Exposing CCP Espionage

FORUM Staff

A clearly visible high-altitude balloon traversing the continental United States in late January and early February 2023 — before a U.S. fighter jet shot down the surveillance system — alerted nations to the extent of the Chinese Communist Party’s (CCP) espionage efforts.

The People’s Republic of China (PRC) has deployed this type of surveillance technology globally before to spy on strategic competitors, violating international law and the sovereignty of dozens of nations. In recent years, similar Chinese airships have operated over East Asia, Europe, Latin America, South America and Southeast Asia, according to Brig. Gen. Patrick S. Ryder, U.S. Department of Defense spokesman. “This is what we assess as part of a larger Chinese surveillance balloon program,” Ryder said at a February 2023 news briefing.

Yet spy balloons represent only a small portion of Beijing’s overarching strategy under CCP General Secretary Xi Jinping to not only create the world’s dominant military, but also its dominant economic, social and political force. Xi’s government has been willing to use any means necessary to catch up to its competitors and modernize its military, with the stated goal of dominating the battlespace and world economy.

“China may be the first country to combine that kind of authoritarian ambition with cutting-edge technical capability. It’s like the surveillance nightmare of East Germany combined with the tech of Silicon Valley,” Christopher Wray, director of the U.S. Federal Bureau of Investigation (FBI), said during a January 2022 speech. For roughly 40 years in the mid- to late 20th century, East Germans were subjected to mass surveillance by police agencies that kept secret files on millions of people.

To siphon off critical industrial and military information from corporations, governments, militaries and universities, the CCP uses a range of techniques, from conventional methods — such as spies, honey traps, blackmail and bribery — to contemporary approaches that rely on cyber hacking and clandestine data collection. Besides using government agencies and state-run organizations and companies, the CCP also recruits members of the Chinese diaspora, including entrepreneurs, researchers and students, as well as foreign nationals through its Confucius Institutes, which it promotes as cultural centers, to advance its efforts.

Stealing military and trade secrets is not only lucrative but also strategic. It lets countries “leapfrog up global value chains relatively quickly, and without the costs, both in terms of time and money, of relying completely on indigenous capabilities,” Nick Marro, an analyst from the Economist Intelligence Unit, the research and analysis division of global media company The Economist Group, told the BBC in January 2023. For example, individuals tied to Chinese state-linked commercial entities dug up genetically modified seeds from U.S. farms to avoid spending billions of dollars on yearslong research and development, according to Wray.

Poaching Military Technology

Similar tactics in the military arena appear to have borne ill-gotten fruits. The Chinese military’s development of the J-20 stealth jet fighter is a leading example. CCP operatives stole core technologies through a series of hacks into U.S. servers at the Pentagon in 2007, 2009 and 2011, according to aviation analysts. The CCP also gained access to a U.S. F-117 that crashed in Serbia in 1999, enabling Beijing to potentially reverse engineer the stealth aircraft’s capabilities. The J-20’s development began in about 2006 and the fighter entered service in 2017. As test flights increased in 2015, news reports detailed remarkable similarities between the Chinese jet and the F-22 Raptor, the U.S.’s most advanced fighter.

“What we know is that because of the espionage efforts, [China’s] J-20 is more advanced than it otherwise would be, and that’s the important point here,” James Anderson, a former acting U.S. undersecretary of defense for policy, told Fox News Digital in March 2023. “They have profited greatly from their thievery over the years. They’ve put it to good use, and they’ve come up with an advanced fifth-generation fighter.

“It saves the Chinese time and money. In effect, we end up subsidizing a portion of their research and development budget because they are successfully stealing some of our secrets,” Anderson said. “Ultimately, this puts our men and women at greater risk on the battlefield.”

While it’s challenging to calculate the financial cost of the Chinese government’s spying on strategic competitors, “it’s crystal clear that China is quickly eroding the U.S. advantage in aerospace technology,” Anderson said.

Moreover, “Chinese espionage compromises U.S. dependency on space capabilities for communications, economic strength, critical infrastructure safety and resiliency, and our ability to project military power globally,” Nick Eftimiades, a retired U.S. intelligence official, wrote in an October 2020 article for Breaking Defense, a digital magazine on defense strategy, politics and technology.

