8

Traditional Chinese Espionage

Foreknowledge comes from the minds of men, not divination.

–  Sun Zi

The value of any PowerPoint briefing on China is inversely proportional to the number of Sun Zi quotes in the briefing.

–  Mulvenon’s Third Law

While previous chapters have detailed China’s non-traditional approaches to collecting and exploiting foreign science and technology information, this chapter examines the role of the PRC’s traditional intelligence services, including the Ministry of State Security (MSS), the PLA’s Military Intelligence Department (aka Second Department or 2PLA), and the PLA’s SIGINT organization (Third Department or 3PLA). The chapter will first outline the scope and threat posed by Chinese intelligence operations in the United States, as described by senior US counter-intelligence and policy officials. Because much of the literature on Chinese intelligence is either outdated or fatally weakened by mythology and misinformation, the chapter will then proceed to critically examine some of the prevailing views of Chinese intelligence tradecraft. This new framework will then be applied specifically to the large and growing set of China technology espionage cases, identifying commonalities and differences among them.

Scope and scale of the problem

Over the past decade, American government officials have consistently warned of a serious and growing threat from China’s intelligence services, particularly economic and technology espionage. As early as 2005, Dave Szady, then assistant director of the FBI’s counter-intelligence division, told the Wall Street Journal that “China is the biggest [espionage] threat to the US today.”¹ In the wake of the Chi Mak case in 2008, FBI spokesman William Carter declared:

The intelligence services of the People’s Republic of China pose a significant threat both to the national security and to the compromise of US critical national assets. . . . The PRC will remain a significant threat for a long time as they attempt to develop their military capabilities and to develop their economy in order to compete in today’s world economy.²

This view was corroborated by current and former officials in an August 2010 60 Minutes story, in which former Director of the Office of the National Counterintelligence Executive, Michelle Van Cleave, told the interviewer:

The Chinese are the biggest problem we have with respect to the level of effort that they’re devoting against us, versus the level of attention we are giving to them. . . . Virtually every technology that is on the US control [sic] technology list has been targeted at one time or another by the Chinese. . . . Sensors and optics . . . biological and chemical processes . . . all the things we have identified as having inherent military application . . . I think we are a real candy store for the Chinese and for others.³

Her successor at NCIX, Joel Brenner, also publicly seconded her remarks:

The Chinese are putting on a full-court press in this area. . . . They are trying to flatten out the world as fast as possible. . . . One of the ways they accelerate that process is economic espionage. If you can steal something rather than figure it out yourself, you save years. You gain an advantage.⁴

While Brenner and others acknowledge that technology thieving is “the norm” among industrial nations, China does stand out as among the most active nations.⁵

While quantifying the threat is difficult, given the problem of nonreporting, credible estimates of the scale of the problem and its growth over time are available from government sources. In 2007, the then head of the FBI’s counterintelligence division, Bruce Carlson, told USA Today that “about one-third of all economic espionage investigations are linked to Chinese government agencies, research institutes or businesses,”⁶ and that between 2000 and 2005, “the total number of [economic espionage] charges [against Chinese] has grown by around 15% annually.”⁷ In response, the FBI increased the number of agents working on Chinese counterintelligence issues from 150 in 2001 to 350 in 2007.⁸

The increasingly predominant position of Chinese intelligence operations is not limited to the United States. A leaked MI-5 report in 2010 asserted that China “represents one of the most significant espionage threats to the UK.”⁹ The head of domestic intelligence for the southwestern German state of Baden-Württemberg, Johannes Schmalzl, said: “Sixty percent of our alleged cases [of economic espionage] are related to China.”¹⁰ The then director of the Canadian Security Intelligence Service (CSIS), Jim Judd, told a Senate committee meeting in May 2007 that “China accounts for close to 50 percent of our counterintelligence program.”¹¹

The apparent global success of Chinese intelligence demands that we closely examine the tactics, techniques, and procedures of Beijing’s operations. At first glance, the Chinese intelligence apparatus appears to have a deep cultural affinity for intelligence affairs, a long and storied history of successful operations, and, as we shall see in Chapter 9, an impressive ability to exploit new methods of collection such as cyberespionage. Our understanding of PRC methods and goals, however, has been impeded by a long-standing set of misconceptions, misperceptions, and myths about Chinese intelligence operations, perpetuated by an extensive English-language literature on the subject. The following section will examine each of these concepts in turn, assessing them in the light of known empirical evidence from over 50 years of cases.

Truth or myth, or outdated? Assessing some common beliefs about Chinese espionage

The public discourse on PRC espionage has long been dominated by a set of core beliefs (hereafter described as the “Old School”) about the tactics, techniques, and procedures used by the Chinese intelligence services to collect secrets in the United States. As Mattis argues, these Old School principles have become predominant through articles and op-eds written by former FBI counter-intelligence analyst Paul Moore and “media interviews with retired US officials,” such as David Szady, Joel Brenner, Rudy Guerin, Bruce Carlson, and Michelle Van Cleave.¹² At their core, the Old School argues that the Chinese services practice a fundamentally different approach to intelligence collection, especially when compared with the more “classic” approach of the United States and Russian services.¹³ The main tenets of the Old School are that Chinese intelligence:

 Prefers to use large numbers of amateur collectors (also known as the "thousand grains of sand") rather than conduct formal operations with established agents.

 Abjures buying stolen secrets in favor of inducing people to give them away.

Prefers to recruit ethnic Chinese agents.

Prefers to recruit "good people" rather than exploiting flawed or vulnerable personalities.

 Does not use traditional tradecraft, such as dead drops and covert communications.

In fact, all of these accepted principles are open to close examination and even empirical refutation. This chapter will examine each in turn, and then offer a new framework of “layered” collection and analysis to explain current operational behavior, especially with respect to science and technology collection.

Thousand grains of sand

In the Chinese intelligence literature, the most common shorthand for China’s approach to intelligence operations is known as the “thousand grains of sand,” also described as the “mosaic,”¹⁴ “legion,” “human wave,” or “vacuum-cleaner” approach.¹⁵ The classic story narrative of the “thousand grains of sand” methodology, particularly in contrast to traditional intelligence behavior, is provided by Paul Moore:

If the composition of the sand on a certain beach were identified as an intelligence target by the nations of the world, some countries would solve the challenged by dispatching a submarine to sit offshore from the beach. In the dark of night, a commando team would emerge from the submarine, paddle in a rubber raft to the beach, scoop up a bucket or two of sand, and beat a retreat back to the submarine. Analysis of the buckets of sand would produce a great deal of data. Other countries would task their satellites flying overhead to turn their sophisticated infrared and spectrographic scanners on the beach, and this would produce a wealth of data. China, however, would approach the problem by allowing ten thousand of its citizens to spend a day at the beach. At sunset they would all go home and simply shake out their towels; and the Chinese would end up with more sand – and more data – than other nations.¹⁶

Former Army counter-intelligence officer and China defense attaché Larry Wortzel concurs, arguing that China “sends out thousands of people with limited tasking, flooding the target country.”¹⁷ In this view, “anyone and everyone is a potential intelligence asset.”¹⁸ Using large numbers of amateur collectors means that intelligence gains take a long time and operations do not create large counter-intelligence signatures. As Moore argues, “To the extent we suffer losses against China, typically we suffer them day in and day out on a modest scale of operation.”¹⁹

But is this model effective? How does it work in practice? In his 2011 “Studies in Intelligence” article, former government analyst Peter Mattis summarizes the mechanics of the “thousand grains of sand” approach:

Chinese intelligence builds a cohesive intelligence picture out of disparate, seemingly unrelated or insignificant data . . . Chinese intelligence services collect “small pieces of intelligence” to assemble later into a more comprehensive picture. The implication is Chinese intelligence has a very low threshold for collection, sucking up information without respect to being classified or unclassified.²⁰

For counter-intelligence professionals like Moore, this behavior is “unusual, unprofessional and suspect.”²¹ He explains his criticism further:

Chinese collection effort often enough appears to be extremely inefficient in terms of the numbers of people involved, the relative lack of security brought about by the lack of central direction or control, the redundant activities of many of the participations and the inherent awkwardness of having a large group of people collect small bits of information. In my opinion, the effort appears to be inefficient because it indeed is inefficient, and that inefficiency is brought on by the reliance on guanxi as the vehicle through which to accomplish collection.²²

For Moore, “guanxi networks are a deeply flawed intelligence mechanism” that have been “‘borrowed’ to do intelligence work.” The process only succeeds when you bring enough people to bear on the problem. In his article “Actuarial Intelligence,” Moore concludes that if you work with “large enough numbers [of people], you don’t have to supervise the activities of individuals, for ‘actuarial’ principles will take over.”²³ The contrast with the highly controlled Western model of intelligence collection could not be more striking. As Moore pithily puts it, “China has a planned economy but a market-driven intelligence program. . . .We have just the opposite.”²⁴

While the “thousand grains of sand” view has been dominant for decades, Mattis and other New School analysts have become increasingly critical of this central shibboleth of the Chinese intelligence canon. They do not deny that Beijing uses large numbers of untrained collectors, but question the core assumptions of the analysis. Arguing against “human wave” tactics, Mattis asserts:

The supposed Chinese intelligence reliance on amateur “human wave” collection tactics probably is the least credible of all the conventional propositions. The very definition of a permanent intelligence bureaucracy includes professionalism, even if the performance is not up to an arbitrary standard. This [thousand grains of sand] proposition logically leads to the statement that China’s intelligence services are largely irrelevant to Beijing’s intelligence requirements. . . .

Furthermore, amateur hordes scooping up every grain of sand imply the Chinese services do not collect intelligence with deliberate intent.

In fact, the empirical record repeatedly reveals a clear connection between expertise, requirements, and tasking. In the Chi Mak case, for example, the government introduced two key pieces of evidence found in his home, including one machine-printed document in Chinese urging him to join professional associations and attend more seminars on advanced research (“special subject matters”), and a list of technologies of interest, including torpedoes, “aircraft carrier electronic systems” and “submarine propulsion technology,” and a “space-launched magnetic levitational platform.”²⁵ Both notes had been shredded and thrown in the garbage.²⁶ In similar fashion, Rockwell and Boeing engineer Dongfang Chung was tasked by Chinese agents to supply documents and to give lectures in China on space technology and military systems.²⁷ According to the indictment,

The documents taken by defendant Chung from Rockwell and Boeing matched requests for specific types of technology contained in letters and tasking lists sent to defendant Chung in the past by officials of the PRC. Defendant Chung took the documents with the intent to benefit the government of the PRC by providing the information in the documents to the government of the PRC.²⁸

Mattis also criticizes another aspect of the “vacuum-cleaner” approach, assessing that it wrongly assumes the Chinese system is capable of horizontal integration:

The “vacuum cleaner” proposition assumes a robust processing and analytic capability to produce insight from volumes of low-quality data. And the “thousand grains of sand” concept arrived before the widespread use of networked computers. Yet we have no evidence of a strong analytic capability – and impressionistic evidence to the contrary. Second, analysts did not evaluate the structure of the Chinese system, which militates against an open information environment. . . . The documented existence of provincial MSS departments and at least some municipal-level bureaus suggests the MSS is not immune from these problems.²⁹

Indeed, Mattis’ analysis of Chinese bureaucratic dysfunction and the inability of the Chinese system to effectively integrate horizontally or vertically rests on a robust and unchallenged Sinological literature, as exemplified in the works of Lieberthal, Oksenberg, and others.³⁰These experts highlight a core structural breakdown between vertical lines of authority within hierarchies and the horizontal relationships with logical interagency organizations, leading to problems with coordination, information sharing, and, as a result, suboptimal policy-making. According to Lieberthal, “one key rule of the Chinese system is that units of the same rank cannot issue binding orders to each other.”³¹ In other words, Chinese government bureaucracies should not be viewed as a monolith. Within the intelligence apparatus, for example, this means that the Ministry of State Security and its constituent elements from the national to the local level have no structural imperative or incentive to coordinate their activities or share information with their military counterparts in 2PLA (military intelligence). This dominant model of Chinese bureaucratic behavior, confirmed through many respected studies, interview projects, and Chinese scholars’ own descriptions of the dysfunction in their system, fatally undermines the “thousand grains of sand” model, which would be difficult if not impossible to coordinate and execute in such an environment.

Instead, it is likely more accurate to say that Chinese intelligence and scientific organizations do employ many different types of collectors gathering small pieces of information, but the fruits of this collection are likely stove-piped and fragmented at the other end, preventing their reassembly for maximal exploitation and gain.

Stealing secrets vs. inducing people to give them away

The traditional China intelligence literature also has an unorthodox view of why individuals provide information to Beijing, arguing that Beijing does not “steal secrets” as much as it “induces” people to give them away for a variety of reasons, ranging from ethnic identity to a transnational scientific interest in human progress. Again, Paul Moore carries the standard:

In almost all of its collections operations, China is not so much looking at opportunities for stealing things . . . as devising all sorts of opportunities for you to come to the conclusion that you would be willing to give at least some of these things. . . . It’s the mundane, day-to-day contacts that are killing us, not the exotic spy operations.³²

To achieve this, the Chinese services are willing to wait years for the opportune time to pitch a target for a sliver of useful information, bypassing a formal recruitment altogether. According to this view, the target may not even know he’s been “developed.”³³ According to James Lilley, a former CIA station chief and US ambassador to China, the Chinese services prefer “a rather blurred line between ‘cooperator’ and ‘undercover agent.’“³⁴

Most often, the approaches for this “cooperation” occur on trips to the PRC, where Chinese interlocutors (usually a scientific colleague or “friend”) can leverage jet lag, soporific banquets, alcohol, and the reciprocal demands of hospitality to elicit information.³⁵ Moore argues:

What the Chinese are after is an indiscretion. . . . It doesn’t have to be classified, it just has to be helpful, and they want it to be more than what they would normally get, more than what they are entitled to get. That’s the way they play the game: They want “X-plus.” I call it espionage by indiscretion.³⁶

In these situations, Godfrey highlights the use of passive techniques, letting the cooperator come to their own conclusion about whether to help:

When they do make an approach, it’s usually a subtle pressure, with references to relatives in China and possible business opportunities. . . . They tend to allow people to draw their own line. It’s like fishing. They hit everybody, and some people bite.³⁷

In addition, Moore and others claim that “China seldom pays its agents for the intelligence they produce.”³⁸ When they do pay, the Old School argues that the currency is rarely cash. As Godfrey argues:

the Chinese form of payment is a lot more subtle too. . . . Instead of a lump sum cleared through a dead drop, they will offer legitimate business opportunities. All those things make Chinese cases harder to prosecute.³⁹

The empirical case record certainly has many supporting examples of US citizens, usually scientists, giving away classified or sensitive information to Chinese officials and their scientific peers seemingly for free. Peter Lee, a Chinese-American nuclear scientist, admitted that he was approached in a Beijing hotel room in January 1985, where Chen Nengkuan of the Chinese

Academy of Engineering Physics asked for his help, emphasizing that China was a “poor country.”⁴⁰ Lee told the FBI, according to court records, that he told his interlocutors about his research on using inertial confinement fusion to simulate nuclear detonations because he wanted to bring China’s scientific capabilities “closer to the United States.”⁴¹ On a later trip in 1995, Lee told a different group of scientists at the Institute for Applied Physics and Computational Mathematics about his research on submarine tracking technology.⁴² While Lee admitted receiving compensation for travel and accommodation expenses in both cases, the government prosecutor in 1997 conceded that money was not the primary motive for Lee’s behavior.⁴³

Many other examples illustrate this Chinese intelligence collection methodology. Wen Ho Lee and his wife Sylvia were invited in both 1986 and 1988 to conferences in China at the Institute for Applied Physics and Computational Mathematics, which is roughly analogous in function and personnel to one of the US nuclear weapons labs. He later admitted that he had been approached in his hotel room by Chinese nuclear weapons designer Hu Side and another top weapons scientist in 1988 and asked for classified information about the designs of US thermonuclear weapons.⁴⁴ Similarly, Greg Dongfan Chung was invited in June 1985 to “give lectures on aircraft and spacecraft technology at government-controlled universities and aircraft manufacturers in the PRC.”⁴⁵ The topics of his lectures include “Space Shuttle Heat Resistant Tiles, Brief Introduction and Stress Analysis,” “General Aircraft Design and Fatigue Life,” and “F-15 Jet Fighters,” providing PRC scientists with extended periods of time to ask questions and probe him for information.⁴⁶ He received additional followup questions from Nanchang Aircraft Company a month after returning to the United States, and informed Nanchang’s chief engineer via mail in December 1985 that he had begun collecting 27 manuals on the B-1 bomber and other military aircraft, which he subsequently passed through the Education Consul at the PRC Consulate in San Francisco.⁴⁷ Chung later traveled to the PRC in April 2001, where he gave additional lectures on the Space Shuttle program, and made subsequent trips in 2003 and 2006.⁴⁸

The net result of this approach is that China is able to conduct “espionage without evidence,” wherein even sources may be unaware that they are providing valuable data.⁴⁹ For example, Moore and others couldn’t conceive of Chinese spymasters asking Peter Lee or any other scientist, Chinese or not, to download classified documents and deliver them to Beijing, as it would entail too much risk.⁵⁰ Instead, Chinese intelligence officers “want what’s between their ears, not what’s in the briefcase.”⁵¹ According to counter-intelligence officials and Federal prosecutors, this strategy makes Chinese intelligence operations “bulletproof” to US counterespionage personnel and prosecutors:⁵²

