698 { China’s Quest
and private analysts were convinced are linked to the PRC government, suc-
cessfully penetrated the cyber systems of US corporations and government
defense agencies, exfiltrating vast quantities of technical and design infor-
mation on the most advanced areas of science and technology. US defense
contractors, including especially those working on the most advanced
next-generation systems, were a major target of cyber penetration and exfil-
tration of data. With regard to US military capabilities, China’s objective was
apparently to defend against US electronic and cyber warfare capabilities,
while understanding and exploiting US vulnerabilities to China’s military
advantage. China denied that these cyber espionage operations were autho-
rized or conducted by government agencies, but authoritative US analysts
were convinced they were.^49
While our knowledge of this is limited, it is likely that once a new and ad-
vanced technology was acquired from abroad, research centers under CAS
or MOST were responsible for studying and re-engineering and modifying it
for use in China. The blueprints and technical specifications for that Chinese
copy would then be passed to design bureaus of Chinese capital goods manu-
facturing firms, which would mass-produce the new, more technologically
advanced machinery and equipment. Centrally mandated tax breaks, grants,
or subsidies would then offer incentives for enterprises to acquire and utilize
the new technology.
Chinese enterprises concerned with growth and profit sometimes did not
have the same interest as the SSTC or MOST in acquiring more advanced
technologies. New technologies could be expensive and difficult to mas-
ter, and might not significantly increase productivity or efficiency for some
time. Production lines and schedules with existing technologies operating
quite profitably could be disrupted by a shift to new technologies. Here state
agencies sometimes stepped in with monetary subventions as incentive.
Party secretaries—more responsive to noneconomic directives from higher
levels—also sometimes weighed in so that targeted technology would be
acquired. Embodying advanced technology transfer requirements in con-
tracts was phased out after China’s WTO accession, but other means, such
as grant or denial of tax breaks or subsidies, were used to achieve the same
ends. The experience of General Motors (GM) of the United States offers an
example.^50 When GM wanted to begin production in China of its electric
car, the Volt, it was told that unless it transferred three key technologies to
China—electronic controls, power storage, and motor—its products would
not be eligible for a very substantial government subsidy available to other
electric-car producers. That would confer a large cost advantage on GM’s
competitors, effectively excluding it from the China electric-car market.
Foreign firms increasingly faced the choice of acceding to Beijing’s technol-
ogy transfer demands or being excluded from the large and rapidly expand-
ing Chinese markets.