China's Cyberattacks

Chinese hacker who obtained details of 78 million people is charged in US with one of the worst data breaches in history
by Robert Delaney

This photo provided by the FBI shows a wanted poster of Wang Fujie (left). The US Justice Department says a grand jury has indicted Wang and another man identified only as John Doe for hacking into the computers of health insurer Anthem Inc and three other, unnamed companies, in an indictment unsealed May 9, 2019, in Indianapolis. 

A US federal grand jury on May 9 charged a Chinese national in a hacking campaign described by the Justice Department as “one of the worst data breaches in history”, an effort that yielded the personal data of 78 million people.
Wang Fujie, also known as Dennis Wang, and another individual in the indictment, have infiltrated the US-based computer systems of US health insurer Anthem and three other companies, the Justice Department said in a statement on May 9.
“The allegations in the indictment unsealed today outline the activities of a brazen China-based computer hacking group that committed one of the worst data breaches in history,” Assistant Attorney General Brian Benczkowski, said in the announcement.
“These defendants attacked US businesses operating in four distinct industry sectors, and violated the privacy of over 78 million people by stealing their [personally identifiable information].”
The indictment was the latest in a series of efforts by the US Federal Bureau of Investigations to tackle hacking operations and cybertheft emanating from China.

The bureau has become increasingly vocal about the country.
The second suspect, who was identified in court documents as John Doe and through aliases including Zhou Zhihong, conducted the hacking activities in China.
The other three companies affected by the hacks, conducted between February 2018 and January 2019, operated in the technology, basic materials and communication services sectors, according to the department.
Information taken from the companies included health identification numbers, birth dates, social security numbers, addresses, telephone numbers, email addresses, and employment information.
Wang and Doe obtained personal information by installing malware on the victim companies’ computers systems through “spearfishing” emails sent to the companies’ employees, according to the indictment, which was filed with the Indianapolis division of the federal court’s Southern District of Indiana, where Anthem is based.

The information obtained by the defendants was encrypted and sent through multiple computers to destinations in China. 

The files installed in the victim companies’ computers systems were then deleted.
Anthem and the other US companies involved notified the FBI when they became aware of the operation, allowing the federal investigators to monitor the activity and trace it to the defendants, according to the Justice Department.
The FBI has worked closely with companies in recent years to respond to attempts by Chinese to steal information from US companies. 

GE Aviation, for example, had worked with the bureau for more than a year to lure Xu Yanjun, a spy working for China’s Ministry of State Security, into a law enforcement trap in Belgium last year. Xu was then extradited to the US and is now awaiting trial.
According to Xu’s indictment filed in the Southern District of Ohio, the MSS officer sought GE Aviation technology used in the development of fan blades and engine encasements.
FBI Director Christopher Wray has been an outspoken critic of China since he assumed his post in 2017.
Last year, Wray accused Beijing of increasing its use of “non-traditional collectors” – such as professors, scientists and students – for its intelligence gathering.
“One of the things we’re trying to do is view the China threat as not just a whole-of-government threat but a whole-of-society threat on their end, and I think it’s going to take a whole-of-society response by us,” Mr Wray testified at a Senate hearing in February 2018.
Eight months later at another hearing, Mr Wray declared China “the broadest, most complicated, most long-term” counter-intelligence threat confronting the US – surpassing even Russia, whose interference in the 2016 election dominated headlines for more than two years and continues to roil the country.
Speaking at a separate Senate hearing in December, Bill Priestap, the FBI’s assistant director of counter-intelligence, also called for more coordinated action to counter espionage and cybertheft originating in China.
“There are pockets of great understanding of the threat we’re facing and effective responses, but in my opinion we’ve got to knit that together better,” he said.
Warning against what he called “ad hoc responses”, Priestap added: “We need more people in government, more people in business, more people in academia pulling in the same direction to combat this threat effectively.”

