China Believes We Are At War: Many of Us Agree
By N. MacDonnell Ulsch, Skytop Contributor / January 7th, 2023
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.
This article was adapted from a speech given by Mr. Ulsch at the 23rd Parliamentary Intelligence-Security Forum on December 6, 2022, in Washington, D.C.
No Misinterpretation
Let there be no misinterpretation: We are at war with China! It is a war fueled by China’s economic, geopolitical and military expansionist agenda. Not everyone seems to believe that we are engaged in this war. But what is important is that the Chinese Communist Party believes that they are at war with the United States and our allies.
Let me tell you how China believes it will win this war.
Let’s start at a 2019 meeting of the Chinese Communist Party. Premier Li Keqiang, whose relationship with President Xi Jinping is at best described as disharmonious, made this revealing and uncharacteristically transparent statement: he said, “Our capacity for innovation is not strong and our weakness in terms of core technologies for key fields remains a salient problem.”
As President Xi has been given a third five-year term as China’s leader, Li has been removed as China’s Premier. Though Li announced to the world that China suffered from this technology innovation deficiency, this was no secret. However, making such a bold statement to the world likely made him few friends—including Xi.
China’s Achilles Heel
The reason is this. Technology innovation is China’s Achilles Heel. Li’s was a clear and clean announcement to the world at large that China, in fact, had a problem. It would, therefore, require innovative ways to make up for this troubling deficit—which it has, in part. The problem is that we are not adequately capitalizing on how to take advantage of this not insignificant vulnerability of our strongest adversary.
Not only does China know that war with the United States and our allies exists, China is determined to win it, and it has a plan for doing so. Here is why China’s technology innovation deficiency, in Li’s words, is a “salient problem,” and why China cannot win this war without acquiring the technologies needed to enable its strategic conquest.
Magnitude and Material Impact
The Chinese Communist Party’s strategy consists of two massive, technologically driven initiatives of unprecedented complexity, magnitude and material impact. Each initiative strengthens China’s geopolitical, economic, and military profile. Both initiatives are grounded in space. Both are complex. Both require massive infusions of new technologies and infrastructure. And the success of both initiatives will strengthen China’s global ability to prevail in its geopolitical, economic and militarization strategy.
2035 and 2065
Two dates, among many such important dates in China’s future, are critical: 2035 and 2065. By 2035, China’s plan calls for an operational satellite-based electronic commerce program. A constellation of some 13,000 satellites is planned for deployment in Low Earth Orbit. This system is designed to create evolving, lucrative electronic commerce economies for many dozens of developing nations that are currently sidelined due to the lack of traditional technology and communications infrastructure.
China will deliver this e-commerce infrastructure portal to each developing nation. China will own and control each nation-state portal. The impact? China will create large-scale revenue streams for nations that rank among the most corrupt in the world, according to the Corruption Perception Index published annually by Transparency International. The successful delivery of China’s e-commerce initiative virtually ensures sustainable revenues that will benefit the historically corrupt regimes in these target countries.
China will also have created, over time, new markets for its incredibly broad array of products and services through e-commerce to its bloc of dependent, dedicated nation-state partners. Revenue will be measured in the trillions of dollars, further creating relationships among diversified vendors and customers around the world as these nations connect into global commerce: a system designed to bring into the Chin-bloc a coalition of the corrupt.
Science Fiction to Science
This is China’s second strategic initiative. By 2065 China plans to deliver sustainable energy from space—in geostationary orbit, some 22,000 miles above earth. Several generations ago this was science fiction. But not anymore.
China has been developing patents for the technologies and processes needed to construct massive solar collecting arrays in space and then deliver this raw energy from the sun to large-scale receiving stations on earth. The vision is big. And the potential payoff is equally compelling. Sustainable, subsidized energy for have-not nations is powerful. But let’s take a step back in time.
The concept of transmitting raw solar energy from deep in space was pioneered in the United States by Dr. Peter Glaser in the early 1970s. Vice President of Space Sciences for the Arthur D. Little global engineering and consulting company, and the designer of many components of the Space Shuttle, Dr. Glaser was a mentor of mine. His vision was a connecting point between science fiction and reality, and much of the world, from the United States and Europe to Japan, believed in its potential. But there were concerns, especially as the environmental movement was ascending in the 1970s and 1980s.
Not only were there concerns about the massive beams of microwave ration that would be used to beam the solar energy from geostationary orbit, constructing the energy receiving stations on earth would be the absolute, single largest building project in the history of civilization. The land mass required for just one such energy receiving station was profound. Then, there was the concern around the massive volumes of water needed to mix the concrete for the actual building of the stations. Multiply this by multiple solar energy receiving stations in multiple countries and the enormity of the impact would raise the concerns of environmentalists everywhere.
