- In early 2022, American F-35 stealth fighters had an encounter with Chinese J-20 fighters over the South China Sea.
- The J-20 is based on US stealth fighter technology that China stole from American defense contractors.
- China's military espionage threatens the national security of the US and its allies, as well as American companies.
- Su Bin, a Chinese aviation technology company owner, orchestrated the theft of classified files from defense companies, focusing on the Boeing C-17 transport.
- Su Bin passed potential targets to Chinese military hackers who sent phishing emails to individuals at the targeted companies, gaining remote access to restricted networks.
- The hackers stole over 600,000 files about the C-17, as well as files about the F-22 and F-35.
- Chinese hackers have a history of stealing information about the F-35, despite its design problems and cost overruns.
- China has built an extensive cyber espionage network, with one main node being a secret PLA cyber warfare unit known as Unit 61398.
- Unit 61398 was responsible for at least 141 attacks, stealing hundreds of terabytes of data from over 100 clients in various industries.
- Mandiant, an American cybersecurity company, exposed Unit 61398 and its activities, leading to indictments against 5 members of the unit.

- The US Department of Justice indicted 5 members of Chinese hacking group Unit 61398 in 2014.
- China responded by conducting a massive data breach, stealing personal information from over 21 million Americans.
- The CIA faced difficulties due to compromised covers, and the Obama administration offered credit protection to affected Americans.
- The US-China cyber agreement was reached, but China continued its espionage activities.
- China's espionage activities are driven by its ambition to surpass the US militarily and economically.
- China conducts espionage on a large scale, with an estimated annual cost of billions of dollars.
- China blurs the line between military and economic espionage, and the means used include hacking, coercion, and cultivating intelligence assets.
- China focuses its espionage efforts on industries identified in its Made in China 2025 strategy.
- An example of Chinese espionage is the case of an engineer at GE Aviation who was targeted through LinkedIn.

- An engineer from GE gave a presentation in China and received payment for it
- The engineer was later questioned by FBI agents about his trip and confessed to giving a presentation on designing airplane parts
- The FBI discovered that the engineer's hosts were trying to steal trade secrets and offered a deal to the engineer to participate in a counterintelligence operation against China
- The FBI obtained evidence that the engineer's host, Chu Hui, was an intelligence officer for the Chinese government
- The engineer continued correspondence with Chu, providing bait information and suggesting a meeting in Belgium
- Belgian federal police arrested Chu and his colleague when they arrived at the meeting location
- Su Yong-Jun, Chu's real name, was extradited to the US and sentenced to 16 years in prison for economic espionage
- The US must continue to defend against Chinese state-sponsored espionage and invest in research and development to maintain its advantage in technology and influence.

- Chinese J-20 fighters, based on stolen US stealth fighter technology, had an encounter with American F-35 stealth fighters over the South China Sea in early 2022.
- China's military espionage, conducted through hacking, threatens US national security, American companies, and its allies.
- Su Bin orchestrated the theft of classified files from defense companies, focusing on the Boeing C-17 transport, and passed potential targets to Chinese military hackers.
- Chinese hackers have a history of stealing information about the F-35 and have built an extensive cyber espionage network.
- Unit 61398, a secret PLA cyber warfare unit, was responsible for numerous attacks and was exposed by Mandiant, leading to indictments against its members.
- China responded to the indictments by conducting a massive data breach, stealing personal information from millions of Americans.
- China's espionage activities are driven by its ambition to surpass the US militarily and economically, with an estimated annual cost of billions of dollars.
- China blurs the line between military and economic espionage, using hacking, coercion, and cultivating intelligence assets.
- China focuses its espionage efforts on industries identified in its Made in China 2025 strategy.
- An engineer at GE Aviation was targeted through LinkedIn, leading to the discovery of a Chinese intelligence officer and his colleague.
- The Chinese intelligence officer was arrested, extradited to the US, and sentenced for economic espionage.
- The US must continue to defend against Chinese state-sponsored espionage and invest in research and development for maintaining its advantage.

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ABOUT JOHN COOGAN:
I am the co-founder of http://soylent.com and http://lucy.co, both of which were funded by Y Combinator (Summer 2012 and Winter 2018).

I've been an entrepreneur for the last decade across multiple companies. I've done a lot of work in Silicon Valley, so that's mostly what I talk about. I've raised over 10 rounds of venture capital totaling over $100m in funding.

