<\/p>\n\n\n\n
In the skies, a Chinese fighter pilot swipes his hand across a touch screen, and the automated target-recognition software detects his target in seconds. In Xinjiang, China, giant servers that power an immense array of repressive surveillance technologies come to life. In Shanghai, smart city\u00a0technology<\/a>connects residents as never before, even as authorities tighten their control over every action of the city\u2019s residents.<\/p>\n\n\n\n All these technologies and more were made possible through the continued involvement of U.S. companies with subsidiaries of the Chinese Communist Party (CCP<\/a>).<\/p>\n\n\n\n Technologies developed by U.S. companies are supercharging the Chinese regime<\/a> and its military<\/a> development even as the CCP directs and facilitates the systematic investment in and acquisition of U.S. companies and their assets to generate a large-scale technology transfer<\/a>.<\/p>\n\n\n\n Michael Sekora knows something about the process. He headed Project Socrates, a Reagan<\/a>-era Defense Intelligence Agency program designed to lead the United States to victory during the Cold War<\/a>.<\/p>\n\n\n\n The purpose of that project was twofold: to comprehend why the United States was declining in competitiveness with the Soviet Union<\/a> and to use that knowledge to rebuild the nation\u2019s competitive advantage.<\/p>\n\n\n\n Sekora now believes that the lessons learned from Project Socrates hold the key to understanding\u2014and reversing\u2014the trend of a declining United States.<\/p>\n\n\n\n \u201cChina<\/a> understands that exploiting technology<\/a> more effectively than the competition is the foundation of all competitive advantage,\u201d he said.<\/p>\n\n\n\n The problem, he said, is that instead of meaningfully maneuvering and exploiting critical technologies, the United States has fallen back on what Sekora calls \u201cfinance planning,\u201d and has allowed the Chinese regime to co-opt and exploit technology to its advantage at every turn.<\/p>\n\n\n\n While China is on the move, the United States is merely loosening the reins on businesses<\/a> and throwing money at the problem under the assumption that increased funding for research and development will somehow translate into the creation and deployment of the precise technologies that the nation needs when it needs them.<\/p>\n\n\n\n According to Sekora, this is a sorely mistaken premise.<\/p>\n\n\n\n \u201cThe only way to effectively counter a technology strategy is with a more effective technology strategy,\u201d he said. \u201cExecuting anything else is just pissing into the wind.\u201d<\/p>\n\n\n\n Sekora isn\u2019t alone. His sentiments follow warnings from top U.S. military<\/a>officials that Chinese military technology will advance beyond that of the United States if serious changes aren\u2019t made to the development and acquisition process.<\/p>\n\n\n\n \u201cThe pace [China is] moving and the trajectory that they\u2019re on will surpass Russia and the United States if we don\u2019t do something to change it,\u201d John Hyten, then-vice chair of the Joint Chiefs of Staff, said in October. \u201cIt will happen.\u201d<\/p>\n\n\n\n Despite such warnings, the overarching U.S. strategy for competition with China has remained relatively unchanged. Though more than 400 Chinese entities have been put on a U.S. trade blacklist, the CCP\u2019s strategy of quickly reforming, renaming, and replacing these entities is muddling the effectiveness of such measures and increasing the complexity of the ties that bind the Chinese military with the U.S. business community.<\/p>\n\n\n\n As a result, theft and quasi-legal acquisitions of key U.S. technologies by the Chinese regime continue to rise<\/a>.<\/p>\n\n\n\n To understand why, it\u2019s necessary to unpack how Chinese laws facilitate\u00a0technology transfer<\/a>, how they were explicitly designed to do so, and how U.S. corporations are continuing to feed the dragon.<\/p>\n\n\n\n Stemming the flow of U.S. technologies into the hands of the Chinese military is not a straightforward task. Many Chinese laws facilitate technology transfers from companies doing business in China, whether that company is a willing party to the transfer or not.