WASHINGTON—China stealthily integrated itself into America’s telecommunications market over the past several years and is taking advantage of the United States’ superior name brand to further its goals, alleges a U.S. China Economic and Security Review Commission (USCC) report this month.
China is “able to affiliate their products with the excellent reputation of U.S. brands in global markets. China’s technology industry now appears to be a de facto part of the American communications industry landscape,” states the USCC report in its introduction.
A major issue is that China aggressively bulldozes its way into every conceivable market, most importantly the technology sector, crushing its competitors with cheaper subsidized products (often filching the technology from foreign companies doing business in China), forced technology transfer, cyber attacks, corporate spying, or acquisition of foreign companies.
The Commission sent out a warning signal stating, “Investments would increase China’s leverage in the U.S. marketplace and beyond (even if indirectly through joint ventures and third parties) and could eventually provide China access to or control of vital U.S. and allied information, networks, or segments of critical supply chains.”
“Lurking in the cybershadows is a far more insidious and sophisticated form of computer espionage. ... Such attackers represent the elite—a dark army of cyberspies targeting the heart of corporations around the world where trade secrets, proprietary data, and cutting-edge technologies lie locked away in digital fortresses,” according to an investigation on Chinese cyber attacks by The Christian Science Monitor (CSMonitor) last year.
Experts suggest that one tool of the espionage trade is cyber espionage, a highly effective tool that has been employed a number of times and was more often than not found to originate in China.
“The China threat is constant. If there’s valuable intellectual property out there, there are people in China and elsewhere who want to take it. It’s the new battlefield—low risk and low investment with high gain,” said Shawn Carpenter, forensics analyst for cybersecurity company NetWitness, in the CSMonitor article.
In 2010, Canadian cyber attack experts discovered spyware nicknamed “GhostNet.” The spyware was found to originate from Hainan Island Internet accounts, where the Chinese army intelligence is located.
The USCC report also sees China as the main culprit in stealing trade secrets via cyber attacks. “There is growing public concern over the impacts of cyber espionage incidents that appear to originate in China.”
Congressional and industrial sources said that computer attacks on companies, including Google, Yahoo, and defense contractor Northrop Grumman have increased, although these companies, outside of Google, have remained quiet about it.
“Online attacks that appear to come from China have been an ongoing problem for years, but big companies haven’t said much about this, eager to remain in the good graces of [China],” according to an article on Computerworld’s website.
According to expert opinion, these companies downplay incidents for fear of losing access to the so-called lucrative Chinese market.
Next: Chinese students are trained in the U.S.
Thousands of Chinese students are trained in the United States with the hope of landing a job in a Western firm. These individuals could become moles for the Chinese government by integrating themselves into a company, which would allow them to steal trade secrets, according to the USCC.
One high-profile Chinese industrial espionage case was publicized by the U.S. Department of Justice in 2010. Kexue Huang, a.k.a. John, was arrested for stealing trade secrets from Dow Agro Sciences LLC.
“Economic espionage robs our businesses and inventors of hard-earned, protected research, and is particularly harmful when the theft of these ideas is meant to benefit a foreign government,” said Lanny A. Breuer, assistant attorney general, in a 2010 statement.
A trade secret espionage indictment was handed down to the Chinese couple Yu Qin and his wife, Shanshan, in July 2010 for stealing trade secrets from General Motors Co.
The indictment alleged that Qin gave “hybrid vehicle technology to Chery Automobile, a Chinese automotive manufacturer based in China and a competitor of GM,” according to a Federal Bureau of Investigation statement.
The Committee on Foreign Investment in the United States (CFIUS) could derail the acquisition of a U.S. company by a foreign company or government if such purchase would impair or threaten the national security of the United States.
In 2009, President Barack Obama, after receiving recommendations from the CFIUS, didn’t block a single purchase of a U.S. company by a foreign company, according to the latest CFIUS annual report to Congress covering the calendar year 2009 and issued in November 2010. However, it should be noted that the report does not state if any recommendations to block purchases were presented to the U.S. president.
In 2005, China’s Lenovo Group Ltd. successfully passed all U.S. hurtles and bought IBM’s personal computer business.
A case in point, two U.S. companies filed lawsuits against Huawei Technologies Co. Ltd. “Motorola is suing Huawei over the alleged theft of trade secrets and demanded the return of all proprietary information and damages, according to a lawsuit filed on July 16 in federal court in Chicago. Cisco Systems Inc. agreed to settle a lawsuit with Huawei in 2004 after Cisco alleged that Huawei copied some parts of its data-traffic routers and switches,” according to an August 2010 Bloomberg report.
The Chinese Huawei Technologies Co. has been trying to purchase U.S. technology firms without success so far. In 2008, Huawei gave up in its quest to buy 3Com Corp. because of the CFIUS investigation into links between Huawei and the Chinese military.
Trade experts allege that Chinese companies, once they gain a foothold in a foreign company, appropriate company trade secrets, set up a separate company, and commence production of the same product.
The Chinese footprint took hold in 3Com when this company became a Chinese vendor through a partnership deal with Huawei, which resulted in a joint venture, Huawai-3Com. Huawei, after benefiting from its relationship with 3Com, including getting information of much coveted technologies, has become 3Com’s main competitor in the Chinese market.
