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The Great Leak Forward: Chinese Economic Espionage In The U.S.

By Camille Mouillard & Maxime Proud

In September 2015, Barack Obama and Xi Jinping publicly agreed that the United States and China would not engage in cyber espionage for commercial gain. The agreement came after China’s corporate espionage activities began to be seen as a national security emergency, costing American companies billions of dollars in losses, and millions of jobs every year.

By espionage for commercial gain, the 2015 agreement between Obama and Xi was specifically referring to the hacking activities conducted by state and non-state Chinese actors targeting U.S. private companies. The agreement did not seem to encompass more traditional espionage activities, such as intelligence gathering for political and military gains, and other forms of espionage such as HUMINT operations. After the agreement, cyber security experts worldwide have noted a significant decrease in the Chinese cyber attacks targeting private companies. One might think that Beijing is ready to adopt a less aggressive posture. However, knowledge of Chinese intelligence services and the Chinese government’s global agenda shows that nothing could be farther from the truth.

U.S. As A Prime Target

For many years, Beijing has been conducting a relentless campaign of economic espionage targeting the most developed nations, including the United States. In July 2015, NBCNEWS released an exclusive secret NSA map of the country displaying more than 600 red dots, each dot representing a unique corporate, private, or U.S government victim of Chinese cyber espionage since 2010. That means that for five years, China has conducted approximately one successful cyber attack against U.S. interests every three days, raising major concerns in Washington.

More recently, in February 2017, hackers allegedly working for the Chinese government breached the National Foreign Trade Council in Washington. NFTC board members include the CEOs of some of the most successful American companies such as Amazon, Exxon Mobil, or IBM. Experts believe this attack on the NFTC network was linked to the trade negotiations between Donald Trump and Xi Jinping in April 2017. At the same time, PwC and BAE Systems released a report highlighting the role of a China-based threat actor in a global hacking campaign. Called Operation Cloud Hopper by PwC and BAE Systems, it was targeting managed IT service providers and their clients in a wide range of countries including the U.K, Japan, India and the United States. Known as APT10, the hackers successfully gained access to an unprecedented amount of intellectual property (IP) and trade secrets.

But cyberattacks are not the only way for China to gain access to America’s IP and trade secrets. For decades, the Chinese Ministry of State Security (MSS) or Guojia Anquanbu targeted and recruited Chinese-American in its efforts to infiltrate the highest levels of the American government. On March 28, 2017 the FBI arrested Mrs. Claiborne, a State Department employee on the charge of lying to the FBI about her contacts with Chinese intelligence officers. The State Department employee, who held a top security clearance, allegedly received money and other gifts in exchange for information on Sino American relations. Interestingly, the MSS tried to recruit Mrs. Claiborne, even though she was not ethnically Chinese.

She was not the first-ever Westerner to be approached or recruited by Beijing, but China’s intelligence services have traditionally been more cautious with non-Chinese agents and assets. As another example of Chinese operations in the U.S, electronic technician Kun Shan Chun, who worked for nearly two decades for the FBI, was charged with espionage on behalf of China last year. This case demonstrates that even loyal employees can be turned. Finally, engineer ‘Allen’ Ho pleaded guilty to espionage in January 2017, making it the first case of nuclear espionage involving China in the United States. Beijing has been very creative in finding new assets: tourists, businessmen, interns, trained operatives, naturalized citizens, etc.. Even though some individuals do the work willfully, others endure pressures and are left with little choice but to comply.

So what makes the United States so attractive for Chinese espionage?

One of the obvious answers is the fact that the United States is the first world power. The U.S does not only make things, it creates ideas. As a world leader in almost every aspect of modern technologies and human development, the U.S. is a prime target for a developing country like China. Intellectual property-intensive industries are a major and vital part of the U.S. economy, representing approximately 40% of the country’s GDP, according to the Intellectual Property and the U.S. Economy 2016 Report Update. The same report shows that 45 million jobs in the country are directly or indirectly linked to IP-intensive industries, accounting for roughly 30% of all employments in America. These industries are critical to maintaining America’s competitive edge in the global economy.

In summary, innovation, creativity and efficiency are what make the United States such an attractive target. With all the fingers pointed at Beijing these last few years, one might think that the country will stop spying on American businesses, and save face. But the reality is: it probably won’t. The Chinese Communist Party (CCP) relies on espionage to survive and achieve its short, medium and long term goals.

Ensuring The Party’s Survival

Since the birth of the People’s Republic of China (PRC) on the ashes of the civil war between the nationalist of Chiang Kai-Shek and the communist of Mao Zedong, modernizing the country has always be an imperative for Beijing. When looking at the big picture of China’s development as a modern country, one crucial element is too often dismissed: the importance of Chinese intelligence services in the building of the nation.

Chinese intelligence services deeply shaped modern China as a state. As opposed to other countries, China did not create or developed its intelligence and security services decades after its birth, nor did it create them to respond to a peripheral threat. Before the official birth of the PRC, the communists relied on their intelligence networks to conduct the civil war and eventually seize power. And since the Chinese Communist Party (CCP) has been ruling China since 1949, it has had plenty of time to readjust and improve the country’s intelligence services. As former Canada’s CSIS agent Michel Juneau Katsuya puts it, Chinese intelligence agencies do not plan in terms of years, but rather generations. Today, in contrast with other countries and especially Western democracies, China’s priorities are aligned with the priorities of a very specific group of people that has always ruled the country. So when China as a country gains a significant advantage over foreign nations, the CCP gains a significant advantage over the Chinese people by increasing its legitimacy.

About the Author

Camille Mouillard and Maxime Proud are Junior Associates at Security Management International.


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