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The Impact of Chinese Espionage on the United States

 
 

In my recent study at Penn State University, I analyzed 274 cases of Chinese espionage. Several high-level conclusions can be drawn from those cases, which represent the last 20 years of Chinese espionage operations. Among the most important conclusions are the impacts on various components of U.S. national security.

China’s espionage operations have expanded dramatically, increasing in the number of operations, personnel, government, and state-owned enterprises, and foreign targets. There is also a national construct in place (however redundant) to ensure intelligence information objectives are satisfied by collecting foreign information and technology. These information objectives are tied to national defense and economic priorities. The only notable area in which China has shown minimal advancement has been in applying sophisticated espionage tradecraft. Lastly, China’s espionage activities continue unabated despite a large number of arrests, public exposure, and most recently, U.S. trade sanctions.

Impact of Chinese Espionage on the United States

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Many years ago, I sat in on a briefing to the commander of what was then called U.S. Pacific Command. We completed a briefing on North Korean espionage activities. I still remember the boss’s words: “Don’t get me wrong. I think all this stuff is really neat. But why do I care?” I was soon to learn the Commander’s perspective. It didn’t matter what the North Koreans did; if a conflict arose, he was going to pound them into the dirt (this was before their nuclear advances). They didn’t have the defensive ability to stop him or the military-industrial capacity to resupply and rebuild. It was that plain and simple. Our counter-spy stuff was “neat,” but it would have little to no impact in a major military conflict and as such, was nothing more than a sideshow for a military commander. A number of military commanders echoed similar sentiments to me over the decades.

With that in mind, what is the cumulative impact of China’s espionage activities – or, to cite that commander, “why do I care?”

Up until the mid-1990s foreign espionage only occasionally overtly affected U.S. foreign and trade policy. More often, the national security apparatus adjusted policies, procedures, and budgets to address the perceived threat. The volume of China’s espionage efforts combined with a trade imbalance, military growth, and foreign and trade policies have driven espionage out of its traditional shadows into the public domain.

The impact of China’s espionage activities can be divided into three categories: The impact on the U.S. economy (through intellectual property theft), the impact on national security, and the impact on U.S. political institutions and governance.

Impact on the U.S. Economy

First order effects of China’s espionage include the impact on the U.S. economy through loss of intellectual property. Economic espionage activities comprise stealing trade secrets, manufacturing capabilities, material development techniques and data, consumer market data, source code, software, etc. It is primarily the People’s Liberation Army (PLA), state owned enterprises (SOEs), and private companies/individuals who conduct this type of economic espionage. Cyber espionage and insider access (recruitments of agents) are the primary means to collect this type of information.

A conservative estimate of the annual cost to the U.S. economy from China’s economic espionage is $320 billion. The Intellectual Property Commission Report provided an estimate of the cost of IP theft for the United States in three categories — counterfeit and pirated tangible goods, software piracy, and trade theft. That estimate is somewhere between $225 billion and $600 billion. The Office of the Director of National Intelligence estimates the cost as $400 billion. Independent statistics from the European Union, Canada, and the United States show China is responsible for more than 80 percent of this number (for the U.S. specifically, the figure varies annually between 71 and 87 percent). Using the DNI’s estimate for IP theft ($400 billion), Chinese economic espionage is responsible for an annual loss to the U.S. of minimum of $320 billion. This calculation for loss includes a 20 percent reduction for commercial products that would never have been purchased at full market cost.

The impact of economic espionage and illegal exports does not end with an annual loss statement. Economic losses have cascading impacts that include loss of industries, loss of domestic production capabilities, loss of jobs, reliance on others, and, of course, a trade imbalance. The U.S. Congress estimates China’s IP theft has resulted in the loss of 2 million American jobs. The cumulative effect on the U.S. economy is trillions of dollars and falling global economic competitiveness.

