The FBI is investigating over 1,000 cases of Chinese espionage in the US, but that may be just the tip of the iceberg. We’re joined by Nick Eftimiades, the author of Chinese Intelligence Operations and a 34 year career veteran of the CIA, DIA & US Department of State to learn the goals & scope of modern PRC espionage, and the steps you can take to protect your organization’s intellectual property.*

Nick, welcome! For our audience sake, let me start by pointing out that you literally wrote the book on Chinese espionage, along with numerous publications like “On The Question Of Chinese Espionage”, recently featured in the Brown Journal of World Affairs. What was the initial inspiration in your background that led to this area of expertise?

Nick Eftimiades, speaking on Chinese IP violations (US Department Of State)

Well, I did part of my undergraduate and graduate work in Taiwan, and I’ve lived and traveled in China and Japan as well. So I have an extensive background on China, especially having a degree in East Asian studies that I got back in the ‘80s.

I started actually working on Chinese intelligence in the early ‘90s, and I’ve been working in that area ever since, either professionally or academically. So I’ve had quite a long history of looking at Chinese espionage, especially the commercial components of it.

Where exactly does our relationship stand with China right now? Is there a simplistic way to explain this on a foreign policy level, and would you call them a friend, foe, or something in between?

Well, I think the term is frenemies. There’s no question we have a good trade relationship with them, or at least components of it are very good. People to people exchanges are very good, China’s risen over 400 million people out of poverty, and it’s starting to take on a role in the international community.

The problem is China’s objectives, and this leads back to Confucian culture, which is still very pervasive in China and doesn’t really recognize equality. Culturally, they recognize you being below them, or you being above them, but there are no equals — and this pervades every aspect of their relationships from interpersonal all the way up to the international level.

So China’s striving greatly, and I’ll quote Xi Jinping on this point, “to take its rightful place at the top of the world.” China sees itself as having been superior and having suffered a century of humiliation at the hands of the West — and now that they have money, they intend to change the international order to something more suitable to the Chinese governance model, which unfortunately is an authoritarian state. So there are areas that we’re most definitely at odds with them.

Chinese Xi Jinping Aims to Propel China to the Top of the World Order (Time Magazine / AP)

Are the Chinese still communists, and would you say they’re more or less of a threat than Russia?

Well, certainly they’re not communists. As a senior Chinese official once told me when I asked him the same question, “Nick, whatever we are, we’re going to do whatever works and we’re going to call it socialism with Chinese characteristics, period.” So that’s the way their leadership sees it.

It’s about maintaining party power, that’s foremost objective of the Chinese Communist Party (CCP), followed by doing right by its people and trying to raise the people out of poverty. Those are the objectives of their governance model, but I wouldn’t call it communist by any means at this point.

Are they more of a threat than Russia? Yes, unquestionably. I think that actually sort of bothers Russia in a way, but Russia’s global influence trails China in every possible way — militarily, economically, and politically.

Now speaking practically, China is currently our 3rd largest trading partner, with $659 billion in trade during 2018 alone. I know that our nations are saber-rattling over issues like market access & intellectual property protections, but can either country honestly risk damaging our trade relationship?

Well, not immediately. However, the US could begin to economically disengage somewhat, and start moving investments out of China — and in terms of the production world, this has already started to happen.

US corporations are beginning to pull back because Chinese labor rates have gone up so much, in addition to the threat of trade issues, and also as a result of theft of US intellectual property & trade secrets. This is pushing companies away from China and towards more fertile areas for production.

So it’s already happening — the question is whether their behavior accelerates the pace that it’s happening at. However, you can already see Korean, American, and Japanese companies moving out of China, all investing in the four tigers in Southeast Asia.

Greater market access & IP protections are factors in the trade war with China (USC News)

OK, you’ve written that the difference between the United States and many other nations who conduct intelligence activities is that our goal is to determine and counter hostile military capabilities, not to develop our own industries or transfer foreign wealth — a statement that implies China may have different goals. Can you elaborate on that?

Right, that’s correct. This is one of the key differences between Chinese intelligence and the US, but it should be expected. I mean, any nation will conduct intelligence activities based on its own needs, right? We don’t do intelligence for intelligence sake — we do it to support a political, military and economic security apparatus.