<\/p>\n\n\n\n The CCP enforces strict requirements on joint ventures and foreign businesses with locations on the mainland. Many of the requirements demanded of businesses by the regime\u2019s national security, intelligence, cybersecurity, and data export laws are designed to facilitate technology transfers or to encourage them as a secondary effect.<\/p>\n\n\n\n The regime\u2019s 2021 data protection law<\/a> requires that CCP officials vet certain data collected within China before it\u2019s sent abroad. A U.S. company doing business in China that handles types of personal information must<\/a> therefore obtain approval from authorities before transferring it to its U.S.-based branches or servers.<\/p>\n\n\n\n \u201cThe CCP controls 100 percent of the oversight of both Chinese companies and American companies doing business in China and Hong Kong<\/a>,\u201d said T. Casey Fleming, chief executive of BlackOps Partners, a strategic risk advisory and intelligence firm.<\/p>\n\n\n\n \u201cEvery non-Chinese visitor is tracked and surveilled, both physically and digitally. This is reinforced by CCP laws from 2017 and 2018, which require all American intellectual property and data to be shared with the CCP.\u201d<\/p>\n\n\n\n Among those key laws in play is Beijing\u2019s 2015 national security law<\/a>.<\/p>\n\n\n\n Under the law, core information technology, critical infrastructure, and important systems and data must be \u201csecure and controllable.\u201d The U.S.\u2013China Economic and Security Review Commission released a report at the time, noting that the rule \u201cwould require any company operating in China to turn over to the government its computer code and encryption keys, as well as to provide a backdoor entry into commercial computer networks.\u201d<\/p>\n\n\n\n Likewise, the regime\u2019s 2016 cybersecurity law<\/a> requires network operators to provide technical support to public and national security organizations. Its 2017 national intelligence law<\/a> requires that all organizations \u201csupport, assist, and cooperate with national intelligence efforts.\u201d<\/p>\n\n\n\n Such laws aren\u2019t limited to data transfer and intellectual property (IP) access, however. Some laws require that companies actively promote the CCP, its values, and its worldview by requiring that CCP officials work within companies operating in mainland China.<\/p>\n\n\n\n China\u2019s 1994 company law, updated in 2018, requires all Chinese companies and companies with foreign investments to provide for the creation of Party organizations within their companies.<\/p>\n\n\n\n To be sure, the activities of CCP officers within U.S. companies operating in China may fall short of the active political role required of those officers working in Chinese state-backed organizations, whose mission is mandated by the CCP constitution. Nevertheless, political pressure exists and is exerted on foreign companies to give decision-making powers to Party members.<\/p>\n\n\n\n According to the U.S\u2013China Business Council, a nonprofit dedicated to increasing trade between the United States and China, CCP operatives working within private companies are present to ensure that the company follows CCP laws. However, it warns<\/a> that companies need to be \u201calert to pressures to form party organizations in their China subsidiaries.\u201d<\/p>\n\n\n\n For much of the past three decades, such was seen merely as the cost of doing business in China. But security experts now say that the presence of these CCP officers presents a direct security threat not only to the companies employing them, but to those companies\u2019 home nations as well.<\/p>\n\n\n\n This is because CCP officers work to ensure party access to key data, in accordance with China\u2019s aforementioned data laws.<\/p>\n\n\n\n \u201cThe CCP maintains a presence in all American-invested companies to ensure that technology transfer occurs,\u201d Fleming said. \u201cKey CCP personnel are inserted in reporting structures in companies with key U.S. technology, IP, and data.\u201d<\/p>\n\n\n\n The theft or forced acquisition of technology by CCP officers placed into companies that are doing business in China is part of the regime\u2019s broader effort to co-opt global research for its own power, according to Sam Kessler, a geopolitical adviser at the multinational risk management company North Star Support Group.