SpyCast 8.8.23
Ep 597 | 8.8.23

“China’s Corporate Spy War” – with CNBC’s Eamon Javers


Andrew Hammond: Welcome to SpyCast. The official podcast of the International Spy Museum. I'm your host, Dr. Andrew Hammond, the museum's historian and the curator. Every week, we explore some aspect of the past, present, or future of intelligence and espionage. Please subscribe to us wherever you get your podcasts. Coming up next on SpyCast.

Eamon Javers: I think what that would mean would be a lot bigger than 2008. It would be deeply damaging to the US economy. And as a result, the US way of life. Our prosperity, our prospects for the future, opportunities for ourselves and our children. All of that is at stake in this.

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Andrew Hammond: This week's episode is on a topic that can be rather complex, corporate espionage. But that's alright, we've got you. Because Eamon Javers and CNBC spent a lot of time and energy to make a fantastic documentary that breaks the subject down for you. The documentary is called "China's Corporate Spy War," and includes interviews with senior government and intelligence officials. It's available on CNBC, the streaming app Peacock, and YouTube. Eamon is a senior Washington correspondent for CNBC, who was previously at Politico. He's the author of the 2010 book "Broker, Trader, Lawyer, Spy - The Secret World of Corporate Espionage." In this episode, Eamon and I discuss how Chinese's government and companies work together to steal secrets from corporate America, the industry's jobs and dollars at stake, the case of the Chinese intelligence officer, Xu Yanjun, and GE Aviation, and the military implications of corporate espionage. The original podcast on intelligence since 2006, we are SpyCast. Now sit back, relax, and enjoy the show. So, we're here to talk about China's corporate spy war, so thanks for joining me to speak about it. The first question I would like to ask is tell us a little bit more about your documentary.

Eamon Javers: Yeah, this is a documentary we did for CNBC "Primetime" and it's focused on the threat of Chinese espionage to American companies. And I got started in doing the research on this and just talking to my sources in the US intelligence community who said you know what, Eamon, we don't think that corporate America gets it. We don't think they understand the scale of the threat that they're dealing with. And we think that they're viewing it in a very short-term way. And that was kind of intriguing to me. You know, because everybody in corporate America sort of knows that intellectual property theft exists, they know that Chinese espionage exists as a thing, but what the intelligence guys were explaining to me was that this isn't just a matter of stealing some technology and eating away at some market share, this is an existential threat to a lot of these companies and that's the piece that they don't understand. And for the longest time, I couldn't get that either. Because you think of sort of in global economics, if you're the one stealing technology to catch up, by definition, you're in second place. Right? You're not innovating yourself, you're playing catch-up. So how big of a threat could it be? They could narrow gap, but you can't steal your way into first place. And what these guys explained to me over the course of some months is that the real threat is not just the stealing of the technology, but it's then the way that it's deployed in an all-state capacity. So you steal the technology, you give it to a Chinese company, then you subsidize that Chinese company so it can produce the product at a much lower cost, you send that product back into the global marketplace, you undercut the existing American or western company that's doing that business, and then you eliminate that company because the company can't compete. And the real goal here, a lot of the intelligence guys believe, is actually to not just steal technology but to eliminate major American companies that dominate the marketplace now. The big brand names that we've all heard of. And that was intriguing to me. Because I don't think, I agree with them, I don't think people in corporate America knew that, fully understood the scale of the threat, they thought this was kind of an annoyance like shoplifting is. And that you kind of just built in some procedures and there's some costs associated with that and you move on. What these intelligence guys were describing was an entirely different threat. This was the elimination of major American brands from the global marketplace.

Andrew Hammond: Do you have an example of a brand that this has happened to, or a company that this has happened to?

Eamon Javers: Well you can see it over and over again. But one of the interesting ones is a North American company called "Nortel," which was in the telecommunication space. There was a lot of Chinese theft in that company. There's a big debate among business people what happened in Nortel. Did it, you know, deserve its fate? Did it do this to itself? Did it make mistakes? And clearly it did. But Nortel no longer exists. And Huawei exists, right? And there is no North American competitor to Huawei now. So in a very real way, you've got a situation where a Chinese telecommunications company that allegedly benefited from stolen technology now owns a space in the global infrastructure that was owned by a North American company 20 years ago. And when I talked to the intelligence folks, they said one of the really key cases is the case that we spotlighted in the documentary, which is the case of a Chinese spy named Xu Yanjun, who worked for the Monastery of State Security, who was a mid-level guy who was targeting GE Aviation. And the idea that Xu Yanjun and his bosses had was that GE Aviation has this composite fan blade technology for jets that makes it actually possible to make a jet engine, a modern jet engine, that's economical. And economically competitive. And the Chinese have been trying to, the Chinese government's been trying to develop this technology on its own for years, they've been unsuccessful at it. And so, Xu Yanjun was sent to go steal it. And the intriguing thing about this story to me was that it had the same existential threat piece to it, right? Because the real target here, I was told, was not just GE Aviation, which is a big company, but actually Boeing. Boeing as a national airline manufacturer represents sort of a level of economic sophistication and economic integrity for the country and is a target of Chinese intelligence that they want to be able to compete with, Boeing. At least initially, with their own national airline manufacturer, which is called Comac. Which is nowhere near Boeing now but has aspirations. And the idea is that you can steal the various components to a contemporary, commercial, or military jet, and then just build it in China for cheaper. And the intelligence folks are telling me that they believe the ultimate Chinese goal is to eliminate Boeing. And that's a scary thing for the US economy, because you think of the number of jobs that that represents, the GDP component that that represents for the US, all the plants and workers and everything, but also the military capability, right? I mean, Boeing provides a lot of equipment and technology to the US military that would not easily be replaced.

Andrew Hammond: I would like to go back to Xu Yanjun. I'm just wondering though, when you say they're trying to replicate this, the problem is not that they can't reverse engineer it, they can't find the blueprint, you can do that. But the problem is they don't know how to make the materials that it's made of, that's the sticking point. Is that correct?

