Chinese Kleptomania

The U.S. must take action to stop Chinese industrial espionage
The Washington Post

Attorney General Jeff Sessions said trade secrets stolen from an Idaho-based semiconductor company were valued at $8.75 billion. 

SPEAKING IN the White House Rose Garden in September 2015, Barack Obama and Xi Jinping announced a breakthrough. 

The United States and China pledged that neither nation “will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information for commercial advantage.” 

But Xi’s promises were always flimsy and short-lived. 

The agreement has collapsed. 

China is again trying to steal its way to greatness, and that calls for a resolute response.
The latest sign of trouble, but hardly the only sign, came in the indictments unsealed last week by the Justice Department. 

The United States charged that a state-owned Chinese company attempted to steal trade secrets from Micron, a semiconductor company based in Idaho that is the only U.S. maker of “dynamic random-access memory,” or DRAM, vital memory chips for computers, mobile devices and other electronics.
According to the indictment, one of Micron’s Taiwanese employees went to work for the Chinese company, then recruited others who brought with them 900 files that included confidential DRAM designs. 

The U.S. attorney for the Northern District of California, Alex Tse, said the haul took “some of the most advanced semiconductor technology in the world.” 

Attorney General Jeff Sessions said the stolen trade secrets were valued at $8.75 billion.
China lacked DRAM technology until recently, and the Micron case is another example of China’s quest to climb the ladder of economic development by stealing overseas technology and copying, re-engineering and manufacturing it, leapfrogging what would otherwise be decades of difficult and expensive work. 

This is not the sort of espionage seeking state secrets that all countries undertake, but a very targeted stealing to help China’s companies profit and conquer markets. 

The companies also receive robust capital infusions from the state. 

After the 2015 Rose Garden announcement, the Chinese stealing subsided for a while, so fewer U.S. companies were hit, but then the pace accelerated again in 2017.
Mr. Sessions insisted that “cheating must stop.” 

Mr. Obama had also insisted: “I indicated that it has to stop.” 

In fact, China’s industrial espionage is not a passing fancy but the pillar of a long-term drive to become a global economic, military and political power, with ambitions to rival the United States. Sadly, the hopes of the past two decades, that Beijing would become a fair competitor playing by international rules, have been dashed.
It is a good first response to indict the perpetrators in the Micron case, and for Mr. Sessions to bolster resources and attention to the threat. 

Beyond that, however, the United States must see the Chinese espionage for what it truly represents: the pursuit of superpower might by stealing the labor and investment of others. 

The economies of the United States and China are inexorably entwined, which will make confronting the espionage threat even harder. 

But it must be done. 

In the end, China will respond only to compulsion.

China's Criminal Economic Activity

With new indictment, U.S. launches aggressive campaign to thwart China’s economic attacks

By Ellen Nakashima

Attorney General Jeff Sessions announced a new initiative to combat mounting criminal economic activity by China. 

The Justice Department on Thursday unveiled a broad new initiative to combat mounting criminal economic activity by China, announcing the plan as U.S. officials unsealed charges against several individuals and Chinese and Taiwanese companies for trade-secret theft.
Thursday’s actions follow a series of moves meant to put Beijing on notice. 

The Trump administration has prioritized countering threats to U.S. national and economic security as China seeks to supplant the United States as the world’s dominant economic power. 

The administration already has imposed tariffs on $250 billion worth of Chinese goods, and since September federal prosecutors have brought charges in three intellectual property theft cases involving Chinese spies and hackers.
“Chinese economic espionage against the United States has been increasing — and it has been increasing rapidly,” said Attorney General Jeff Sessions. 

“Enough is enough. We’re not going to take it anymore.”
The initiative is significant in that it fuses ongoing efforts within the FBI, Justice Department and other federal agencies into a single coordinated initiative, and sends a clear message to Beijing that Chinese economic espionage — whether by cyber or human means — will not be tolerated, officials said. 

The Chinese embassy did not respond to a request for comment.
As both countries place greater emphasis on competition and security, the big question, analysts say, is whether the two governments can maintain commercial engagement despite increasing tensions over the quest for technological supremacy. 

