China: We Create It, They Steal It

Targeted Tariffs: In his second round of tariffs, President Trump seeks to penalize China for its theft of American intellectual property, which has been going on for more than a decade. It's difficult for us to look back on the feeble policy of the Obama years in which there were nothing but talks and phony broken promises. Here's what we wrote almost six years ago.
    
It has been called “the greatest transfer of wealth in history”. Gen. Keith Alexander of the National Security Agency was referring to the theft by China of American trade secrets and technology with which to jump start their own industries and use their cheap labor to beggar their American counterparts.

Most Americans are probably aware that China steals American software and movies and ships counterfeit knock-offs of designer clothing around the world. Probably less known is how much technology is being smuggled out of the United States by a China that uses dishonesty as policy and is untroubled by ethical bankruptcy.

It is also unembarrassed by its inability to create world brands on its own. In the intellectual property category, software has been the biggest swindle, easily demonstrated by comparing the ratio of how much China spends on computer hardware relative to software. In the United States in 2009, for every $8 spent on hardware, $7 was spent on software — $158 billion to $138 billion. Many countries do not come off well in this analysis, but nothing compares to China. Somehow their computers run on fumes: for every $12 spent on hardware, a tiny $1 is spent on software.

One could well be astonished by a trade meeting last November which revealed that one of worst problems Chinese officials vowed to put an end to was not pirated software sold in the back streets of Shanghai, but software stolen for use by government agencies and state-owned enterprises.

“President Hu Jintao promised to end software piracy by government agencies…”, “Senior Chinese officials pledged on Wednesday to better crack down on software piracy…”, “Chinese officials have promised to improve their protection of intellectual property…”. Year after year we hear such pronouncements with little done. Years of counterfeiting later we are still hearing U.S. officials wishfully saying, “That is why we have called for trade negotiations to start focusing less on pledges and more on tangible results.”

A stroll through the streets of any Chinese city shows a torrent of counterfeit goods: electronics, movie DVDs, and all forms of apparel, handbags and footwear. The Chinese authorities make a great show of occasional crackdowns but shuttered shops re-open a few weeks after the attention dies down.

Before the Shanghai World Expo in May 2010, police spread through the city to warn shop owners to hide their faked goods. Stores were bisected by false walls, with counterfeit items stored in hidden rooms. To those not savvy to the ways of the city, all trade looked impressively legitimate. Expo over, the walls came down.

But there is a much greater problem:

Nowadays, anyone going to China on business, research or governmental matters had better take unusual precautions, as this New York Times article cautions. Anything you take is likely to be invaded by malware that will read the files on your laptop, copy your keystrokes to capture passwords, listen in on your cellphone conversations and snatch your contact list. The savvy disable Bluetooth, paste passwords from a USB thumb-drive, buy throwaway phones and emptied computers that are cleaned on return, even remove cellphone batteries when phones are not in use to prevent their penetration. They do so because China is the land of electronic pickpockets.

A long list of convictions of workers in major U.S. companies for stealing trade secrets should tell us something. The ability of a Chinese company to find a person deep within the ranks of our companies, a person who has access to just the right information that fills the particular need of that Chinese company, a person likely to agree to industrial espionage and not call the cops, is severely limited. Except where there is a direct relationship between a U.S. company and a Chinese customer, such that people inside one are known to the other. To find and entice such individuals is clearly a campaign conducted at the top — by the Chinese government and military themselves.

Bloomberg-Businessweek, in this article, documents 19 cases of criminal espionage ranging across the industrial spectrum — design specs from Ford ; secrets about pesticides and chlorinated polyethylene used in vinyl siding, electrical cable jackets, and industrial hoses from Dow; information to help China make cruise missiles stolen from Northrup Grumman ; organic light-emitting diode and titanium dioxide technology (a pigment widely used in paint, plastics, paper) from DuPont ; pharmaceutical compounds from Sanofi-Aventis; technical info on the space shuttle, the Delta IV rocket, the F-15 fighter, the B-52 bomber, the Chinook helicopter from Boeing; paint formulations from Valspar. The list goes on.

Can there be any doubt that there are hundreds of undiscovered thieves in U.S. corporations who are right now copying data onto thumb drives?

Prior to his February visit to the United States, Xi Jinping, the presumptive heir to the Chinese presidency, was handed a dossier about American Super- conductor Corp. of Massachusetts. AMSC had suddenly, mysteriously, lost 70% of its business in China. It had always supplied Sinovel, a wind turbine manufacturer in China, with the electrical systems and control software without which the machines would simply be giant white sculptures. Bloomberg tells the story that AMSC technicians, climbing to the top of a test turbine in China’s Gobi Desert to determine why a new version of their software had not turned the machine off, sent a copy of the computer code to its lab in Austria which found that it was a stolen copy. AMSC then found on the computer of a Serbian employee hundreds of e-mails with Sinovel, even the contract to pay him $1.5 million. AMSC has filed suit in China. Ludicrously, one would think, Sinovel has countersued, citing that quality problems were the reason, which begs the question of what is running their new machines if not the AMSC stolen technology they now say is deficient? The case will be decided by an arbitration commission — in China —, where U.S. firms are required to hire only Chinese lawyers.

At the same time that the Chinese are stealing our innovations and violating our patents to build their industries to compete against us, Americans go on eagerly buying Chinese products because they are cheap, putting Americans out of work and creating the soaring and ever-mounting debt with which China is beginning to buy up American industry. Thanks to our policy of rhetoric only, our timid fear of starting a trade war as if we are not in one, we can all expect one day to be working for the Chinese, muttering to ourselves “where did we go wrong”?

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