Eamon Javers: Yeah, that's exactly the hang-up I had on this story. Is wait a second, the Chinese government, Chinese companies, buy Boeing airplanes which have these GE engines in them, why don't you just take it apart and figure out how it works? And the explanation I got was this isn't like a Lego toy where you can just take it apart and make a note of how each piece went in and then you could rebuild it when you get home. This is a very complicated chemical process, that even if you have the end product, you don't necessarily know how those composites were manufactured, at what temperatures, what the chemical compositions were, sort of the secret sauce of those composites is not something that you can reverse engineer. Even if you have an engine sitting in a lab and you can take it apart and break it and heat it up and boil it and do everything you could possibly think of to it, it's not that easy. And so, the direct solution is to go out and steal it, right? I mean, that's what spies do is they steal information. And what we're not used to in the United States is this economic context, because we think of spies, you know, spying on the FBI or the CIA or the Pentagon or the White House. We don't necessarily think of them spying on corporations for profit motive. And that's what China has deployed here is on a vast scale, that is alarming to US intelligence.

Andrew Hammond: And just for our listeners, so 50% of our listeners are in the States, and the other 50% are overseas. So for the people that are in the States, I'm assuming there's some kind of regional component to this. Are there particular hot spots around the country where the majority of this Chinese espionage is taking place? Is it Silicon Valley? Is it the Midwest?

Eamon Javers: It depends entirely on the industry and it goes to where the capitals of those industries are, right? So in this case, GE Aviation is a company in Ohio. The GE engineer who was targeted by Chinese intelligence was based in Ohio. But Silicon Valley is teeming with foreign spies. According to every intelligence expert I've talked to. Because that is where all the most exciting stuff in the economy is coming from. So if you're a company like Apple, Tesla, or the social media companies, you know, you're under enormous targeting that you as a company might not be fully aware of. And companies don't have their own intelligence services to fight back, right? So when you're dealing with nation state on nation state intelligence, okay, the CIA and the KGB dueled for decades in the Cold War, and it was more or less on an equal footing. In this case, you know, if you're Apple, what kind of intelligence operation do you have? What kind of counterintelligence operation do you have? You know, you might have a couple of ex-FBI guys running security for you, but, and Apple, I don't mean to diminish them. A very sophisticated company, of course. But the scale of the operation is overwhelming to any individual company.

Andrew Hammond: I think Apple is a 2 trillion dollar company or something now.

Eamon Javers: I mean at various points, right? The biggest and most company in the world. With deep ties to China and deep dependence on China, right? So GO strategically in a very awkward space right now.

Andrew Hammond: And for our overseas listeners, some of them might be thinking well, okay, sure, the Chinese are spying on the Americans, the Americans are probably spying on the Chinese or spying on other countries. So just give them some international context.

Eamon Javers: Well, so, a couple things to think about. One is that all spies lie, I mean that's what they do. So take everything I say with a grain of salt. And as a reporter, you know, I just start going into everything very skeptically, but what US intelligence officials will tell you is that the United States intelligence community spies for national level gain, and what the spying apparatus is aimed at is gaining information that's useful from a military and strategic perspective, right? So we're gathering financial information around the world. We're developing human sources inside foreign governments and foreign militaries to understand their military and governmental capabilities. But US intelligence says it doesn't do is steal stuff for financial gain. Or for purely financial gain. So the distinction here is that the Chinese have a seamless interaction between the Chinese government and Chinese corporations, which are not entirely private entities and not entirely separate from the government in any real way, in which technology can be stolen by a Chinese spy working for the Ministry of State Security, understood and analyzed by analysts in Beijing, and then handed off to a Chinese company in a very pure mercantilist way that gives that company the benefit of that theft. There's no equivalent system, according to everyone I've talked to in the United States, the CIA can't go out and steal Alibaba's code and hand it off to Amazon. Right? Because that would violate a zillion laws in this country, right? There's no ability for the United States to pick winners and choosers, US government to pick winners and choosers that way. So we don't tend to use our intelligence apparatus to benefit particular private American companies. We have a big distinction, sort of institutionally, between the private sector and the government. Now, that's not to say there aren't government contractors and overlap and all that. But the US intelligence community's not used to benefit particular private American companies in that way. That's what they say. And in China, it is.

Andrew Hammond: It's interesting that you use the word mercantilist there, because for our listeners, this is part of why I think it's different, right? It's the relationship between the state and the market in the United States is very different from the state and the market in China. Typically the CIA's not taking taskings from corporate America.

Eamon Javers: As much as some on the left might want you to think so, that's not the case. Right? You know, Amazon doesn't send CIA operatives into foreign countries, right? I mean, now there's been this sort of symbiotic relationship between US companies and the CIA forever. Including CIA using American companies to post officers oversees undercover. Inside US companies. You know, Brand X, Y, and Z. So they certainly work together, and have, for a long time. But the CIA is not stealing technology or information that benefits Coca-Cola in its global campaign against, you know, whatever they're selling in Europe.

Andrew Hammond: It seems like in every country, there's some degree of overlap between the government and intelligence, but in China there's more overlap because the state is more overbearing in terms of its corporations than the American government is.

Eamon Javers: And there's no information privacy in China, right? So any Chinese company automatically has to, by law, in China turn over information to the Chinese government. And the Chinese government turns information over to those companies that it views as needing to be successful. So Chinese pattern of economic behavior is to pick a state champion company in any given vertical and say that's the horse we're betting on. And we're going to make sure that company succeeds by deploying all these nation state resources against it. And that includes a whole array of things, not just intelligence. The whole of government is devoted to this cause. And so when you're studying this, I've learned from former US intelligence officials that there are folks in China who at various ministries whose job it is to communicate with the companies and say what do you need? And the companies will literally come up with a wish list of, which you know, might include these composites for the fan blade in the GE Aviation case that we talked about, and say here's our wish list. These are the technology that we can't get. The ministry will turn that over to the intelligence community in China. They will give taskings to their spies to identify the particular companies that have that, and inside the company find the five guys who have it. And find one of those five guys who's got a vulnerability, right? Does that person have family in China? An ethnically Chinese person with family connection to China is somebody you might be able to lean on and pressure. Does that person have a financial need? Do they want money? Do they want to create a joint venture in China and get rich? Can they be exploited in some other way? And so that's what spies have done forever. In this case, it's just the seamless coordination and in an assembly line way between the Chinese companies, Chinese government, and Chinese intelligence agencies that are out there doing the theft.