The Chinese government could stop economic espionage activities. It is, however, not in Beijing’s interests to do so. Approximately 8 percent of China’s gross domestic product comes from the counterfeiting of creative works, software, consumer goods, and industrial products. These are tangible items and do not include the value of research and development costs, industrial processes, consumer market research, etc. the value of which is arguably much higher.

Impact on U.S. National Security

The most important implication for U.S. national security planners is the loss of military technological advantage. China’s advances in weapons systems — including autonomous robotics, avionics, hypersonics, and naval systems — are based in large part on technology stolen from the United States and certain allies. This massive and sustained espionage campaign combined with two decades of increased defense spending provided China’s PLA Navy and Air Force with substantial power projection capabilities throughout Southeast Asia. The PLA Navy has achieved anti-access, area denial capabilities against its neighbors who also claim territories in the South and East China Seas.

One of the most important targets for Chinese espionage is U.S. space capabilities. Several illegal export cases showed a focused and aggressive campaign to collect technologies relating to advanced optics, sensors, cryogenic coolers, composites, engine design, fabrication techniques, software, etc. In 2015, the PLA created a Strategic Support Force as its cyber, space, and electronic warfare branch. China is quickly becoming more capable in space and counterspace operations, eroding the U.S. advantage in this contested, congested, and competitive environment. The increase in PLA capabilities is significant because of the U.S. dependency on space capabilities for communications, economic strength, critical infrastructure safety and resiliency, and to project military power globally.

China’s espionage activities that result in its increased power projection capabilities have geopolitical implications throughout Asia. As China’s offensive military power grows, it advances an assertive and coercive foreign policy that is changing the balance of power in Asia. China is now able to (and does) coerce, threaten, or employ military force to enforce its territorial claims in East and Southeast Asia.

Implications for Political Institutions and Governance

China’s covert influence activities have received global attention in recent years. Covert influence campaigns in New Zealand and Australia resulted in those governments conducting investigations and passing laws designed to prevent China’s subversive actions. The United States has begun to investigate certain PRC institutions and individuals for compliance with the Foreign Agents Registration Act. Even some U.S. academic institutions have rebuffed Beijing’s covert and coercive attempts to stifle any negative discussions about the China’s actions or the Chinese Communist Party (CCP).

It is difficult to assess the effectiveness of China’s covert (rather than overt activities) global influence campaigns on U.S. political processes. Efforts covertly funding political candidates, universities, business, and policy initiatives in other countries have been successful. However, media exposure of these actions frequently had severe consequences on interstate relations and public opinion. China’s covert influence campaigns are less likely to be successful in the American political apparatus due to the strong presence of lobbyists, citizens’ organizations, NGOs, and voter opinion.

However, China employs more overt influence operations to include Confucius Institutes, friendship societies, student organizations, and media campaigns. Despite Beijing’s worldwide efforts, Pew opinion polls over the last decade consistently show a decline in favorable opinions of China in most developed countries. In the United States, the percentage of people with favorable opinions on China dropped has dropped over the last decade from the 50s to typically hover in the upper 30s.

Conclusion

China has advanced its espionage efforts considerably over the last 20 years. It is unlikely to curb those efforts as economic and national security related espionage provides a cost efficient means to expand the economy, advance research and development, project military power, and meet China’s goals to become a world power.

The United States has responded to China’s espionage activities with increased law enforcement, foreign policy initiatives, and more recently, trade policy. To date, these responses have proven minimally effective. There is no indication that U.S. actions have deterred, or will deter, China. Additional elements of national power will be necessary to abate China’s global espionage campaign — domestic education campaigns, global media campaigns, increased enforcement, expanded international coordination measures, and leveraging alliances could all be considered.

Nicholas Eftimiades is a lecturer at Penn State University, Homeland Security Program. He recently retired from a 34 year government career that included employment in the CIA, Department of State, and Defense Intelligence Agency. The views in this article are the author’s own and do not reflect the views of the U.S. government.

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