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China’s murky web of economic espionage was uncovered by an arrest in Brussels & an iPhone backup

Since the 1990s, America has charged almost 700 people with links to China for economic espionage. But Xu Yanjun’s story is the first one that has made this link explicit.

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New Delhi: “Burn the paper and destroy the burner phone,” was the protocol for spies to hide gathered intelligence while being chased or captured by enemies. Today, in the age of cloud-based data storage, it is difficult to hide information, even for spies.

The story of Xu Yanjun, a Chinese spy extradited from Brussels to the United States in 2018 and convicted last year by a federal jury for economic espionage, shows how an iPhone’s iCloud backup gave away China’s clandestine ploys to steal technology from western corporations to American authorities. Xu’s story, though, is not the first Chinese incident of economic espionage.

According to a Bloomberg report, the Federal Bureau of Investigation (FBI) found a detailed official Chinese government form in Xu Yanjun’s meticulously backed-up iPhone. This form allowed the FBI to corroborate that Xu was an agent of China’s Ministry of State Security (MSS), Beijing’s premier intelligence agency.

Xu’s digital footprint also revealed that for years, he had been stealing defence and aviation technology information from western companies like General Electric (GE).

Significantly, the data from the phone reflected the vast methods and tactics being used by Xu to steal technology. It gives a glimpse into the expansive and murky economic intelligence-gathering apparatus that the Chinese state has built, which not only relies on its personnel, but also engineers, scientists, and coders at western technology firms.

“…instead of engaging in the hard slog of innovation, China often steals American intellectual property and then uses it to compete against the very American companies it victimised — in effect, cheating twice over,” the FBI’s director Christopher Wray had said at an event hosted by Washington D.C. based think tank Hudson Institute, in July 2020.


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Not the first case of Chinese economic espionage

Currently, the US has thousands of counter-intelligence cases against China, and they open multiple new cases against China daily.

FBI director Wray declared China’s espionage as “the greatest long-term threat” to America’s “information and intellectual property” and “economic vitality”.

According to data accessed by Bloomberg, since the 1990s, American prosecutors have charged over 700 people with dubious Chinese links for espionage, intellectual property theft, and illegally exporting military technology.

Significantly, in its 2022 annual report from February, Dutch semiconductor manufacturer ASML said that Beijing-based firm Dongfang Jingyuan Electron Ltd. is related to California-based XTAL Inc. They had previously sued the latter for intellectual property (IP) theft.

The IP at the centre of the case was the source code for a software called optical proximity correction (OPC). The OPC is integral to lithography machines producing the circuits for semiconductor circuits.

Zhongchang Yu, a former employee of ASML, founded both XTAL and Dongfang in 2014, two years after he left ASML.

ASML referred the case to the Santa Clara District Attorney’s office in California, which filed criminal charges against Yu and two other former employees of ASML, Wanyu Li and Song Lan, who had also joined XTAL.

Consequently, Li and Lan pleaded guilty for taking computer data. However, Yu fled to China when a warrant for his arrest was issued.

According to legal filings uncovered by Bloomberg, throughout the case, ASML lawyers alluded to the complicity of the Chinese state in the theft, linking the firms with China’s ambition in technology.

They argued that the theft was “consistent with a broader strategy that is being employed by the Chinese government” and “a plot to get technology for the Chinese government”.

The report also suggests that Yu is very close to the ruling elite in Beijing, and is referred to as the “flagbearer” for China’s semiconductor industry among Chinese tech entrepreneurs.

Despite the case, in 2019, Chinese authorities granted Dongfang a patent which includes OCP software. Dongfang was also declared a “little giant” by the Chinese government, a categorisation of companies that are expected to do very well in the long run.


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Xu’s iPhone data transfer from iCloud to FBI

The journey of Xu Jangyon’s iPhone backup being transferred from the cloud to the FBI started with his attempt at procuring secret information from GE Aviation, according to a Bloomberg report.

Xu had built his profile by copying data from laptops and hard drives, running local MSS recruiting efforts and running correspondence with state-owned aerospace companies.

Xu made contact with an engineer at GE Aviation called David Zheng through a professor at the Nanjing University of Aeronautics and Astronautics, where he was pursuing graduate studies in aeronautical engineering.

During this liaison with Zheng, Xu was working under the pseudonym of Qu Hui, deputy secretary-general of the Jiangsu Provincial Association for International Science and Technology Development.

Xu believed he was successful in convincing Zheng to collect information on system specifications and design process data of the engines they were building, specifically for the GE9X, which powers the latest Boeing 777’s.

Unbeknownst to him, the FBI had already intercepted GE and Zheng. He accepted the illegality of his activities, along with the breaches of company policy and export control protections which guard GE Aviation data. Then via a non-prosecution agreement with the US Department of Justice, Zheng decided to cooperate with the investigation.

After sending the confidential data to Xu, Zheng was scheduled to travel to China to discuss the information and give more confidential information. Instead, Zheng convinced him, using a script written by the FBI, that a meeting in Brussels would be more convenient.

At the chosen rendezvous, café Le Pain Quotidien, instead of Zheng, members of the Belgium Federal Police met Xu and arrested him. He consequently became the first Chinese spy to be extradited to the US.

Chinese state shields companies from accountability

Both these cases allude to a larger role of the Chinese state in promoting economic espionage to steal western technology.

These reports indicate that beyond official spies of the Chinese state, professors, engineers, and technology executives are co-opted by Beijing to source western data and technology codes.

With the conviction of Xu Jangyon, the involvement of the Chinese state in economic espionage has become explicit and certain, while the case of Zhongchang Yu reflected a grey area within which Chinese economic espionage operates.

As scholar Jon Bateman notes for the Carnegie Endowment for International Peace, a think tank headquartered in Washington D.C, “The technology sector is a major target of unfair Chinese economic practices…the Chinese government carries out large-scale cyber espionage for the benefit of domestic firms, and it shields Chinese companies from accountability when they conduct their own cyber espionage.”

(Edited by Theres Sudeep)


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