How Xi Jinping lords it over American CEOs

  

Chinese President Xi Jinping will get a tour of a Boeing (BA) facility near Seattle this week, as if he’s never seen what goes on in an American aircraft factory. Yet China has stolen more data from Boeing than Xi will ever see on a hospitality tour.

Xi’s high-profile visit to the United States this week will include many meetings with top CEOs, including Tim Cook of Apple (AAPL), Howard Schultz of Starbucks (SBUX) and Mary Barra of General Motors (GM). On one level, it’s normal for CEOs to seek face-time with the leader of a country that’s vitally important to their bottom line.

But many of the companies run by the CEOs on Xi’s schedule have been directly targeted by Chinese corporate spies whose job is to steal trade secrets from western firms. Corporate espionage emanating from China—almost certainly with Xi’s knowledge and endorsement--has become so aggressive that some U.S. companies have been begging the White House to impose sanctions or take other action. “When your No. 1 customer comes knocking, you afford them a big visit,” says Scott Kennedy of the Center for Strategic and International Studies. “But they’ve got to walk a fine line between their customer and the henchmen standing behind him.”

China and the United States have long been frenemies joined through trade, even as they compete for military and economic dominance. China’s huge size and rapid growth make it an essential market for most Fortune 500 firms. Yet no other large country seems to flout international law and steal corporate secrets as aggressively as China does.
Here are some of China’s known efforts to steal trade secrets from companies whose CEOs Xi will meet with this week:

Boeing. Last year, the Justice Department indicted a Chinese national named Su Bin for allegedly stealing 65 gigabytes of computer data relating to the C-17 military cargo jet built by Boeing, and passing it to Chinese authorities. The government is in the process of trying to extradite Su Bin from Canada, where he lives and runs an aviation company. The government says he also tried to steal data from defense contractor Lockheed Martin (LMT).

Microsoft (MSFT). Hackers backed by the Chinese government have repeatedly tried to exploit security gaps in Microsoft software to gain entry to big companies’ data networks. That doesn’t seem to bother Microsoft found Bill Gates, who will host Xi at his palatial home near Seattle, just as he hosted Xi’s predecessor, Hu Jintao, in 2006.

Apple. China apparently tried to heist technology developed by wireless firms Avago Technologies and Skyworks Solutions, which provide components for Apple’s iPhone and other devices. The Justice Deptartment indicted six Chinese citizens for their role in the theft in May.

General Motors. In 2012, former General Motors engineer Shanshan Du and her husband Yu Qin were convicted of stealing reams of GM data on hybrid vehicle technology and passing it to Chinese automaker Chery.

China has tried to steal data from many other U.S. companies, including Google (GOOGL), DuPont (DFT), CME Group (CME), L-3 Communications (LLL), Cargill, Dow Chemical (DOW), Goldman Sachs (GS) and probably others that don’t want their vulnerabilities publicized or don’t even know their secrets have been pilfered. “The activity is as intense as it’s ever been,” says Peter LaMontagne, CEO of cybersecurity firm Novetta. “Just because we don’t have an announcement each day of an enterprise being compromised, that doesn’t mean it’s not happening each day.”

Corporate spying has become so widespread, in fact, that the FBI has set up a web site devoted completely to economic espionage, focused almost entirely on Chinese activities. A few of the ways Chinese spies might gain access to a company’s secret info: Hire headhunters to identify insiders who might be susceptible to bribes; recruit possible accomplices on LinkedIn or Facebook; walk right into unsecured facilities (sometimes in laid-back rural locations) and start snapping pictures.

So why are American business leaders so eager to meet with the one Chinese official who can halt the plunder of their databanks, but chooses not to? Well, for one thing, Xi still has remarkable leverage, even though the Chinese economy is slowing and its manic financial markets have rattled trading floors from Tokyo to Wall Street this year. American firms rely increasingly on business in China to help boost revenue, since the U.S. market is growing slowly and Europe is barely growing at all. Firms in the S&P 500 index earn about $170 billion in revenue from China each year, according to Bloomberg, with companies such as as Qualcomm (QCOM), Intel (INTL), Yum Brands (YUM) and Wynn Resorts (WYNN) especially dependent on their China operations.

That puts Xi in the driver's seat, since American firms may need him more than he needs them--especially if China can steal crucial technology and other information, instead of licensing it or forming traditional partnerships. “By the mere fact that he can call all these people together, Xi is letting them know who’s boss,” says Kennedy. “The message is, Xi Jinping is the chairman of everything.”

That power comes partly from China’s huge size, but also from the autocratic power Xi wields as head of China’s Communist Party. No western leader, including the U.S. president, can single-handedly determine the fate of a company or industry the way Xi can, by bending the law or regulatory power in favor or against any given enterprise, including China’s own companies.
There’s also an element of realpolitik at work among pragmatic CEOs who kowtow to politicians—including American ones—as part of their jobs. And once they’re done pressing the flesh with Xi, some of those corporate honchos will go back to quietly urging Washington to get tough with China.

In fact, once Xi has headed back to Beijing, that may actually happen. The Obama administration has been contemplating sanctions against China as a response to the huge theft of data on roughly 21 million Americans from the government’s Office of Personnel Management earlier this year. Administration sources have fingered China as the culprit, while also saying they’ll wait until Xi has completed his visit to retaliate. Like many travelers, Xi may end up wishing his American holiday lasted a bit longer.