CHINA'S 5 STEPS FOR RECRUITING SPIES

US Stupidity Enabling Chinese Spies to Steal Tons of US Defense and Trade Secrets
By Garrett M. Graff
BEWARE OF CHINESE spies offering laptops, women, or educational stipends—and especially watch out for odd LinkedIn requests.
On Tuesday, the Justice Department unsealed new charges against 10 Chinese intelligence officers and hackers who perpetrated a years-long scheme to steal trade secrets from aerospace companies.

The case continues an impressive tempo from the Justice Department, as it continues to try curb China's massive, wide-ranging, and long-running espionage campaign. 

In fact, it's the third time since September alone that the US government has charged Chinese intelligence officers and spies, including one of its biggest coups in years: The extradition earlier this month of a Chinese intelligence officer, caught in Europe, who will face a US courtroom.
That arrest marks the first time the US has prosecuted an officer of China's Ministry of State Security. The feds believe that the suspect, Yanjun Xu, spent years cultivating a person he thought was a potential asset inside GE Aviation, which makes closely held jet engine technology.
While historic, the GE Aviation case hardly stands as an outlier. 

Chinese espionage against the US has emerged over the past two decades as the most widespread, damaging, and pernicious national security threat facing the country—compromising trade secrets, American jobs, and human lives.
Even as popular culture and public attention has focused in the past decade on a few high-profile cases against Russian intelligence operations, China’s spying efforts have yielded a more steady stream of incidents. 

Over the last 15 years, dozens of people have been arrested, charged, or convicted of economic or military espionage for China. 

In just the 28-month period that a notorious Russian spy ring unraveled around 2010, US officials charged and prosecuted more than 40 Chinese espionage cases, according to a Justice Department compilation.
The majority of Chinese espionage cases over the years have involved ethnic Chinese, including Chinese students who came to the US for college or advanced degrees, got hired at tech companies, and then absconded back to China with stolen trade secrets. 

Historically, very few Chinese spying cases have featured the targeting or recruitment of Westerners. But this year has seen a rash of cases of Sino-Americans recruited to spy on China’s behalf, encouraged to turn over sensitive military, intelligence, or economic information—at least one of which started with a simple LinkedIn message.
Sifting through more than a dozen of the major cases that have targeted Westerners, though, provides an illuminating window into how China recruits its spies. 

The recruitment follows a well-known five-step espionage road map: Spotting, assessing, developing, recruiting, and, finally, what professionals call “handling.”

Stage 1: Spotting
The first step in any espionage recruitment is simply knowing the right people to target. 

That job often falls to what intelligence professionals call a “spotter,” a person who identifies potential targets, then hands them off to another intelligence officer for further assessment. 

These spotters, sometimes friendly officials at think tanks, universities, or corporations, are often separate from the intelligence officers who ultimately approach potential spies, allowing a level or two of remove. 

They sometimes have such “deep cover” that they are considered too valuable to make a recruitment approach directly, leaving that work to a cut-out who could more easily disappear if the recruitment pitch is rejected.
In that vein, last week’s Yanjun Xu indictment ties in to another little-noticed September arrest, where the FBI charged a 27-year-old Chinese citizen and Chicago resident with acting as an unregistered foreign agent for China—the federal criminal charge that prosecutors often use as code for spying. That man, Ji Chaoqun, had arrived in the United States in 2013 to study electrical engineering at the Illinois Institute of Technology, and had subsequently enlisted in the Army Reserves.
Yet according to the government’s criminal complaint, Ji Chaoqun had less pure motives at heart than service: He had been recruited at a Chinese job fair while in college to join a “confidential unit” and work as a “spotter” for Yanjun Xu, helping the MSS officer identify potential recruits and providing background reports on at least eight potential spies. 

In a 2015 email, Ji Chaoqun wrote that he was enclosing “eight sets of the midterm test questions for the last three years,” according to court documents. 

He attached eight PDFs of background reports downloaded from sites like Intelius, Instant Checkmate, and Spokeo, which compile public records on individuals for purchase online. (The sites limit purchases to US-based consumers, so they were inaccessible to Yanjun Xu himself.)
All eight of the targeted individuals were ethnic Chinese who worked in science or technology. 

