US-China Tech Race: Spies and Lies (Part Two)

This is an audio transcript of the Tech Tonic podcast US-China Tech Race: Spies & Lies (Part Two)

Nicholas Shenkin
To be honest, I mean, at cocktail parties with people I don’t know well, I usually just say I’m a lawyer who works for the Department of Justice. It’s . . . There’s very little you can say about what we do.

James Kynge
Nick Shenkin works in Silicon Valley. And if that’s where you work, well, you may have met him. You just wouldn’t know he’s actually an FBI agent.

Nicholas Shenkin
I just bore them by telling them I’m a lawyer who works for the Department of Justice, which isn’t false, but it’s boring enough that nobody has any follow up questions.

James Kynge
And there’s something else you probably wouldn’t know. The FBI has its own dedicated field office in California’s capital for all things tech. Nick’s job: to prevent industrial espionage and the theft of intellectual property, IP theft, at America’s biggest tech companies.

Nicholas Shenkin
The best estimates that I’ve seen from private entities put the damage to the US economy from IP theft somewhere between $450 and $850bn per annum. I can tell you that a very, very significant percentage of that is coming out of Silicon Valley.

James Kynge
And Nick says that the biggest threat of industrial espionage in Silicon Valley has increasingly come from one place: China.

Nicholas Shenkin
What’s concerning about that is a trend that we’ve seen of more and more aggressive intellectual property acquisition by the Chinese Communist party. They’re targeting biotech, nanotech, ag tech, quantum technologies. If you look at their five-year plan, the breadth of the technologies that they intend to acquire is really breathtaking. I mean, it is across the board. It is part and parcel of their attempt to build a siege economy in technology

James Kynge
From where Nick is sitting, China’s IP theft in Silicon Valley is neither haphazard nor opportunistic. It’s all part of a large-scale espionage mission orchestrated by Beijing.

Nicholas Shenkin
Stealing early technology is the foreign intelligence service’s job. You know, that’s what they do. They’re very well resourced. They’re at it every day just as a job. That is just their job. So, you know, we spend every day trying to stop them.

[MUSIC PLAYING] 

James Kynge
This is Tech Tonic from the Financial Times with me, James Kynge, the FT’s global China editor. In this season, we’re examining the rise of China as a global tech superpower and its battle with the United States for global tech supremacy because whoever wins will have the upper hand in shaping the technology that will affect all of our lives. In the previous episode, we heard how growing anxiety over China’s technological advancements prompted a US campaign to stop Chinese tech espionage and how it led to innocent Chinese scientists and academics being labelled as spies. In this episode, we find out about the true scale of China’s efforts to steal US tech secrets and how the growing distrust between the US and China could put the future of scientific exchange at risk.

[MUSIC FADES] 

Let’s take you first to a chilly spring day in rural Iowa. It’s 2011. An American field manager is surveying a vast tract of land where he’s supervising the growth of genetically modified corn seeds. He works for a company owned by Monsanto, a biotech giant. He stops. He’s noticed something unusual at the edge of one of the fields. An Asian man is crouched down on his knees, digging in the soil. Another Asian man looks on as he sits in a nearby car. The field manager approaches them and asks what they’re up to. The two men say they’re working for the University of Iowa and attending a nearby conference. The field manager isn’t entirely convinced [SOUND OF PHONE RINGING], but then his phone rings and as he takes the call [FOOTSTEPS RUNNING AWAY, CAR DOOR SLAMS, ENGINE STARTS], the two men legged [CAR DRIVING OFF]. In fact, so keen are they to get away that they drive straight down through a ditch [CAR CRASH]. Two years later, one of the men who had been in that cornfield, Mohi Long, as well as six other Chinese nationals, were accused by US authorities of digging up seeds from Iowa farms with plans to send them back to China. Mo pleaded guilty, and prosecutors argued that he specifically targeted fields that grow the parent seeds needed to replicate genetically modified corn. The Chinese government, for their part, refused to co-operate during the trial. Pocketing corn seeds may not seem very cloak and dagger, but then that may be why this case caught US counter-intelligence services somewhat off guard.