Andrew Hammond: That's a fantastic explanation. You know, for me looking at it, you referenced this earlier, it's a very unfair fight. You've got a nation state, China, second biggest population in the world now, one of the biggest economies, going up against individual companies who are not generally in the business of running and recruiting spies or conducting counterintelligence operations. And here in the United States, the intelligence community is trying to make that link and make that bridge between them and corporate America, but the lines of communication are not properly established and not everybody gets it. So it seems to me that it's very unfair. It's like you and I fighting the Klitschko brothers or something.

Eamon Javers: Right. Yeah, I spoke to the FBI Director, Chris Wray about this. And you know, he said that the FBI likes to tout this GE Aviation case as a classic example of good corruption between law enforcement and intelligence and the private sector inside the United States because in this case, they did catch the spy and they were able to stop the bleed. And we don't believe that the Chinese ultimately got the composite technology that they were ultimately looking for here, the Chinese government. But there is a reticence among American companies to have the FBI come in the door looking around. You know, you don't know what you're opening the door to. You don't know what your legal liability is. These intelligence officers start doing some cowboy thing inside your company. You don't know necessarily what the shareholder cost is going to be, right? Is this going to be expensive? Are we going to lose a lot of money on this? Is it a case where it's better for us to just close the book on this thing and move on rather than spend an enormous number of corporate resources and time trying to work with law enforcement that may or may not work anyway? There's a lot of reasons why you can see companies would be reticent to cooperate here. And particularly companies that do a lot of business in China. Right? There are a lot of companies that feel they cannot say anything publicly about Chinese espionage because they have manufacturing plants there, they have a customer base there, they depend on the Chinese economy in one way or another. And they are under enormous pressure to keep their mouths shut. And you'll see there's a defining silence coming from corporate America about this. You don't hear a lot of companies pounding the table about Chinese espionage against them. Particularly companies that have the manufacturing dependency on China or the customer dependency on China. And that's a lot of companies.

Andrew Hammond: That's interesting. And is that part of the reason why the gap exists between government and corporations in America? Because the corporations don't really want to hear this, we don't want to lose access to this humongous market?

Eamon Javers: Yeah, well, look. I talked to the ranking member and the chair of the Senate Intelligence Committee, that's Mark Warner and Marco Rubio, a democrat and a republican, about this. And Marco Rubio is pretty direct, and we quote him in the documentary. You know, he says he believes that American CEOs are just taking a short-term approach to this. And a CEO faced with the decision about, you know, moving manufacturing out of China or not, taking a Chinese contract or all the different ways to protect the company from Chinese, is going to look really at the short-term profit implications over the next couple of quarters. And in 10 years, the decision to produce all of your products in China might turn out to be a disastrous decision for that company. But that CEO's not going to be there in 10 years. American CEOs don't stay in their positions for a very long time, particularly at publicly traded companies where they're not the founder or the owner of the company. They're just staff, right? They stay a couple years. So their incentive entirely is to maximize shareholder value right now this quarter. And if that's your perspective on the world, you're not going to do all the things you need to do to secure your company 10, 15 years out. Because that's not your problem.

Andrew Hammond: And you mentioned the GE story, is that one that you came across that you thought to yourself, this will be a great vehicle to tell this bigger story? Or is that one that was offered to you? Or was there a number of different ones that you thought about?

Eamon Javers: We looked at a lot of stories. This one was clearcut because A, a lot of it was in the public record because there had been a court proceeding, right? So there were files, court files that we could find. There were documents that we could get access to. And my philosophy just in storytelling and journalism in general is just the best stories are always about people, right? And so this story is really about two people. It's about Xu Yanjun, the Chinese spy, who took enormous risks to try to get something that his country desperately needed. And it's also about the engineer inside GE Aviation who was Xu Yanjun's target. Who made a decision to travel to China to do things without telling his company he was doing them. And then found himself drawn into this Chinese intelligence operation and then faced with a very stark moment. When he's confronted by GE Aviation, they bring him into a conference room in Ohio, they sit him down and they say we know what you've been doing. And we're leaving the room. And the GE Aviation people literally get up and walk out of the room. And a team from the FBI comes and sits down. And they lay out the case. And they say you know, you're in deep trouble. And you have a decision to make. And you got to make it right now. And we want you to work with us. And that must have turned this guy's world upside down, right? He thought he was doing one thing, and then he found himself doing a very different thing. And in the end, it became a classic double agent operation. Where the FBI flipped the engineer. So the Chinese intelligence agency thought they had a source inside GE Aviation, but it was actually being run by the FBI. And they were feeding back bogus intel to the Chinese operation. So they doctored up fake composite jet engine plans and sent them out to the Chinese. And the whole goal of this operation was to see if they could lure Xu Yanjun, the Chinese spy, into a physical meeting where they could grab him. And I just thought was fascinating, right? Because you have one person who's caught in a trap, another person who thinks he's laying the trap but is actually caught in a trap, and why is -- I don't know a lot about spying, I've read some spy novels and what have you, and written a book about corporate espionage, but why a spy would take the kind of screamingly stark risks that Xu Yanjun took in order to get this technology. Why would somebody do that? And when you learn about the intense national interest in China in getting this jet engine technology, getting their jet airplane company off the ground, the personal interest of Xi Jinping, the Chinese leader, in that, you see okay. That's why he's motivated to do this. And then on the other hand, we learn a lot about Xu Yanjun in the court filing, so we know a lot about his personal life. He was a mid-level guy whose boss was on his case, auditing his expense reports, things were not going well for him at work. You know, he was struggling to break through, he felt like he maybe needed another promotion. He was having trouble with his wife. He also had a girlfriend, he's having trouble with his girlfriend, right? So he had a lot of reasons to want to be ambitious and be a hero and do something big. And here was something that the leader of his country had singled out as a very important national resource that we need to go get. And here was his chance to be a hero. And so he took a big swing for the fences.

Andrew Hammond: I think the court filings are always fascinating.

