The heads of the FBI and MI5, UK’s domestic security service, on July 6 issued a dire warning to business leaders about the threats posed by Chinese spying, aimed at stealing western companies’ technology and intellectual property, and using what they stole to undercut competition and dominate the market.
For decades, global companies have single-mindedly sought access to the Chinese market, sometimes at great peril to their business rights, integrity and reputation. Blinded by profits and communist propaganda, CEOs and investors may not realize, or choose to ignore, the ever-present risks.
FBI Director Chris Wray cautioned that in the long term, “maintaining a technological edge may do more to increase a company’s value than would partnering with a Chinese company to sell into that huge Chinese market, only to find the Chinese government, and your “partner,” stealing and copying your innovation, setting up a Chinese competitor, backed by its government, that is soon undercutting you—not just in China, but everywhere.”
Therefore, business leaders may find it “a lot cheaper to preserve your intellectual property now than to lose your competitive advantage and have to build a new one down the road.”
The widespread assumption among the global business community that growing prosperity within China and increasing connectivity with the West would automatically lead to greater political freedom is false. The amassed wealth has in fact enabled the Chinese Communist Party (CCP) to aggressively challenged the international rules-based order, which has ensured stability and prosperity throughout the years.
The CCP is only interested in manipulating the democratic, media and legal systems for its gain. For example, the Chinese government is using economic, diplomatic and military intimidation and repression to shape the world to be more accommodating, more pliable and susceptible to its campaign to steal data and innovation.
Wray and MI5 Director General Ken McCallum have made this unprecedented joint appearance and spoke to an audience of business and academic leaders at MI5 headquarters in Thames House, London. They called attention to the serious security and economic threat posed by China, which is intent on stealing intellectual property and influence politics in western countries.
Wray said the CCP “poses the biggest long-term threat” to the free world’s economic and national security and the “Chinese government poses an even more serious threat to Western businesses than even many sophisticated businesspeople realize.” The CCP sees cyber as the pathway to cheat and steal on a massive scale and their hacking program is bigger than that of every other major country combined.
Wray cautioned that the Chinese government likes to invest and create partnerships that position their proxies to steal valuable technology. Outside of China, the CCP uses elaborate shell companies to disguise its origins. Many Chinese companies are owned by the Chinese government, effectively the CCP, and often that ownership is indirect and not advertised.
Even the companies not owned outright are effectively beholden to the government all the same, as Chinese companies of any size are required to host a Communist Party cell to keep them in line. Therefore, CEOs and investors have to realize that when they deal with Chinese companies, they are practically dealing with the CCP.
The CCP uses spies as well as “co-optees,” people who are not technically Chinese government officials but assist in intelligence operations, spotting and assessing sources to recruit, providing cover and communications, and helping steal secrets in other ways.
The FBI has caught people affiliated with Chinese companies out in the U.S. heartland, sneaking into fields to dig up proprietary, genetically modified seeds, which would have cost them nearly a decade and billions in research to develop themselves.
With regards to Taiwan’s sovereignty, and the many discussions about the potential that China may try to forcibly takeover Taiwan, Wray said that this scenario “represent one of the most horrific business disruptions the world has ever seen. Potentially, foreign investments built over years could become hostages, capital stranded, supply chains and relationships disrupted.
McCallum said this event “is the first time the Heads of the FBI and MI5 have shared a public platform because of the need “to send the clearest signal we can on a massive shared challenge: China.” He added that this “most game-changing challenge we face comes from the Chinese Communist Party.” The CCP covertly applies pressure across the globe and adopts a whole-of-state approach in which businesses and individuals are forced to cooperate.
McCallum warned business and academic leaders that “if you are involved in cutting-edge tech, AI, advanced research or product development, the chances are your know-how is of material interest to the CCP. And if you have, or are trying for, a presence in the Chinese market, you’ll be subject to more attention than you might think.”
He said that the CCP is “normalizing mass theft as the cost of doing business these days.” The CCP seeks “to bend our economy, our society, our attitudes to suit the Chinese Communist Party’s interests. To set standards and norms that would enable it to dominate the international order.”
McCallum said there are a few ways the CCP is doing that.
• Covert Theft. Late last year Chinese intelligence officer Shu Yenjoon was convicted in a U.S. court on charges of economic espionage and theft of trade secrets from the U.S. aviation sector. Shu was active in Europe too and was part of China’s Ministry of State Security network targeting the aerospace sector.
• Tech Transfer. Clandestine espionage methodology isn’t always necessary. For example, Smith’s Harlow, a UK-based precision engineering firm, in 2017 entered into a deal with a Chinese firm, Futures Aerospace. The first of three agreed technology transfers saw Futures pay £3m for quality control procedures and training courses. However, after further sharing intellectual property, Futures abandoned the deal. Smith’s Harlow went into administration in 2020. As their chairman put it: “They’ve taken what they wanted and now they’ve got it, they didn’t need the shell of Smith’s”.
• Exploiting Research. Both U.S. and UK have had to take action to stem CCP acquisition of cutting-edge national security advantage. In 2020 the U.S. stopped issuing new visas in certain fields to researchers from People’s Liberation Army (PLA) universities. The UK have reformed the Academic Technology Approval Scheme to harden defenses, which saw over 50 PLA-linked students leave.
• Information Advantage. The CCP does not just use intelligence officers posing as diplomats in the classic fashion. Privileged information is gathered on multiple channels, in what is sometimes referred to as the ‘thousand grains of sand’ strategy. For example, in Germany a retired political scientist and his wife who together ran a foreign policy think tank passed information to the Chinese intelligence services for almost ten years. In Estonia a NATO maritime scientist was convicted for passing information to his Chinese handlers, who claimed to be working for a think tank.
• Cultivating new contacts through the deceptive use of professional networking sites. Seemingly flattering approaches turn into something more insidious – and damaging. For example, a British aviation expert was approach online for a job opportunity. He travelled twice to China, where he was wined and dined, and was asked – and paid – for detailed technical information on military aircraft. The ‘company’ was actually run by Chinese intelligence officers.
• Cyber. A wide range of government and commercial targets were attacked by the three so-called ‘Advanced Persistent Threat’ groups which the UK government has attributed to China’s Ministry of State Security.
Photo credit: iStock/ TR Cameraman. Beijing, China – 5 March 2016 :A People’s Liberation Army Soldier stands guard in front of the Great Hall of the People.