Made in Beijing: The Plan for Global Market Domination
ANNOUNCER: While the world has witnessed a thriving economic partnership between China and the U.S. for decades -- <i>Now through the common efforts</i> <i>of China and the United States,</i> <i>the gate to friendly contract</i> <i>has finally been opened.</i> <i>[applause]</i> ANNOUNCER: Behind the scenes it is a complex relationship where each country sees the other as a potential adversary.
In 2013, President Xi Jinping is intent on reestablishing China's dominance in the Pacific and is dismissive of American complaints of cyber espionage. So, the U.S. fires a warning shot. <i>REPORTER: Wanted by the FBI.</i> <i>Five Chinese military officials</i> <i>who've allegedly spent</i> <i>years stealing trade secrets</i> <i>from some of the</i> <i>biggest companies in the U.S.</i> For the first time we are exposing the faces and names behind the keyboards in Shanghai used to steal from American businesses.
ANNOUNCER: Recognizing that U.S. leadership was built on economic strength, the Chinese Communist Party attempts to follow suit. They launch an ambitious roadmap to rapidly transform their manufacturing base into a high-tech, global powerhouse by the year 2025. Made in China 2025 targets 10 industries essential to cutting-edge manufacturing supply chains. They issue a series of five-year plans outlining their goals.
However, their tactics do not mirror free economic development. Forced technology transfers, acquisitions of foreign companies, intellectual property theft, and industrial espionage are widespread. <i>REPORTER: New tonight,</i> <i>stolen secrets</i> <i>stretching from</i> <i>Charlotte to China.</i> <i>Prosecutors say this man worked</i> <i>with the Chinese government,</i> <i>stole millions of</i> <i>dollars' worth of technology</i> <i>from a local company,</i> <i>and brought it</i> <i>back to his homeland.</i>
ANNOUNCER: Experts believe the Chinese Communist Party's goal is to control entire supply chains and manipulate global and domestic market conditions. More worrisome is the state-sponsored funding of China 2025 by the Communist Party, which fuses their commercial production with industrial research and military objectives, posing an even greater threat to U.S. national security. We've now reached the point where the FBI is opening a new China-related counterintelligence case about every 10 hours.
China is engaged in a whole-of-state effort to become the world's only superpower by any means necessary. ANNOUNCER: Those long-held suspicions of adversarial intentions are now on public display. The eventual demise of capitalism and the ultimate victory of socialism will require a long historical process to reach completion. Think your company couldn't possibly be a target for Chinese espionage? Think again.
Experts say it's a viable threat, and U.S. businesses of all sizes need to be on guard because, as you will see, everyone is at risk. This isn't a case of somebody stealing a blueprint and copying it down the street; this is really intentional theft with the purpose of trying to destroy a company. And how they did it is they turned one of our employees against us.
[explosion] ♪ ANNOUNCER: The trouble starts in 2010 when a turbine owned by Sinovel Wind Group explodes at a windfarm in Northern China. Sinovel engages help from American Superconductor, or AMSC, a Boston-based company with a branch in Madison, Wisconsin. Sinovel had this problem with their wind energy grid, and the solution to that problem was made by American Superconductor.
We were a key component supplier so we supplied the hardware and the software that make the brain of the wind turbine go. We probably had done somewhere around 600 to 700 million dollars of business already. We then signed another 500-million-dollar component supply contract with them. ANNOUNCER: Under the new contract, AMSC will retrofit thousands of Sinovel's old turbines with new technology to help prevent further explosions, but it comes at a high price tag. So, all the indications at least at that point in time were the relationship was very good.
There was a strong need for the services and products that we offered. And then it all really changed in the early months of 2011. ANNOUNCER: Tired of paying out 400 million annually for AMSC's source code, Sinovel looks for a shortcut.
They find their way in through an employee at AMSC's office in Austria. JOSH MAYERS: Dejan Karabasevic he's a Serb national. He was an up-and-coming engineer in the company and spent about 70 percent of his time in China out on the wind turbines, living and working with Sinovel employees. He was a very good boss. He was taking care of his employees.
He was working very, very hard. He was a very intelligent guy, and a very hardworking guy. ANNOUNCER: When Dejan experiences a setback at AMSC and is demoted to customer service, his ego gets bruised.
