Earlier this week, my colleague Shannon reported that the U.S. took the unprecedented step of indicting five members of China’s People Liberation Army (PLA) for cyber-espionage against private U.S. firms, which was conducted on behalf of their competitors in China. My other colleague Ankit followed up with some analysis on why the U.S. had decided to take this step.
China has, not surprisingly, reacted furiously to the indictments. In a first step, it suspended the U.S.-China Cyber Working Group, which according to U.S. officials hadn’t made much progress anyways. Later, China’s Assistant Foreign Minister, Zheng Zeguang, summoned U.S. Ambassador to China, Max Baucus, to lodge a formal complaint against the U.S. Zheng also reportedly threatened that China would “take further action on the so-called charges,” suggesting that it may single out specific individuals in the U.S. for cyber-espionage activities against China.
More generally, China has accused the U.S. of hypocrisy on the issue in light of the Edward Snowden revelations about the National Security Agency’s global cyber-espionage operations (some astute readers may recall that Snowden’s revelations conveniently began appearing in newspapers just days before the Obama-Xi Sunnylands Summit last June, which U.S. officials up to that point had said Obama would use to focus on China’s cyber-espionage.)Enjoying this article? Click here to subscribe for full access. Just $5 a month.
For example, in an appearance on CNN on Tuesday, Cui Tiankai, China’s ambassador to the U.S., argued: “It’s really amazing to see that some people still believe they have moral high ground and credibility to accuse others, if we consider the Snowden revelations… It’s a bit incredible.”
Particularly since the Snowden leaks, the U.S. has sought to draw a distinction between espionage directed at military and diplomatic secrets—which it claims is completely legitimate—and economic espionage which aims to steal trade secrets from foreign companies in order to give national companies an edge over their international competition. The latter, according to the U.S., is an illegitimate type of espionage.
China, while denying it conducts these types of economic cyber-espionage operations, also disputes that such a distinction between legitimate and illegitimate espionage exists. For example, Ambassador Cui also said on CNN, “I don’t know how they can make a distinction between such activities.”
As Rob Farley pointed out on Flashpoints, this disagreement over whether there is a difference between espionage directed at diplomatic and military targets and economic espionage is at the heart of the current dispute between the U.S. and China.
To some degree, this disagreement over what is and isn’t legitimate spying simply reflects the different power positions of the two countries. Because the U.S. has long led the globe in technological and other innovations, has every reason to want to delegitimize economic espionage. After all, it has little to gain from conducting economic espionage operations to steal Chinese companies’ technologies or business practices. This was not always the case of course. In the early nineteenth century, when the U.S. was a new nation and Britain led the world in innovation, the U.S. stole all kinds of trade secrets and technology from London.
Now China is the rising nation and is struggling to innovate relative to its Western and other counterparts. It therefore has every reason to claim that economic espionage is legitimate since it stands to benefit from it more than the U.S. (As is usually the case in international affairs, the countries are concerned about relative gains not absolute ones).
Still, the Pacific Realist thinks this goes deeper than China and America’s mere power positions. Indeed, even America’s theft of British trade secrets in the nineteenth century was qualitatively different than China’s economic espionage today. Whereas today the PLA steals foreign trade secrets on behalf of state-owned enterprises (SOEs), America’s economic espionage, from my understanding, was largely done in the private sphere. That is, U.S. entrepreneurs working in cohort with British individuals stole English manufacturing technology to enrich themselves.
To be sure, the U.S. government did little to discourage this theft. Indeed, it even amended U.S. patent laws to make it so that only Americans could patent—and therefore protect—intellectual property in the United States. Still, to the best of my knowledge, Washington did not actively employ the U.S. military (small as it was at the time) or other parts of the government to systematically steal British technology and pass it along to U.S. firms to give them a comparative advantage in international markets (In any case, British trade restrictions in its global colonies strictly limited the degree U.S. and British firms competed in foreign markets).
Thus, China and America’s disagreement over the legitimacy of China’s state-run economic espionage is not merely a reflection of their power positions. Rather, the disagreement is ultimately rooted in different conceptions about the proper role of the state.
At its core, the U.S. position that diplomatic and security espionage is legitimate while economic espionage is not is rooted in the proper role of the state. The reason why states can legitimately steal diplomatic and security secrets is because these arenas are ones of exclusive state control. There is something of a global consensus that governments are responsible for protecting their citizens and carrying out diplomacy in their names. Thus, it is entirely legitimate that they steal other states’ secrets in order to carry out these duties more effectively. In the same vein, each state has the responsibility and authority for protecting its own diplomatic and security secrets from foreign countries.
This global consensus is absent in the realm of economic affairs. For the U.S., the West, and much of the world, economic affairs are largely the domain of private business. That is not to say that the state doesn’t play a large role in regulating this activity within its borders, and especially its international commerce. Still, at its core, the U.S. view is that the economy is dominated by private companies and entrepreneurs. This view is reflected, among other ways, in the way that the U.S. is organized. The U.S. government does not run these companies, nor does it have the responsibility or authority to forcibly protect their trade secrets from foreign espionage.
It is also reflected in the long-standing U.S. goal of reducing trade barriers across the globe. The purpose of these free trade deals are to eliminate government policies that give (largely private) national firms unfair advantages relative to their foreign competitors. America’s ultimate objective, at least in principle, is for these largely private firms to compete on an even playing field throughout the world. This objective is rooted in the bedrock economic principle of comparative advantage. The principle of comparative advantage is corrupted when government policies creates artificial advantages for domestic firms, regardless of whether these government policies take the forms of tariffs, currency manipulation, subsidies or militaries stealing foreign IP and trade secrets for national firms.
China too has private commerce of course. Still, in the People’s Republic of China, the CCP and the Chinese government play a much more central role in running the country’s economy, particularly through SOEs. This control of the economy is seen as integral for the survival of the CCP and, at least until recently, to the prosperity of China.
The Chinese government and its SOEs have demonstrated their different conception of the proper role of the state in the economy in any number of different ways. Most fundamentally, even within China’s borders the state has been in the business of picking winners and losers in the marketplace by giving unfair advantages—such as cheap credit—to SOEs at the expense of Chinese households and small and medium sized enterprises. It also greatly restricts foreign firms ability to compete with Chinese firms in a great number of industries. These are not limited to traditional strategic industries with possible security dimensions. Hollywood and foreign movie industries, for example, are greatly constrained by the Chinese government in competing with domestic firms in China’s growing film market.
Globally speaking, China’s SOEs have scoured the world at the behest of the CCP to secure energy and other natural resources, often at above market prices. They do not do so because they believe this will be profitable. It won’t. Rather, they do this at the CCP’s behest because these natural resources are seen as essential for powering China’s economy and ensuring the CCP’s survival. In turn, the CCP has actively helped these SOEs in their foreign operations through its political, economic and financial assistance to foreign governments.
From China’s viewpoint, the PLA’s cyber-espionage on behalf of China’s SOEs is just an extension of this strategy. The state is using its superior capabilities and resources to further national prosperity — something the CCP views as one of its foremost responsibilities.
In sum, although the U.S. and China’s opinions on the legitimacy of state-sponsored economic cyber-espionage are partly reflective of their different power positions, they ultimately reflect the more fundamental battle between state capitalism and free-market capitalism. The legitimacy of economic espionage is therefore an example of the intensifying Sino-U.S. competition in the economic and cultural spheres that some Chinese scholars have been discussing recently.