However, in the case of China, it’s needs are technology and economic development. We see this from government documents and leadership strategies all the way on down, and they pursue what I call a “whole of society” approach towards collecting information to support their needs.

Keep in mind that United States has a lot of laws in place which prohibit close contact between industry and governance, which includes intelligence. That’s not the same for China — they’re wholly integrated.

In terms of that integration, back in 2014, 2015, & 2017, the National People’s Congress & State Council publicized requirements that all Chinese citizens and companies operating in China must collaborate in gathering intelligence upon request, or face severe punishment for noncompliance. How far does that go?

That’s right, and although they don’t list things like prison sentences, they say the citizens must comply. In fact, last year China insisted that every company over 50 people must have a communist party representative within the company — and that includes foreign companies as well.

So the party is totally integrated into society and the business infrastructure, and they use that as much as possible, whether it be through individuals or company contacts, to benefit the party and the country. As the 2017 National Intelligence Law states, as well as implementing regulations that followed later that year, they’re very serious about the necessity of complying with those rules.

Huawei says it would never hand data to China’s government. Experts say it wouldn’t have a choice (CNBC)

In your own work, you’ve reported on an analysis of 464 documented cases of China’s worldwide espionage efforts over a period of 30 years, with most of those occurring since the year 2000. How does that compare to other countries, and how many more cases exist that we are not aware of?

China dwarfs any other country you can think of by at least an order of magnitude. That’s indisputable — I mean, you can take a look at FBI statistics on prosecutions, and over 80% are against Chinese entities. That’s partly due to the FBI’s recent China Initiative, which is a response to the aggressiveness of this type of economic espionage.

In terms of what we don’t know about — I look at it this way. Speaking only in terms of theft of research, there are about 363,000 Chinese scholars and students in the United States. Most of them are not involved with theft of research — not by a long shot.

However, just given the numbers, even if a tiny fraction of those researchers are bad actors, we still have a massive problem. I mean, the FBI says they have a thousand active cases out of 363,000 people — or about 0.28% percent of that population.

Speaking broadly, about 2% of any population will break the rules — and that could be anyone. Police, politicians, you name it. You always have a percentage of people who are going to break rules, so if you calculate maybe 2% to 3% of 363,000, then you’re looking at around 10,000 cases, and the FBI only has a thousand.

Types of PRC espionage committed (on left) and PRC orgs involved — (Eftimiades / Brown)

Can this issue be addressed in a way that avoids racial or cultural discrimination? It seems like there’s a definite cultural component to this issue, but at the same time the goal is to address national security concerns without scapegoating people because of their heritage or nationality. What are your thoughts on that?

This gets into the world of policy and how we should contend with this, and I agree with your concern. If we have to paint with a broad brush stroke, then our message must be relevant to everybody, not just the Chinese.

In my government advisory roles, I’ve suggested putting something additional into visa applications so that students and scholars coming to the United States understand the rules, understand the seriousness of the law, and that Americans follow a rigid legal structure that you really can’t break.

So that’s one part of the solution: educating people before they come to the United States, and raising awareness of potential legal consequences. Another a part of it involves government outreach to industry and academia to educate them how to protect themselves.

Perhaps education should begin with an awareness of the financial costs. You’ve written that in 2019, global Intellectual Property (IP) theft alone was estimated to be over $600 billion, and the annual losses to the United States are estimated at $360 billion. Those are big numbers.

They are, and that doesn’t even include the secondary and tertiary effects. I’ll give you an example: just the theft of production methods for solar panels put US industry out of business. China turned around and flooded the market with cheap solar panels, and US companies couldn’t compete. In terms of IP theft, we have a loss immediately.

On top of that loss, then you have families that are out of work, mortgages that can’t be paid, and people on section-eight housing. The same thing in the steel industry, and with wind power as well.

There are several industries like this — where you not only lose the initial investment in research, but you lose market share, and then you have additional repercussions such as dresses that aren’t being bought, cars that aren’t being purchased and the issues I mentioned before damaging the economy.

China gives on key US trade-war demand for IP Protection (Fox Business)

If a corporate or national entity finds that their IP has been stolen, is there a legal framework in place they could use to sue for protection or restitution?

