China stealing intellectual property to stay competitive

In trying to maintain its economic competitiveness and fulfil its political ambitions, China is stealing R&D secrets, patents and intellectual assets on an industrial scale according to a report by Stratfor Worldview.

China and its Ministry of State Security has been implicated in scores of trade theft accusations and accounts for around half of all charges related to economic espionage during 2016-2019 under the US Economic Espionage Act of 1996. FBI Director Christopher Wray has noted that the on an average 10 hours the FBI opens a new China related counterintelligence case and that there was a marked increase in caseload of around 1300 per cent in the past decade.

This has had a considerable economic impact too: Independent researcher Nicholas Eftimiades has estimated that Chinese economic espionage activities have accounted for $320 billion in losses which is about 80 per cent of total cost of intellectual property theft to the US in 2018.

It is difficult to thwart because of the strategically important trade ties of around $550 billion in goods that facilitate the flow of information and make counterintelligence policies extremely expensive. China's interest in economic espionage has been made clear through initiatives such as Made in China 2025 and Thousand Talents plan.

The Made in China aims at achieving self-sufficiency in high tech industry by 2025 and dominating the global tech markets by 2049. The Thousand Talents program similarly aims to recruit scientists, researchers and industry professionals to work in China and bringing in know-how to achieve China's ambitious goals. The US investigators have alleged that targeted employees of the program have been offered cash bonuses in exchange for bringing sensitive documents and trade secrets with them when they relocate to China.

In 2018, Chinese recruiters were accused of offering an engineer at a US energy company around $1,70,000 in 2018 to bring secrets related to battery technology that his company was working on. Before that in 2011, China has offered a disgruntled engineer at energy technology company AMSC $1.7 million to provide trade secrets that would save partially government owned company Sinovel around $800 million in contracts it had with AMSC, as per a Reuters report. The rise of Chinese telecom giant Huawei took place at the same time in 2009 when Canadian telecom bigwig Nortel was filing for bankruptcy. Huawei's industrial methods and R&D setup were similar to Nortel as they had been stolen through hacked emails of officials at Nortel, as reported by Global News.

The financial incentives also come in the form of promises of lucrative entrepreneurial endeavours and investment. Several million dollars in Chinese funding were used by a Texas-based materials science researcher to adapt syntactic foam technology that provides greater buoyancy control in modern maritime vessels from his previous employer to his own company and provided China with secrets it wanted.

Similar incentives were provided to employees in the Pharmaceutical industry, with Chinese investors luring a biochemist working on monoclonal antibodies to steal sensitive material from her employer, GlaxoSmithKline, and attempt to start her own rival business in China.

The attempts at economic espionage are sometimes directed towards undermine the national security and defence of a foreign country. In early January 2020 an alert was issued to several companies where Indian researchers were working regarding Chinese Cyber intrusion attempts, as reported by local media5.

The attempt was to target certain top end military equipment design and UAV technology. China starts producing this equipment domestically and sells at a cheaper rate after stealing techniques and designs, inflicting irrecoverable damage to original equipment manufacturers.

In response, the US has introduced a variety of policies, ranging from restriction in Chinese students and program to sanctions, designed to identify and prevent economic espionage. Counter measures have been incorporated with an element of proportionality: that is the loss incurred by US because of Chinese economic espionage not only includes economic losses but also takes into account the principles violated in the process, as per independent Scholar Catherine Lotrionte .

Economic espionage undermines the means and incentives for entrepreneurs to innovate and values of global trade regime. It also incentivizes unfair trade practices. Some have advocated permitting private American companies to counter cyber attack arguing that this approach would be more effective in getting China to detest its economic espionage efforts.

However, others have suggested that a notice of wrongdoing should be provided by the injured state to wrongdoing state and offer to negotiate before resorting to countermeasures. US has also indicated interest in pursuing a claim against China for Cyber economic espionage through the World Trade Organisation for violating principles of fair trade that members have to adhere to.

An especially aggressive cyber strategy of 'defending forward' has been put in place to check Chinese intrusion in cyber space. The strategy aims at disrupting the infrastructure used by the hackers at source and exposing their tools.

Chinese companies that benefit from the cyber theft have also been brought to the book. The US Department of Commerce recently debarred the exports of US Technology to a Chinese chip manufacturer accused of recruiting individuals to steal information from Micron, a semi-conductor company, as reported by Reuters. Indian companies have also upgraded their infrastructure, since they are home to the backend technology of various Information Technology companies to protect from Chinese intrusions.