Seven of them were either currently employed or had recently retired from US defense contractors, according to the US government.
“Spotting” doesn’t necessarily have to involve human targets; an article in the November issue of WIRED, excerpted from the new book Dawn of the Code War, outlines the US pursuit of the Chinese spy Su Bin, who was captured in Canada in 2014 after working for years as a technical “spotter” for Chinese military intelligence officers.                         

Su, an aviation expert, would examine stolen file directories hacked by Chinese intelligence to point them to the most valuable and relevant documents, helping them navigate massive troves of files on secret projects like the US development of the C-17 military transport plane.

Chinese intelligence officer of China's Ministry of State Security Xu Yanjun was extradited to the US with help from Belgian authorities for seeking to steal trade secrets and other sensitive information from an American company that leads the way in aerospace.

Stage 2: Assessing
Once intelligence officers identify potential recruits, they then examine how they might encourage those targets to spy. 

Professionals often summarize the motives for espionage with the acronym MICE: money, ideology, coercion, and ego. 

Spies want to be paid for their work, or believe in the cause, or can be blackmailed, or want the ego boost that comes with leading a double life.
While it often relies on ideology or coercion in pressuring ethnic Chinese to spy on its behalf abroad, China has proved particularly successful in luring Westerners with cash. 

In June of this year, FBI agents arrested a Utah man as he prepared to fly to China and charged him with attempting to pass national defense information to China. 

The felony complaint says that Ron Rockwell Hansen, a former Defense Intelligence Agency officer, had been struggling financially, living primarily off his $1,900-a-month DIA pension and facing debts of more than $150,000. 

In 2014, Rockwell allegedly began meeting with two MSS officers—who introduced themselves to him as “David” and “Martin." 

During one 2015 business trip to China, they offered him up to $300,000 a year for “consulting services.” 

Hansen was, according to the government, to “attend conferences or exhibitions on forensics, information security, and military communications and to conduct product research.” 

The money, in turn, would be funneled to him by David and Martin by “overpaying him for purchases of computer forensic products.”
Hansen attended defense and intelligence conferences, on China’s behalf, for nearly four years, from 2013 through 2017. 

He took photos, made notes, and tried to strike up contact with former DIA and intelligence colleagues. 

He also purchased restricted forensics software to transport to China.
All told, according to the complaint, Hansen made 40 trips to China between 2013 and 2018, often returning with tens of thousands of dollars in cash—four trips cited by the government netted him $19,000, $30,000, $20,000, and, in 2015, $53,000. 

Ultimately, court documents show that Hansen received upwards of $800,000 from Chinese sources. 

Hansen pleaded not guilty to 15 counts in July.
In another major corporate espionage case that dates back to 2011, a grand jury indicted the Sinoval Wind Group, a Chinese company, for trade secret theft and wire fraud related to its partnership with American Superconductor. 

The indictment specifically alleged that Sinoval stole American Superconductor's source code for its wind turbine, recruiting an employee to betray the Massachusetts-based company with promises of wealth and women. 

The two firms had been working together on massive wind farms in China; American Superconductor provided the software for the turbines, while Sinovel manufactured the turbines and did the construction work.
American Superconductor managers had heard horror stories of American companies having their intellectual property stolen by Chinese business partners, so the company went to great lengths to lock down its software and allow access only by its own employees. 

Chinese spy Dejan Karabasevic

Sinovel, instead, recruited Dejan Karabasevic, a Serbian employee based in Austria, to out-and-out steal the source code. 

Karabasevic pleaded guilty in an Austrian court in 2011.

“They offered him women. They offered him an apartment. They offered him money. They offered him a new life,” the head of American Superconductor, Daniel McGahn, later told 60 Minutes.
Karabasevic was quite clear about his motives: As detailed in court documents, he wrote in one email to his new Chinese business partners, “All girls need money. I need girls. Sinovel needs me.” 

The Chinese firm ultimately offered Karabasevic $1.7 million to steal the turbine source code. 