<\/p>\n\n\n\n \u201cCCP officers have sworn oaths to serve on the behalf of the Chinese regime, which means they are legally obligated, if asked, to either steal an American organization\u2019s IP or to impact their operations in some shape or form that serves their advantage,\u201d he said. \u201cIt\u2019s a form of asymmetric or irregular warfare<\/a>that has been occurring in the private, public, academic, and research sectors for several years now.\u201d<\/p>\n\n\n\n The negative influence of CCP operatives isn\u2019t limited to theft by Party members, according to Kessler. CCP members will also develop other sources inside the company as part of the CCP\u2019s larger effort to hire foreign scientists and other experts through the\u00a0\u201cThousand Talents\u201d Program<\/a>.<\/p>\n\n\n\n This cluster of laws and practices serves to politicize U.S. and U.S.-invested companies in China and funnel their precious intellectual property and most prized technologies to CCP authorities.<\/p>\n\n\n\n This isn\u2019t accidental, nor is it a secret among U.S. political and business elites. In fact, the unclassified version of the 1999 Report of the Select Committee on U.S. National Security and Military\/Commercial Concerns with the People\u2019s Republic of China<\/a>, commonly referred to as the Cox Report, found that China\u2019s political-legal apparatus was explicitly designed for this purpose.<\/p>\n\n\n\n \u201cThe PRC\u2019s [People\u2019s Republic of China] approach to U.S. technology firms proceeds from the premise that foreign firms should be allowed access to the PRC market only because such access will enable the PRC to assimilate technology, and eventually compete with or even overtake U.S. technology,\u201d the report reads. \u201cThe PRC thus views foreign firms as a short-term means to acquire technology.\u201d<\/p>\n\n\n\n The report also found that U.S. inability or unwillingness to engage in stronger technology transfer laws has compounded the problem.<\/p>\n\n\n\n The \u201cUnited States and international export control policies and practices have facilitated the PRC\u2019s efforts to obtain militarily useful technology\u201d and further \u201creduced the ability to control transfers of militarily useful technology,\u201d the report reads.<\/p>\n\n\n\n That state of affairs remains relatively unchanged even now, some critics argue.<\/p>\n\n\n\n In October 2021, the National Counterintelligence and Security Center (NCSC<\/a>) launched a campaign to warn and instruct U.S. organizations engaged in emerging technologies about the dangers of foreign counterintelligence operations.<\/p>\n\n\n\n \u201cThere are multiple examples in which technology, data, talent, and intellectual capital from these emerging U.S. technology sectors have been acquired by the PRC government and put to use in fulfilling the PRC\u2019s national and geopolitical goals,\u201d an NCSC communications executive\u00a0said<\/a>\u00a0at the time.<\/p>\n\n\n\n The pace at which CCP organs work to bring in U.S. talent and technology has accelerated immensely under CCP leader Xi Jinping<\/a>, who came to power in 2012.<\/p>\n\n\n\n Xi signaled in 2012 that the CCP would need to \u201ccomprehensively cover<\/a>\u201d the private sector. In 2015, he initiated his massive economic and military reforms. In 2017, he created the Central Commission for Integrated Military and Civilian Development, effectively cementing the strategy now referred to as \u201cMilitary-Civil Fusion<\/a>\u201d (MCF), which began in 2015.<\/p>\n\n\n\n Under the MCF strategy, the whole of Chinese society is mobilized to participate in the \u201cgreat rejuvenation\u201d of the Chinese nation by modernizing the CCP\u2019s military wing, the People\u2019s Liberation Army (PLA<\/a>). Coinciding with the implementation of MCF, an increasing amount of IP theft reported by U.S. companies has originated from China.<\/p>\n\n\n\n According to the 2013 Report of the Commission on the Theft of American Intellectual Property<\/a>, most studies found that China accounted for roughly 70 percent of IP theft. However, the report noted that \u201cthere is no reliable rule of thumb\u201d for such estimates.