In the skies, a Chinese fighter pilot swipes his hand across a touch screen, and the automated target-recognition software detects his target in seconds. In China’s Xinjiang region, giant servers that power an immense array of repressive surveillance technologies come to life. In Shanghai, smart city technology connects residents as never before, even as authorities tighten their control over every action of the city’s residents.
All these technologies and more were made possible through the continued involvement of U.S. companies with entities tied to the Chinese Communist Party (CCP).
Technologies developed by U.S. companies are supercharging the Chinese regime and its military development even as the CCP directs and facilitates the systematic investment in and acquisition of U.S. companies and their assets to generate a large-scale technology transfer.
An Old Threat, New Again
The purpose of that project was twofold: to comprehend why the United States was declining in competitiveness with the Soviet Union and to use that knowledge to rebuild the nation’s competitive advantage.
Sekora now believes that the lessons learned from Project Socrates hold the key to understanding—and reversing—the trend of a declining United States.
The problem, he said, is that instead of meaningfully maneuvering and exploiting critical technologies, the United States has fallen back on what Sekora calls “finance planning,” and has allowed the Chinese regime to co-opt and exploit technology to its advantage at every turn.
While China is on the move, the United States is merely loosening the reins on businesses and throwing money at the problem under the assumption that increased funding for research and development will somehow translate into the creation and deployment of the precise technologies that the nation needs when it needs them.
According to Sekora, this is a sorely mistaken premise.
“The only way to effectively counter a technology strategy is with a more effective technology strategy,” he said. “Executing anything else is just pissing into the wind.”
Sekora isn’t alone. His sentiments follow warnings from top U.S. military officials that Chinese military technology will advance beyond that of the United States if serious changes aren’t made to the development and acquisition process.
“The pace [China is] moving and the trajectory that they’re on will surpass Russia and the United States if we don’t do something to change it,” John Hyten, then-vice chair of the Joint Chiefs of Staff, said in October. “It will happen.”
Despite such warnings, the overarching U.S. strategy for competition with China has remained relatively unchanged. Though more than 400 Chinese entities have been put on a U.S. trade blacklist, the CCP’s strategy of quickly reforming, renaming, and replacing these entities is muddling the effectiveness of such measures and increasing the complexity of the ties that bind the Chinese military with the U.S. business community.
As a result, theft and quasi-legal acquisitions of key U.S. technologies by the Chinese regime continue to rise.
To understand why, it’s necessary to unpack how Chinese laws facilitate technology transfer, how they were explicitly designed to do so, and how U.S. corporations are continuing to feed the dragon.
Chinese Laws Promote Acquisition of US Technologies
Stemming the flow of U.S. technologies into the hands of the Chinese military is not a straightforward task. Many Chinese laws facilitate technology transfers from companies doing business in China, whether that company is a willing party to the transfer or not.
The CCP enforces strict requirements on joint ventures and foreign businesses with locations on the mainland. Many of the requirements demanded of businesses by the regime’s national security, intelligence, cybersecurity, and data export laws are designed to facilitate technology transfers or to encourage them as a secondary effect.
The regime’s 2021 data protection law requires that CCP officials vet certain data collected within China before it’s sent abroad. A U.S. company doing business in China that handles certain types of personal information must therefore obtain approval from authorities before transferring it to its U.S.-based branches or servers.
“The CCP controls 100 percent of the oversight of both Chinese companies and American companies doing business in China and Hong Kong,” said T. Casey Fleming, chief executive of BlackOps Partners, a strategic risk advisory and intelligence firm.
“Every non-Chinese visitor is tracked and surveilled, both physically and digitally. This is reinforced by CCP laws from 2017 and 2018, which require all American intellectual property and data to be shared with the CCP.”
Among those key laws in play is Beijing’s 2015 national security law.
Under the law, core information technology, critical infrastructure, and important systems and data must be “secure and controllable.” The U.S.–China Economic and Security Review Commission released a report at the time, noting that the rule “would require any company operating in China to turn over to the government its computer code and encryption keys, as well as to provide a backdoor entry into commercial computer networks.”
