China’s IP Theft and Tech Transfer Network Costs US $5 Trillion – Report

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The size and complexity of China’s state-sponsored cyber-espionage apparatus has been laid bare in a new report which claims government, military, business and academia are organized around a massive information-theft and tech-transfer network.

A two-year investigation by anti-communist title Epoch Times taps known information and intelligence gleaned from security experts.

It alleges that while stories of Chinese hacking have so far concentrated on individual military units like the infamous 61398 – five members of which the US indicted for their role in economic theft last year – the scale of the operation goes far further.

Specifically, the report argues that Chinese state-sponsored operatives steal trade and military secrets, after which they are sent into a nationwide network of transfer centers where they are reverse engineered.

The resulting products either serve the Chinese military or are sold back to markets like the US at a fraction of the price of the original.

A few of these officially sanctioned transfer centers include the State Administration of Foreign Experts Affairs under the State Council, the Science and Technology Office under the Overseas Chinese Affairs Office, and the National Technology Transfer Center under the East China University of Science and Technology.

Crucially, rather than try to reverse engineer a product straight from stolen designs, the Chinese system requires researchers to first find publicly available info on earlier generations of the product and learn how to build those first.

Then they send students abroad to study and work in the targeted industry to give them a broad base of knowledge which enables them ultimately to reverse engineer the targeted product – a much quicker process, according to the report.

Experts quoted by Epoch Times estimate the US is losing around $5 trillion each year thanks to Chinese spying – or around 30% of its GDP.

Aside from improving the revenue and competitiveness of China PLC, another driver for this large scale IP theft and tech transfer network is the PLA, which is forced to find 30% of its operating expenses itself.

There are an estimated 3,000+ front companies operated by the PLA in the US which exist solely to steal American tech, the report alleged, quoting official government sources.

One of the most powerful organizations behind cyber-espionage is the 61 Research Institute, which operates under the PLA’s Third Department of the General Staff Department, the report claimed.

This is the body which oversees the ‘61’ units like 61398 which are prolific military hackers, and is said to be one of the main centers of power in the Chinese communist regime.

An infographic explains the complex web of state, military, academic institutions and state-controlled companies which allow for this large scale information theft and reverse engineering model.

It’s rumored that US president Barack Obama is planning an unprecedented set of economic sanctions against Chinese companies and individuals who’ve benefited from US IP theft.

But the difficulty as always will be attribution, with Beijing ever careful to ensure enough plausible deniability if specific culprits are named.

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