It’s nice to think, but it’s not true, that where there’s espionage there inevitably is evidence of espionage. . . . The Chinese have found a way to commit espionage against the United States which does not leave sufficient evidence behind for there to be successful investigations and successful prosecutions.⁵³

But is it true that Chinese intelligence primarily induces people to give secrets away, rather than paying them for secrets? In fact, there is also strong empirical evidence of the latter. Larry Wu-Tai Chin was paid “about a million dollars” by Chinese intelligence.^54 55 Noshir Gowadia was paid $110K for his consulting services, either in cash, or money transfers to a bank in Switzerland.^56 57 After twice failing the Foreign Service exam required for State Department employment, Glenn Duffie Shriver was still paid $30,000 by the Chinese, and in 2007, after applying for a position in the CIA National Clandestine Service, he received an additional $40,000.^{58 59} Katrina Leung told the FBI she was paid $100,000 by Chinese intelligence because Yang Shangkun “liked her.”⁶⁰ When the FBI searched Katrina Leung’s home, they found three classified documents. One related to an FBI investigation of Peter Lee, a scientist convicted in 1998 of providing the Chinese with information that may have helped them develop their nuclear program. The second was an intercepted conversation between two Chinese agents “Luo” and “Mao” discussing “issues relevant to national security.” The third was described as a secret FBI electronic communication.^{61 62 63 64}

In the case of Greg Bergersen, a Defense Security Cooperation Agency employee convicted of spying for China, his handler, Kuo Taishen, was paid $50,000 to pass the materials to his Chinese contact through e-mails and telephone calls to Beijing.⁶⁵ In a now infamous FBI surveillance video inside Bergersen’s car, Kuo is seen shoving a wad of bills into his asset’s shirt pocket.⁶⁶ Kuo also paid for Bergersen’s meals at restaurants, gambling in Las Vegas, and shows.⁶⁷ In return, Kuo asked him for classified material related to the DoD’s Global Information Grid “roadmap” and future arms sales to Taiwan. In response to the first request, Bergersen gave Kuo the following documents: (1) Implementing the Global Information Grid; (2) GIG Tactical Edge Networks Engineering White Paper Version 0.4 (dated August 26, 2005, “For Official Use Only, Draft”); (3) Evolving to the GIG and NNEC; (4) Information Operations Roadmap (dated October 30, 2003, and marked “Secret”; this document was declassified in January 2006; the strikeout was added when the document was declassified); and (5) GIG Enterprise-Wide Systems Engineering Update (dated May 16, 2007, and marked “Pre-Decisional – Distribution Limited to SSEB,” which is an acronym that refers to the Source Selection Evaluation Board).⁶⁸ In response to the second request, Bergersen allowed Kuo to take notes from the Taiwan section of the 2007 Javits Report, which is classified SECRET and “lists in spreadsheet format the potential military and direct commercial sales of military equipment from the United States to foreign nations.”⁶⁹ Kuo’s other asset, James Fondren, sold “opinion papers” for between $350 and $800 apiece through Fondren’s home-based consulting business.⁷⁰

In sum, it appears true that Chinese intelligence has been successful in inducing people, mainly scientists, into giving away classified or sensitive information in informal settings for free, but it is clear that Chinese intelligence also understands the importance of financially compensating its assets for their intelligence activities, in some cases quite handsomely.

China prefers to recruit ethnic Chinese

The most controversial tenet of the Old School view is that China prefers to recruit ethnic Chinese agents to the exclusion of non-ethnics:

Over the years, China has displayed a very strong preference for collecting as much intelligence as possible from individuals of ethnic Chinese heritage, and when it recruits agents, it almost invariably recruits ethnic Chinese.⁷¹

According to the 2004 Intelligence Threat Handbook, published by Interagency OPSEC Support Staff (IOSS), the Chinese-American

community is the target of an estimated 98 percent of recruitment efforts by the MSS.⁷² By contrast, no more than a quarter of Soviet HUMINT efforts targeted recruitment of ethnic Russian agents.⁷³

The proposition that Beijing only recruits from among ethnic Chinese is usually explained in a number of ways, ranging from efficiency to cultureor nationalism-based reasons. The efficiency argument is summarized by Paul Moore:

There is no evidence that the PRC considers Chinese Americans to be more vulnerable to approach than any other group. It is likely the PRC has adopted its distinctive ethnic targeting intelligence strategy because it is much more capable of mounting effective approaches against individuals of ethnic Chinese ancestry than those of any other background.⁷⁴

Another efficiency argument points to the disproportionate numbers of ethnic Chinese working in valuable science and technology sectors. For example, one source claims that Chinese-Americans make up only 1 percent of the population but comprise more than 15 percent of the R&D community.⁷⁵ The second explanation is cultural-exceptionalist in orientation, arguing that Beijing is “more comfortable going after individuals with whom there is a shared culture, language and history.”⁷⁶ The third rationale centers on exploiting a sense of patriotic or nationalist obligation in the target:

the selling point in a normal PRC recruitment operation is not an appeal to ethnicity per se, but to whatever feelings of obligation the targeted individual may have towards China, family members in China, old friends in China, etc. . . . The crux of the PRC’s approach is not to try to exploit a perceived vulnerability but to appeal to an individual’s desire to help China out in some way. Whatever the reason, ethnic targeting to arouse feelings of obligation is the single most distinctive feature of PRC intelligence operations.⁷⁷

This approach is described as a “soft recruitment” over a long period of time to become a “friend of China,” rather than the hard recruitment tactic to become a formal asset of the Chinese intelligence services.⁷⁸ As one analyst puts it, Beijing’s “major effort is to try and develop relations with Chinese-Americans, as many of them as possible, in the hopes that the relations will turn out to be profitable – someday, somehow, somewhere.”⁷⁹ While the “appeal to patriotism” may be positive in orientation, the references to extended family may in some cases be perceived as a threat, creating the impression that Beijing may use its authoritarian security apparatus to “apply pressure to a potential agent’s family.”⁸⁰

Detractors of this view accuse its proponents of engaging in ethnic profiling or outright racism.⁸¹ Old School proponents counter that Beijing is actually doing the ethnic profiling. According to Harry Brandon, a former head of FBI counter-intelligence who retired in 1995:

critics say our government is racist because the government is targeting Chinese-Americans because they are Chinese. . . . And the answer is, Yes, we are targeting them, because they are targets (of Beijing). . . . The only people racially biased in this case is the Chinese intelligence service, which continues to target Chinese-Americans for the only reason that they are ethnic Chinese . . . [But] probably 99.99 percent of Chinese-Americans wouldn’t have anything to do with [Chinese intelligence approaches].⁸²

Even some critics of the proposition acknowledge that Beijing’s methods may make them vulnerable to suspicion and accusation, but they say that the FBI needs to have better tools to distinguish loyal Chinese-Americans from traitors.

When one looks at the empirical records of cases, there is a great deal of evidence to support the idea that Beijing prefers to recruit ethnic Chinese. One could list dozens of examples of Chinese-Americans who have aided Beijing’s intelligence collection, ranging from passive scientific assistance to full-blown asset recruitment. Reading through the cases of Larry Wu-Tai Chin,⁸³ Peter Lee,⁸⁴ or Chi Mak, there are consistent threads of appeals to culture, nationalism, or “fairness” in the distribution of global scientific knowledge. In the Dongfang “Greg” Chung case, the US government introduced illustrative pieces of correspondence between Chung and his China-based interlocutors. In 1978, Chung wrote to Ku Chenlung at Harbin Institute of Technology, an elite technical university in China with close ties to the Chinese military and defense-industrial base:

I don’t know what I can do for the country. Having been a Chinese compatriot for over 30 years and being proud of the people’s efforts for the motherland, I am regretful for not contributing anything . . . I would like to make an effort to contribute to the Four Modernizations of China.⁸⁵

Ku wrote back to Chung on September 9, 1979:

We are all moved by your patriotism. You have spent so much time to reorganize the notes from several years ago; copying and finding the information that could be needed by us, and you have actively put in your efforts towards the Four Modernizations of the Motherland. Your spirit is an encouragement and driving force to us. We’d like to join our hands together with the overseas compatriots in the endeavor for the construction of our great socialist motherland.⁸⁶

Within this topic, the most controversial case is that of Wen Ho Lee, who claims that the government targeted him because of his ethnicity.⁸⁷ In his book, Lee declares emphatically: “Had I not been Chinese, I never would have been accused of espionage and threatened with execution.”⁸⁸ Lee’s claims were supported by Robert Vrooman, chief counter-intelligence officer at Los Alamos National Laboratory from 1987 to 1998, and Charles Washington, both of whom gave sworn statements asserting that he was “singled out for investigation as an espionage subject because of [his] ethnicity.”⁸⁹ Yet the Bellows Report, a review conducted by the Attorney General’s office of the handling of the investigation, concludes that there was “no exclusive targeting of Chinese Americans.”⁹⁰ Of the list of 12 suspects, then Attorney General Janet Reno testified that only half had Asian-American surnames.⁹¹ Notra Trulock and his supporters point out that Lee was a suspect owing to multiple counter-intelligence threat factors, including his professional and personal travel to China, his admitted failure to report contacts with Chinese nuclear scientists, and his 1982 contact with another scientist who was under investigation.⁹² These same advocates insist that the Wen Ho Lee case fell apart not because of the weakness of the evidence, but because of the serial bungling of the FBI and prosecutors in the case, which made conviction impossible.

Regardless of Lee’s actual innocence or guilt, he is now the poster child for ethnic profiling of Chinese-Americans by the US counter-intelligence apparatus, and the perceived injustice of the case now acts as a cautionary tale for every subsequent investigation of possible traitorous behavior by ethnic Chinese-Americans. Fair or not, his case is now paired with a case of genuine injustice involving missile scientist Qian Xuesen, who was driven out of the American defense research establishment in the 1950s by McCarthyist excesses and ended up establishing a missile program in

China, the products of which now target the United States.⁹³

Recent writings on Chinese intelligence operations, however, offer a revisionist perspective on the issue of ethnic targeting. First, Mattis makes a powerful argument that ethnic Chinese targeting may not be deliberate strategy and shows how this belief may actually undermine US counterintelligence efforts:

Even if every Chinese agent we identified was ethnically Chinese, this only means Chinese case officers have been successful in recruiting ethnic Chinese agents – not that they are the focus. Should we really be surprised that a group of case officers growing up behind the “bamboo curtain” with little, if any, exposure to foreigners would be more successful in recruiting agents with shared cultural understanding? This logical fallacy has created no end of grief for US counterintelligence. The conventional rebuttal – that Chinese intelligence profiled first – to adverse reactions from the Asian-American community only heightens suspicions. In the fields of counterintelligence and counterterrorism, authorities often need the support of local communities to identify people dangerous to national security. Civic trust should not be jeopardized for a lack of clear thinking. Unless the empirical record tells us something radically different, we should strike this third proposition from future discussions of Chinese intelligence operations and focus on how China matches potential sources to intelligence requirements.⁹⁴

Second, even Old School analysts admit that the ethnic targeting strategy doesn’t always work, undermining their earlier efficiency arguments. Moore asserts that the Chinese seek to “make as many friends as possible” and be content with a “minuscule positive response.” Moreover, they will “approach even previously unhelpful friends over and over, since their requests are modest and nonthreatening.”⁹⁵ Mattis adds that “focusing on ethnic Chinese at home and abroad sharply limits the kind of information Chinese intelligence officers can collect.”⁹⁶ On the other hand,

There are however certain kinds of missions that targeting ethnic Chinese becomes a necessity,

e.g., tracking dissidents, Taiwan, and monitoring the Chinese Diaspora. All of these missions relate to protecting the power of the Chinese Communist Party, which – according to press and defector information going back almost thirty years – is the highest priority for Chinese intelligence.⁹⁷

Finally, there is circularity to the standard argument, suggesting that insufficient data have led some observers to emphasis correlation over causation. For example, Moore argues:

So the reason that it is always ethnic Chinese who seem to be involved in Chinese intelligence matters is that they typically are the only ones China asks for assistance. It’s just that simple.⁹⁸

One must ask: How would the theory explain Chinese intelligence recruitments of non-ethnics?

In fact, while there is a clear historical pattern of the Chinese intelligence services recruiting ethnic Chinese assets, more recent cases strongly suggest that Beijing is moving beyond its traditional preference.⁹⁹ Gregg Bergersen and James Fondren, both Caucasian, were recruited in a “false flag” operation to acquire political and military information related to US– Taiwan defense relations. ^100 101 They were clearly approached because their positions at the Defense Security Cooperation Agency and US Pacific Command, respectively, gave them access to the intelligence that Beijing wanted, despite the fact that there are Chinese- and Taiwanese-Americans working at those organizations and related units with access to the same information. The most interesting recent case involves Glenn Duffie

Shriver, the young Caucasian man from Michigan who was recruited and paid by Chinese intelligence to become an agent-in-place at either the State Department or Central Intelligence Agency.^102 103 While the Shriver operation was an embarrassing failure for Beijing, it should perhaps be seen as an operational response to US counterintelligence’s assumption about ethnic Chinese targeting, believing perhaps that Caucasian applicants are subject to less scrutiny than their ethnic counterparts.

In sum, while Chinese intelligence does have a historically strong track record of attempting to recruit ethnic Chinese, primarily because of cultural and language affinity, more recent cases suggest that they have broadened their tradecraft to recruit non-ethnic assets as well, perhaps as a way of complicating US counterintelligence efforts.

Lack of traditional tradecraft

Another commonly held belief about Chinese intelligence operations is that they do not use the traditional spy tradecraft associated with American and Soviet agents during the Cold War. As Paul Moore puts it, the Chinese “do not spy the way God intended.”¹⁰⁴ Specifically, the Old School view claims that Chinese intelligence officers rarely use diplomatic cover, and when they do use cover they do not recruit or run agents. In addition, they argue that Chinese intelligence personnel do not use dead drops, avoid clandestine contacts of any kind between agents and handlers on US or even their own soil,¹⁰⁵ and rarely even ask a source for a classified document.¹⁰⁶ Instead, Moore and others argue that the Chinese services prefer to use their own scientists to elicit “small bits and pieces of information” from their American counterparts during conferences and private conversations.¹⁰⁷

In fact, the empirical record is filled with rich counter-examples. With respect to the use of diplomatic cover for intelligence operations, assistant military attaché Hou Desheng and consular officer Zhang Weichu left the United States in late 1987 after being caught engaged in “activities incompatible with their diplomatic status.”¹⁰⁸ While they were not declared persona non grata, Hou and Zhang were “caught with their hands in the cookie jar,” accepting what they believed was a classified NSA document from an undercover FBI agent.¹⁰⁹

Chinese agents have also been caught employing technical exfiltration methods, as well as using technical counter-surveillance technologies like encryption and other covert communications methods. Larry Wu-Tai Chin “provided his intelligence on rolls of 35mm undeveloped film of documents that he smuggled out of his workplace.”¹¹⁰ Babur Maihesuti, 62, was convicted for handing information about the health, travel patterns, and political leanings of other Uighurs to a journalist and diplomat who was, in fact, a Chinese intelligence officer.¹¹¹ Maihesuti had infiltrated a political body for Uighurs in exile – the World Uighur Congress – and would secretly pass information to his contact with the help of “a special system for dialing telephones.”¹¹² Noshir Gowadia used covert e-mail addresses to communicate with his handlers.¹¹³ Chi Mak and his family utilized advanced encryption to obfuscate their activities. During the trial, the prosecutor explained to the jury:

It’s not an encryption program that you can go to Fry’s or Office Depot and buy. It was a custommade encryption program and its author was a Chinese man.¹¹⁴

He alleged that American investigators would have been unable to break the encryption if a search of the home of Mr. Mak’s brother hadn’t turned up a 113-letter key¹¹⁵ to the code.¹¹⁶According to court documents, the Maks encrypted the disks to avoid detection and used coded words to arrange a drop-off of the disks to a Chinese intelligence operative. In one phone conversation, the brother, Tai Wang Mak, intimated that he would be traveling with his wife and a third companion he described as his “assistant” – a reference, prosecutors said, to the disks, hidden in his luggage.¹¹⁷ In the Bergersen and Fondren cases, Kuo wrote encrypted email messages to an individual described in the court documents as “PRC Official A,” using the commercial public key cryptography program, Pretty Good Privacy (PGP), and transmitted the messages to PRC Official A, Kang Yuxin, and Bergersen via three different ISPs.¹¹⁸ The same Chinese official communicated with Kuo via Yahoo! and Hotmail accounts registered under false names, and maintained five different phone numbers.¹¹⁹

Other Chinese assets have used traditional counter-surveillance techniques in their dealings with their Chinese intelligence handlers. Katrina Leung began using an alias (“Luo”) to communicate with her PRC handler, who chose the nom de guerre “Mao.”¹²⁰ Leung also told a Chinese official from the PRC consulate in San Francisco to call her from a public telephone because she had something urgent to convey that she did not want anyone to hear and was likely aware that the FBI had the consulate under FISA surveillance.¹²¹ In the 1980s, convicted spy Chi Mak first served as courier for another Chinese intelligence asset, Greg Dongfan Chung, acting as a cut-out for the delivery of his material to Beijing. In the Bergersen and Fondren cases, Kuo used Kang Yuxin, a PRC citizen and a Lawful Permanent Resident Alien in the US,¹²² as a cut-out to interact with their two assets and deliver their products to “PRC Official A.”¹²³ Kuo told PRC Official A that they needed to be careful because the United States is watching “China’s spy action.”¹²⁴ Kang was well aware of her role, because Kuo told her on at least one occasion that PRC Official A was paying Kuo for the work he performs, and that Kuo in turn was using that money to support her. In the most bizarre case of the PRC’s use of cut-outs, Chinese intelligence provided Larry Wu-Tai Chin with an emergency contact, Mark Cheung, who was an illegal operating in the United States as a legitimately ordained Catholic priest, though he was also married with a wife in China!¹²⁵

Perhaps the most important element of Chinese counter-surveillance tradecraft is their preference for meeting with assets outside of the United States, usually in China or an affiliated locale like Hong Kong or Macau. As one US official told the Los Angeles Times in 1988, “the Chinese prefer to do their actual recruiting in China for obvious security reasons.”¹²⁶ Examples abound, but a few are illustrative of the consistent dynamic. In a letter of May 2, 1987, AVIC official Gu Weihao asked Greg Dongfang Chung to come to Guangzhou, where Gu could arrange a meeting in a place that was “safe.” The letter suggested “cover stories” for travel to the PRC, including an invitation from an art institute to defendant Chung’s wife, an artist, to visit the PRC. Gu also suggested that passing information through another engineer in the United States, Chi Mak, was “faster and safer.” When Noshir Gowadia would visit China to transfer information during his consulting work, his PRC handlers added an additional layer of travel security, altering the stamps in his passport or moving him through passport control without stamping the passport at all.¹²⁷ Larry Wu-Tai Chin made frequent trips to Hong Kong to meet his handler, Ou Qiming,¹²⁸ and later met with handlers in Toronto, Hong Kong, Macau, and Beijing.¹²⁹ One of the secondary purposes of his trips was to hide his financial gains from espionage, depositing more than $192,000 in gold and in American and Hong Kong currency in Hong Kong bank accounts from December 1978 through June 1983.¹³⁰ Chi Mak’s brother, Tai Mak, traveled to China to deliver encrypted disks of information, meeting with his handler, Pu Peiliang, in Guangzhou, where the latter worked as an operations researcher at Zhongshan University’s 2PLA-funded Chinese Center for Asia Pacific Studies.¹³¹ Kuo regularly traveled to Beijing and maintained an office in Beijing.¹³² “PRC Official A” met with Kuo during each of his trips to Beijing, leading Kuo to conclude that the “[CCP] Central Committee has assigned him to take care of me.”¹³³

In sum, Chinese intelligence operations for decades exhibit significant evidence of tradecraft, both on the part of case officers and their assets, strongly suggesting that the Old School view is wrong.