Likewise, the regime’s 2016 cybersecurity law requires network operators to provide technical support to public and national security organizations. Its 2017 national intelligence law requires that all organizations “support, assist, and cooperate with national intelligence efforts.”
Such laws aren’t limited to data transfer and intellectual property (IP) access, however. Some laws require that companies actively promote the CCP, its values, and its worldview by requiring that CCP officials work within companies operating in mainland China.
China’s 1994 company law, updated in 2018, requires all Chinese companies and companies with foreign investments to provide for the creation of Party organizations within their companies.
To be sure, the activities of CCP officers within U.S. companies operating in China may fall short of the active political role required of those officers working in Chinese state-backed organizations, whose mission is mandated by the CCP constitution. Nevertheless, political pressure exists and is exerted on foreign companies to give decision-making powers to Party members.
According to the U.S–China Business Council, a nonprofit dedicated to increasing trade between the United States and China, CCP operatives working within private companies are present to ensure that the company follows CCP laws. However, it warns that companies need to be “alert to pressures to form party organizations in their China subsidiaries.”
For much of the past three decades, such was seen merely as the cost of doing business in China. But security experts now say that the presence of these CCP officers presents a direct security threat not only to the companies employing them, but to those companies’ home nations as well.
This is because CCP officers work to ensure party access to key data, in accordance with China’s aforementioned data laws.
“The CCP maintains a presence in all American-invested companies to ensure that technology transfer occurs,” Fleming said. “Key CCP personnel are inserted in reporting structures in companies with key U.S. technology, IP, and data.”
The theft or forced acquisition of technology by CCP officers placed into companies that are doing business in China is part of the regime’s broader effort to co-opt global research for its own power, according to Sam Kessler, a geopolitical adviser at the multinational risk management company North Star Support Group.
“CCP officers have sworn oaths to serve on the behalf of the Chinese regime, which means they are legally obligated, if asked, to either steal an American organization’s IP or to impact their operations in some shape or form that serves their advantage,” he said. “It’s a form of asymmetric or irregular warfare that has been occurring in the private, public, academic, and research sectors for several years now.”
The negative influence of CCP operatives isn’t limited to theft by Party members, according to Kessler. CCP members will also develop other sources inside the company as part of the CCP’s larger effort to hire foreign scientists and other experts through its “Thousand Talents” recruitment program.
Forced Technology Transfer by Design
This cluster of laws and practices serves to politicize U.S. and U.S.-invested companies in China and funnel their precious intellectual property and most prized technologies to CCP authorities.
This isn’t accidental, nor is it a secret among U.S. political and business elites. In fact, the unclassified version of the 1999 Report of the Select Committee on U.S. National Security and Military/Commercial Concerns with the People’s Republic of China, commonly referred to as the Cox Report, found that China’s political-legal apparatus was explicitly designed for this purpose.
“The PRC’s [People’s Republic of China] approach to U.S. technology firms proceeds from the premise that foreign firms should be allowed access to the PRC market only because such access will enable the PRC to assimilate technology, and eventually compete with or even overtake U.S. technology,” the report reads. “The PRC thus views foreign firms as a short-term means to acquire technology.”
The report also found that U.S. inability or unwillingness to engage in stronger technology transfer laws has compounded the problem.
The “United States and international export control policies and practices have facilitated the PRC’s efforts to obtain militarily useful technology” and further “reduced the ability to control transfers of militarily useful technology,” the report reads.
That state of affairs remains relatively unchanged even now, some critics argue.
In October 2021, the National Counterintelligence and Security Center (NCSC) launched a campaign to warn and instruct U.S. organizations engaged in emerging technologies about the dangers of foreign counterintelligence operations.
“There are multiple examples in which technology, data, talent, and intellectual capital from these emerging U.S. technology sectors have been acquired by the PRC government and put to use in fulfilling the PRC’s national and geopolitical goals,” an NCSC communications executive said at the time.