Michael Orlando
For us, these are cases where they were stealing corn seed. It was hard initially to get your head around, ‘Hey, why are they stealing corn seed?’

James Kynge
That’s Michael Orlando. We heard from him in the last episode. He’s the acting director of America’s National Counterintelligence and Security Center. He says stealing trade secrets has for decades played a key role in advancing China’s prowess in technology.

Michael Orlando
If you look over the last 20 years, the gains they have made, I would certainly say there’s probably a number of cases out there that show that espionage has really helped them advance. When you bring together the espionage with the acquisitions and the joint ventures, it really gives them a supercharged programme to advance in those technologies.

James Kynge
There are dozens more examples of alleged Chinese corporate espionage to be found in US court filings over the last few years. And some of them go right to the heart of Silicon Valley. Take, for example, tech giant Apple’s secretive project to build self-driving cars.

[AUDIO OF NEWS REPORT, FADING]
. . . a Chinese national working for Apple of stealing trade secrets. Our investigative unit learned that.

James Kynge
Since 2018, two Apple engineers have been accused of stealing details of the project before applying for new jobs at Chinese rivals. Apple investigators say one of them, Ji Jong Chen, had more than a hundred photos of the inside of Apple’s facility on his phone and a personal hard drive filled with proprietary material. Or there’s the story of a robot called Tappy. The US phone company T-Mobile used it to test new handsets.

[AUDIO OF NEWS REPORT, FADING]
T-Mobile had given Huawei employees limited access to Tappy to test Huawei’s phones. Huawei entities directed employees to take photographs, take measurements.

James Kynge
China’s Huawei was so taken with Tappy, an employee allegedly stole the arm of the robot and smuggled it out in his laptop bag. The challenge for the US intelligence community is the sheer range of tactics that China is employing when it comes to getting its hands on the latest technology. Michael Orlando says some of those tactics, like paid up government spies or computer hacking, are clearly illegal.

Michael Orlando
So that would be your insider threat, individuals who are knowingly stealing information from companies or the government. And then cyber threats, cyber intrusions, which is stealing information, whether of the Chinese intelligence service or criminal hackers who are working on the behalf of the Chinese service.

James Kynge
And then there are methods of gathering tech knowhow that are perfectly legal. Take, for example, when a Chinese company buys a US company or when a US company does a deal with a Chinese partner.

Michael Orlando
When companies want to do business in China, they’re required to have a joint venture. As part of that joint venture, they’re required to hand over technology to the government. We’ve also seen a number of acquisitions in which instead of trying to steal our information or our partner, they’ll actually just buy out companies. And when you buy out the company, you now acquired all the technology and then knowhow that you need.

James Kynge
But the challenge comes with a third approach. Intelligence gathering efforts that skirt the edges of what is legal. In particular, what has US authorities worried are China’s numerous so-called talent programmes. Since the 1990s, China has spent billions of dollars to attract talented scientists, academics and tech workers to Chinese companies and universities. Programmes like the “Thousand Talents” are typically aimed at Chinese nationals working in institutions abroad. If you’re a Chinese tech expert in the US, you might be offered a generous salary, research grants and even an apartment to return home to in a Chinese city, bringing the skills and experience you’ve acquired with you. In many cases, they even offer to let participants split their time between China and their job abroad.

Rui Ma
I have encountered such programmes. I mean, the city of Tianjin, for example, told me that if I just establish an office and they were like “it could be a fake office” in their city. But, you know, I have to invest some money and spend some time there. As long as I can commit to that, they can give me a free apartment in Tianjin.

James Kynge
Rui Ma is an American tech investor born in China. We heard from her in the last episode. She says attracting talented people is a huge challenge for companies and universities, particularly for smaller Chinese cities.

Rui Ma
There’s a huge talent gap domestically so the “Thousand Talents” might have been directed towards the returnees, but in general, they’re just like so many of these subsidy programmes, talent attraction programmes within the country, where especially you have, you know, it’s almost like the smaller the city, the more aggressive they often are with their terms, right? Because of you’re Beijing, Shanghai, you don’t really have to work that hard to attract talent. But if you’re a Xi’an or Shenyang or something, then you may have to pay up quite a bit for people to consider moving.

