KLON KITCHEN
Washington and Beijing are competing for ‘the world’s most valuable resource’
‘The People’s Republic of China harbors the intention and, increasingly, the capacity to reshape the international order in favor of one that tilts the global playing field to its benefit,” President Joe Biden observes in his National Security Strategy published in October. He continues:
Beijing has ambitions to create an enhanced sphere of influence in the Indo-Pacific and to become the world’s leading power. It is using its technological capacity and increasing influence over international institutions to create more permissive conditions for its own authoritarian model, and to mold global technology use and norms to privilege its interests and values. . . . It benefits from the openness of the international economy while limiting access to its domestic market, and it seeks to make the world more dependent on the PRC while reducing its own dependence on the world.
This is surely an accurate assessment of the situation, and even though such pronouncements have become more commonplace over the past decade, they have captured attention and demanded urgency slowly — too slowly. If the United States is going to effectively engage with and, if necessary, defeat the PRC, militarily or otherwise, it must first understand how China has long been positioning itself to acquire the necessary industrial and technological capabilities needed to thrive in and shape the global system.
Specifically, it is essential to examine how China has gained access to foreign industrial and technological knowledge in the past and how it is doing so now. A failure to gain such understanding risks wasting valuable time and effort when both are already in short supply.
China’s emergence as a global economic and technological power has been decades in the making, and it has been highly dependent on industrial and technological espionage. While the nation’s history of technological dependency and espionage is exceptionally long, we need only review China’s modern history to gain an appreciation for how central these activities are to its economic, social, and political development.
In the early 19th century, China suffered two major defeats at the hands of technologically superior foes — the West in the Opium Wars in 1842 and 1860, and Japan in 1895. Soon thereafter, Chinese leaders recognized that their very survival depended on their ability to modernize; but they understandably did not want to sacrifice their culture in these pursuits. As historian John Fairbank observes, China wanted to “leap” only “half-way into modernization,” and so the concept of tiyong was adopted in the reform era at the twilight of the Qing Dynasty.
The term tiyong is a romanization of two characters; ti means “essence,” and yong means “practical use.” The idea is that China should put foreign technology and expertise to practical use while keeping the essence of its own culture. This idea persists today in the nation’s pursuit of various programs “with Chinese characteristics.”
In 1872, these dual aims were manifested in the Chinese Educational Mission, which sent 120 students between the ages of twelve and 15 to the United States. They were placed with American families and enrolled in prep schools before being sent to university. Less than a decade later, though, changes in American and Chinese attitudes had led to the shuttering of the program before any student could graduate.
On the U.S. side, concerns about the number of Chinese immigrants led President Chester A. Arthur to sign the Chinese Exclusion Act in 1882, prohibiting the immigration of all Chinese laborers for ten years. Students were exempted from the law, but its passage, along with growing anti-Chinese public sentiment, lessened the program’s appeal. Simultaneously, the Chinese government had growing concerns that students were losing touch with Chinese culture and becoming too westernized. These doubts about loyalty prevented returning students from holding higher-level positions in government and industry, blunting China’s ability to harness their experiences. Three decades later, however, American attitudes changed once again, and things improved for China.
After an economic depression in the 1890s, American interest in foreign markets surged. At the time, the Chinese market was at risk of being fractured into several smaller markets, with each dominated by a different foreign trading partner — Russia, France, Germany, or Great Britain. To help stop this — and to ensure its own access to China — the United States adopted its Open Door Policy, arguing for Chinese territorial and administrative sovereignty and for the equal protection of access for all nations trading with China. This approach enjoyed broad support among Americans and was a cornerstone of U.S. foreign policy for more than 40 years — once again opening technology-sharing between the United States and China.
Around the same time, the United States also used funds from the Boxer Indemnity Program to provide scholarships for the education of Chinese nationals in the United States. These funds were provided by the Qing Dynasty as payment for American assistance in putting down the Boxer Rebellion — a peasant-led uprising to expel all foreign influence from China. These scholarships totaled millions of dollars and were massively successful, with beneficiaries going on to establish China’s rocket program and to become the first presidents of Tsinghua, Tianjin, and Shandong Universities. Unfortunately, the Cold War all but erased these gains.