A lot of people was cut from his team, and a lot of development decisions was taken away from him. ANNOUNCER: Dejan openly complained, even to his Sinovel co-workers, Su Liying and Zhao Haichun, both high-level executives. They realized Dejan might be their ticket to AMSC's secret source code. SCOTT MCGAUNN: Dejan was a typical insider threat.
His profile from his co-workers was that he was money hungry, a womanizer, he was angry, he was narcissistic. They really convinced this guy that he was going to do the right thing by helping them. He'd have a whole new life in China with a lot of money and a lot of women involved. JOSH MAYERS: He downloaded source code from servers in Austria. That was part of the components that run the wind turbine control system. He needed the other half.
The other half was in Wisconsin so he downloaded that as well. And he then put the two pieces together, and that made the product that Sinovel wanted from him. ♪ ANNOUNCER: The following day, in early 2011, Dejan resigns from AMSC. A few days later, Sinovel drops a bombshell. Sinovel called AMSC and told them that they would no longer be customers of theirs. They had 120 million dollars in parts sitting on the dock.
They had 600 million dollars in contracts in the pipeline with Sinovel, and all of those were immediately cancelled. What happened to us wasn't only the abandonment of this one contract, but all of our business was now put in play. Wall Street thought we were going to go under. We had probably 16, 17 banks writing on us, covering us. That dried up pretty quickly, very fast.
There was a huge drop in market capitalization for American Superconductor. They lost 1.4 billion dollars in market cap and became from a 1.6 billion dollar company to a 200 million dollar company.
At the time, we were almost 900 employees, and we got down to 300 within a year or so. ANNOUNCER: Perplexed at Sinovel's behavior, AMSC begins an investigation. They discover that Sinovel no longer needs their control system software because they had stolen the source code, modified it, and was using it. It had to be an inside job. There was some internal discussion with the core people in the company. It turned out quite fast that it's most likely Dejan who did that.
ANNOUNCER: AMSC alerts Austrian authorities of the theft, and Dejan confesses to police while his apartment is searched. In his apartment, which was very small, there really only was one room. We then found and took away the first data storage devices. This was a laptop, hard drive, USB sticks, et cetera.
We went ahead and seized these items. We found out that he had a 1.7 million dollar contract with Sinovel, and we found Skype chats that clearly showed that he was working with Miss Su and Mr. Zhao in order to steal the source code and modify it for the purposes of Sinovel to work on their wind turbines in China. SIMON HORST: We then contacted the public prosecutor, and at that time the public prosecutor issued the arrest warrant for us to arrest Mr. Karabasevic. ANNOUNCER: American Superconductor sues Sinovel in the Chinese courts, trying to recover AMSC's secret source code, but to no satisfaction.
They're told that the AMSC source code they're trying to recover is a Chinese national security secret. Sometime in late January of 2012, we learn from the victim company that there was stolen software running on the wind turbines in Massachusetts, Sinovel wind turbines. Not only did he steal that software and give it to China so that it could be used in China to retrofit thousands of wind turbines in China, but there was stolen software running on the wind turbines in the front yard of American Superconductor. And so we decided that we were going to try and gather evidence on those wind turbines. ANNOUNCER: Their goal is to make a digital forensic image of the software, which is stored at the top of the 364-foot turbine.
JOSH MAYERS: This was the first time we'd ever searched wind turbines in the FBI. These are large mechanical structures. They have a lot of voltage and wattage going through them. They can be dangerous to operate in and around.
We didn't have any special expertise or equipment, but we put a plan together. That's what the FBI does. We got an early indication that it was the stolen source code.
It matched digitally what we knew Karabasevic downloaded and what he changed. He made some changes to the software to make it usable for the Chinese company. Not only do they steal it, but they have the gall to export it to the United States, and then they have the gall to export it to the Commonwealth of Massachusetts, which is where we are today, this is where our headquarters is, for a project that's funded by federal stimulus money, TARP money at the time. If I wrote the script, that is not how I would write it because I would not think it would be believable. ANNOUNCER: In January 2018, Sinovel is found guilty of trade secret theft and wire fraud. Sinovel is the first Chinese corporation that has been convicted after a trial here in the United States.
Given the resources of the FBI, we can go after these companies and we can hold them accountable for stealing the hard work of America's engineers and software writers. We can claw back, and we can recover for the victim company. The Chinese can be beat.
ANNOUNCER: Industrial espionage is an equal opportunity offender and can happen to any U.S. company, large established entities with numerous subsidiaries, to small mom and pop startups with a handful of employees or in this case both. I was employee number eight in this company.