In the meantime, Washington is signaling that the gloves are off.
Under the initiative, Sessions said, the department will aggressively pursue trade-secret theft cases, and develop a strategy to identify researchers and defense industry employees who’ve been “co-opted” by Chinese agents to transfer technology to China.
“China wants the fruits of America’s brainpower to harvest the seeds of its planned economic dominance,” Assistant Attorney General John Demers said. 

With this new initiative, he said, “we will confront China’s malign behaviors and encourage them to conduct themselves as they aspire to be one of the world’s leading nations.”
The indictment alleges the defendants conspired to steal trade secrets from Micron, an Idaho-based semiconductor company with a subsidiary in Taiwan. 

Micron is worth an estimated $100 billion and is the only company in the United States that makes “dynamic random-access memory,” or DRAM, high-capacity data storage used in computers, mobile devices and other electronics. 

The company has a 20 to 25 percent share of the world’s supply of DRAM, prosecutors said.
According to the indictment, the Chinese government set up a state-owned company, Fujian Jinhua Integrated Circuit Co. Ltd., for the express purpose of developing DRAM technology and sought to learn trade secrets through the criminal acts of former employees of Micron’s Taiwan branch.
In July 2015, the president of Micron’s Taiwan subsidiary, Chen Zhengkun, also known as Stephen Chen, left to join United Microelectronics Corporation, a semiconductor foundry headquartered in Taiwan. 

Some months later, in early 2016, Jinhua, the Chinese company, began discussions with United Microelectronics to forge a technology cooperation agreement, according to the indictment. 

Chen helped negotiate the agreement, and in early 2017 became president of Jinhua in charge of its DRAM factory, prosecutors said.
It was Chen, who orchestrated the theft of trade secrets from Micron worth up to $8.75 billion.
Chen is said to have recruited former colleagues, including defendant He Jianting, or J.T. Ho, a Taiwanese national, who before leaving Micron stole confidential DRAM materials.

Chen also brought on defendant Kenny Wang, a Micron manager and Taiwanese national who stole more than 900 files, some containing confidential DRAM designs.

Wang downloaded secrets from Micron’s servers in the United States and stored them on his Google Drive account, the indictment said.
“This was,” said U.S. Attorney for the Northern District of California Alex Tse, “some of the most advanced semiconductor technology in the world.”
If convicted, the defendants face up to 14 years in prison and $5 million in fines. 

The two companies, United Microelectronics and Jinhua, could face fines worth more than $20 billion. 

The three men charged Thursday are in China, U.S. officials said.
This week, the Commerce Department added Jinhua to its “entity list” to prevent it from buying goods and services in the United States, effectively cutting it off from the U.S. market. 

Without equipment sold only in the United States, Jinhua cannot build the DRAM chips.
The Justice Department on Thursday also filed a civil suit in San Francisco seeking to stop the further transfer of these stolen trade secrets and to prevent the defendants from exporting to the United States any products resulting from the theft.
“We are not just reacting to crimes — we are acting to block the defendants from doing any more harm to Micron,” Sessions said.
The attorney general outlined a number of laws that prosecutors would use, including the Foreign Agents Registration Act, to identify unregistered agents seeking to advance China’s political agenda.
Congress in August passed the Foreign Investment Risk Review Modernization Act to expand the government’s power to review investments from foreign countries — a response to China’s efforts to obtain U.S. technology through mergers, acquisitions and takeovers. 

Last month, the Treasury Department released interim rules to implement the new law. 

Sessions said the Justice Department will work with Treasury on further developing those regulations.
The Justice Department also will target Chinese threats to U.S. companies that provide components for sensitive technologies, especially those in the telecommunications sector as it readies for the transition to 5G networks.
“This is consistent with the state of confrontational actions over the last couple of weeks taken by the administration to tackle everything China’s trying to do,” said Samm Sacks, a senior fellow at the Center for Strategic and International Studies. 

“It’s bigger than intellectual property theft. It’s supply chain risk. It’s China’s efforts to be global leaders in 5G. It’s traditional espionage. It’s influence operations. This is part of a much broader whole-of-government approach to countering China’s efforts to gain strategic advantage, particularly in emerging technology.”
Sessions noted that earlier this year, U.S. Trade Representative Robert E. Lighthizer found that Chinese sponsorship of hacking into American businesses has gone on for more than a decade. 