Soon after assuming power and establishing the People’s Republic of China (PRC) in 1949, Mao Zedong adopted a policy of “leaning to one side” in the Cold War between the United States and the Soviet Union. Choosing the Soviets, China began mimicking many of the USSR’s programs, including a centrally managed national science and technology program. The Chinese program de-emphasized research in universities and instead favored laboratories associated with the state’s Academy of Sciences. This approach was supposed to create an efficient flow of innovative technologies from national laboratories directly to industry while ensuring that the economic and military benefits were realized and distributed. Applied research was preferred to basic or theoretical research. For a while, the program had significant success.
Not only did the Soviet Union send thousands of scientists and engineers to help Mao build his country’s technological base, but nearly 40,000 Chinese — including future presidents Hu Jintao and Jiang Zemin and the future premier Li Peng — were sent to Russia to receive advanced training. This cooperation was critical in, for example, the development of China’s nuclear-weapons program.
This Sino–Soviet nuclear agreement was part of a twelve-year plan to provide Russian expertise, designs, training, and support for Chinese uranium-enrichment and other nuclear-related facilities. The agreement had a significant impact, even leading to the joint development of other capabilities, including aircraft and guided missiles. But by 1960, growing tensions between Mao and Soviet leader Nikita Khrushchev had threatened to end this effective partnership. Finally, tense political relations, competing priorities, and limited resources led the Soviet Union to withdraw most of its experts from China and dramatically reduce its technological aid.
As crippling as that withdrawal was for China, it was, however, Mao’s political mistakes in its wake that devastated China’s technological capacity for decades. First, there was the “Great Leap Forward,” a social and economic policy, from 1958 to 1962, to transform an agrarian nation into a fully formed and modern communist society in just five years. The fatal flaw in the program, riddled with faults, was its prioritization of ideology over expertise. The nation’s top science and technology institutions were soon filled with, and led by, individuals who were loyal to the Communist Party but had little ability to meet the chairman’s aims. In the same way that political pressures led agricultural officials during this time to report farming “surpluses” while anywhere from 15 million to 55 million Chinese were starving, officials overseeing the nation’s scientific research were reporting fictional technological advancements while actual research infrastructure and expertise withered. Even worse would follow.
In 1966, Mao launched his Great Cultural Revolution, formally a social-political program aimed at purging the last vestiges of traditionalism and capitalism from Chinese society. Informally, it was also Mao’s mechanism for rooting out and crushing all institutional opposition. Over the next ten years, Chinese communists formed Red Guard and “rebel” groups around the country, harassing, beating, and even killing many of the nation’s scientific and cultural elites who were seen as “revisionists” and anti-communist. Local chapters of the Chinese Communist Party (CCP) even formed regional “revolutionary committees” that often split and went to war against one another, each accusing the other of not being sufficiently committed to the communist cause. On several occasions Mao had to deploy the Chinese military to quell these “violent struggles,” and thousands were killed.
In the process, many of the nation’s most important strategic research programs were gutted, as the country was plunged into political chaos and those with technical expertise or Western experience were condemned and in some cases killed. The Chinese government recalled all Chinese scientists from overseas and prohibited students from going abroad again until 1978. In their excellent book Chinese Industrial Espionage: Technology Acquisition and Military Modernization, scholars William C. Hannas, James Mulvenon, and Anna B. Puglisi comment that,
to understand how devastating the Cultural Revolution was to Chinese S&T [science and technology] development, one need only look at the events at Qinghua University. Established through the Boxer Indemnity Fund, by the late 1960s the university had evolved into a successful place of higher learning with many of its faculty having received an overseas education and enrolling only students with the highest credentials. By contrast, after closing entirely during the first part of the Cultural Revolution, Qinghua reopened in 1970 to enroll a class of “worker, peasant, and soldier students.” The students arrived on campus with little formal education and on the recommendation of their political chain of command. Scholarship and academic achievement were waived. Similar follies took place at universities across the country.
Little changed until several years after Mao’s death in 1976. Having suffered a humiliating military defeat at the hands of Vietnam in 1979, China was again reminded it must modernize to survive. In 1978, Deng Xiaoping instituted the Boluan Fanzheng reforms (named for a Chinese idiom that means “to push away disorder and return to propriety”), which dismantled most of the Cultural Revolution’s policies, and the National People’s Congress adopted the Four Modernizations by investing in agriculture, industry, science and technology, and national defense.