James Kynge
Talent programmes aren’t against the law. Countries all over the world have them. But in the case of China recruiting talent from the US, it becomes a problem when those people bring not only their skills and experience, but also confidential tech knowhow. Back to Michael Orlando.

Michael Orlando
There’s nothing illegal about a talent acquisition programme where you’re trying to encourage people to come over to China to work, but it becomes quasi legal when you start encouraging them to take technology from their employer.

James Kynge
Take Micron Technology, the US computer memory chip giant.

[MICRON ADVERTISEMENT]
Micron’s planned investment of over $150bn in manufacturing and R&D, combined with sustained government support . . . 

Michael Orlando
So if you go back to around 2013, the Chinese state-owned enterprise attempted to buy Micron Technologies. That deal was eventually blocked by US regulators. And then in 2016 or 2017, a number of employees in Micron and a subsidiary of Micron were recruited in a talent acquisition programme to come over to a competitor company, and they took technology from Micron, and it was being passed to a Chinese company. Talent programmes are where we’re gonna continue to see challenges from China. So the “Thousand Talent” programme is one of, I think, at least 200 talent acquisition programmes that they have, in which they are trying to recruit Americans and others to come to China, to work in China and bring the technology with them so that they can build up Chinese companies. I think companies and universities are going to have wider awareness and to try to educate their workforce on these talent programmes so that their employees think carefully before they take these opportunities, knowing that these opportunities will support the Chinese Communist party’s agenda, which is generally not aligned with US interests.

James Kynge
The US intelligence community’s suspicion is that these talent programmes are effectively spy recruitment networks, and it makes the job of combating Chinese corporate espionage all the more difficult. The US’s spy hunters aren’t just looking for hackers and bona fide Chinese spies. They’re looking for anyone who might be encouraged to share trade secrets for the sake of their career.

Michael Orlando
I think in the illegal spectrum, the FBI does an excellent job in countering insider threat and the cyber problem. But when you pivot over to those legal techniques, the tools that the FBI and others have don’t really match up.

James Kynge
That’s where people like Nick Shenkin, the FBI’s man in Silicon Valley, come in.

Nicholas Shenkin
When we go out and we interface with these companies, it can be surprising to us how little is common knowledge.

James Kynge
Is the response mostly very receptive?

Nicholas Shenkin
It’s usually very receptive, yeah. We’re providing them with information that cannot get anywhere else. We can build that relationship to say, OK, here’s your toolset so that they can get high quality red flags within their organisations. And then as that company is comfortable, they can share that information with us, and we can continue to share intelligence with them.

James Kynge
Nick will sit down in a Silicon Valley office and teach companies and investors what to watch out for. And then those companies and investors will pass on intel to the FBI about employee involvement in espionage. Is it possible to give an indication of sort of how many Chinese agents there are at any one time in Silicon Valley, looking for intellectual property? Is it possible to quantify it in that way?

Nicholas Shenkin
Unfortunately, the actual number that we’re aware of is a classified number, so I can’t give you that actual figure. Suffice to say, the number of present on the ground in any high target area would be very significant. We encourage companies in their insider threat protocols to not look at employees as threats, but as potential victims of exploitation. You know, don’t look at your employees as a, you know, potential insider threat. Look at them as a potential victim of foreign intelligence recruiting.

James Kynge
But alerting firms is a fine balancing act. How do you warn companies about IP theft that might be happening within their own ranks, without turning every single one of their employees into a perceived potential criminal agent? And what about accusations that sounding such alarms leaves many ethnic Chinese employees particularly vulnerable to suspicion or even unwarranted persecution?

Nicholas Shenkin
To clarify, it’s not the Chinese people, it’s or people of Chinese descent. This is the Communist Party of China. Their espionage doesn’t really have a lot to do with the Chinese people, just to be clear on that.

James Kynge
Nick says this line over and over again, but there is a further complexity that does make any Chinese national working in the US a potential security threat in the eyes of the FBI. Chinese nationals have to share information with the Chinese government by law if ordered to do so.

