Last week’s arrest of Meng Wanzhou, the CFO of Chinese tech company Huawei, has blown open the increasingly hostile dispute between American and Chinese tech companies. Huawei is a global telecommunications and consumer technology company and has recently been accused of violating America’s newly re-imposed sanctions against businesses working with Iran. But the problems that many Western governments have with Chinese tech companies go far beyond simple sanctions violations. Chinese companies like Huawei and ZTE have been accused of substantial and comprehensive schemes to steal technology from other companies. And the recent hack of the Marriott hotel chain has now been attributed to the Chinese government. This week, we’ll examine how China steals technology and the asymmetric landscape of global technological advancement.
To make one thing very clear, the Chinese government has substantial control over the companies within its borders. Unlike the United States, which considers corporations to be completely separate entities with individual rights and privileges (almost like people!), no such meaningful distinction exists within China. In order to gain access to the Chinese market (which contains well over a billion people), outside tech companies are often required to partner with a Chinese counterpart company. During this partnership, the counterpart company learns as much as it can about the trade secrets and intellectual property of the outside organization, and then typically proceeds to copy these secrets for their own use. Once the outside company has outlived its usefulness, it is often kicked out of the Chinese market, meaning the corporation no longer has access to the Chinese market and has now created a powerful new competitor on the global stage. Examples of this phenomenon include the American Superconductor Corporation and Motorola. Those companies that do not risk the theft of their technology by working with Chinese companies are still at risk of having their secrets stolen by savvy Chinese investors and hedge funds that buy up these foreign companies.
As seen in the HBO series Silicon Valley
Another prominent and effective strategy of the Chinese government is the outright hacking and theft of trade secrets from companies. China’s People’s Liberation Army has become extremely good at hacking and cyber warfare against both foreign governments and foreign corporations. When the Chinese government hacked the United States Office of Personnel Management and stole nearly all of the information on Americans who had applied for security clearances, most observers were extremely concerned. But China has also been performing cyber espionage and blackmail against corporations in an attempt to either steal their secrets or sabotage their developments. In other instances, China steals classified American military tech and then uses that cutting-edge information to gain a competitive advantage in the marketplace.
Finally, China’s ability to steal secrets and spy on corporations throughout the world is enhanced by the increasingly ubiquitous use of devices and software built in China. This hardware and software can be designed with intentional vulnerabilities and backdoors that can be exploited by Chinese intelligence agencies and hackers. A theoretical example of this made major headlines a few months ago when it was (incorrectly) reported that Chinese manufactures of common commercial devices inserted microchips that could be used for spying. The story turned out to be false, but the threat is more than just theoretical. In 2015, a Russian anti-virus company known as Kaspersky Lab was revealed to have obtained National Security Agency secrets via software vulnerabilities that the company itself created. On the hardware front, the NSA has previously requested that such backdoors be built into Apple devices to allow for quicker intelligence collection of individual’s mobile phones. Such hardware and software backdoors are very possible, and may already exist in tech that we simply aren’t aware of yet.
All of this helps point to the core of China’s economic advantage: they have nearly complete control over Chinese businesses. As such they have little difficulty subjecting companies to government wishes and have few qualms about using technology for censorship, hacking, or cyber/information warfare. National security interests and economic interests go hand in hand. Where the United States must partner with corporations to help work in the national interest, China does not need to request permission. All of this isn’t to say that the United States is completely innocent either, but China certainly has an asymmetric advantage here. So how do American and Western firms push back and defend their interests and intellectual property? In short, America first needs to codify the rules of cyber warfare and declare the intention to protect the intellectual property of American companies. There must also be a form of deterrence either through economic sanctions or counter-espionage that ensures that such activity will not go unpunished. Massive tariffs and trade wars can put a little pressure on China to change its ways, but those often hurt American businesses too and do not address the core of the problem. A clear measure of support from the American government for Western corporations is needed. If China is willing to protect its companies from attacks, why shouldn’t the United States be willing to stand up for its corporations as well?