China only collects intelligence from good people

Within the Chinese intelligence literature there is a common belief that the PRC services don’t recruit people motivated by revenge, financial problems, emotional issues, or other vulnerabilities, but only collect intelligence from “good people.” Paul Moore puts it succinctly: “China never looks for or approaches individuals with personal or financial problems who are the staple of other nations’ intelligence efforts against the

US.”¹³⁴

Again, the fact record suggests the opposite.

The best examples involve China’s deft use of honey traps, often exploiting the adulterous desires of married, usually male targets in longterm affairs to acquire intelligence. The award for the most bizarre case involves French diplomat Bernard Boursicot and his long-time relationship with a Chinese opera performer and intelligence asset named Shi Peipu, later dramatized in the play M. Butterfly. Boursicot maintained an active and what he believed was a heterosexual relationship with Shi, who claimed he had borne a child for Boursicot but was actually a man.¹³⁵ In May 2004, a 46-year-old Japanese code clerk working in Tokyo’s Shanghai consulate committed suicide after Japanese weekly magazine Shukan Bunshun revealed that he was being blackmailed by Chinese intelligence over his affair with a bar worker. In his suicide note, the diplomat said he would rather die than give in to blackmail: “I can’t sell out my country.” He was pressured to provide names and other information about diplomats and the flight numbers used to take encrypted classified documents to Japan.¹³⁶

Other successful Chinese honey traps are one-night stands or similarly brief rendezvous. In 2008, an aide to UK Prime Minister Gordon Brown had his BlackBerry phone stolen after being picked up by a Chinese woman who had approached him in a Shanghai hotel disco.¹³⁷ Later that year, Deputy Mayor of London Ian Clement was allegedly drugged by an attractive woman who he met at a party in Beijing.¹³⁸ After he passed out, she reportedly went through his room, collecting information from his briefcase about London’s operations and business dealings, and downloading material from his BlackBerry. Nothing was taken from his wallet.¹³⁹

Chinese intelligence handlers have also shown a penchant for recruiting assets with other moral problems. Kuo regularly took Gregg Bergersen to Las Vegas, where he was observed providing him with piles of casino chips for gambling.¹⁴⁰ Larry Wu-Tai Chin allegedly “had multiple girlfriends, a penchant for sex toys, gambled tens of thousands of dollars in Las Vegas.”¹⁴¹ He was charged with assault for allegedly fondling a teenage girl in the laundry room of his apartment building, but the charges were later dropped.¹⁴² He reportedly engaged in regular phone sex with a “niece” in New York, who sometimes met him for rendezvous.¹⁴³ Because of these marital problems, he asked his handler for $150,000 to pay off his wife and get a divorce, but Beijing declined.¹⁴⁴

In contrast to the Old School view, the evidence suggests that the Chinese intelligence services have no problem recruiting assets with substantial moral deficiencies and, like their counterparts around the world, exploit those vulnerabilities for their own gain.

China has 3,000 front companies in the US

One of the most persistent urban legends about Chinese intelligence operations is the accusation that Beijing controls 3,000 front companies in the United States. This allegation first appeared in public in media reporting on the Cox Commission in the late 1990s. Despite the efforts of researchers on both sides of the political spectrum to convince the Commission otherwise, the final draft of the Cox Report made the following claim:

[I]n Senate testimony on the same day in 1997, the [Defense] Department said it could identify only two PLA companies that were doing business in the United States, while the AFL-CIO identified at least 12, and a Washington-based think-tank identified 20 to 30 such companies. The Select Committee has determined that all three figures are far below the true figure.

The Select Committee has concluded that there are more than 3,000 PRC corporations in the United States, some with links to the PLA, a State intelligence service, or with technology targeting and acquisition roles.¹⁴⁵

The committee defined “front companies” as any affiliated with the Chinese government, its security services, or the People’s Liberation Army, its military arm, that were set up to acquire Western technology, give cover to spies, launder or raise money, or influence the US government.

The Washington-based think-tank cited by the Cox Report was the RAND Corporation, and the individual testifying was James Mulvenon, who had written a book on the Chinese military’s international business empire¹⁴⁶ as well as several internal studies on the subject for RAND’s government customers.¹⁴⁷ In his 1998 testimony, Mulvenon highlighted at least 14 companies that could be definitively linked to the Chinese military, such as PTK International, Inc., Poly USA, Inc., Dynasty Holding Company, JF&D International, H&D International, Novell International, and various subsidiaries of Xinxing, all of which were dissolved after indictments and bad press in the mid-1990s or PLA divestiture in 1998.¹⁴⁸ Similarly, Mulvenon exposed 12 subsidiaries of NORINCO, then China’s defense ordnance production company, many of which were producing chemicals, optics, lighting fixtures, sport guns, and auto parts for Walmart and other major chains.¹⁴⁹ The AFL-CIO representative was Jeffrey L. Fiedler, the then president of the Food and Allied Trades Department, a unit that had campaigned for years against allowing affiliates of the People’s Liberation Army to do business in the US. In the 1990s, the department sponsored a website entitled “Kick the PLA Out of the USA,” which contained links to testimony and reports about the PLA and to proposed legislation barring such enterprises from operating in the US. Despite very different agendas, Mulvenon and Fiedler, who had worked closely together for years, roughly agreed on the scale of Chinese front companies, and told members of the Commission they were vastly overstating the number of Chinese front companies operating in the United States.¹⁵⁰

Shortly after publication, the Los Angeles Times carried an article investigating this allegation, concluding that the number “could only be reached by lumping together civilian, military and defense-industrial companies incorporated in the US – and that there is little chance that all could be equally under the thumb of Chinese military or espionage agencies.”¹⁵¹ The article pointed out that the Cox Report did not produce a list of the 3,000 “fronts” or explain how it reached that figure.¹⁵² In the article, numerous China and trade experts refuted the claim. “The idea that most of these companies are set up by the [state security agency] is absolute nonsense,” said Nick Lardy, now a senior Fellow at the Peterson Institute for International Economics.

Despite consistent repetition of the figure by senior US government officials, there is no evidence that the Chinese government operates “3,000 front companies” in the United States, and this urban legend has served mainly to distract the national debate about Chinese espionage from more serious threats to national security and technological competitiveness that include the informal relationships which mostly legitimate companies in the US have with elements of the Chinese government, as opposed to being established by them.

Science and technology espionage

While the preceding pages have called into question the applicability of the “Old School” view for China’s current intelligence operations, many of the principles continue to be dispositive for Beijing’s efforts to acquire sensitive science and technology information. According to the 2004 Intelligence Threat Handbook, PRC operations against S&T targets are generally “not directed and controlled by PRC intelligence services.”¹⁵³ Although USG sources acknowledge that “there are specific MSS components charged with running technology collection operations,” it is striking that “the MSS does not appear to be notably active in organizing covert operations to collect US technology.”¹⁵⁴ Instead, the “consumers” of S&T intelligence such as institutes or factories define collection requirements, design the collection strategy, and carry out the collection. For example,

In some instances, a delegation will visit a PRC consulate in the United States and identify the company that produces the technology or information the delegation is interested in. Intelligence officials will give the delegation members the names of company employees with whom the officials have established ties, and the delegation will appeal to them for covert assistance in obtaining a restricted item. If successful the delegation may ask the consulate to use the diplomatic pouch to mail it back to China.¹⁵⁵

In other cases, the scientists and engineers in the delegations act as spotters:

when delegations and PRC students or researchers have contact with US laboratories or advanced research facilities, they as a rule do not attempt to steal or covertly acquire restricted information; they simply identify what they need and invite knowledgeable individuals to make reciprocal visits to the PRC. While there, the Chinese hosts will attempt to persuade the American guests to make unauthorized disclosures. The PRC students or delegation members thus become vectors, not for theft of information, but for convincing US experts that they give their technical knowledge away.¹⁵⁶

These cases illustrate the fact that Chinese universities, research institutes, and factories are frequently aided by what might be termed “espionage entrepreneurs” on the US side, or what Paul Moore and others call the “cottage industry.” These individuals are often naturalized Chinese or Taiwanese citizens who operate small, mom-and-pop businesses, usually from their residences. They are actively trawling for access to technologies or components sought by mainland customers, and then seek to exploit the vagaries of US export control laws to illegally ship them to China. As early as 1998, China was already the primary target for US Customs agents in about 50 percent of all illegal technology transfer cases on the west coast.¹⁵⁸ While these technologies are sometimes cutting-edge, more often than not they are less advanced items that are nonetheless essential to specific Chinese programs. According to a former export control enforcement official: “The Chinese aren’t going for the cutting-edge stuff – laser killer-satellite technology and so forth. They are primarily after midrange and dual-use technology that has both civilian and military applications – a computer that drives an auto production plant, for example.”¹⁵⁹ They are also not directed agents of the Chinese state, and are motivated almost entirely by money. As former FBI Assistant Director for Counterintelligence Bruce Carlson puts it: “The basis for the whole program is money. People [in the US] are looking to make a buck. China has money to spend.”¹⁶⁰

If we step back and look at all the cases of Chinese technology espionage over the past 40 years as an analytical whole, it is helpful to systematically categorize different modes of economic and technology espionage. Mattis identifies at least five forms involving varying degrees of government or intelligence service involvement:

1.  Intelligence service collection of economic secrets for state-supported industrial development.

2.  Intelligence service collection of technology for military intelligence and planning as well as strategic economic intelligence.

3.  Government-sponsored, non-intelligence service collection for statesupported industry.

4.  Economic actors stealing competitors’ secrets for the actor’s own benefit.

5.  Entrepreneurial individuals stealing economic secrets to sell to any of the above actors and/or go into business for themselves.¹⁶¹

If we apply this framework to the cases in the Appendix, it is clear that “cases conclusively linked to mainland China demonstrate all five modes of economic espionage and technology transfer.”¹⁶² First, in 1993, Wu Bin and two other Chinese nationals were prosecuted for smuggling exportcontrolled equipment to China at the direction of the MSS.¹⁶³ In the second category, two accredited Chinese diplomats – one an assistant military attaché reporting to 2PLA – in the United States were expelled in 1987 after attempting to purchase cryptographic materials in an FBI sting operation.¹⁶⁴ Third, the Chinese military owns or owned several import–export companies to facilitate the purchase of foreign dual-use technologies, such as poly technologies.¹⁶⁵ Combining the fourth and fifth categories, two Silicon Valley engineers, Ye Fei and Zhong Ming, were indicted in 2002 for the attempted theft of technical schematics from Sun Microsystems and Transmeta. Ye and Zhong wanted to start their own company in China. They also sought state funding through the national technical modernization program, the 863 Program, according to court documents.¹⁶⁶ Finally, in late 2005, Bill Moo was arrested prior to exporting General Electric’s newest engine for the F-16. Moo reportedly stood to make a profit of a million dollars for selling the engine to the Chinese military.¹⁶⁷

Conclusion

For too long, the literature on Chinese intelligence operations has relied on a set of outdated proverbs and shibboleths. As Mattis argues persuasively in his recent publications, “each of these propositions has serious flaws in its internal logic, foolhardy assumptions, or dangerous implications that should be addressed before comparing the conventional view to the record.”¹⁶⁸ After systematically assessing the Old School tenets with the empirical record, the result is (not surprisingly) a mixed bag. Some hoary chestnuts, such as the belief that China doesn’t pay for secrets or doesn’t use traditional tradecraft or only recruits “good people,” seem to be completely at variance with the facts. Others, particularly the focus on recruitment of ethnic Chinese, appear to be less ironclad than in the past, but should also be viewed in a much more nuanced light lest they lead to mindless ethnic profiling. A few of the more high-profile concepts, such as the infamous “thousand grains of sand,” have been exposed for their faulty internal logic and mischaracterization of Chinese bureaucratic behavior, suggesting that they may have arisen from attempts to reduce our own cognitive dissonance in the face of key missing data. In addition, some of the core tenets of the Old School, such as the Chinese focus on convincing scientists to give away sensitive information in informal settings, appear to be alive and well.

In the end, the evidence on Chinese intelligence operations supports Mattis’ notion of a “layered approach to intelligence collection,” ranging from traditional service-driven operations with modern tradecraft to the “amateur espionage”  ) entrepreneurs operating out of their homes. Yet this multilevel approach is clearly even more challenging for US counter-intelligence than the traditional model where intelligence services maintain exclusive control over operations. As former FBI official Dave Szady asserts, China “can work on so many levels that [they] may prove more difficult to contain than the Russian threat.”¹⁶⁹ Moreover, as we shall see in the next chapter, traditional Chinese intelligence collection operations are being quickly overtaken by the ease, deniability, and stunning effectiveness of cyber-intelligence collection.

Notes

1      Jay Solomon, “FBI Sees Big Threat from Chinese Spies,” Wall Street Journal, August 10, 2005, p. A1.

2      Joby Warrick and Carrie Johnson, “Chinese Spy ‘Slept’ in US for TwoDecades,” Washington Post, April 3, 2008, www.washingtonpost.com/wpdyn/content/article/2008/04/02/AR2008040203952.html.

3      Michelle Van Cleave on 60 Minutes. See also “Caught on Tape,” CBS News, August 30, 2010, www.cbsnews.com/8301-18560_1626242498.html.

4      David Lynch, “Law Enforcement Struggles to Combat Chinese Spying,”USA Today, July 23, 2007, www.usatoday.com/money/world/2007-07-22china-spy-1_N.htm.

5      Ibid.

6      Ibid.

7      Solomon, “FBI Sees Big Threat from Chinese Spies.”

8      Lynch, “Law Enforcement Struggles to Combat Chinese Spying.”

9      David Leppard, “China Bugs and Burgles Britain,” The Sunday Times, January 31, 2010.

10   “Merkel’s China Visit Marred by Hacking Allegations,” Spiegel Online International, August 27, 2007.

11   J. Michael Cole, “Friendship is No Bar to Espionage,” Taipei Times,

November 1, 2009, www.taipeitimes.com/News/editorials/archives/2009/11/01/2003457356.

12   Peter Mattis, “Beyond Spy vs. Spy: The Analytic Challenge ofUnderstanding Chinese Intelligence Services,” Studies in Intelligence 56, no. 3, September 2012, www.cia.gov/library/center-for-the-study-ofintelligence/csi-publications/csi-studies/studies/vol.-56-no.-3/pdfs/MattisUnderstanding%20Chinese%20Intel.pdf. See also Peter Mattis, “Chinese Intelligence Operations Revisited: Toward a New Baseline,” MA Thesis, Georgetown University, 2011.

13   Paul Moore, “Spies of a Different Stripe,” Washington Post, May 31, 1999, p. A23.

14   For examples of the “mosaic” view, see Paul Moore, “How China Playsthe Ethnic Card: Beijing’s Strategy of Targeting Chinese Americans is Hard to Counter With US Security Defense” Los Angeles Times, June 24, 1999; Stein, “Espionage without Evidence: Is It Racism or Realism to Look at

Chinese-Americans When Trying to Figure Out Who’s Spying for China?”

