A New U.S. China Diplomatic Row a la Devyani Khobragade?

Yesterday, the U.S. Justice Department indicted five Chinese nationals of the Chinese military, living in China, with cyber espionage in the U.S. against American companies.  China has reacted emphatically, calling the allegations trumped up and hypocritical (see, e.g., this xinhua article).

According to this Washington Post Report,

The Justice Department has indicted five members of the Chinese military on charges of hacking into computers and stealing valuable trade secrets from leading steel, nuclear plant and solar power firms, marking the first time that the United States has leveled such criminal charges against a foreign country.

The landmark case paves the way for more indictments and demonstrates that the United States is serious about holding foreign governments accountable for crimes committed in cyberspace, officials said at a news conference Monday.

The Obama administration “will not tolerate actions by any nation that seeks to illegally sabotage American companies and undermine the integrity of fair competition in the operation of the free market,” Attorney General Eric H. Holder Jr. said.

…

The criminal charges provoked a response from Beijing, which said Monday that it was suspending high-level cyber talks with the United States that began in June.

China has summoned the U.S. ambassador over the hacking charges. According to an online notice posted Tuesday by state-run Xinhua on Weibo, Assistant Foreign Minister Zheng Zeguang summoned Abassador Max Baucus to complain that U.S. authorities published their indictment ignoring the strong protests by Chinese authorities.

“Given the lack of sincerity by the United States for cooperation to solve cyber security problems through dialogue, China has decided to suspend the activities of the Sino-U.S. Cyber Working Group,” Foreign Ministry Spokesman Qin Gang said in a statement.

The charges are “purely ungrounded and absurd,” Qin said. He added that the United States had “fabricated facts” in the indictment, which he said “seriously violates basic norms of international relations and damages Sino-U.S. cooperation and mutual trust.”

I have a few observations to make.

State-sponsored commercial espionage

One of the main points the Obama administration appears to be drawing between Chinese espionage and others here is that there is a difference between government-government political espionage, company-company commercial espionage, and state-sponsored commercial espionage wherein the government sponsored on behalf of specific commercial companies for the commercial benefits of those companies.  As the NYT reported,

“The alleged hacking appears to have been conducted for no reason other than to advantage state-owned companies and other interests in China, at the expense of businesses here in the United States,” Mr. Holder said. “This is a tactic that the U.S. government categorically denounces. As President Obama has said on numerous occasions, we do not collect intelligence to provide a competitive advantage to U.S. companies, or U.S. commercial sectors.”

The rest of article then tries to distinguish between what the U.S. does and what China is alleged to do – even though the article admits the distinction is “blurry” at best.

To me, the whole U.S. accusation is completely incomprehensible.

First on the facts, historically the governments of all the so-called advanced nations today – e.g. U.S., France, Japan, Germany, and U.K. – all have routinely spied on each other – for various purposes, including to confer commercial benefits to specific companies in their nations.

A quick perusal of wikipedia on industrial espionage shows just how common these activities are.

Economic and industrial espionage has a long history. The work of Father Francois Xavier d’Entrecolles in Jingdezhen, China to reveal to Europe the manufacturing methods of Chinese porcelain in 1712 is sometimes considered an early case of industrial espionage.[27]

Historical accounts have been written of industrial espionage between Britain and France.[28] Attributed to Britain’s emergence as an ‘industrial creditor,’ the second decade of the 18th century saw the emergence of a large-scale state-sponsored effort to surreptitiously take British industrial technology to France.[28]

…

Between 1987 and 1989, IBM and Texas Instruments were thought to have been targeted by French spies with the intention of helping France’s Groupe Bull.[39] In 1993, US aerospace companies were also thought to have been targeted by French interests.[40] During the early 1990s, France was described as one of the most aggressive pursuers of espionage to garner foreign industrial and technological secrets.[39] France accused the U.S. of attempting to sabotage its high tech industrial base.[39] The government of France has been alleged to have conducted ongoing industrial espionage against American aerodynamics and satellite companies.[41]

At the risk of picking too much on the French, this type of spying do occur – even among “allies,” as this article from British newspaper the Telegraph shows:

A 2009 US diplomatic cable acquired by Wikileaks quotes the CEO of a top German satellite manufacturer as saying that “France is the evil empire, stealing technology, and Germany knows this”, and that French industrial espionage was so widespread that it did far more damage to the German economy than that of China or Russia. In 1991, the former head of France’s foreign intelligence service admitted that France had spied on US technology companies that competed with French rivals. It was noted, then, that “France has long been among the most aggressive users of espionage to collect foreign industrial and technological secrets” – perhaps second only to Japan. This included allegations of bugged seats on Air France. In 1992, another former CIA director, Stansfield Turner,noted that “the French are the most predatory service in the world now that the old Soviet Union is gone”.

