China’s Satellite-Based E-Commerce Platform: A Threat to Economies & Information Integrity
By N. MacDonnell Ulsch, Skytop Contributor / April 11th, 2022
Mr. Ulsch is Founder and Chief Analyst of Gray Zone Research & Intelligence—China Series, a research initiative focused on unraveling China’s technology driven strategy of global economic supremacy. He is a well known international advisor on cybersecurity, operational risk, technology and geopolitical risk. He periodically advises the US Senate Committee on Foreign Relations on the China cyber and technology transfer threat. A former Senior Managing Director of PwC’s cybercrime practice, he has led incident investigations in 70 countries.
His research on the China threat covers the impact of legal and illegal technology transfer on China’s economic development strategy, US corporate regulatory risk pursuant to the China threat, China’s supply chain penetration, food processing and transport, technology investment, equity investment, Military-Civil Fusion as a cyber threat, and space-based revenue generating initiatives. More than 500 companies around the world read his LinkedIn China Polls, including every major bank in China.
His LinkedIn China Polls have received more than 200,000 views since June 2021 and he has more than 25,000 risk, audit, lawyers, and security followers on LinkedIn.
Mr. Ulsch is a strategy advisor to an East African presidential cabinet-in-exile on a counter-China Belt & Road Initiative, intended to increase the US presence and commitment to this transitioning nation-state.
Previously he was with the National Security Institute and under the Foreign Intelligence Surveillance Act he served as a cyber threat advisor to the US Central Intelligence Agency. His work there involved developing perspective on key US cyber adversary capabilities and attacks on the US commercial sector and the Defense Industrial Base. He served on the US Secrecy Commission, and worked with a well known US Senator on information security issues. Mr. Ulsch advised a US presidential campaign on cybersecurity issues.
He is Guest Lecturer on Cyber Warfare at the US Military Academy at West Point. He has also lectured at numerous university graduate and law schools. One of his books, Cyber Threat!, is used in a number of universities and law schools. Mr. Ulsch is a Research Fellow in the Master’s in Cybersecurity program at Boston College, which he helped establish and where he remains on the advisory board.
Mr. Ulsch has spoken internationally at events and is the author of two books: Cyber Threat: How to Manage the Growing Risk of Cyber Attacks (John Wiley & Sons, 2014) and Threat! Managing Risk in a Hostile World (The IIA Research Foundation, 2008). For many years, Mr. Ulsch has been a Distinguished Fellow of the Ponemon Institute. He is a Director of the Near East Center for Strategic Engagement and Contributor to the inteliscopx.com program Homeland Security Off the Record. His videos are posted on YouTube and other social media venues.
Mr. Ulsch is an Independent Director of a financial services company, serving on the audit and risk committee, with particular focus on cybersecurity and privacy issues.
Introduction
China is on a mission: to achieve global economic supremacy. It will do this through two key large-scale initiatives. Both involve space-based programs. The first is a satellite-based e-commerce program, the second is an energy from space program. Both programs require enormous technological innovation, and this is a problem for China. China lacks the ability to innovate its way to global economic supremacy. However, as is examined in this report, it is developing work-around solutions that will ensure the continuous viability of its space-based programs, and therefore achieve its aggressive goals. And the United States and Europe, as well as some Asian countries, are going to help China succeed.
This report focuses on the first initiative, satellite-based e-commerce for developing nations. Developing nations are vital to China’s strategic plan. The reason is simple. Corrupt developing nations will utilize its e-commerce platforms. Once implemented, there will be a continuous and growing demand for related goods and services to meet the demand: consumer items, food, clothing, as well as industrial parts for manufacturing. China’s e-commerce architecture is expansive and comprehensive. It empowers China on a grand global scale, just as it will bring wealth to the corrupt heads of developing nations. For China, this is a win-win scenario. It gains new technologies, it creates new markets, it builds geopolitical allegiance. From the Chinese Communist Party’s perspective, it is an expensive proposition, but one that is likely to achieve the expected political outcome.
These two space-based programs are the key to China’s future.