I work mostly in tech-enabled consumer packaged goods, meaning I use software to make the best products possible

CONTACT:
You can get in touch with me via Twitter: https://twitter.com/johncoogan

Disclaimer: This video is purely my opinion and should not be regarded as a primary source. I am not a financial advisor and this is not a recommendation to buy or sell securities. Always do your own due diligence.

In early 2022, something happened that had never happened before.

Somewhere over the South China Sea, American F-35 stealth fighters had an encounter with Chinese J-20 fighters.

It wasn't a fight, as far as we know, they just crossed paths.

In March, the US Air Force acknowledged that the encounter took place without saying when or where.

The People's Liberation Army finally followed suit a few months later.

It's not that unusual for military aircraft to meet in contested airspace.

But there was something very unusual about this encounter in particular.

Because the J-20 was heavily based on US stealth fighter technology that China stole from American defense contractors, which made this random blink of an eye encounter the culmination of China's years-long campaign to steal US military technology.

And in this video, I'm going to tell you how they do it, why they do it, and why they won't stop.

China often steals American intellectual property.

They try to advance the interests of a corrupt state.

We see that China exponentially increasing their R&D investments.

And this effect is multiplied by what they steal from us."

Chinese military espionage is a war that's being fought in the massive shadow cast by the broader US-China strategic competition.

But it's actually super important because it directly threatens the national security of the United States and its western allies, while also endangering American companies and strengthening the Chinese government's ability to maintain an iron grip on power.

The military technology involved in all of this is so classified, it's rare to learn the names of anyone involved, but there are a few people whose stories help us to understand how and why the Chinese government steals US military technology, like Su Bin.

From the outside, there wasn't a whole lot about Su Bin, or Stephen as he was known to his English-speaking friends, that aroused suspicion.

He ran a small Chinese aviation technology company that focused on manufacturing aircraft cable harnesses, and together with his wife, he owned a nice house in Richmond, British Columbia, just 20 miles from Canada's border with the United States.

Over the space of a few years, he cultivated networks of people within the aerospace industry.

Most of them probably just thought he was slightly too eager to make a business deal.

But unbeknownst to them, Suh was actually secretly orchestrating the theft of more than half a million classified files from some of the world's biggest defense companies.

He was especially interested in any files related to the Boeing C-17 transport.

The C-17 might have looked like an unusual target, but it actually made a lot of sense.

Since it first entered service in 1995, the C-17 has become an effective way for the U.S.

And its allies to transport troops, vehicles, and supplies to the front lines.

It's even used to transport the US President's armored limousines around the world.

Any military that wants to project force over large areas needs a reliable transport aircraft.

But American intelligence agencies knew that the Chinese Air Force had been struggling for years to develop 1 of their own.

Although the C-17 was made by Boeing, the company relied on dozens of smaller contractors.

That supply chain provided Su with lots of opportunities for infiltration.

After he identified potential targets, he'd pass their details on to 2 Chinese military hackers he was working with.

The hackers would then send phishing emails to individuals at the targeted companies.

Usually the emails were made to look like they came from a colleague or someone else in the industry.

When the target clicked on a link in the email, it took them to a website controlled by the PLA which downloaded malware onto their system.

This gave the hackers remote access to restricted networks.

Once they were inside, they sent lists of what they found back to Su.

Using his technical knowledge, he would direct the hackers on what files to exfiltrate.

From there, the hackers covered their tracks by routing the documents through servers in several different countries.

Eventually, the files were deposited on machines near Hong Kong and Macau.

At that point, Chinese military officials picked them up in person, took them back to China, and paid Su for his work.

Su and his partners had unfettered access to Boeing's network for 3 years before they were discovered.

During that time, they stole more than 600,000 files about the C-17.

But that wasn't all, because they also stole tens of thousands more files about the F-22 and F-35, the world's most advanced fighter planes.

In the end, the hackers were partly undone by their own bragging.

In 2011, 1 of the Chinese officers who worked with Su emailed the other, attaching a report detailing the success of their operation.

Suh was arrested in Canada and extradited to the United States.

And in 2016, he was sentenced to 4 years in prison by a court in Los Angeles.

