China’s Technological Rise
This text does not contain footnotes. Download and read the full report on the ICDS website: China’s Technological Rise: Implications for Global Security and the Case of Nuctech (PDF)
China under the Chinese Communist Party (CCP) is poised to become the world's first technology-enabled totalitarian superpower. No country will be untouched by this development, including Estonia, where a Chinese state-owned technology company Nuctech specialising in "security solutions" monitors cargo crossing the NATO border with Russia using a radiation-based technology originally copied from Europe. The United States added Nuctech to its "Entity List" in December 2020, due to a range of security concerns.
Becoming a technological powerhouse
Nuctech (derived from “nuclear technology”) sells widely in Europe and is one of many examples around the world of Chinese technology companies establishing a prominent presence in the open markets of democratic countries. It is a remarkable development: 40 years ago, in 1979, when post-Mao Zedong economic reforms began, China was one of the poorest countries in the world with a GDP of just $178 billion, for 970 million people. By 2019, GDP had soared to $14.3 trillion.
Especially since joining the WTO in 2001, China has produced a clutch of technology “national champions” that have quickly come to dominate life at home, and sometimes markets abroad, such as Huawei, ZTE, Datang, Tencent, Baidu, Alibaba, iFlytek and Nuctech. On its website, Nuctech says it has an “abundant product line” in public security; its parent company works with the People’s Liberation Army (PLA). Repression of Uighurs, Tibetans, Mongolians and other groups in China is carried out in the name of “public security”. In 2019, Nuctech announced a R&D partnership with St Petersburg State University in Russia to develop high-energy X-ray imaging technology, anti-terrorism equipment, and other technologies, all with potential for “public security” and military use.
There are several reasons for this extraordinary transformation in China. The ambition and hard work of the Chinese people is a well-known factor. But another very important one is less known because it is extremely sensitive and difficult to deal with: decades-old, large-scale, deliberate, “grey zone” technology extraction by the CCP from the world’s developed economies, including but not limited to the US, Canada, Europe (principally Germany, France and the UK), Japan and South Korea.
The Chinese system of technology transfer
This technology transfer is carried out “by many ways and means”, as Chinese officials put it. The phrase is deliberately ambiguous. It encompasses a range of legal, illegal and semi-legal (grey zone) activities. These include a meticulous system of open-source technology spotting carried out in multiple ways, including from research publications and PhDs around the world, knowledge transfer by tasking students going overseas to pursue certain technologies, offering global scientists the chance to “double-dip” by taking up parallel, well-paid positions in Chinese institutions, company acquisitions overseas, venture capital funding of technology companies, and cyber and human espionage. One human example of this complex, multilayered process is “encouraging” Chinese scientists overseas to return home with their acquired skills to “repay the motherland” and “serve the country”. State-run “talent plans” offering people the chance to earn more by bringing their knowledge and technology to China are another. There are probably over 200 of these, of which the best-known is the “Thousand Talents” plan, set up in 2008 and expanded to include non-Chinese in 2011. This may be illegal if the overseas scientist is the recipient of state money for research funding in the country where they live.
Current laws in democracies, which promote open research environments and information sharing, are broadly unable to cope with most of this behaviour, partly because it is the product of an unusual, and globally unique, political and state technological system. In addition, while some of the practices may be normal—such as venture capital funding—implementing them with state- or military-building goals in mindmay be less common.
According to a new book, “Since 1949, a vast, deliberate and unique system of foreign technology spottingand transfer has operated in China and overseas. Very little of it is secret. The projects are described in party and state documents, announced in the media, and executed in venues that are, broadly speaking, not hidden from the outside world”. They may not be hidden, but they are mostly written in Chinese.
More modern, but less liberal
Two important steps have followed from this extraction, pushing China’s economy to apparently ever-growing heights. The first is commercialisation at home accompanied by prompt and wide application; the second is growing indigenous innovation resulting from the transfer.
