Chinese Commercial Espionage and the Arrest of Meng Wanzhou | James Mulvenon China is once again conducting cyber-enabled theft of U.S. intellectual December 11th, 2018 property to advance its technological capabilities. To combat the problem, the United States should build a multinational coalition, INTRODUCTION sanction Chinese companies, and strengthen cyber defenses. – CFR James Mulvenon is Vice-President of Defense Group Inc.’s (DGI) Intelligence Division and Director of DGI’s Center for Intelligence Research and Analysis (CIRA). Dr. Mulvenon is an expert on the Chinese military and Chinese cyber issues, and has published widely on Chinese military affairs, party-army relations, C4ISR (command, control, communications, computers, intelligence, and reconnaissance), and nuclear weapons doctrine and organizations. Among his professional affiliations, Dr. Mulvenon is a founding member and current President of the Cyber Conflict Studies Association, is presently a member of the National Committee for U.S.- China Relations, and was a term member of the Council on Foreign Relations between 1999 and 2004. He is a regular commentator on both the Chinese military and cyber warfare in major U.S. print and TV media. Dr. Mulvenon's book, Soldiers of Fortune (Sharpe, 2001) details the rise and fall of the Chinese military's multi- billion-dollar international business empire. His more recent publications include Chinese Industrial Espionage: Technology Acquisition and Military Modernization (co-authored with William C. Hannas and Anna B. Puglisi; Routlege, 2013) and “PLA Computer Network Operations: Scenarios, Doctrine, Organizations, and Capability,” (in Roy Kamphausen, et al. Beyond the Strait: PLA Missions Other Than Taiwan, NBR, 2009). Dr. Mulvenon holds a Ph.D. in political science from the University of California, Los Angeles, and attended Fudan University in Shanghai from 1991-1992. WHY DO I CARE? We have done a number of episodes on China, focused on its economy, banking system, and political infrastructure. We have also done two sepparate episodes on cyberterrorism and cyberwar and one on space war, all of which touch on issues related to US-Sino relations. However, we have not merged these two spheres by focusing on China’s efforts in cyberwar and commercial espionage, which may be the biggest, long-term cyberthreat to the United States, its companies, and its allies. 1 After a three-year hiatus following a September 2015 trip by Xi Jingping to the United States, the cyber-enabled theft of intellectual property by Chinese hackers has once again become a point of contention in the U.S.-China relationship. The recent arrest of Hauwei CFO, Meng Wanzhou (孟晚舟) at the Vancouver airport as she was transiting through Canada is one more – albeit large – piece of evidence in support of this view. It is also evidence of the larger breakdown in the American-led, neo-liberal world order and this move towards a multi-polar world characterized by state-sponsored espionage, competition, currency devaluations, trade wars, diplomatic cold wars, and potentially, hot wars. The fact that Hauwei is such a large and important, multinational telecomunications equipment and consumer electronics provider, speaks to the nature of the threat in the 21st century. Sanction Response System Response Sanction - Q: Given the escalation in cyber attacks conducted by the Chinese, and should the United States develop an international attribution-and- - sanction regime that sanctions companies benefiting from cyber espionage? Should efforts be maid to strengthen counterintelligence outreach to startups and small companies in Attribution artificial intelligence (AI), quantum, semiconductor, telecommunications, and other sectors central to Chinese technology strategies? WHAT IS HUAWEI? Huawei is a Chinese tech company based in Shenzhen that sells smartphones and telecommunications equipment around the world. Earlier this year, it became the world's second-largest smartphone maker, behind Samsung, according to IDC. It sells more phones than Apple (AAPL). Q: How much of Huawei’s early success came at the expense of American companies like Cisco, who were victims of IP theft? 