<\/p>\n\n\n\n A statement<\/a> by the Department of Justice<\/a> updated in November 2021 reported that 80 percent of all economic espionage prosecutions it has brought forward since 2018 involved conduct that directly benefited the CCP. It further reported that 60 percent of all trade secret theft cases involved some connection to China.<\/p>\n\n\n\n Despite this, U.S. companies continue to do business in China, employing CCP officers alongside U.S. personnel and contracting with Chinese organizations linked directly to the PLA<\/a>\u2014with the apparent knowledge that CCP law necessitates that their technology will be leveraged to improve China\u2019s military capabilities.<\/p>\n\n\n\n The CCP\u2019s numerous laws controlling the placement of communist officers in and dictating data sharing by U.S. companies have only marginally curbed U.S. corporate involvement in China, and tighter U.S. trade and export restrictions appear to be limited in their effect.<\/p>\n\n\n\n According to a survey<\/a> of 338 U.S. companies in China conducted by the American Chamber of Commerce in Shanghai, about 72 percent of U.S. companies present in China have no plans to move any of their operations. Thus, while some manufacturers from Taiwan<\/a>, Japan<\/a>, and Vietnam<\/a> are leaving the country, a key problem remains, according to the Financial Times<\/a>.<\/p>\n\n\n\n Those companies continuing to do business with CCP- and PLA-affiliated entities in China include some of the largest, most powerful technology companies on the planet. Chief among them is Apple<\/a>, which has worked tirelessly to solidify its support of the CCP within China in an effort to secure its own supply chains, which reportedly employed<\/a> Chinese child labor until 2016.<\/p>\n\n\n\n Apple Chief Executive Tim Cook reportedly went so far as to secretly sign an agreement<\/a> with the CCP worth $275 billion to ensure access to supply chains and other services in mainland China. The agreement included joint ventures to handle data and security law compliance in China, though it\u2019s unclear what percentage of ownership Apple or Cook maintain in the ventures.<\/p>\n\n\n\n Fast-forward to 2021, and an investigation into Apple\u2019s China-based practices by The New York Times found<\/a> that \u201cApple has largely ceded control to the Chinese government\u201d in the mainland.<\/p>\n\n\n\n U.S. tech conglomerate Cisco<\/a> also formed<\/a> a $100 million joint venture with information technology (IT) company Inspur to develop IT infrastructure, data centers, and networking equipment in 2016, despite 2015 reports that found that Inspur was known<\/a> to service clients that provided China\u2019s military with missile research.<\/p>\n\n\n\n Inspur was blacklisted<\/a> by the United States in 2020.<\/p>\n\n\n\n In 2015, U.S. computer company Dell entered into a strategic partnership<\/a> with Tsinghua Tongfang, a Chinese state-owned software company, to develop advanced cloud computing, big data, and even build smart cities in China. Tsinghua Tongfang is a subsidiary of Tsinghua Holdings, a company that sells communications equipment to the PLA.<\/p>\n\n\n\n The agreement was part of a strategic shift in focus to China, which Dell leadership referred to as \u201cin China, for China<\/a>,\u201d and it was accompanied by the establishment of an artificial intelligence (AI<\/a>) laboratory at the Chinese Academy of Sciences, the regime\u2019s top state-run research center.<\/p>\n\n\n\n In 2021, U.S.-based Goldman Sachs and Sequoia Capital invested a substantial portion of the more than $700 million in Series D funding raised by 4Paradigm, a Chinese tech company focusing on AI development. It was later revealed in areport<\/a>\u00a0by Georgetown University\u2019s Center for Security and Emerging Technology that 4Paradigm had an open contract to develop AI decision-making software for the PLA.<\/p>\n\n\n\n Likewise, researchers from Intel carried out research<\/a> with 4Paradigm, developing and presenting a conference paper on their findings on managing databases with massive datasets. The paper provided experimental results that suggested that a new database system could provide speed boosts to enhance the efficacy of AI decision-making models. Intel described the collaboration as \u201cacademic,\u201d and didn\u2019t comment on whether it knew of 4Paradigm\u2019s AI contract with the Chinese military.