He wrote to Sinovel in one text message: “I will send the full code of course.”
American Superconductor only became aware of the theft when its engineers noticed that some of the turbines being installed in Sinovel’s large wind farms in China were running a version of the operation software that hadn’t yet been released; by then, it was too late. 

The collapse of the partnership forced the company to lay off 600 of its 900 employees; a federal jury found Sinovel guilty on counts of theft of trade secrets and wire fraud in January of this year.

Spies for China. The Indian-American Noshir Gowadia; the Chinese-American Wenxia Man and the Chinese-Canadian Su Bin. 

Stage 3: Developing
Intelligence officers generally don’t lead off by asking potential sources to betray their country or their employer. 

The third stage of espionage recruitment, instead, is known as “developing,” when recruiters begin to ask for trivial requests or favors to establish rapport. 

As former CIA director John Brennan said last year, “Frequently, people who go along a treasonous path do not know they are on a treasonous path until it is too late.”
In one of its more daring efforts in recent years, Chinese intelligence tried to place an ambitious China-loving American student inside the CIA, hoping that the would-be mole could rise through the undercover ranks of the agency.

A shot of Glenn Duffie Shriver from the FBI's video.

Glenn Duffie Shriver, a student from outside Richmond, Virginia, had become intrigued with China during a 45-day summer study abroad program in 2001. 

He later returned for his junior year abroad, becoming fluent in Chinese, and moved to Shanghai, where he acted in Chinese films and commercials. 

Around 2004, he responded to a newspaper ad asking for someone to write a white paper about trade relations between the US, North Korea, and Taiwan; the woman who hired him, calling herself “Amanda,” paid him $120 for the essay. 

She told him she liked the work and asked if he’d be interested in more—and then introduced him to two men, “Mr. Wu” and “Mr. Tang.”
Over time, those two encouraged Shriver to return to the US to join either the State Department or the CIA. 

“We can be close friends,” they told him. 

Shriver flunked the foreign service exam twice, but the MSS paid him a combined $30,000 for the effort. 

In 2007, Shriver applied to the CIA’s National Clandestine Service, the unit that runs its undercover foreign operatives, and received a $40,000 payment from the Chinese MSS.
The US government ultimately arrested Shriver, and the FBI even turned the incident into a low-budget movie to warn other students studying abroad about Chinese friends bearing gifts. 

Shriver pleaded guilty to one count of conspiracy to communicate national defense information in 2010.
“It started out fairly innocuous: ‘Oh, you know, we really want to help young people here in China. You know, we realize sometimes you’re far from home and the costs can be quite a bit, so here is just a little bit to help you out,’” Shriver said at his sentencing. 

“And then it kind of spiraled out of control. I think I was motivated by greed. I mean, you know, large stacks of money in front of me.”
That subtle evolution and push over the line from personal or professional favor to outright espionage was also clearly evident in last week’s case against MSS official Yanjun Xu, who had targeted GE Aviation. 

The GE case, which reads almost like a slow-motion David Ignatius espionage novel, was somewhat unique: No documents or trade secrets were compromised—the sting appeared to unfold with the cooperation of the company—but the recruiter apparently followed a clear path of asking for small things before pushing the employee over the line to outright theft.
Yanjun Xu began his recruitment efforts, officials said, by contacting American aerospace experts under the guise of an educational exchange; he worked with the Nanjing University of Aeronautics and Astronomics, one of China’s top engineering schools, to invite the targeted aerospace engineers to give lectures on their work. 

The targeted GE employee, identified only as “Employee #1” in court documents, was both reimbursed for travel expenses and paid a $3,500 “stipend” for the lecture at NUAA. 

The ploy was one Xu appeared to use routinely; court documents cite other examples of “seminars” and “educational exchanges” with aerospace engineers that served as recruiting efforts for espionage.
During the unnamed GE employee’s visit to NUAA in June 2017, according to court records, Xu introduced himself, using the cover identity of “Qu Hui,” and explained that he worked for the Jiangsu Science and Technology Promotion Association. 