But “short of actual combat,” Anderson said, it’s hard to know how the J-20 compares with the Raptor. The journal International Security questioned the Chinese fighter’s capabilities in a 2019 article titled “Why China Has Not Caught Up Yet: Military-Technological Superiority and the Limits of Imitation, Reverse Engineering, and Cyber Espionage.” Researchers found that “serious doubts persist about whether the performance of the J-20 comes close to that of the F-22. In fact, anonymous Chinese sources have admitted that the CCP rushed the J-20 into service in response to increasing tensions in the South China Sea, despite capability gaps that make it inferior to the F-22.” The study concluded, “China’s struggle to develop an indigenous aircraft engine throws into question the theory that China has closed the military-technological gap with the United States with respect to fifth-generation fighters. Possibly, even more important, it also illustrates that the advantages of imitation that China has enjoyed have inevitably been limited.”

The CCP has copied or reverse-engineered a plethora of technologies from other militaries. The Rostec Corp., a Russian defense conglomerate, accused Beijing in 2019 of copying aircraft engines, Sukhoi planes, deck jets, air defense systems, portable air defense missiles and medium-range surface-to-air systems, among other technology, the Nikkei Asian Review reported. Russian President Vladimir Putin founded Rostec in 2007.

Analysts say the Chinese government continues targeting Russia to acquire sensitive military technology, according to a May 2022 report by Check Point, an Israeli-U.S. cybersecurity firm. Using phishing and hacking, the CCP in recent years tried to infiltrate Russian institutes for research on satellite communications, radar and electronic warfare technology, The New York Times newspaper reported.

Economic Security Threats

In July 2022, top United Kingdom and U.S. intelligence officials warned business leaders, especially in Western countries, of the CCP’s “immense” threat to economic and national security. Wray told business and university executives gathered in London of the CCP’s intent to dominate key industries, according to the BBC. The CCP poses “an even more serious threat to Western businesses than even many sophisticated businesspeople realized,” Wray said. The CCP is spying on companies worldwide “from big cities to small towns — from Fortune 100s to startups, folks that focus on everything from aviation to AI [artificial intelligence] to pharma,” he said, according to the BBC. A 2018 U.S. government study determined that the PRC’s trade secret theft could cost the U.S. up to $540 billion annually.

“Chinese intelligence operations are the first in modern times to use, as a foundation, the whole of society,” Eftimiades wrote in Breaking Defense. “Because of this, China’s espionage tactics are sometimes artless, operating with little in the way of standard spy-fare, (encrypted communication, dead drops, etc.) instead relying on an overwhelming volume of espionage operations conducted by all manner of citizen and a sort of impunity inherent in the lack of substantive penalty for when a Chinese agent is discovered.”

The CCP coerces and threatens its citizens, commercial entities and expatriates as well as Chinese academics and foreign researchers into contributing to its intelligence-gathering network, experts contend. The CCP runs at least 500 so-called talent programs to enlist Western academics and business professionals in the effort, according to Eftimiades. Most operatives work under the CCP’s Central Military Commission Joint Intelligence Bureau, the Ministry of State Security, which is the CCP’s civilian intelligence agency, or for state-owned enterprises, he wrote.

The CCP’s whole-of-society approach is only part of its strategy, however. It also has deployed cyber espionage to “cheat and steal on a massive scale,” Wray said. “The scale of their hacking program, and the amount of personal and corporate data that their hackers have stolen, is greater than every other country combined,” he told NBC News.

Attempts to rein in the CCP’s program have generally fallen short. Although the Chinese government signed a deal with the U.S. in 2015 pledging not to engage in “cyber-enabled theft of intellectual property, including trade secrets or other confidential business information for commercial advantage,” the CCP allegedly violated the agreement within a year.

The U.K. and U.S. have shared intelligence about CCP cyber threats with 37 allies and partner nations, according to Ken McCallum, head of MI5, the U.K.’s security service, the BBC reported. Cybersecurity experts, by tracking digital trails, have in recent years connected many cyberattacks to hackers with clear ties to Beijing, according to The New York Times. In 2020, the U.S. indicted hackers based in China who infiltrated more than 100 businesses, nonprofits and government agencies in the U.S. and other countries, stealing intellectual property and intelligence information. The hackers have ties to APT41, a group linked to the CCP, according to The New York Times. Their prosecutions were ongoing as of mid-2023.

The CCP has also targeted Indo-Pacific economies over the past decade. From its base in China, a group of hackers dubbed Mustang Panda has attacked organizations in India, Myanmar and Taiwan, among other places, according to the U.S. security firm Cisco Talos, The New York Times reported. Meanwhile, the China-based group Bronze Butler tried to steal the intellectual property of technology companies in Japan from 2012-17, according to SecureWorks, a U.S.-based information security firm. Bronze Butler exploited software flaws and security gaps in computer systems to masquerade as a trusted entity and acquire sensitive information, according to the firm.