A clear understanding of the Chinese political system shows why there is fundamental cause for concern in all this, and why Chinese technology should not be viewed as politically neutral. All powerin China belongs to the CCP. The country’s system of “people’s democratic dictatorship” is enshrined in Article 1 of the constitution, as well as being a practical reality since the seizure of power through revolution in 1949. Article 1 states, “The socialist system is the fundamental system of the People’s Republic of China. Leadership by the Communist Party of China is the defining feature of socialism with Chinese characteristics. It is prohibited for any organisation or individual to damage the socialist system”. Article 2 adds, “All power in the People’s Republic of China belongs to the people”. This is aclosed circle of power with the CCP at its core.
Once completely state-controlled, China’s economy remains state-driven, even among the new technology national champions. In one example, a report in 2019 assessed the total amount of government support received by Huawei Technologies Co. at $75 billion in grants, credit facilities, tax breaks and other forms of financial assistance. The private economy is also influenced, and manipulated, by the state, with Xi Jinping, the CCP general secretary and Chinese leader, recently reminding private companies and entrepreneurs they must support and strengthen the party and country with their business. In September 2020, the General Office of the CCP Central Committee issued an “opinion” and a “notice” (these words in Chinese should be understood as instructions) that made clear the CCP intends to manage ever more tightly the nominally private economy sector, using its established united front strategy and the organs of the United Front Work Department, a department under the Central Committee of the Politburo. The notice is titled “Concerning the strengthening of united front work in the private economy in the New Era”. It instructs party committees “at all levels” and the party’s united front organisations to ensure that the private economy—or the “non-state economy”, as it is often called—is “patriotic” and “in the party’s orbit”, “support[s] the party fully” and works towards the CCP’s goal of “national rejuvenation” by 2049, when it plans for China to become the dominant technological, economic and military power in the world.
Troublingly, China’s political system lacks the checks and balances of democratic societies that—ideally—work to keep technology safe for individuals. While the situation in democracies is not perfect, established separation of powers and independent judiciaries offer the possibility that technology will work for the human good, not to its detriment. In the words of Taiwan’s Digital Minister, Audrey Tang, artificial intelligence (AI) should in future mean “assisted intelligence” for humans, not “authoritarian intelligence” for governments. In China today, technology is widely used throughout society via surveillance and “social credit schemes” to manipulate human behaviour and support the party’s power. Many reports show the impact on Chinese citizens of these technologies. Overall, a tightening concentration of power enables party leadership to skew technology to support its survival. That Chinese technologies—networked, cloud-based, communicating and monitoring—are spreading among overseas populations as China’s economy grows ever outward creates potentially unmanageable risks for individuals there too. Today, in a historical irony, China is in a position to challenge for global leadership the countries whence the technologies it has extracted came.
Nuctech in Narva
An excellent example of this creep is Nuctech, operating on the Estonian—and NATO—border with Russia in Narva, scanning cargo passing between Estonia and its eastern neighbour. The company was set up in 1997 at Tsinghua University in Beijing. Hu Haifeng—the son of a former general secretary of the CCP, Hu Jintao (the predecessor of Xi Jinping)—was prominent in the company in its early years before following in his father’s footsteps by entering politics. Today Hu Haifeng is party secretary of Lishui, a city in Zhejiangprovince.
In May 2018, Chinese diplomats formally delivered the large, Nuctech-made, X-ray scanning system to the Estonian customs authorities, the first “fully-automatic railway scanner” in Estonia, according to Xinhua, the Chinese state news agency. Similar deliveries had already been made to Estonia and other Baltic nations – more are under consideration, including for airports for example in Lithuania. The aim of the railway scanner: to “crack down on smuggling and maintain national security”, the Chinese ambassador, Li Chao, said at the ceremony. This is what Tsinghua Tongfang, Nuctech’s parent company, says about Nuctech’s “customs container inspection comprehensive solutions”: By using information telecommunication technology and Internet platform, Nuctech Co Ltd integrates the cloud computing, big data and Internet of Things with safety inspection technologies and products to supply the clients with hi-tech safety inspection solution. With intelligent inspection, automatic data collection and analysis, and product integration connectivity, the solution assists in anti-terrorism and fighting against illegal trades. It is widely used in various fields, such as civil aviation, customs, railways and big events in over 140 countries andregions.
