$600 billion, do you have any idea of what one could do with that huge amount of money? In May 2022, Ukrainian President Zelensky estimated that it would take roughly $600 billion to rebuild his country from the pile of debris left after the war, reported The Wall Street Journal. Coincidently, between $225 billion to $600 billion is also the annual cost to the U.S. economy of stolen trade secrets, pirated software, and counterfeiting, not including the full cost of patent infringement, according to an official estimate. Most of these goods are “made in China.”
“In our assessment, we believe that we’re talking about trillions, not billions,” Boston-based cybersecurity firm Cybereason CEO Lior Div told CBS News. “The real impact is something we’re going to see in five years from now, ten years from now, when we think that we have the upper hand on pharmaceutical, energy, and defense technologies. And we’re going to look at China and say, how did they bridge the gap so quickly without the engineers and resources?”
China today: Hacking became a ‘national strategy’
Recently, CBS News reported that Cybereason has brought to light a malicious campaign backed by the Chinese Communist Party (CCP)—labeled Operation CuckooBees—which exfiltrates hundreds of gigabytes of intellectual property and sensitive data, including blueprints, diagrams, formulas, and manufacturing-related proprietary data from multiple intrusions, covering technology and manufacturing enterprises in North America, Europe, and Asia. It is estimated that trillions in intellectual property theft from roughly 30 multinational companies within the manufacturing, energy, and pharmaceutical sectors have been drained by the years-long cyber operation led by the notorious Chinese state actor, APT 41 or “Winnti.”
FBI Director Christopher Wray in 2020 asserted that counter-intelligence and espionage from China produce the “greatest long-term threat” to the American economy. Such thefts equal one of the biggest wealth transfers in human history, he added.
“[China has] a bigger hacking program than that of every other major nation combined. And their biggest target is, of course, the United States,” said Wray this April.
To get an idea of how China’s rampant counterfeiting, piracy, and IP theft damages America’s or other victim country’s manufacturing base, let’s consult the book “Death By China: Confronting the Dragon–A Global Call for Action.” In the fourth chapter, Peter W. Navarro and Greg Autry explain in detail China’s Eight Weapons of Job Destruction, wherein the third weapon is exactly what this report is discussing.
“Every time China steals another technology, design, or process from the good old U.S. of A., it drains a little bit more blood from our manufacturing veins. That’s because when an American company wants to discover a new cancer-fighting drug, build a new fuel-efficient automobile, or develop higher efficiency solar panels, that process of discovery is going to cost both money and time—lots of money and time. If a Chinese pirate or counterfeiter can simply steal the fruits of such innovation—without regard or respect for property rights—that translates into a real cost advantage.
“To understand the scale and scope of the cost advantage piracy provides to Chinese manufacturers consider that drug companies like Merck and Pfizer spend up to 20% of their sales on research and development, while tech companies like Intel and Microsoft devote 15% and car companies like General Motors and Ford devote 5%. So when a Chinese competitor simply counterfeits a Pfizer drug like Viagra, reverse-engineers a semiconductor design from Intel, unlawfully replicates an operating system from Mr. Softie, or breaks into a computer to steal a hybrid car design from General Motor, guess what? Yep, that Chinese pirate can charge substantially less for his competing product because this intellectual property thief doesn’t have to recoup any research and development expenditures.”
Christopher Wray revealed that the FBI launches a new China counterintelligence investigation every 12 hours. Last year, the U.S. government accused Chinese state actors of a massive attack targeting Microsoft Exchange servers.
“Across the Chinese state, in pretty much every major city, they have thousands of either Chinese government or Chinese government-contracted hackers who spend all day—with a lot of funding and very sophisticated tools—trying to figure out how to hack into companies networks … to try to steal their trade secrets,” Wray described.
China’s state-sanctioned theft of U.S. technology and trade secrets was a central issue that urged Washington to commence the U.S.–China trade war during the Trump administration. The latter imposed tariffs on nearly $370 billion worth of Chinese goods, much of which remains valid.
Beijing then promised to enhance the protection of foreign copyrights, trade secrets, and other forms of intellectual property in its phase one trade deal. According to The Office of the United States Trade Representative (USTR)’s new report, in 2021, China did amend its law and regulation as well as other measures focusing on tackling intellectual property protection and enforcement.
Nevertheless, concerns continue to be raised about “the adequacy of these measures and their effective implementation, as well as about long-standing issues like bad faith trademarks, counterfeiting, and online piracy,” the USTR highlighted.
In the 2022 annual report newly released on April 27, the trade office stressed that China remains the number one origin economy for counterfeit and pirated goods, constituting more than 83% of U.S. seizures.
Particularly, “the production, distribution, and sale of counterfeit medicines, fertilizers, pesticides, and under-regulated pharmaceutical ingredients remain widespread in China,” the report stated.
The Chinese Communist Party’s ambition to collect U.S. intellectual property is becoming “more and more aggressive,” this is also what U.S. intelligence sources claim in a new series of Financial Times podcasts on the U.S.–China tech rivalry.