The American engineer and Xu had multiple meals together and Xu invited the engineer to return for another lecture. 

By January 2018, Xu was regularly asking the GE engineer to pass along small details about system specifications and the company’s design process, authorities say. 

He then provided what amounted to a shopping list of aviation design secrets, asking, “Can you take a look and see if you are familiar with those?”
In February, Xu allegedly asked for a copy of the employee’s file directory for his company-issued computer, explaining how to appropriately sort and save the directory for Xu’s review. 

The two then began to make plans for Xu to access the company computer during a business trip to Europe; as Xu explained, according to court documents, “We really don’t need to rush to do everything in one time because if we’re going to do business together, this won’t be the last time, right?” 

It was on what Xu thought was that European business trip in April that the Chinese intelligence officer was arrested in Belgium.

Stage 4: Recruiting
The direct request to spy is often the most fraught moment of an espionage operation—but sometimes it starts off easily enough. 

One-time CIA officer Kevin Mallory was recruited to spy for the Chinese right off LinkedIn in February 2017. 

Mallory, who was working as a consultant at the time, was contacted over the social network by someone from a Chinese think tank known as the Shanghai Academy of Social Sciences. 

The FBI said in court documents that the organization—China’s oldest social science think tank—is regularly relied upon by MSS, who “[use] SASS employees as spotters and assessors,” and that MSS officers “have also used SASS affiliation as cover identities.”
Mallory spoke by phone with the purported SASS employee, and subsequently traveled to China twice, in March and April 2017, for in-person meetings. 

There, he received a special phone and instructions on how to use its secure messaging capabilities to contact his Chinese “clients.” 

According to the criminal complaint, Mallory also wrote two short white papers on US policy matters for his Chinese intelligence handlers.
Mallory was caught, in part, because he didn’t realize that the device didn’t wipe sent secure messages, and FBI agents were able to peruse his communications with the Chinese intelligence officers. 

The deal was quite explicit: In one message, Mallory wrote, “your object is to gain information, and my object is to be paid for.” 

Ultimately, the FBI believed that Mallory passed at least three classified documents to the Chinese and was paid about $25,000.
Mallory was found guilty of conspiracy to commit espionage during a June trial, though the judge threw out two convictions related to sharing or trying to share national defense information.


Sino-American double loyalty: China gave ex-CIA agent Jerry Chun Shing Lee US$100,000 and promised to take care of him ‘for life’

Stage 5: Handling

The most delicate part of an espionage operation is always maintaining the regular, day-to-day communication between a spy and his or her assigned “handler.”
Whereas previous generations often relied on the Cold War tradecraft of physical “dead drops” or in-person “brush passes” for covert information exchanges, today’s espionage often relies on encrypted communication tools, surreptitious cell phones, and emails left in draft folders.
Some of that modern tradecraft was on display in the charges against another former CIA case officer, naturalized US citizen Jerry Chun Shing Lee, who is the most devastating Chinese spy ever. 

According to court documents released following his arrest in January, Lee met with two Chinese intelligence officers in April 2010, who promised him “a gift of $100,000 cash in exchange for his cooperation and that they would take care of him for life.” 

Beginning the very next month, the Chinese intelligence officers began passing “taskings” to Lee in envelopes, delivered by one of his business associates, that asked him to reveal sensitive information about the CIA.
Lee ultimately received requests for at least 21 different pieces of information, according to court documents. 

In response to one such request, Lee “created on his laptop computer a document that included entries pertaining to certain locations to which the CIA would assign officers and a particular location of a sensitive operation to which the CIA would assign officers with certain identified experience.” 

Communications flowed, in part, through an email address created using his daughter’s name.
It appears that Lee’s work has helped devastate America’s own spy networks inside China. 

While the government’s reliance on an insecure encrypted communications system exposed several of its own human assets, according to a recent report in Foreign Policy, its problems may not have only been high tech. 