<\/p>\n\n\n\n In 2014, Intel agreed<\/a> to invest $1.5 billion in a holding company owned by Chinese semiconductor manufacturer Tsinghua Unigroup, a company that was later blocked<\/a> from purchasing U.S. companies because of its connections to the PLA.<\/p>\n\n\n\n In 2015, the United States barred<\/a> Intel from selling certain microprocessors to help update a Chinese supercomputer, saying it was concerned that nuclear weapons research was being done on the machine.<\/p>\n\n\n\n In 2016, yet another subsidiary of Tsinghua Unigroup\u2019s parent company, Unisplendour, entered a joint venture with U.S.-based Hewlett Packard (HPE) to create the company H3C.<\/p>\n\n\n\n H3C was blacklisted<\/a> by the Biden administration<\/a> in November 2021 for its \u201csupport of the military modernization of the People\u2019s Liberation Army.\u201d HPE contested the claim, saying that it had \u201cno indication<\/a>\u201d that its products were being sold to the PLA.<\/p>\n\n\n\n IBM, like so many others, maintained Inspur as a partner in its OpenPOWER<\/a>program, a nonprofit membership group dedicated to promoting the proliferation and sharing of expertise between users of IBM\u2019s Power Architecture, thereby granting access to some of IBM\u2019s most advanced server technologies and associated expertise.<\/p>\n\n\n\n IBM also invested<\/a> in a strategic partnership with the state-owned China Electronics Technology Group Corporation (CETC), one of 10<\/a> designated defense industry conglomerate-bureaucracies, to create a venture for the Shanghai municipal government. In September 2021, IBM\u2019s former partner, Beijing Teamsun, accused<\/a> IBM of stealing customers\u2019 data and ignoring confidentiality agreements to supply Inspur with talent.<\/p>\n\n\n\n In May 2015, the U.S. Navy was forced to seek new servers for some of its Aegis Combat System, used to track and defend against enemy missiles and aircraft, when it was discovered that IBM had sold<\/a> the same technology to the China-based Lenovo, effectively ensuring the PLA would have access to the technology in China.<\/p>\n\n\n\n Microsoft also partnered<\/a> with CETC to develop servers for government institutions and critical infrastructure in China, ultimately finishing a customized and \u201csecure\u201d version of its Windows 10 OS for the Chinese regime in 2017.<\/p>\n\n\n\n Microsoft and CETC formed a joint venture, C&M Information Technologies, to license the operating system to government agencies and some state-owned enterprises in China. CETC owns<\/a> 51 percent of the venture while Microsoft retains the remaining 49 percent, meaning the venture is wholly under the control of the CCP\u2019s aforementioned security and company laws.<\/p>\n\n\n\n Prior to the Trump administration<\/a>\u2019s blacklisting of Huawei<\/a>, Google provided<\/a>hardware, software, and technical services to the company. A lead scientist from Google also conducted research<\/a> with Chinese partners that the U.S. military alleged was used to improve targeting systems in Chinese fighter jets.<\/p>\n\n\n\n \u201cThe work that Google is doing in China is indirectly benefiting the Chinese military,\u201d Gen. Joseph Dunford, then-chairman of the Joint Chiefs of Staff, said<\/a>during a hearing in 2019.<\/p>\n\n\n\n \u201cWe watch with great concern when industry partners work in China knowing that there is that indirect benefit. Frankly, \u2018indirect\u2019 may be not a full characterization of the way it really is. It is more of a direct benefit to the Chinese military.\u201d<\/p>\n\n\n\n Likewise, in 2019, it was discovered that a lead scientist from Google had contributed<\/a> to research that could be used to improve the accuracy of China\u2019s stealth fighters, though Google said that wasn\u2019t the purpose of its contributions.<\/p>\n\n\n\n U.S. semiconductor giant Qualcomm also signed<\/a> a strategic cooperation agreement with the Guizhou provincial government in southwest China and unveiled a joint venture there worth $280 million, which included a pledge from Qualcomm to establish an investment firm to secure future investments in China.<\/p>\n\n\n\n The venture, Guizhou Huaxintong Semiconductor Technology Co., is 55 percent owned by the Guizhou provincial government and 45 percent owned by a subsidiary of Qualcomm.