China is “able to affiliate their products with the excellent reputation of U.S. brands in global markets. China’s technology industry now appears to be a de facto part of the American communications industry landscape,” states the USCC report in its introduction.
A major issue is that China aggressively bulldozes its way into every conceivable market, most importantly the technology sector, crushing its competitors with cheaper subsidized products (often filching the technology from foreign companies doing business in China), forced technology transfer, cyber attacks, corporate spying, or acquisition of foreign companies.
The Commission sent out a warning signal stating, “Investments would increase China’s leverage in the U.S. marketplace and beyond (even if indirectly through joint ventures and third parties) and could eventually provide China access to or control of vital U.S. and allied information, networks, or segments of critical supply chains.”
Espionage in High Gear
“Lurking in the cybershadows is a far more insidious and sophisticated form of computer espionage. ... Such attackers represent the elite—a dark army of cyberspies targeting the heart of corporations around the world where trade secrets, proprietary data, and cutting-edge technologies lie locked away in digital fortresses,” according to an investigation on Chinese cyber attacks by The Christian Science Monitor (CSMonitor) last year.
Experts suggest that one tool of the espionage trade is cyber espionage, a highly effective tool that has been employed a number of times and was more often than not found to originate in China.
“The China threat is constant. If there’s valuable intellectual property out there, there are people in China and elsewhere who want to take it. It’s the new battlefield—low risk and low investment with high gain,” said Shawn Carpenter, forensics analyst for cybersecurity company NetWitness, in the CSMonitor article.
In 2010, Canadian cyber attack experts discovered spyware nicknamed “GhostNet.” The spyware was found to originate from Hainan Island Internet accounts, where the Chinese army intelligence is located.
The USCC report also sees China as the main culprit in stealing trade secrets via cyber attacks. “There is growing public concern over the impacts of cyber espionage incidents that appear to originate in China.”
Congressional and industrial sources said that computer attacks on companies, including Google, Yahoo, and defense contractor Northrop Grumman have increased, although these companies, outside of Google, have remained quiet about it.
“Online attacks that appear to come from China have been an ongoing problem for years, but big companies haven’t said much about this, eager to remain in the good graces of [China],” according to an article on Computerworld’s website.
According to expert opinion, these companies downplay incidents for fear of losing access to the so-called lucrative Chinese market.
Next: Chinese students are trained in the U.S.
Thousands of Chinese students are trained in the United States with the hope of landing a job in a Western firm. These individuals could become moles for the Chinese government by integrating themselves into a company, which would allow them to steal trade secrets, according to the USCC.
One high-profile Chinese industrial espionage case was publicized by the U.S. Department of Justice in 2010. Kexue Huang, a.k.a. John, was arrested for stealing trade secrets from Dow Agro Sciences LLC.
“Economic espionage robs our businesses and inventors of hard-earned, protected research, and is particularly harmful when the theft of these ideas is meant to benefit a foreign government,” said Lanny A. Breuer, assistant attorney general, in a 2010 statement.
A trade secret espionage indictment was handed down to the Chinese couple Yu Qin and his wife, Shanshan, in July 2010 for stealing trade secrets from General Motors Co.
The indictment alleged that Qin gave “hybrid vehicle technology to Chery Automobile, a Chinese automotive manufacturer based in China and a competitor of GM,” according to a Federal Bureau of Investigation statement.
Keeping China’s Companies at Arms Length
The Committee on Foreign Investment in the United States (CFIUS) could derail the acquisition of a U.S. company by a foreign company or government if such purchase would impair or threaten the national security of the United States.
In 2009, President Barack Obama, after receiving recommendations from the CFIUS, didn’t block a single purchase of a U.S. company by a foreign company, according to the latest CFIUS annual report to Congress covering the calendar year 2009 and issued in November 2010. However, it should be noted that the report does not state if any recommendations to block purchases were presented to the U.S. president.
In 2005, China’s Lenovo Group Ltd. successfully passed all U.S. hurtles and bought IBM’s personal computer business.
A case in point, two U.S. companies filed lawsuits against Huawei Technologies Co. Ltd. “Motorola is suing Huawei over the alleged theft of trade secrets and demanded the return of all proprietary information and damages, according to a lawsuit filed on July 16 in federal court in Chicago. Cisco Systems Inc. agreed to settle a lawsuit with Huawei in 2004 after Cisco alleged that Huawei copied some parts of its data-traffic routers and switches,” according to an August 2010 Bloomberg report.
The Chinese Huawei Technologies Co. has been trying to purchase U.S. technology firms without success so far. In 2008, Huawei gave up in its quest to buy 3Com Corp. because of the CFIUS investigation into links between Huawei and the Chinese military.
Trade experts allege that Chinese companies, once they gain a foothold in a foreign company, appropriate company trade secrets, set up a separate company, and commence production of the same product.
The Chinese footprint took hold in 3Com when this company became a Chinese vendor through a partnership deal with Huawei, which resulted in a joint venture, Huawai-3Com. Huawei, after benefiting from its relationship with 3Com, including getting information of much coveted technologies, has become 3Com’s main competitor in the Chinese market.
