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# Inside the FBI Podcast: Technology and Espionage

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### October 11, 2021

# Technology and Espionage

## The Threat from the People's Republic of China

 

Inside the FBI: Technology and Espionage

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### Transcript 

**Steve Lewis:** Stolen research. Network intrusions. Covert operations.  

These are some of the ways the government of China and the Chinese Communist Party threaten the economic well-being, national security, and democratic values of the United States.  The Chinese government targets businesses, universities, researchers, lawmakers, and the general public—and the problem requires a whole-of-society response to tackle.  

On this episode of Inside the FBI, we’ll speak with an FBI agent and an intelligence officer who work to combat the China threat. You’ll learn more about the predatory tactics the Chinese government uses against U.S. interests, and you’ll hear about an actual case that shows how they threaten American businesses. We’ll also explain how companies, universities, and citizens can protect themselves.

Before we go on, let’s be clear: this is not about the Chinese people. And this is certainly not about Chinese Americans. 

Every year, the United States welcomes thousands of Chinese students and researchers into this country. For generations, people have come from China to the United States to secure certain freedoms for themselves and their families. And their contributions—for which the FBI is grateful—have strengthened American society. 

So, when we speak of the threat from China, we mean the threat posed by the government of China and the Chinese Communist Party.  I’m Steve Lewis, and this is Inside the FBI. 

**Lewis: **The FBI’s National Security Branch oversees national security threats and criminal activities that occur in or target the United States. Part of this branch is the Counterintelligence Division, which works cases involving the China threat.

You’re probably wondering: What exactly do we mean when we say “the China threat?” 

The Chinese Communist Party has plotted out clear and ambitious plans to put China on top of the world—both its economy and its military—and these plans are troubling to the FBI and many others because the actions the Chinese government is taking often disregard laws and other standards. 

It’s worth noting here that China’s rise amongst the world’s economies is remarkable, with a global footprint that’s been growing exponentially since the late 1970s. This economic growth has transformed China. 

Here’s Jacob, the FBI’s senior national intelligence officer for China, with a detailed explanation of the threat posed by the plans of the Chinese government.

**Jacob:** The Chinese Communist Party seeks to correct what they see as sort of a historical injustice, and that is sort of the downfall of the Chinese nation and Chinese society that occurred between sort of 1840 and 1940.  

**Lewis: **He’s referring to a period of time colloquially known as “the Century of Humiliation.”   According to the National Security Branch, the Century of Humiliation opened with the first Opium War—which kicked off in 1839 and was fought between China’s Qing Dynasty and the British—and ended when the Chinese Communist Party formally established the People’s Republic of China in 1949. 

In between those landmark events in the nation’s history, China experienced a series of difficulties, such as being colonized and occupied by outside powers, suffering from internal division, and losing national power and influence. 

According to the branch, contemporary Chinese leaders keep this tumultuous time front-of-mind. 

**Jacob:** The Chinese Communist Party sees itself as the mechanism, the tool, to correct that historical injustice.  **Lewis: **In short, the CCP believes it has a duty to help China become the epitome of global power, with the goal of cementing its identity as a world power by 2049—the 100th anniversary of the party’s rise to national rule. Xi calls this “the Chinese dream,” and defines it as the “great rejuvenation of the Chinese nation.” 

**Jacob: **They've studied what makes countries powerful. What is the key to success in the world today? And they recognize that economic strength, which leads to military strength, that is really the key. And behind all that is technology, advanced technology.  

**Lewis: **That advanced technology, however, is expensive and time-consuming to develop. So instead of investing and waiting, the government of China’s strategy in many cases is to fast-track getting these advanced tools through a tactic called technology transfer.  

Simply put: They don’t build it. They steal it. 

Technology transfer happens when technology—whether it’s proprietary software or research or a specialized product—is taken from companies or academic institutions and brought to the Chinese government for its own use. To make these technology transfers happen, the Chinese government uses a number of methods. 

One way of doing this is through talent plans—the best known of these being the Thousand Talents program. This program and others like it recruit people who have insight into or expertise in certain fields, products, or technologies. The Chinese government gives participants money and perks if they bring that technology to China. You can learn more at fbi.gov/talentplans. 

**Jacob:** What they do is they essentially create a contractual obligation on the part of participants to bring technology, expertise, and they will help back to China. That may mean creating a lab in China. It may mean creating a company in China, or tied to the Chinese government in some way. 

**Lewis: **China is also threatening businesses through network intrusions, like the 2017 breach of the credit reporting firm Equifax. In that case, members of the Chinese People’s Liberation Army, or PLA, stole the sensitive personal information of nearly 150 million Americans. 

