There is a growing perception among long-standing US allies that they need to expand commercial relations with the People’s Republic of China (PRC). A thaw or détente with the PRC brings both rewards, particularly for a sluggish economy like Britain’s, but also major risks. History shows that a superpower can ruthlessly exploit détente with the West.
Economic Security and Intelligence
Economic security and intelligence are nothing new. Before the Second World War, for example, Britain ran a small outfit known as the Industrial Intelligence Centre (IIC). Run by a former MI6 officer, Desmond Morton, the IIC provided a coordination of intelligence on German rearmament and, working with MI5, assessed Britain’s commercial vulnerabilities. British intelligence helped to devise the UK government’s War Book, which set out emergency regulations to protect critical national infrastructure in the event of war. After the Second World War, during the Cold War, it became a staple of British and other western intelligence to assess the size and strength of economies behind the Iron Curtain.
Risky Business
In 1972 President Nixon and his national security advisor, Henry Kissinger, ushered in a policy of détente with the Soviet Union. Its purpose was to further divide the Soviet Union from China. Papers at the Nixon library show that Kissinger was under pressure from British firms, in particular, to open up markets behind the Iron Curtain. Britain was in a dire economic doldrum following an oil shock due to a war in the Middle East.
Kissinger and Nixon knew that not all commercial technologies could be transferred to America’s main strategic enemy, the Soviet Union. The White House was accurately afraid of dual use technologies, namely those that were civilian but could also be used for military purposes. Kissinger limited the sale of high end computers and microchips, for example, only allowing second tier components to be sold to the Soviets.
Although Nixon and Kissinger accurately guessed that US industries would be targets for Soviet espionage, the extent to which the Soviets exploited détente would have been beyond their wildest imaginations. The collection of scientific and technical intelligence from the US was conducted by Soviet military intelligence (GRU) and the KGB, whose operating arm, Line-X, reported to Directorate T (Technology). In 1973 the KGB assigned an officer to New York whose full-time job was to collect (steal) US scientific and technical intelligence (S&T). By 1980 the US was producing more S&T intelligence for Moscow than the rest of the world combined. Visiting Soviet trade delegations to US research centers, laboratories and fortune 500 companies, for example, were packed with undeclared Soviet intelligence officers. In an agricultural delegation of a hundred Soviet officials about one third were known or suspected Soviet intelligence officers. In one visit to a Boeing laboratory a delegate applied adhesive to his shoes to obtain metal samples. The size of the Soviet onslaught was so large that entire fields of US research and development became replicated in the Soviet Union. The East German spy master, Markus Wolf, recalled the East German computer company, Robotron, was, thanks to Soviet espionage, an unofficial subsidiary of IBM.
Soviet S&T espionage was often facilitated by sloppy security at US defense contractors. An employee of TRW Corporations in Redondo Beach, CA, which manufactured a US spy satellite, recalled that workers “regularly partied and boozed it up during working hours with the ‘black vault’ housing the Rhyolite [spy] satellite project”. Bacardi rum, he claimed, was kept behind the cipher machines and a cipher-destruction device was used as a blender to mix banana daiquiris and Mai-Tais.
Soviet espionage was so far reaching that, ironically, by the end of the Cold War both sides of the conflict, NATO and the Soviet Union, were dependent on US S&T.
Business Risk
Fast forward to the present day – a time when the world is vastly more complicated than the last century’s Cold War. Western countries did not need the Soviet economy. By contrast, China is intertwined with the world economy.
Beijing is seeking to portray Washington’s new approach to economic, defense, and foreign policies as undermining the post war rules based international order that it created. Meanwhile the PRC, which, has previously railed against the international order (though in reality it vastly benefited from that order), is holding itself out to be the stable player on the world stage. The PRC’s attitude is that it will play by the rules when it suits it but is happy to break them whenever it decides to do so.
Recent diplomatic outreach to Beijing by Western leaders include agreements framed as pragmatic economic wins. If middle powers, like Britain, for example, pursue a strengthening of commercial relations with China, they will need a strategy to mitigate risk like Nixon and Kissinger developed. Britain does not have a strategy for doing so. Even China hawks, like former US ambassador in Beijing, Nicholas Burns, have stated that for economic growth the US will need to continue to trade with China, but will need to carve out elements of national security and critical infrastructure. The latter is a principle stretching back to the UK government War Book.
There is no reason why the PRC would not seek to exploit a détente with the west as the Soviets did before. The Chinese state and its intelligence services have never encountered a western business whose intellectual property they did not want. The Chinese Communist Party (CCP) uses a constellation of front companies to do business with the outside world. Often such companies will enter into business ventures to obtain intellectual property from their western counterparts, but then pull the plug, bankrupting their western counter parties. To add insult to injury, Chinese firms will often sell the product they have stolen back to western markets.
The name of the game for western businesses must therefore be risk mitigation regarding China. In the last century, governments held the monopoly on the know-how and intelligence critical to the technologies that shaped our world – nuclear weapons. It took state resources to detect technology transfer. Soviet S&T espionage was only discovered when French intelligence recruited an agent in KGB Line-X in the 1980s. The same is not true today. Private sector companies today hold the keys to innovations that will shape our lives this century – microchips, A.I., quantum and bioengineering. It is therefore private sector companies that are best placed to mitigate risk of stolen intellectual property. And unlike in the past, this can be done by using A.I. driven publicly available data.
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