Zero Genie

It was an innocuous-looking photograph that turned out to be the downfall of Zheng Xiaoqing, a former employee with energy conglomerate General Electric Power.

According to a Department of Justice (DOJ) indictment, the US citizen hid confidential files stolen from his employers in the binary code of a digital photograph of a sunset, which Mr Zheng then mailed to himself.

It was a technique called steganography, a means of hiding a data file within the code of another data file. Mr Zheng utilised it on multiple occasions to take sensitive files from GE.

GE is a multinational conglomerate known for its work in the healthcare, energy and aerospace sectors, making everything from refrigerators to aircraft engines.

The information Zheng stole was related to the design and manufacture of gas and steam turbines, including turbine blades and turbine seals. Considered to be worth millions, it was sent to his accomplice in China. It would ultimately benefit the Chinese government, as well as China-based companies and universities.

Zheng was sentenced to two years in prison earlier this month. It is the latest in a series of similar cases prosecuted by US authorities. In November Chinese national Xu Yanjun, said to be a career spy, was sentenced to 20 years in prison for plotting to steal trade secrets from several US aviation and aerospace companies – including GE.

It is part of a broader struggle as China strives to gain technological knowhow to power its economy and its challenge to the geopolitical order, while the US does its best to prevent a serious competitor to American power from emerging.

The theft of trade secrets is attractive because it allows countries to “leapfrog up global value chains relatively quickly – and without the costs, both in terms of time and money, of relying completely on indigenous capabilities”, Nick Marro of the Economist Intelligence Unit told the BBC.

Last July FBI director Christopher Wray told a gathering of business leaders and academics in London that China aimed to “ransack” the intellectual property of Western companies so it can speed up its own industrial development and eventually dominate key industries.

He warned that it was snooping on companies everywhere “from big cities to small towns – from Fortune 100s to start-ups, folks that focus on everything from aviation, to AI, to pharma”.

At the time, China’s then foreign ministry spokesman Zhao Lijian said Mr Wray was “smearing China” and had a “Cold War mentality”.

In the DOJ statement on Zheng, the FBI’s Alan Kohler Jr said China was targeting “American ingenuity” and seeking to “topple our status” as global leader.

Zheng was an engineer specialising in turbine sealing technology and worked on various leakage containment technologies in steam turbine engineering. Such seals optimise turbine performance “whether by increasing power or efficiency or extending the usable life of the engine”, the DOJ said.

Gas turbines that power aircraft are central to the development of China’s aviation industry.

Aerospace and aviation equipment are among 10 sectors that the Chinese authorities are targeting for rapid development to reduce the country’s dependence on foreign technology and eventually surpass it.

But Chinese industrial espionage is targeting a wide range of other sectors too.

According to Ray Wang, founder and CEO of Silicon Valley-based consultancy Constellation Research, they include pharmaceutical development and nanotechnology – engineering and technology conducted at the nanoscale for use in areas such as medicine, textiles and fabrics and automobiles. A nanometre is a billionth of a meter.

It also includes pharmaceuticals, bioengineering – mimicking biological processes for purposes such as the development of biocompatible prostheses and regenerative tissue growth.

Mr Wang cited an anecdote by a former head of research and development for a Fortune 100 company, who told him that “the person he entrusted the most” – someone so close that their children grew up together – was eventually found to be on the payroll of the Chinese Communist Party.

“He kindly explained to me that the spies are everywhere,” he said.

In the past industrial espionage from countries such as Japan, South Korea, Taiwan and Singapore was a concern, Mr Marro said. However once indigenous firms emerge as innovative market leaders in their own right – and so start to want to protect their own intellectual property – then their governments start passing legislation to take the issue more seriously.

“As Chinese firms have become more innovative over the past decade, we’ve seen a marked strengthening of domestic intellectual property rights protection in tandem,” Mr Marro said.

China has also gained expertise by making foreign companies hand over technology under joint venture agreements in exchange for access to the Chinese market. Despite complaints the Chinese government has always denied accusations of coercion.

There have been attempts to rein in hacking specifically.

In 2015 the US and China struck a deal in which both sides pledged not to carry out “cyber-enabled theft of intellectual property, including trade secrets or other confidential business information for commercial advantage”.

By the following year, the US National Security Agency had accused the Chinese of violating the agreement, although it did acknowledge that the quantity of attempts to hack government and corporate data had dropped “dramatically”.

But observers say the deal’s overall impact has been minimal. Mr Wang said it was a “joke” due to a lack of enforcement. Chinese cyber-espionage in the US has been “pervasive” and extends to academic labs. “It has been going on in every aspect of Western businesses,” he told the BBC.

However Lim Tai Wei from the National University of Singapore noted that there were no “definitive uncontested studies” on the extent of the phenomenon.

“Some believe that there was a short dip in Chinese cyber espionage against the US, but resumed its former level thereafter. Others believe it failed due to the overall breakdown in US-China relations,” he said.

Meanwhile the US is now directly trying to block China’s progress in the key semiconductor industry – vital for everything from smartphones to weapons of war – saying China’s use of the technology poses a national security threat.

In October, Washington announced some of the broadest export controls yet, requiring licences for companies exporting chips to China using US tools or software, no matter where they are made in the world. Washington’s measures also prevent US citizens and green card holders from working for certain Chinese chip companies. Green card holders are US permanent residents who have the right to work in the country.

Mr Marro says that while these measures will slow China’s technological advance, they will also accelerate China’s efforts to remove US and other foreign products from its tech supply chains.

“China has been trying to do this for years, with muted success, but these policy goals now command greater urgency as a result of the recent US controls,” he said.

With China also invoking its own national security, the scramble for a technological edge between the world’s two biggest economies is only likely to intensify further.

But Mr Wang reckons that the US still holds the advantage.

“My cyber-security friends tell me when they hack Chinese sites, the only worthwhile tech [they can find there] is US intellectual property,” he said.