By 2035 China plans to launch a full-scale economic development plan based on its ability to provide developing nations with full-scale e-commerce services. These services will be delivered via a constellation of 13,000 satellites in Low Earth Orbit (LEO).
The People’s Republic of China is currently in a period of strategic opportunity. Here are its challenges:
Continue its domestic development
Ensure domestic tranquility
Expand its national power
Reinforce the powerful rule of the CCP
Defend its national sovereignty and territorial integrity
Reacquire regional pre-eminence
Safeguard its interests abroad
Achieve global economic supremacy
Last year, 2021, was the one-hundred year anniversary of the CCP. The goal of the CCP by 2021 year was to create a moderately prosperous society, which it has, for the most part, accomplished. By 2035 its goal is to modernize its form of socialism or communism, and to become an innovative country, especially in technology. By 2049 its goal is to have built a strong democratic socialist nation.
In many ways, China’s satellite-based e-commerce initiative reflects the aspirations and goals of the CCP. It expands China’s already powerful reach into under-developed nations and builds China’s geopolitical and economic strength, while reinforcing its military profile and intelligence network. A China-developed e-commerce model may also enable targeted host governments to increase monitoring and surveillance of that country’s citizens.
China has a lot riding on this space-terrestrial venture, and it intends to execute expertly and relentlessly. At the heart of the e-commerce franchise is 5G and 6G telecommunications technologies, and this is the heart of the dilemma. China realizes that it cannot succeed alone: such a complex venture requires a broad array of advanced technologies, from inside and outside of China. And in this, is China’s opportunity and our risk.
Targeting Have-Not Nations for China’s Benefit
China envisions for its e-commerce platform a diversified range of programs. E-commerce includes, by China’s definition, Business to Consumer, Business to Business, Business to Government, Government to Business, Government to Consumers, Industry to Industry. The wider the range of e-commerce implementation, the more control China will have over each participating country’s economy and, in fact, destiny. China will control the technologies enabling the platform, as well as the flow of goods and services.
China’s satellite-based e-commerce platform holds great promise for the CCP as it accelerates its goal of achieving global economic supremacy. This initiative has the potential to strengthen China in many ways: economically, technologically, politically, and militarily, while building what may become the most powerful franchise model in the world. The market for satellite-based e-commerce is a trillion-dollar opportunity, and a mission of purpose. For China, it is more than a business: it is a calling, one which may well secure China’s expansionist strategy of economic supremacy.
China will build the satellite-based model to deliver diversified and comprehensive e-commerce services to what are essentially have-not states. China is targeting undeveloped and under-developed nations for its 5G and 6G powered e-commerce platform. With Internet services delivered by satellites, not terrestrial telecommunications infrastructure, e-commerce holds the promise of launching entire nations out of poverty and into the technological world of commerce via the Internet.
Unlike China, its targeted country customers are poor. Some are the poorest of the poor. Many of the developing nation governments currently have virtually no—or deficient—access to the Internet, and not much hope for such access without China’s financial and technological assistance. Unfortunately, with systemic poverty, corruption is most often present, which is addressed in the next section of this report.
A satellite-based e-commerce franchise model will fortify an already powerful China intelligence network, while targeting U.S. and allied intellectual property that is integrated into the platforms. Each platform developed in each target country becomes the eyes and the ears of both China and its host government. In short, these implementations will provide day-to-day intelligence to China. The use of artificial intelligence will give China not only information about e-commerce impact, but it will identify patterns of interest in government, society, and even the lives of everyday citizens. This is a potent, integrated surveillance system that each government will actually purchase through debt equity. China will develop close bonds with host governments. Not only will there be financial obligations binding them, but unifying interests in social and cultural control, and a geopolitical bond that places China at the head of an ever-increasing block of aligned nations.
Each government working with China’s e-commerce platform may become increasingly more totalitarian, powered by digital technology and artificial intelligence. In effect, e-commerce systems are the bait that China and its host nation will use to nefariously infuse state surveillance into the populace.
As China owns the hardware, software, and services associated with the systems, State-Owned Enterprises (SOEs) engaged in e-commerce platform development will serve as the chief integrator of technologies. SOEs decide which foreign technology, product and service companies will be allowed to participate.
