The U.S. has charged a former Chinese engineer and a businessman of stealing General Electric’s turbine technology and sneaking it out to China, marking the first time ever the US government has formally declared that a specific trade secret was stolen with the blessings of the Chinese government to benefit the country. On Tuesday, the U.S. Justice Department unsealed an indictment against former General Electric engineer, Xiaoqing Zheng, 56, and Chinese businessman Zhaoxi Zhang ,46, for stealing proprietary GE turbine technology by surreptitiously encrypting files on Zheng’s computer and embedding them within the code of a digital photo depicting a sunset.
The 14-count indictment against the pair charges that Zheng stole multiple electronic files containing details about engineering drawings, design models and other specifications related to his employer, GE Power & Water in Schenectady, New York, and spirited off multiple files related to the company’s steam and gas turbines.
Chinese theft of US corporate secrets
According to the indictment, Zheng gained access to the files in 2016 by lying to GE that he was operating an aviation parts supply business back in China and wanted to ensure his company did not violate any rules regarding conflict of interests. GE gave him the thumbs up only to later discover he was transferring the files to his personal email and also emailing them to Zhang who at that time was based in China. Zheng cleverly hid the sensitive data in a digital photograph of a sunset in a process known as steganography.
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Zheng and Zhang then allegedly used the stolen information to advance their business interests in two Chinese turbine R&D companies. The pair also allegedly received financial support from Beijing via the two companies.
Zheng faces a 10-year jail term; a fine of US$250,000 as well as three years of supervised release.
The indictment comes amid a crackdown by President Trump’s administration on Chinese theft of U.S. trade secrets, intellectual property theft, use of prohibitive rules that prevent US corporations from working in China and illegal corporate subsidies.
The real cost of China’s IP theft
Last year, the DoJ sealed indictments against two Chinese nationals for a well-choreographed state-sponsored hacking campaign on no less than 45 U.S. companies including stalwarts like NASA, IBM, and Hewlett Packard. But unlike Zheng, the two are unlikely to ever face justice on U.S. soil.
The fact that cases such as these tend to be few and far between belies the true extent of IP theft by China on US firms.
IP theft—use of trademarks, trade secrets, copyrights and patents without permission—may seem a dry issue to many, but in reality, it represents big money.
A recent shocking poll by CNBC revealed that one in five U.S. corporations say that China has stolen their intellectual property over the past 12 months.
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IP theft has been a major point of contention between Trump’s administration and China and has featured prominently in the ongoing trade negotiations.
According to the Harvard Business Review, intangible assets make up to 80% of the value of S&P 500 companies. The practice might not seem as egregious as taking physical property but it represents a loss of opportunity or competitive advantage. The U.S. Trade Representative has estimated IP theft by China costs the US economy a staggering $225 billion-$600 billion every year.
Chinese companies use different methods to obtain U.S. IP—cyberattacks, corporate espionage and forced technology transfer are the most rampant. Despite going on for decades, past governments including those of Obama and Bill Clinton did not do much to stamp it out. It’s going to be interesting to see whether Trump’s fire-breathing establishment will fare any better.
By Alex Kimani for Safehaven.com
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