We grew it to about 500, with most of them, 300, being in China, and it was a single technology company. So, when this happened, it hurt. It's like a family member that has betrayed the family, the company. ♪ ANNOUNCER: Dr. Xiwen Huang was born and raised in China,
and after receiving his PhD in chemical engineering, he worked at several U.S. companies before landing a job at a small energy company in Charlotte, North Carolina. So, that energy company really is a small mom and pop organization that has a proprietary technology, a niche in the energy sector that only one or two other companies in the United States really were able to do. And so they really had the market down in the United States, and they realized that they had eight times the growth potential in China that they did here in the United States.
So, they said let's start a joint venture in China. Xiwen was put in charge of that joint venture, not only as a chemical engineer, but really as a translator, as a lead person because of his Chinese descent to lead that initiative for them. ANNOUNCER: But when Dr. Huang disappears during a trip to China and is later caught lying about his activities, company executives grow suspicious. They do a Google search and find an article that startles them. JIM GRANOZIO: The article talked about Xiwen Huang and a company that he initiated here in the United States going into business with a chemical company in China with full support of the government of China, doing business in direct competition with the victim company here in Charlotte.
ANNOUNCER: Dr. Huang's new business focuses on the same catalyst technology as his employer and is even incorporated in the same state. BILL MCMAHON: It turns out that he sent the incorporation papers to the Secretary of State in North Carolina on our fax machine. And once someone starts lying to you, I think anything is possible. ANNOUNCER: The company conducts a search of their computer network, and it confirms their worst fears.
Dr. Huang had hacked his way in and stole sensitive trade secret documents. At that point, I felt very strongly that we should enlist the FBI. I got quite a bit of pushback, surprisingly, from staff.
People were concerned, and I understand the concern, that there'd be a distraction, that the FBI would come in and say hey, we found this too and this too, and nothing could be further from the truth. There were no Suburbans pulling up. There were no guys in black suits and sunglasses sitting down taking over their computer keyboards because, honestly, we don't know the business.
We only stayed in our lane. We looked at the areas that we needed to look at within the company to gather evidence. ANNOUNCER: A search warrant on Dr. Huang's emails reveals a treasure trove of evidence.
We saw that he was being funded by both the Hundred and Thousand Talent Programs out of China, a government-sponsored program, which basically incentivizes theft of trade secrets and intellectual property out of the United States. He had been approached by a colleague at a Chinese national university. He was told that the Chinese government would pay him cash up front, that they would build him a research facility, and all he had to do was offer intellectual property from the West that was important to the Chinese government and in furtherance of their five-year plan. ANNOUNCER: With this license to steal, Dr. Huang hopes it will bring him closer to realizing his dream.
He always wanted to be a businessman. He always wanted to run his own company, and he wanted to do it in China. It was his goal his entire life in the United States to return to China.
ANNOUNCER: Reading through the 6,000 emails, agents alarmingly discover sensitive documents dating back 10 years from Dr. Huang's previous employers, a U.S. government research facility and a large chemical company. They had no idea at all. Neither two previous companies had an insider threat program. Had they had even the most basic insider threat program, they would have more than likely identified the loss.
ANNOUNCER: Dr. Huang is arrested during a sting operation, and agents catch a lucky break. Xiwen was in possession of a computer when he returned to the United States. On that computer contained two terabytes of data. All of our intellectual property from all the companies was contained within that computer. Xiwen was a thief, and the one thing thieves don't trust are other people because they know if they're willing to steal, other people will steal with them.
The perpetrator actually was using other technology that he took from previous companies first in China and had not gotten to our technology yet. The FBI found that it was not released. I guess it's like a cancer. They believe they got it all. ♪ ANNOUNCER: The vital role agriculture innovations play in our national security is revealed during the most unlikely of investigations of the most brazen theft to date. When they came in and tried to take our latest products, they were literally trying to access 30 years' worth of investment in R&D, taking billions, tens of billions of dollars of R&D when you look at the accumulative effect over the last 30 years.
ANNOUNCER: In the spring of 2011, an unidentified Asian man is caught by a farmer digging in a grower's field outside Des Moines, Iowa. A grower's field is a field where they do all their ag research. It's a field that's unmarked. It's a field that's not on a heavily traveled road. The seeds planted there are a new inbred variety of corn developed by the giant agricultural company Corteva Agriscience, and they are worth millions. As the intruder flees, the farmer jots down his tag number and calls authorities.