In November of 2014, the People's Liberation Army debuted the Y-20 cargo plane.

It just happened to bear a striking resemblance to the Boeing C-17.

There was even a C-17 parked nearby at the airshow where the Y-20 was first unveiled.

It looked like the PLA had managed to come up with a solution after all.

Like I mentioned, Su Bin and his accomplices also managed to steal information about the F-35.

But that wasn't even the first time that had happened.

As far back as 2007, Chinese hackers infiltrated Lockheed Martin's networks and stole terabytes of data about everything from the F-35's radar systems to its engine schematics.

In 2009, the Wall Street Journal reported another cyberattack, this time targeting the F-35's electronic systems.

Chinese hackers were apparently so successful that before being discovered, they covertly sat in on what were supposed to be secure online press conferences.

And in late 2016, a small Australian aerospace company that subcontracts with the Department of Defense was hacked, and documents about the F-35, C-130 transport aircraft, and Australian naval vessels were stolen.

The hackers didn't have to try very hard.

An investigation found that the company's internet-facing services still had their default passwords.

The Chinese government's patience would soon pay off.

On Tuesday, all eyes were on the Chinese-made J-20 stealth fighter.

And if it looks familiar, that's because it bears a striking resemblance to the F-35 and F-22, warplanes made in the United States."

There's something slightly unusual about the fact that Chinese government hackers expended so much energy and effort to steal information about the F-35.

The F-35 might be the most widely criticized warplane ever.

The F-35 was born of an exceptionally dumb Air Force PR spin.

It started with incredibly high hopes when the contract for the Joint Strike Fighter, a program created by the US military in order to develop a superior, versatile fighter plane, was awarded to Lockheed Martin in 2001.

But the program has been plagued by a series of design problems, delays, and cost overruns.

By 2017, less than 2 years after the first F-35 entered service, the F-35 was forecast to cost 1.5 trillion over its lifespan.

So it sort of raises the question, if the F-35 is so bad, why did China try so hard and for so long to steal it?

Well, because despite all the problems with the F-35, it's still 1 of the world's best fighter planes.

And stealing the technology that underpinned it allowed the Chinese government to take a big step forward in their grand geopolitical strategy.

Su Bin's operation was highly successful until he got caught.

But that didn't bother the people who ordered the operation, or their bosses, or their bosses, because he was ultimately just 1 foot soldier in a huge army of Chinese hackers dedicated to stealing the West's most sensitive commercial and military secrets.

Over the last 2 decades, China has built an enormous cyber espionage network.

1 of the main nodes of that network was a 12-story building on 208 Datong Road near Shanghai Airport.

It may have looked like a regular, boring office building, and in some ways it was.

Personnel had access to a medical clinic and a kindergarten, but it was also the office of a secret PLA cyber warfare unit.

Unit 61398 exists almost nowhere in Chinese government documents.

You're more likely to find references to it in US government documents.

A secret State Department cable written in 2008 mentioned an attack by a Chinese hacking group codenamed Byzantine Candor, which stole more than 50 megabytes of emails and a list of account details from a US government agency.

Still, the public was completely unaware of its existence.

Until, that is, an American cybersecurity company released a report which, among other things, identified the unit as the 1 that was behind the theft of the F-35 designs.

For 7 years, Mandiant secretly monitored the activities of Unit 61398's hackers.

Over that time, the group was responsible for at least 141 attacks, which cumulatively stole hundreds of terabytes of data.

Mandiant watched from the shadows as Unit 61398's hackers stole blueprints, manufacturing processes, clinical trial results, pricing documents, negotiation strategies, and other proprietary information from more than 100 of its clients, mostly in the US.

More than 20 industries, from defense contractors to chemical plants, mining companies and telecommunications corporations were targeted.

And Mandiant also learned through analyzing their techniques and tracing their IP addresses that Unit 61398's hackers were working out of the same building, that nondescript 12-story office on Datong Road.

By uncovering Unit 61398, Mandiant showed exactly the kind of ingenuity and talent that made so many American companies prime targets for Chinese espionage operations.

The report made headlines across the world and alerted everyone to the threat posed by systematic state-sponsored Chinese espionage.

In May of 2014, the Department of Justice indicted 5 members of Unit 61398.

Everyone knew there was no chance the hackers would be extradited to face the charges.

