My words, but not my name, recently appeared in an odd cameo about Chinese cyber-hacking
February 28, 2016 12:00 AM
By Louis Schwartz
An article I wrote in 2012 on the Chinese renewable-energy industry recently made a cameo appearance on TV in a “60 Minutes” segment on Chinese cyber-hacking. The segment was titled “The Great Brain Robbery,” with this lead-in: “Economic espionage sponsored by the Chinese government is costing U.S. corporations hundreds of billions of dollars and more than 2 million jobs.”
I was mortified, though oddly flattered. It turned out that my article had been used by the Chinese to cyber-spy on a U.S. company.
And I was disappointed because “60 Minutes” could have drawn a more nuanced picture of how intellectual-property theft fits into the ongoing narrative of China’s rapid economic development.
Here’s the story:
Unidentified Chinese cyber-hackers had attached a Trojan Horse virus to an email with my article to gain access to the computer network of American Superconductor, a publicly traded Massachusetts company which now is a poster child for the travails of U.S. companies doing business with China.
In the “60 Minutes” report, correspondent Leslie Stahl described how AMSC’s Chinese customer, Sinovel, a wind-turbine manufacturer, had stolen AMSC intellectual property integral to electronics and control systems that AMSC very profitably had been selling in China since 2007.
The “win-win” AMSC/Sinovel relationship turned into a “lose-lose” one starting in 2011, when Sinovel paid one of AMSC’s key employees to turn over AMSC’s proprietary technology. It then abrogated its contract with AMSC so it could sell wind turbines based on AMSC innovations without compensating the American company. This, in turn, led to a number of nasty repercussions: litigation in China between AMSC and Sinovel; a criminal conviction and jail sentence for the AMSC employee who collaborated with Sinovel; significant damage to AMSC’s business, including a precipitous decline in profits, massive layoffs and a stock price that plunged and has yet to recover; and a fierce public relations battle that continues to this day.
Sinovel paid a heavy price, too, however.
The “60 Minutes” report demonstrated how Chinese phishers had attempted to hack into AMSC’s computer system with an e-mail using my article as “bait.” Unfortunately, “60 Minutes” staff failed to sufficiently vet the phishing e-mail and missed crucial, but little appreciated, aspects of the story.
First, Chinese intellectual-property theft often produces damaging “blowback” on the Chinese companies perpetrating the misdeeds. My 2012 article was a roadmap to this little understood truth. In fact, following the pattern I outlined in the article, the year Sinovel stole AMSC’s intellectual property turned out to be the high water mark for Sinovel’s fortunes. By year-end 2014, Sinovel was teetering on the brink of bankruptcy after it was effectively barred from exporting its wind turbines to the United States and Europe, failed to resolve technical issues with its customers because it didn’treally understand the technology it had stolen and was cut off from new technology by AMSC and other companies.
A second crucial aspect of the Sinovel/AMSC story that “60 Minutes” overlooked is how the Chinese still lag far behind in technology innovation, despite having devoted substantial resources to foster an indigenous innovation economy. The Sinovel case is a good illustration: Sinovel not only felt the need to steal AMSC technology, it also used simple hacking tools to do so, revealing that even Chinese high-tech commercial espionage essentially is derivative and rudimentary.
I admit that I felt a bit aggrieved that both the Chinese cyber-attackers and “60 Minutes” failed to give my article proper attribution. The email attachment that triggered the malicious intrusion into AMSC’s computer system was word for word what I had published in 2012, but it didn’t include my byline.
When I reached out to “60 Minutes” representatives, expressing my concern that they had failed to attribute the article to me and asking that they state on-air that I was not involved in the AMSC cyber-attack, they rather lamely posted the following editor’s note on their website: “The author of the original article ‘A Harsh Winter for Sinovel and China’s Wind Industry,’ which was later attached to the phishing email in this video, wishes it known that he was not involved in a cyber-attack against American Superconductor.”
Perhaps “60 Minutes” was embarrassed that it hadn’t Googled the subject heading of the phishing email to discover that the attachment was a published article.
Obtaining intellectual property from Western companies has become much more challenging for the Chinese. There once was a time when Chinese “partners” just had to hold elaborate banquets for CEOs of Western companies, show them some of China’s magnificent historical sites and mention repeatedly that China had 1.3 billion potential customers, to have intellectual property willingly handed over. The easy opportunity for the Chinese to position themselves closely enough to Western partners to expropriate technology — through joint ventures and the like — also largely is in the past.
Because of the long unpleasant history of Chinese intellectual-property theft, Western companies with new and promising technologies interested in China now invariably ask before making deals: “Can we protect our intellectual property”?
The answer is, “There is no foolproof way to avoid Chinese expropriation of your intellectual property,” so companies developing cutting-edge technologies increasingly concentrate on U.S. and European markets and pass on China. Perhaps this is why cyber-hacking now is so prevalent among the Chinese: They increasingly must resort to commercial cyber-attacks to acquire what they no longer can lure out of Western firms and are not yet capable of innovating on their own.
Louis Schwartz is president of China Strategies, a Pittsburgh-based consultancy that assists Chinese and Western corporations, nonprofits and government entities with bilateral trade, investment and economic-development matters. He also has taught courses on law and development in China at the University of Pittsburgh.
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