The FBI identifies the culprit as Dr. Mo Hailong of Boca Raton, Florida, who works for DBN Technology Group in China. DBN is the largest ag company in China. We found out that China had in their five-year plan that it was a priority for them to grow in their corn industry and particularly in the genetically modified corn industry.
So, what we're seeing here is potentially agents of a foreign power. ANNOUNCER: And soon it's not just one grower's field under attack but a second field used by the technology gamechanger, Bayer Crop Science. We learned that there was an individual identified with a foreign competitor who was, in fact, digging in areas where we had planted a very proprietary germ plasm or seed for development of future products. This individual knew precisely where to go, knew precisely which parental lines to take, which ones were the most valuable. ANNOUNCER: The FBI opens an investigation, and top on their list is Mo Hailong, who travels to the Midwest on a regular basis. The FBI puts a tail on him, in hopes of catching him in the act.
BYRO MILITELLO: He was trying to map out these grower fields. It's very hard to find them, but if you have the technology and the science behind you and you understand it, you can find them. We had surveillance going on, eyes in the sky and on the ground. We followed Mo everywhere he was going.
ANNOUNCER: During planting season in 2012, Mo travels to Iowa and illegally purchases the latest inbred corn seeds from Bayer and Corteva at several co-ops. These particular seeds, just to get one to market takes on an average of eight years with all the technology they put behind it. Most of these seeds take up to 100 million dollars just to make one seed to get to market, and this is what they were after.
SCOTT BAUCUM: That there was an individual identified product, they could really circumvent as much as 30 years' worth of R&D and bring their company up to speed very quickly. So, there's a lot of value in this, and this is why corn is so important to not just the U.S., to the world. ANNOUNCER: After purchasing the corn, the FBI tails Mo as he drives to Chicago where he drops off several large packages at FedEx. The FBI intercepts the boxes. There was over 250 pounds of corn seed in each one of these boxes. Now we have to prove this is inbred seed, but we haven't had it tested yet because it takes a very long process to do the DNA testing.
So, Corteva said how about this, how about you take pictures of these corn seeds because these corn seeds have different colors. They said take the pictures of the corn seeds and then we'll get one of our products that's over eight years old, we'll color code it to match it, and then you can switch this out. ANNOUNCER: All the FBI has to do is swap it out and no one will be the wiser, but the clock is ticking. BYRON MITITELLO: They switch the corn seed out, put it in a box, sealed it back like it came out of the FedEx.
We got on the plane and off to DBN in China where it went. ANNOUNCER: While the corn seed is being DNA tested, Mo and his spy ring are regularly coming to Iowa on buying sprees. The FBI wires up their rental cars with audio surveillance. They got in the car and they started talking about how they're spies. They talked about how they're stealing intellectual property. They talked about all this stuff.
And one guy's real fearful, and the other guy, what was great was he was trying to calm him down saying don't worry about it, they won't do anything to us. The Americans are too nice. I don't know if they think we're too nice now, but at that time they thought we were really nice. ANNOUNCER: Dr. Mo Hailong is arrested
for the theft of trade secrets after DNA results confirmed the corn he illegally purchased and intended to ship to China was indeed the specialized inbred corn. Mo pleaded guilty and received a three-year prison sentence. There were five other indictments, including employees of Corteva and Bayer. The more that I worked with the FBI in this new environment, the more you began to realize that this truly is an international threat that is growing in importance.
It is going to be a part of what the corporate world is going to be in the future. The thing I tell everyone is if China worked this hard to steal a corn seed, how hard would they work to steal what you produce? ANNOUNCER: The Chinese Communist Party will pull out all the stops to obtain technology from the West and even use members of academia to help them meet one of their top strategic goals, modernizing their military. This is a really rare case where we can trace the economic espionage and theft of trade secrets all the way back from the Chinese government through many intermediaries to the subjects in the United States.
We received information that an individual named Shan Shi was interested in exporting syntactic foam, which is a certain type of technology, to China. We looked at the technology, and syntactic foam is one of those technologies that is really important to the United States and that no one's ever heard of. CROSBY HOUPT: It was a material that provides buoyancy in a wide variety of applications in the oil and gas industry and also in military. ROMAN ROZHAVSKY: It gives our submarines a key advantage over the submarines of other countries because it allows them to dive deeper and it allows them to be quieter, but it's also used in our latest stealth destroyers because it's porous so radar goes through it instead of bouncing off of it.
