May 2, 2012: The U.S. recently revealed that two Taiwanese smugglers of Chinese counterfeit consumer goods and drugs told American undercover agents that their contacts in Chinese intelligence would also pay big for technical details on American UAVs and military aircraft (especially the E-2C carrier based radar aircraft and the F-22 stealth fighter). Once the pair were arrested the prospect of life in prison on drug smuggling charges apparently resulted in a lot of details about how Chinese intelligence works with criminal gangs. American intelligence and counter-intelligence agencies have long known about the extensive Chinese intelligence efforts to steal American technology, and the revelations about the use of criminals was not a big surprise.
China sees this kind of broad-spectrum intelligence gathering as a major operation and one they intend to keep going as long as possible. Thus, during the last four years China has established eight National Intelligence Colleges in major universities. In effect, each of these is an "Espionage Department" at these universities, where, each year, about 300 carefully selected applicants are accepted, to be trained as spies and intelligence operatives. The college trained operatives expect to make a career out of stealing Western technology. China has found that espionage is an enormously profitable way to steal military and commercial secrets. While Chinese Cyber War operations in this area get a lot of publicity, the more conventional spying brings in a lot of stuff that is not reachable on the Internet.
One indicator of this effort is the fact that American counter-intelligence efforts are snagging more Chinese spies. But this is largely due to increased spying efforts by China, rather than more success by the FBI and CIA. This use of industrial espionage has played a large part in turning China into the mightiest industrial and military power on the planet.
For over two decades China has been attempting to do what the Soviet Union never accomplished: steal Western technology, then use it to move ahead of the West. The Soviets lacked the many essential supporting industries found in the West (most founded and run by entrepreneurs) and was never able to get all the many pieces needed to match Western technical accomplishments. Soviet copies of American computers, for example, were crude, less reliable, and less powerful. It was the same with their jet fighters, tanks, and warships.
China gets around this by making it profitable for Western firms to set up factories in China, where Chinese managers and workers can be taught how to make things right. At the same time China allows thousands of their best students to go to the United States to study. While most of these students will stay in America, where there are better jobs and more opportunities, some will come back to China and bring American business and technical skills with them. Finally, China energetically uses the "thousand grains of sand" approach to espionage. This involves China trying to get all Chinese going overseas, and those of Chinese ancestry living outside the motherland, to spy for China, if only a tiny bit.
This approach to espionage is nothing new. Other nations have used similar systems for centuries. What is unusual is the scale of the Chinese effort. Backing it all up is a Chinese intelligence bureaucracy back home that is huge, with nearly 100,000 people working just to keep track of the many Chinese overseas, and what they could or should, be trying to grab for the motherland. This is where many of the graduates of the National Intelligence College program will work.
It begins when Chinese intelligence officials examine who is going overseas and for what purpose. Chinese citizens cannot leave the country legally without the state security organizations being notified. The intel people are not being asked to give permission. They are being alerted in case they want to have a talk with students, tourists, or business people before they leave the country. Interviews are often held when these people come back as well.
Those who might be coming in contact with useful information are asked to remember what they saw or bring back souvenirs. Over 100,000 Chinese students go off to foreign universities each year. Even more go abroad as tourists or on business. Most of these people were not asked to actually act as spies but simply to share, with Chinese government officials (who are not always identified as intelligence personnel) whatever information they obtained. The more ambitious of these people are getting caught and prosecuted. But the majority are quite casual and, individually, bring back relatively little but are almost impossible to catch.
Like the Russians, the Chinese are also employing the traditional methods, using people with diplomatic immunity to recruit spies, and offering cash, or whatever, to get people to sell them information. This is still effective and when combined with the "thousand grains of sand" methods, brings in lots of secrets. The final ingredient is a shadowy venture capital operation, sometimes called Project 863, that offers money for Chinese entrepreneurs who will turn the stolen technology into something real. No questions asked. If you can get back to China with the secrets you are home free and potentially very rich.
But there are some legal problems. When the Chinese steal some technology, and produce something that the Western victims can prove was stolen (via patents and prior use of the technology), legal action can make it impossible, or very difficult, to sell anything using the stolen tech outside of China. For that reason the Chinese like to steal military technology. This kind of stuff rarely leaves China. And in some cases, like manufacturing technology, there's an advantage to not selling it outside of China. Because China is still a communist dictatorship the courts do as they are told and they are rarely told to honor foreign patent claims.