Chinese spies are targeting know-how in a “breathtaking” variety of technologies, from biotech, nanotech, and agricultural technology to quantum computing and others, an FBI agent in Silicon Valley told the Financial Times. Although most of this activity is thought to be obscure, uncovered cases show a sharp increasing trend.
China was different in the past
In contrast to the shameful stigma today, China was once the homeland of the world’s marvelous innovations. China held the world’s top position in many fields of natural science from the 1st century B.C. to the 15th century A.D. and was well known for its “Four Great Inventions,” namely the compass, gunpowder, papermaking, and printing. Ancient Chinese products of supreme quality and high fineness, such as silk and porcelain, were once admired by Westerners.
As an illustrative example of ancient Chinese technology, porcelain had already been produced by Chinese artisans for millennia when Venetian merchant Marco Polo first brought porcelain from China to Europe in the 14th century. Porcelain’s strong yet delicate, solid but translucent nature was adored by Europeans, who named it “white gold” because of its pure white color and expensiveness. Besides importing porcelain from China, they also started making their own. But China’s porcelain proved uneasy to imitate. Kaolin—the key to the fine china whiteness wasn’t discovered by Europeans before the 18th century.
The root cause of modern Chinese ‘piracy’
So how has China transformed itself from an “international inventor” of the past to “the world’s principal IP infringer” as the U.S. calls it today?
Peter W. Navarro and Greg Autry have quite a clear understanding of this, as they emphasized in their bestselling book:
“And please know this: The Chinese pirate never suffers remorse—whether it’s a tiny Shanghai street vendor hawking an unreleased Harry Potter DVD for 80 cents or a top executive from the giant Chery Automotive Company that has stolen both the name and car designs from the American Chevy brand. That lack of remorse exists because over a billion mainland Chinese citizens have been raised in an ethics vacuum where property rights are meant to be trampled—and the state owns everything. It’s an ethics skew that runs straight back to Chairman Mao and straight through the lunacy of the Cultural Revolution. This amoral skew has created an attitude of, “Do whatever you can get away with to better your own situation.” While such disdain for property rights is well understood among China’s Asian neighbors, far too many Westerners remain clueless about the cultural and political roots of Communist China’s amorality.”
This understanding of the two American scholars greatly coincides with the analysis in Nine Commentaries On The Communist Party:
At the beginning of the 1990s, there was a popular saying in China: “I’m a ruffian and I am afraid of no one.” This is the pitiful consequence of several decades of the CCP’s iniquitous rule, of its imposing corruption on the nation. Accompanying the fake prosperity of China’s economy is the rapidly declining morality in all areas of society.
“The congressional representatives of China often talk about the issue of “honesty and trust” during the Chinese People’s Congress. In college entrance exams, students are required to write about honesty and trust. This signifies that lack of honesty and trust and decline in morality has become an invisible but ubiquitous crisis in Chinese society. Corruption, embezzlement, fake products, deception, malice, and degenerating social norms are commonplace. There is no longer any basic trust among people.
“To date, the CCP has cracked down on almost all traditional religions and dismantled the traditional value system. The unscrupulous way by which the CCP seizes wealth and deceives people has had a trickle-down effect on the entire society, corrupting the entire society and leading its people toward villainy. The CCP, which rules by devious means, also essentially needs a corrupt society as an environment in which to survive. That is why the CCP tries everything it can to drag the people down to its level, attempting to turn the Chinese people into schemers to various degrees. This is how the CCP’s deceitful nature is eradicating the moral foundation that has long sustained the Chinese people.”
That immoral mindset of dishonesty and violating personal property is reinforced, encouraged, and enhanced by a ruling regime that chases after growth and development by all means. Having no popular election, the Chinese Communist Party lacks legitimacy to rule China, thus carrying out the policies of reform and opening up in the 1980s in order to maintain its dictatorship. According to Nine Commentaries On The Communist Party, its hunger for quick success has positioned China at a disadvantage, termed by economists as the “curse of the latecomer.”
The concept of the “curse of the latecomer” implies the fact that underdeveloped countries, which take up late for development, can imitate the developed countries in positive or negative ways. There are two forms of imitation: either imitating the institutional and social system or imitating the technological and industrial models. As the former would endanger the vested interests of some social or political groups, underdeveloped countries tend to opt for the latter. Although technological imitation can bring economic growth in the short run, it is often executed at the expense of long-term values, including natural resources; and may result in numerous hidden risks or even failure in the long run.
“It is precisely the “curse of the latecomer,” a path to failure, that the CCP has followed,” concluded the analysis.
It should be noted that, although technological imitation can generate some short-sighted economic gains, a doctoral study at the University of Leicester has pointed out that “under the political monopoly of the single party, economic progress and development will be blocked and hijacked by the authorities and interest groups in China.”
Therefore, for the West to thoroughly tackle intellectual property violations by China, it is a must to address a fundamental problem related to the communist regime. As long as the CCP sustains its tyranny over this Middle Kingdom, the day that Chinese people restore their traditional morality, and the outside world sees the Chinese regime keeping promises, would never come.