For years, the tit-for-tat accusations have been increasing. The US accuses China of espionage on a grand scale, China retaliates with its own accusations. The US imposes sanctions. So does China. Then in February 2023, a Chinese espionage balloon was shot down off the coast of South Carolina.
So how did the two great superpowers get here? Since the 1970s, there has generally been a positive trade relationship between the US and China, despite their ideological differences.
But it has always come with its risks. From concerns about slavery involving China’s Uyghur minority to vast corporate espionage issues and fears over state-run companies such as Huawei, how do you trade with China while also ensuring you stay within the law and work in a moral way?
China: Industrial espionage
One of the key reasons behind the breakdown in diplomatic relations in recent years is China’s wide-ranging industrial espionage. In fact, FBI Director, Christopher Wray recently stated: “The greatest long-term threat to our nation’s information and intellectual property, and to our economic vitality, is the counter-intelligence and economic espionage threat from China.”
China, too, has laid out its own accusations, which could have a detrimental effect on US businesses. In July 2023, Beijing passed historic and wide-ranging anti-espionage legislation that seeks to broaden the definition of spying. From banning the transfer of any data or information linked to national security to cracking down on US consultancy and due diligence films, these new measures could implicate American and other international companies that regularly deal with Chinese companies.
The broadened definition of espionage will now include cyberattacks on state organs and offers only a vague definition of what might be considered Chinese national security. The new law also allows the government to access data and equipment, and even ban border crossings, and with Beijing’s Minister of Security aiming to mobilize the nation in its efforts to combat corporate espionage, the situation is set to sour.
The extent of the problem
The Chinese spy balloon
The level of espionage between the two countries was revealed in February 2023, when a high-altitude Chinese spy balloon was spotted in US airspace. The controversial episode forced US Secretary of State, Antony Blinken, to cancel a planned trip to Beijing, a trip that the US had hoped would spark a new era of diplomatic engagement with China. However, what the US regarded as an irresponsible act that violated international law and US sovereignty has instead deepened the rift between the two nations.
The submarine spy program
The US has recently announced the revival of its multibillion-dollar naval surveillance network. Known as the Integrated Undersea Surveillance System (IUSS), it involves a complete overhaul of the US underwater spy cable network and equipping the US fleet of surveillance ships with subsea microphones and next-generation sensors, together with a new fleet of unmanned sea drones designed to detect suspicious activity.
The re-establishment of the US’ Cold War submarine spy program is particularly important due to Beijing’s penchant for blurring the lines between trade and espionage. With the country’s maritime operations doubling as intelligence outposts, some 96 Chinese ports globally are thought to contribute to the espionage scene.
The cost of doing business
It’s estimated that every year counterfeit goods, pirated software, and theft of trade secrets cost the US economy between $225 and $600 billion. The Chinese government is said to be the main offender, accounting for the majority of these infringements.
Among the contentious programs and policies implemented by the government of China, industrial espionage is having a significant impact. These programs and policies are increasingly directed at America’s burgeoning tech sector – the FBI estimates that over 50 percent of Chinese spying attempts are designed to steal technology within Silicon Valley.
The effects on your business
The trade relationship between US and China
Imports from China to the US have seen a massive increase in the last few decades, partially owing to the rise in the number of US companies owned by China. While issues have always been apparent, including shipping restrictions, customs regulations, and supply chain risks, recent developments have led to the US Chamber of Commerce issuing an official warning of increased risk and uncertainties.
Another growing problem for companies importing from China is the cost of dealing with contraband. In the 2022 fiscal year, Chinese counterfeit and pirated goods accounted for some 60% of goods seized at customs, presenting an estimated MSRP of $1.8 Billion, leading to many companies losing on their investments.
Safeguarding trade secrets
With the increasing concern over China stealing intellectual property from US companies, it’s important to establish solid protocols for protecting your trade secrets. Any companies implementing or investing in innovative technology are now involved in the geopolitical situation, as Chinese companies become compelled to provide trade secrets to the government. As such, we expect to see practices such as VPN use, data privacy policies, employee education schemes and robust cybersecurity coming to the fore.
USA companies in China
China’s recent anti-espionage laws add another element of danger to companies operating in China or with Chinese companies. With broadened definitions of spying and increased government power, it’s important to be more vigilant than ever. With a legal basis to confiscate equipment and even prohibit movement across borders, Beijing has awarded itself with more leeway when protecting national security, the scope of which remains undefined.
How the Owl can help
The threat to companies caused by contentious relations, industrial espionage and new Chinese regulations is increasing. At Owl Consultancy Group, we provide select services tailored to the needs of your business, to minimize the threat. If your business works with or in China, you need to make sure you’re on top of your legal and technical requirements. Whether handling exports and imports or navigating intellectual property theft, let The Owl be your guide.
By taking a deep dive into geopolitical, trade and financial matters, we make sure companies like yours don’t fall on the wrong side of the law. From US-China trade and geopolitical investigations to anti-corruption and litigation support, our expert services are designed to protect you from corrupt and criminal organizations and individuals with the potential to impact your business.
