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For years, China has systematically looted American trade secrets. Here’s the messy inside story of how DC got Beijing to clean up its act for a while.
Kevin and Julia Garratt had spent nearly all of their adult lives in China. A devout Christian couple in their fifties with an entrepreneurial streak, they operated a café called Peter’s Coffee House, a popular destination in the city of Dandong, according to TripAdvisor.
Dandong is a sprawling border town that sits just across the Yalu River from North Korea. For tourists and expats, the Garratts’ coffee shop—just a short walk from the Sino-Korean Friendship Bridge—was a hub of Western conversation and comfort food. “After time in North Korea a decent cup of coffee was one of those things I was really looking forward to,” one Australian tourist wrote in early 2014. “Peter’s was a perfect place.”
The Garratts had come to China from Canada in the 1980s as English teachers. They lived in six different Chinese cities over the years, raising four children along the way, before settling in Dandong. From their perch near the border, they helped provide aid and food to North Korea, supporting an orphanage there and doing volunteer work around Dandong itself. The Garratts had a strong social network in the city, so it didn’t seem odd to either of them when they were invited out to dinner by Chinese acquaintances of a friend who wanted advice on how their daughter could apply to college in Canada.
The meal itself, on August 4, 2014, was formal but not unusual. After dinner, the Garratts got into an elevator that took them from the restaurant down to a lobby. The doors opened onto a swarm of bright lights and people with video cameras. The Garratts initially thought they’d stumbled into a party of some kind, maybe a wedding. But then some men grabbed the couple, separated them, and hustled them toward waiting cars. Everything happened fast, and very little made sense. As the vehicles pulled away, neither Kevin nor Julia had any idea that it was the last they’d see of one another for three months.
It wasn’t until the two arrived at a police facility that they each realized they were in real trouble. And it wasn’t until much later still that the couple would understand why they had been taken into custody. After all, before their detainment, they’d never even heard of a Chinese expat living in Canada named Su Bin.
When the Garratts first arrived in China, in 1984, the country was still transitioning away from collective farms. Shanghai had only just opened up to foreign investment; the future megacity Shenzhen still had just a few hundred thousand inhabitants. Over the ensuing three decades, the couple would watch as China hurtled from eighth-largest economy in the world to second-largest, powered, famously, by mass migrations of people into new industrial cities and the erection of a vast manufacturing and export sector. But especially in the later years of the Garratts’ career as expats, the country’s growth was also propelled by a more invisible force: a truly epic amount of cheating.
China has become one of the world’s most advanced economies overnight in no small part through the rampant, state-sponsored theft of intellectual property from other countries. This extended campaign of commercial espionage has raided almost every highly developed economy. (British inventor James Dyson has complained publicly about Chinese theft of designs for his eponymous high-end vacuums.) But far and away its biggest targets have been the trade and military secrets of the United States. From US companies, Chinese hackers and spies have purloined everything from details of wind turbines and solar panels to computer chips and even DuPont’s patented formula for the color white. When American companies have sued Chinese firms for copyright infringement, Chinese hackers have turned around and broken into their law firms’ computer systems to steal details about the plaintiffs’ legal strategy.
Each theft has allowed Chinese companies to bypass untold years of precious time and R&D, effectively dropping them into the marathon of global competition at the 20th mile. China’s military has gotten a leg up too. Coordinated campaigns by China’s Ministry of State Security and the People’s Liberation Army have helped steal the design details of countless pieces of American military hardware, from fighter jets to ground vehicles to robots. In 2012, National Security Agency director Keith Alexander called it the “greatest transfer of wealth in history,” a phrase he has regularly repeated since.
And yet, despite a great deal of restlessness in the ranks of law enforcement and intelligence agencies, the United States was, for years, all but paralyzed in its response to Chinese hacking. China simply denied any hand in the thefts, professing to take great umbrage at the idea. American diplomats were skittish about upsetting a sensitive bilateral relationship. And American companies, in turn, were often inclined to play dumb and look the other way: Even as they were being robbed silly, they didn’t want to jeopardize their access to China’s nearly 1.4 billion consumers.
John Carlin, who served as assistant attorney general for national security during the Obama administration, recalls one meeting with executives from a West Coast company whose intellectual property was being stolen by Chinese hackers. The executives even projected that, in seven or eight years, the stolen IP would kill their business model; by that point, a Chinese competitor would be able to undercut them completely with a copycat product. But the company’s general counsel still didn’t want the government to step in and take action. “We are going to be coming back to you and complaining,” the general counsel said. “But we’re not there yet.”
Finally, between 2011 and 2013, the US began to reach a breaking point. Private cybersecurity firms released a string of damning investigative reports on China’s patterns of economic espionage; the US government started to talk more publicly about bringing charges against the country’s hackers. But it was far from clear how any government or company might successfully turn back the tide of Chinese incursions. President Obama pressed the issue of cyberthefts in his first meeting with President Xi in 2013, only to be met with more denials.
This is the story of how the US finally achieved some leverage over China to bring a stop to more than a decade of rampant cybertheft, how a Canadian couple became bargaining chips in China’s desperate countermove, and how the game ended happily—only to start up again in recent months with more rancor and new players.