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Home » «Stealing America’s Technology Secrets: How China Commits Industrial Espionage»

«Stealing America’s Technology Secrets: How China Commits Industrial Espionage»

17 January 2023, Tuesday
A seemingly ordinary photograph ended up becoming the defining factor in the downfall of Zheng Xiaoqing, a previous worker for energy company General Electric Power. According to the United States Department of Justice (DOJ) indictment, the US national had hidden sensitive files that were taken from his organization in binary code found in a digital photograph of a sunset. What further complicated matters was the fact that he had emailed said photograph to himself.

Mr Zheng employed a method of masking data known as steganography to surreptitiously steal confidential documents from the multinational conglomerate GE. GE's work spans a variety of industries, including healthcare, energy, and aerospace, producing anything from fridges to aircraft engines.

Xu Yanjun, a Chinese national, was recently convicted and sentenced to a 20-year prison sentence for plotting to illegally acquire trade secrets from numerous American aviation and aerospace firms, among them General Electric (GE). Zheng, another Chinese national, was just recently punished with two years in prison for stealing highly-valuable data related to the development and production of gas and steam turbines, featuring turbine blades and turbine seals. The information was sent to a collaborator in China, and is assessed to be worth millions of dollars. This would provide a significant advantage to the Chinese government, as well as Chinese-based businesses and universities. This case is the most up-to-date in a number of legal actions taken by US authorities on similar matters.

As China works to gain access to the technological knowledge necessary to support its economy and compete on the international stage, the US endeavors to impede the emergence of a serious rival to its power. One method employed by some countries to achieve this is the theft of trade secrets, as this allows them to "jump up global value chains quickly, without incurring the costs of relying solely on domestic capabilities", according to Nick Marro from the Economist Intelligence Unit.

FBI Director Christopher Wray addressed a crowd composed of business executives and academics in London last July, warning that China was attempting to ransack the intellectual property of Western companies. He noted that this was done in an effort to hasten their own industrial development and attain a position of dominance in key industries. The director also reported that companies had been observed to be under snooping from China coming from locations of any size, ranging from big cities to small towns, and from large Fortune 100s to start-ups, of any subject from aviation, AI, to pharma. To this announcement, China's then foreign ministry spokesman Zhao Lijian accused Mr Wray of smearing China as well as having a Cold War mentality

The U.S. Department of Justice's statement on Zheng mentioned that the FBI's Alan Kohler Jr. believes China is aiming to challenge the United States' status as a global leader by trying to gain access to American ingenuity. Zheng, an engineer focusing on turbine sealing technology and leakage containment technologies, was working on projects which would improve the performance and lifespan of turbines. The DOJ explained that Zheng's seals could potentially increase power, efficiency, and the usable life of such engines.

China's aviation industry is heavily reliant on gas turbines to power aircraft, and this has been a key focus of their development. As part of their efforts to reduce their reliance on foreign technology and eventually surpass it, it has been identified as one of the 10 sectors that the Chinese are aiming to advance rapidly. However, Chinese industrial espionage is not only targeting the aviation industry, but many other sectors as well.

According to Ray Wang, the founder and CEO of the Silicon Valley-based consultancy Constellation Research, some of the cutting-edge technologies with huge potential are pharmaceutical development, nanotechnology, and bioengineering. Pharmaceutical development focuses on the creation and distribution of drugs or cell-based products. Nanotechnology is engineering and technology conducted at the nanoscale, and enables the creation of products such as medical devices, fabrics, and automobiles. Bioengineering is the process of mimicking biological processes for applications such as prostheses and regenerative tissue growth.

Mr Wang shared a story from a former head of research and development for a Fortune 100 company, who informed him that a person he had been exceptionally close with - so much so that their children had grown up together - was discovered to be taking payments from the Chinese Communist Party. Mr Wang noted that the individual had kindly explained to him that espionage is widespread.

In the past, industrial espionage from Japan, South Korea, Taiwan, and Singapore has been a concern for Mr Marro. However, as native companies have started to become innovative leaders in the market and seek to protect their intellectual property, their respective governments have begun to pass legislation to address the issue more seriously.

Mr Marro commented that in the last 10 years, Chinese firms have become more creative and intellectual property rights have been reinforced in a correlated manner. Besides, China has also enhanced its knowledge through requesting foreign companies to share their technology in collaboration with Chinese ventures in order to access the Chinese market. These complaints, however, have constantly been denied by the Chinese government who have rejected the allegations of coercion.

In 2015, the US and China signed an agreement meant to control hacking, which promised that neither side would engage in cyber-enabled theft of intellectual property, such as trade secrets or other confidential business information, with the aim of gaining a commercial advantage.

By the next year, though, the US National Security Agency had claimed that the Chinese had not stuck to this deal, although the amount of attempts to hack government and corporate data had decreased "dramatically".

Observers have stated that the impact of the US-China cyber espionage deal has been minor. Wang, for example, termed it a "joke" due to a failure to enforce it. In the US, Chinese cyber espionage has been widespread and reaches academic labs. The BBC heard from Wang that "It has been going on in every aspect of Western businesses."

But Lim Tai Wei from the National University of Singapore mentioned that there have been no "definitive uncontested studies" regarding the scope of the issue. Tai Wei stated: "Some believe that there was a short dip in Chinese cyber espionage against the US, but it resumed its former level afterwards. Others believe it failed due to the general breakdown in US-China relations."

Marro argues that while US measures may decrease China's development of technology, China is more determined than ever to remove US and foreign products from their tech supply chains. According to Marro, "China has been striving for this for a long time, but these recent US restrictions have put the policy goals in a more pressing light".

My cyber-security contacts inform me that when they break into Chinese sites, the only notable technology they can find there is the US intellectual property. This is despite China also basing its own national security upon it. This trend implies that the competition for a technological advantage between the two biggest economies in the world is intensifying. As far as Mr Wang is concerned, the US currently retains the upper hand in this rivalry.
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