15   “Special Report: Espionage with Chinese Characteristics,” StratFor

Global Intelligence Report, 24 March 2010; Paul Moore, “How China

Plays the Ethnic Card”; Paul Moore, “Chinese Culture and the Practice of

‘Actuarial’ Intelligence,” in Douglas Daye, A Law Enforcement

Sourcebook of Asian Crime and Cultures: Tactics and Mindsets, Boca

Raton, FL: CRC Press, 1997, pp. 377–382; Neil Lewis, “Chinese Espionage Cases Raising Concerns in Washington,” New York Times, July 10, 2008.

16   Moore, “Chinese Culture and the Practice of ‘Actuarial’ Intelligence.”

17   Mark Magnier, “China’s Style of Espionage in Spotlight,” Los Angeles

Times, July 17, 2005, reprinted in Seattle Times, http://seattletimes.nwsource.com/html/nationworld/2002386112_chinaspy1 7.html.

18   Simon Cooper, “How China Steals US Military Secrets,” Popular Mechanics, August 2009, www.popularmechanics.com/technology/military/3319656.

19   Peter Grier, “Spy Case Patterns the Chinese Style of Espionage,”

Christian Science Monitor, November 30, 2005, www.csmonitor.com/2005/1130/p01s01-usfp.html. 20 Mattis, “Beyond Spy vs. Spy.” See also Mattis, “Chinese Intelligence Operations Revisited.”

21 Moore, “Chinese Culture and the Practice of ‘Actuarial’ Intelligence.” 22 Ibid. 23 Ibid.

24   Josh Gerstein, “Prosecutors Reverse Course in China Spy Case,” New York Sun, April 12, 2007.

25   Lynch, “Law Enforcement Struggles to Combat Chinese Spying,” andGrier, “Spy Case Patterns the Chinese Style of Espionage.”

26   Warrick and Johnson, “Chinese Spy ‘Slept’ in US for Two Decades.”

27   United States v. Dongfan “Greg” Chung, SA CR 08-00024, UnitedStates District Court, Central District of California, February 6, 2008.

28   United States v. Dongfan “Greg” Chung.

29   “State Security Department Set Up in Fujian,” BBC Summary of World

Broadcasts, October 17, 1983; “Anhui Sets Up State Security Department,”

BBC Summary of World Broadcasts, June 5,1995; “Sichuan Arrests Falun Gong Follower for State Secrets Leak,” BBC Summary of World Broadcasts, November 5, 1999; Erik Eckholm, “Researcher for The Times in China Is Detained,” New York Times, September 24, 2004; “China Releases Last of Four Japanese Charged With Military Zone Intrusion,” Xinhua News, October 9, 2010.

30   Kenneth Lieberthal, Governing China: From Revolution through Reform, New York: W.W. Norton and Company, 1995, pp. 169–170.

31   Kenneth Lieberthal, “China’s Governing System and its Impact onEnvironmental Policy Implementation,” Wilson Center China Environment Series 1, 1997, p.3, www.wilsoncenter.org/sites/default/files/ACF4CF.PDF.

32   Solomon, “FBI Sees Big Threat from Chinese Spies.”

33   Jeff Stein, “Espionage without Evidence: Is It Racism or Realism toLook at Chinese-Americans When Trying to Figure Out Who’s Spying for China?” Salon.com, August 26, 1999: www.salon.com/news/feature/1999/08/26/china/index.html.

34   Mark Magnier, “China’s Style of Espionage in Spotlight,” Los Angeles

Times, July 17, 2005, reprinted in Seattle Times, http://seattletimes.nwsource.com/html/nationworld/2002386112_chinaspy1 7.html.

35   Dan Stober and Ian Hoffman, A Convenient Spy: Wen Ho Lee and the Politics of Nuclear Espionage, New York: Simon and Schuster, 2002, p.77.

36   Stein, “Espionage without Evidence.”

37   William Overend, “China Seen Using Close US Ties for Espionage:

California Activity Includes Theft of Technology and Surpasses That of Soviets, Experts Believe,” Los Angeles Times, November 20, 1988, http://articles.latimes.com/1988-11-20/news/mn-463_1_chinese-espionage.

38   Moore, “How China Plays the Ethnic Card.”

39   Overend, “China Seen Using Close US Ties for Espionage.”

40   David Wise, Tiger Trap: America’s Secret Spy War with China, Boston, MA: Houghton Mifflin Harcourt, 2011, p. 158.

41   Jeff Gerth and James Risen, “Reports Show Scientist Gave US RadarSecrets to China,” New York Times, May 10, 1999.

42   Wise, Tiger Trap, p. 155.

43   William Claiborne, “Taiwan-Born Scientist Passed Defense Data: Ex-Los Alamos Worker Gave Secrets to China,” Washington Post, December 12, 1997.

44   Lee denied giving them classified information and “passed” asubsequent polygraph exam. See Wen Ho Lee, with Helen Zia, My Country Versus Me: The First-Hand Account by the Los Alamos Scientist Who Was Falsely Accused of Being a Spy, New York: Hyperion, 2001.

45   United States v. Dongfan “Greg” Chung.

46   Ibid.

47   Ibid.

48   Ibid.

49   Stein, “Espionage without Evidence.”50 Ibid.

51   Ibid.

52   Ibid.

53   Ibid.

54   Wise, Tiger Trap, p. 202.

55   In the Case of United States v. Larry Wu-tai Chin. United States of

America, Plaintiff-appellee, v. Cathy Chin, Defendant-appellant (United

States Court of Appeals, Fourth Circuit. – 848 F.2d 55, Argued Nov. 6, 1987. Decided May 27, 1988)

56   Noshir Gowadia Convicted of Providing Defense Information and

Services to People’s Republic of China (DOJ press release, 9 August 2010)

57   Hawaii Man Sentenced to 32 Years in Prison for Providing DefenseInformation and Services to People’s Republic of China” (DOJ press release, 25 Jan 2011)

58   Bill Gertz, “Spy’s Arrest Underscores Beijing’s Bid for Agents,”Washington Times, October 25, 2010, www.washingtontimes.com/news/2010/oct/25/spys-arrest-underscoresbeijings-bid-for-agents/.

59   In the Case of United States v. Glenn Duffie Shriver (United StatesDistrict Court for the Eastern District of Virignia, Case 1:10-cr-00402-LO).

60   Wise, Tiger Trap, p. 149. As a double or triple agent, Leung was actually making money from both ends. Leung received $1.7 million as an operational FBI asset, including $951,000 after the FBI learned in 1991 that she was passing information to the MSS. Of this, $1.2 million were reimbursements for expenses, and $521,000 for passing information.

61   “They Let Her Clean the China,” The Economist, May 15, 2003.

62   Statement of the US Attorney on the Guilty Please Entered by KatrinaLeung (DOJ, 16 Dec 2005)

63   A Review of the FBI’s Handling and Oversight of FBI Asset KatrinaLeung, Special Report (DOJ/IG, 24 May 2006)

64   Former Defense Department Official Sentenced to 57 Months in Prisonfor Espionage Violation (DOJ Press Release, 11 July 2008)

65   Jerry Markon, “Man Gave Military Secrets To China,” Washington Post, May 14, 2008.

66   “Caught on Tape,” CBS News.

67   United States v. Tai Shen Kuo, Gregg William Bergersen, and Yu XinKang, “Affidavit in Support of Criminal Complaint, Three Arrest Warrants and Three Search Warrants,” United States District Court for the Eastern District of Virginia, Alexandria Division.

68   United States v. Tai Shen Kuo, Gregg William Bergersen, and Yu XinKang.

69   Ibid.

70   “Defense Department Official Charged with Espionage Conspiracy,”

Department of Justice Press Release, May 13, 2009, www.justice.gov/opa/pr/2009/May/09-nsd-469.html. 71 Moore, “How China Plays the Ethnic Card.”

72   Centre for Counterintelligence and Security Studies, Intelligence Threat Handbook, 2004, p. 21. This book was prepared for and published under the auspices of the former Interagency OPSEC Support Staff (IOSS) as an UNCLASSIFIED//FOUO document. A copy may be accessed at www.fas.org/irp/threat/handbook.

73   Centre for Counterintelligence and Security Studies, p. 21.

74   Ibid.

75   Paul Moore, “How China Plays the Ethnic Card: Beijing’s Strategy of

Targeting Chinese Americans is Hard to Counter With US Security Defense,” Los Angeles Times, June 24, 1999, www.articles.latimes.com/1999/jun/24/local/me-49832.

76   Moore, “How China Plays the Ethnic Card.”

77   Centre for Counterintelligence and Security Studies, p. 21.

78   Moore, “How China Plays the Ethnic Card.”

79   Stein, “Espionage without Evidence.”

80   Moore, “How China Plays the Ethnic Card”; Paul Moore, “Spies of a

Different Stripe,” Washington Post, May 31, 1999, p. A23; “Special

Report: Espionage with Chinese Characteristics,” StratFor: p. 5; 2009 Annual Report to Congress, USCC, pp. 149–150; Eftimiades, Chinese Intelligence Operations, pp. 60–61.

81   For the Asian-American reaction, see Wang Ling-chi, “Spy Hysteria,”

Asian Week 20 (March 25, 1999); Helen Zia, “I am not a Spy – Are You?”

Asian Week 20 (June 10, 1999); Emil Amok, “The Everyman Spy: The

New Yellow Peril,” Asian Week, August 19, 2005; George Koo, “FBI’s

Ongoing Racial Profiling Hurts National Interest,” FinalCall.com News,

August 29, 2005; George Koo, “Warning to Chinese Americans: FBI Still Obsessed with Chinese-American ‘Spies,’” New America Media, May 17, 2007.

82   Stein, “Espionage without Evidence.”83 Wise, Tiger Trap, pp. 202–213.

84   Wise, Tiger Trap, pp. 154–166.

85   United States v. Dongfan “Greg” Chung.

86   Ibid.

87   Lee, My Country Versus Me.

88   Ibid., p. 327.

89   Ibid., p. 288.

90   Bellows Report, p. 385.

91   Reno testimony, pp. 7, 15.

92   Notra Trulock, Code Name Kindred Spirit: Inside the Chinese Nuclear Espionage Scandal, San Francisco: Encounter Books, 2003, pp.178–179.

93   Perla Ni, “Author Denounces Cox Report: Iris Chang tellsconventioneers that her research was misused,” Asiaweek, June 3, 1999, www.asianweek.com/060399/news_irishchang.html.

94   Mattis, “Beyond Spy vs. Spy.” See also Mattis, “Chinese IntelligenceOperations Revisited.”

95   Moore, “How China Plays the Ethnic Card.”

96   Mattis, “Beyond Spy vs. Spy.” See also Mattis, “Chinese IntelligenceOperations Revisited.” 97 Ibid.

98       Moore, “How China Plays the Ethnic Card.”

99       The Ron Montaperto case is a tough one. On the one hand, Montapertoapparently violated security rules by keeping documents judged to be classified in his home and not reporting contacts with Chinese military officers and intelligence personnel. On the other hand, Montaperto had been instructed to liaise with Chinese military officers and intelligence personnel at one point in the US–China relationship, and was punished for maintaining those relationships after the policy had shifted. Similarly, some of the documents in his possession at home appear to have been retroactively classified. These dilemmas are common for cleared government and contractor personnel who regularly travel to China and interact with PLA personnel for official or government contractual reasons, but are forced to engage in complex mental compartmentation and then naturally worry that they will be scrutinized by their own counterintelligence personnel who view all interactions with Chinese military personnel as suspicious. Finally, critics of the Montaperto case believe that the NCIS ruse that led to his polygraph confessions smells of entrapment, especially given Montaperto’s well-known penchant for emotionalism and Catholic guilt, both of which are fatal qualities for the poly. Like the Don Keyser case, there is little argument about the mishandling of classified documents, but intense disagreement about whether either man was a recruited spy for a foreign intelligence service.

100   Jury Convicts Defense Department Official James W. Fondren Jr. of

Unlawful Communication of Classified Information and Making False Statements (DOJ Press Release, 25 September 2009)

101   Defense Department Official Pleads Guilty to Espionage Charge Involving China (DOJ Press Release, 31 March 08)

102   Gertz, “Spy’s Arrest Underscores Beijing’s Bid for Agents.”

103   In the Case of United States v. Glenn Duffie Shriver (United States

District Court for the Eastern District of Virignia, Case 1:10-cr-00402-LO)

104   Bill Gertz, “Chinese Espionage Handbook Details Ease of SwipingSecrets,” Washington Times, December 26, 2000.

105   Stein, “Espionage without Evidence.”106 Ibid.

107   Ibid.

108   James Mann and Ronald Ostrow, “US Ousts Two Chinese Envoys forEspionage,” Los Angeles Times, December 31, 1987, www.articles.latimes.com/1987-12-31/news/mn-7581_1.

109   Mann and Ostrow, “US Ousts Two Chinese Envoys for Espionage.”

110   Centre for Counterintelligence and Security Studies, Intelligence Threat Handbook, 2004, p. 21.

111   “Sweden Jails Uighur Chinese Man for Spying,” Reuters, March 8, 2010, www.reuters.com/article/idUSTRE6274U620100308.

112   “Sweden Jails Uighur Chinese Man for Spying.”

113   United States v. Noshir Gowadia, United States District Court for theDistrict of Hawaii, CR 05-00486 HG-KSC, October 25, 2007.

114   Josh Gerstein, “Prosecution: Spy Case Shows China’s Effort to StealUS Secrets.”

115   Josh Gerstein, “Prosecutors Reverse Course in China Spy Case,” New York Sun, April 12, 2007.

116   Gerstein, “Prosecution: Spy Case Shows China’s Effort to Steal USSecrets,” New York Sun, March 29, 2007, www.nysun.com/national/prosecution-spy-case-shows-chinas-effort-tosteal/51450/.

117   Warrick and Johnson, “Chinese Spy ‘Slept’ in US for Two Decades.”

118   United States v. Tai Shen Kuo, Gregg William Bergersen, and Yu XinKang.

119   Ibid.

120   “A Review of the FBI’s Handling and Oversight of FBI Asset KatrinaLeung,” Department of Justice Office of the Inspector General, May 2006, www.justice.gov/oig/special/s0605/final.pdf.

121   “A Review of the FBI’s Handling and Oversight of FBI Asset KatrinaLeung.”

122   “Defense Department Official and Two Others Arrested on Espionage

Charges Involving China,” Department of Justice Press Release, February

11, 2008, www.justice.gov/opa/pr/2008/February/08_nsd_105.html; and United States v. Tai Shen Kuo, Gregg William Bergersen, and Yu Xin Kang.

123   United States v. Tai Shen Kuo, Gregg William Bergersen, and Yu XinKang.

124   Ibid.

125   Wise, Tiger Trap, p. 206.

126   Overend, “China Seen Using Close US Ties for Espionage.”127 United States v. Noshir Gowadia.

128   Wise, Tiger Trap, p. 202.

129   Ibid.

130   Ronald Ostrow, “Accused Spy Chin Faces New Charges,” Los Angeles Times, January 3, 1986, http://articles.latimes.com/1986-01-03/news/mn23858_1_foreign-broadcast-information-service.

131   Lynch, “Law Enforcement Struggles to Combat Chinese Spying.”

132   United States v. Tai Shen Kuo, Gregg William Bergersen, and Yu XinKang.

133   Ibid.

134   Moore, “How China Plays the Ethnic Card.”

135   Joyce Wadler, “The True Story of M. Butterfly – The Spy Who Fell inLove with a Shadow,” The New York Times Magazine, August 15, 1999, www.nytimes.com/1993/08/15/magazine/the-true-story-of-m-butterfly-thespy-who-fell-in-love-with-a-shadow.html?pagewanted=all.

136   Justin McCurry, “Japan Says Diplomat’s Suicide Followed Blackmailby China,” Guardian, December 20, 2005, www.guardian.co.uk/world/2005/dec/29/japan.china.

137   David Leppard, “China Bugs and Burgles Britain,” The Times of London (Online), January 31, 2010, www.timesonline.co.uk/tol/news/uk/crime/article7009749.ece.

138   Kate Mansey, “Boris Johnson’s deputy: ‘I had sex with a Chinesespy’,” Sunday Mirror, November 29, 2009, www.mirror.co.uk/news/topstories/2009/11/29/boris-johnson-s-deputy-i-had-sex-with-a-chinese-spy115875-21858098/.

139   Ibid.

140   Wise, Tiger Trap, p. 222.

141   Ibid., p. 202.

142   Ibid., p. 206.

143   Ibid., p. 209.

144   Ibid., p. 206.

145   Report of the Select Committee on US National Security and

Military/Commercial Concerns with the People’s Republic Of China (Cox Commission Report), Washington, DC: Government Printing Office, 1999, p. 34.

146   James Mulvenon, Soldiers of Fortune: The Rise and Fall of the Chinese Military-Business Complex, 1978–98, Armonk, NY: M.E. Sharpe, 2001.

147   James Mulvenon, Chinese Military Commerce and US National Security, Santa Monica, CA: RAND, 1997, MR-907.0-CAPP.

148   Mulvenon, Chinese Military Commerce and US National Security.

149   Ibid.

150   James Mulvenon, Testimony before the Select Committee on USNational Security and Military/Commercial Concerns with the People’s Republic of China, October 15, 1998.

151   Hael A. Hiltzik and Lee Romney, “Report’s Claim on China ‘Front’Firms Disputed,” Los Angeles Times, May 27, 1999.

152   Ibid.

153   Centre for Counterintelligence and Security Studies, Intelligence Threat Handbook, 2004, p.18.

154   “Report to Congress on Chinese Espionage Activities against theUnited States by the Director of Central Intelligence and the Director of the Federal Bureau of Investigation,” December 12, 1999.

