China’s efforts, both legal and illegal, to acquire America’s intellectual property (IP) have long been a central theme in the US–China relationship. A new book, The Great Heist: China’s Epic Campaign to Steal America’s Secrets, by David R Shedd and Andrew Badger, both formerly of the US Defense Intelligence Agency, offers a welcome and up-to-date forensic analysis of the issue.
The authors cite the FBI estimate of IP theft (mainly by China) which has cost the US economy up to US$600 billion (A$860 billion) a year over the past decade. Industrial espionage has been a driving catalyst for the rise of China, even if other factors have also played a role. According to some estimates China may already have a technological edge against the United States. ASPI’s Critical Technology Tracker estimates that China now publishes the most high-impact research in 69 of the 74 technologies tracked, with the US leading in the remaining five.
How did China, which just a few decades ago was a technological backwater, make such rapid technological progress?
A pivotal moment in the great heist story was China’s membership of the World Trade Organisation in 2001, according to Shedd and Badger. China’s membership became a global apparatus for collecting IP – and not the hoped-for transformation of China into a rule-abiding member of the international trading system.
In 2015, China launched an unprecedented industrial roadmap to foster technological self-sufficiency – the ‘Made in China 2025’ strategy. The goal was to progressively lift Chinese production towards self-sufficiency in ten technology sectors, especially electric vehicles, information technology, aerospace and aeronautical equipment, and biopharma and advanced medical devices. And espionage was a critical part of the toolkit for this strategy.
It wasn’t that long ago that Chinese spies were rank amateurs at industrial espionage, the authors say. No longer. The capabilities and resources of the Ministry of State Security – the lead organisation for industrial espionage, with some 300,000 people – swamp the US intelligence community and its 100,000 people. The ministry even penetrated the CIA by recruiting a former case officer who informed on CIA agents in China, who were then assassinated.
China has a whole-of-society approach to collecting intelligence. All Chinese organisations and citizens must support, assist and cooperate with state intelligence efforts, according to Article 7 of China’s National Intelligence Law. In other words, there is no clear line between the public and private sectors when it comes to intelligence – a situation sometimes referred to as military–civil fusion.
The book discusses many startling cases, such as Tesla’s investment in China, which was uniquely achieved without a requirement to partner with a Chinese company. Tesla’s chief executive, Elon Musk, brushed aside the risk of its IP being stolen. As it turned out, a top Tesla engineer copied the Autopilot source code, which seemingly found its way to Xpeng.
Another case is that of what’s nicknamed the Los Alamos Club, the 162 or more scientists who returned to China after working at the the Los Alamos National Laboratory – a government-funded research facility known for its work on nuclear weaponry. The scientists then worked on Chinese research and development programs, such as hypersonic weapons, a field in which China now dominates the West. And the authors also point to the data breaches of the US Office of Personnel Management and at Equifax, an American multinational consumer credit reporting agency.
Shedd and Badger feel despondent about inadequate attention by government, business and academia to China’s epic campaign to steal America’s secrets. They say that inattention stands in sharp contrast to China’s aggressive, take-no-prisoners approach to harvesting American IP.
The authors suggest a number of factors for this. First was America’s strategic distraction while it focused on the war on terror following the 9/11 terrorist attacks. Second, there was hubris, meaning that the US did not consider China to be a serious adversary until very recently. Third is America’s dependency on economic cooperation with China, an important source of profitability for US business. Fourth, in contrast to China, America’s private and public sectors are distinct universes, so it’s not always easy to get the private sector to take strategic competition seriously. Fifth, cultural sensitivities mean that the US government wants to avoid accusations of racial discrimination.
The book finishes with an epilogue of a suggested seven pillar ‘counter strategy’. But the authors argue that what’s most important is a change of mindset. The Chinese view industrial espionage as part of an existential struggle. The US needs to get over its passive defensive mindset in defending its IP.
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