But Chinese leaders remained concerned about the cultural effects of these engagements and were reluctant to let Chinese nationals study abroad. “Sending out the students to foreign countries was never, for China, a matter of cultural exchange,” observes scholar Qian Ning. “The goal is to make China a strong country — a fact which the overseas students must face.” By March 1986, the effort to reengage with the West had culminated in the National High-Tech Research and Development Program (a.k.a. the 863 Program, named after the date of its establishment), which was supposed to help the country “meet new global challenges and competition.” Overseen by the Ministry of Science and Technology, 863 focused on improvements in biology, space flight, information technology, lasers, automation, energy, new materials, and oceanography. This effort was later supplemented by the Torch Program, aimed at improving high-tech commercial industries; by the 973 Program, for basic research; and by the 985 and 211 Projects, which emphasized university reforms. All were predicated on sending Chinese researchers out to benefit from Western expertise but then eventually bringing them home to “serve in place.” And by any metric, these and related efforts proved hugely successful.
The modernization of China’s technological and industrial capacity from 1980 to 2015, and the removal of burdensome trade barriers with the West, enabled it to increase, according to World Bank data, the following as measured against the United States: gross domestic product, from 7 percent to 61 percent of U.S. GDP; imports, from 8 to 73 percent; exports, from 8 to 151 percent; and total reserves, from 16 to 3,140 percent. As measured by purchasing parity, China has not only grown beyond the United States but now accounts for more than 18 percent of world GDP, compared with just 2 percent in 1980.
China is also transitioning from being the world’s fabricator of technologies to being a legitimate cutting-edge innovator. In 2015 the CCP issued its Made in China 2025 plan, a ten-year comprehensive strategy for building the nation’s industrial and technological bases, with particular emphasis on ten key sectors: information technology (artificial intelligence, quantum computing, etc.), robotics, green energy and vehicles, aerospace equipment, ocean engineering, railway equipment, power equipment, new materials, medicine, and agriculture machinery. The same year, it registered double the number of applications for patents in such fields as did the United States. While China’s domination is far from inevitable, its capacity in these and other industries has become so significant that the United States — like most of the Western world — is beginning to economically decouple from China and to form national-security and foreign-policy strategies aimed directly at frustrating Beijing’s ambitions. Unlike their predecessors in previous eras, however, Chinese leaders no longer depend on foreign technology and expertise given to them. They have become experts at acquiring essential information via other means.
In the words of the Economist, “the world’s most valuable resource is no longer oil, but data.” The massive scope of cyber-enabled data theft perpetrated by China over just the last decade supports this assessment. Already in 2011, the U.S. Office of the National Counterintelligence Executive judged that “Chinese actors are the world’s most active and persistent perpetrators of economic espionage.” A decade later, it has been discovered that Chinese hackers have compromised more than 400,000 Microsoft Exchange servers in 115 nations, including more than 30,000 in the United States, giving Beijing full access to the victims’ emails and leaving them vulnerable to further exploitation.
If the United States is going to prevent China from systematically siphoning “the world’s most valuable resource,” it must understand the strategic rationale of the Chinese Communist Party for hoarding data, how those data are being collected, how they are employed, and what can be done to mitigate the threat. Data are not valuable in and of themselves. They must be examined, assessed, and used for some objective. But, when that is done effectively, they can provide a decisive advantage. The CCP’s data-acquisition efforts can be understood as supporting three goals.
First, data are key for economic energy. As Harvard professor and business strategist Michael Porter observes, “innovation is the central issue in economic prosperity.” In the United States, every job in the consumer-technology sector supports almost three nontech jobs. The U.S. tech sector supplies $1.3 trillion in annual wages and $503 billion in tax revenue and contributes nearly 12 percent (about $2.3 trillion) of national GDP.
In China, similarly, revenues from electronics and technology sales topped $630 billion in 2019, and nine of the world’s 20 largest internet companies are Chinese. Although economic numbers coming out of China are notoriously suspect, a Tufts University survey ranks it as the world’s most rapidly evolving digital economy. There can be no doubt that the nation’s financial future is inextricably linked to its technology industry.
And so the systematic and sustained gathering of intellectual property, proprietary secrets, trade secrets, and other data is critical for China’s economic growth. One in five North American–based companies now say that China has stolen their intellectual property. As of 2019, the theft was projected to have cost the U.S. economy more than $600 billion per year. Beijing has clearly concluded that its prosperity is best achieved by leveraging that of others.