Estonian customs said the Chinese state-owned company won the contract due to its “favourable price and the provision of full maintenance and guarantee for ten years”. It added that “the purchase of the equipment was financed in the amount of €2.55 million by the European Union Cohesion Fund and in the amount of €7.55 million by the state budget”. Nuctech’s price was indeed low—€10.1 million, about one-third cheaper than its competitors, Rapiscan Systems (€14.9 million) and L3Harris (€15.9 million), according to a spokeswoman for Estonian customs.
Yet it is perhaps curious that Nuctech’s parent company has been in so much financial trouble that in early 2020 it was formally taken over by the asset management wing of China National Nuclear Corporation (CNNC). CNNC belongs to the State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC), and thus is one of the “crown jewels” of the state. The move undoubtedly reflects the priority the Chinese state accords to Tsinghua Tongfang andNuctech itself, one of the profitable companies in Tsinghua Tongfang’s stable, according to the company’s 2018 report.
State-sponsored foreign aid work and politically sensitive regions
Nuctech sells and operates cargo- and people- scanning systems around the world and has won security contracts for major sporting events such as the Summer Olympics in Rio de Janeiro (2016), the Wimbledon tennis championships, the Milan Expo (2015) and the Military World Games held in 2019 in Wuhan, China. The company says it contributes to China’s “national security”, as well as its “national military strategy of border construction”. Tsinghua Tongfang runs large data storage banks (大数据库) and provides technology and maintenance for the PLA, as well as technologies such as RFID cards. These capabilities are part of growing population surveillance systems being built by the state in China and—via “smart cities” using, for example, Huawei technology—around the world, too.
Nuctech has donated, or offered cheap loans for, its equipment in politically sensitive regions such as Serbia and the western Balkans. During a visit to Nuctech company headquarters in Beijing by Ministry ofCommerce officials in August 2019, its senior vice president, Miao Qitian, made clear the connection between Nuctech’s commercial ventures (it has a factory in Poland, which supplied the Baltic equipment) and China’s state-sponsored foreign aid work. (In Chinese the company is known as “Tongfang Weishi”.) Miao said: Foreign aid projects are of profound and far-reaching importance to Tongfang Weishi’s expansion in the international market, its effort for Chinese manufacturing to “go global”, and to spread Chinese culture. Tonfgang Weishi acts on the orders of “supporting science and technology to make the world a safer place”. Tongfang Weishi is a bright and beautiful calling card for China’s foreign aid work, it is a vanguard example of foreign aid work that helps Chinese companies globalize.
In late 2017, not long before the Nuctech’s new scanner arrived in Narva, the company set up a new CCP committee. At its first meeting, on Dec. 28 of that year, Zhou Liye, the party secretary of Tsinghua Tongfang, congratulated Nuctech on the step, and noted new “hopes and expectations” for the company which included, “seriously implement the spirit of the party’s 19th Congress [held in Oct. 2017], clearly support the party leadership and party-building… continuously push forward and develop Nuctech’s party-building and business activities”. Since coming to power in 2012, Xi Jinping has pushed the development of a Chinese “national security state”, with the CCP making renewed inroads into society.
The U.S. is concerned about the security implications of Nuctech operating at sensitive border crossings (including ports, airports and railways and roads), as well as other surveillance functions. Yet there is an additional aspect that led directly to its placement on the U.S. Entity List in December 2020: nuclear smuggling. After tests by the U.S. Department of Energy, it decided “Nuctech's lower performing equipment impair U.S. efforts to counter illicit international trafficking in nuclear and other radioactive materials. Lower performing equipment means less stringent cargo screening, raising the risk of proliferation”.
Given all that, it seems almost an afterthought that Nuctech was founded following an act of copying: scientists at Tsinghua University were ordered by the government to develop the radiation-based scanning equipment that had just begun operating in Europe and created by French, German and British companies. So says a Chinese-language book published by Tsinghua University Press that describes the creation of the high-grade equipment, and multiple Chinese-langue media reports. The story is given in more detail in China’s Quest for Foreign Technology: Beyond Espionage.
But certainly, the early act of copying, followed by secondary invention (the engineers adapted the technology to make it mobile in order to suit conditions in often crowded Chinese ports, something that hasproved popular everywhere), demonstrates how CCP-run China has grown so fast, and come so far—to the point where it challenges the world for political and technological leadership in ways that could change our lives, if we let it.