2 WHY WAS MENG WANZHOU ARRESTED? The United States claims that Meng covered up violations of sanctions on Iran, according to Canadian prosecutors. Meng is believed to have helped Huawei circumvent US sanctions by telling financial institutions that a Huawei subsidiary was a separate company, prosecutors said at Meng's bail hearing on Friday, December 7th. The Wall Street Journal reported in April that the Justice Department had launched a criminal probe into Huawei’s dealings in Iran, following administrative subpoenas on sanctions-related issues from both the Iran Sanctions Iran Commerce Department and the Treasury Department’s Office of Foreign Assets Control. For years, Washington has alleged the Chinese government could compel Huawei to tap into the hardware it sells around the world to spy or to disrupt communications. U.S. officials say they are intensifying efforts to curb Huawei because wireless carriers world-wide are about to upgrade to 5G, a new wireless technology that will connect many more items— factory parts, self-driving cars and everyday objects like wearable health monitors—to the internet. U.S. officials say they don’t want to give Beijing the potential to interfere with an ever-growing universe of connected devices. Q: How much of the United States’ legal interest in Huawei is pre-emptive in nature? (i.e. how much is emptive - their concern that Huawei is and could be a useful proxy for the Chinese government action against the United Pre States if and when the need arises?) Q: Why is 5G such a big deal? WHAT IS CHINA’S RESPONSE? China’s Ministry of Foreign Affairs on December 6 called for Meng to be released and for the United States and Canada to explain why she'd been detained. Two days later, China summoned the Canadian ambassador to address Meng's detention, calling her arrest "lawless, reasonless and ruthless." State-owned newspaper the Global Times said in an editorial that the arrest shows Washington is "resorting to a despicable rogue's approach as it cannot stop Huawei's 5G advance in the market." It said the move "obviously goes against the consensus" reached by US President Donald Trump and Chinese President Xi Jinping on trade, who met over the weekend in Argentina. Q: How does China interpret such an action, and is this just a matter of the Chinese adjusting to a United States that isn’t afraid to “flex its muscles?” Q: Is it fair to say that the Chinese would have taken similar Two Can Play at That Game Can Play That at Two actions if the shoe were on the other foot? HOW DOES MENG’S ARREST IMPACT US-SINO RELATIONS AND TRADE TALKS? The White House says Trump and his close aides were not aware the US planned to place an extradition request for Meng ahead of his dinner with Xi on Saturday. National security adviser John Bolton said in an interview with National Public Radio that he was aware before the dinner that an arrest was coming. Asked whether he could guarantee that Meng will not be released as a negotiating tactic, Larry Kudlow said no. “I can’t guarantee anything,” he said. “This is a DOJ, NSC, law enforcement issue,” referring to the Justice Department and the National Security Council. “I don’t know how it’s going to turn out…It seems to 3 me that there’s a trade lane… and there’s a law enforcement lane. They’re different…They’re different channels, and I think they will be viewed that way for quite some time.” Q: Do the Chinese see this the same way? That Lanes is, do the Chinese see the trade negotiations and the DOJ’s actions as two sepparate issues or “lanes” as Kudlow called them? Q: What impact do you think this is going to have on trade negotiations? HOW DIFFICULT HAVE THINGS GOTTEN FOR AMERICAN When speaking on U.S. Cyber Command’s new “defending forward” strategy meant to COMPANIES AND ENTREPRENUERS OPPERATING IN CHINA? Goal on Free No Shots frustrate operations of its online adversaries, The Trump administration is making a hard-nosed challenge to acting Homeland Security Advisor and former China using trade tariffs, investment controls and prosecution of Cybersecurity Coordinator Rob Joyce, said: technology thieves, and many in American business are cheering, “It’s about making it harder for them to if silently, having soured on the market after years of trying, succeed. Some of that will be taking away the according to an article in the WSJ. infrastructure they’re using. Some of it [is] “How can it be that those who know China best, work there, do exposing their tools.” Overall, he added, business there, make money there, and have advocated for pushing back on rivals like Russia and China productive relations in the past, are among those now arguing in this way meant that the U.S. was no longer for more confrontation?” former U.S. Treasury Secretary Henry giving them “free shots on goal.” Paulson asked at a November conference in Singapore. Q: What is the climate between China and the US really like for American companies that are opperating in the country? Has it gotten worse? Over what time-horizon and why? Was this just inevitable given the larger ambitions of the Chinese state and its power in the commercial sphere? Q: How important is it for China to maintain this image that it welcomes foreigners, is open for business and governs according to the law? Q: How does the detention of Michael Kovrig, a former Canadian diplomat Climate