Eamon Javers: Yeah. But sometimes you need a guide dog to sort of help you understand what these things are, right? Because to me, it was super helpful to have a lot of intelligence and FBI veterans, you know, working alongside us in this case to help us understand what is it that we're actually looking at here? It can be very technical and dense and tedious, but once you understand the human dynamics at play, it becomes very fascinating. You know, kind of think of what would I do in that case? You know, would I take that risk? I mean, I'm sort of timid, I probably wouldn't. I'd be safely back in Beijing, but I'd be a terrible spy, so I wouldn't have gotten anything.

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Andrew Hammond: You will often hear the acronym MICE being used in the world of espionage. It represents four of the main pillars of how you can recruit a spy, or be recruited in turn. They are - M, for money. You've heard the saying everyone has a price? Well that relates to this. The infamous CIA officer and Soviet spy Alrich Ames is an example here. In a New York Times interview after his arrest, he stated quite simply money was the motivation. Next is I for ideology. You've heard of the phrase "dying for the cause"? Well this one is spying for the cause. It could be an -ism or an -ology. MI6 officer and Soviet mole Kim Philby, for example, was one of the most notorious and consequential spies of the 20th century. And he did it for communism. After being recruited in the 1930s at the University of Cambridge, along with four of his peers, becoming the Cambridge Five. C. C is for coercion. So this is the idea that one of the inevitable skeletons in all of our closets is used against us. It provides leverage if you will do anything to make it stay in the closet. It could be a sexuality you'd rather keep hidden, extramarital affairs, a history of money problems, or some other dark family secret. When I went through [inaudible] vetting in the Royal Air Force, similar to TS/SCI in the US, for example, they said to me to some extent we don't really care what you have done as long as you're happy to own it and tell us about it. In other words, if I don't care about you exposing me, you lose the leverage of coercion. And finally, E is for ego. I am always the smartest person in the room. My genius isn't recognized by these bozos I work with. I can outmaneuver all of these chumps. Whatever. Ego's a crazy wild card variable. For this one, people often think of FBI agent and Soviet Russian spy Robert Hanssen, who was described by the colleague who helped catch him as a narcissist. "He had a huge ego, he was quick to call me a moron when he didn't like me. He wanted to be James Bond and he thought that made him a librarian." So MICE is helpful, but it is usually some combination of these factors. And there are other motivations. Have you ever told someone you love them so much you'd do anything for them? Or have you ever had someone say that to you?

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Well, I quite like the way that you discuss the agent-handler relationship and the way that this was all turned back on them by the FBI. So, I just wondered, could you tell our listeners a little bit about how that bait and switch took place? Or the initial contact and then slowly it's revealed among the MSS, and by that point, difficult to get out of? So just walk our listeners through that process.

Eamon Javers: Yeah, I mean, the initial contact is as benign as it gets. Right? It's on LinkedIn, which is -- I'm on LinkedIn, you might be on LinkedIn. Everybody in the professional world is on LinkedIn.

Andrew Hammond: I'll add you after.

Eamon Javers: There we go, there we go. I have to make sure it's really you though before I accept. And so this GE Aviation engineer gets a LinkedIn request from a university official in China inviting him to give a speech. And that's the first reach-out. And he responds and he's flattered. And he thinks you know, this is a prestigious university, this is a great opportunity. Also, he's got family in China. So it's a prestigious invitation. And he decides he's going to go and give the speech. And he's going to talk about some technical things, but he's not going to talk in too much detail. And he goes and does it, but he doesn't tell his bosses and GE that he's doing it. And that's a requirement inside the company. If you're going to give any speeches at all, you have to do this. So he takes the free trip. He gets the hotel room, the flight, sees the family. And then he meets with these university officials. Who, as we learn, are not really university officials, right? There's a spotter at the university and then there's an MSS officer and there's a handoff and suddenly the engineer is being handled by an MSS officer, who he sort of thinks is affiliated with the university but who clearly is not. And who starts asking him for more and more stuff. And says well when can you come back? And what can you send us? And we're so interested. And it's a, you know, sort of you give them him goodies and you flatter him and you know, you see where this relationship might go in the future. And it's a little bit unclear what the GE engineer really thought what he was getting into here. But he was clearly being lured down a path. At which point the FBI alerts GE Aviation. And GE Aviation confronts the engineer. And one thing that is not at all clear, and we don't get an answer to in our documentary, is how the FBI knew about this.

Andrew Hammond: And the GE employee was American, or Chinese American, or?

Eamon Javers: Chinese American.

Andrew Hammond: Okay. So born in the United States?

Eamon Javers: Born in China. And family in China. But working in the United States. And career here. And you know, you know, by all accounts success and you know, on his way, career wise. And then it sort of all gets derailed by this LinkedIn invitation.

Andrew Hammond: And where is Xu Yanjun just now? He's in a penitentiary?

Eamon Javers: He's in a federal prison in New York state.

Andrew Hammond: Wow.

Eamon Javers: And the big question there is why is he in a federal prison in New York state, right? So, I don't want to give away the whole story, but he, in the end, he thinks he's lured the GE engineer into a meeting at which the GE engineer's going to hand over the laptop directory that has all the secret sauce in it. And it's worth it to go out of China, which is a huge risk, and go to Brussels to meet the GE engineer. And he does. Because he thinks he's going to get this incredible thing. And when he walks into the cafe, he's immediately arrested by Belgian authorities. And then the United States extradited him, put him on trial in the United States, and he's been sentenced. And he's now in a prison in the United States. And typically, in these spy cases, you get an exchange. Right? And that hasn't happened here. And I'm kind of curious why. I suspect it might still happen. You know, he's facing many years in prison. And he is, so far anyway, we don't know of any public outreach by the Chinese government to trade for him. Now, there might be talks behind the scenes. We went to the Chinese embassy here in Washington to talk to them about this case. We had a lovely meeting inside the embassy. It was entirely off the record. They did not want to talk about this case. They did not want to say anything on camera. But they gave us a statement which is in the documentary, which the Chinese government denied any inappropriate spying. But my guess is that the Chinese government at some point will trade for him. But I do wonder if there's a sense that he kind of made his own bed because he took a lot of crazy risks from an intelligence perspective that might have been viewed at headquarters as a really bad idea.