Nicholas Shenkin
Anybody who is subject to the jurisdiction of any person, entity or company, they must yield all information to which they have access to the CCP on demand. Would they refer to that as a whole of society approach to intelligence gathering? That’s what the Chinese government refers to it as. So whereas in the west, we think, well, we’ve got an NDA, we’ve got a proprietary agreement. In fact, those clauses are utterly useless against the law of the Communist Party of China. So what ends up happening is a tech company will enter into, say, a joint venture with a Chinese company or Chinese university or whatever it may be, really any entity subject to the Chinese government. We think that we’re dealing with a party who may be perfectly honest and decent as human beings or as whatever entity it may be, but they are subject to laws that force them to steal from that US company or that US party or US university.

James Kynge
Logically, if you accept this FBI interpretation of Chinese law, absolutely every Chinese citizen living in the United States is a potential espionage threat. That’s a bold claim, and it goes some way to explain why the FBI has cast its net so very wide. So wide, in fact, that innocent academics get ensnared like Professor Xi, arrested as we heard in episode one, his whole life and career turned upside down.

Xiaoxing Xi
The first time when I saw on the indictment the United States of America versus Xiaoxing Xi, I mean, that was a very (sighs) . . . The feeling was, I cannot forget about it. We have to push back. Otherwise, for me, I think it’s very clear this country is moving towards the direction where there will be zero academic or scientific exchanges with China.

James Kynge
A quick break now. We’ll be back in a moment.

[ADVERTISEMENT]

James Kynge
The scientific community is worried about the impact of US-China tech rivalry on the global exchange of talent and ideas. An end to scientific exchange would be a huge break from the past. For decades, the dream of studying in the US has been an obsession for millions of young Chinese looking to advance in life. When I was based in Beijing as a correspondent, the FT bureau was close to the American embassy, and every day you would see queues snaking around the block, queues of Chinese applying for visas to study in the US. That is still the case. But for how much longer?

Wang Huiyao
China now is the largest talent supply country to the United States.

James Kynge
Wang Huiyao is founder and president of the Center for China and Globalization in Beijing.

Wang Huiyao
That the US is attracting the best talent around the world to the United States. You know, US is picking the talent from seven billion people, where China is picking talent from 1.3bn so I think that really make a lot of difference in terms of innovation.

James Kynge
But Wang says the hardline stance adopted by the US intelligence community on suspected espionage is discouraging many talented Chinese from seeing the US as a place to build their career.

Wang Huiyao
It is being reported in China, and China’s government official has responded to that and suddenly there is a cold war mentality. It’s actually turned off many Chinese students to study in the US. I mean, that number is dropping. Used to be there’s a big number increase, but now the number is dropping, and that they will have less people going to the United States.

James Kynge
And he says another thing: that the perception of China as a technological threat to the US is damaging for both countries, preventing them from working together. I think, you know, everybody is really amazed at the speed that China’s been climbing the technology ladder. And one of the recent statements that really struck me was from Eric Schmidt, the former CEO of Google, who said China was now in a position to soon overtake the United States in terms of its all round technological power and expertise. Would you agree with that statement?

Wang Huiyao
I would still think that statement is a little bit over, overstated. I think US is still the largest economy and the largest innovation country in the world. But China, you know, has its own advantage of course. I think China can really, you know, learn technology and that maybe in terms of application, can really do well, in terms of manufacturing can do well. So I would think US and China can be a best partner if they are really co-operating so then they can really enrich the world, and they can really contribute in terms of prosperity and development.

[MUSIC PLAYING] 

James Kynge
Co-operation. Best partners. What Wang says there echoes the Chinese government line, a government that has repeatedly denied accusations of industrial espionage. It’s a view that’s miles away from the picture painted by Nick Shenkin at the FBI. Remember, Shenkin said that IP theft by the Chinese government is . . . 

Nicholas Shenkin
Part and parcel of their attempt to build a siege economy in technology.

James Kynge
It’s a quote I took to Winston Ma. We heard from him in the previous episode. He’s a former managing director of China’s sovereign wealth fund and an author of multiple books on China’s technological transformation, and he’s been part of that transformation. He studied semiconductor physics with law in Shanghai so that he could forge a career in patents and intellectual property in China. Does he agree with the view that China’s technology boom is built on years of stolen US tech?