Yes, there is. In 2016, Congress passed the Defend Trade Secrets Act. I’ve taken a look at that for cases, and we’ve already seen lawsuits come out of it. This was the first time that it was put in civilian hands to be able to sue foreign companies for trade theft. We’re seeing a rise in cases for that type of remedy, but globally, there’s still nothing.

I’ve advocated for some kind of international cooperation on this. Foreign policy really needs to be put in place with agreements between trade partner nations, like NATO and our allies, that says, “look, if you violate the rules here, that bans you from not only United States but from doing business in Japan, Europe or anyplace else.”

China holds the belief that they should to rise to be the top of the world, and that’s fine, but they need to do it within a system of rules that we can work together on globally. So far, that’s been the problem: that’s not the model they’ve been pursuing. Their approach has been, “We win. You lose”, which is still very much the Imperial model they’ve had for thousands of years.

Now you’ve also written about that PRC espionage activities necessitate the use of specific clandestine collection techniques, commonly known as “tradecraft,” to recruit and handle human assets. Does this mean that China has a network of spies, handlers, and other intelligence collection & distribution assets here in the United States?

Well yeah, by the thousands upon thousands, if not tens of thousands. Again, it’s that “whole of society” approach at work. The state-owned enterprise has access to some individuals, and private companies have access to others — and on top of it there’s basically what you could describe as a whole freelance network, perhaps like the woman who went to Mar-a-Lago looking to collect information.

So picture a network of tens of thousands of people who only get the most basic guidance from central levels, like “we need X, Y & Z technologies, and we’re willing to pay for it”. It’s actually ironic, it inspires this capitalistic espionage model, where people, companies and scholars are running around trying to get information to make money back within the Chinese system.

Categories of PRC espionage tradecraft employed — (Eftimiades / Brown)

That doesn’t sound like your stereotypical Russian spy in a TV show — highly trained, working alone, delivering envelopes under a door at midnight. What you’re describing here sounds more like a decentralized, friend of a friend, mafia-style arrangement. Is that right?

That’s exactly what it is, and you just hit on the central problem: the US government is not structured or capable of dealing with this type of model. We’re still in the cold-war model, looking for a spy sneaking around in the night servicing dead drops.

So the problem now becomes that we don’t have the legal structure in place to contend with this, nor the numbers of persons that you need to do it. We also don’t have the knowledge and awareness of tradecraft, and we’re lacking the security processes for industry required to meet this challenge.

Now for corporations that are affected by this, do you have any thoughts or advice on how they can take preventative measures that might basically stop theft from happening?

Actually, I do a lot of consulting work with corporations — educating them on what they can do. I also get a lot of requests from the government, but I turn down most of them, because it doesn’t help if the government circles the wagons and throw blankets over their secrets if the rest of the country’s dying because they’re vulnerable. So I do look towards supporting industry first.

The solution is a combination of things. It’s combination of training employees, security, and then creating and training an insider-threat staff. Also, the c-suite executives really need to understand exactly what the threat is and the full scope of potential costs.

So doing a full training and education program is one component of this — and then there are a whole lot of things the insider-threat staff has to do on issues of usage monitoring, document tagging, all those types of things. And that’s where cost comes in, right?

So they have to gauge all those things and inform a risk management process so they understand what level of risk they have for different components, right? We’re talking about things that are very, very critical to the survival of their business — and that’s where you invest.

It’s not worth losing a half a billion dollar product it took you $100 million to invent, which is something we’ve seen happen. Invest the $50,000 to protect it, okay? It’s not a big investment at the end of the day. So there is a whole lot that needs to be done in insider threat training and being aware of the threat and training staff and employees.

Nick Eftimiades discussed Chinese espionage & US Security at the Institute of World Politics

So overall, you’ve described some pretty daunting challenges in our relationship with China, but also a few solutions. Do you see a path to an equitable international trade relationship in the future that can avoid the challenges we’ve been discussing today?

I think the relationship can be adjusted over time, but it’s going to be a good 10 years, easy. There needs to be more coordinated effort with our allies and trade partners, and we need China adhere more closely to international norms. That’s not going to be an easy task, and it’s going to take a long time and require a lot of effort. It needs to be done, though, because if not, the rest of the world becomes really vulnerable.