155   Centre for Counterintelligence and Security Studies, p.18.

156   Ibid.

157   These case summaries were provided by the FBI. Seewww.justice.gov/nsd/docs/summary-eaca.pdf.

158   William Overend, “China Seen Using Close US Ties for Espionage:

California Activity Includes Theft of Technology and Surpasses That of Soviets, Experts Believe,” Los Angeles Times, November 20, 1988, http://articles.latimes.com/1988-11-20/news/mn-463_1_chinese-espionage. 159 Overend, “China Seen Using Close US Ties for Espionage.”

160   Lynch, “Law Enforcement Struggles to Combat Chinese Spying.”

161   Mattis, “Beyond Spy vs. Spy.” See also Mattis, “Chinese IntelligenceOperations Revisited.” 162 Ibid.

163   Cox Commission Report, pp. 69–70.

164   Eftimiades, Chinese Intelligence Operations, pp. 37, 93–94; Mann and Ostrow, “US Ousts Two Chinese Envoys for Espionage.”

165   Kan Zhongguo, “Intelligence Agencies Exist in Great Numbers, Spies

Are Present Everywhere; China’s Major Intelligence Departments Fully

Exposed.” Chien Shao (Hong Kong), January 1, 2006, p. 27; Cox Commission Report, p. 65. It is unclear to what extent the forced military divestiture of commercial enterprises affected those companies used by the

Chinese military to acquire technology. See Michael Chase and James

Mulvenon, “The Decommercialization of China’s Ministry of State Security,” International Journal of Intelligence and Counterintelligence 15, No. 4, November 2002, pp. 481–495; and Mulvenon, Soldiers of Fortune.

166   Terence Jeffrey, “Two Silicon Valley Engineers Indicted for EconomicEspionage Aiding China,” Human Events, January 13, 2003, pp. 1, 8.

167   Simon Cooper, “How China Steals US Military Secrets,” Popular Mechanics, August 2006, www.popularmechanics.com/technology/military/3319656.

168   Mattis, “Beyond Spy vs. Spy.” See also Mattis, “Chinese IntelligenceOperations Revisited.”

169   Solomon, “FBI Sees Big Threat from Chinese Spies”, p.A1.

9

Chinese Cyber Espionage

The scale of the problem

Cyber espionage is the latest and perhaps most devastating form of Chinese espionage, striking at the heart of American military advantage and technological competitiveness. Without mentioning China, General Keith Alexander, NSA Director and Commander of USCYBERCOM, told an audience at the Aspen Security Forum on July 26, 2012 that cyber espionage represents the “greatest transfer of wealth in history.” Other government agencies are less circumspect about calling out Beijing for its cyber theft.¹ The Office of the National Counterintelligence Executive’s 2011 report Foreign Spies Stealing US Economic Secrets in Cyberspace boldly asserts: “Chinese actors are the world’s most active and persistent perpetrators of economic espionage.”² While the media began reporting rumors of large-scale intrusions in 2005,³ US officials did not publicly acknowledge exfiltrations of data until August 2006, when the Pentagon asserted that hostile civilian cyber units operating inside China had launched attacks against the NIPRNET and downloaded up to 20 terabytes of data.⁴In March 2007, the then Vice-Chairman of the Joint Chiefs General Cartwright told the US-China Economic and Security Review Commission that China was engaged in cyber reconnaissance, probing computer networks of US agencies and corporations.⁵ This view was seconded in the 2007 China Military Power Report, an annual Pentagon assessment mandated by the National Defense Authorization Act, which claimed that “numerous computer networks around the world, including those owned by the US government, were subject to intrusions that appear to have originated within” the People’s Republic of China.⁶ Former White House and DHS cyber official Paul Kurtz told Business Week that the

Chinese activity was “espionage on a massive scale.”⁷ A 2009 study by

Northrup Grumman for the US-China Economic and Security Review

Commission concluded: “Chinese espionage in the United States now comprises the single greatest threat to US technology . . . and has the potential to erode the United States’ long-term position as a world leader in S&T [science and technology] innovation and competitiveness.”⁸ The problem appeared to be getting worse over time. Robert Jamison, the top cyber-security official at DHS, told reporters at a March 2008 briefing, “We’re concerned that the intrusions are more frequent, and they’re more targeted, and they’re more sophisticated.”⁹ After the Operation Aurora intrusions against Google and other Silicon Valley companies in 2009 and 2010, officials became worried that China was escalating its intrusions. Whereas before the activities were targeted at government and military networks, threatening US military advantage and government policies, the new intrusions went beyond state-on-state espionage to threaten American technological competitiveness and economic prosperity.

Because the underlying evidence was classified, government and military officials could not provide detailed evidence of these allegations against the Chinese government and military, which naturally led to scrutiny of the specific attribution to China. In his confirmation testimony questions, current CYBERCOM Commander General Alexander agreed that “attribution can be very difficult.”¹⁰ Former senior DHS cyber-security official Greg Garcia told the New York Times in March 2009 that “attribution is a hall of mirrors.”¹¹ With respect to China, Amit Yoran, the first director of DHS’s National Cyber Security Division, cautioned, “I think it’s a little bit naive to suggest that everything that says it comes from China comes from China.”¹² Yet other officials were more confident in the assessment of Chinese responsibility. The then director of the DNI National Counterintelligence Executive, Joel Brenner, told the National Journal in 2008:

Some [attacks], we have high confidence, are coming from governmentsponsored sites. . . . The Chinese operate both through government agencies, as we do, but they also operate through sponsoring other organizations that are engaging in this kind of international hacking, whether or not under specific direction. It’s a kind of cyber-militia. . . . It’s coming in volumes that are just staggering.¹³

This view was confirmed by the February 2013 publication of a report by cyber intelligence firm Madiant, detailing highly precise attribution of a major set of network intrusions to a Chinese military intelligence unit in Shanghi.¹⁴

Strategic context of Chinese cyber espionage: China and cyber as an overt tool of state power

As a rising power, Chinese national interests have logically expanded with the growth in its economic, political, diplomatic, and military power. Yet its rise has occurred within a world system still dominated by American unilateral authority. Because of these imbalances, China has naturally sought to find asymmetrical advantages, and cyber space at first glance appears to be a dimension of national power in which the United States is asymmetrically vulnerable owing to its greater dependence on information systems. Moreover, China seems much more comfortable with cyber power as a legitimate, overt tool of state power, especially compared with the United States, which still treats cyber operations as a highly classified, compartmented capability. What do we mean by overt? Countries like China and Russia seem more comfortable with the overt use of cyber conflict, even by non-state proxies acting on their behalf, as we saw in numerous Chinese “patriotic hacker” events in the late 1990s and the Russian cyber conflicts in Estonia in 2007 and Georgia in 2008. When confronted with their potential involvement in these incidents, both Beijing and Moscow appeared to believe that the plausible deniability of the network was a sufficient fig-leaf to cover their barely veiled affiliations and common cause with the attacks. By contrast, Washington does not even have a vocabulary for discussing these capabilities in public, as seen in the incoherence of official US comments about possible computer network exploit activities against Milosevic during ALLIED FORCE and the Stuxnet industrial control systems hack in 2011.

Why cyber espionage?

Within the rubric of the Chinese government’s view of cyber as a tool of national power, it is clear that this new dimension offers Beijing certain key strategic advantages, particularly with respect to intelligence collection, technological competitiveness, intelligence preparation of the battlefield, and strategic intelligence to policy-makers.

Intelligence collection advantages

Cyber espionage is now a favored mode of tradecraft for China, principally because of its logistical advantages and the promise of plausible deniability. On the first issue, Joel Brenner highlights the relative ease of cyber versus other traditional forms of espionage: “Cyber-networks are the new frontier of counterintelligence. . . . If you can steal information or disrupt an organization by attacking its networks remotely, why go to the trouble of running a spy?”¹⁵ Take the case of Greg Dong-fan Chung, discussed in Chapter 8, as an example. Managing Chung required significant institutional resources, including case officers, covert communications, money transfers, and travel arrangements. In the end, Chung was caught, and his “perp walk” and public trial proved to be an embarrassment to the Chinese government. Now imagine a scenario in which the same volume of information can be exfiltrated out of Boeing or Rockwell’s computer networks in a single evening via an exquisite computer network exploitation operation, covered by the plausible deniability of network intrusions. Given the choice between the two modes, it is only natural that intelligence services would increasingly pick the less risky, cheaper, and faster way of doing business.

Technological competitiveness advantages

After more than 30 years of serving as the world’s assembly point and export processing zone, the Beijing government has clearly made the decision to transform Chinese economic development by encouraging “indigenous innovation.”¹⁶ Since 2006, James McGregor and others have highlighted “Chinese policies and initiatives aimed at building ‘national champion’ companies through subsidies and preferential policies while using China’s market power to appropriate foreign technology, tweak it and create Chinese ‘indigenous innovations’ that will come back at us globally.”¹⁷ In the information technology sector, McGregor notes: “Chinese government mandate to replace core foreign technology in critical infrastructure – such as chips, software and communications hardware – with Chinese technology within a decade.” Among the tools being actively used to achieve these goals are:

a foreign-focused anti-monopoly law, mandatory technology transfers, compulsory technology licensing, rigged Chinese standards and testing rules, local content requirements, mandates to reveal encryption codes, excessive disclosure for scientific permits and technology patents, discriminatory government procurement policies, and the continued failure to adequately protect intellectual property rights.¹⁸

Missing from this excellent list, however, are traditional technical espionage and technical cyber espionage, which many companies believe are already eroding their technical advantage. The logic for these latter approaches is clearly outlined by David Szady, former head of the FBI’s Counterintelligence Unit: “If they can steal it and do it in five years, why

[take longer] to develop it?”¹⁹ Rather than destroying US competitiveness through “cyber war,” former DNI McConnell argues that Chinese entities “are exploiting our systems for information advantage – looking for the characteristics of a weapons system by a defense contractor or academic research on plasma physics, for example – not in order to destroy data and do damage.”²⁰

Examples of Chinese cyber espionage to obtain science and technology can be divided into two broad categories: external and insider. The 2011 NCIX report offers three illustrative examples of insider cyber threats:

David Yen Lee, a chemist with Valspar Corporation, used his access to internal computer networks between 2008 and 2009 to download approximately 160 secret formulas for paints and coatings to removable storage media. He intended to parlay this proprietary information to obtain a new job with Nippon Paint in Shanghai, China. Lee was arrested in March 2009, pleaded guilty to one count of theft of trade secrets, and was sentenced in December 2010 to 15 months in prison.

Meng Hong, a DuPont research chemist, downloaded proprietary information on organic light-emitting diodes (OLED) in mid-2009 to his personal e-mail account and thumb drive. He intended to transfer this information to Peking University, where he had accepted a faculty position, and sought Chinese government funding to commercialize OLED research. Hong was arrested in October 2009, pleaded guilty to one count of theft of trade secrets, and was sentenced in October 2010 to 14 months in prison.

Xiangdong Yu (aka Mike Yu), a product engineer with Ford Motor Company, copied approximately 4,000 Ford documents onto an external hard drive to help obtain a job with a Chinese automotive company. He was arrested in October 2009, pleaded guilty to two counts of theft of trade secrets, and was sentenced in April 2011 to 70 months in prison.²¹

External cyber threats to scientific and industrial data, believed to originate in China, have been well documented in reports by outside vendors. Some examples include:

In its Night Dragon report, McAfee documented “coordinated covert and targeted cyberattacks have been conducted against global oil, energy, and petrochemical companies,” “targeting and harvesting sensitive competitive proprietary operations and project-financing information with regard to oil and gas field bids and operations.”²²

In his Shady Rat report, McAfee’s Dmitry Alperovitch identified 71 compromised organizations in one set of intrusions, including 13 defense contractors, 13 information technology companies, and six manufacturing companies.²³

In January 2010, Google reported a “highly sophisticated and targeted attack on our corporate infrastructure originating from China that resulted in the theft of intellectual property,” including source code.²⁴ Google claimed that the intrusion also targeted “at least twenty other large companies from a wide range of businesses – including the Internet, finance, technology, media and chemical sectors,” and was corroborated in separate admissions by Adobe.²⁵

In its GhostNet report, researchers at Information Warfare Monitor found 1,295 infected computers in 103 countries, including a range of political, diplomatic and economic target organizations such as Deloitte and Touche’s New York office.²⁶ The follow-on report, Shadows in the Cloud, identified additional targets, including Honeywell.²⁷

Each of these reported intrusions were traced to IP addresses in China, and almost certainly represent only a fraction of the known hacks, given the reluctance of companies to report data breaches.

Intelligence preparation of the battlefield (IPB)

It is also important to contextualize China’s interest in cyber espionage within Beijing’s threat perceptions of potential scenarios for military conflict. In the minds of the Chinese leadership, the available evidence suggests that the most important political-military challenges and the most likely flashpoints for Sino–US conflict involve Taiwan or the South China Sea. Since the late 1990s, the PLA has been hard at work bolstering the hedging options of the leadership, developing advanced campaign doctrines, testing the concepts in increasingly complex training and exercises, and integrating new indigenous and imported weapons systems.

Yet cyber operations are also expected to play an important role in these scenarios, necessitating intelligence preparation of the cyber battlefield. At the strategic level, the writings of Chinese military authors suggest that there are two main centers of gravity in a Taiwan scenario, both of which can be attacked with computer network operations in concert with other kinetic and non-kinetic capabilities. The first of these is the will of the Taiwanese people, which they hope to undermine through exercises, cyber attacks against critical infrastructure, missile attacks, SOF operations, and other operations that have a psychological operations focus. Based on assessments from the 1995 to 1996 exercises, as well as public opinion polling in Taiwan, China appears to have concluded that the Taiwanese people do not have the stomach for conflict and will therefore sue for peace after suffering only a small amount of pain. The second center of gravity is the will and capability of the United States to intervene decisively in a cross-strait conflict. In a strategic sense, China has traditionally believed that its ICBM inventory, which is capable of striking CONUS, will serve as a deterrent to US intervention or at least a brake on escalation.²⁸

Closer to its borders, the PLA has been engaged in an active program of equipment modernization, purchasing niche “counter-intervention” capabilities such as anti-ship ballistic missiles, long-range cruise missiles and submarines to shape the operational calculus of the American carrier strike group commander on station.²⁹ According to the predictable cadre of “true believers,” both of the centers of gravity identified above can be attacked using computer network operations. In the first case, the Chinese IO community believes that CNO will play a useful psychological role in undermining the will of the Taiwanese people by attacking infrastructure and economic vitality. In the second case, the Chinese IO community envisions computer network attacks against unclassified NIPRNET and its automated logistics systems as an effective way to deter or delay US intervention into a military contingency and thereby permit Beijing to achieve its political objectives with a minimum of fighting. In both cases, China must conduct substantial computer network exploitation (the military term for cyber espionage) for intelligence preparation of this battlefield, and the alleged intrusion set into NIPRNET computer systems would appear to fulfill this military requirement.

Why does the Chinese military believe that the deployment phase of US military operations, particularly the use of the unclassified NIPRNET for logistics deployments, is the primary focus of vulnerability? Since DESERT STORM in the early 1990s, the PLA has expended significant resources analyzing the operations of what it often and euphemistically terms “the high-tech enemy.”³⁰ When Chinese strategists contemplate how to affect US deployments, they confront the limitations of their current conventional force, which does not have sufficient range to interdict US facilities or assets beyond the Japanese home islands.³¹ Nuclear options, while theoretically available, are nonetheless far too escalatory to be used so early in the conflict.³² Theater missile systems, which are possibly moving to a mixture of conventional and nuclear warheads, could be used against Japan or Guam, but uncertainties about the nature of a given warhead would likely generate responses similar to the nuclear scenario.³³ Instead, PLA analysts of US military operations presciently concluded that the key vulnerability was the mechanics of deployment itself. Specifically, Chinese authors highlight DoD’s need to use civilian backbone and unclassified computer networks (known as the NIPRNET), which is a function of the requirements of global power projection, as an “Achilles Heel.” There is also recognition of the fact that operations in the Pacific are especially reliant on precisely coordinated transportation, communications, and logistics networks, given what PACOM calls the “tyranny of distance”³⁴ in the theater. PLA strategists believe that a disruptive computer network attack against these systems or affiliated civilian systems could potentially delay or degrade US force deployment to the region while allowing the PRC to maintain a degree of plausible deniability.

The Chinese are right to highlight the NIPRNET as an attractive and accessible target, unlike its classified counterparts. It is attractive because it contains and transmits critical deployment information in the all-important time-phased force deployment list (known as the “tip-fiddle”), which is valuable for both intelligence gathering about US military operations but also a lucrative target for disruptive attacks. In terms of accessibility, it was relatively easy to gather data about the NIRPNET from open sources, at least before 9/11. Moreover, the very nature of the system is the source of its vulnerabilities, since the needs of global power project a mandate that it has to be unclassified and connected to the greater global network, albeit through protected gateways.³⁵

DoD’s classified networks, on the other hand, are an attractive but less accessible target for the Chinese. On the one hand, these networks would be an intelligence gold mine, and is likely a priority computer network exploit target. On the other hand, they are less attractive as a computer network attack target, thanks to the difficulty of penetrating its high defenses. Any overall Chinese military strategy predicated on a high degree of success in penetrating these networks during crisis or war is a high-risk venture, and increases the chances of failure of the overall effort to an unacceptable level.