The pace at which CCP organs work to bring in U.S. talent and technology has accelerated immensely under CCP leader Xi Jinping, who came to power in 2012.
Xi signaled in 2012 that the CCP would need to “comprehensively cover” the private sector. In 2015, he initiated his massive economic and military reforms. In 2017, he created the Central Commission for Integrated Military and Civilian Development, effectively cementing the strategy now referred to as “Military-Civil Fusion” (MCF), which began in 2015.
Under the MCF strategy, the whole of Chinese society is mobilized to participate in the “great rejuvenation” of the Chinese nation by modernizing the CCP’s military wing, the People’s Liberation Army (PLA). Coinciding with the implementation of MCF, an increasing amount of IP theft reported by U.S. companies has originated from China.
According to the 2013 Report of the Commission on the Theft of American Intellectual Property, most studies found that China accounted for roughly 70 percent of IP theft. However, the report noted that “there is no reliable rule of thumb” for such estimates.
A statement by the Department of Justice updated in November 2021 reported that 80 percent of all economic espionage prosecutions it has brought forward since 2018 involved conduct that directly benefited the CCP. It further reported that 60 percent of all trade secret theft cases involved some connection to China.
Despite this, U.S. companies continue to do business in China, employing CCP officers alongside U.S. personnel and contracting with Chinese organizations linked directly to the PLA—with the apparent knowledge that CCP law necessitates that their technology will be leveraged to improve China’s military capabilities.
US Companies Continue to Aid the PLA
The CCP’s numerous laws controlling the placement of communist officers in and dictating data sharing by U.S. companies have only marginally curbed U.S. corporate involvement in China, and tighter U.S. trade and export restrictions appear to be limited in their effect.
According to a survey of 338 U.S. companies in China conducted by the American Chamber of Commerce in Shanghai, about 72 percent of U.S. companies present in China have no plans to move any of their operations. Thus, while some manufacturers from Taiwan, Japan, and Vietnam are leaving the country, a key problem remains, according to the Financial Times.
Those companies continuing to do business with CCP- and PLA-affiliated entities in China include some of the largest, most powerful technology companies on the planet. Chief among them is Apple, which has worked tirelessly to solidify its support of the CCP within China in an effort to secure its own supply chains, which reportedly employed Chinese child labor until 2016.
Apple Chief Executive Tim Cook reportedly went so far as to secretly sign an agreement with the CCP worth $275 billion to ensure access to supply chains and other services in mainland China. The agreement included joint ventures to handle data and security law compliance in China, though it’s unclear what percentage of ownership Apple or Cook maintain in the ventures.
Fast-forward to 2021, and an investigation into Apple’s China-based practices by The New York Times found that “Apple has largely ceded control to the Chinese government” in the mainland.
U.S. tech conglomerate Cisco also formed a $100 million joint venture with information technology (IT) company Inspur to develop IT infrastructure, data centers, and networking equipment in 2016, despite 2015 reports that found that Inspur was known to service clients that provided China’s military with missile research.
Inspur was blacklisted by the United States in 2020.
In 2015, U.S. computer company Dell entered into a strategic partnership with Tsinghua Tongfang, a Chinese state-owned software company, to develop advanced cloud computing, big data, and even build smart cities in China. Tsinghua Tongfang is a subsidiary of Tsinghua Holdings, a company that sells communications equipment to the PLA.
The agreement was part of a strategic shift in focus to China, which Dell leadership referred to as “in China, for China,” and it was accompanied by the establishment of an artificial intelligence (AI) laboratory at the Chinese Academy of Sciences, the regime’s top state-run research center.
In 2021, U.S.-based Goldman Sachs and Sequoia Capital invested a substantial portion of the more than $700 million in Series D funding raised by 4Paradigm, a Chinese tech company focusing on AI development. It was later revealed in a report by Georgetown University’s Center for Security and Emerging Technology that 4Paradigm had an open contract to develop AI decision-making software for the PLA.
