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The true extent of commercial espionage is unknown, but experts say it’s ‘widespread’
A seemingly innocent photograph led to the downfall of Zheng Xiaoqing, a former employee of energy industry conglomerate General Electric Power.
Zheng is a US citizen. According to the US Department of Justice indictment, he hid confidential files stolen from his employer in the binary code of a digital photograph of a sunset, which he forwarded to himself.
The technique is called steganography, a way of hiding a data file in the code of another file. Zheng has used the technique several times to remove sensitive files from GE, a multinational conglomerate known for its operations in healthcare, energy and aerospace, which makes everything from refrigerators to aircraft engines.
The information Zheng stole concerned the design and manufacture of gas and steam turbines, including turbine blades and gaskets. Valued in the millions, the information was sent to his accomplice in China, where it would be used to benefit the Chinese government as well as companies and universities located in China.
Zheng was sentenced to two years in prison in early January. It is the latest in a series of similar cases being investigated by US authorities.
In November 2022, Chinese citizen Xu Yanjun, accused of being a professional spy, was sentenced to 20 years in prison for conspiracy. He stole trade secrets from several US aerospace and aviation companies, including GE.
But this is just one battle in a bigger fight. China seeks to acquire technological prowess to exploit its economy and its interests in the global geopolitical order, while the United States does its best to prevent the growth of a serious competitor for American power.
The theft of trade secrets is beneficial because it allows countries ‘to leapfrog global value chains relatively quickly and without the costs, time and money, that come with relying solely on national capabilities’, says Nick Marro of the ‘Security unit. Group of economists.
In July 2022, FBI Director Christopher Wray told a group of academics and business executives in London that China intended to “loot” the intellectual property of Western companies so it could accelerate its industrial development and eventually dominate important sectors in the industry.
He warned that China is spying on companies everywhere, “from big cities to small towns, from Fortune 100 companies to start-ups – and in every sector from aviation to artificial intelligence and pharmaceuticals.”
At the time, then-Foreign Ministry spokesman Zhao Lijian said Wray was “slandering China” and had a “Cold War mentality”.
‘China is trying to reverse our position’
In the Justice Department statement on Zheng, the FBI’s Alan Kohler Jr. said China was targeting “American creativity” and trying to “overthrow our position” as a world leader.
Zheng was an engineer specializing in turbine sealing technology. He has worked with various leak containment technologies in steam turbine engineering.
These seals optimize turbine performance, “whether it’s to increase horsepower or efficiency or extend engine life,” according to the Department of Justice. The turbines that power aircraft are critical to the development of China’s aviation industry.
Aviation and aerospace equipment are among the 10 industries that Chinese authorities aim to develop rapidly to reduce China’s dependence on foreign technology and eventually eliminate it. But Chinese industrial espionage also targets several other sectors.
According to Ray Wang, founder and CEO (CEO) of the Silicon Valley-based consultancy Constellation Research, these sectors include pharmaceutical development and nanotechnology, engineering and technology conducted at the nanoscale for use in industries such as medicine and the textile and automotive industry. One nanometer equals one billionth of a metre.
Chinese interest also includes pharmaceuticals and bioengineering, mimicking biological processes for purposes such as the development of biocompatible prostheses and the growth of regenerative tissue.
Wang mentioned an incident from a former head of R&D at a Fortune 100 company who told him he finally discovered that “the person he trusted the most” — someone so close that his children grew up together — he was on the payroll of the Chinese Communist Party.
“He kindly explained to me that spies are everywhere,” Wang says.
Credit, Getty Images
China needs technological expertise to leverage its economy and pursue its goals in the global geopolitical order
In the past, industrial espionage by countries such as Japan, South Korea, Taiwan and Singapore was a concern. But as local companies became innovative market leaders in their own right and started protecting their intellectual property, their governments passed laws to take the matter more seriously.
“As Chinese companies have become more innovative over the past decade, we have also started to see a dramatic strengthening of IPR protection in the country,” says Marro.
China has also gained experience by having foreign companies supply technology under joint venture contracts, in exchange for access to the Chinese market. And despite the complaints, the Chinese government has consistently denied the allegations of coercion.
The hack deal is a ‘joke’
There have also been specific attempts to curb hackers.
In 2015, the United States and China reached an agreement in which the two sides pledged not to engage in “theft of intellectual property by cyber means, including trade secrets or other confidential information, for commercial benefit”.
The following year, the US National Security Agency accused the Chinese of violating the agreement, while acknowledging that the number of attempted invasions of corporate or government data had dropped “dramatically”.
But observers say the deal’s overall impact has been minimal. Wang says the deal was a “joke” and has not been enforced. Chinese cyber-espionage in the United States has been “pervasive,” extending as far as academic labs.
“He’s been present in all aspects of Western affairs,” he told the BBC.
But Lim Tai Wei of the National University of Singapore noted that there have been “no definitive and incontrovertible studies” on the extent of the phenomenon.
“Some believe there has been a small reduction in Chinese cyber-espionage in the United States, but that previous levels have since recovered,” he says. “Others believe the failure is due to the general deterioration of relations between the United States and China.”
Meanwhile, the US is trying to directly block Chinese advances in the all-important semiconductor industry, which is critical to everything from smartphones to weapons of war. Washington says Chinese use of this technology poses a threat to national security.
In October 2022, the United States announced some of the most comprehensive export controls ever imposed. These controls require licenses for companies exporting chips to China using US tools or software, regardless of where in the world the chips are made.
Washington’s measures also ban US citizens and so-called green cards work for some Chinese chip makers. You green cards grant their holders permanent residence in the United States and the right to work in the country.
For Marro, these measures should slow Chinese technological advances, but will also accelerate China’s efforts to remove products from the United States and other countries from its technological supply chains.
“China has been trying to do this for years, with limited success, but these policy goals are becoming more urgent due to recent US controls,” he says.
With China also pleading for its own national security, the race for technological leadership between the world’s two largest economies is likely to only intensify further. But Wang believes the United States still has the upper hand.
“My cybersecurity friends tell me that when they break into Chinese websites, the only valuable technology [que conseguem encontrar] it’s American intellectual property,” he says.
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