Last week, Attorney General Jeff Sessions announced a new, high-profile attack on Chinese theft of intellectual property (IP) from US high-tech firms. It involved the indictment of several officials from a Chinese and a Taiwanese company for allegedly stealing trade secrets from the US chipmaker Micron. In announcing the action, Sessions stated: “Chinese economic espionage against the United States has been increasing . . . rapidly. . . . Enough is enough. We’re not going to take it anymore.” A Department of Justice (DOJ) official affirmed that this is “just the beginning” and that the government would be going after a number of Chinese companies going forward.
In assessing the background and implications of this and other recent moves to combat Chinese IP theft by the Trump administration, distinguishing two impelling “dual purpose” goals is important. The first is to confront and punish a long history of Chinese denial and duplicity regarding purloined trade secrets and violated IP obligations, abetted or directed by Chinese intelligence agents. Second, the new DOJ initiative, along with other moves by US trade and intelligence agencies, are key components of a larger effort to challenge the mercantilist web of Chinese rules and practices that have systemically protected and lavishly subsidized Chinese companies and entire sectors (particularly technologies prioritized by China’s “Made in China 2025” plan).
Regarding the specific IP history, recall that in September 2015, upon threat of retaliation, Chinese President Xi Jinping promised President Barack Obama that, henceforth, the Chinese government would not conduct economic espionage to pass IP and trade secrets along to Chinese companies. Although Chinese economic espionage decreased in the following months, over the past two years it has picked up again, at a rapid pace (as stated by Sessions) – with government or government-directed groups using increasingly sophisticated cyberespionage techniques.
Some months ago, I called for a series of “show trials,” not least because despite staggering estimates of the annual cost of IP theft (upward of $600 million), largely by Chinese hackers, the US government had not produced sustained evidence, citing chapter and verse of individual incidents. (This was a key failing as the Chinese government adamantly denied complicity and taunted the US to show proof.)
This brings us to the DOJ’s specific charge against 10 Chinese intelligence officials connected directly to the Ministry of State Security. The DOJ asserts that the Chinese participated in a five-year campaign (2010–15) against US aerospace and turbine manufacturers. In pursuit of their espionage goals, they “conducted sustained computer intrusions into 13 companies” to find technical information that would allow a state-owned Chinese aerospace firm to design its own jetliner and an accompanying turbofan engine. The indictment came just weeks after the US government had won a groundbreaking extradition from Belgium of another Chinese security official, also for attempting to steal secret information concerning jet engine development.
I have two points about these aerospace-related indictments. First, they demonstrate that US intelligence agencies are now willing to acknowledge their own cyber prowess, even alerting foes about their technical abilities. Second, they accentuate the necessity for follow-on indictments. These alleged actions took place before the 2015 Obama-Xi agreement. Although private cybersecurity companies have provided a good deal of evidence concerning recent attacks, the DOJ needs to provide evidence of these recent Chinese cyberattacks.
The simultaneous indictments related to semiconductor IP theft have much broader goals and implications. Here, the DOJ piggybacked on an ongoing private action by Idaho-based Micron Technology, the world’s leading manufacturer of semiconductor chips. Again, Micron has been locked in court battles with the Chinese semiconductor company, Fujian Jinhua Integrated Circuit Co. Ltd., over Micron’s charge that Jinhua had engineered the theft of trade secrets involving dynamic random-access memory (DRAM) technology that are central to data storage for computers, mobile devices, and other electronics. Jinhua is a state-owned semiconductor company that was created for the express purpose of allowing China to catch up in DRAM technology. It has received over $5 billion in state subsidies and plans to open a $5.7 billion plant in Fuijian Province.
Micron has sued in a US court, and Jinhua has countersued in a Chinese court (which had blocked the sale of Micron chips temporarily in China).
Last week the DOJ intervened, charging in an indictment that Jinhua, the Taiwanese semiconductor company United Microelectronics, and three Taiwanese citizens had conspired to steal vital core IP from Micron, with an estimated worth of almost $9 billion.
But the US government greatly raised the stakes when it also banned US companies from selling parts and components to Jinhua. Because Jinhua, like other Chinese semiconductor companies, is highly dependent on US parts and components, the move could potentially cripple the company and thwart Beijing’s drive to make it a leading chip supplier for other Chinese high-tech companies.
The Trump administration also set a new precedent by explicitly tying the future of the US semiconductor industry to US national security. In explaining the US action, the Commerce Department said in a statement:
Jinhua poses a significant risk of becoming involved in activities that are contrary to the national security interests of the United States. [By exploiting US-origin IP, it also] threatens the long-term economic viability of US suppliers of these essential components of US military systems.
To conclude, a question and two recommendations. The question is: How far is the Trump administration willing to go in following the implications of its action against Jinhua? Beijing is grooming and heavily subsidizing several other companies to reduce its dependency on foreign chipmakers. If the goal is to delay or even forestall this effort, will the administration also place a ban on the sale of components to these companies?
Whatever the decision regarding a sales ban, the administration should also bring cases against the Chinese semiconductor subsidies at the World Trade Organization. Beijing has outed itself by publicly announcing plans to provide $50 billion to domestic semiconductor companies – a clear violation of World Trade Organization subsidy rules (as is the specific subsidy for Jinhua).
Finally, at the upcoming G20 meeting with President Xi, President Trump should set out US evidence for Chinese economic espionage and demand that Xi reaffirm China’s 2015 commitment to desist from government-sponsored economic espionage. Given the duplicitous track record thus far, the president should also warn Xi that in the future Chinese companies that benefit from IP theft will be banned from the US market.
The DOJ initiative represents an important turning point, but only sustained pressure and a willingness to retaliate forcefully will achieve results.
This article provided by NewsEdge.