Chinese CNE or CNA operations against logistics networks could have a detrimental impact on US logistics support to operations. PRC computer network exploitation activities directed against US military logistics networks could reveal force deployment information, such as the names of ships deployed, readiness status of various units, timing and destination of deployments, and rendezvous schedules. This is especially important for the Chinese in times of crisis, since the PRC in peacetime utilizes US military websites and newspapers as a principal source for deployment information. An article in October 2001 in People’s Daily, for example, explicitly cited US Navy websites for information about the origins, destination, and purpose of two carrier battle groups exercising in the South China Sea.³⁶ Since the quantity and quality of deployment information on open websites were dramatically reduced after 9/11, the intelligence benefits (necessity?) of exploiting the NIPRNET have become even more paramount.³⁷ Computer network attack could also delay resupply to the theater by misdirecting stores, fuel, and munitions, corrupting or deleting inventory files, and thereby hindering mission capability.

The advantages to this strategy are numerous: (1) it is available to the PLA in the near-term; (2) it does not require the PLA to be able to attack/invade Taiwan with air/sea assets; (3) it has a reasonable level of deniability, provided that the attack is sophisticated enough to prevent tracing; (4) it exploits perceived US casualty aversion, over-attention to force protection, the tyranny of distance in the Pacific, and US dependence on information systems; and (5) it could achieve the desired operational and psychological effects: deterrence of US response or degrading of deployments. Looking back over more than ten years of China-origin intrusions into the very NIPRNET systems identified by PLA analysts as a high-priority network attack target as early as 1995, the logic of the intrusion sets becomes much clearer.

Strategic intelligence

An additional motivation for cyber espionage is strategic intelligence about the policies and intentions of civilian and military officials as well as the internal debates within the US government and political parties:

1.  In June 2006, the State Department was victimized by a series of intrusions at its foreign posts and headquarters in Washington. According to the Associated Press, “hackers stole sensitive information and passwords, and implanted ‘back doors’ in unclassified computers to allow them to return.” Employees told the AP that State’s East Asian and Pacific Affairs Bureau was particularly hard hit by the intrusion, suggesting that the intruders had a special interest in Asia-related information.³⁸ Two reporters from Business Week relate the story of what happened:

The attack began in May, 2006, when an unwitting employee in the State Dept.’s East Asia Pacific region clicked on an attachment in a seemingly authentic e-mail. Malicious code was embedded in the Word document, a congressional speech, and opened a Trojan “back door” for the code’s creators to peer inside the State Dept.’s innermost networks. Soon, cyber security engineers began spotting more intrusions in State Dept. computers across the globe. The malware took advantage of previously unknown vulnerabilities in the Microsoft operating system. Unable to develop a patch quickly enough, engineers watched helplessly as streams of State Dept. data slipped through the back door and into the Internet ether. Although they were unable to fix the vulnerability, specialists came up with a temporary scheme to block further infections. They also yanked connections to the Internet. One member of the emergency team summoned to the scene recalls that each time cyber security professionals thought they had eliminated the source of a “beacon” reporting back to its master, another popped up. He compared the effort to the arcade game Whack-A-Mole. The State Dept. says it eradicated the infection, but only after sanitizing scores of infected computers and servers and changing passwords.³⁹

2.  In 2007, intruders broke into the e-mail system for Defense Secretary Robert Gates’ office, and the Pentagon shut down about 1,500 computers for more than a week while the attacks continued. Officials told the Financial Times: “an internal investigation has revealed that the incursion came from the People’s Liberation Army. One senior US official said the Pentagon had pinpointed the exact origins of the attack. Another person familiar with the event said there was a ‘very high level of confidence. . . . trending towards total certainty’ that the PLA was responsible.”⁴⁰

3.  In the summer of 2008, the FBI informed both the Obama and McCain presidential campaigns that their computer systems had been infiltrated. Newsweek quoted an FBI agent as telling both teams: “You have a problem way bigger than what you understand. . . . You have been compromised, and a serious amount of files have been loaded off your system.”⁴¹ The Financial Times later cited that investigators “had determined that the attacks originated from China, but cautioned that they had not ascertained whether they were government-sponsored, or just unaffiliated hackers.”⁴² In a cyber-security policy speech early in his presidency, Obama referred to the incident:

I know how it feels to have privacy violated because it has happened to me and the people around me. It’s no secret that my presidential campaign harnessed the Internet and technology to transform our politics. What isn’t widely known is that during the general election hackers managed to penetrate our computer systems. To all of you who donated to our campaign, I want you to all rest assured, our fundraising website was untouched. So your confidential personal and financial information was protected. But between August and October, hackers gained access to emails and a range of campaign files, from policy position papers to travel plans. And we worked closely with the CIA – with the FBI and the Secret Service and hired security consultants to restore the security of our systems.⁴³

These three sample cases show that Beijing clearly views cyber as a collection modality for obtaining strategic intelligence at the highest levels of the US government.

Chinese government denials

The lady doth protest too much, methinks.

— Shakespeare, Macbeth

In counter-intelligence offices in Washington, one often sees the following sign: “Admit Nothing, Deny Everything, Make Vigorous CounterAccusations.” This philosophy is also a deeply held conviction of the Chinese side when it comes to discussing their possible role in cyber intrusions. First, they admit nothing and deny everything. When asked about the China-origin intrusions into German Chancellor Angela Merkel’s office network, for example, “the Chinese Embassy in Berlin described the accusation of state-controlled hacking as “irresponsible speculation without a shred of evidence.”⁴⁴ In perhaps its most Kafka-esque move to date, the Chinese government responded to the highly detailed Mandiat report in 2013 by denying that the designated military 91638 Unit involved in cyber espionage even existed, despite the fact that the report contained photographs, maps and other clear evidence proving it did.⁴⁵ Chinese officials also point to Chinese laws as an ironclad defense of its own lack of involvement. Reacting to accusations that Chinese hackers were responsible for the intrusions revealed by Google in January 2010, Foreign Ministry spokeswoman Jiang Yu countered that “Chinese law proscribes any form of hacking activity.”⁴⁶ After the release of the Office of the National Counterintelligence Executive’s 2011 “Report to Congress on Foreign Economic Collection and Industrial Espionage,” Chinese officials denigrated the quality of the analysis, asserting that “identifying the attackers without carrying out a comprehensive investigation and making inferences about the attackers is both unprofessional and irresponsible.”⁴⁷ Then, the Chinese government impugns the motives of the accusers, making its own counter-accusations. In his response to questions about GhostNet, Foreign Ministry spokesman Qin Gang accused foreigners of having a “Cold War mentality”:

The problem now is that some people abroad are keen to fabricate the rumor of the so-called “Chinese cyber spy network.” The allegation is utterly groundless. . . . There is a ghost called Cold War and a virus called China’s threat theory overseas. Some people, possessed by this ghost and infected with this virus, fall ill from time to time. Their attempts of using rumors to disgrace China will never succeed. We should rightly expose these ghosts and viruses.⁴⁸

Wang Baodong, a spokesman for the Chinese government at its embassy in Washington, darkly hinted that “anti-China forces” are behind the allegations.⁴⁹ After the US-China Economic and Security Review Commission’s release of a North-rup-Grumman report on Chinese cyber espionage, Qin Gang railed:

The report takes no regard of the true situation. . . . It is full of prejudice, and out of ulterior motive. We urge the so-called commission not to see China through colored lens and not to do things that interfere with China’s internal affairs and undermine China–US relations.⁵⁰

Finally, the Chinese government describes itself as the victim of cyber intrusions. After a detailed exposé of Chinese cyber espionage appeared in Business Week, Wang Baodong e-mailed the magazine’s editors, claiming that China is “frequently intruded and attacked by hackers from certain countries.”⁵¹ When asked in early 2010 about Google’s complaint that it had been hacked from China, Foreign Ministry spokesman Ma Zhaoxu said Chinese companies have also been hacked, adding that China resolutely opposes the practice.⁵² Other officials have cited the fact that most of the world’s botnets are controlled from servers in the United States, insinuating that Washington needed to get its own cybersecurity in order before accusing other countries of hacking. Finally, the Chinese government tried to paint itself as the patron of global cyber security, in contrast to the “militarized” US approach to cyber: “China is ready to build, together with other countries, a peaceful, secure and open cyberspace order.”⁵³ While Beijing’s style of strategic communications is not limited to cyber espionage, as seen in its rhetoric during crises (Belgrade Embassy bombing in 1999, EP-3A hostage crisis in 2001, etc.), the reaction of its officials has the unintended consequence of increasing suspicion.

How good are they? Or does it matter?

Measuring Chinese cyber espionage capability also involves the assessment of a group or country’s ability to generate new attack tools or exploits. Outside analysts, many of whom are programmers themselves, tend to reify countries like Russia that abound with highly talented programmers, and look down upon countries or individuals that simply use off-the-shelf “script kiddie” tools or exploit known vulnerabilities, preferring to admire more advanced cyber operators who can discover their own “zero-day” vulnerabilities.⁵⁴ Indeed, analysts who have examined Chinese intrusions in detail often comment on their relative lack of sophistication and especially their sloppy tradecraft,⁵⁵ leaving behind clear evidence of the intrusion and sometimes even attribution-related information. For example, analysts who examined possible Chinese intrusions into energy companies concluded that Chinese hackers were “incredibly sloppy,” “very unsophisticated,” “made mistakes and left lots of evidence.”⁵⁶Perhaps the Chinese cyber operators are so convinced of the plausible deniability afforded by the current global network architecture that they do not see the need to hide more effectively, or perhaps they believe that their communications are secure because they are using Chinese language. Both are true to some extent, especially the latter, as many Chinese correctly perceive that their difficult language is actually the country’s first line of defense, its first layer of cryptography, and there are actually few foreigners with the skills or bandwidth to penetrate the veil. Most important, however, the Chinese probably perceive that they do not need to “up their game” because their relatively primitive and sloppy efforts have thus far been wildly successful and therefore they see no need to change. In fact, one could argue that China’s cyber espionage successes to date are more a function of the vulnerability of US systems than any inherent capability on the Chinese side. As time passes, however, one would expect Chinese capability to improve, particularly as information about China-origin intrusions becomes more widespread and victims begin to take concrete measures to protect themselves. This view is endorsed by former counterintelligence chief Joel Brenner, who told the National Journal in 2008 that Chinese hackers are “very good and getting better all the time.”⁵⁷

Notes

1     “General Warns of Dramatic Increase of Cyber-Attacks on US Firms,” Los Angeles Times, July 27, 2012.

2     Office of the National Counterintelligence Executive, Foreign Spies Stealing US Economic Secrets in Cyberspace: Report to Congress on Foreign Economic Collection and Industrial Espionage, 2009–2011, October 2011, www.dni.gov/reports/20111103_report_fecie.pdf.

3     Tom Espiner, “Chinese Hackers Breach US Military Defenses,” Silicon.com, November 2005; and Bradley Graham, “Hackers Attack Via Chinese Web Sites,” The Washington Post, August 2005.

4     Dawn Onley and Patience Wait, “Red Storm Rising: DoD’s Efforts to Stave Off Nation-StateCyber Attacks Begin with China,” Government Computer News, August 2006.

5     See General James E. Cartwright, in hearing, China’s Military Modernization and Its Impact on the United States and the Asia-Pacific, US-China Economic and Security Review Commission, 110th Congress, 1st Sess., March 29–30, 2007, p. 90, at www.uscc.gov/hearings/2007hearings/transcripts/mar_29_30/mar_29_30_07_trans.pdf.

6     Shane Harris, “China’s Cyber Militia,” National Journal, May 31, 2008.

7     Brian Grow, Keith Epstein and Chi-Chu Tschang, “The New E-spionage Threat,” Business Week, April 21, 2008, pp. 32–41.

8     Bryan Krekel, Capability of the People’s Republic of China to Conduct Cyber Warfare and Computer Network Exploitation, published by the US-China Economic and Security Review Commission, October 9, 2009.

9     Harris, “China’s Cyber Militia.”

10  “Advance Questions for Lieutenant General Keith Alexander USA, Nominee for Commander,United States Cyber Command,” published by Senate Armed Services Committee, accessed at http://armed-services.senate.gov/statemnt/2010/04%20April/Alexander%2004-15-10.pdf.

11  Shaun Waterman, “Chinese Cyberspy Network Pervasive,” Washington Times, March 30, 2009. 12 Harris, “China’s Cyber Militia.”

13  Ibid.

14  See http://intelreport.mandiant.com/ For a range of views on the attribution issue, see Krekel, Capability of the People’s Republic of China to Conduct Cyber Warfare and Computer Network Exploitation; McAfee® Foundstone® Professional Services and McAfee Labs™, Global Energy Cyberattacks: ‘Night Dragon’, February 10, 2011; Shishir Nagaraja and Ross

Anderson, “The Snooping Dragon: Social-Malware Surveillance of the Tibetan Movement,” UCAM-CL-TR-746, University of Cambridge Computer Laboratory Technical Report 746, March 2009; Dmitri Alperovitch, Revealed: Operation Shady RAT, McAfee, August 2011; and Information Warfare Monitor, Tracking GhostNet: Investigating a Cyber Espionage Network, Toronto: SecDev and Citizen Lab, March 29, 2009.

15  Harris, “China’s Cyber Militia.”

16  James McGregor, China’ s Drive for Indigenous Innovation: A Web of Industrial Policies, Washington, DC: US Chamber of Commerce, July 2010.

17  James McGregor, “Time to rethink US–China trade relations,” Washington Post, May 19, 2010. See also McGregor, China’s Drive for Indigenous Innovation.

18  Ibid.

19  Nathan Thornburgh, “The Invasion of the Chinese Cyberspies (and the Man Who Tried to StopThem,” Time, August 29, 2005.

20  Nathan Gardels, “China is Aiming at America’s Soft Underbelly: The Internet,” The Christian Science Monitor, February 5, 2010, accessed at www.csmonitor.com/Commentary/GlobalViewpoint/2010/0205/China-is-aiming-at-America-s-soft-underbelly-the-Internet.

21  Office of the National Counterintelligence Executive, Foreign Spies Stealing US Economic Secrets in Cyberspace.

22  McAfee, Night Dragon.

23  Alperovitch, Operation Shady RAT.

24  http://googleblog.blogspot.com/2010/01/new-approach-to-china.html.

2 5 http://blogs.adobe.com/conversations/2010/01/adobe_investigates_corporate_n.html.

26   Information Warfare Monitor, Tracking GhostNet: Investigating a Cyber Espionage Network,

                 Toronto:         SecDev         and         Citizen         Lab,          March         29,         2009,       accessed        at

www.scribd.com/doc/13731776/Tracking-GhostNet-Investigating-a-Cyber-EspionageNetwork.

27   Information Warfare Monitor and Shadowserver, Shadows in the Cloud: Investigating Cyber Espionage 2.0, Toronto: SecDec and Citizen Lab, April 6, 2010, found at www.shadowsinthe-cloud.net.

28   Office of the Secretary of Defense, Annual Report to Congress: Military and Security Developments Involving the People’s Republic of China 2011, p. 3.

29   Ibid., pp. 2–4, 28–29.

30   Ibid., p. 22.

31   Ibid., p. 31.

32   Ibid., p. 34.

33   Ibid., pp. 29,78.

34   For a PACOM/J4 perspective on the issue, see www.navsup.navy.mil/scnewsletter/2009/janfeb/cover1.

35   For an unclassified summary, see www.disa.mil/Services/Network-Services/Data/SBU-IP.

36   “Whom, If Not China, Is US Aircraft Carriers’ Moving onto South China Sea Directed Against?” Renmin Ribao, August 24, 2001.

37   The Department of Defense’s revised website administration guidance, which may be foundhere

(www.defenselink.mil/webmasters/policy/dod_web_policy_12071998_with_amendments_an d_corrections.html), specifically prohibits the following: “3.5.3.2. Reference to unclassified information that would reveal sensitive movements of military assets or the location of units, installations, or personnel where uncertainty regarding location is an element of a military plan or program.”

38   “Computer Hackers Attack State Dept.,” Associated Press, July 12, 2006.

39   Grow, Epstein and Tschang, “The New E-spionage Threat.”

40   Sevastopluo, Demetri, “Chinese Hacked into Pentagon,” FT.com, September 3, 2007.

41   Evan Thomas, “Center Stage,” Newsweek, November 6, 2008; David Byers, Tom Baldwin and Tim Reid, “Obama computers ‘hacked during election campaign’,” Times Online, November 7, 2008.

42   Financial Times, November 2008.

43   “Remarks by the President on Securing our Nation’s Cyber Infrastructure,” Office of the PressSecretary, The White House, May 29, 2009.

44   “Merkel’s China Visit Marred by Hacking Allegations,” Spiegel Online International, August 27, 2007.

45   “Former Defense Official Denies Chinese Hacking,” Xinhua, 3 March 2013.

46   Miguel Helft and John Markoff, “Google Alerted Activists of Attacks,” New York Times, January 15, 2010.

47   “China Rebuts US Accusation of Hacker Attacks,” China Daily, October 31, 2011.

48   “China Denies Allegations on ‘Cyber Spy Network’.”

49   Grow, Epstein and Tschang, “The New E-spionage Threat.”

50   Mark Clayton, “Google cyber attack: the evidence against China,” Christian Science Monitor, January 13, 2010.

51   Grow, Epstein and Tschang, “The New E-spionage Threat.”

52   “China Says Google, Foreign Firms Must Respect Laws,” CIOL, January 19, 2010.

