The strategic aims of Chinese cyber industrial espionage

The strategic aims of Chinese cyber

 industrial espionage

by Christy Quinn


 

The recent indictment of several People’s Liberation Army (PLA) officers linked to the 61398 Unit, accused of industrial espionage against several US private companies and trade union bodies on the behalf of Chinese state industries, has pushed the issue of ‘cyber warfare’ to the front pages of global media. What for decades was the mutterings of government officials in anonymous briefings with journalists and high-level diplomatic meetings, has been pushed firmly into the level of public diplomacy, with the spokespeople of rival foreign ministries engaging in slander matches and finger pointing. There are key perceived differences, however, in the motives and strategic goals of the “Five Eyes”, the formal alliance between the signals intelligence (SIGINT) agencies of USA, UK, Canada, Australia & New Zealand that are responsible for intercepting communications, and the Chinese PLA’s cyber units. This is summed up by investigations firm Kroll’s managing director Timothy Ryan’s statement in an interview for Bloomberg TV, in which he asserted that,  ”The US government is concerned primarily with geopolitical conditions in the world [and that]… The Chinese are doing (cyber espionage) primarily to make money, to give their state owned corporations an unfair advantage.”

This is a potentially misleading representation of Chinese motives for two main reasons. Firstly, for strategists in the Chinese Communist Party, it is impossible to overlook that Western industrialisation in the 19th and 20th centuries was buttressed by state power and often military force. The need to secure cheap raw materials such as cotton to support the burgeoning private industries in northern England was a key motivator for British imperialist adventurism in India and Africa. Forced entry into Chinese markets through the humiliating concessions made by the Qing dynasty during the Opium Wars provided Western imperial powers with access to Chinese trade and a huge export market for manufactured goods. ‘The Century of Humiliation’, the period between 1839 and 1949 under which China’s territorial integrity and sovereignty was ripped asunder by unequal treaties, port concessions and violent interventions by Western imperial forces, still has huge resonance amongst party cadres. This reinforces the view that they are simply righting historical wrongs that have given Western corporations a huge starting advantage at the expense of Chinese national sovereignty and dignity. It is only natural that the Chinese military work in tandem with the needs of Chinese national industry, without regard for the protestations of Western business, privileged by centuries of state protectionism and economic imperialism. This nationalist narrative of re-asserting national honour is gaining credence within the PLA and tapping into it offers a key means for the Party to keep control over its military as it becomes an increasingly professional force.

Secondly, this view does not provide a complete picture of the motives of the state owned enterprises (SOEs) that are still central to the Chinese ‘socialist market economy’ model. Whilst on the surface these businesses operate on a profit-driven corporation, rather than the provision of mass-employment during the Maoist era, they are still dominated by the strategic needs of the Party State. The huge role that SOEs still play in the Chinese economy, representing over a third of all business activity in the country by one measure, are a means of keeping the market economy under party discipline, avoiding commercial actors seizing political power to serve their own interests, for example the Russian oligarchs created in the privatisations of the Soviet economy in the 1990s. Their CEOs are party-appointed cadres that are recipient to party discipline and must be seen to be contributing to the State’s strategic objectives in order to progress up the political ladder within the Party. Whilst increasing profitability within the SOE sector is a key area of reform being considered by President Xi Jinping, it is by no means the only or even first priority for SOEs.

The unnamed SOEs referred to in the US Department of Justice (DoJ) indictment as the recipients of stolen intellectual property and confidential data, from Unit 61398, all operate in strategic sectors of the Chinese economy such as energy and steel. ‘SOE-1’, which builds and operates nuclear power plants in China, is alleged to have benefited from stolen design specifications for pipe designs and strategy documents from a US firm they were partnering with to build four nuclear power plants in the mainland. By sub-contracting industrial espionage to the PLA unit, they are supporting the Party’s strategic aims of reducing their dependence on foreign sources of technological expertise and speeding up China’s drive towards energy independence in the long term. This is quite different from the more mercenary terminology of simply ‘making money’ and seeking commercial advantage in the global marketplace. There is much less evidence to suggest the PLA unit is simply selling their expertise to private commercial businesses in China who simply want to win market share.

The role of the PLA in this is also worth discussing. The Peoples’ Liberation Army is the military arm of the Communist Party, and its responsibilities to the Party come before its responsibilities to the state. In this way, it is similiar to SOEs in that its political responsibilities take precedent to its own institutional strategic objectives. SOEs commissioning a PLA unit to carry out cyber espionage against commercial partners and rivals is much more of an internal secondment of duties within the Party bureaucracy, rather than the PLA being a ‘gun-for-hire’ for Chinese businesses. The activities of Unit 61398 have been well known within government and IT security circles for some years as perhaps the most prolific hacking unit in the world. From the Council of Europe, commercial giants like Morgan Stanley, Google and Exxon Mobil and defence contractors such as Lockheed Martin, the Unit has been tied to massive intrusions to company databases and the ‘hoovering up’ of proprietary data on a global scale. Whilst in comparison, Edward Snowden revealed NSA penetration of SOEs globally, such as Brazil’s state oil company Petrobras, the PLA is alleged to have a ‘no-holds barred’ approach to commercial espionage. Immediate strategic aims are to enhance the Party’s leverage over transnational corporations who want access to Chinese markets, such as Coca Cola’s attempted acquisition of China Huiyuan Juice Group in 2011, and increase the rate of ‘catch-up’ between China’s SOEs and western corporations. This supplements more conventional espionage efforts such as the theft of aerodynamic models of F-35 Joint Strike Fighter from US military defense networks and aerospace companies, to aid in the development of China’s military capabilities.

The real risk for China is that they normalise the process of industrial-scale state-sponsored commercial espionage, to the extent that decades down the line they themselves could become the victim of another emerging economic power. It is entirely foreseeable that in the next few decades India could harness its knowledge base in IT and direct thousands of newly hired state employees to erode China’s competitive advantages through hacking of proprietary data. The heightened risk of loss of intellectual property also lowers incentives for businesses to develop labour-saving technologies, which could have a knock-on effect on economic productivity in the long run by creating a ‘wild west’ where industrial espionage is the norm and there are few ‘secret recipes’ left in business. The US Department of Justice’s indictment is essentially trying to re-assert what it deems acceptable limits on cyber espionage and modify the Chinese leadership’s cost-benefit analysis of its sponsorship of cyber-hacking. However, it is unlikely to make a dent in the juggernaut of cyber malfeasance that the Communist Party has created in Unit 61398.

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Christy Quinn is an incoming student for the MA in Intelligence & International Security at the War Studies Department of Kings College London and is a graduate of International History at the London School of Economics. His primary research interests include cyber security, diplomacy & strategy, economic history and the SE Asia and MENA regions. You can follow Christy on Twitter @christyquinn