Second, data are seen as essential for internal social strength, which the CCP defines mainly as its own stability and security. It uses highly intrusive data collection to manipulate public attitudes and behavior and to suppress anyone who is thought to challenge its authority.
Beijing’s social-credit-score regime exemplifies the nation’s culture-shaping operations. The CCP uses wide-scale surveillance and data collection to monitor citizens’ economic, social, political, and online habits and to incentivize “good” behavior and constrain “bad” behavior. If you conform to the party’s ideals, your social score goes up — giving you greater freedom of movement and increased access to benefits including travel and public services. If you engage in unapproved behaviors, on the other hand, you may not be allowed to apply for certain jobs or to leave your hometown.
The situation is even worse for religious and political minorities. The sheer scope of the CCP’s monitoring of Uyghur and other Turkic Muslims, primarily in China’s Xinjiang region, is staggering. It is also emblematic of the government’s willingness to use data to monitor, harass, and target anyone deemed a threat to the state. In Xinjiang, Uyghurs are required to download government surveillance software on their mobile phones, and their devices are often searched and copied. Their communications, images, medical data, economic spending, online viewing, and family and social interactions are known by the government — often with the help of the country’s leading tech companies, which collect, process, and analyze the data.
The third goal of China’s data collection is external political power. Traditional and corporate espionage are the backbone of China’s military-industrial base, its diplomatic strategies, its intelligence enterprise, and its international treaties and trade practices. Put another way, a robust pipeline of data feeds China’s engagement with the world by informing and shaping its ends, ways, and means.
To put it simply, Beijing is attempting to prove a new concept of governance that links the wealth of its version of capitalism with the stability and security of technological totalitarianism. If successful, China will find a host of would-be authoritarians around the world eager to sign up for this new model, and it would be well positioned to supply the capabilities and infrastructure needed for its implementation. Indeed, techno-totalitarianism could become a key export along China’s Belt and Road.
The Chinese government draws data from three primary fonts: open-source data stores, government espionage, and corporate espionage.
Most data are generated by, and exist in, unclassified networks that constitute the heart of the “knowledge economy.” At the core of this economy are an array of “data brokers,” which compile, analyze, and sell the data. Just one of these data brokers, estimates the Federal Trade Commission, “has 3,000 data segments for nearly every U.S. consumer.” Another “has information on 1.4 billion consumer transactions and over 700 billion aggregated data elements.” And still another “adds three billion new records each month to its databases.”
Those data can enable a near-total reconstruction of an individual’s identity, location history, interpersonal relationships and networks, entertainment and purchasing preferences and habits, and even future economic, social, and political outcomes. And all of it is available for sale to anyone willing to cut a check.
Or to steal it. Data brokers are a key target for the CCP. In 2017, suspected Chinese hackers compromised the Equifax credit-brokerage firm, exposing critical information on hundreds of millions of people. Two years earlier, China broke into the insurance company Anthem Inc. and stole names, birthdates, addresses, Social Security numbers, and employment data of more than 78 million customers. While Americans are increasingly concerned about how data collection affects their domestic freedoms and privacy, they have been slow to appreciate the national-security implications of these practices.
Traditional government espionage is another primary source of data for the CCP. In July 2020, FBI director Christopher Wray noted publicly that,
if you are an American adult, it is more likely than not that China has stolen your personal data. . . . We’ve now reached the point where the FBI is opening a new China-related counterintelligence case about every ten hours. Of the nearly 5,000 active FBI counterintelligence cases currently under way across the country, almost half are related to China.
Chinese hacking of defense contractors and other individuals and companies in the military and intelligence sectors, the second source of data, is especially pervasive. The CCP has stolen American plans for supersonic anti-aircraft missiles, stealth technology — and, of course, when it hacked the Office of Personnel Management in 2015, troves of identifiable information on individuals in the U.S. intelligence community.
Corporate espionage, the third source, is the most poorly understood vector of Chinese data theft. It includes traditional efforts by companies to steal intellectual property and other secrets. The CCP goes further, however, enacting national-security and cybersecurity laws that apply to every company inside China and to every Chinese company, wherever it operates.