In this report titled The Cost of “Friendly” Espionage Against the United States, Japanese state-sponsored commercial espionage against the U.S. is reported to be wide and extensive, but tolerated for geopolitical (i.e. political) reasons:

As the sole remaining superpower the United States is a natural target for espionage activity for a wide range of nations. …  Countries such as France, Israel and Japan all conduct covert intelligence gathering and direct actions against US military, governmental and industrial targets.

…

The Japanese focus their efforts almost exclusively on economic targets within the United States. The economic benefits that Japanese companies have reaped from concentrated corporate espionage against American rivals beggars belief. There is a great deal of purity of purpose to Japanese intelligence efforts in the US. Living as they do under US military protection and with very nearly the full range of advanced US weapons systems available to the Japanese Self Defense forces there has been little need for them to actively penetrate US intelligence, military or foreign policy circles. This was not always the case. During the US-Japan trade wars of the 1980’s the Japanese invested significant resources in both covertly penetrating and overtly influencing US economic policy and political power groups. With the bursting of the bubble and the end of the trade wars those resources were once again move back to more mundane economic targets. The cost to the Japanese from these activities has been almost wholly economic. Companies that have been targeted, penetrated and striped by Japanese intelligence, assuming they even discover the fact, have reacted aggressively to try and bring sanction against their rivals in Japan through political and economic means. So far this has yielded little tangible result as the US considers Japan a vital partner in both monitoring/containing a rising China and hedging against an attention hungry and nuclear armed North Korea. Any number of eventualities could see this state of forbearance turn against the Japanese.

Brazil President recently postponed a trip to Washington in protest of U.S. wide-spread economic and commercial espionage against Brazilian targets. According to this Guardian report:

NSA documents leaked by Snowden revealed that the US electronic eavesdropping agency had monitored the Brazilian president’s phone calls, as well as Brazilian embassies and spied on the state oil corporation, Petrobras.

“Personal data of citizens was intercepted indiscriminately. Corporate information – often of high economic and even strategic value – was at the centre of espionage activity…” [President Dilma Rousseff said.]

The U.S., even before the the recent N.S.A. leaks, is known to have conducted intensive state-sponsored industrial espionage on a global scale.  For example in 2001, the European Parliament had issued a report detailing extensive U.S. espionage – including commercial / economic espionage – against European targets for the benefit of specific U.S. companies.  The report summarizes major espionage cases published in the media that with resultant conveyance of billions of dollars of contract, trade secret, and intellectual property (see section of 10.7 of report).

Going back further, as another example, here is an excerpt from an article by motherjones describing widespread, systematic U.S. state-sponsored espionage in the 1990’s against Japanese car companies for the benefit of specific U.S. car companies.

What’s good for General Motors . . . On Sept. 29, 1993, flanked by the CEOs of General Motors, Ford, and Chrysler, President Clinton announced that the U.S. government had joined the Big Three in an effort to build a car with three times the fuel efficiency of current models.

Describing the venture as a model for a “new partnership between government and industry,” the White House said that at least six government agencies, 11 research laboratories, and the Pentagon would open their doors to the automakers. “This means that superstrong, lightweight materials developed for advanced weapons systems, ultracapacitors from ‘Star Wars’ projects, superefficient motors and fuel cells from the [Pentagon’s] Advanced Research Projects Agency, virtual design and prototyping from the Army Tank Command, and many other technologies will be available for the project,” according to a White House paper.

President Clinton made no mention of the CIA. But in interviews, three separate U.S. officials acknowledged that the CIA is already providing the government with information about Japanese auto technology. And since the formation of the Partnership for a New Generation of Vehicles, such information may be readily available to Chrysler, Ford, and GM.

Susan Tierney, assistant secretary of energy, coordinates the Department of Energy’s role in the car project, including the work of the DOE’s high-tech laboratories. She says that U.S. officials “get economic intelligence reports frequently about what areas of research other governments are sponsoring.” Asked whether the CIA provides data on foreign automakers, she replies, “We’ve been analyzing what they’re doing. It should be no surprise to anybody.”

Ellen Seidman, an official at the White House’s National Economic Council, says that the White House is concerned that Japanese auto companies may have already taken the lead in some technologies. “There’s a lot going on in Japan, and we think the CIA knows something about what [Japanese automakers] are doing,” she says.