Another tactic involves business relationships that Chinese firms form with companies based in the U.S. and other countries. These types of partnerships are not unusual in a global marketplace. 

However, due to the authoritarian nature of the Chinese government, U.S. companies should assume that any information of military or intelligence value that they share with a Chinese company will likely land in the hands of the Chinese government and military, too. 

In China, the boundaries that typically stand between a private firm and the military or the government don’t exist. 

**Jacob:** So, there is a major draw that China is using to bring this technology—and by technology I mean the actual parts, pieces. But then also, trade secrets and also know-how, expertise. Those people know that if they go back to China with that and develop that in China, develop their company in China, they will be supported by a nation-state actor.  

And a critical piece of that is to recognize that these incentives are in place not only for Chinese nationals, but really for anybody. Anybody who has access to this technology can take advantage of those incentives and bring it back. 

And the reason that's so important to understand is that oftentimes people suggest that the FBI or the U.S. government's efforts to stop technology transfer is really just an excuse to target Chinese ethnic nationals. And that really could not be further from the truth. 

**Lewis: **It’s worth repeating that the China threat is not a threat from the people of China or from people of Chinese descent. Chinese Americans have and continue to make critical contributions to American democracy and society.  

Rather, we’re talking here about the actions of the government of China. And as the case we’ll discuss up next shows, anyone can become part of these efforts. 

**Lewis: **We’re going to spend the next few minutes talking about foam—a very particular type of foam, that is. One special enough to lead the Chinese government to engage in a conspiracy to steal it. 

The foam in question here is called syntactic foam, and it has three valuable qualities to it. It’s incredibly strong, it’s extremely lightweight, and it also provides buoyancy, meaning it helps things float. In most cases, it’s used for military purposes.  

Here’s Roman, the FBI special agent who investigated China’s efforts to steal syntactic foam.

**Roman:** It's used in things like the hulls of submarines or the structure of stealth destroyers. In the civil arena, it's used in oil and gas for things like floating oil rigs that extract oil and gas from places like the Gulf of Mexico or the South China Sea. It's also used in things like space materials and a variety of things, just depending on its properties. 

**Lewis: **The technology itself has been around for decades, but since every company that makes it has its own special recipe, the materials used and the temperature it’s made at can vary. However, that doesn’t mean it’s been easy for these companies to perfect and produce. 

**Roman:** It has taken decades and millions of dollars for the few companies that do know how to make it to get to the point where they are.  

**Lewis: **The Chinese government wanted syntactic foam, but they didn’t want to invest the time, money, or resources it would take to catch up to the companies who were already experts at making it.  

**Roman:** And this is their general approach to technology transfer, where they try to leapfrog other nations by obtaining technology from the West versus developing it themselves.  

**Lewis: **So why did the Chinese government decide to focus on this product?  

It goes back to something called the Five-Year Plans, which the Chinese government uses to map out their strategies. And just a side note: These are different than the Talent Plans we talked about earlier. The Talent Plans are used to recruit people, whereas the Five-Year Plans lay out the goals the government has for the country.  

In one of these Five-Year Plans, they set an objective to become a marine power, then identified the technologies that would help them get there.  

**Roman: **And one of the technologies they identified was syntactic foam. And they put out something called the Made in 2025 in China list, which is a list of technologies that they wanted China to be able to build in their country rather than having to import it from the West. 

And syntactic foam was specifically identified. And not just syntactic foam, but syntactic foam with the properties where it would work below 1,000 meters, which means that that would be for military use because there's nothing else except for submarines that would go that deep.

So, in 2012, China identified this technology and said they wanted it. And then in response, one of their ministries, which helps develop technology, they put aside funding to pay for this technology. And they put aside something approximately, like, in the tens of millions. 

**Lewis:** But, as we mentioned, this foam is hard to make, and the Chinese researchers who tried it failed.   **Roman: **And so, at that point, they turned to economic espionage. 

Shan Shi was a professor at Harbin Engineering University, but he happened to be in Houston, Texas. He was an overseas professor. And he simultaneously was a lecturer at Texas A&M. And he also had several businesses involved in offshore technology. And so, they recruited him, and they asked him to help with obtaining syntactic foam for China.

What he did was rather than trying to develop the technology or research it on his own, he went after employees of a Houston company called Trelleborg USA. So, Trelleborg is a big multi-national company that's headquartered in Sweden.