But China’s strategy for dealing with the environmental community, and the rest of the world, is that it is masquerading as a developing nation. In 2021 China was, by far, the wealthiest developing nation, with a GDP of some $17.73 trillion. Multiple methods are used to determine a country’s development status, and China takes advantage of this. Clearly, developing nations. For example, China’s per capita nominal GDP of $7,594 is lower than the World Bank’s benchmark of $12,275 per capita income. The World Bank ranks China as 79th among 1983 countries. In effect, China gets a pass on almost anything, including debt financing, energy, the environment, and so on.
Gigawatts of Energy from Space
In only several decades, China plans to generate the first gigawatt of energy from space by 2050. This is significant. How much is a gigawatt of power? It’s enough to power 300,000 to 700,000 homes. China’s goal: power the nations that are the coalition of the corrupt. These are nations that must have energy to develop to their maximum capacity, and China will, if all works well, supply it.
E-Commerce and Energy Are Linked
Satellite-based e-commerce brings developing nations into a power position through unprecedented revenue generation. Energy from space provides affordable, subsidized, uninterruptible energy to China’s bloc of engaged nations. This strategy, if successful, builds a powerful, even impregnable, adversary: economic power, geopolitical power, and military power. This is, in effect, the very top of the Belt and Road Initiative pyramid.
But let’s be clear. China cannot achieve success in these expansive programs alone. No matter how hard it tries, China is reliant upon other nation’s technology expertise to bring e-commerce and energy from space to its bloc of countries. Premier Li stated this in the 2019 meeting. Let me repeat: China cannot develop its technology alone.
5G and 6G
This reinforces the need for the transfer of economy-building technologies, from 5G and 6G technologies to Artificial Intelligence, advanced data centers and more. Li’s transparent statement, however, has brought innovation to actually solving the problem if not in developing its technology needs domestically.
How is China gaining access to these critical technologies? Legally and illegally. Its access strategies include:
Cyber espionage
Merger & acquisition
Equity investment
International market joint ventures
Human capital infusions into target institutions
International research joint ventures
China is organically narrowing the technology innovation deficiencies, as acknowledged by the outgoing Premier. But it is through international joint research ventures that have created China’s greatest opportunity and our considerable threat to national and economic security.
Impact of China’s Intent
If you doubt the impact of China’s intent on stealing technology and using it to overtake global markets, look no further than the case of United States Steel Corp. It is clear testimony to China’s intent and capabilities to acquire critical technology and business information.
From approximately 2006 to 2014, through an international joint venture, US Steel and China’s Baosteel cooperated in a joint venture. Meanwhile, China’s People’s Liberation Army stole every scientific, technological, and business information asset that it could.
Its impact? In 1999, China dominated approximately 13% of the global steel demand. By 2015, it dominated about 49% of the total market.
The cost? Untold billions of dollars in market loss, intellectual property, jobs and reputation.
Yes, the United States government filed federal charges against five members of China’s electronic army. Yes, the case was an excellent one. Yes, every iota of evidence sealed the case against China. And finally, no, neither China nor its army ever paid the price for its crimes. Its reward of dramatic market share increase was its reward. Yet, we still conduct joint ventures with China’s state-owned enterprises. Sometimes, we just have to learn the hard way.
Gray Market Transfer
China engages in what we call gray market technology transfer. China’s strategy engages multiple partners, in technology, datacenter development, and infrastructure development. The impact of this strategy could prove to be devastating. Here is but one example: China has a strategic alliance with a prominent South Korea technology company.
Areas of technology research and development focus include:
Artificial Intelligence
Computing Platforms
Human Augmentation
Metaphotonics
Nano Electronics Devices
Display Materials
Battery Materials
Semiconductor Materials
Environmental Research
These areas of specializations are, interestingly, closely matched to overcoming China’s innovation technology deficiencies. These technologies are also imperative to the development of satellite-based e-commerce and energy from space.
This South Korean company has multiple research and development and artificial intelligence centers. These centers are located inside China, as well as in Asia, Europe and the United States. These centers share technology, affording China the opportunity to “acquire” and transfer technology and it moves from one center to another.
China Sovereign Wealth Funds Cross a Dangerous Line
China sovereign wealth funds are being used to acquire equity positions in a number of technology companies as it pursues economic gain, political influence, and global acceptance.
One investment instrument is particularly concerning. Known as SSBT China Treaty funds, which are registered in Australia, China has been using these investment instruments for more than a decade.