Andrew Hammond: And probably a stupid question, did you reach out to Xu Yanjun to try to speak to him?

Eamon Javers: We did, yeah. Through his lawyer. And we were unsuccessful. I would love to talk to him. I would love to find out what he thinks now. Because his life is pretty much ruined, right? I mean, he was, like I say, a mid-level Chinese intelligence officer. You know, he might have been giving his career difficulties but he had a good job and a good future in China. And now, you know, he's in a US prison. Even if they trade for him, you can only imagine that his future in China is pretty bleak, right? I mean he's going to face years of debriefings. I can't imagine the Chinese intelligence will ever trust him again. They'll just assume he's been flipped, right? They'll assume he's a CIA asset now. And so they can't do anything with him other than debrief him about his experience and maybe yell at him a little bit. Audit his expense reports even more. So, he's hosed as an intelligence officer. Doesn't have any other particular skills. So what's he going to do? Even if they trade for him and he goes back, it's pretty bleak. You do think, you look at a case like this and you think, that's a guy that might actually flip. You know, if I was the CIA I'd be having like weekly lunches with him in the prison. And saying like you could go back or you know, you could, we'll get you a condo in northern Virginia and a beamer. You just give us the org charts for how it's all structured and what the training is like and everything. A guy like that, what kind of a choice does he have? Again, it comes down to a human being in an extraordinarily difficult situation making a choice that's going to affect the rest of his life. So I don't think the Xu Yanjun story is over, necessarily. I think he's going to face a couple of different turning points still to come in his life.

Andrew Hammond: And I think one of the reasons why this story's really interesting and spy stories in general, everybody knows about somebody that's unintentionally being lured down a particular road. And then the penny drops and they realize what's happening and they try to get out. Everybody knows somebody that you're struggling, you're beat down, your career's not going anywhere, you've got, you know, relationship issues, and then make silly decisions. We all know both of those types of people. But when it's part of the world of international espionage, the consequences are very different.

Eamon Javers: Very different and not at all the scale of what the person thought they were signing up for, right? Yeah, they thought they were going to have an affair for the weekend, you know, and their wife might find out, it might be awkward, but you know, it might be marriage threatening not nation state threatening, right? Or they thought that they were going to get a trip to China and a speaking fee and that was going to be it and maybe it would cause a little ripple or something, but it wasn't going to be the rest of their life, right? And so, these people get into these situations and it's, the stakes are way beyond what they thought they were going to be.

Andrew Hammond: And help us understand the MSS a little bit more. So some of our listeners are going to be like okay, the MSS, is that like the CIA or the FBI or a bit of both rolled into one?

Eamon Javers: So, my understanding, I'm far from an expert. My understanding is there's sort of two main prongs to Chinese intelligence. One is the PLA, the People's Liberation Army, which is military intelligence. And then there's the MSS, which is combines functions that we think of in the United States as being the FBI that is sort of domestic law enforcement and security and counterintelligence, and also the CIA, which is sort of overseas intelligence gathering. So MSS, you can think of as CIA and FBI put together. So a very, very powerful organization. And enormous, I mean, just in terms of the manpower. It's vast. Offices all over the country, operations all over the world, a lot of it, you know, targeted at the United States. But it's a bureaucracy. Like any other. And there are people in it who are great at what they do, and some people who are bozos. As anybody who's worked in a large organization knows, right? So, you know, it's not, you know, Marco Rubio said in our documentary "the Chinese government is not 10 feet tall." You know, they're human beings making human decisions. For understandably human reasons. And incentives. And I think MSS is the same. They're looking at, you know, what intelligence they need to gather for their domestic, political masters. And how do they go out and steal that in the world? I think the scale is something that's sort of different and daunting. I asked at one point, you know, one of our experts in the documentary, you know, so the US government catches Xu Yanjun and they put all of this effort, FBI, Department of Justice, prosecutors, trial, enormous resources, and they catch one guy. And I said so how many Xu Yanjuns are out there? And I'm told, you know, thousands. And that's a stunning number. That's a stunning thing for American companies to realize. Is that there are thousands of operatives angling for ways to get into your company. Ways to get your secrets. And that's the thing that I think American intelligence officials wanted to convey to US corporate executives. You know, you don't fully understand what you're up against here, and it could be more than just a little bit market share that's at stake. It could be your entire company's existence over time that's at stake.

Andrew Hammond: One of the things I found quite shocking in the documentary was the MSS, we're talking like six figures, we're talking hundreds of thousands of people, is that correct?

Eamon Javers: Yeah, yeah. It's an enormous --

Andrew Hammond: That's astonishing.

Eamon Javers: -- enormous organization, right? And partly because China's an enormous country, right? So, but also because of the value that Xi Jinping and leadership in Beijing puts on that kind of intelligence collection. This is China's way to leapfrog the United States into, you know, global economic position number one. And so, it's worth putting a lot of resources against that. And they have. Now, it's not clear to me, again, I'm not an expert. Not clear to me how effective this all is. Chinese intelligence operates in some ways very different than US intelligence. There's some things that Xu Yanjun did that we talked to CIA veterans in the documentary that were laughable, right? I mean, he goes to a meeting with a potential source, he allows the source to choose the country and location for the meeting, he brings an iPhone with him to the meeting, the iPhone has on it his personal diary. It had his MSS identity card on it. His resume. So there's no doubt at this guy was an MSS officer, he's got an iPhone with his MSS resume on it. So things like that are sort of laughably amateurish about this. But the targeting and selection of the GE engineer, the finding out the way to manipulate that engineer into taking the offer, figuring out who had access to the technology and how to get it. That was all very professional, according to the folks that I talked to. So, there are ways in which this is very similar to what the CIA would do, and ways in which, I don't think there's a CIA officer who would go to a meeting with a source with their iPhone in their pocket identifying them as a CIA officer, right? That's just not something that would happen. But again, Chinese government is throwing mass at this. Right? So it doesn't matter if you get caught, because there's thousands operating. And you know, over time, that will work.

Andrew Hammond: What was the most surprising thing that you found out when you were doing the reporting on this, when you were doing the research, when you were speaking to all of the people that you spoke to?