When FBI agents covertly searched Lee’s luggage at one point, the Justice Department indictment says, they discovered a “Day Planner containing handwritten, classified information up to the Top Secret level pertaining to, but not limited to, operational notes from asset meetings, operational meeting locations, operational phone numbers, the true names of assets, and covert CIA facilities.”

President Trump noted that “almost every Chinese student that comes over to this country is a spy.”

Chinese spy arrested in Belgium and extradited to US on charges of stealing aviation secrets

By Katie Benner

Yanjun Xu, Chinese intelligence official, was charged with espionage and extradited from Belgium to the United States, law enforcement officials said on Wednesday.

WASHINGTON — A Chinese intelligence official was arrested in Belgium and extradited to the United States to face espionage charges, Justice Department officials said on Wednesday, a major escalation of the Trump administration’s effort to crack down on Chinese spying.
The extradition on Tuesday of the officer, Yanjun Xu, a deputy division director in China’s main spy agency, the Ministry of State Security, is the first time that a Chinese intelligence official has been brought to the United States to be prosecuted and tried in open court. 

Law enforcement officials said that Xu tried to steal trade secrets from companies including GE Aviation outside Cincinnati, in Evendale, Ohio, one of the world’s top jet engine suppliers for commercial and military aircraft.
A 16-page indictment details what appears to be a dramatic international sting operation to lure Xu to what he believed was a meeting in Belgium to obtain proprietary information about jet fan blade designs from a GE Aviation employee, only to be met by Belgian authorities and put on a plane to the United States.
China has for years used spycraft and cyberattacks to steal American corporate, academic and military information to bolster its growing economic power and political influence. 

But apprehending an accused Chinese spy — all others charged by the United States government are still at large — is an extraordinary development and a sign of the Trump administration’s continued crackdown on the Chinese theft of trade secrets.
The administration also outlined on Wednesday new restrictions on foreign investment aimed at keeping China from gaining access to American companies.
The arrest of Xu “shows that federal law enforcement authorities can not only detect and disrupt such espionage, but can also catch its perpetrators,” Benjamin C. Glassman, the United States attorney for the Southern District of Ohio, said in a statement.
The coming trial, in federal court in Cincinnati, could further expose China’s methods for stealing trade secrets and embarrass officials in Beijing — part of what current and former administration officials said was a long-term strategy to make stealing secrets costly and shameful for China. 

Federal prosecutors will have to present additional evidence to prove their case, which could include intercepted communications between government officials or even testimony from cooperating witnesses.
“If you can make it less expensive in terms of money and reputation to instead invest in R&D, the country’s behavior can and will change,” said John Carlin, the former head of the Justice Department’s National Security Division, referring to research and development.

The indictment outlines China’s courting of the GE Aviation employee starting in March 2017. 

The company, a subsidiary of General Electric, was a ripe target because it builds airplane and helicopter engines for the Pentagon.
An individual identified as an unindicted co-conspirator invited the GE Aviation employee on an all-expense trip to China to meet with scientists at Nanjing University of Aeronautics and Astronautics. 

Once there, the employee was introduced to Xu, who continued to be in touch by email after the trip.
In January, Xu invited the employee back to China and told him that he should bring information about GE Aviation’s “system specification, design process.” 

Over the next two months, Xu asked the employee for more details, including what the indictment said was proprietary information about fan blade design.
Xu and the GE Aviation employee discussed increasingly specific pieces of data that Xu wanted, and the employee even sent Xu a file directory of documents on the employee’s company-issued laptop.
The two never met again in China, but set up a meeting in Belgium for the employee to pass more secrets to Xu. 

In preparation for the employee’s trip to Europe, Xu asked the employee if he would use an external thumb drive to transfer information from the employee’s work computer when they met in person.
It is unclear from the indictment if the employee at this point was cooperating with the F.B.I. as part of the sting operation, and it is unclear if the employee ever traveled to Belgium. 

On Wednesday, the Justice Department praised GE Aviation for its cooperation in the investigation and internal controls that the department said “protected GE Aviation’s proprietary information.’’
Xu was arrested on April 1 in Belgium and remained in custody there until Tuesday. 

