The downfall of Zheng Xiaoqing, a former energy conglomerate General Electric Power (GE) employee, was caused by a seemingly innocent photograph.
According to a Department of Justice indictment, Zheng, a US citizen, hid stolen confidential files from GE in the binary code of a digital photograph of a sunset and then emailed it to himself.
This technique, known as steganography, allowed Zheng to conceal sensitive files from GE on multiple occasions.
GE is a multinational conglomerate known for its work in healthcare, energy, and aerospace, producing a wide range of products, including refrigerators and aircraft engines.
Zheng stole confidential information related to the design and manufacture of gas and steam turbines, including turbine blades and seals.
The information, which was worth millions, was sent to his accomplice in China, where it would benefit the Chinese government as well as China-based companies and universities. Zheng was recently sentenced to two years in prison for his actions.
This case is one of many similar ones being prosecuted by US authorities as they work to prevent China from gaining technological know-how that could strengthen its economy and challenge the current geopolitical order.
This case highlights the ongoing struggle between the US and China over technology and intellectual property.
The US has been cracking down on individuals and organizations that steal trade secrets and intellectual property, particularly those that benefit the Chinese government and state-sponsored entities.
On the other hand, China has been accused of using various means, including cyber espionage, to acquire sensitive information and technology that can help its own companies and military.
The theft of sensitive information related to GE’s gas and steam turbines, which are considered to be highly advanced and critical for the energy sector, can have significant economic and national security implications for the US.
It also highlights the importance of companies and organizations protecting their sensitive information and intellectual property from potential threats, including internal and external.
The theft of trade secrets can be an attractive method for countries to rapidly advance up global value chains, as it allows them to bypass the costs and time required to develop their own capabilities, according to Nick Marro of the Economist Intelligence Unit.
In July of last year, FBI Director Christopher Wray warned that China is targeting Western companies’ intellectual property to accelerate its industrial development and eventually dominate key industries.
Wray noted that China is snooping on companies of all sizes and industries, from aviation and AI to pharma.
At the time, China’s foreign ministry spokesman Zhao Lijian dismissed Wray’s remarks as smears and an indication of a Cold War mentality.
Being challenged by China
In the statement by the Department of Justice (DOJ) on Zheng’s case, FBI’s Alan Kohler Jr. stated that China is targeting “American ingenuity” and aims to “topple our status” as a global leader.
Zheng, who was an engineer specializing in turbine sealing technology, had worked on various leakage containment technologies in steam turbine engineering.
These seals optimize turbine performance, whether by increasing power or efficiency or extending the usable life of the engine, according to the DOJ.
Gas turbines that power aircraft are critical for the development of China’s aviation industry.
Aerospace and aviation equipment are among the 10 sectors that the Chinese authorities are focusing on for rapid development to reduce the country’s dependence on foreign technology and eventually surpass it.
However, Chinese industrial espionage is also targeting a wide range of other sectors.
According to Ray Wang, founder and CEO of Silicon Valley-based consultancy Constellation Research, other sectors targeted by Chinese industrial espionage include pharmaceutical development and nanotechnology – engineering and technology at the nanoscale for use in areas such as medicine, textiles, fabrics, and automobiles.
A nanometer is a billionth of a meter. It also includes bioengineering, which mimics biological processes for purposes such as the development of biocompatible prostheses and regenerative tissue growth.
Wang cites an anecdote from a former head of research and development for a Fortune 100 company, who revealed that “the person he entrusted the most” – someone so close that their children grew up together – was eventually found to be on the payroll of the Chinese Communist Party. “He kindly explained to me that the spies are everywhere,” Wang said.
In the past, industrial espionage from countries such as Japan, South Korea, Taiwan, and Singapore was a concern, according to Marro.
However, once indigenous firms emerge as innovative market leaders in their own right and start wanting to protect their own intellectual property, and their governments start passing legislation to take the issue more seriously.
“As Chinese firms have become more innovative over the past decade, we’ve seen a marked strengthening of domestic intellectual property rights protection in tandem,” Marro said.
China has also gained expertise by making foreign companies hand over technology under joint venture agreements in exchange for access to the Chinese market.
Despite complaints, the Chinese government has always denied accusations of coercion.
‘A joke,’ Hacking Deal
Efforts to curb hacking specifically have been attempted in the past. In 2015, the US and China reached a deal in which both sides pledged not to carry out “cyber-enabled theft of intellectual property, including trade secrets or other confidential business information for commercial advantage.”
However, by the following year, the US National Security Agency had accused the Chinese of violating the agreement, although it did acknowledge that the number of attempts to hack government and corporate data had dropped “dramatically”.
Observers say that the deal’s overall impact has been minimal, with Wang calling it a “joke” due to a lack of enforcement.
Chinese cyber espionage in the US is described as “pervasive” and extends to academic labs. “It has been going on in every aspect of Western businesses,” Wang told the BBC.
However, Lim Tai Wei from the National University of Singapore noted that there are no definitive studies on the extent of the phenomenon of Chinese cyber espionage.
“Some believe that there was a short dip in Chinese cyber espionage against the US, but it resumed its former level thereafter. Others believe it failed due to the overall breakdown in US-China relations,” he said.
Meanwhile, the US is now directly trying to block China’s progress in the key semiconductor industry, which is vital for everything from smartphones to weapons of war, stating that China’s use of the technology poses a national security threat.
In October, Washington announced some of the broadest export controls yet, requiring licenses for companies exporting chips to China using US tools or software, no matter where they are made in the world.
Washington’s measures also prevent US citizens and green card holders from working for certain Chinese chip companies. Green card holders are US permanent residents who have the right to work in the country.
Marro states that while these measures will slow China’s technological advancement, they will also accelerate China’s efforts to remove US and other foreign products from its tech supply chains.
“China has been trying to do this for years, with muted success, but these policy goals now command greater urgency as a result of the recent US controls,” he said.
With China also invoking its own national security, the competition for a technological edge between the world’s two biggest economies is likely to intensify even further.
However, Wang believes that the US still holds the advantage. “My cyber-security friends tell me when they hack Chinese sites, the only worthwhile tech [they can find there] is US intellectual property,” he said.