Eamon Javers: The most surprising moment for me, and this is just another human interaction, we sat down and talked to long-time CIA veteran named Jim Olson. He spent 30 years in the CIA and is now in Texas teaching. He's retired now, but he's a teacher of intelligence history and tactics. And he explained to me, he was involved in the prosecution in this case because he was there as a government witness in the trial, explaining what these intelligence techniques were and how intelligence works and how spy craft works. He said that he was sitting in the courtroom and he was looking at Xu Yanjun and he thought "I'm a lot like that guy." And to me, they were so different that I thought how could you think that? But he said you know, we were both intelligence officers, we're both serving our country, we're both using trade craft, we're both trying to acquire information. And then he said but there's one difference between you and me, you got caught. And I didn't. And that was like a spy flex. That was a moment where, you know, that was a US intelligence officer who was undercover in Moscow during the Cold War and all kinds of things just bragging a little bit. And saying like here's a guy who screwed up, and I didn't screw up. You only find out about the foreign spies who screw up, right? You don't find out about the ones who were successful. So you can assume there are some Chinese intelligence officers saying the same thing in reverse somewhere out there, but we don't know about them.

Andrew Hammond: You'd think that statistically, more Chinese spies are going to be caught just because there's so much more MSS officers. Even if the ratios are the same as one in every 10,000 spies, there's just going to be more Chinese spies that are going to be caught.

Eamon Javers: You would think there's a large number of spies that are going to be successful and a large number of spies who are going to be caught. Because the total pool of overall spies is much bigger. That said, I couldn't even begin to tell you what the ratio of success is inside the MSS, right? I mean, we don't have any way of knowing if this organization, you know, succeeds 90% of the time or 99% of the time, or 10% of the time. I mean, I just, there's probably some people inside US intelligence who might have a bit of a fix on that, but I'm sure they don't even know. And it's a crapshoot, right? I mean, you go out and find all the best sources and documents and pieces of information you can find. But who knows whether you're ultimately being successful. I mean, they're great, histories of the Cold War and you know, like what was the net gain or loss of all the spying that took place in the Cold War? Did it make a difference or was it just going to be that way anyway because of the economic systems and the geostrategic resources and the populations and everything else? I don't know.

Andrew Hammond: That's a great question though.

Eamon Javers: Right? Did any of it make a difference? I mean, Jim Olson will tell you it did. I mean, he's a guy who climbed into a manhole in a highway in the countryside outside of Moscow and tapped Kremlin phone lines. He'll tell you that was an important thing to do. And certainly, it was. But if you take the whole sweep of all the spying in the Cold War, did it change the outcome of the Cold War? I don't know. And you could ask the same question about this new confrontation, if not a cold war, between the United States and China. If you take the whole sweep of it, will this corporate espionage be enough to affect the overall balance of economic power between the United States and China? There are people in the US intelligence community right now who are very concerned that it will. And there are some people in corporate America who are a little sanguine about it and think you know, we're innovating so fast. And their need to steal indicates that they can't innovate as fast as we can. Now that might be hubris, that might be, you know, whistling past the graveyard, but there is a view out there that says that the spying in the net won't matter. It could be devastating to individual companies, individual technologies, but overall, won't matter because if you're not creating an economy where it innovates and is vibrant on its own, then ultimately you can't compete long-term.

Andrew Hammond: So in this episode, we've heard about the Ministry of State Security officer Xu Yanjun. The first Chinese intelligence officer ever to be extradited to the United States. At our collection at the International Spy Museum, we have the handcuffs that were used to arrest another Chinese spa, Chi Mak. Mak was a Chinese born, naturalized American citizen who conspired with four family members, his wife, his brother, his sister-in-law, and his nephew to export sensitive military technology to the People's Republic of China. Chi and his wife were extremely frugal Maoists, and ate their meal off newspapers and washed their car using the mops, towels, and free water at the gas station. They threw investigators though by disappearing into the lumber section of their local hardware store in Los Angeles County every Saturday at the same time, then repairing having never bought a thing. Was this a dead drop? A way of passing items between two individuals using a secret location? No. As they later discovered, this was the hour when the lumber section offered free coffee. He was sentenced to 293 months in federal prison after a joint FBI/NCIS investigation. These handcuffs are not currently on display at the museum, but if you come, you can see the handcuffs used to arrest Aldrich Ames, Robert Hanssen, John Walker, and the Russian 10, among others.

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It seems to me that if we're talking about the aerospace industry, we're talking about Silicon Valley and so forth, you're talking about those industries and the amount of money that they generate for the American economy, if you can steal their secret sauce, take it back to your own country, replicate it and then sell the sauce for a significant discount and thereby undermine a road or completely eliminate the company that you stole it from, it's not just, for the United States, it's not just a Wall Street issue. It's not just well, these shareholders never got as much, you know, this year as they got last year. Because ultimately the relationship between America's strength and the strength of the American economy, there's a relationship there just like there was a relationship between --

Eamon Javers: Absolutely.

Andrew Hammond: -- the Soviet Union and the Soviet economy. So this is, for the United States, this is a grand strategic issue. But they don't control corporate America. So, this is where documentaries like this can try to bridge that gap.

Eamon Javers: Yep. And I think that's why Chris Wray wanted to sit down with me at FBI Headquarters was to deliver this message to the CNBC audience, which is, you know, a largely global, financial, and American corporate audience. Is to say you're not paying enough attention to the significance of this. And I think if you look at the way companies interact with the Chinese market, I mean, if the Chinese were to go into Taiwan tomorrow, would the United States even be able to apply the same kinds of sanctions that we applied to Russia over the Ukraine issue if it was the case of a Chinese innovation? I don't see it. I don't think it's possible for the United States to put sanctions on China to that effect. We would be eliminating huge chunks of our own economy if we did that. And in a case, it wasn't all the same with Russia. We never faced anything like this in the Cold War. We did not have -- there was not one thing that the Russians made during the Cold War that we needed in the United States. Right? They wanted rock and roll and blue jeans and McDonalds and a whole bunch of things that we produced. We didn't want anything out of -- maybe some vodka. And that's like, that's about it. There was not the inter-tenement of the economies that there is now. And the dependence, there were no major American companies that were entirely dependent on Russia during the Cold War. There are a lot of American companies that would be out of business, I mean, what would happen to Apple the day after the Chinese invade Taiwan, if that happens? I mean, that would be a devastating, possibly existential event for Apple. Manufacturing there, huge market there, access to raw materials. I mean, a whole supply chain. If all of that shuts down, they lose access to it in a day, how does Apple remain a going concern? That's a significant question for them. That's the kind of question that exists in this point of strategic tension that did not exist at all in the Cold War. And US government has to think about that. American companies have to think about that. And they're not used to it. It's not a familiar feeling. And so there's no playbook to run on this that has been run before and is successful.

