U.S. authorities have charged an American engineer and a Chinese businessman with economic espionage and conspiring to steal sophisticated turbine designs to benefit the government of China and their personal business interests.
The 14-count indictment, unsealed Tuesday, alleges Xiaoqing Zheng of Niskayuna, N.Y., and Zhaoxi Zhang of China’s Liaoning province teamed up to filch millions of dollars’ worth of General Electric’s trade secrets.
“This is one of the most significant indictments involving China’s alleged theft of technology,” said Michael Wessel, a member of the U.S.-China Economic and Security Review Commission. “The technologies involved in the indictment go to the heart of China’s deficit in turbine technology.”
Zheng, who has pleaded not guilty, was arraigned Tuesday in Albany, N.Y, and released pending trial. Attempts to reach him were unsuccessful.
The Chinese Embassy in Washington did not immediately respond to a request for comment, though the Chinese government has consistently denied that it engages in economic espionage.
China has identified aerospace technology as vital to its economic and military objectives. The Justice Department in its indictment tied the trade-secret theft to China’s “Made in 2025” initiative, aimed at vaulting China’s economy into higher-value areas in competition with the United States, including in aviation equipment and power generation.
“The indictment alleges a textbook example of the Chinese government’s strategy to rob American companies of their intellectual property and to replicate their products in Chinese factories, enabling Chinese companies to replace the American company first in the Chinese market and later worldwide,” said Assistant Attorney General John Demers.
GE, with approval from the U.S. government, has pursued legitimate business opportunities with China. In 2011, for instance, in a move unrelated to the case brought by the Justice Department, the company entered into a joint venture with AVIC, a Chinese state-owned aerospace company, to share technology for aviation software packages.
Aviation software and turbine technology are the two critical areas China faces challenges in developing its own world-class commercial and military aircraft, experts say. “The technologies involved in this indictment could very well advance their capabilities to help them overcome this remaining critical deficit in the aerospace field,” Wessel said.
The case is unusual for the apparent direct interaction the defendants, who are not accused of being government spies or officials, are alleged to have had with Communist Party officials to discuss a “strategic partnership” with the research organizations to develop aircraft engine technology.
According to prosecutors, Zheng, 56, worked as an engineer at GE Power and Water in Schenectady, N.Y. While there, he allegedly exploited his access to the company’s files, stealing proprietary design models, engineering drawings and specifications dealing with components and testing systems for GE gas and steam turbines, the indictment contends.
He is accused of emailing and transferring many of the files to his business partner, Zhang, 47, in China. The indictment alleges that they used GE’s trade secrets to advance their business interests in two Chinese companies that make turbine parts — Liaoning Tianyi Aviation Technology and Nanjing Tianyi Avi Tech.
In a statement, a GE spokesperson said the company was cooperating with federal authorities. “We aggressively protect and defend our intellectual property and have strict processes in place for identifying these issues and partnering with law enforcement,” the statement says.
The indictment also alleges that from March 2016 through August 2018, Zheng and Zhang conspired to commit economic espionage to benefit the Chinese government and related entities, including Shenyang Aerospace University, the Shenyang Aeroengine Research Institute and the Huaihai Institute of Technology.
U.S. officials alleged that, through the two Chinese companies, Zheng and Zhang received financial support from the Chinese government and coordinated with Chinese government officials to enter into research agreements with state-owned institutions to develop turbine technologies.
Officials valued the secrets at “millions of dollars.”
China’s economic espionage is estimated to cost U.S. businesses tens if not hundreds of billions of dollars a year. “Chinese spying has surpassed Cold War levels,” said James Lewis, a cyber-policy expert at the Center for Strategic and International Studies.
Authorities say that to conceal his alleged activities, Zheng used encryption and a technique called “steganography’’ to hide secret material in otherwise ordinary files or messages — in one instance in a digital photograph of a sunset, the indictment says.
Zheng also is accused of lying to FBI agents about emailing GE’s confidential material to contacts in China, according to the indictment.
The link between the alleged theft of trade secrets and China’s economic program illustrates why the Justice Department sees this as a national security priority, said John Carlin, an assistant attorney general in the Obama administration. “It is to counter what they lay out as a Chinese state plan to steal from, replicate and replace U.S. companies in both their domestic market and worldwide,” he said.
This post has been updated to include a statement from General Electric. Steven Rich contributed to this report.