53   “China Rebuts US Accusation of Hacker Attacks,” China Daily, October 31, 2011.

54   http://en.wikipedia.org/wiki/Zero-day_attack

55   Keizer, Gregg, “Chinese Hackers Called Sloppy but Persistent,” Computerworld, February 12, 2011.

56   Ibid.

57   Harris, “China’s Cyber Militia.”

10

Chinese Industrial Espionage in Context

China’s programs to transfer foreign technology do not exist in isolation; they are a collage of interacting components. For descriptive purposes we have had to portray this integrated system as a set of discrete elements in chapters on early history, the use of open source, foreign R&D in China, PRC-based transfer organizations, US-based facilitators, the role of overseas students and scholars, PRC policy initiatives, clandestine support for technology transfer, and China’s abuse of cyber space. The distinctions are a convenience, as the composite picture is more complex.

By the same token, these chapters provide only a glimpse of the transfer practices China uses. Our major challenge has been to reduce the enormous amount of openly available material to a manageable size. In some cases we discarded recent examples from open sources that replicate information which others might treat as sensitive. Hence the materials given here should be regarded as pieces of a much larger picture. How these elements interact, how foreign technologies are targeted for acquisition, and how they move from design to implementation are issues we have barely touched. We hope this study inspires broader research, both inside and outside government.

By way of conclusion, we shall mention a few transfer ploys not yet discussed, and correct any misconception we may have given our readers that the United States is the only country on earth targeted by China for informal transfers. The problem affects all industrialized nations. We will also attempt in this final chapter to account for this behavior. China’s use of proxies as a short cut to development is as much a product of culture and mindset as it is the outcome of necessity or design. Naming the causes of this endemic “borrowing” is essential to breaking the pattern.

While moving beyond these parasitic practices makes sense from a Westerner’s perspective, there are reasons why China may retain its present pattern – if it can do so without penalty. We assume in the West that radical creation is the touchstone to success when a good case can be made for China’s approach of hanging back and “taking the fisherman’s profit” . Thus it is likely that recent calls by PRC policy-makers for innovation will be misunderstood outside of China as a move toward sharing and creativity across the entire society, when the plan, at least in the near term, is to continue with business as usual, using foreign technology while diverting a growing portion of China’s own assets to original work where the regime has identified a stake.

Other transfer techniques

Earlier we touched on the role of US-based Chinese companies in transferring technology to China. Chinese firms enter the United States with a range of motivations that include market expansion, technology spotting, and “informal” technology acquisition. One category, which includes some companies associated with the defense industrial base (e.g., NORINCO) and the military (e.g., Poly, USA), serve primarily as commercial outlets for Chinese civilian goods to retail chains like Walmart and are not known to be involved in transfers to China. A second category of companies such as Huawei USA/Futurewei and Haier are opening their doors in the United States to reduce the stigma of their Chinese origin and achieve greater success in penetrating the American market to build their global brand.

Finally, there are companies such as UTI whose technology transfer activities are cataloged in the book’s Appendix. These firms – transplanted from China or started by Chinese nationals who began here as students – focus to a greater or lesser degree on acquiring technology for transfer “back” to China. We do not claim that most or even many of them operate illegally. Our argument is that the legality of their operations is irrelevant, as China has ways – countless ways – to work the middle ground. It makes no sense to debate how many “front companies” China runs in the US, since the concept is immaterial. Allegiance and business practices are what matter.

A new concern is the growth of knowledge-based companies with ties to the PRC government, focused on new and emerging technology areas that insinuate themselves into the innovation fabric of the US. These include “hybrid” companies of two varieties that are technically private but which enjoy substantial support from the Chinese government in the form of loans, tax breaks, or political support.

Some of these companies are started up in China, often by returnees, and use government subsidies to buy their way into specific industries by creating a unique capability.¹ One such company is Beijing Genomics Institute which now houses the largest gene sequencing capacity in the world, funded by Chinese state loans.² It publishes a paper in a major Western scientific journal almost weekly³ and has more potential for access to genomic data than anywhere else in the world.⁴

Our research suggests that the preferred method of establishing a research beachhead in the Unites States is through the formation of a joint research center with a prominent US university. One illustrative example is the China–US Joint Research Center for Ecosystem and Environmental Change at the University of Tennessee, Knoxville.⁵ Launched in 2006, researchers from the University of Tennessee and the DOE-funded Oak Ridge National Laboratory partnered with the Chinese Academy of Sciences to address “the combined effects of climate change and human activities on regional and global ecosystems and explore technologies for restoration of degraded environments.”

The Center’s research focuses on science at the heart of the “green technology” revolution, which is one of Beijing’s major national industrial policy objectives. Its website lays out three goals that match neatly with a tech transfer agenda: (1) organize and implement international scientific and engineering research; (2) serve as a center for scientific information exchange; and (3) provide international education and technical training.⁶ The website goes on to outline cooperative mechanisms to achieve these goals, including joint research projects, academic exchange, student education, and “technical transfer and training [emphasis added].”⁷ This dynamic differs fundamentally from the mission of Western research facilities abroad, which is to adapt technology already in their portfolios to sell product in foreign markets. A PRC study on the benefits of overseas “research” to obtain foreign technology put it this way: “How can you get the tiger if you don’t go into the tiger’s den?” ⁸.

Another way to get the tiger is to circumvent the developmental process altogether by stealing the product. While not technology transfer per se, counterfeiting is so common in China that it has the same practical effect. Schemes range from the subtle to the blatant: benchmarking against ISO standards;⁹ patent research where a design is modified slightly, if at all, repatented in China and “legally” produced with government protection;¹⁰ reverse engineering;¹¹ “imitative innovation” ¹² with or without the innovation (also called “imitative remanufacturing” );¹³ and finally marketing the pirated product either without or with its original logo.¹⁴ The 2006 Hanxin (chip) scandal is the poster boy example. The reader can fill in examples of PRC counterfeiting from the thousands available.

What is puzzling amidst China’s official promises – and some genuine efforts – to clean up its IPR problem is the counter-current of sophistry in otherwise responsible PRC journals justifying this behavior. A 1996 article in the Science Ministry’s official newspaper Keji Ribao  S&T Daily) argued that the West forced on China an “inequitable distribution of the benefits of science and technology” depriving China of its “legal rights.”¹⁵ To other people’s patents? A 1998 China Trade Journal  piece declared matter-of-factly “industrial espionage” to be within China’s moral purview.¹⁶ Other published arguments equate China’s loose IPR regime to the West’s appropriation of gunpowder, the compass,¹⁷ and old Chinese novels.¹⁸

In the same vein, Science and Technology Management Research  a highlevel S&T policy journal) argued that China must determine beforehand the costs of IPR enforcement in terms of its effects on consumer prices and economic development.¹⁹ Compliance is a matter of convenience. Another mainstream policy journal (Science Research Management,  blamed “strategic technology alliances” led by the United States for monopolizing “the world’s scientific and technological knowledge” and controlling its distribution.²⁰ Patents and IPR are contrived by the West to keep “the world’s” technology out of developing countries’, especially China’s, hands. Hence the need for work-arounds. A third S&T policy journal (Science & Technology Progress and Policy,  attacked the US by name for

“using S&T as a tool to carry out struggles with non-Western ideologies.”²¹ The journal went on to claim:

The owners of technology in the developed countries increasingly are setting up among themselves strategic alliance networks and the IPR systems in each of these countries are constantly being perfected. As a result, the tendency toward technology monopolies is strengthened.²²

These and similar comments in responsible PRC media suggest that many in China resent the West’s insistence on IPR and patents protection.

Other “donor” nations

China’s appetite for foreign technology and its network for informal technology acquisition extend well beyond the United States. Personal bias has caused us to dwell on the challenges America faces from these backdoor tactics to piggyback on our creative resources, but the problem confronts all advanced nations, beginning with China’s own neighbors.

Everything we have written about PRC technology transfer practices directed at the United States applies equally to Japan. Here is a list of some S&T “cooperative” ventures China has arranged with Japan, according to MOST’s China S&T Exchange Center.

Since 1982 we have signed S&T exchange agreements with such representative Japanese multinational corporations as Mitsubishi (33 companies), Sumitomo (22 companies), Sanwa (72 companies), Mitsui & Co., Hitachi and Soni. At the same time, in order to promote the development of S&T exchanges with the Japanese people, we have established permanent S&T exchange relationships with a large number of non-governmental organizations such as Japan’s Keidanren, Japanese Federation of Employers Associations, Japan International Trade Society, Japan International Technology Service Industry Association (JISA), the Asia-Japanese Society for Cooperation on Science and Technology, Japan Skilled Volunteers Association, Japan S&T Society, Sino-Japanese S&T Association, etc.

This continues down to provincial and city levels.²³ Bearing in mind the disparity between the two countries’ technical capabilities, one wonders exactly how, from a technological standpoint, Japan benefits from these “exchanges.” A description by MOST’s Sino–Japanese Technology Cooperation Center (part of its S&T Exchange Center) of “Sino–Japanese intergovernmental cooperation” sheds no light on advantages that accrue to Japan, while providing the following outline of how things work from the Chinese side:

Through the cooperation, we have introduced many advanced and practical technologies and processes from Japan, and implemented a number of effective projects in China. With Japanese technology and funding, we have established and expanded a range of high-level institutions for the research and promotion of practical technologies. These, in turn, have become a platform for broader Sino–Japanese cooperation in science and technology.²⁴

The above relates to official and non-official S&T relationships. There is also an off-the-books unofficial component represented by more than a dozen Sino-Japanese S&T advocacy groups, both general and technology specific, dedicated to China’s growth and their members’ personal enrichment, as well as the expected Chinese student associations at Japanese universities, whose role in the technology exchange process is ad hoc and varied.²⁵ Data posted to Sino-Japanese S&T advocacy sites are uncannily similar to material posted by their counterparts in the United States, which suggests some measure of coordination – or that there are only so many ways to bend over.

The following is a gist of the Introduction to one such S-J advocacy group, the All-Japan Federation of Overseas Chinese Professionals 

:26

Many thousands of Chinese students who study in Japan stay after graduating and enter Japanese companies, universities and research labs. In addition, China has undergone reform and there are “new taskings for overseas Chinese scholars to serve the country. To adapt to the new situation, strengthen connections between OCS employed in Japan, better promote their work in service to China, and encourage friendly Sino–Japanese exchange activities, the All-Japan Federation of Overseas Chinese Professionals was stood up on Feb. 1, 1998.”²⁷

The Federation’s Charter is equally illuminating. We learn that the purpose of the organization is to:

bring into play the advantages and intellectual talent of OCS, organize and encourage them to return to China and render service or serve China through multiple means, participate actively in building up the native country, and promote friendly Sino-Japanese exchanges.²⁸

As a condition of membership one must “fervently love China and the Chinese people” . Apparently one need not love Japan.

Does any of this sound familiar? The Federation acknowledges the powerful support  and comprehensive leadership  provided by China’s diplomatic representation in Japan, by the PRC ministries of Education and Personnel, the United Front Work Department of the Chinese Communist Party Central Committee, sundry PRC youth groups, and the

Western Returned Scholars Association (see Chapter 5).²⁹

The Association of Chinese Scientists and Engineers in Japan  is another such organization run for the benefit of China and for its members’ well-being. ACSEJ was established on May 15, 1993 – five years before the Federation – and claims a membership of 1,300, “90 percent of whom have PhDs.”³⁰ That is a serious concentration of brainpower. Over the years, ACSEJ has repeatedly:

helped the Chinese government and non-official S-J friendship organizations manage various kinds of S&T expos and returnee trips to found businesses in China, and perform on-site inspections and engage in exchange activities in service to China. Imbued with the spirit of ‘service’ the ACSEJ has done much work as a ‘go between’ for its members to return to China on inspection tours, work there for short periods of time, and do joint research. These activities have earned the association unanimous praise from China’s Ministry of Science and Technology, Ministry of Personnel, State Economic and Trade Commission, the State Council’s Overseas Chinese Affairs Office, the All-China Federation of Returned Overseas Chinese, the Natural Science Foundation of China, Chinese Academy of Science, and government and academic organizations at all levels.³¹

These are the same PRC organizations that plug into the US-based China S&T advocacy groups described in Chapter 5. A third Sino-Japanese S&T group – the Chinese Association of Scientists and Engineers in Japan 

 – was founded in 1996 to contribute to China’s scientific and

technical development and to “build bridges for academic exchanges between China and Japan.” Its bylaws state the ways these goals are to be met, including “helping form China’s S&T policy and supporting China’s development of new high technology,” sponsoring academic exchanges, helping members find dual appointments at PRC research institutes, and arranging joint research projects.³²

CASEJ has its own “Foreign Relations Department” and “China Affairs Office.” The group responds to tasking from the PRC embassy in Japan for participation in technology exchange projects sponsored by the State Council’s Overseas Chinese Affairs Office, MOST, and MOP.³³Although they are separate organizations, CASEJ and ACSEJ jointly attend PRCsponsored events in both China and Japan, including celebrations of Chinese holidays hosted by the embassy, which as in the US-based examples serve as venues to mobilize patriotic sentiment and renew face-toface commitments to transfer technology. In terms of their structure, goals, and activities, there is little to distinguish Japan’s China advocacy groups from those in the United States.

The pattern repeats itself in Australia, Canada, Great Britain, continental Europe, South Korea, Singapore, and Russia. A glance at the European network will round out our survey of non-US “donors” to China’s S&T development. Leading the Sino-European S&T advocacy groups is an umbrella organization called the Federation of Chinese Professional Associations in Europe  , founded in Frankfurt in 2001 by “ten or so” Sino-European Chinese professional organizations as “a cross-discipline body of intellectuals who will do their part for China’s reform and development.”³⁴ Member organizations today are found in: Austria 1, Belgium 3, Denmark 1, England 4, France 6, Germany 13, Netherlands 3, Portugal 1, Sweden 1, Switzerland 3; there is also a Europewide group for IT experts – 37 organizations in all, which is comparable to the number of major Chinese S&T advocacy groups in the United States.

The Federation is not shy about its goals: item one under “Purpose” is simply “to serve China”  That’s the whole of it, right there. The charter explains:

Long periods of life overseas have caused us to deeply appreciate that without the strength and greatness of our ancestral country there’s no talking about individual dignity. Whether we return to China and render service, or render service in place, we are making our contribution to China.³⁵

Assimilation is apparently not an option nor an avenue to self-respect. The Federation vows to continuously repay its debt of service and “find new and better ways of doing things for China” .³⁶ Not by coincidence, in 2001 – the same year the Federation was set up – MOST’s China S&T

Exchange Center created a China–EU Science and Technology Cooperation

Promotion Office  to manage the growing Sino– European S&T relationship and encourage Chinese participation in the EU’s Framework Program for Research and Technological Development.³⁷

Typical of these EU member organizations is the Association des

Scientifiques et des Ingénieurs Chinois en France .

Established in 1992, its “main duties” are to “unite the Chinese S&T workers in France, organize S&T exchange activities and, while bringing into full play its conveyor belt and bridging function, promote Sino–French cooperation in education and technology.”³⁸

The Association claims that many of its members are “famous university professors, researchers at national R&D centers, entrepreneurs and topranked engineers.” Several received funds under China’s Changjiang Scholar program , essentially a stipend to return to China for short periods and to be debriefed) . The Association itself reportedly enjoys support from the Education Office within the PRC embassy in France and receives funding under the MOE’s “Spring Light” program  for technical support to PRC projects.³⁹

Pathology or shrewd strategy?

Since the mid-nineteenth century – some 150 years or more – China’s worldwide role in science and technology has been that of a taker, not a giver. This fact is unquestioned even inside China. The picture we present of a country hell-bent on acquiring “existing” (other people’s) technology and applying it practically, instead of creating ideas of its own to share with the world community, is unlikely to be debated by anyone with insight into the real state of affairs, least of all Chinese policy-makers themselves. The evidence is too overwhelming.

Whether China will become an S&T powerhouse 10, 50, or 100 years from now is unknown and probably unknowable. We have queried Chinese, Japanese, European, and American experts in and out of government – including science attachés, scientists with hands-on experience in China, professional study groups, patents specialists, law enforcement officials, and Nobel Prize-winning experts – and the replies vary from wildly optimistic to “no way” pessimistic, both between and within groups. Clearly the money is there, leadership intent is mostly a given, and the brainpower is huge, but moving beyond creativity in niche areas to developing an innovative society, which includes most Chinese universities and businesses, will be a huge undertaking.

Part of the confusion, we assert, is definitional: What exactly is “China” in this context? And what does “innovative” really mean? Although assessments of China’s potential for indigenous S&T achievements are mixed, few would disparage the creative skills of expatriate Chinese scientists – graduate students and post-docs – in American and European labs. But is this China? In a sense, yes. As we have been at pains to show, work done by overseas Chinese scholars is often funneled “back” to China through a complex web of transfer mechanisms designed to erase the distinction between work done at home and abroad. By the same token, does the output of PRC companies and labs staffed or directed by Western personnel count as “Chinese” science?

Our point is that it is impossible, with matters as they stand, to use statistics on S&T output to measure “Chinese” scientific progress. The distinction between China’s achievements and what it takes from abroad is too blurred and the connections are too interwoven. While this matters little from the standpoint of realpolitik, it matters a lot when one tries to assess the quality of science inside the People’s Republic and propose explanations for that country’s fixation on foreign “borrowing.” It is the same with innovation. Science in China has been – and largely still is – focused on incremental changes to basic ideas imported from elsewhere.