The first generation of these funds was used to acquire equity positions in more than 170 Japanese public companies. Such investments provide China with the opportunity to infuse Chinese nationals into these corporations as interns, for example, who are required to report back to the Chinese Communist Party.
But by and large, these investments also made money, while fueling concerns about the future of the China-Japan relationship.
The second generation of SSBT funds target companies in Japan and elsewhere. But here is the problem. It is believed that these SSBT may represent funds directly channeled from the Chinese military, which is under the direct control of the CCP, as are the sovereign wealth funds. Equity investments are always less than 5% of total corporate equity, thereby failing to trigger disclosure of the source of funds to country regulators.
Not only do such investments create divisive political positions in Japan. When it comes to supporting China versus the United States, it creates problematic corporate governance, regulatory and legal concerns when a foreign military may actually own an equity stake in a company in another country.
In one specific case under examination, a major Japanese public corporation formed a legitimate partnership with a global professional services firm. The joint venture provides IT, security, cloud migration strategy and other technology oriented services to its customers. However, the Chinese Communist Party is believed to have used one of its SSBT investment funds to acquire an equity stake in the company.
This should cause any board of directors and government officials to question the wisdom of such as investment or use of these services. At the very least, this is a legal and corporate governance red flag. It is also a vital national security issue.
Militarization of Technology
China is shifting its technology development strategy. While its Premier has cited its innovation deficiency, President Xi Jinping has been given the responsibility of creating a Military-Civil Fusion (M-CF) program. This changes everything. It restructures the way technology is taught, developed, and used in China. M-CF brings the military into virtually every aspect of technology in China. Everything. It is the militarization of technology in China. This is the foundation for the militarization of China’s e-commerce and energy from space agenda.
From Earth to China’s Low Earth Orbit to Geostationary orbit’s bold energy from space program – this is the militarization of China’s aggressive agenda on every front.
Through China’s Regional Comprehensive Economic Partnership plan to its country-level Belt & Road Initiative, to the conquest of linkage to its bloc and its bold plans for capitalizing on space, its reach is wide, embracing, comprehensive, unrelenting, and fearsome.
The unfortunate and uncomfortable truth is that China’s path of global economic victory brings great uncertainty to the United States and our allies. It brings future uncertainty to our traditional partners that now look at China as a strong economic partner that is on a trajectory to overtake the United States, economically and geopolitically.
Not everyone agrees with me, though. In fact, some very well-known, insightful China watchers disagree. Many critics argue that China is over-investing and faces financial failure. They argue that China’s aggressive growth model is destined to collapse given the sheer weight of its debt obligations around the world. Others speculate that China’s growing mortgage crisis may render China a domestic nightmare.
Still others suggest a civil war may eventually consume China. All of these opinions voiced by critics may be true. The future is nothing if not uncertain. But what if these critics are proved wrong? What if China succeeds in these far-flung global ventures? What if China is able to bring into its coalition of the corrupt many dozens of nations that owe economic and geopolitical allegiance to China?
What if, as it develops its e-commerce model and energy from space platform, it educates an entire generation or two to prepare for running its complex technological systems of commerce and energy. At what point do these nations with loyalty to China, with their evolving expertise in information technology and security, represent a tipping of the scale of, say, cyber security. At what point do these nations become China’s potential cyber attack force of the future?
U.S. Led Alliance to Combat Technology Transfer
The transfer of technology, in all of its complex and even nefarious manifestations, is the strategy fundamental to building the future of China’s grand design. From energy, food and electric vehicles to banking investment and finance, advanced technologies are the path to growth and dominance. It provides for China an otherwise unobtainable level of competitive positioning.
No one country can turn the tide against China. This is a war about technology and access to the many minerals that enable advanced technology development. These are not held in one nation alone, and the defense against a geopolitical, economic and militarized China cannot reside within the national borders of any one nation. We can lead in this effort but we, the United States, will fail if we attempt to accomplish this by ourselves.
We Must Do More
While the United States and our allies discuss the China problem, China simply puts its head down and continues its work of securing geographies and material assets from Asia to Europe to the Middle East and Sub-Saharan Africa. We need to work together. We must find better ways to block China’s access to the advanced technologies that it so badly needs to succeed. The failure to cooperate in the face of this formidable adversary will have a telling impact on our future.
The window to compete against the growing China bloc remains open—but it is closing fast.
The future is ours only if we dramatically reduce the transfer of nation-building technology to China. A renewed effort to not only recognize China’s undeniable threat to freedom and liberty, but to actually do something about it, is a must. Late to the game, this urgency transcends political parties, and even the national interests of any one country.
The failure to act now, and to act forcefully, will result in an empowered China capable of anything, and this is antithetical to everything in which the free world believes.