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Experts: China Waging Cyber War Against U.S. in Technological ‘Moon Race’

Published: July 30, 2018

China is waging an aggressive campaign to steal and acquire technology from the United States in a bid to control the future of manufacturing and become the world’s superpower, experts warned at a recent House Intelligence Committee hearing.

By Krisitina Wong | 29 Jul 2018

That technology transferring is occurring on a “massive scale” through illegal means such as cyber espionage, but also legal means that the U.S. government is struggling to stop, they said at the July 19 hearing.

Jim Phillips, CEO and chairman of NanoMech, an Arkansas-based nano-engineering firm, said the U.S. and China are locked in a technological “moon race” that will have grave implications for the U.S.

“Make no mistake about it that we are—we are totally at war with China right now,” he said. “It’s not a war of bombs. It’s a war of cyber warfare, and it’s also a war of [gross domestic product] and jobs. And the one that has the most GDP and the jobs is going to be the clear winner.”

Phillips said that all problems and solutions in manufacturing now exist at the nanoscale, and if the Chinese are able to gain the edge in nano-technology, they will dominate manufacturing and vastly surpass the U.S. in GDP.

“At that point, China will have the new world,” he said. “America will no longer have a disproportionate financial advantage that gives it the moral, economic and the leadership authority it has now. When this happens, America loses; the world changes. Everything changes. [China] won’t have to use its military.”

Michael Pillsbury, author of The Hundred-Year Marathon and director of the Center for Chinese Strategy at the Hudson Institute, testified that acquiring technology from other countries is a “core component” of China’s successful growth strategy.

He said China is the world’s largest perpetrator of intellectual property theft, and regularly hacks into foreign commercial entities and turns over their IP to Chinese businesses.

That hacking costs the U.S. anywhere between $225 to $600 billion per year, according to a 2017 study by the Commission on the Theft of American Intellectual Property.

Phillips said he woke up to the threat after the FBI showed up to NanoMech Industries’ headquarters “in force,” and told him his firm’s was the “second most hit firewall” by the Chinese cyber militia in the Southern U.S., to the tune of millions of attacks per day.

But experts also detailed at length China’s legal means of transferring technology that are just as problematic.

Michael Brown, a presidential innovation fellow and former CEO of Symantec, said that Chinese investors were investing in tech start-ups in the U.S. to learn about new technologies at the same rate as Americans do, erasing any advantage the U.S. industry or military might gain.

China is also sending students to study in the U.S. at top universities, who go back to China and share what they learn. Brown said that 25 percent of Science, Technology, Engineering, Mathematics (STEM) graduate students are Chinese foreign nationals, some of which who have access to research funded by the U.S. military, and work in national laboratories. Some have even been members of the People’s Liberation Army (PLA), he said.

In one case, Chinese students at Duke University stole research sponsored by the U.S. Air Force to start two successful companies in China that count the PLA as a major customer.

China also has active efforts to recruit leading U.S. scientists and other top talent to China and Chinese companies, including by launching incubators and accelerators in Silicon Valley and Boston.

According to Elsa Kania, an adjunct fellow with the Center for a New American Security, some U.S. scientists who get funding from the U.S. military become involved in laboratories in China that support civilian and military technological development.

Experts also said the U.S. is also just giving away technology to China for free.

For example, Pillsbury said National Science Foundation (NSF) agreements with China provide the U.S.’s most recent scientific discoveries to China, often within 60 days.

And Phillips said American universities and laboratories that get billions in government funding are just giving away their best science, due to their lack of experience in bringing it to the commercial market.

He said the Pentagon and other agencies invest billions of taxpayer money in universities and laboratories, but if successful projects do not move to market fast enough, sometimes the research is published online.

“We’re publishing our very best science out of our university’s national labs literally onto the internet, giving it free to countries like China, and, it just doesn’t make any sense,” he said.

And China also forces American companies that want to access the Chinese market to give up their technology, experts said.

“They’re pushing very hard to acquire some of our most sensitive space technology and to get Americans to come in and invest in these companies in China and to bring the high technology with them,” said Pillsbury.

At the same time, the Chinese government is subsidizing its top technology firms such as Baidu, Alibaba, and Tencent, to give them an unfair advantage over U.S. companies who struggle with the costs of setting up a business.

“Viewed individually, the legal practices may seem benign, but when viewed in combination and at the scale China’s employing them, the composite picture illustrates the intent, design, and dedication of a regime focused on technology transfer at a massive scale,” Brown said.

Experts said it will be difficult to stop these illicit and licit practices, since the U.S. has allowed them to go on for the past 40 years, but that it is not too late to reverse the tide.

Brown said the U.S. could improve its defensive tools against Chinese investment, such as by reforming the Committee on Foreign Investment in the United States (CFIUS), which reviews foreign investments in the U.S. that could pose national security threats.

The U.S. could also more aggressively punish Chinese firms that engage in intellectual property theft via sanctions, they said. The U.S. could also change laws to allow Chinese firms to be successfully sued in U.S. courts, and give the U.S. the ability to access their assets if they are found guilty, he said.

The Federal Bureau of Investigations counterintelligence could also shift resources from prosecuting cases of intellectual property theft to preventing theft, he added.

And fourth, he said, the U.S. could invest in a “long-term” game plan to stay on top of the technological race, such as by investing in STEM education, funding research and development, and reforming how innovation gets to the market.

“The U.S. must, not only, defend itself, but also go on the offensive, not just fearing competition with China, but rather embracing it,” Kania said.

Phillips and others argued that the first step is for Americans to realize they are in a technological race with China.

“We need to quit talking about Russia,” Phillips said. “Russia’s like 1.5 trillion — it doesn’t even add up as a competitive company in GDP. There’s a real war going on. It’s a cyber war like never before where they’re invading the United States every day trying to take over the United States in terms of all our science and technology.”

“If they’re not stealing it, they’re imitating it or they’re trying to get it through other means like I just described. Russia’s a nobody,” he said. “And we need to pay attention to China.”