office of the Director of National Intelligence’s Office of the National Counterintelligence Executive, which is currently responsible for developing the U.S. government National Counterintelligence Strategy, “does not appear to have practical authority to make structural changes within the US intelligence community” toward the goals “of strengthening secure collaboration, responsible information sharing and safeguarding and effective partnership among the counterintelligence organizations.”[xxiv]As such, the intelligence community would need to push towards not only sharing, but also safeguarding crucial information to effectively mitigate Chinese economic espionage. Counterintelligence agencies could also encourage U.S. companies and employees to report any suspected economic espionage by offering financial incentives to tips leading to successful prosecution. If money is one of the motives for spying, then financial incentives can be used to encourage people to report it, and could strengthen the efforts of counterintelligence agents. Additionally, counterintelligence agencies can encourage and support the U.S. firms to formulate, adopt and implement best practices in order to adequately protect their trade secrets advising on crafting appropriate policies with regards to human resources, physical security, information security and R&D compartmentalization.[xxv]Other security measures that the intelligence community could help implement include the encryption of communications to prevent eavesdropping and wiretapping by the Chinese intelligence. Though, the counterintelligence community must be cognizant of the needs of firms and employees to have their trade secrets protected from disclosure when prosecuting economic espionage. This will require towing a delicate line so that firms feel encouraged to report of trade thefts – both actual and potential – without feeling as though their privacy has been compromised. Through measures like this, American and Western counterintelligence agencies could limit the scope of economic espionage by offering effective incentives that allow for proper prosecution of the perpetrators. 

In conclusion, Chinese economic espionage against the U.S. and its allies poses a serious threat to not only our prosperity but also to national security. In order to effectively counter the Chinese threat, the intelligence community should consider coordinating the efforts of various intelligence agencies, offering financial incentives to tips of any suspected economic espionage, and working with American companies to adopt practices to protect their trade secrets. Yet, this can only be achieved with the proper educating American students of the importance of intelligence work and its impact on society. Through this, we can further the discussion of espionage and how-to best counter it.

Works cited

United States Congress. Joint Economic Committee. “Economic Espionage, Technology Transfers and National Security Hearings”. 105th Congress, 1st Session. Government Printing Office, 1997.

Office of the Secretary of Defense. “Annual Report to Congress, Military Power of the People’s Republic of China 2009”. Office of the Secretary of Defense, 2009.

Office of the U.S. Trade Representative, “2013 Special 301 Report”. Office of the U.S. Trade Representative, 2013.

Fialka, John. “War by Other Means: Economic Espionage in America”. W.W. Norton, 1997.

United States Congress. “The Economic Espionage Act of 1996”. Government Publishing Office, 1996.

The Commission on the Theft of Intellectual Property, “The IP Commission Report”. The National Bureau of Asian Research, 2013.

U.S.-China Economic and Security Review Commission, “2016 Annual Report to Congress”. U.S.-China Economic and Security Review Commission, 2016.

Rogers qtd. in Schlesiger, Jennifer. “Chinese Espionage on the Rise in U.S., Experts Warn” CNBC.com, 2012.

Wortzel, Larry. Testimony of Larry M. Wortzel before the House of Representatives, Committee on Energy and Commerce Subcommittee on Oversight and Investigations on “Cyber Espionage and the Theft of U.S. Intellectual Property and Technology”. The House of Representatives, 2013.

McGregor, James. “China's Drive for “Indigenous Innovation” A Web of Industrial Policies”. APCO Worldwide, 2010.

Lindsay, Jon, Tai Cheung, Derek Reveron. “China and Cybersecurity: Espionage, Strategy and Politics in the Digital Domain: From Exploitation to Innovation”. Oxford University Press, 2015.

Wortzel, Larry. Testimony of Larry M. Wortzel Before the Subcommittee on Crime, Terrorism, and Homeland Security of the House Committee on the Judiciary Hearing on “Enforcement of Federal Espionage Laws”. The House of Representatives. 2008.

Hannas, William C., James Mulvenon, and Anna B. Puglisi. “Chinese Industrial Espionage: Technology Acquisition and Military Modernization” Routledge, 2013.

Public Broadcasting Station. “From China With Love: China Is Different”. Public Broadcasting Station, 2004.

Wise, David. “Tiger Trap: America's Secret Spy war with China”, Houghton Mifflin Harcourt, 2011.

Executive Office of the President of the United States. “Administration Strategy On Mitigating the Theft of US Trade Secrets”, The White House, 2013.


Endnotes

[i]United States Congress. Joint Economic Committee. “Economic Espionage, Technology Transfers and National Security Hearings”. 105th Congress, 1st Session. Government Printing Office, 1997. P. 17.

[ii]Office of the Secretary of Defense. “Annual Report to Congress, Military Power of the People’s Republic of China 2009”. Office of the Secretary of Defense, 2009. P. 14.

[iii]United States Congress. “The Economic Espionage Act of 1996”. Government Publishing Office, 1996. P. 2.

[iv]The Commission on the Theft of Intellectual Property, “The IP Commission Report”. The National Bureau of Asian Research, 2013. P. 18.

[v]U.S.-China Economic and Security Review Commission, “2016 Annual Report to Congress”. U.S.-China Economic and Security Review Commission, 2016. P. 243.

[vi]Rogers qtd. in Schlesiger, Jennifer. “Chinese Espionage on the Rise in U.S., Experts Warn” CNBC.com, 2012. n.p.

[vii]Wortzel, Larry. Testimony of Larry M. Wortzel before the House of Representatives, Committee on Energy and Commerce Subcommittee on Oversight and Investigations on “Cyber Espionage and the Theft of U.S. Intellectual Property and Technology”. The House of Representatives, 2013. P. 7.

[viii]McGregor, James. “China's Drive for “Indigenous Innovation” A Web of Industrial Policies”. APCO Worldwide, 2010. P. 4.

[ix]Ibid.

[x]Lindsay, Jon, Tai Cheung, Derek Reveron. “China and Cybersecurity: Espionage, Strategy and Politics in the Digital Domain: From Exploitation to Innovation”. Oxford University Press, 2015. P. 10.

[xi]Wortzel, Larry. Testimony of Larry M. Wortzel Before the Subcommittee on Crime, Terrorism, and Homeland Security of the House Committee on the Judiciary Hearing on “Enforcement of Federal Espionage Laws”. The House of Representatives. 2008. P. 3.

[xii]Klaus Schwab. The Fourth Industrial Revolution. Currency, January 3, 2017. 

[xiii]See supra note 7.

[xiv]Ibid. P. 5.

[xv]Hannas, William C., James Mulvenon, and Anna B. Puglisi. “Chinese Industrial Espionage: Technology Acquisition and Military Modernization” Routledge, 2013. P. 35.

[xvi]Ibid. P. 18-20.

[xvii]Ibid. P. 95.

[xviii]Ibid. P. 126.

[xix]See supra note 15.

[xx]Public Broadcasting Station. “From China With Love: China Is Different”. Public Broadcasting Station, 2004. n.p.

[xxi]Wise, David. “Tiger Trap: America's Secret Spy war with China”, Houghton Mifflin Harcourt, 2011. P. 10-11.

[xxii]See supra note 1. P. 130.

[xxiii]Lilly qtd. in Ibid.

[xxiv]See supra note 7. P. 301.

[xxv]Executive Office of the President of the United States. “Administration Strategy On Mitigating the Theft of US Trade Secrets”, The White House, 2013. P. 7.


Biography

Robert Okada is currently an undergraduate student at Columbia University where he majors in Political Science.

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