Andrew Hammond: And of course, if that happened to Apple, lots of retirement funds, lots of other parts of the American body politic are bought into the success of Apple as well, so it would have a ripple effect.

Eamon Javers: If you think the financial crisis in 2008 was a big deal, I think what that would mean would be a lot bigger. Than 2008. It would be deeply damaging to the US economy. And as a result, the US way of life. Our prosperity, our prospects for the future, opportunities for ourselves and our children, all of that is at stake in this. And that's why we wanted to do the documentary and sort of lay these issues out. And tell it again through the lens of the decisions made by two people facing very different stakes. Each angling for their own advantage and their own life and career. But with this huge backdrop, everything at stake in the geopolitical situation in the global economy.

Andrew Hammond: I found it fascinating that Marco Rubio, in your documentary, he was saying that from his perspective, wherever money and investment goes in the market is the right answer, because that's the most efficient outcome. But that doesn't mean to say there's a predetermined link between that and what's best for America. So I just wondered if you'd thought about that a bit more often.

Eamon Javers: I thought that was a profound thing that Rubio said there. I mean, because here's a senator from the republican party who is a free market advocate who is saying that his own party doesn't think about this issue correctly. So, the general free market approach is that, you know, capital allocation in a free market economy is about, you know, finding the most efficient resource and most efficient way to produce goods and produce economic results. And so capital finds its way to the most efficient and successful outcomes. And that's sort of the magic of a free market. You don't want to disrupt that. But, in a global economy, when you're dealing outside the nation's borders, capital could find its way to efficient outcomes that are the most market efficient but are potentially devastating for the nation. And Rubio's point was that the nation doesn't exist to serve the market, the market should exist to serve the nation. And he was implying there, I think, a limit to free market thought, which in many circles inside the republican party has been sort of unlimited. You know, the market is the solution to everything. Let's not regulate, let's not put limits because that will create inefficiencies. What Rubio's saying is in the case of the global economy, he's willing to think about deliberately creating inefficiencies, deliberately stopping capital from finding its most efficient outlet. Because that might be something that's terrible for the United States. That's like a profound thought. And you know, he's obviously given this quite a bit of thought in terms of where is the limit between, you know, the success of the market and national security? You know, Senator Warner in the documentary is also equally reflective. You know, from his own perspective. He admits, as a democrat, he was part of the Washington consensus in the late 90s and early 2000s. You know, he comes out of the northern Virginia technology community, entrepreneur himself, so he understand this stuff. He was part of the consensus that felt if we have business relationships with China, if we invest with China, this will be good for the United States. It will be good for American companies. It will be good for the market. And it will be good for China. And China will end up being more like us. Because we'll create this rise of a merchant class in China, the rise of a middle class in China. That you can't have economic growth without some measure of political freedom, because people have to be able to make their own decisions, allocate capital, buy and sell products, have access to information about those products. So all of that will create a China that looks more like the United States than it looks like China. And what Warner says is, you know, that was flat wrong. And it may be the case, and a lot of people said this to me as we were putting together this documentary, it may be the case that that US investment in China has put the United States in a place where it looks more like China than the United States in some ways, right? You already see the self censorship, right? MBA officials not willing to criticize China. Hollywood movies, all being edited in all sorts of subtle and maybe obvious ways to avoid criticizing China or stepping on Chinese political sensitivities on a whole different range of things. American corporations, you know, not speaking out about Chinese espionage. We did get very few American companies to go on the record with us at all about Chinese espionage. Even when they were the victims, right? So these companies are not speaking up about this. You're seeing a lot of ways in which the United States is being impacted by this economic dependence, codependence, between the two nations that I don't think anybody thought of in the 90s. I don't think anybody saw that coming. I don't think they realized the scale of the impact on the United States. They were thinking about the impact of US investment on China.

Andrew Hammond: You said most of them were unwilling to speak to you?

Eamon Javers: Yeah. Almost all of them were unwilling to speak to us. GE Aviation, GE in the end, gave us a statement. But yeah. Almost zero cooperation from any of the companies. They don't want to talk about this at all.

Andrew Hammond: That's fascinating, isn't it?

Eamon Javers: Yeah, I mean, so, it's, for one thing it's humiliating. For another thing, they don't want to get crosswise with the Chinese government. It sends a bad message to shareholders in terms of their viability and their vulnerability to this sort of thing. So there's a lot of reasons. And there's also some legal implications in terms of individual cases, individual HR situations, employee sensitivity and privacy. So there's a zillion reasons for them not to talk. And there's not a whole lot of good reasons for them to talk. Other than, I would say as a journalist, you know, tell the truth and shame the devil. Right? That's what my grandmother used to say.

Andrew Hammond: Just very briefly, I just want to go back to Rubio and Warner, two senators. So a lot of our listeners, they understand the FBI director, okay, we get what that is. Jim Olson, CIA counterintelligence, we kind of get what that is. But I feel like a lot of them probably, and the overseas ones especially, they want, you know, there's a senate committee that deals with intelligence. What do they do? Could you just educate our listeners a little bit more on what they do?

