Rogue Nation

China's Secret Weapon: Hacking
By Peter Pham 

Everywhere around the world, we hear many David and Goliath stories of the small defeating the big. We’ve read about how smaller groups of determined soldiers, such as those in the battle of Marathon, were able to beat larger armies. 

As a result, this topic was milked by the movie industry.

But more often than not, it’s the bigger guy who wins.
But how can the smaller guy beat the bigger fella? 

Simply by turning the table around. 

Facing someone twice your size head-on is usually a bad idea, so if you want to win, you’ll have to outsmart and outmaneuver your opponent.

No More Analog Weapons
Conventional warfare is when two armies meet each other on the battlefield.
But the time for conventional warfare is over.

After the U.S.S.R. collapsed (following the end of the Cold War), the United States became the sole superpower. 

Winning against the U.S. through conventional warfare is a lost cause, simply because facing American troops head-on is suicidal.
That means other countries have to use other methods when facing Uncle Sam.
Yet Asia-Pacific had done so, including Japanese kamikaze pilots during WW2 and Vietnamese guerillas during the Vietnam War. 

Nowadays, China is following an entirely different route as it builds tension in the South China Sea.

China and “acupuncture” warfare

Although China’s military is growing quickly, it pales against the U.S. regarding defense spending and conventional weapons.

From what we wrote before, China’s defense budget is only a third of that from the U.S., and it’s naval and air power clearly lag behind.
Then what can China do in order to build up its influence in the South China Sea while holding back U.S.’s power? 

Despite having 2.3 million troops, China isn’t looking to send its soldiers all over the world, the way America does. 

That means it doesn’t have to compete against that U.S. in the same weight class, specifically in terms of number of aircraft carriers or other ships.
What China is after is called “acupuncture” warfare. 

This includes researching and developing weapons that can disarm and disable threats with pinpoint accuracy.

Digital warfare in the South China Sea
To project power to the world, every superpower, from Ancient Rome to the British Empire, built huge armies. 

But that isn’t the case anymore. 

China doesn’t want to follow the U.S.’s footsteps and station thousands of soldiers overseas.
China is investing in technologies and tactics that can neutralize enemies. 

Even though it has the world’s largest armed forces, China wouldn’t want to light a cigarette with a blowtorch.
China has a wide variety of weapons in its arsenal, from ballistic and cruise missiles to high-tech air platforms and other precision weapons. 

But these analog weapons won’t stand a chance against digital warfare. 

Therefore, China is also investing in electronic-based weapons that can deactivate enemies’ communications and computer networks.
So far, there are groups in China who specialize in digital espionage: government specialist teams, non-governmental forces trained for covert network-warfare operations and a specialized network from the Chinese military. 

The graph below points out that China is the world’s second biggest source of digital espionage.

Chinese hackers mostly target Singapore, Japan, South Korea, and every country involved in the South China Sea conflict.

These three groups are able to hack and digitally cripple networks from other countries. 

That means China can separate foreign networks and steal vital information from its enemies.

What’s worth noting is that top-secret digital espionage is meant to be secretive. 

There’s a reason why James Bond is an undercover agent. 

However, what we learn from the media about China’s capabilities is just the tip of the iceberg.
In 2013, the Australian news broadcasted that Chinese hackers had obtained blueprints of the Australian Security Intelligence Organization headquarters (Australia’s version of the FBI). 

Chinese hackers were also to blame for hacking India’s National Security Council.
The United States has also pointed fingers at China for digitally spying on many American commercial, industrial, research, armed forces and other interests. 

Meanwhile, China (unsurprisingly) dismissed these accusations and claimed that the U.S. has “Sinophobia”.
China’s digital espionage does not just target the United States. 

In fact, this is one of China’s most useful weapons against countries in the South China Sea region. 

Reuters reported just a month ago that Chinese digital attacks against the Vietnamese government and local companies has become more frequent.
South Korea saw over 8,000 hackings for the first six months of 2017. 

Yet that was equal to the total number of hacks in 2016! 

South Korean news reported that from 2016 to 2017, the percentage of hackings from China rose from 50 to 75 percent. 

This was China’s retaliation towards South Korea, because the latter decided to protect its homeland by having a controversial anti-missile defense on its norther border.

Warfare Has Evolved
The graph below points out that companies that operate in the field of tech and innovation (whose tickers are tracked by the Nasdaq Cybersecurity Index) have performed better since 2016, even outpaced S&P 500 Index:

Unsurprisingly, the tech and innovation sectors are getting more profitable, because not only are there more hackers, but also that states and firms have to purchase a way to protect themselves against hacking. 

The table below lists out companies that are operating in the Asia-Pacific region:

Asia-Pacific pioneered guerilla tactics in the past. 

Now, it’s developing a unique form of warfare, where enemies can be neutralized thousands of miles away (possibly from an office building in Beijing). 

Just a flip of a switch can turn trillions of dollars of U.S. hardware into scrap metal.
However, this also allows us to profit from tech companies that are involved in the South China Sea.