In January 2020, for example, a new cybersecurity law required all companies operating in China — including foreign-owned ones — to arrange and manage their computer networks so that the Chinese government has access to every bit of data that is stored on, transits over, or in any other way touches China’s information infrastructure. Laws such as this are at the root of American concerns about Huawei, TikTok, and other Chinese companies operating in the United States. To compromise the privacy and security of their users’ data, these companies do not need to have “back doors” that Chinese hackers can access. Nor do they need to be malevolent in their intentions. They simply need to be compliant with Chinese law. And, in China, anyone who is not compliant is not in business for long.
What must be done?
In his national-security strategy, President Biden explains a tripartite plan:
Our strategy toward the PRC is threefold: 1) to invest in the foundations of our strength at home — our competitiveness, our innovation, our resilience, our democracy, 2) to align our efforts with our network of allies and partners, acting with common purpose and in common cause, and 3) compete responsibly with the PRC to defend our interests and build our vision for the future.
Here are three broad steps that are needed to see this policy through.
First, stop the bleeding. The United States is hemorrhaging data to the CCP. It cannot be secure if the losses continue at their current pace. In addition to ongoing efforts to increase scrutiny of Chinese investment and operations in the United States, the U.S. government should investigate the national-security equities at stake in the data-brokerage industry and offer a plan that can be implemented within 18 months. Washington should also develop a coherent framework for determining which technologies and platforms are strategically essential — and therefore in need of aggressive defense. The methodology offered by China Strategy Group, founded by Jigsaw CEO Jared Cohen and former Google CEO Eric Schmidt, is an excellent place to start. This would include identifying the most consequential data and intellectual-property losses, categorizing these sources as either “essential,” “consequential,” or simply “valuable,” and then addressing them accordingly.
In the context of traditional government espionage, much classified work has already been done. But we do not yet appear to have changed Beijing’s strategic calculus or lessened the aggression of its cyber operations. This must change, and we must be prepared to use every element of national power to force the change on the CCP.
Next, we must build an alliance for the trusted development and deployment of emerging technologies. Even if the United States could dominate emerging technologies for the next century, its national security and foreign influence would be weakened if our global partners and allies failed to keep pace — or, worse, if they were subsumed by Chinese technological expansion. The China Strategy Group offers a helpful suggestion, calling for a new multilateral forum to “bring together key countries to coordinate responses to technological competition.” This “T-12” should include the United States, Japan, Germany, France, Britain and Canada, the Netherlands, South Korea, Finland, Sweden, India, Israel, and Australia. The specific forms the alliance could take may vary, but such a construct is essential and must be pursued as a core objective of American foreign policy.
Finally, the United States must prepare for a “splinternet.” Washington and Beijing have two increasingly different notions of modern governance, but both understand data and networks as being critical for securing and spreading their respective visions. In much the same way that the world was divided into competing spheres of influence between the West and the Soviet Union during the Cold War, the world’s networks may soon be divided between a Western and a Chinese internet — each with its own norms, rules, and infrastructure. To be sure, such a development would be incredibly disruptive to globalized economies and to the digital global commons more generally. Yet the techno-totalitarian model being pioneered by China requires at least some decoupling from the Western world. China, Russia, and other nations are already building regional internets in the name of cybersecurity, and there is little the United States can do to prevent those efforts from maturing. American bans on Chinese companies such as Huawei and ZTE are mirrored by Chinese bans on Western equipment. These are all telltale signs of the coming “splinternet.”
China’s modern history demonstrates two persistent aims. First, the nation’s leaders have long recognized that modernization is critical for national survival. Even Mao’s “reforms,” as misguided as they were, were largely aimed at transforming the country from an ancient agrarian society into a modern communist utopia. The second persistent aim, of using foreign technological expertise without changing Chinese culture, has frequently restricted progress and at times has moved the country backward. But the past 70 years have seen massive advancements in Chinese technological capabilities, and now the nation threatens to overtake the United States in some crucial technologies.
Critical to this achievement in the late 20th and early 21st centuries has been China’s unprecedented use of industrial espionage — particularly through cyber means. And in a world awash in data, the nations that harness and secure this new strategic resource will be best positioned to thrive in the emerging geopolitical environment. Those that do not may face existential challenges.
The Chinese government is heeding an ancient adage from Sun Tzu: “To secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself.” The United States, however, has been too slow to secure itself, and, as a result, it risks ceding its security and interests to its chief international rival. To meet the challenge, we must understand the strategic value of data and protect it accordingly.
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