But it was still a sign that the Obama administration was willing to publicly call out China over its ongoing theft of corporate and military secrets.

More than 21 million Americans had personal information stolen from government files in a data breach that was 6 times as large as originally disclosed.

The OPM hack resulted in the theft of 22 million security clearance files on American officials, military personnel, contractors, and intelligence officers.

Intelligence agencies realized what it meant.

The Chinese government was assembling a massive database of almost everyone in the American national security community.

The CIA couldn't move some of their officers to China because they were concerned their covers were blown.

And the Obama administration offered millions of Americans credit protection in case the hackers had their credit card numbers.

The arrest of the Unit 61398 hackers and the OPM hack made Chinese espionage the biggest issue in the US-China relationship.

And it led directly to what looked like an incredible breakthrough.

The United States government does not engage in cyber economic espionage for commercial gain.

And today I can announce that our 2 countries have reached a common understanding on the way forward.

We've agreed that neither the US or the Chinese government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information for commercial advantage.

The US-China cyber agreement felt like an arms-controlled deal for cyberspace.

And on the surface, it seemed to achieve results.

The security firm FireEye released a report a year after the deal, which claimed that the number of successful attacks by the Chinese hacking groups it was tracking fell by more than 80%.

Soon after signing the agreement with the United States, Xi Jinping signed a similar deal with the United Kingdom.

Was the Chinese government actually about to stop its espionage activities?

Up until about 2014, the PLA was the main force behind China's espionage operations.

But the unmasking of Unit 61398 and the public identification of 5 of its members was a major embarrassment.

It ended up being 1 of the factors behind Xi Jinping's decision to reorganize the People's Liberation Army and purge several of its leaders.

As part of the reorganization, power was centralized within the Ministry of State Security, a powerful agency that combines elements of the FBI, CIA, and NSA.

Suddenly the same organization that monitors Chinese people at home was given the job of stealing secrets from China's rivals.

This centralization of power coincided with what, on paper, looked like a decline in Chinese cyber espionage attacks against American companies and organizations.

Most of the decline actually took place before the agreement was announced.

It just turned its attention to places like Russia and Southeast Asia.

And although we'll never know for sure, it probably took some time for the reforms within the Chinese government to play out, and for the Ministry of State Security to acquire new, high-value cyber espionage targets within the United States.

Chances are, Xi Jinping knew all of this when he stood next to Barack Obama in the Rose Garden.

He never had any intention of stopping Chinese espionage operations.

He probably just wanted to gain a diplomatic advantage while buying himself some time to increase his government's capacity to conduct them.

And after years of Obama's diplomacy, Xi Jinping was about to deal with a very different US president.

1 of Donald Trump's signature policies as president was his trade war against China.

He'd been talking about unfair trade practices for decades, and finally he had a chance to do something.

Now, I'm not going to argue whether or not the trade war was a good idea, but in terms of preventing espionage, it was a failure.

And the truth is, it was never going to succeed, because nothing that Trump or any US leader could have done was going to dissuade Xi Jinping from the strategy he'd chosen.

So far, I've talked about how China steals US commercial and military technology, but now it's time to zoom out and ask a really important question.

Right off the bat, let's get something straight.

They view it as an integral part of national security.

And every country knows that other countries are conducting espionage on them.

But there are 3 things that make China's espionage activities different.

Su Bin explained it perfectly in 1 of the emails that was used as evidence against him.

The F-22 and F-35 documents he helped steal would, in his words, allow China to catch up rapidly with US levels and stand easily on the giant's shoulders.

The Chinese Communist Party, led by Xi Jinping, is on a mission to surpass the United States as the world's preeminent military and economic leader.

As China's military becomes more powerful, it's able to exert more influence in the Indo-Pacific, coercing its rivals and extracting more value out of things like trade deals.

But making that ambition a reality requires making quick leaps.

And China's leaders have decided that, rather than doing it the old-fashioned way like investing in R&D, the best way to catch up quickly is by stealing US technology.

The J-20, The plane that had that close encounter with the American F-35s over the South China Sea is a perfect example.

It's only the third, fifth generation fighter in the world, behind the F-35 and F-22, the 2 planes its design is based on.

The J-20 is designed to dominate the skies over the South China Sea, 1 of the most contested regions in the entire world.

