Thursday, 11 July 2013

Different rulebooks for US and Chinese spies

Leading international headlines recently are stories of the United States government snooping on internet data. A single man who supplied the world with verifiable documents outlining this spying currently struggles to even find a place to rest his head outside of a Russian airport. The bugbear of American spies is concerning, but the debatably larger threat of Chinese industrial espionage lies just behind newspaper headlines.

The revelations of American digital spying did not uncover anything which wasn’t already fairly well known, or at least suspected. While a case can be made that US intelligence agencies monitoring American internet traffic probably need tighter controls, the crocodile-tears recently emerging from Germany for instance, are laughable.
Barack Obama and Chinese President Xi Jinping at recent summit
- Official White House Photo by Pete Souza

After it was revealed in leaked documents that the United States spies on Berlin and European Union agencies almost as much as it gathers intelligence from China and Iraq, German politician Martin Schulz, President of the EU Parliament, said that if it were true it would be “a huge scandal and a huge burden for relations between the EU and the US”.

But one thing has always been clear: all countries spy on each other. A robust intelligence agency is high on the top-ten list of valuables for any government, despotic or liberal. Sure, some countries are worth paying closer attention to, and a nation’s intelligence agencies will go through natural boom and bust cycles as threats emerge, grow and dissipate. But a responsible government understands there is no such thing as a friendly intelligence service. Everyone has allies, and it pays to know what they are doing because everyone also has secrets.

A few things separate American rules for intelligence gathering from other country’s rules. According to ex-NSA and ex-CIA director Michael Hayden, the Americans are interested in strategic intelligence which will keep their nation safe. Although the leaks about American spying are interesting, their intelligence community places self-imposed limitations on what information it takes and what information it uses. The overarching mind-set is to target conservatively what will maximise efficiency in government planning and maintain American military superiority. Depending on how much one trusts the words of an intelligence chief, self-imposed American limitations are either reality, fiction, or a nasty mix of both.

Nevertheless, this is in contrast to the mind-set and target list of intelligence agencies in China especially. Mr Hayden says when he was director of the NSA in the mid 2000’s he would stand in awe at the depth and breadth of the Chinese cyber-espionage efforts. They vacuumed every secret available, from military and government, to industry and business.

China may class all of this gathered data as ‘strategic’, because what helps the Chinese economy today will certainly help it tomorrow. Foreign industry and trade secrets are constantly being stolen by suspected Chinese cyber-spies.United States President Barack Obama even made a special point to China’s President Xi Jinping at a summit last month. Unfortunately for American and international business the meeting failed to generate any public statement on progress.

During the dust storm surrounding American spying - and the resultant gnashing of teeth by many people - the United States Department of Justice filed charges late June against China’s largest wind-turbine manufacturer, Sinovel Wind Group, accusing the company of stealing trade secrets from its former software supplier, American Superconductor Corporation (AMSC).

The Chinese company used stolen code in its wind turbines which it then sold back to the United States and installed only kilometres from the AMSC headquarters, among other locations. If China cooperates on the charges, two Chinese citizens could face up to 35 years in prison, as would an AMSC employee. However, China is unlikely to cooperate on the espionage charges, and is instead investigating a potential case of financial fraud at Sinovel.

Sinovel has denied the claims and filed countersuits against AMSC for breach of contract. But even the Chinese company is struggling as it competes in a constricting global market. According to company reports, Sinovel lost 58 percent of revenue in the last year while admitting that it over-reported its revenue in 2011 by 929 million yuan (NZ$192 million).

AMSC also lost 93 percent of it share value after Sinovel suddenly broke its contract in 2011 and cancelled product imports. The American company is reportedly seeking US$1.2 billion in damages from Sinovel alongside the current espionage charges. According to AMSC president Daniel McGahn, the very fact Sinovel felt comfortable stealing and then proceeding to sell back the knock-off goods to America “shows not only a blatant disrespect for intellectual property but a disregard for international trade law”. This is an important point.

These charges show a clear tolerance level has been reached by American companies tired of dealing with constant intellectual property theft from suspected Chinese cyber-spies. US Attorney General John Vaundreuil called the case a “well-planned attack on an American business by international defendants – nothing short of attempted corporate homicide.”

China wishes to enter into the Trans Pacific Partnership (TPP) and engage on a fair economic playing field with some of the largest Pacific nations. However, given the United States' involvement in the TPP - and that a critical topic for the Americans is intellectual property rights - China’s potential inclusion into the TPP will require deep reforms to how it deals with industrial espionage.

While it is understandable that American companies are pushing back on Chinese espionage efforts after highly damaging recent events. It also implies that the attraction and benefits of the Chinese market has been too strong in the past for many of those businesses to tackle trade secret theft. As American companies and government begin to fight back, it could offer another piece in the puzzle pointing towards slower Chinese growth and a greater (and safer) emerging South Asian market which is attracting more US business.

The way in which the Beijing handles the Sinovel case could impact how the United States negotiates future deals with incoming Chinese companies. If the threat of Chinese espionage cannot be mitigated, bilateral relations between the two countries could suffer as a result. The United States would feel the pain, but ultimately Washington has more options than Beijing in where it does its business.

As more cases like the Sinovel charges are unveiled in the future they will prove the rule that everyone spies on each other. However, there are different rulebooks for espionage depending on who is doing the spying. In the present cases, the United States will continue to strengthen its own domestic spying capabilities to limit further foreign industrial espionage efforts. While Chinese companies are likely to continue to steal intellectual property rights unless the Chinese government can fortify legislation and prosecute offenders.

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