By some estimates, the cost to the U.S. economy is $30 billion annually. 

Chinese pledge

In September 2015, Chinese dictator Xi Jinping pledged that China would not target U.S. companies for the economic benefit of nonmilitary Chinese companies.
“Obviously that commitment has not been met,” Sessions said.
Dmitri Alperovitch, a cyber expert and chief technology officer at the cybersecurity firm CrowdStrike, said the Chinese military curtailed its commercial hacking in 2016 but that over the past year, operatives affiliated with China’s Ministry of State Security have increasingly taken up the slack, stealing military, medical, agricultural, high-tech and other secrets.
For months, the Trump administration has been considering ways to decouple the U.S. and Chinese tech sectors: restricting visas for Chinese students in the scientific, engineering and math fields, banning Chinese telecommunications equipment companies from U.S. 5G networks, expanding export controls on U.S. tech firms, and increasing official scrutiny of Chinese investments and joint U.S.-Chinese research, Sacks said.
“This initiative is an important set of hammer blows against China’s efforts to disadvantage American companies, steal their intellectual property, and exercise unwanted influence in our universities and political system,” said James Mulvenon, a China expert and general manager of SOS International’s Special Programs Division, which provides consulting services to intelligence and defense agencies.

Chinese Firm, Taiwanese Partner Steals Trade Secrets From Micron

Indictment is announced alongside wide-ranging initiative to combat Chinese theft of critical U.S. technology
By Aruna Viswanatha, Kate O’Keeffe and Dustin Volz

The indictment, unsealed Thursday, is the latest in a flurry of charges targeting massive Chinese technology theft.

The Justice Department unsealed charges Thursday against a Chinese state-owned firm and its "Taiwan partner" for stealing trade secrets from the U.S.’s largest memory-chip maker, Micron Technology Inc.
The indictment, announced alongside a wide-ranging U.S. initiative to combat Chinese national security threats, is the latest in a flurry of charges targeting Chinese technology theft.
The case, which follows related criminal charges filed by Taiwanese authorities last year, charges United Microelectronics Corp. , a Taiwan semiconductor foundry that is publicly traded on the New York Stock Exchange; Chinese state-owned Fujian Jinhua Integrated Circuit Co.; and three Taiwan nationals.
Attorney General Jeff Sessions also condemned China for clear violations of an accord reached with the Obama administration under which both governments agreed not to support cyberattacks to steal corporate secrets from one another.
“In 2015, China committed publicly that it would not target American companies for economic gain,” Mr. Sessions said. 

“Obviously, that commitment has not been kept.”
According to the indictment, one of the defendants was a former Micron employee in Taiwan who moved to UMC in 2015 and recruited the two other individuals who were charged to join him and bring Micron’s trade secrets with them. 

The ringleader arranged for UMC to partner with Jinhua, where he then went to work, to develop the same technology, the indictment says.
Representatives for Jinhua and the Chinese Embassy in Washington, D.C., didn’t immediately provide comment. 

A lawyer for UMC declined to comment. 

The individuals, who are not in U.S. custody and believed to be overseas, couldn't be located for comment.
Micron praised the indictments in a statement, saying it has invested billions of dollars over decades to develop its intellectual property.
The unsealing of the indictment, obtained in September and made public Thursday, comes just days after the Commerce Department dealt a potentially fatal blow to Jinhua by barring exports and transfers of U.S.-origin technology to the firm, which depends on the technology to produce its own chips. 

Jinhua, a startup backed by $5.7 billion in state funds, is a key part of China’s plan to build a world-class semiconductor industry and wean itself off a dependence on foreign technology.
The Justice Department also filed a civil action to prevent UMC and Jinhua from exporting the allegedly stolen technology to the U.S. to compete with U.S. chip firms. 

“We are not just reacting to the crimes... We are acting to block the defendants from doing more harm to our United States-based company, Micron,” Mr. Sessions said.

Also on Thursday, Mr. Sessions announced a new “China initiative” to better combat theft of trade secrets, bribery, illegal Chinese lobbying and business deals that could give Chinese investors access to critical U.S. technology.
Mr. Sessions said that as part of the initiative, a new working group of Justice Department officials, including the top federal prosecutors from districts in California, Texas and other states, would increase law-enforcement engagement with U.S. universities, where the Justice Department believes Chinese Communist party initiatives target technology and threaten academic freedom.
U.S. officials have stepped up pressure on Beijing over what they describe as a wide-ranging campaign to improperly obtain critical U.S. technology. 