An embedded e-commerce system may easily be expanded into a surveillance model, much like what China conducts in its predictive policing campaign against segments of its own domestic population. China’s People’s Liberation Army and Ministry of State Security have a major role in the development of satellite-based e-commerce programs, partnering with its behemoth block of SOEs and its massive investment machine. China and each subscribing nation-state will be able to monitor citizens as they use the Internet.
Many advanced technologies, identified in this report, are needed to create a sophisticated e-commerce and intelligence framework. Diversified e-commerce includes the selling of everything from retail clothing to ship-building. It is comprehensive and will impact virtually every aspect of the targeted countries. Developing countries are eager to participate in e-commerce: it generates revenue, creates jobs, encourages entrepreneurship, and addresses many of the deficiencies noted. Such commerce will help alleviate the chronic poverty associated with many of these countries.
Each participating country’s commitment to China is expected to span decades. The e-commerce platform becomes integrated at virtually every societal level, from consumers and small business to large government contracting and heavy industry. For developing nations, China’s satellite-based e-commerce franchise is a path forward, one which is perceived by developing nations as a dramatic shortcut to participating in a world of global commerce. For these developing nations, China will structure capital loans, creating a high-level, long-term indebtedness. The e-commerce platform model ensures a tight grip around each participating country’s domestic economy, benefiting China, while appealing to the leadership in these countries who stand to benefit financially.
U.S. and Allied Risk
That these developing countries have a pent-up demand for goods and services creates a substantive opportunity for China. However, it will prove difficult for China to provide all of the technology it needs to successfully execute on this plan. China needs to integrate into its emerging platform U.S. and allied technologies. This creates revenue opportunities for a range of foreign technology providers, but it also introduces considerable risk to non-China vendors. While certain risks are inevitable, the China e-commerce platform poses additional risks for non-China providers to include data privacy, cybersecurity risk management, and U.S. Foreign Corrupt Practices Act (FCPA). Risk for U.S. and allied countries and companies encompass the following:
1. Bringing developing nations online with sophisticated e-commerce capabilities translates into building a cyber proxy attack ally for China. China has a history of using other nations to commit cyber attacks on its behalf, either directly or indirectly. Iran and North Korea top the list. Over time, expect that the expanding China-bloc will pose an intensified threat of cyber attacks that result in the heightened theft of intellectual property, as well as serve to disrupt China’s competitors, i.e., the U.S. and its allies.
2. Many target countries rank high on the Transparency International Corruption Perceptions Index, introducing an increased risk of violations of the U.S. Foreign Corrupt Practices Act (US-FCPA). China largely ignores Western interpretations of corruption, and its developing nation partners often engage in corrupt practices.
3. Transnational Organized Crime (TOC) has a strong presence in many of these nations and frequently colludes with governments, increasing the risk of corruption and cybercrime. Such collusion has a significant impact on cyber insurance exclusions that may result in uncovered losses for U.S. and allied companies. Cooperation between nation-states and criminal groups, defined as a blended threat, seems to be increasing. Exclusions may result based on the basis of collusion between criminal factions and any government party. If a government is deemed to have been involved in the attack, this would trigger exclusions, which may result in non-payment of claims. Any expansion of cyber attack forces may result in increased nation-state, TOC attacks.
4. Regulatory risk includes the failure of companies regulated by the US Securities and Exchange Commission to accurately report on entity cybersecurity risk management concerns and forecasts. Engaging with China in this e-commerce franchise will further complicate reporting, potentially resulting in legal liability risk at the Board level. Boards of Directors, as stewards of corporate value, must be engaged in the process of determining participation. In the past, Boards have often failed to consider the risks of doing business with China. Any decision to move forward must be vetted carefully, evaluating the full dimension of risk to the brand.
A Commonality Among China’s E-Commerce Targets
Relative to China’s developing nation target markets, we looked at their rankings in the Transparency International Corruption Perceptions Index. The Index ranks 180 countries and territories by the perceived levels of public sector corruption. What we found is troubling. Many of the developing countries are rife with corruption, scoring between roughly 125 and 180 on the Index. This poses serious problems for management and boards of U.S. and allied governments and companies that do have to be concerned about corruption and the potential for brand exposure.