There are export controls on syntactic foam. It requires an export license to send overseas to certain countries, and China is one of those countries. ANNOUNCER: Syntactic foam is also a billion-dollar industry, and only three companies in the world make it. One of them is Trelleborg of Houston, Texas, who spent 40 years developing the technology. We knew we had a technology that was of interest to China and then we started delving into what was happening in Houston, what Shan Shi was interested in, and how far along in the process he was.
ANNOUNCER: They obtained search warrants for Dr. Shi's emails and are alarmed to discover that the former professor from Texas A&M is already in possession of the secret formula for syntactic foam and has been for a year. That sort of changed the nature of the investigation for us from something that was export-focused to something that was a theft of trade secrets, economic espionage focus. ♪ ANNOUNCER: Dr. Shi's emails reveal that the Chinese government had an intricate plan to steal Trelleborg's recipe for syntactic foam.
They first hired Dr. Shi through the Thousand Talents Program and bankrolled him three million dollars. Dr. Shi then opened a front company, CBM International in Houston, and started hiring engineers. ROMAN ROZHAVSKY: They were able to recruit two former Trelleborg employees who had access to the trade secrets that they eventually stole.
They got enough trade secrets to the point where they couldn't quite mass produce the entire syntactic foam product, but they were able to make the key ingredient of it. ANNOUNCER: Dr. Shi hires another engineer, one recently fired by Trelleborg, who helps produce the entire syntactic foam technology. China is now ready to mass produce. We knew we had a situation where we needed to move as quickly as we could.
We set up an undercover operation to give Shan SHI and CBM an opportunity to demonstrate their technology and attempt to sell it. ROMAN ROZHAVSKY: It was much more than we ever expected because every project they showed was for the Chinese government or for the Chinese Navy. That's the Chinese military? [laughter] ROMAN ROZHAVSKY: In the middle of it, they kind of realized maybe we shouldn't be talking about this so Shan Shi says well, we try not to work with the government and the Chinese Navy and we follow all U.S. laws. And then our undercover was like wait, so you did all this for the Chinese Navy, and, you know, then they were like super awkward and uncomfortable and they were like no, no, like that's not what we meant.
So, then five minutes later they all got arrested. So, it was a good undercover takedown. CROSBY HOUPT: We stopped them from acquiring that extra technology where they can mass produce on a large scale. The Chinese government is like a giant company that's posing as a country, and, you know, they're fighting this economic war and they're using all of the tools, you know, at a nation's disposal. And they're using all of these things to compete against U.S. companies, which eliminates the traditional business tools, right, where all they can do is have a better product.
And it's really difficult to compete against all of that. ♪ ANNOUNCER: In only a few short years, China is likely to meet its fourth Industrial Revolution goal, and the Chinese Communist Government is hoping to overtake the United States as the world's number-one economy by the end of this decade. China's five-year plans are publicized, allowing U.S. companies a heads-up to see if their industry is a target. But a warning to executives, if you need to do business with China, go in with your eyes open.
DAN MCGAHN: There literally is a shopping list of technology, and if your company is on that shopping list, please beware because whatever means possible will be utilized to acquire that technology if it is critical for the development of the economy in China by the Chinese government. ANNOUNCER: Which could be highly detrimental to the U.S. economy, and experts fear could lead to the loss of entire industries. A threat against one of us is a threat against all of us because it's the same tactics that are used over and over again. My message to you is there's two types of companies: those who have been hacked and intruded and those who don't know they've been hacked and intruded. It's everywhere.
Our advice is be careful, protect your key data, protect your trade secrets, and just understand it's the Chinese government's long-term strategy that they want to monopolize all of these industries, which means they want to eventually put you out of business. ♪ Today, cases involving the foreign theft of US technology make up about one-third of the FBI's counterintellegence investigations, and while there's a whole host of hostile nations we're concerned about, by far and away the greatest immediate and long-term threat to our information, our innovation, and our national and economic security is the one posed by the People's Republic of China. These stories illustrate efforts by the government of China to undermine the hard work of American industry, and the ingenuity of its workers. The FBI does not and will never target individuals based solely on race or ethnicity. It is the mission of the FBI to uphold the Constitution and protect the American people. All American people.