Earlier this week, federal prosecutors unsealed charges against two Chinese intelligence officers and eight others who worked with them on a yearslong campaign to steal information about a commercial aircraft engine being developed by a U.S. and a French firm.
“Taken together, these cases, and many others like them, paint a grim picture of a country bent on stealing its way up the ladder of economic development, and doing so at American expense,” said John Demers, who heads the Justice Department’s national security division.
With a mix of cyberattacks and on-the-ground recruiting, Beijing’s corporate raiding costs the U.S. economy hundreds of billions of dollars annually.

FBI officials say the agency has active economic espionage investigations leading back to China in all 56 FBI field offices that span nearly every industry and sector.
On Thursday, the FBI’s deputy director David Bowdich said China poses one of the “broadest, most complicated and longest-term threats we face,” and highlighted company insiders, students, and academics who share research results with people not authorized to receive them as the types of spies the FBI is concerned about.
The administration’s renewed focus on rooting out Chinese spies in the scientific community has caused concern among Sino-American suspects.

The sharp rhetoric from senior Justice Department officials contrasted with Trump’s description of a “long and very good call” earlier Thursday with Chinese dictator Xi Jinping, on topics including trade and North Korea.
The Justice Department action against UMC and Jinhua comes after Micron in December sued the companies in a federal court in California, alleging they stole its talent and trade secrets. 

Jinhua contests the claim and the case is continuing.
Jinhua then sued Micron in January in a court in China’s Fujian province—whose government partly controls Jinhua—and won a temporary order blocking Micron units from selling products in China on which each company claims patents. 

Micron has said Jinhua’s suit was a bogus retaliation measure and has criticized Beijing over its treatment.
Among the files pilfered from Micron are hundreds of pages of documents and large Microsoft Excel spreadsheets containing precise design specifications for the architecture of various dynamic random access memory, or DRAM, products. 

Micron is the only U.S.-based company to manufacture DRAM devices, and the value of the stolen intellectual property was at least $400 million and as high as $8.75 billion, according to the indictment.
Thursday’s allegations also added to a growing consensus that China is in violation of the 2015 bilateral pact between Xi Jinping and then-President Obama on cybertheft. 

Officials said that even if the Micron case wasn’t itself a cyber matter, it involved insiders stealing information with the help of cybertools.
U.S. intelligence officials and several private-sector cybersecurity firms believe the accord led to a light decline in Chinese corporate espionage through hacking, but that the malicious activity has returned since Mr. Trump took office as hostilities over trade and other issues have escalated.
Idaho-based Micron, valued at about $100 billion, owns a 20% to 25% share of the dynamic random access memory industry, a computer technology the Chinese didn’t possess until very recently, Mr. Sessions said.

China's ZTE pleads guilty, settles U.S. sanctions case for nearly $900 million

"ZTE Corporation not only violated export controls that keep sensitive American technology out of the hands of hostile regimes like Iran's, they lied about their illegal acts." -- U.S. Attorney General Jeff Sessions
By Karen Freifeld and Sijia Jiang | NEW YORK/HONG KONG