<\/p>\n\n\n\n Despite the vanishingly thin divide between civilian and military or academic and government affairs in China, U.S. companies continue to work with the CCP and its subsidiaries in a manner that allows the regime to clone U.S.-made technologies for the purposes of augmenting its own military.<\/p>\n\n\n\n China\u2019s military is stocked with\u00a0cloned weapons<\/a>\u00a0created from reverse-engineered U.S. and Russian technologies. Scores of rocket launchers, rifles, tanks, Humvees, howitzers, fighter jets, and drones in Chinese possession originated as U.S. or Russian technologies.<\/p>\n\n\n\n Security experts have long called for a ban on tech transfers concerning critical and emerging technologies. Their advice is seldom heeded, and even then, only marginally so.<\/p>\n\n\n\n Most recently, the National Defense Authorization Act<\/a>, which sets the budget and expenditures for the Pentagon<\/a>, contained a provision that would have banned the U.S. military from funding research in mainland China.<\/p>\n\n\n\n That provision was cut<\/a> from the final version of the legislation. Instead, a watered-down version that barred investment in just one organization,EcoHealth Alliance<\/a>, a New York-based health nonprofit that has drawn scrutiny over its links to the Wuhan Institute of Virology, was included in the version signed into law.<\/p>\n\n\n\n The bulk of the limited U.S. defense against tech transfers is left in the hands of the \u201centity list<\/a>,\u201d a trade blacklist that bars U.S. companies from doing business with sanctioned entities, which is easily evaded by Chinese shell corporations who, by a mere change of their name, can immediately resume business as usual.<\/p>\n\n\n\n There are also export control laws in place to prevent technologies associated with national security from being directly sold to China and its military. However, emergent technologies such as AI and machine learning don\u2019t have a blanket ban on their exportation, as they have legitimate uses in the civilian sector as well as the military sector.<\/p>\n\n\n\n \u201cChipmakers like Micron and Intel found ways to continue doing business with Huawei after the Trump administration placed it on the blacklist in 2019,\u201d Kessler said. \u201cThese companies may have headquarters in the U.S., but they were able to utilize their subsidiaries and operations abroad to classify their technology as \u2018foreign.\u2019<\/p>\n\n\n\n \u201cThe theft of American IP has been very costly over the years and has impaired the ability of the U.S. to retain its future edge. At some point, the policies need to meet the level of seriousness of the current and future outcomes from this situation.\u201d<\/p>\n\n\n\n Similarly, Fleming said new laws would need to be created to address a CCP strategy that\u2019s designed to exploit current U.S. export controls.<\/p>\n\n\n\n \u201cOur traditional levers of economic power, things like export controls, tariffs<\/a>, and sanctions<\/a>, are only marginally effective against a totalitarian regime using every means possible to weaken the United States and its allies,\u201d he said. \u201cNew laws have to be established to confront our adversary\u2019s strategy of unrestricted hybrid warfare<\/a>.\u201d<\/p>\n\n\n\n The traditional means of U.S. economic statecraft directly addressed specific entities: private corporations, military units, or government agencies, according to Fleming. He said this led to the CCP\u2019s development of a strategy to exploit the United States and glean its technology.<\/p>\n\n\n\n \u201cThe United States\u2019 current approach leaves holes in its strategy that allows the CCP to acquire or steal the IP,\u201d he said. \u201cThe CCP just creates new shell companies or moves through non-blacklisted companies or companies in other approved nations.\u201d<\/p>\n\n\n\nAn Old Threat, New Again<\/strong><\/h2>\n\n\n\n
![\"\"](\"https:\/\/blackopspartners.com\/wp-content\/uploads\/Intel3-410x1024.png\")
<\/figure>\n\n\n\nChinese Laws Promote Acquisition of US Technologies<\/strong><\/h2>\n\n\n\n
Forced Technology Transfer by Design<\/strong><\/h2>\n\n\n\n
Accelerating Theft<\/strong><\/h2>\n\n\n\n
US Companies Continue to Aid the PLA<\/strong><\/h2>\n\n\n\n
What\u2019s to be Done?<\/strong><\/h2>\n\n\n\n