Victims of unfair espionage laws

Updated: 2012-11-27 08:09

By Han Qi (China Daily)

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Chinese enterprises doing business overseas have recently been accused of corporate spying. In October, a report from the United States House Permanent Select Committee on Intelligence alleged that Huawei and ZTE, two top Chinese telecommunication equipment manufacturers, pose a threat to US national security without presenting any convincing evidence.

In 2011, Sinovel Wind Group, China's largest wind power equipment maker, was sued by American Superconductor Corporation, which makes proprietary technologies for electricity infrastructure, for alleged theft of its intellectual property, something that Sinovel has vigorously denied.

Corporate spying is a common phenomenon both at home and abroad. In fact, it is as old as the industrial society itself.

According to an article in the US Business Week in 2001, large American enterprises on average spend $1 million each annually to collect intelligence.

Leonard Fuld, chairman of Fuld & Company, a leading American consultant in competitive intelligence, said 90 percent of large American enterprises employ specially assigned technical staff for corporate spying.

The problem is that some developed countries judging others to be like themselves, assume that Chinese enterprises engage in corporate spying in their backyards.

Asked why the non-confidential version of the US House Permanent Select Committee on Intelligence report didn't provide any "hard evidence" against Huawei for corporate spying, two intelligence officials familiar with the case said the most worrying factor for the US government agencies was the Chinese company's "ability to engage in espionage or sabotage" in the future.

This is ridiculous. How could they use a conjecture - possibility of a future threat - to brand Huawei a black sheep? It is more like giving a dog a bad name to hang him.

Chinese enterprises' outbound direct investment has grown rapidly in recent years, creating pressure on and challenges for host countries' companies. According to the Ministry of Commerce, China's ODI in 2011 was $74.65 billion. From 2002 to 2011, the annual growth of China's ODI was 44.6 percent, and by the end of 2011, its cumulative value had reached $424.78 billion, the 13th highest in the world.

The fast and sustained growth of China's ODI also evoked counterattacks from host countries' companies. China's ODI is concentrated in a few countries - at the end of 2011, the top 20 destinations accounted for 90.8 percent of China's total ODI. Thus accusing Chinese enterprises of being involved in corporate spying in these countries is nothing but an excuse to hinder their business.

In the US, for example, the fast expansion of Huawei and ZTE over the past few years has threatened the interests of American communication equipment makers, and the US is accusing them of corporate spying to thwart their further growth.

It is difficult to make a clear distinction between corporate spying, which is illegal, and intelligence gathering, which is legal. Corporate spying refers to theft of trade secrets. And a trade secret is technical information not generally known to the public, which can bring some sort of economic benefit to its holder. Commercial information, on the other hand, refers to the collection, analysis and dissemination of a competitor's intelligence by following professional ethics.

Companies gather information on their rivals either by stealing their trade secrets or by gathering facts available on them. When conventional means don't work, quite a few companies use unconventional means to gather such facts. In fact, corporate spying has become an "open secret" across the business world. Corporate spying does not only help gain trade secrets, but can also be used to gather classified state secrets, making theft of trade secrets a profitable business.

There is more than enough evidence to prove that China is a victim of trade spying. Many large foreign enterprises have specialized intelligence agencies whose job, on one hand, is to gather intelligence and, on the other, to protect their information from being stolen. Chinese companies that don't have intelligence networks can neither gather information on their competitors nor have the wherewithal to protect their trade secrets. Chinese enterprises often become victims of corporate spying. In 2009, Australian mining giant Rio Tinto scrapped the deal with Chinalco, and made it suffer an estimated loss of at least 700 billion yuan.

The US promulgated the Economic Espionage Act in 1996, making the theft or misappropriation of trade secrets a federal crime under commercial espionage. It stipulates that those who steal trade secrets for foreign entities are guilty of economic espionage and will be punished severely.

China has no specialized legislation on economic espionage and, hence, should take the US example to establish an effective trade secret protection mechanism for Chinese enterprises doing business overseas. Given China's imitative strategy of catching up with developed countries, Chinese enterprises cannot avoid being accused of corporate spying.

So Chinese enterprises have to be more self-disciplined, respect intellectual property rights, comply with the laws of host countries, acquire advanced technologies and information through market transactions and thus improve their image and reputation in the world market.

The author is a professor at the School of International Trade and Economics, University of International Business and Economics, Beijing.

(China Daily 11/27/2012 page9)