Why is the Chinese Military so focussed on the theft of Intellectual Property?


Yesterday’s indictment of five People's Liberation Army (PLA) cyber espionage officers on charges of hacking into US companies in order to steal trade secrets was no surprise to most of us in the cybersecurity business. Nor was it to China-watchers who have become used to seeing mainland China do whatever it takes to catch up with the rest of the world following its more than half-century of economic stagnation under communism.

The fact that the indictment handed down in the District Court of the Western District of Pennsylvania only named five mid-level officers, says that this highly unusual activity by the US Department of Justice (DOJ) to prosecute the agents of a foreign government, is very much a test case. It's also an open and very public wake-up call to Mainland China to cease and desist its rampant and prolific cyber espionage activities against western commercial businesses.

Despite years of protestations by the US and other law abiding nations, and a very revealing Mandiant report last year detailing the activities of PLA Unit 61398 or ‘APT1’ as it is also known, regarded as the most prolific of over 20 PLA cyber warfare units, China has refused to acknowledge or stop its state-sponsored cyber theft activities, and has further demanded that the US prove its allegations. Perhaps then this is a water-tight test case in which the perpetrators can be proven guilty of not only cyber theft, but also to have acted on the orders of the Chinese State. What's more, this verdict can be handed down in a globally respected US court of law - something for which China, with its general lack of law or an independent judicial system, can only aspire.

Having spent a lot of time in the People's Republic of China since the early 90s, I’m sure that the Chinese leadership will continue to loudly profess its innocence and abhorrence at US accusations, for such is the game that is played in China whenever anyone is caught red-handed. I’m also sure that China will respond in a tit-for-tat manner accusing the US of cyber spying against the People's Republic in order to save the all-important ‘Chinese Face’. However in this case the Chinese leadership in Beijing may well be largely ignorant of the true activities of one of its PLA units located in an innocuous twelve story building on the outskirts of distant Shanghai.

China’s national leaders, in fact, hold very little power in the overall command-and-control structure of the world’s fastest growing economy and most populist nation. Instead China is really commanded and run by regional power players as it has been right the way back to the Qin Dynasty in 221BC. It is these Warlords who hold the real economic and often grass-roots political power in China. A fact that Beijing and the Central Committee puts up with, but doesn't necessarily like. All too often when one of these regional barons or princelings gets too powerful and steps over the line, Beijing is forced to make an example of them with a high-profile execution or life imprisonment as was the case with Bo Xilai 薄熙来 in September 2013.

This regional power model extends down as Marx would have put it to ‘the ownership of the means of production’. Most of China's private companies that emerged during the late 80s and early 90s were, in fact, owned and managed by the PLA, which expanded into manufacturing, hotels and other commercial activities. The revenue from these activities proved to be not only profitable, but also a vital means by which PLA units were able to expand their regional power and influence, and develop a near monopoly of local commerce. These PLA units were directly or indirectly run by local warlords. In fact, many of today’s modern Chinese mega-corporations, some of which are now publicly traded, are still controlled and run by the very same power barons.

And this perhaps explains best the close link in China between official military espionage and the commercial targeting of western companies for intellectual property theft. It's all about the pursuit of power and taking, by whatever means is available, competitive advantage over opponents, even if that involves the outright and very public theft of internationally recognized trade secrets.

Memories are short and China is banking that no one will care 10 or 20 years from now just how Chinese corporations became the biggest and richest in the world, or how everyone else went broke!