**Lewis: **Shi and his co-conspirators identified about 10 employees at Trelleborg, who had access to the research and development lab where syntactic foam was made. Shi started reaching out to them over a professional networking site and, using the funding sent to him by China, he was able to offer them much higher salaries. 

For two employees, the offer was too good to refuse. One of them had recently been laid off, but one of them was still with the company.  

**Roman: **So, he recruited these two employees. And they were able to get him some of the trade secrets from Trelleborg on how to make syntactic foam. They could not get him everything that he needed. 

**Lewis: **But one thing the employees did get? The details on how to make microspheres, a key ingredient in the syntactic foam recipe. 

We mentioned earlier that syntactic foam is special because of three main qualities: buoyancy, lightness, and strength. The microspheres are what give syntactic foam that strength.  

Take a submarine, for example: As it dives down deeper, the water pressure around it increases. The microspheres in the syntactic foam do the work of keeping the material from breaking under the pressure. 

So, after stealing just one piece of the syntactic foam technology—how to make those microspheres—Shi did something that the FBI often sees with China—he offered the company that he stole from a joint venture.

Shi said his company would make the microspheres in China if Trelleborg would share the rest of the syntactic foam technology with them. 

**Roman: **At first, Trelleborg kind of laughed and said, you know, "There's no way you can make our microspheres as well as we can. And it's important to have safety standards et cetera." So, Shan Shi gave them some samples to test. And when they tested the microspheres, they were, you know, shocked and amazed to see that they were exactly as good as the ones that they made.  

**Lewis: **Meanwhile, the FBI had been looking into Shi’s company, having obtained evidence that it was conducting illegal transfer of technology and receiving funding from Chinese government entities. After learning about Shi’s proposed joint venture with Trelleborg, the Bureau intervened, reaching out to the leadership of Trelleborg with their concerns. With Trelleborg’s support for the investigation, agents were able to arrest Shan Shi and those working alongside of him.  

In July 2019, Shi was convicted of one count of conspiracy to commit theft of trade secrets. Then, in February 2020, he was sentenced to 16 months in prison.  

Four of Shi’s codefendants also pleaded guilty to conspiring to steal trade secrets, and two testified as cooperating witnesses at trial.    

The syntactic foam case is just one example of a technology transfer investigation—but these thefts happen all the time. And they have serious, long-term consequences for American businesses and the economy.  

**Roman: **On the civil side, it's also really important because when they successfully transfer technology like this, they're giving their state-owned companies a huge advantage over U.S. companies or any other companies in the world that actually have to pay for development costs. And when they have a huge advantage like that, then they're able to price their products less than their competition since they didn't spend any money on research and development. 

And then they're able to put, you know, the U.S. companies or other companies out of business. And this has a massive impact on the United States.

**Lewis: **Both economic security and national security are at stake here, and both jobs and market share have been lost in the U.S. And, Jacob adds, these crimes can affect America in an even more fundamental way.

**Jacob: **The more companies that the Chinese government's able to put out of business in the United States, the more industries it's able to dominate—it's one more company, or one more industry that is not available for Americans to work for and to work in. Our companies and our innovation, our technology, these have been, you know, critical to us developing the quality of life that we have been accustomed to in the United States. 

**Lewis:** So, what can companies and academic institutions do to guard against these threats in the first place?  

For one, transparency between employees and their employers is key. It’s illegal and wrong-headed to assume someone is or isn’t a threat because of their ethnicity. Rather, companies and academic institutions should be clear about what they expect their employees to disclose and not just assume that employees will know to provide that information.  

Ask your employees, “What ties do you have to foreign governments? Do you have any outside sources of funding?” 

It’s also important to make sure you’ve got strong cyber and physical security measures in place. Make company policies absolutely clear about who can access certain networks, files, and facilities, and what can and can’t be copied or shared. 

Here’s Jacob, the intelligence analyst, again: 

**Jacob: **I think there are a lot of very good tools out there or a lot of very good best practices that people could look at for ensuring that their cyber protections are up to date. Cyber is a critical vector by which China acquires technology. So, it's critical that companies invest in cybersecurity and invest in training their employees on best practices in order to minimize exposure to that potential threat. 

**Lewis: **Train employees regularly on security policies and protocols. Make sure they know how to avoid scams like social engineering and phishing. Many companies send out test messages to make sure employees know how to spot suspicious emails and understand the risks they contain.   

You should also educate your employees on how to identify insider threats—people within the company who may pose a risk—and how to report suspicious activity. 

In the Trelleborg case, the company had a number of strong precautions in place to protect their technology, but those only go so far when a person with inside access decides to let someone in. 

