Timed to the Beijing summit, I caught up with my friend and former CIA colleague Tom Lyons, who is the co-founder of the 2430 Group, which advises private sector businesses on strategies to counter China’s ubiquitous espionage and unfair trade practices.
Powered by the most innovative free market economy on the planet, the U.S. has become too easy a mark for China’s ruthless theft of our intellectual property. China steals upwards of $600 billion annually from U.S. companies. Lyons, who testified during a Senate Judiciary hearing in April, assesses that the amount of theft is actually much higher because most firms never detect espionage and most of those who do, do not report it out of concern for reputational damage and shareholder distress.
For companies that do wish to pursue legal recourse, the cost of litigation can range into the millions of dollars. And to make matters even worse, if the criminal enterprise is based in Beijing, then there would be no chance of collecting any compensation. China does not enforce U.S. court judgments.
China’s objective is not simply to pick off specific businesses for intellectual property theft, but rather to pilfer entire industries. President Xi Jinping directs China’s state-controlled command economy, where he and his cronies funnel trillions of dollars of investment into their industries of choice, with massive corruption.
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China’s Communist Party rejects the idea of a private sector. By law, every employee in Chinese firms must report to the Ministry of State Security, which heavily infiltrates especially high technology companies.
Lyons recounted the case of Linwei Ding, the Google engineer who stole proprietary AI chip architecture for a trillion-dollar industry and used his knowledge of Google’s designs as his China-based company’s selling point. Ding was arrested and convicted of economic espionage, but the damage is done.
Having stolen our technology, China can produce a copycat product at an extremely low cost with an eye towards purloining Google’s market share. U.S. companies should bear some responsibility for recognizing their own vulnerability. The idea of a Chinese copycat product impacting a company’s global revenue is often considered an over-the-horizon challenge for some future CEO, given it takes time to commercialize stolen designs. But short-term focus risks long-term strategic losses.
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During the past 25 years, China’s systematic theft has eroded or eradicated critical U.S. industries like steel, telecommunications, solar and semiconductors. If our checkered past, a massive transfer of wealth from the U.S. to China, is prologue then Lyons is absolutely right to ring the alarm bells about growing risks to U.S. national security.
U.S. companies are in the crosshairs of China’s notorious Ministry of State Security. That’s hardly a fair fight for our private sector, which is untethered to our federal government.
U.S. companies should not have to face off alone against China’s sophisticated intelligence service. The U.S. government does not at this time adequately advise, warn and protect our companies. Similar to counterterrorism operations, the objective should be to detect commercial threats way out left of boom or before the attack and preempt the threat before any harm is caused to our vulnerable private sector. Threat briefings are not enough. Especially our small businesses and startups need actionable intelligence.
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Lyons also suggests we need to reform our commercial incentive structure and legal system.
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First, the Department of Justice should defray the costs of litigation and allow companies to share in financial restitution from criminal fines, forfeitures and sanctions penalties.
Second, the White House should work with Congress to increase the deterrent effect of economic espionage by raising the penalties so that it costs more to steal IP than develop it. The U.S. government should use intelligence reporting to name and shame foreign actors conducting espionage against our private sector and target them ruthlessly through covert and overt means.
Third, after discontinuing its Thousand Talents Plan and re-starting it under a different name, China continues to recruit engineers and scientists with generous “salaries” and other benefits to share their sensitive work. Lyons rightly argues that we should begin by designating foreign entities doing the bidding of Chinese intelligence as State Sponsored Economic Espionage Organizations, while bringing criminal proceedings against anyone who knowingly accepts compensation or material benefit from a designated entity.
Going forward, hard-driving White House policy, bipartisan legislation and support from the intelligence community, should harden our defenses. With China relentlessly focused on winning this century’s Cold War by outpacing U.S. high technology, the stakes could not be higher.