Likewise, researchers from Intel carried out research with 4Paradigm, developing and presenting a conference paper on their findings on managing databases with massive datasets. The paper provided experimental results that suggested that a new database system could provide speed boosts to enhance the efficacy of AI decision-making models. Intel described the collaboration as “academic,” and didn’t comment on whether it knew of 4Paradigm’s AI contract with the Chinese military.
In 2014, Intel agreed to invest $1.5 billion in a holding company owned by Chinese semiconductor manufacturer Tsinghua Unigroup, a company that was later blocked from purchasing U.S. companies because of its connections to the PLA.
In 2015, the United States barred Intel from selling certain microprocessors to help update a Chinese supercomputer, saying it was concerned that nuclear weapons research was being done on the machine.
In 2016, yet another subsidiary of Tsinghua Unigroup’s parent company, Unisplendour, entered a joint venture with U.S.-based Hewlett Packard (HPE) to create the company H3C.
H3C was blacklisted by the Biden administration in November 2021 for its “support of the military modernization of the People’s Liberation Army.” HPE contested the claim, saying that it had “no indication” that its products were being sold to the PLA.
IBM, like so many others, maintained Inspur as a partner in its OpenPOWER program, a nonprofit membership group dedicated to promoting the proliferation and sharing of expertise between users of IBM’s Power Architecture, thereby granting access to some of IBM’s most advanced server technologies and associated expertise.
IBM also invested in a strategic partnership with the state-owned China Electronics Technology Group Corporation (CETC), one of 10 designated defense industry conglomerate-bureaucracies, to create a venture for the Shanghai municipal government. In September 2021, IBM’s former partner, Beijing Teamsun, accused IBM of stealing customers’ data and ignoring confidentiality agreements to supply Inspur with talent.
In May 2015, the U.S. Navy was forced to seek new servers for some of its Aegis Combat System, used to track and defend against enemy missiles and aircraft, when it was discovered that IBM had sold the same technology to the China-based Lenovo, effectively ensuring the PLA would have access to the technology in China.
Microsoft also partnered with CETC to develop servers for government institutions and critical infrastructure in China, ultimately finishing a customized and “secure” version of its Windows 10 OS for the Chinese regime in 2017.
Microsoft and CETC formed a joint venture, C&M Information Technologies, to license the operating system to government agencies and some state-owned enterprises in China. CETC owns 51 percent of the venture while Microsoft retains the remaining 49 percent, meaning the venture is wholly under the control of the CCP’s aforementioned security and company laws.
Prior to the Trump administration’s blacklisting of Huawei, Google provided hardware, software, and technical services to the company. A lead scientist from Google also conducted research with Chinese partners that the U.S. military alleged was used to improve targeting systems in Chinese fighter jets.
“The work that Google is doing in China is indirectly benefiting the Chinese military,” Gen. Joseph Dunford, then-chairman of the Joint Chiefs of Staff, said during a hearing in 2019.
“We watch with great concern when industry partners work in China knowing that there is that indirect benefit. Frankly, ‘indirect’ may be not a full characterization of the way it really is. It is more of a direct benefit to the Chinese military.”
Likewise, in 2019, it was discovered that a lead scientist from Google had contributed to research that could be used to improve the accuracy of China’s stealth fighters, though Google said that wasn’t the purpose of its contributions.
U.S. semiconductor giant Qualcomm also signed a strategic cooperation agreement with the Guizhou provincial government in southwest China and unveiled a joint venture there worth $280 million, which included a pledge from Qualcomm to establish an investment firm to secure future investments in China.
The venture, Guizhou Huaxintong Semiconductor Technology Co., is 55 percent owned by the Guizhou provincial government and 45 percent owned by a subsidiary of Qualcomm.
Despite the vanishingly thin divide between civilian and military or academic and government affairs in China, U.S. companies continue to work with the CCP and its subsidiaries in a manner that allows the regime to clone U.S.-made technologies for the purposes of augmenting its own military.