It should be noted that not all of the factors noted below apply in every case, in every country. But in general, these conditions exacerbate corruption, and contribute materially to risk for participating companies based in the U.S. and allied countries, where corruption is both a criminal offense and a social and cultural stigma.
The commonality among higher-risk nations is what offers China such tremendous opportunity to execute long-term economic and technology agreements with these governments. Chronic problematic commonalities among many of the target nations include:
Low Gross Domestic Product (GDP)
Inconsistent education systems with poor results
Deficient job market
Low per capita income
Inadequate housing
Rapid population growth
Excessive reliance on agriculture and inadequate agricultural sciences application
Slow industrial growth
Failure to optimize indigenous natural resources
Social unrest and civil disorder
Political instability
High levels of corruption, bribery and money laundering throughout government (civilian and military) offices, the legal system, and industry
Poor immigration border controls
Poor or no access to technology services, including Internet and e-commerce. Where access exists, it is controlled by the government
Inadequate medical and healthcare services and infrastructure leading to higher death rates and chronic illness
Inadequate utility infrastructure and delivery of consistent, reliable services
Unchecked presence of Transnational Organized Crime and even collaboration and collusion with governments
Emergence of various terrorist factions
Uneven application of the law and Constitutional protections
Higher levels of violent and property crime
Overcrowded, corrupt prison systems
The At-Risk Project 863 Technology Portfolio
“Our capacity for innovation is not strong and our weakness in terms of core technologies for key fields remains a salient problem.”
—Premier Li Keqiang, Member of the 19th Politburo Standing Committee at a 2019 meeting off the Chinese Communist Party
Translation: The statement by the Premier, who is also a major national security voice within the CCP, is confirmation of the need to look outside of China for critical technologies. Strategic building-block technologies are costly, difficult to develop consistently, and require extreme focus and dedication. Consequently, the technologies are priceless. The result is an increase in cyber espionage, academic espionage, and securing equity positions in some companies, and acquiring others. China is also increasing its R&D efforts.
When we talk about “advanced technologies,” these are the engines that fuel commerce everywhere. Twenty (20) specific, fundamental nation-state building technologies, referenced the CCP’s Project 863, must be acquired by whatever means necessary. These are the technologies that will propel China even further into its economic ascendancy, including the full strategic implementation of its e-commerce program for developing nations:
INFORMATION TECHNOLOGY
Computer Software
Computer Hardware
Communication Technology
Information Acquisition & Processing Technology
Information Security Technology
ADVANCED MATERIALS
Photoelectronic Materials & Device Technology
Special Functional Materials
High-Performance Structural Materials Technology
BIOTECHNOLOGY & ADVANCED AGRICULTURAL TECHNOLOGY
Bioengineering Technology
Gene Manipulation Technology
Bio-Information Technology
Advanced Agriculture Technology
ADVANCED MANUFACTURING & AUTOMATION TECHNOLOGY
Contemporary Integrated Manufacturing Systems (CIMS)
Robotics Technology
ENERGY TECHNOLOGY
Sustainable Energy Technology
Clean Coal Technology
RESOURCE & ENVIRONMENTAL TECHNOLOGY
Marine Resources Exploitation Technology
Marine Biotechnology
Ocean Monitoring Technology
Technologies for the Prevention of Environmental Pollution
In commercializing its space program through a satellite-based e-commerce initiative, China’s pursuit of 5G and 6G telecommunications technologies are critical to its success, methods both legal and illegal. China’s options for acquiring these technologies include:
In commercializing its space program through a satellite-based e-commerce initiative, China’s pursuit of 5G and 6G telecommunications technologies are critical to its success, methods both legal and illegal. China’s options for acquiring these technologies include:
Domestic R&D. Investing in its multiple domestic research and development technology innovation centers. It is investing heavily in technology centers in Beijing, Shanghai, Shenzhen SEZ (Special Economic Zone), and Hong Kong SAR (Special Administrative Region). The investment is significant, but does represent a financial risk for China, thereby increasing pressure to succeed in producing a return for its investment.