He is now being held in Cincinnati.
Employees of large American corporations traveling to countries like China are often targets for information theft because their devices can be hacked remotely and because they can speak too revealingly of their work while being wined and dined, said Joseph S. Campbell, the former head of the F.B.I.’s criminal investigative division who is now a director at Navigant Consulting.
“Employees who think they’re sharing unimportant information don’t realize that they’re adding to a broad matrix of knowledge,’’ Mr. Campbell said. 

“Even with unclassified information, China can put together a fuller picture of a company’s sensitive information.”
The government indictment against Xu leaves open the possibility that the government investigation is continuing. 

The document says that an unindicted co-conspirator referred to as CF brokered the meeting between Xu and the GE Aviation employee; it mentions that Xu was communicating with other Ministry of State Security agents about the spy operation.
The Justice Department is pursuing other thefts of trade secrets for prosecution, said John C. Demers, the head of the Justice Department’s National Security Division. 

Together, he said, they show that China has a policy of developing its economy to the detriment of the United States.
“This case is not an isolated incident,” Mr. Demers said. 

“It is part of an overall economic policy of developing China at American expense. We cannot tolerate a nation’s stealing our firepower and the fruits of our brainpower.”
China has also been targeting General Electric’s turbine technology. 

The F.B.I. arrested in August a dual citizen of the United States and China who worked at General Electric, charging him with stealing the company’s technology for the purpose of helping Chinese companies.

Sinica Pecunia Olet

In New Slap at China, U.S. Expands Power to Block Foreign Investments

By Alan Rappeport

The Treasury Department said it would expand its reviews of Chinese investments in the United States, using new powers approved by Congress.

WASHINGTON — The Trump administration said on Wednesday that it would more aggressively police foreign investment in the United States, outlining a rigorous review system that is aimed primarily at preventing China from gaining access to sensitive American technology.
The investment restrictions will allow the United States to block a far wider array of Chinese transactions that are deemed a threat to national security, including minority stakes and joint ventures in technology, telecommunications and other cutting-edge companies.
While Congress passed the expanded review system into law this summer, the administration signaled that it would apply its new authority very broadly and would review any foreign transaction involving a business that designs or produces technology related to 27 industries, including telecom, semiconductors and computers. 

Foreign investors will be required to submit declarations notifying the panel of their intentions when making a bid and could be assessed a fine up to the value of the transaction if they fail to comply.
The toughened investment regime will apply to all countries but is aimed largely at China, which President Trump has accused of trying to gain access to valuable American technology through nefarious means. 

The White House has criticized China for trying to obtain trade secrets by investing in United States companies, pressuring domestic firms doing business in China to hand over intellectual property and committing outright cyberespionage.
On Wednesday, a Chinese intelligence official was arrested in Belgium and brought to the United States to face espionage charges, further escalating the China crackdown. 

Law enforcement officials said the official tried to steal trade secrets from GE Aviation.
The administration has already taken several steps to stop Beijing from harnessing American technology in critical sectors, such as the next generation of 5G wireless technology, and to thwart China’s strategic plan to dominate cutting-edge industries, known as Made in China 2025. 

It has imposed tariffs on $250 billion worth of Chinese goods as a form of punishment and has threatened to tax all Chinese imports if Beijing does not change its trade practices.
But the foreign investment review takes things up a notch and threatens to exacerbate tensions between the world’s two largest economic powers, which have engaged in a tit-for-tat trade war and increasingly harsh exchanges about each other’s policy and approach.
Chinese officials canceled a trip to Washington late last month to resume trade talks after President Trump moved ahead with a second round of tariffs. 

On Monday, China’s foreign minister, Wang Yi, chided the Trump administration for “ceaselessly elevating” trade tensions and “casting a shadow” over relations between the two countries. 

Secretary of State Mike Pompeo, who was visiting Beijing for talks, said the United States had a “fundamental disagreement” with China on the issues that it raised.
The Treasury Department said on Wednesday morning that it would begin a pilot program using new powers under the Foreign Investment Risk Review Modernization Act. 