China’s military is stocked with cloned weapons created from reverse-engineered U.S. and Russian technologies. Scores of rocket launchers, rifles, tanks, Humvees, howitzers, fighter jets, and drones in Chinese possession originated as U.S. or Russian technologies.
What’s to Be Done?
Security experts have long called for a ban on tech transfers concerning critical and emerging technologies. Their advice is seldom heeded, and even then, only marginally so.
Most recently, the National Defense Authorization Act, which sets the budget and expenditures for the Pentagon, contained a provision that would have banned the U.S. military from funding research in mainland China.
That provision was cut from the final version of the legislation. Instead, a watered-down version that barred investment in just one organization, EcoHealth Alliance, a New York-based health nonprofit that has drawn scrutiny over its links to the Wuhan Institute of Virology, was included in the version signed into law.
The bulk of the limited U.S. defense against tech transfers is left in the hands of the “entity list,” a trade blacklist that bars U.S. companies from doing business with sanctioned entities, which is easily evaded by Chinese shell corporations who, by a mere change of their name, can immediately resume business as usual.
There are also export control laws in place to prevent technologies associated with national security from being directly sold to China and its military. However, emergent technologies such as AI and machine learning don’t have a blanket ban on their exportation, as they have legitimate uses in the civilian sector as well as the military sector.
“Chipmakers like Micron and Intel found ways to continue doing business with Huawei after the Trump administration placed it on the blacklist in 2019,” Kessler said. “These companies may have headquarters in the U.S., but they were able to utilize their subsidiaries and operations abroad to classify their technology as ‘foreign.’
“The theft of American IP has been very costly over the years and has impaired the ability of the U.S. to retain its future edge. At some point, the policies need to meet the level of seriousness of the current and future outcomes from this situation.”
Similarly, Fleming said new laws would need to be created to address a CCP strategy that’s designed to exploit current U.S. export controls.
“Our traditional levers of economic power, things like export controls, tariffs, and sanctions, are only marginally effective against a totalitarian regime using every means possible to weaken the United States and its allies,” he said. “New laws have to be established to confront our adversary’s strategy of unrestricted hybrid warfare.”
The traditional means of U.S. economic statecraft directly addressed specific entities: private corporations, military units, or government agencies, according to Fleming. He said this led to the CCP’s development of a strategy to exploit the United States and glean its technology.
“The United States’ current approach leaves holes in its strategy that allows the CCP to acquire or steal the IP,” he said. “The CCP just creates new shell companies or moves through non-blacklisted companies or companies in other approved nations.”
For Sekora, the situation brings back strong memories of the Cold War.
He recalled how the Soviet Union developed and continuously evolved a vast array of hundreds if not thousands of front organizations worldwide. When one was compromised by the United States and its allies, two more would spring up in its place.
The CCP has one great advantage compared to the Soviets, Sekora said: Few people with any real power considered China to be an adversary until very recently.
As such, the Chinese communists didn’t have to carry the burden of constant confrontation and competition that their Soviet forebearers did during the execution of their national technology strategy, he said.
The United States is bound to lose that competition unless it drastically alters its current approach to technology strategy and stops its finance-based planning strategy once and for all, Sekora said.
“China’s technology strategy, like all effective technology strategies, relies upon positioning and adroit maneuvering in the exploitation of technology to generate and maintain the required competitive advantage in the marketplace, on the battlefield, and throughout the political world,” he said.
Thus, even if the United States thwarted the CCP’s ambitions to acquire or steal U.S. military technologies in the short term, the current U.S. spending-based strategy would prove incapable of preventing the CCP from seizing the technological, economic, and political advantage in the long term, according to Sekora.
Without a whole-of-government shift toward maneuvering and exploiting critical technologies, rather than just funding research, Sekora believes it will only be a matter of time before the CCP effectively displaces the United States as the world’s premier superpower.
“The only way to curb the flow of American IP and R&D [research and development] to Chinese companies and military units is to fully counter China’s national and organizational technology strategies,” Sekora said.
“Anything else is a guaranteed exercise in futility.”