Cyber Espionage. Already heavily engaged in cyber espionage, there are indications that China is stepping up its cyber espionage campaign to yield even more intellectual property as many nations begin to exercise more caution in protecting technology secrets from China. Intellectual property refers generally to technology information, and also business information that provides competitive advantage in the marketplace. This would include marketing materials, sales and distribution information, cost data, and so on. China acquires this information directly, as in the case of espionage targeting United Steel Corporation; and indirectly, as indicated in the case of North Korea’s cyber espionage campaign against Hyundai Merchant Marine. As additional countries join the China-bloc, China’s cyber proxy army grows, representing an expanded threat to U.S. and allied interests.
Academic Espionage. The commission of China academic espionage targeting U.S. universities continues. In fact, officers of the People’s Liberation Army have been arrested for infiltration into U.S. academic programs. Professors have also been arrested. U.S. universities hosting technology research programs, many working cooperatively with China, are at particular risk.
Equity Investment and Acquisition. Investing in targeted technology companies across virtually every continent, and acquiring others. Often, China will seek an equity position, and then later fully acquire the company, making the entity part of a China State-Owned Enterprise. Interestingly, under China’s National Security Law, the CCP has the right to request access to information contained in any SOE, whether domestically or foreign based. This raises critical issues of data privacy, regulatory compliance, cybersecurity risk management, and other concerns.
“Mystery” Equity Investment. These are Sovereign Wealth Funds that are believed to be comprised of military and intelligence funds. Investments are made in a variety of companies, but the investments never exceed five (5) percent (%) of total equity in a company. Exceeding that equity level would trigger further disclosure requirements under the securities laws of many nations.
Military-Commercial Fusion. There are very thin lines separating commercial and military operations in China. National security and defense in China are paramount concerns and any technology that is developed or acquired can be used in both environments. The risk is that many U.S. and European companies that cooperate in technology research and development have no way of preventing and verifying the transfer and engagement of technology for military use.
International Joint Market Ventures. Developing lucrative joint ventures with companies that both develop and use advanced technologies, and which possess valuable market share in key industries, such as food development, processing, and distribution.
International Joint Research Ventures. China has developed critical research and development relationships with powerhouse companies. China looks to Singapore, Japan, and South Korea. These R&D structures provide the ability for China to avoid increased regulatory scrutiny in the U.S. and Europe. Such relationships enable what is referred to as soft technology transfer across a range of research centers situated in various regions of the world, including the U.S., Europe, and Asia.
Many of the 20 technologies noted in the Project 863 list are needed to develop and sustain the satellite e-commerce program. Other technologies are needed to actually deliver products and services through the e-commerce highly distributed portal framework under development.
China cannot risk losing its strong position in 5G and 6G technologies. The return on investment for China, in the long run, is less dependent on foreign technology to power its exploits in space and on earth. China struggles in its domestic capability to develop innovative, advanced technologies. It must overcome the limitations imposed by deficient innovative practices.
Overcoming Innovation Barriers: Alibaba as E-Commerce Model
The Alibaba model will pave the fertile ground for the e-commerce program for developing nations. Yes, China is seeking to become more innovative, and it is succeeding. And yes, it is investing heavily in innovation. While China’s ability to innovate has been questionable in the past, the CCP has clearly defined its economic ambition and will likely overcome the limitations imposed by an historic innovation deficiency. The model for overcoming such obstacles is Alibaba Group, a flagship unicorn company, and arguably the world’s largest online Business to Business company. Alibaba executes more transactions with more users than any e-commerce company on the planet. Alibaba illustrates that the bonds of inadequate innovation can be broken, not just technologically, but from a global business perspective.