Eamon Javers: Sure. Well, so in the United States Congress, both the House and the Senate have intelligence committees whose roles have been beefed up over the decades. Congress has an oversight function over the federal government. Congress provides the federal government with the money. The appropriations power, that is, they decide where the government can spend money or not spend money. And then their oversight responsibility is to make sure that that money is being spent responsible. So the executive branch in that way answers to Congress. And that includes the intelligence agencies. And after the Church committee and some scandalous in the 1970s involving US intelligence and all sorts of whacky, crazy stuff that they were doing, that role inside the US Congress was beefed up substantially. It used to be, in previous decades, that Congress would kind of let the intelligence community do whatever it wanted and not really pry too much. Now, you know, it comes and goes and fluctuates based on the decade and era. But now the congressional intelligence committees are a little bit more aggressive in terms of trying to keep tabs on the intelligence community. What are you doing, why are you doing it, brief us. They have a legal authority to get access to everything that's classified. Everything that they need to know about what US intelligence is doing. And so, Rubio and Warner are very up to speed on this threat. They know the classified background to it. They have been briefed extensively on it. They're in constant communication with the intelligence community about it. And their decision to sit down together, which is something that they do from time to time, but on this issue I thought was particularly notable in the sense that they wanted, they literally sat in two chairs in a room in the capital building that were touching each other. I mean they were, in that shot there is as close as you can get.

Andrew Hammond: Yeah, besties.

Eamon Javers: Yeah, and they wanted to show physically and politically like there's no daylight between them on this. There's a lot of daylight between them on a whole bunch of political issues. But on this thing, you know, they're sitting there side-by-side in order to show united front on it. And I think that that's something a lot of people don't fully understand about sort of the checks and balances in the intelligence community. Intelligence community is constantly having to justify itself and explain itself to the intelligence committees. And you know, and back and forth they resent each other for various things. And there's rivalries, and you know, people chaffed and different stuff. But overall, the idea is that the intelligence committee doesn't get to just do whatever it wants.

Andrew Hammond: And just as we wrap the interview up, I just wanted to ask you, how did you come across the story? I know that you've written on this and you've been on our podcast before.

Eamon Javers: That's right.

Andrew Hammond: 2016, I think, talking about corporate espionage. So how did you first become interested in this topic, Eamon?

Eamon Javers: So like you say, I wrote a book on corporate espionage back in 2010 now. And that book was looking at sort of the way companies use intelligence techniques on their own, right? So they do hire former intelligence folks and they do use intelligence techniques. And some of the tricks of the trade, so to speak, are used in the private sector. And so that book looked at how corporate espionage and government espionage are in many ways flip sides of the same coin. And often the same people operating on the corporate side who formerly operated on the government side, and who go back and forth themselves. And the history of this goes back to the dawn of time, really, and to the dawn of American history. In this country, you had the Pinkerton Detective Agency, which was a corporate intelligence agency that worked for American Express and Wells Fargo and the big corporations of the time before the Civil War. And they were doing, they did some strike busting later, but they were doing a lot of detective work and looking at, you know, theft rings and policing unscrupulous people inside the company. All sorts of corporate intelligence work that was being done by the Pinkertons. Then the Civil War breaks out, Allan Pinkerton, who himself was a Scottish immigrant --

Andrew Hammond: Like me.

Eamon Javers: Yeah! There you go. Maybe you're related. So, he then turns the Pinkerton Detective Agency over to the US government and he goes to work for Abraham Lincoln. And Pinkerton Detectives, who were at one point working for American Express and Wells Fargo, now find themselves working for the Union Army. And traveling behind the lines in the Confederacy and measuring troop strength and supply lines and all kinds of stuff. Gathering information in a way they had been doing before. So the very same individuals who were working on the corporate side were working on the military side, then back to the corporate side after the war. That happens now. And has always happened. And so that book was about the relationship between government and private spying. So I've always been interested in this. But like I say, I'm interested in the flash points and the particularly cases and the particularly people who do it. And this, the choices that they face and the circumstances they find themselves in. And in this case, I was getting this feedback from the intelligence community folks that I talked to on a semi-regular basis that you know, this is a bigger problem than the executives think it is. And so we went looking for the cases. And there are a lot of them. But this case involving Xu Yanjun and GE Aviation was a case where we could tell the whole beginning, middle, and an end, because it had been adjudicated in the US court and there was that, you know, robust documentary evidence in the court filings that we could go look at. And it was just such a fascinating case, such a weird guy making weird decisions with huge stakes. And you know, in his case, for him, getting it wrong, the FBI getting it right, in this case, but are they getting it right enough of the time in enough of the cases? And it just raised all sorts of important and interesting questions. So we dove into it, it was a big production. But I just enjoyed the heck out of it, I think it's an important story, I love sinking my teeth into these things. And I'm already looking for the next one. So you have a lot of powerful and important listeners in the world of intelligence. So they should call me if they've got any good cases that are interesting, I'm looking for the next story to tell.

Andrew Hammond: Well, thanks ever so much for speaking to me about your documentary. And can you just tell our listeners where they go to view it?

Eamon Javers: Yeah. You can go to cnbc.com. And just type in Chinese spy, it'll pop right up. We also have a version of it up on YouTube, which is a little bit smaller than the documentary that we air. And of course, this airs semiregularly on CNBC primetime television. So if you look on your regular cable TV listings you will see it airing every couple of days on CNBC. I'm hoping they're going to keep airing it for the rest of the year, we'll see.

Andrew Hammond: And I had a look last night at Peacock, one of the streaming services, it's available on that as well.

Eamon Javers: That's a good point, yeah. Also part of the NBC family of networks. And Peacock's been a great resource for us and great partner with us on some of these documentaries that we've done over the years.

Andrew Hammond: Well thanks ever so much for your time.

Eamon Javers: Thank you, this was a great conversation. Great to be here.

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Andrew Hammond: Thank you for listening to this episode of SpyCast. Please follow us on Apple, Spotify, or wherever you get your podcasts. If you have feedback, you can reach us by email at spycast@spymuseum.org, or on Twitter at intlSpyCast. If you go to our page, thecyberwire.com/ podcasts/spycast, you can find links to further resources, detailed show notes, and full transcripts. I'm your host, Andrew Hammond. My podcast content partner is Erin Dietrick. The rest of the team involved in the show is Mike Mincey, Memphis Vaughn III, Emily Coletta, Afua Anokwa, Elliott Pelzman, Tre Hester, and Jen Eiben. This show is brought to you from the home of the world's preeminent collection of intelligence and espionage related artifacts, the International Spy Museum.

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