“We hear rumors on that. I really don’t know what [the CIA] knows, but I do have a pretty good idea that they’re paying attention to it,” Seidman says. “Every once in a while people tell me that there’s a report from the CIA that you’ve just got to read, and when that happens you’re just seeing the tip of the iceberg.”

Asked whether she has read some of the CIA reports on Japan’s auto technology, Seidman replies, “Yeah.” But she declines to comment further.

Discussing Japanese auto technology, Cary Gravatt, a special assistant to Undersecretary of Commerce for Technology Mary Good, whose office is coordinating the auto project, confirms that the CIA “is a good source of information about the current state of technology in a foreign country.” While much of that information is drawn from publicly available data, at least some is gathered clandestinely and remains classified, Gravatt says.

According to U.S. officials, the key technologies under study by the partnership include the search for the chemical catalyst that will minimize nitrous-oxide emissions in lean-burn engines; strong, lightweight materials that can reduce vehicle weight; advances in ceramic engine technology; and the pursuit of a battery with sufficient storage capacity to power a hybrid or all-electric vehicle.

It is in the latter two areas that Americans have the most to gain by economic espionage. Matt Dzieciuch, a project engineer at the U.S. Advanced Batteries Consortium, a cooperative between the government and the Big Three, says, “Some of the spook agencies have been able to find some things out” about battery technology in Japan. He adds that he has seen “things,” but refuses to discuss their content.

Don Walkowicz, who heads the U.S. Council for Automotive Research in Detroit, says that whoever comes up with a vehicle that gets 80 miles per gallon will dominate the auto market in the 21st century. If Japan gets there first, he says, it could lead to a repeat of the 1970s, when smaller, fuel-efficient Japanese cars pushed American gas-guzzlers aside, devastating the U.S. auto industry.

The CIA, Walkowicz says, has long provided the Commerce Department with Japanese trade and technical reports on automobile technology. …

Commercial vs. political espionage

Besides facts, I also want to bring up the bigger issue of espionage for commercial / economic vs. political purposes.  I am not sure if it makes sense to separate the two for cyber hacking or espionage purposes – if for no other reason than that countries that compete with each other economically intrinsically also compete with each other politically.  That’s because economic interests are advanced by politics and political interests are advanced by economic strengths.  The two have always intertwined in a way that really can’t be separated.

The recent N.S.A. leaks show that this notion that politics and economics go hand in hand is just as true in today’s informational age.

As everyone by now understands, the U.S.’s interest in global informational hegemony over the Internet reaches not just structurally or ideologically but also commercially in to the Internet.

The commercial prong is often least understood but underscores why it is so important for the U.S. to promote companies like Google, Microsoft, Facebook, Cisco. It’s critical to have successful Internet companies that dominate the Internet commercially – that can then be billed as normatively desirable and trustworthy.  The U.S. has gone to great lengths to bill the parts of the “Internet” run by these companies as “free” – with the rest putatively as “unfree.”

Call these “free” and “private” companies if you like, but these companies inevitably become willing partners in crime with the U.S. government to access on and regulate information residing on their platforms since these companies operate under the sovereign and rules of the U.S. Once the world put their information on the platforms offered by these companies, the U.S. effectively gets direct access and control to information the world over.

The clash between China (or Russia) and the West over “censorship” is really a clash between sovereigns over who has the sovereign to (normatively) control and access information on the “Internet”.

So a clear economic advantage on the Internet also translates into political advantage as far as the Information Age is concerned.  Informational regulation (alright, censorship) can then be carried out in the name of “national security,” “terrorism,” “rule of law,” “freedom” (you know, to protect “liberty” … our “values” … our “way of life”)….  Politics and economics are intertwined.  This has been true for a long, long time, and it is no different today.

Diplomatic Row a La Preet Bharara

This incident reminds me of the diplomatic row between U.S. and India a la Devyani Khobragade.  Both incidents starts all so much like a non-political criminal process.  Both incidents threaten to blow up to affect the diplomatic relations between nations.  In my mind, the U.S. is purposely allowing for (if not orchestrating) legal proceedings as a diplomatic leverage.  Even if the charges are completely groundless, they do get the media to spin and spew negative images of China (or India as the case may be) around the world.

I think that ultimately this is what the U.S. is after – providing platforms for the West’s incestuous ¹ media to conduct more China (or India) bashing and hating.    It’s low level way for the U.S. and China to duke things out without getting into real higher level and/or substantive economic or military conflicts.  It’s another shameless way by which the U.S. is going about exerting its so-called “soft power.”