Conducting a Trade Secret Theft Initiative
Print Issue: February 2020
Successful organizations create goals for themselves, make plans to meet those goals, and then implement those plans. In 2015, China set a major goal for itself. It unveiled “Made in China 2025,” a 10-year action plan to transform the country from a manufacturing giant into a world manufacturing power.
“Nine tasks have been identified as priorities: improving manufacturing innovation, integrating information technology and industry, strengthening the industrial base, fostering Chinese brands, enforcing green manufacturing, promoting breakthroughs in 10 key sectors, advancing restructuring of the manufacturing sector, promoting service-oriented manufacturing and manufacturing-related service industries, and internationalizing manufacturing,” according to China Daily, which is owned by the Publicity Department of the Communist Party of China.
Along with the prioritized tasks, the plan also identified 10 key sectors for China to focus on to achieve its goal: information technology, numerical control tools and robotics, aerospace equipment, ocean engineering equipment, railway equipment, energy vehicles, power equipment, new materials, biological medicine and medical devices, and agricultural machinery.
“There are many criteria to judge whether a country is a manufacturing power or not, including industrial scale, optimized industrial structure, sound quality and efficiency, and sustainable development, but the key lies in innovation,” said Li Beiguang, then deputy head of China’s Ministry of Industry and Information Technology, in an interview with China Daily.
To enhance its innovation abilities, China has invested tens of billions of dollars in developing artificial intelligence capabilities.
“China’s leadership—including President Xi Jinping—believes that China should pursue global leadership in AI technology and reduce its vulnerable dependence on imports of international technology,” wrote Gregory C. Allen, former adjunct senior fellow for the Technology and National Security Program at the Center for a New American Security—a bipartisan think tank.
China’s plan to shift its economy away from resource extraction towards higher technology and higher productivity is just one area where the country has heavily invested to meet the goals outlined in Made in China 2025.
“China 2025 is intended to push the economy through this difficult transition and over the so-called middle-income trap, in which growth plateaus as wages start to rise, that has bedeviled many other developing countries,” according to a background update by think tank the Council on Foreign Relations (CFR).
The country also encouraged private and state-backed companies to invest in foreign companies to gain access to technology. These investments totaled more than $45 billion in 2016, CRF wrote.
But while this investment advances China’s interests, it also poses security concerns for other nations, including the United States, because China is heavily focused on the advanced technology sector—such as facial recognition software, virtual reality, autonomous vehicles, and 3-D printing—which CFR wrote “blurred the lines” between military and civilian technologies.
“A 2012 report by the U.S. House Intelligence Committee declared Huawei and ZTE threats to national security due to the potential for Beijing to use their networks for spying or sabotage, and the U.S. Commerce Department restricted their ability to sell their products, contract with government agencies, and otherwise operate in the United States,” according to CFR.
The U.S. government has also grown increasingly concerned about the alternative means China uses to acquire intellectual property and transition
“Rather than building a competitive advantage, they decided to steal one,” said U.S. Representative Mike Rogers (R-AL), ranking member of the House Homeland Security Committee, about Chinese development at CyberTalks in Washington, D.C., in October 2019.
In a recent poll, one in five North American-based corporations that are part of the CNBC Global CFO Council said China had stolen intellectual property from them within the last year.
“In all, seven of the 23 companies surveyed say that Chinese firms have stolen from them over the past decade,” according to CNBC.
U.S. companies and institutions are facing an unprecedented wave of cyberattacks to obtain intellectual property; the FBI is currently investigating more than 100,000 intellectual property theft cases. China has also recruited individuals at corporations and research institutions to take intellectual property and provide it to Chinese companies.
In previous statements, FBI Director Christopher Wray said that China poses the most “severe threat” to U.S. ideas, innovation, and economic security.
“The Chinese government is determined to acquire American technology, and they’re willing to use a variety of means to do that—from foreign investments, corporate acquisitions, and cyber intrusions to obtain the services of current or former company employees to get inside information,” Wray explained. “If China acquires an American company’s most
important technology—the very technology that makes it the leader in a field—that company will suffer severe losses, and our national security could even be impacted.”
At CyberTalks, Rogers explained that Chinese intelligence services recently began exploiting U.S. higher education institutions by sending students and researchers to the United States with a “clear plan to steal research and engage in espionage.”
John Demers, an assistant attorney general who heads the U.S. Department of Justice (DOJ) National Security Division, expounded on the threats that Rogers mentioned. Demers highlighted one of the first cases the DOJ brought in 2018 against Chinese nationals after Presidents Xi and Obama’s pact to not use military operations to conduct intellectual property theft to benefit corporations.
At the time, the DOJ said Zhu Hua and Zhang Shilong were members of hacking group Advanced Persistent Threat 10 (the APT10 Group), worked for Huaying Haitai Science and Technology Development Company in China, and acted in association with the Chinese Ministry of State Security’s Tianjin State Security Bureau to conduct global campaigns targeting intellectual property and confidential business and technological information at managed service providers, more than 45 technology companies, and U.S. government agencies.
“The indictment alleges that the defendants were part of a group that hacked computers in at least a dozen countries and gave China’s intelligence service access to sensitive business information,” said then Deputy Attorney General Rod Rosenstein. “This is outright cheating and theft, and it gives China an unfair advantage at the expense of law-abiding businesses and countries that follow the international rules in return for the privilege of participating in the global economic system.”
Since that indictment, Demers said the DOJ has seen a shift from China’s use of intelligence services to conduct intellectual property theft to more traditional insider threat tactics.
“So, an insider is co-opted, persuaded to implant a piece of malware into a computer system, and then that computer system can be remotely accessed from China to steal the information China wants,” Demers explained. “And then we just have the pure insider threat: the person who is co-opted, downloads data onto a thumb drive, and flies off to Beijing. Or the person who’s taking pictures—screenshots—and otherwise gathering data.”
China is using similar tradecraft that it once used to target U.S. government employees to gather intelligence on American corporations and institutions and their employees, Demers noted.
“Diving into these cases and seeing that collaboration between a commercial company, a research institution, and the intelligence community in China is really remarkable,” Demers added. “Sometimes it’s hard for government employees to understand what’s going on, but it’s even harder for private employees who haven’t been trained on counter-intelligence.”
To help address China’s tactics, the DOJ created the China Initiative led by Demers. Its priorities include identifying priority trade secret theft cases and pursuing them; creating an enforcement strategy for non-traditional collectors of intellectual property such as researchers in labs or universities; and educating colleges and universities about potential threats.
The initiative is also charged with equipping U.S. Attorneys Offices with the intelligence and materials they need to raise awareness of these threats within their districts.
Demers said one successful approach the DOJ has used is sharing stories about how private sector companies have come forward to work with the department when intellectual property theft occurs.
For instance, San Francisco-based chipmaker Micron Technology approached the DOJ to report that China had allegedly obtained some of the intellectual property it uses to create its product. Because Micron first approached the U.S. government in 2018, the Department of Commerce was able to conduct an investigation and place the Chinese company on its Entity List.
Placement on the list means the Chinese company cannot “import the tooling from the United States that it needs to produce the product that it stole the intellectual property to create,” Demers said.
Despite the DOJ’s efforts, however, Demers said that it will take a “whole of government response” to stop China from stealing intellectual property because direction for the thefts is coming from the very top of the Communist Party of China.
China’s intellectual property theft “is very discriminating,” Demers added. “It’s about getting key pieces of intellectual property in technological areas where China wants to develop industry domestically.”