Xu, who was extradited to the United States on Tuesday last week, has pleaded not guilty to charges of economic espionage and attempting to steal trade secrets from GE Aviation and other aviation and aerospace companies.
Law enforcement officials say this is the first time a Chinese spy has been extradited to the United States to face charges. If the United States is lucky, it won’t be the last.
For two decades, China has been waging a creative, multifaceted campaign to pillage Western intellectual property to advance its own economic interests and to bolster its domestic business market. The goal is strategic and laid out in Beijing’s “Made in China 2025” plan: The government has targeted certain vital economic sectors and seeks to transfer technological know-how to Chinese companies from other companies around the world.
Today, that campaign takes three distinct forms. First, China’s military and intelligence services run operations to steal trade secrets and intellectual property, in both the physical and the virtual world. Targets have included everything from DuPont’s recipe for the color white used in the Oreo cookie to the blueprints for military hardware.
Second, China is accumulating vast quantities of data for strategic purposes — including its 2015 theft of millions of federal personnel records. Data theft has strategic value to China for both economic and espionage reasons: Large data sets are increasingly vital to the emerging age of artificial intelligence, where developing machine learning algorithms is dependent on access to data.
Third, China is exploiting global supply chains in areas where it dominates manufacturing to reportedly hide spyware and back doors in the technology it sells, and to force Western companies to provide critical technological know-how to China in exchange for doing business there. That same capability could be used during wartime to disrupt commerce and communications on a global scale.
China’s campaign reflects a rational, strategic plan based on costs and benefits to leapfrog the West and build itself rapidly into the world’s largest economy and most powerful nation.
Changing such behavior requires changing the cost calculus: China shouldn’t be allowed to steal for free. The problem cannot be solved with handcuffs and prison sentences alone. An “all tools” approach is essential, one that supplements criminal charges with international sanctions and tariffs, diplomatic protests and public pressure. The messaging to China must be clear and precise: Changing your behavior will produce a better cost/benefit outcome.
There are encouraging signs that Washington is ready to send this message. Just hours before the Justice Department’s arrest of Xu was unveiled, the Treasury Department announced a pilot program based on a bipartisan law that allows increased government scrutiny of foreign investment for potential national security risks.
The Foreign Investment Risk Review Modernization Act of 2018 expands the type of business deals subject to review by the interagency Committee on Foreign Investment in the United States. The committee, which began in 1975 and has been perceived as a body focusing on the defense sector to ensure that the United States wasn’t giving secrets or access to foreign powers, is evolving into a body that reviews a much wider array of proposed business deals, sales, partnerships and mergers, with an eye to ensuring that U.S. companies aren’t — wittingly or unwittingly — giving away too many secrets.
The committee has the power to block deals entirely or to force companies to divest sensitive assets before completing a deal. Deals are blocked based on specific intelligence and, because it’s all behavior-based, if a foreign power stops its theft or tampering, that country can then be approved for subsequent deals, allowing foreign investment to flow in. But if the theft continues, the pilot program and other Treasury Department efforts under the risk-review act can be used to mete out financial punishment a foreign power may find intolerable.
The new technological era is a critical time. If theft and forced technology transfers continue unabated, they threaten the economic vitality of the global economy. A targeted campaign to raise the costs for bad actors would help establish a world of shared norms to the benefit and prosperity of China, the United States and the rest of the world.