The law expanded the purview of the Committee on Foreign Investment in the United States, or Cfius, an interagency panel led by the Treasury Department that can block acquisitions on national security grounds, and the department is moving swiftly to take advantage of its new tools.

Until now, only takeovers and controlling stakes in American companies could be reviewed. 

Under the pilot program, Cfius will be able to review a much wider array of deals, including joint ventures and smaller investments by Chinese in American businesses that make technology deemed critical for national security reasons.
Beginning on Nov. 10, the panel can review — and block — a deal if a Chinese investor takes a stake in a business that makes sensitive technology and if that investor gains potential access to nonpublic technical information or can engage in substantial decision-making over the company, such as getting a board seat.
The new law, which passed with bipartisan support, gave the Treasury Department 18 months to develop rules to put the panel’s new powers into effect, but the program announced on Wednesday will allow it to be put in place more quickly.
“These temporary regulations address specific risks to U.S. critical technology while informing the development of final regulations that will fully implement Firrma,” Steven Mnuchin, the Treasury secretary, said, referring to the Foreign Investment Risk Review Modernization Act.
China has increasingly been looking to invest in high-tech industries in the United States. 

According to data from Public Citizen, a liberal advocacy group and think tank, 56 percent of Chinese investments in the United States last year were in industries that Beijing defines as “strategic,” such as aviation, biotechnology and new-energy vehicles — up from 25 percent in 2016.
But the administration’s trade measures have already chilled Chinese investment in the United States, which fell more than 90 percent from the first half of 2017 to the first half of 2018, to its lowest level in seven years, according to tracking by Rhodium Group.
The panel has already stepped up its scrutiny of deals under the Trump administration as the president looks to employ a more protectionist “America First” agenda.
Earlier this year, Cfius scuttled a proposed takeover of Qualcomm, the San Diego-based chip maker, by Broadcom, a rival that at the time had headquarters in Singapore, over concerns that it would pose a national security risk by depriving the United States of a telecom leader. 

It also refused to approve a $1.2 billion deal between MoneyGram, a money transfer company based in Dallas, and Ant Financial, a Chinese electronic payments company.
Republicans and Democrats in Congress have been generally united in their desire to crack down on Chinese theft of American intellectual property.
At a Senate hearing on homeland security on Wednesday, Senator Rand Paul, Republican of Kentucky, called on Cfius to review Broadcom’s proposed $18.9 billion acquisition of CA Technologies. 

He noted that the network systems of CA Technologies were deeply embedded in critical infrastructure facilities and national security agencies.
Nicole Lamb-Hale, head of the Cfius advisory practice at the risk management firm Kroll, said that the global nature of the new pilot program could have a chilling effect on businesses seeking foreign investment and that it would create additional hurdles for transactions. 

However, she acknowledged, with recent reports that Chinese spies have been using chips to infiltrate American companies, there is greater urgency to protect American intellectual property.
“I think that really brings into focus the concern that we are at a point where if we don’t do something very quickly, we’re going to be in a position where from a national security standpoint we’re at risk,” said Ms. Lamb-Hale, who previously handled Cfius matters at the Commerce Department.
President Trump was considering a more draconian plan that would have imposed sweeping investment restrictions on China last summer, but instead decided to support the proposal to grant Cfius more power. 

That decision was seen as a win for Mr. Mnuchin, who has been working behind the scenes to defuse the trade dispute.
But Mr. Mnuchin has also been showing signs of being less accommodating recently. 

In an interview with The Financial Times that was published on Wednesday, he said he was closely monitoring China’s currency, the renminbi, and noted that it had been falling this year. 

The administration has been concerned that China has been manipulating its currency to mitigate the effects of the tariffs, and he said the issue of competitive devaluations should be part of the broader trade negotiations.
Mr. Mnuchin is traveling this week to the annual meeting of the World Bank and the International Monetary Fund in Bali, Indonesia, where he will have the chance to explain the new changes to his counterparts from countries around the world in person.