Xi Jinping sees it as a key part of China's ability to project military power in the region.

In the event of an actual conflict, say over Taiwan, the J-20 will be 1 of the main ways that the Chinese military tries to deny area access to US naval vessels and aircraft.

As China's world influence expands, so is its military.

Beijing's goal is to surpass the United States.

And although China's leaders would prefer to do it peacefully, if there is a war, they want to level the playing field.

The scale of Chinese espionage activities against the United States is staggering.

Credible estimates from 5 years ago put the annual cost at $320 billion.

Some of them are lower, but we're still talking about tens of billions of dollars every year.

And of course, that's only the espionage that we know about.

There are plenty of reasons why an intelligence agency or defense contractor might not disclose that they've been hacked.

So the true cost of China's espionage activities is probably a lot higher.

China has a bigger hacking program than that of every other major nation combined.

According to Christopher Wray, the director of the FBI, the agency opens a new China-related counterintelligence case about every 10 hours.

You might have noticed that I'm not making much of a distinction between military and economic espionage.

China doesn't make this distinction either.

Article 7 of China's National Intelligence Law states that, "...any organization or citizen shall support, assist, and cooperate with the state intelligence work in accordance with the law.

In China, the line between the government and the private sector is so blurry that it doesn't exist.

Many large Chinese businesses are state-owned enterprises.

And even if they aren't, the government still controls them.

And it will remain that way as long as the Chinese government isn't subject to any constraints on its power.

The Chinese government uses a diverse range of techniques to conduct espionage.

Sometimes it cultivates an intelligence asset like Su Bin, using him to identify targets, and then hacking those targets.

Another technique involves enticing people to covertly share knowledge with China.

In 2019, a Texas-based scientist was convicted after he stole trade secrets regarding syntactic foam, an important naval technology used in submarines.

The state-owned enterprise that benefited from the theft even ended up patenting the manufacturing process they stole and then offered the American company a joint venture.

That was an example of another famous Chinese espionage technique, coercing American companies to share or give up their intellectual property in order to access the Chinese market.

The techniques are diverse, and so are the technologies.

We know what technologies China is most interested in because they've told us.

The Made in China 2025 strategy, announced by Xi Jinping a few months before the U.S.-China cyber agreement, identifies specific industries like aerospace, automation, artificial intelligence, and quantum computing where China should gain an advantage.

Today, almost all of China's espionage focuses on those industries.

Like I said earlier, when we talk about Chinese state-sponsored espionage, it's rare to learn about people's real stories.

But sometimes there's a story which perfectly encapsulates the broader issue.

In March of 2017, an engineer at GE Aviation received a LinkedIn request from an official at a university in eastern China.

GE Aviation was an ideal target because it builds airplane and helicopter engines for the Pentagon, and the engineer was an ideal target because he grew up in China.

Like most people who use LinkedIn, he was used to getting requests from strangers.

He accepted the request without thinking too much about it.

A few days later, the official invited the engineer to the university to give a research presentation.

The engineer felt honored at the recognition.

Before he moved to the US for grad school, he'd grown up in a small village.

Now he was being asked to share knowledge about aerospace engineering.

Plus, he'd get to see his family and friends.

The engineer knew that if he asked, GE wouldn't give him permission to go.

Instead, he clarified with the official from the university that he'd only discuss general research on composite materials, not anything he was working on at GE.

After the engineer gave the talk, he was handed an envelope with $3,500, reimbursement for travel and a payment for the talk.

He went back home to the United States and that was the end of the story.

A few months later, the engineer got a call asking him to attend a meeting with GE security officers.

Earlier that day, he and his teammates had been asked to hand over their hard drives and then their laptops.

The officers wanted to know more about his trip to China.

The engineer said he just went back for a college reunion and to connect with friends and family.

The security officers told the engineer that a couple of FBI agents wanted to talk to him.

In fact, they were already in the building.

They entered the room and started asking the engineer questions about the trip.

He stuck to the story he gave the security officers.

Finally, exasperated, the agents showed him their evidence that he had visited the university.

They reminded him that it was a crime to lie to federal agents, and they asked him again, what did he do in China?

He said he'd given a presentation about designing airplane parts from composite materials.

Although he was careful not to divulge any proprietary information, He had downloaded some GE training files to help him prepare.

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How China Steals US Military Technology