The PRC has allegedly targeted key technology sectors in its spying endeavors, including aerospace and aviation equipment, pharmaceutical development, bioengineering, and nanotechnology, to produce materials for use in other industries such as medicine, textiles and automobiles, Ray Wang, founder and CEO of Constellation Research, a consultancy based in Silicon Valley, told the BBC. The CCP’s espionage prioritizes technologies aligned with its economic strategies, such as its Made in China 2025 industrial policy, its five-year plans and other policy documents that identify gaps in its technology, commercial and military enterprises. That reflects “a congruence between China’s public and covert operational goals,” according to Eftimiades, who analyzed nearly 600 cases of CCP-sanctioned intelligence collection efforts in a 2020 study titled “A Series on Chinese Espionage — Operations and Tactics.”

Espionage as warfare

In many regards, espionage is a component of warfare as part of a strategy to undermine an adversary’s economic prosperity. Trade secret theft ultimately shrinks gross domestic product and causes job losses in the target country, analysts note. Stealing proprietary business information not only confers an unfair competitive advantage but cumulatively degrades a rival’s economic prosperity.

Allies and Partners must do more to combat the CCP’s espionage. Although nations have tried foreign policy initiatives and negotiating tougher trade policy, such measures remain insufficient in deterring the CCP’s global espionage campaign. As a result, like-minded nations are seeking to expand international coordination and to leverage and widen alliances to reinforce international norms and increase enforcement under existing laws. But much work remains.

In recent years, many countries have thwarted high-profile CCP attempts at theft and increased prosecutions. In January 2023, for example, the U.S. sentenced Zheng Xiaoqing to two years in prison for stealing information from his then-employer, General Electric (GE) Power, related to the design and manufacture of gas and steam turbines, including proprietary blades and seals.

The U.S. Justice Department opens an investigation involving the PRC every 10 hours, according to Wray, and now has more than 2,000 cases underway. The U.S. also sentenced Chinese national Xu Yanjun in November 2022 to 20 years in prison for plotting to steal trade secrets from U.S. aviation and aerospace companies, including GE. Xu, reportedly the first Chinese intelligence officer extradited to the U.S. to stand trial, stole the information by obscuring it within the coding of another data file and sending it to the PRC. Alan Kohler, then-FBI assistant director of counterintelligence, called Xu’s actions a form of the CCP’s “state-sponsored economic espionage,” Fox Business News reported. “For those who doubt the real goals of the PRC, this should be a wake-up call. They are stealing American technology to benefit their economy and military,” Kohler said.

Similarly, MI5 has significantly increased its efforts against Chinese espionage. In 2022, the security agency was running seven times as many CCP-related investigations as it did in 2018, and the number continues to climb, McCallum told the BBC.

Increasing Countermeasures

Given that the Chinese government has much to gain by stealing trade secrets and technologies, Allies and Partners must continue to impose higher costs on individuals and organizations engaged in such clandestine illicit activities.

The U.S., for its part, is countering CCP efforts to steal semiconductor technology. In October 2022, the U.S. announced export controls requiring any chipmaker using U.S. software or tools to obtain a license before exporting chips to China.

The measures also block U.S. citizens and permanent residents from working for certain Chinese chip companies.

Among the new measures, “use of the foreign direct product rule will prevent companies anywhere in the world from selling advanced chips to Chinese firms or organizations engaged in AI and supercomputing activities without a U.S. government license if the companies use American technology to make the chips, as nearly every semiconductor company globally does,” according to The Washington Post newspaper. The measures will make it more difficult for Chinese companies and military organizations to obtain other foreign-made technology products that were manufactured using U.S. tools and designs, the Post reported.

The U.S. government has implemented tougher measures to thwart cyber espionage by increasing efforts to protect critical infrastructure and sensitive computer networks. It is also partnering with the private sector to mitigate malicious activities in cyberspace. 

Moreover, building security partnerships with Allies and Partners has become an increasingly important priority for protecting cyber networks and stopping espionage throughout the Indo-Pacific and beyond. For example, members of the Quad partnership, which includes Australia, India, Japan and the U.S., have pledged to cooperate and share information in the cyber domain. Other nations in the region are also collaborating in new ways, such as by conducting cyber-related military exercises, to help develop technologies and capabilities to counter cyber theft and other menaces.

Militaries and nations have realized that cyber threats to critical infrastructure top the challenges that nations face today and the dangers are only becoming more complex. To counter them, the U.S., its Allies and Partners are seeking to find better ways to impose diplomatic, economic and informational costs on adversaries who engage in economic cyber espionage, officials said. A coordinated regional and international response may be the best hope for compelling change and curtailing the CCP’s espionage enterprise.