Chinese telecom equipment maker ZTE Corp has agreed to plead guilty and pay nearly $900 million in a U.S. sanctions case, drawing a line under a damaging scandal that had threatened its cut off its supply chain.
While the fine was larger than expected, ZTE, also a major smartphone maker, reported robust underlying earnings for 2016 and was upbeat in estimates for the first quarter.
That and the resolution of the case helped its Hong Kong-listed shares surge 6 percent.
A five-year investigation found ZTE conspired to evade U.S. embargoes by buying U.S. components, incorporating them into ZTE equipment and illegally shipping them to Iran.
In addition, it was charged in connection with 283 shipments of telecommunications equipment to North Korea.
"ZTE Corporation not only violated export controls that keep sensitive American technology out of the hands of hostile regimes like Iran's, they lied ... about their illegal acts," U.S. Attorney General Jeff Sessions said in a statement.
ZTE relies on U.S. suppliers for 25 percent to 30 percent of its components, many of which are key to its goods.
It purchases about $2.6 billion worth of components a year from U.S. firms, according to a company spokesman.
Qualcomm, Microsoft and Intel are among its suppliers.
"ZTE acknowledges the mistakes it made, takes responsibility for them, and remains committed to positive change in the company," ZTE Chief Executive Zhao Xianming said in a statement.
The company agreed to a seven-year suspended denial of export privileges, which could be activated if there are further violations, as well as three years of probation, a compliance and ethics program, and a corporate monitor.
It also agreed to an additional penalty of $300 million that will be suspended during the seven-year term on the condition the company complies with requirements in the agreement.
When asked about the ZTE case, Chinese Foreign Minister Wang Yi said relevant departments of the government would continue to pay attention as to whether Chinese firms were receiving fair treatment.
Tim O'Toole, a Washington D.C.-based lawyer with Miller & Chevalier specializing in sanction cases, said U.S. court documents suggest ZTE's attempts to obstruct the investigation were the main reason for a penalty significantly higher than in similar cases.
"What seems really important to U.S. regulators is whether a company or individual after the investigation starts is seen to continue to evade the sanctions and also obstruct the investigation," he said.
The investigation, spearheaded by the U.S. Department of Commerce, followed reports by Reuters in 2012 that ZTE had signed contracts to ship millions of dollars worth of hardware and software from some of the best-known U.S. technology companies to Iran's largest telecoms carrier.
Last year, the Commerce Department released internal documents showing senior ZTE executives instructing the company to carry out a project for dodging export controls in Iran, North Korea, Syria, Sudan and Cuba.
ZTE has replaced executives allegedly involved, including naming a new president.
The company said on Wednesday it slid to a preliminary net loss of 2.36 billion yuan ($342 million) in 2016, its first loss in four years, due to the settlement.
But without the fine, it would have logged 3.8 billion yuan in profit, 18 percent higher than a year earlier.
That was better than expected, as was a preliminary estimate for the first-quarter net profit rising between 21 and 31 percent, said Cindy Lam, an analyst with UOB Kay Hian in Hong Kong.
The settlement includes a $661 million penalty to Commerce; $430 million in combined criminal fines and forfeiture; and $101 million paid to the Treasury's Office of Foreign Assets Control (OFAC). 
The action marks OFAC's largest-ever settlement with a non-financial entity.
The Commerce Department will recommend ZTE be removed from a list of entities that U.S. firms cannot supply without a license if it lives up to its deal and a court approves its agreement with the Justice Department.
First placed on the list in March 2016, it has continued to do business with U.S. suppliers under a temporary general license that has been extended several times, with the latest reprieve expiring March 29.
The company's guilty pleas, which must be approved by a judge, will take place in U.S. District Court in Texas.

"He's promised to label China a currency manipulator on his first day in office. We're still waiting." -- Chuck Schumer

Schumer presses Trump to label China a currency manipulator
By BURGESS EVERETT

"He's promised to label China a currency manipulator on his first day in office. We're still waiting. Last night at the White House I mentioned this to the president. He didn't say no," Chuck Schumer said. 

Chuck Schumer desperately wants to know whether Donald Trump will label China a currency manipulator, as he promised to do during the campaign.
The Senate minority leader said Tuesday that he challenged the new president about his promise to crack down on China on his first day in office, which Trump did not do despite previous campaign pledges. 

But Schumer (D-N.Y.) also said that Trump didn't rule out doing so. 

"He's promised to label China a currency manipulator on his first day in office. We're still waiting. Last night at the White House I mentioned this to the president. He didn't say no," Schumer said on the Senate floor. 

"I'm not going to say what he said. He didn't say no. Maybe he'll do it. I hope and pray he does."

A group of senators in both parties, including Trump's attorney general nominee Sen. Jeff Sessions (R-Ala.), have long pressed the United States to label China a currency manipulator. 

In the past, the Chinese government made its currency artificially low, though the country has backed off that stance in recent years.
But Democrats are looking to hold Trump to his campaign pledges. 

And on the issue of trade with China, it's one place where party leaders agree with how Trump campaigned.
"We were opposed frankly by both President Bush and President Obama. And now we have President Trump," Schumer said. 

"We await real action on trade."