Alibaba’s success is paving the way for the satellite-based e-commerce service. China is not starting from a zero base of knowledge and expertise. Consider these observations about Alibaba and its business operations:
It is extremely diversified and flexible
It represents hundreds of millions of products around the world
Alibaba works with millions of buyers and suppliers globally
It gives suppliers the necessary tools to reach customers anywhere, any time
More than 5,900 product categories are represented, including apparel, consumer electronics, vehicles and automotive accessories, home and garden products, customized products, small commodities, and so on
Buyers for these products are located in more than 190 countries
Alibaba utilizes a global shipping (ocean and air) capability to reliably and consistently service customers. It operates state of the art distribution centers in the following 14 countries:
INDIA
MALAYSIA
SINGAPORE
INDONESIA
THAILAND
TURKEY
JAPAN
SOUTH KOREA
PAKISTAN
ISRAEL
ITALY
RUSSIA
AUSTRALIA
UNITED STATES
The ANT Group is the unconsolidated company providing payment services to consumers and merchants. Interestingly, the president and a member of the board of directors is a retired executive of Goldman Sachs Group Inc.
The Alibaba and ANT Group model can be expected to serve not only as a model for the satellite-based platform of services, but be an integrated element in the e-commerce model for developing nations. Alibaba will generate new sources of revenue in this model, and ANT Group will have a savvy, sustainable finance model that will no doubt be linked to the debt financing China provides for each developing nation it brings onboard. The micro-lending organization, according to a 2018 Harvard Business Review article, has a default rate of only 1%, compared to the World Bank’s estimated default rate of 4%.
To perpetuate Alibaba’s model success in developing nations, China will need continuous innovative technological solutions, including cutting-edge artificial intelligence and big data analytics. While China’s capability to develop advanced technologies is improving, it remains inadequate to ensure progress in achieving its aggressive global goals. Therefore, it must continue to engage in other methods of acquiring technology, as defined in this report.
Conclusion
There are several potential conditions that may derail China’s ambitions. Domestic tranquility could lapse into civil insurrection. Civil war could happen. China’s debt financing associated with e-commerce engagement in developing nations could trouble China’s treasury. It could fail to successfully monetize its rare earth minerals in the developing countries. China’s risk is that the long-term country-level investments fail to result in substantive revenue generation. Revenue failure in this case results in China’s failure to fully realize its geopolitical ambitions, which may limit its overall mission success of economic supremacy, and reduce the dimension of the China-bloc. In order to ensure adequate levels of revenue that justify the investment, China must continually refresh its e-commerce technology platform. So China must rapidly improve its innovation capability. Simultaneously, it must accelerate its cyber espionage against key technology companies and governments, and it must aggressively pursue equity investments and acquisitions, as well as international joint ventures. Joint ventures may be especially interesting for China for two reasons: (1) a joint venture may attract less legal scrutiny from government regulators and justice department officials, and (2) provide a substantial financial return.
As long as China believes that its innovation practices are resulting in a competitive drag, it will continue to aggressively acquire the technologies and markets it needs to continue a CCP mandated pursuit of global economic supremacy. This is a considerable problem for the U.S. and our allies. China is, by definition, a business and trade partner. But we must never lose sight of the inarguable fact that China is a formidable adversary with a strong military, a deep intelligence network, a mission to quell disruption domestically through totalitarian measures, and a blue-water navy expansionist agenda.
A financially strong China ensures an emboldened attitude in addressing its foreign interests in international commerce. Satellite-based e-commerce programs for developing nations is a tactical and strategic win for a China destiny by design. U.S. and allied interests must carefully consider how to respond—to balance a government response, while evaluating the commercial opportunity versus the risk.
One thing is certain. U.S. and allied governments and private industry must work in unison, to the extent possible. China’s approach is simple and direct. The military, its intelligence apparatus, government departments, State-Owned Enterprises, its national police force, and social institutions work in solidarity to achieve the CCP mission objective.
The ongoing Russian invasion of Ukraine could impact China’s perception of its obligations under the Russia-China Cooperation Agreement, as China measures the success or failure of Russia’s involvement there. This could translate into China’s revision of Russia as a member of the China-bloc and its relative importance in developing country e-commerce engagement. Regardless of the outcome, China will seek to capitalize on the outcome as it moves forward in e-commerce platform development and fulfillment.
Senior Advisors to The China 863 Analyst: Jennifer Gold, Gerry Kane. John Jay Modi, Gabriel Galvan. Vishal Verma. Tim Ryan. Anthony Palma. Col. James Lincoln Bullion (U.S. Army-Retired). Maj. Scott Parsons (U.S. Army-Retired).