Key here as well is considering what are China’s goals in its calls for innovation, which include things that are new to the world, things new to China, as well as things brought to China and then “tweaked.” We should not confuse niche areas of creativity aimed at meeting strategic goals with building an unstratified educational system and society. Recent reforms and attempts at injecting rigor into research have boosted the quantitative statistics but say very little about the difference China is actually making, especially given persistent scandals of academic plagiarism.⁴⁰

True, most of the world’s science is built in the same way “a brick at a time,” and flashes of creative genius are uncommon in any culture. But deep-seated cognitive preferences by the Han Chinese for stability and concrete action, enforced (“triggered” in sociobiological terms) by traditional culture, bias China to creativity of the deductive type that builds on elements in a known framework, instead of the paradigm-breaking creativity based on induction that involves bisociating abstract patterns from different cognitive domains.⁴¹ Achievements of this “type-2” creative sort are not impossible in selected domains, as China has increasingly demonstrated, although scaling these gains to the entire society at large will prove difficult.

This is a strong statement to make in today’s intellectual climate but

3,000 years of history⁴² demonstrate that Chinese in China have not been creative in the radical sense and have not distinguished themselves in the sphere of abstract science either. The statistics are hard to refute. Charles Murray of “Bell Curve” fame, in a carefully documented study on accomplishment in the arts and sciences, identified over 3,000 “significant figures” who left their marks on the world from –800 to 1950. If you tally Murray’s choices of pioneers by nation and region, the contrast between them is striking (Table 10.1).⁴³

One could argue that Murray’s data reflect a Western author’s bias, but that argument is difficult to sustain in the face of figures provided by him showing comparable performance by East Asia in art and literature.

But let us look anyway at a scholar whose China-friendly credentials are beyond reproach: Joseph Needham, the historian of Chinese science, who spent a lifetime documenting hundreds of clever Chinese inventions. His passion notwithstanding,

Needham puzzled over “the lack of theoretical science in China” despite the “high level of technological progress achieved there.”⁴⁵ In the end, Needham was forced to distinguish between the “practical” (emphasis added) science done in China and the “modern” science done in the West, which he characterized as:

the application of mathematical hypotheses to nature, the full understanding and use of the experimental method, the distinction between primary and secondary qualities, the geometrisation of space, and the acceptance of the mechanical model of reality.⁴⁶

All of this went missing in the Middle Kingdom. Needham’s findings complement those of physicist and intellectual historian Qian Wenyuan, whose honest concern for his country led him to this conclusion: “China’s incapability of developing modern science has been so conspicuous that, even with conscious and official importation, the state of non-development nevertheless dragged on and on.”⁴⁷ Qian’s insensitive scholarship is ignored by academics, but there is no escaping the truth of his observation. Hajime Nakamura, another historian of Asian thought, also ran into trouble with establishment colleagues for his low opinion of Chinese science, which he regarded as “practical” and not theory-based.⁴⁸

Nakamura, moreover, had the temerity to ascribe China’s failure to develop abstract science to a preference for concrete thought, claiming famously that Chinese “dwell reluctantly on that which is beyond the immediately perceived.”⁴⁹ The common thread among these scholars – and many others – is that progress in Chinese science is frustrated by its practitioners’ unwillingness to move past practical utility and think abstractly about the nature of the work itself.⁵⁰ China’s bias for, and extraordinary ability to achieve, incremental progress in S&T is the result of a particular mindset that values concrete and devalues abstract achievement. Whether this is the result of a country always in catch-up mode remains to be seen.

How far-reaching are these differences? Psychologist Richard Nisbett demonstrated through controlled testing a dichotomy of cognitive preferences between Eastern and Western subjects that he characterized as continuity vs. discreteness, field vs. object, relationships vs. categories, dialectics vs. logic, experienced-based knowledge vs. abstract analysis, interdependence vs. independence, and communal vs. individualistic, which he boiled down later to “holistic” vs. “analytic” thought, validating generalizations made on both sides of the Pacific for a century.⁵¹

It gets more interesting. Citing Nisbett’s work, neuroscientists Joan Y. Chiao and Katherine D. Blizinsky in a much-quoted article “Culture-gene coevolution of individualism-collectivism and the serotonin transporter gene” proposed a tidy sociobiological explanation for the coevolution of collectivist behavior and the dominance in East Asian populations of a genetic variant that codes for the psychotropic drug serotonin, which impacts emotion and cognitive bias. In their words:

we speculate that S [East Asian] and L [most European] allele carriers of the serotonin transporter gene may possess at least two kinds of information processing biases in the mind and brain that enhance their ability to store and transmit collectivistic and individualistic cultural norms, respectively.⁵²

Chiao and Blizinsky correlate the distribution of the 5-HTTLPR S allele with the greater ability of East Asians to resist “psychopathology” such as anxiety and depression (without noting that, stripped of the value judgment, both psychological states are associated strongly with type-2 creativity in the sciences). They go on to acknowledge that:

S allele carriers may be more likely to demonstrate negative cognitive biases, such as engage in narrow thinking and cognitive focus, which facilitate maintenance to collectivistic cultural norms of social conformity and interdependence, whereas L allele carriers may exhibit positive cognitive biases, such as open, creative thinking and greater willingness to take risks, which promote individualistic cultural norms of self-expression and autonomy.⁵³

It has long been clear that individualism supports radical creativity, which by definition entails a rupture from the collective wisdom and, usually, negative affect from peers. Or put the other way: “There is no doubt that salient factors of extrinisic constraint in the social environment can have a consistently negative impact on the intrinsic motivation and creativity of most people most of the time” (Hennessey and Amabile).⁵⁴ Other factors cited in the creativity literature as inhibiting novel discovery are conformist education, lack of privacy and political centralism,⁵⁵ ethnic homogeneity,⁵⁶ and isolation from “diverse sociocultural environments”⁵⁷ (such as Internet restrictions). To us, this sounds a lot like China.

Another impediment to Chinese creativity is the character writing system. Unlike Western alphabets that force learners to parse naturally occurring syllables into abstract phonemes and make other types of analytic judgments, hanzi (Chinese characters) map directly onto syllables, depriving children of an early, life-changing opportunity to move beyond the concrete artifacts served up by nature to an abstract representation of one’s surroundings. Nor does the writing identify words – another abstract construct with no counterpart in raw speech. The characters, which are mostly opaque and identify vague units of meaning, are run together without relief.

This is not to say that Chinese writing doesn’t work. It can express language like any orthography, but with a two orders-of-magnitude greater investment in mind-sapping memorization, without the cues that help trigger analytic thought. A microcosm of China itself, the system substitutes complexity for abstractness. The cost of neglecting abstraction – for this or any other reason – is its negative impact on creative thinking, which depends critically on one’s ability to work a few levels up from “the immediately perceived.”⁵⁸ Although it is hard to know where the causality began, it is evident there is little in China to facilitate creativity and much to prevent it.

Does any of this matter? Probably not. We included Japan in Murray’s data (above) in part to illustrate our belief that radical creativity, which that country was not famous for either, unless backed by a serious IPR regime with penalties for cheating, has no necessary link to a nation’s prosperity. Countries can prosper without it and those with it may not succeed economically. What matters more is the ability to adapt creations, wherever they are made, to real-life problems. It’s not risk takers who prevail but early adapters of proven innovations.China’s genius, as it were, is in putting together a system that capitalizes on its practical skill at adapting ideas to national projects, while compensating for its inability to create those ideas by importing them quickly at little or no cost. By outsourcing its creativity, China keeps dissent in check and can focus on expanding its economic and political spheres.

Of course, the dynamite combination is a culture that can build practical applications for what the world creates in the abstract, while focusing parts of its diaspora network and emerging indigenous capability on selected science and engineering areas where breakthroughs will have radical gamechanging consequences. This is the course China is following today and the piece that we find most troubling.

China’s aggressive policy is threatening what few advantages the US has long enjoyed as a scientifically creative nation. Meanwhile, recent trends point to a decline in US students getting advanced degrees in science and technology, R&D funds that have shrunk and will probably be cut further, as well as a hollowing out of our manufacturing base.⁵⁹ Pair this up with a more scientifically competent China that is also using the discoveries of others, and future US competitiveness comes into question. China has for several decades made S&T development a priority and appears to have the political will to see it through. This is demonstrated by the R&D funding programs it has put in place, the investment in core scientific infrastructure that is in some cases unparalleled anywhere else in the world, and a national, scientifically oriented industrial policy.⁶⁰

Good science does not occur in a vacuum and the world-class facilities China is building will be a kind of “bait” for the international scientific community. China sees these facilities as an important part of its rise in the global community and something that will facilitate a shift in the global center of gravity for scientific research toward China. This impacts US competitiveness as we can no longer assume an endless stream of the world’s smart people coming through our doors. Just as China argues for the importance of a multipolar world in foreign affairs,⁶¹ it wants to be the destination of the world’s great minds. There are already some indications of this shift, perhaps best demonstrated by China’s assistance to Germany during its 2011 public health crisis with the E. Coli outbreak. A technically sophisticated Western nation reached out to China for help instead of to the US. What other proof is needed?

We seem to have forgotten how we got to the top technologically, that what is learned along the way feeds the next generation of discovery and trains the next generation of experts. A country becomes good by doing things. Skills and infrastructure cannot be built overnight, and those who are doing the work are the ones who will eventually make the innovations. If you are not in the game – and we would argue that ceding entire areas of manufacturing and technology means just that – you cannot make the incremental changes or innovations, and you will certainly not be able to make the big jumps in capabilities but instead will simply stagnate.

Notes

1       Huiyao Wang,, David Zweig, and Xiaohua Lin, “Returnee Entrepreneurs: impact on China’sglobalization process,” Journal of Contemporary China 20, no. 40 (May 2011): 413–431; Wenxian Zhang, Huiyao Wang, and Ilan Alon (eds), Entrepreneurial and Business Elites of

China: The Chinese Returnees Who Have Shaped Modern China, Bingley, UK: Emerald Group Publishing, 2011.

2       For an illustrative example of the state sources of BGI’s funding, including the 863 Program,see www.plosbiology.org/article/info:doi/10.1371/journal.pbio.1000533.

3       BGI’s       impressive          list           of              publications       may        be            found     at: http://en.genomics.cn/navigation/show_navigation.action?navigation.id=97.

4       The           holdings                of              BGI’s      database              may        be            found     at: http://en.genomics.cn/navigation/show_navigation.action?navigation.id=99.

5       http://jrceec.utk.edu/.

6       http://jrceec.utk.edu/about.html.

7       Ibid.

8       Zhou Wei " (“Analysis of China’s strategy for corporate foreign direct investment”),  (Science & Technology Progress and Policy),

2004.11, p. 56.

9       We are grateful to Robert Skebo Sr. (personal communication) for pointing this out.

10    Zeng Zhaozhi , Niu Zhengming , and Zhang Lin , " " (“Using patent resources to promote scientific and technological innovation”),  (Technology and Innovation Management), 2004.6, pp. 46–48.

11    Cai Meide , Du Haidong , and Hu Guosheng   (“Using the principle of reverse engineering for innovation in high-level knowledge processes and systems” ),  (Science and Technology Management Research), 2005.7.

12    Peng Can , "" (“Imitative innovation based on international strategic alliances”),  (Science Research Management), 2005.2, pp. 23–27.

13    Zhang Ying  and Chen Guohong , " " (“Analysis of the problem of technology transfer of multinational corporations in China and measures for dealing with it”),  (Science & Technology Progress and Policy), 2001.3, p. 134.

14    See e.g., Brett Kingstone, The Real War Against America, Specialty Publishing/Max King, LLC, 2005.

15    “International S&T cooperation and the sharing of intellectual property,” Keji Ribao, May 13, 1996.

16    “The international economic intelligence war,” Zhongguo Maoyi Bao, November 19, 1998.

17    Hong Kong AFP dispatch. June 3, 1996.

18    Zhou Zhu  and Huang Ruihua , " " (“The globalization of IPR protection: challenges facing China and their countermeasures”),  (Science and Technology Management Research), 2004.3, p. 67.

19    Ibid., pp. 66–68.

20    Bao Sheng , "" (“On strategic technical alliances by corporations against the background of economic globalization”), in  (Science Research Management), 2002.9.

21    Peng Yixin  Wu Xinwen  and Zou Shangang , " " (“International technology protectionism and the development of China’s high-tech industry”),  (Science & Technology Progress and Policy), 2001.8, p. 59.

22    Ibid., p. 58.

23    www.cstec.org.cn.

24    Ibid.

25    An             abbreviated       list           with        hotlinks                 to             association         websites               is              available at www.acskp.org/link/acs.html.

26    The All-Japan Federation of Overseas Chinese Professionals  underwent a name change on October 22, 2000 from its original  , which more closely matches the English.

27    www.obsc.jp.

28    Ibid.

29    Ibid.

30    www.come.or.jp/acsej.

31    Ibid.

32    www.casej.jp/newpage.

33    Ibid.

34    www.fcpae.com.

35    Ibid.

36    Ibid.

37    www.ceco.org.cn.

38    www.asicef.org.

39    Ibid.

40    Louisa Lim, “Plagiarism Plague Hinders China’s Scientific Ambition,” National Public Radio, August      3, 2011,     www.npr.org/2011/08/03/138937778/plagiarism-plague-hinders-chinasscientific-ambition.

41    In Brick’s (1997) schema: “intrarepresentational” and “interrepresentational,” respectively.

42    Hannas’ Law of Chinese historiography predicts that every 20 years, 1,000 more are added to“Chinese history.” The count is now at 5,000 years and rising. This formulation complements Mulvenon’s Third Law on Sunzi quotations proposed earlier.

43    We include Murray’s statistics on Japan, which was not known historically for breakthroughscience either and by many accounts struggles even today to overcome a “creativity problem.” William C. Hannas, The Writing on the Wall: How Asian Orthography Curbs Creativity, Philadelphia: University of Pennsylvania Press, 2003, pp. 8–33, 91–97.

44    Adapted from Charles Murray, Human Accomplishment: The Pursuit of Excellence in the Arts and Sciences, 800 B.C. to 1950, New York: Harper, 2003, pp. 515–573.

45    Joseph Needham, Science and Civilisation in China: History of Scientific Thought, New York:

Cambridge University Press, 1956, p. 11.

46    Joseph Needham, The Grand Titration: Science and Society in East and West, London: George Allen & Unwin, 1969, p. 15.

47    Wen-yuan Qian, The Great Inertia: Scientific Stagnation in Traditional China, London: Croom Helm, 1985, p. 50.

48    Hajime Nakamura, Ways of Thinking of Eastern Peoples: India, China, Tibet, Japan, Honolulu:

University of Hawaii Press, 1964. pp. 189–190.

49    Ibid., p. 180.

50    Richard Baum (ed.), China’s Four Modernizations: The New Technological Revolution, Boulder, CO: Westview Press, 1980, p. 1170; Richard Suttmeier, “Science, Technology, and China’s Political Future – a Framework for Analysis”, in Simon and Goldman (eds), Science and Technology in post-Mao China, Cambridge, MA: Harvard University Press, 1989, p. 379; Robert K. Logan, The Alphabet Effect, New York: Morrow, 1986, p. 49.

51    Richard E. Nisbeft, Kaiping Peng, Incheol Choi, and Ara Norejjzayan, "Culture and Systems ofThought: Holistic Versus Analytic Cognition," Psychological Review 108. 2 (April 2001), pp. 291-310, pp. 193-194, and Richard E. Nisbett, The Geography of Thought: How Asians and Westerners tkitik differently . . . and why, New York: The Free Press, 2003. pp. 56,88.

52    Joan Y. Chiao and Katherine D. Blizinsky, "Culture-gene coevolution of individualismcollectivism and the serotonin transporter gene (5-HTTLPR)," Proceedings of the Royal Society B: Biological Sciences 277, no. 1681, 2010, pp. 529-537.

53    Ibid.

54    Beth A. Hennessey and Teresa M. Amabile, "The conditions of creativity," in Robert J. Sternberg (ed.), The Mature of Creativity, New York: Cambridge University Press, 1988, pp. 11—38, p. 34,

55    Dean Keith Simontdn, "Creativity, leadership, and chance," in Robert J. Sternberg (ed.), The Mature of Creativity, New York: Cambridge University Press, 1988,pp. 386-428, pp. 404— 415.

56    Kevin Dunbar, "How Scientists Really Reason: Scientific Reasoning in Real-World Laboratories," in Robert J. Sternberg and Janet Davidson (eds). The Nature of Insight, Cambridge, MA, MIT Press, 1995, pp. 384-385.

57    Scott C. Findlay and Charles J. Lumsden, "The Creative Mind: Toward an Evolutionary Theory of Discovery and Innovation," Journal of Social and Biological Structures 11, no. 1, January 1998, pp. 3-55, p. 17.

58    Hannas, The Writing on the Wall.

59    World Economic Forum, "US Competitiveness Ranking Continues to Fall; Emerging MarketsAre Closing the Gap," September 7, 2011, www.weforum.org/news/uscompetitivenessranking-continues-fall-emerging-markets-are-closing-gap.

60    Ibid.

Sere most recently Richard Haas, "The Age of Nonpolarity," Foreign Affairs 87, no. 3, MayJune 2008, pp. 44-56; Kishore Mahhuhani, "The Case against the West," Foreign Affairs, 87, no. 3, May-June 2008, pp. 111-124; Fareed Zakaria, The Post-American World, New York: W.W. Norton, 2008.