China is working feverishly to counteract its slowest GDP growth in recent years, and one of the ways it’s doing so, say U.S. officials, is through the theft of American corporate secrets.
“There is a concerted effort by the government of China to get into the business of stealing economic secrets to put into use in China to compete against the U.S. economy,” said Rep. Mike Rogers, R-Mich., chairman of the House Intelligence Committee.
The Chinese are afraid of ‘business gap’ that could hurt their economy now and in the future, experts say.
“While China's economic growth has been rapid and amazing over the last 30 years, the Chinese are afraid that they're going to get stuck in a technology trap,” said Adam Segal, a China Expert and Senior Fellow at the Council on Foreign Relations. “The Chinese feel that they have to rely on the West — and Japan — for critical technologies.”
To aid economic growth, Segal says that China has outlined which industries it feels are of strategic importance, including green technologies, new information technologies, biology, and high-end manufacturing.
To stay economically competitive, China has a two-pronged approach according to Segal — more research and development as well as more espionage.
“They are spending more on research and development and science as well as training more engineers and scientists,” Segal goes on to say. “But there's also a fairly widespread espionage plan put in place that's going after critical technologies.”
While China is not alone in committing espionage to gain trade secrets, experts say it poses one of the most serious threats. Last year, the Office of the National Counterintelligence Agency called Chinese actors “the world’s most active and persistent perpetrators of economic espionage,” in its report to Congress.
“The number of prosecutions by the FBI of economic espionage cases tied back to China is on the rise. It's a very large number and so it's clearly a nation state policy to be this aggressive,” Rep. Rogers said.
He sponsored the Cyber Intelligence Sharing and Protection Act(CISPA) bill, which is designed to protect U.S. companies from cyber economic espionage.
For its part, China denies the charges and calls them reckless.
“Without adequate investigation and without further evidence, accusing China of carrying out cyber-attacks against U.S. companies is not only unprofessional but also irresponsible,” says China’s Foreign Ministry spokesman Hong Lei when asked about the accusations in a television interview with CNBC.
Lei said that China too is a victim of cyber-theft attacks and point to his country’s efforts to stop them anywhere they happen.
“We actively promote the resolutions to attacks that threaten cross border Internet security,” Lei went on to say. “In 2010, we joined hands with Microsoft to crack down on the botnet, Waledac, and in 2011, after successfully taking down Waledac, we effectively cracked down on the botnet, Rustock. We take a firm stance on continuously playing an active role in international cooperation.”
The growing trend of espionage
Despite the denials, there have been recent cases of Chinese economic spying.
In March, former DuPont employee, Tze Chao pleaded guilty to conspiracy to commit economic espionage. Chao, who worked at DuPont for 36 years, gave trade secrets on titanium dioxide manufacturing to Pangang Group, a Chinese government-controlled company that also produces the chemical compound.
According to Chao’s plea agreement, the Chinese government had made acquiring the technology a priority and wanted it from western companies.
Chao’s case occurred less than two years after another DuPont employee pleaded guilty to theft of trade secrets. DuPont did not respond to CNBC’s request for comment.
DuPont was not the only company targeted for theft of trade secrets.
Xiang Dong Yuworked for Ford Motors as product engineer and had access to Ford’s design documents. Before leaving the American auto maker, Yu downloaded 4,000 documents onto an external hard drive, including sensitive design specifications—designs Ford had spent millions of dollars over decades to research and develop.
Yu later went on to work for Ford’s competitor, the Beijing Automotive Company. The stolen documents were found on his work computer. He pleaded guilty to two counts of theft of trade secrets and in April, he was sentenced to 70 months in prison, fines, and deportation. Ford did not return CNBC’s request for comment.
The Growing Trend
But it’s not just China that’s adding to the FBI’s economic espionage caseload, according to Frank Figliuzzi, FBI Assistant Director for Counterintelligence.
“This fiscal year has already surpassed last year when it comes to economic espionage cases,” Figliuzzi said. “We’ve had double the arrests in this four year period from the previous four years.”
Despite the high costs and the increasing threat, U.S. companies are reluctant to publicly acknowledge what has been taken. Stolen trade secrets have “historically been a source of embarrassment to companies,” Figliuzzi said.
CNBC’s Investigations, Inc. contacted nine companies in a variety of industries that had former employees charged with theft of trade secrets and none would comment except for formal press releases that revealed little.
Yet, while companies fear that their admissions of theft will hurt their investors and open them up to further attacks, Shawn Henry, former Executive Assistant Director of the Criminal, Cyber, Response, and Service Branch of the FBI said that coming forward, at least to authorities, can help.
“I can tell you from the FBI's perspective in the cases where we've been most successful, it's been when a company has come forward,” he said. “Not publicly necessarily, but at least they've come forward to the FBI and said that they'd been breached.”
According to Figliuzzi, there are almost $14 billion in losses to American corporations in the current FBI caseload alone. But putting an exact dollar value on the trade secrets is difficult because many of the secrets stolen have not yet come to market and the effects go beyond financial losses.
“A lot of [economic espionage] cases are in the tens or hundreds of millions of dollars, which translate to job loss, especially in tough economic times,” FBI Deputy Director Robert Anderson said.
Much of the espionage goes unnoticed because it takes place in difficult-to-detect cyber space, say analysts. However, spies continue to employ age-old tactics of espionage on the ground, sometimes working as employees of the very companies they steal from, as corporate theft continues to grow.
“[Economic espionage] crosses all industries and all technologies from agriculture and farming up to nuclear science,” said Figliuzzi.