China · Information operations · Information Warfare

Understanding the Chinese Communist Party’s Approach to Cyber-Enabled Economic Warfare

5th September 2018 – FDD Report

Read the full report here.

Executive Summary

American prosperity and security are challenged by an economic competition playing out in a broader strategic context … Every year, competitors such as China steal U.S. intellectual property valued at hundreds of billions of dollars. Stealing proprietary technology and early-stage ideas allows competitors to unfairly tap into the innovation of free societies. Over the years, rivals have used sophisticated means to weaken our businesses and our economy as facets of cyberenabled economic warfare. 
— U.S. National Security Strategy (2017)

The United States and the People’s Republic of China (PRC) are engaged in an increasingly intense political, economic, and military competition spanning not only throughout East Asia, but also around the globe. In this competition, China uses cyber means to enhance its strategic position vis-à-vis the United States and its allies and partners. China is engaged in wide-ranging cyber intrusions and network exploitations causing massive damage to U.S. and other foreign firms annually. By advantaging Chinese enterprises at the expense of competitors from the United States and its allies and partners, these attacks cumulatively degrade U.S. national security. This cyber campaign is an integral part of China’s broader security strategy and has undermined both American prosperity and security. And yet, it has not garnered the public attention warranted by its severity.

For years, the Chinese government has engaged in cyber-enabled economic espionage4 and other covert and clandestine activities to strengthen China’s economic competitiveness and strategic position.5 China is estimated to be responsible for 50 to 80 percent of cross-border intellectual property theft worldwide,6 and over 90 percent of cyber-enabled economic espionage in the United States.7 Various study groups have estimated that Chinese intellectual property theft could cost over $300 billion annually to the U.S. economy.8 The U.S.-China Economic and Security Review Commission has concluded that Chinese espionage “comprises the single greatest threat to U.S. technology.”9 Chinese espionage has not only damaged U.S. companies, but has also helped China save on research and development expenses while catching up in several critical industries. The cumulative effect of China’s cyber-enabled economic espionage has been to “erode the United States’ long term position as a world leader in [science and technology] innovation and competitiveness.”10 Perhaps most worryingly, China is reversing many of the U.S. military’s technical and industrial advantages and creating potential vulnerabilities should a conflict arise.

At the same time, China has demonstrated a willingness to use cyber attacks as a tool of economic coercion to pressure governments and private companies to change their policies. In 2017, for example, after Washington and Seoul announced the deployment of the U.S. THAAD missile defense system to South Korea, the private Korean company on whose land the system was to be positioned suffered significant cyber attacks from China.11 Since 2015, the overall number of detected network breaches from China appears to have declined, but experts assess that Chinese cyber activity is “more focused, calculated and still successful in compromising corporate networks.”12 Although the response from the United States and its allies and partners has heretofore been inadequate, the post-2015 change in Chinese cyber activities indicates that concerted pressure can alter Beijing’s behavior. A sustained campaign to demonstrate to Beijing that its malicious cyber activities will impair U.S.-China relations is likely the only way to convince the Chinese Communist Party to alter its behavior.13

To develop effective policies to protect American innovation and the industrial base as well as change Chinese behavior, U.S. policymakers must better understand Chinese decision-making regarding cyber-enabled economic activities. This report reviews Beijing’s use of cyber tools to accomplish its strategic objectives, analyzes the scope of Chinese cyber intrusions, and provides an open-source account of cyber-enabled economic intrusions to evaluate the damage these activities have caused in both economic and geostrategic terms. Only by understanding the scope of the campaign can the United States and its allies and partners develop effective strategies to deter and defend against Chinese cyber intrusions.

Read the full report here.



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