As Roman, the case agent, explains:

**Roman: **What happened was, you know, a trusted employee stole their information—not someone from the outside, like, hacking in—and the only takeaway from this case was, that they could have done better was, they had 10 people, you know, in their lab with access to the technology.  

**Lewis: **Most, if not all, of these privileged employees were simultaneously contacted on the same social media platform, he added. 

**Roman:** But none of them reported it to their security, and, you know, two of them ended up taking the offer. 

**Lewis: **Something else you can do? Form a relationship with your local FBI field office—and reach out before anything happens. 

The FBI has 56 field offices across the country, and while we’re always there to help if something goes wrong, we also have people and resources who can help protect businesses, employees, and institutions from being victimized.

**Jacob:** The field offices are really there and agents within the field offices are really there to work with you and to help you. They want to help protect you. They wanna help protect your company, and they wanna partner with you in doing that. So, it really is crucial for you to have those relationships on the front end.

**Lewis: **And if you do suspect that your company might become or has become a victim, don’t be afraid to reach out to the FBI, even if you don’t have that pre-existing relationship. The FBI’s goal is to offer support and bring justice in a way that minimizes any potential damage to your company.  

**Jacob:** The FBI has special agents that have been specifically trained in outreach and in working with private companies. Reach out to them, and they will help facilitate, you know, connectivity with the right people in that field office. And they will work with you to help recover as much as possible and to fine and prosecute the people who are responsible. 

Lewis: You can find your local field office’s contact information at fbi.gov/contactus. You can also submit tips about suspicious activity to tips.fbi.gov.

**Lewis: **We’ve focused a lot on businesses and universities ... but what about individual people? How does the Chinese government pose a threat, and what should you be on the lookout for?  One thing to think about is whether you’ve got a skillset or do work in an area that may make you a target of the Chinese government. That includes technologies that can advance military aims like the one mentioned in the case study, as well as robotics, clean energy, information technology, telecommunications, artificial intelligence, and many more. 

If you are ever contacted over social media or recruited for a job, it's worth asking a lot of questions. Here’s some advice from Jacob:

**Jacob:** If you're going to work with somebody from China or with a Chinese company, it's good to research their background and just understand who they are and where they're coming from.

In particular, are they associated with an entity that is affiliated with the Chinese government directly? Or, maybe is involved in the military civil fusion strategy—that is, Chinese strategy to try and ensure that technology that goes over to China is leveraged for both economic and military purposes?

Are they on the U..S denied entity list? This is a list put out by the Department of Commerce of companies—not just Chinese companies, but any companies who work against the interest of the United States or who are involved in the suppression of human rights overseas. So, basic background work like that can help identify and flag particular individuals who might be problematic or particular companies that might be problematic. 

**Lewis: **Because ultimately, what is at stake goes beyond the financial success of an individual company or industry. 

**Jacob:** I think it's really important to think about the big-picture level. I think people need to realize that the United States, you know, we became the most powerful country in the world not by accident, right? We worked hard, we innovated, and we developed partnerships and allies in order to get where we are today.

We have to keep fighting every single day to make sure that the United States remains a strong and secure country.  

We're used to a world where, you know, human rights are valued, individual freedoms are valued. Well, the Chinese government doesn't believe in those basic values. And if they become the most powerful country in the world, then those values will begin to erode. 

**Lewis: **The values that Jacob’s talking about include—but aren’t limited to—a spirit of openness and collaboration. These are values that have led to growth and innovation in the United States and elsewhere. The Chinese government, however, has taken advantage of those values to damage our interests. But that doesn’t mean we turn away from those or any other values we should all hold dear—including a commitment to nondiscrimination. 

The FBI wants every American individual, institution, and business to understand the China threat, so we can all know how to protect against harmful technology transfer. So we can all see the need to scrutinize any offer or proposition that could come from a foreign government. So we can take all the necessary steps to secure our personal information, our research, and our technology.  

We cannot and should not close our arms to the world. We just need to keep our eyes wide open. 

For more news and information, visit fbi.gov/chinathreat.  

This has been another episode of Inside the FBI. You can follow us on your favorite podcast player, including Spotify, Apple Podcasts, or Google Podcasts. You can also subscribe to get email alerts for new episodes of our show at fbi.gov/podcasts.

This is Steve Lewis from the FBI’s Office of Public Affairs. Thanks for listening. 

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 **Resources**

### The China Threat

The counterintelligence and economic espionage efforts emanating from the government of China and the Chinese Communist Party are a grave threat to the economic well-being and democratic values of the United States. Confronting this threat is the FBI’s top counterintelligence...

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