Winston Ma
I think there’s some truth to it, you know, because the Chinese patent and legal system is still so young. But from a US-China tech race perspective, right, the US should not stay on that aspect because a lot of unique, completely original innovation are coming from Chinese innovation system right now.

James Kynge
Winston Ma points to a startling fact: China is innovating on its own and quickly. It was the biggest source of applications for international patents in the world in 2020. A year earlier, it had knocked the US off that perch.

Winston Ma
From the US side. Obviously, they should defend their own innovation. But as importantly, they have to put to their innovation effort together and then compete with China head to head on innovation itself. A few months ago, actually very recent, China has developed a new government policy, another five-year plan calling China to be a patent powerhouse by 2025. So it has the incentive to develop a patent law system to protect innovation.

James Kynge
In fact, Winston argues that while IP theft may have been a problem in the past, there’s less incentive these days for China to steal tech innovation.

Winston Ma
Now what do we see is the US and the China are at the same starting point in many of the frontier technologies, right? In AI, in production, in cloud, in data analytics, all these frontier technology areas. US and the China are almost at the same starting point competing direct to each other.

James Kynge
This is all cold comfort, though, to the legal teams defending dozens of US-based ethnic Chinese academics. Many of them are still facing espionage charges. As we heard in the previous episode, Gisela Kusakawa of Asian Americans Advancing Justice has been handling a lot of cases of ethnic Chinese scientists who argue they’ve been wrongly accused.

Gisela Kusakawa
We have always had this looming shadow over our head that we are not American, that we are disloyal and that we are prone to some sort of acts of sabotage or economic espionage.

[Audio report]
More than a hundred thousand men, women and children, all of Japanese ancestry, were moved from their homes in the Pacific coast state, to wartime communities established in out of the way places.

James Kynge
What makes that suspicion particularly painful is that the United States has form on this front.

[Audio report]
Santa Anita racetrack, for example, suddenly became a community of about 17,000 persons. Behind them, they left shops and homes they had occupied for many years

James Kynge
During the second world war, after Japan attacked Pearl Harbor in Hawaii, the US government confined people of Japanese ancestry to internment camps.

Gisela Kusakawa
At that time, our government thought and had presumed that everyone of Japanese ancestry was a national security risk and could commit acts of espionage. That was largely motivated by racial prejudice. And yet we’re seeing that happen here now against Chinese-American scientists and researchers and very much under a very similar template.

James Kynge
Still, while Gisela is worried that history may be repeating itself, Michael Orlando is worried that when it comes to China’s growing tech power, the future might come too soon.

Michael Orlando
My main concern is that time is not on our side and that we really need as a whole of government, whole society, to get on the same page to recognise the threat and work together. And if we aren’t able to pick up the pace, then the Chinese government will outpace us.

[MUSIC PLAYING]

James Kynge
In the next episode of Tech Tonic, how the island state of Taiwan, the world’s biggest centre for semiconductors, has emerged as a key battle front in the US-China tech rivalry.

Dan Wang
I think that Beijing might decide to move on Taiwan, but it will move on Taiwan for reasons that would be completely unrelated to semiconductors.

Lauly Li
Really, a lot of Taiwanese companies are stuck in the middle and forced to choose side and forced to let go of some of the business.

James Kynge
You’ve been listening to Tech Tonic from the Financial Times. Watch out for the next episode in this series. It will publish a week from today on April the 11th. There’s lots more reporting on technology on the FT website, and check out this episode’s show notes for a link to get a special discounted subscription. I’m James Kynge, the FT’s Global China editor. Edwin Lane is our senior producer. Josh Gabert-Doyon is our producer and Manuela Zaragosa is executive producer. Our sound engineer is Breen Turner with original scoring by Metaphor Music, and the FT’s head of audio is Cheryl Brumley. And just one more thing before we go. If you’re tired of doom scrolling and searching through endless news feeds, the FT launched a new iPhone app to help you read less and understand more. FT Edit features eight pieces of in-depth journalism a day, handpicked by senior editors to inform, explain and surprise. It’s available now for iPhone users. Just search FT Edit in the App Store.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.