Chinese cyber espionage is so extensive that the state could not do it without help. When leaked documents revealed the close cooperation between a private Chinese hacker group and the government in February of this year, the German Federal Office for the Protection of the Constitution began to dissect the data. Six months later, the agency presented a multipart analysis of its investigations.
Wilhelmine Preussen looked at the BfV publications and interviewed experts about their significance. The feedback she received: It is high time that greater awareness was created in Germany to better safeguard against possible attacks on sensitive networks and data. One important step is a bill to implement the new EU cybersecurity directive.
However, “comprehensive sectoral exemptions” explicitly exclude public administration in the German draft law. This leaves one flank of the cyberwar arena comparatively exposed. After all, China is interested in more than just industry secrets and military capacities. Access to personnel in administrations in particular also allows access to important interfaces and information sources. Past Chinese espionage activities have specifically targeted human vulnerabilities.
Incidentally, influencing people is also the strategy that Chinese tech companies use to counteract the critical eye on their work in Germany and Europe. A study by the association LobbyControl found that Huawei and TikTok are expanding their lobbying activities in Brussels and Berlin in particular. More money and growing networks are intended to represent the interests of corporations more strongly in Germany. This is legitimate and certainly a sign of things to come: Chinese lobbying in Europe will continue to increase. It can’t hurt to keep a close eye on this.
The German government is increasingly publicly blaming actors such as Russia or China for cyberattacks. Following the cyberattack on the Federal Agency for Cartography and Geodesy in 2021, the German government recently even summoned the Chinese ambassador. However, experts warn that these tougher diplomatic measures alone will not prevent cyberattacks in the future.
This is also due to the increasing professionalization of cyberespionage by private companies. In February, a data leak from the Chinese hacker company i-Soon provided a rare insight into the approach of so-called advanced persistent threat (APT) groups in China and the interplay between private and state actors.
The Federal Office for the Protection of the Constitution (BfV) has now published a four-part analysis of the i-Soon leaks, including company chats, advertising materials and presentations. The first part focuses on the organization and methods of the i-Soon advanced persistent threat units, while parts two and three deal with the ties to the Chinese security apparatus and the specific targets of the attacks. The last part will be published on Thursday, August 22.
The BfV’s series can certainly be seen in part as an advertising measure for the Office for the Protection of the Constitution itself, but it also serves to raise awareness. The goal is for German company boards, universities, research institutions, ministries and authorities to finally recognize what experts have long known: Chinese security authorities are spying in cyberspace with the help of highly professionalized private IT service providers. Operations are planned long in advance and in a targeted manner. It is becoming increasingly challenging to identify individual cyber operations. The data also clearly shows that i-Soon is not an isolated entity but operates within a flourishing Chinese cyber ecosystem.
The German government must learn the lesson that political condemnations alone are “useless,” warns Dennis-Kenji Kipker, Research Director and co-founder of the Cyberintelligence Institute in Frankfurt. It is clear that companies like i-Soon are not only working for the Chinese central government, but for whoever pays them. This creates a “market value of cyberattacks,” says Kipker.
That is why public administration in Germany must focus on its cybersecurity at a technical level, he emphasizes. The cabinet draft for the implementation of the EU’s NIS2 cybersecurity directive failed to do this by incorporating “comprehensive sectoral exemptions” into the bill. Beyond the federal level, public administration is explicitly excluded from the German implementation of NIS2.
According to the BfV, the services provided by the hacker companies generally coincide with the information demands of the Chinese state agenda: They attack networks of government agencies, international organizations and relevant companies. The documents show what the Chinese authorities’ interests are and what they are willing to pay for them. Information includes target entities as well as contract details on specific products and services. For instance, login credentials for the FBI network are offered for 13,000 and 20,000 euros.
The espionage targets also included the communications of NATO chief Jens Stoltenberg, British government and activist organizations as well as employees of elite French universities. The analysis does not mention German targets in this particular case, but the data set is highly relevant for the German security authorities and counterintelligence.
“This type of cyber espionage by state-affiliated companies is a typical Chinese pattern, especially in comparison to Russia, which relies even more heavily on the historically grown cybercrime sector,” says Kerstin Zettl-Schabath, cyber conflict researcher at the European Repository of Cyber Incidents (EuRepoC) at the University of Heidelberg.
She believes China is not necessarily interested in paralyzing infrastructure or extorting money with ransomware attacks. It is more about high-level targets and then, in consultation with the client, attacks. The country also systematically analyzes the vulnerabilities of its potential espionage targets in order to cause the greatest possible damage should the need arise.
The public attribution of cyberattacks is a “first step in the right direction,” says Zettl-Schabath. “If it is not publicly addressed that China regularly violates standards, these cannot be internalized in the end.” However, the expert also insists that companies and authorities must strengthen their level of technical security to ensure the best possible protection against this type of actor.
Decentralization of decision-making from the central government to local authorities is widely regarded as one of China’s most effective policy reforms of the past four decades. As the Communist Party’s priorities shifted from class struggle to economic development, decentralization turned out to be a tremendous catalyst for growth.
Compared to the centrally planned system, local governments were better positioned to tailor economic decisions to local conditions. Local governments were also better placed to facilitate economic activity in an underdeveloped market, including by protecting ownership rights and coordinating business transactions.
Once the reform took hold, subnational governments competed fiercely to deliver rapid economic growth, with studies showing a positive correlation between local leaders’ opportunities for advancement and their jurisdictions’ GDP growth. Mayors acted as CEOs of municipal economies, and all levels of local government implemented investment-promotion programs, offering a wide range of subsidies to potential investors. As a result, local governments were crucial to China’s economic takeoff.
But decentralization is not the same as market liberalization, even though it did initially lead to efficiency gains. The power to allocate resources remains in the hands of government, albeit local rather than national.
Turning municipalities into agencies that fulfilled both governmental and business functions was, to a certain extent, a transitional arrangement. And it worked for some time, especially during the first three decades of reform, when China’s markets were not functioning properly. But that period is over. Today, local governments are arguably the greatest source of market distortion and financial risk in China.
For example, municipalities derive a substantial share of their revenue from the sale of state-owned urban land, the proceeds of which go exclusively to local governments. This is one of the main factors behind China’s ever-growing property bubble and the associated financial risks. Moreover, local leaders often spend much of this revenue on vanity projects – parks, concert halls, and airports – that are rarely fully utilized.
Local governments also promote the development of industries targeted by the central government. In the case of green energy, for example, they try to attract companies by offering tax reductions, access to subsidized credit, and the free use of land. But instead of overcoming technological bottlenecks, this localized industrial policy mainly serves to expand production capacity.
Making matters worse, local governments sometimes discourage failing companies from shutting down, out of concern for local employment and living standards. This approach to “investment promotion” tilts the playing field, distorts resource allocation, lowers the quality of goods, and exacerbates the overcapacity problem.
Perhaps most worryingly, the massive volume of local-government debt, representing 32 percent of Chinese GDP in 2023, is a major financial risk. The starting point of this dangerous over-leveraging was the mismatch between local governments’ fiscal resources and their spending responsibilities.
To make ends meet, cash-strapped local governments adopted innovative revenue schemes, one of which was the local-government investment vehicle. But while local governments were borrowing from the market, investors considered only the central government’s ability to service debt. This permitted local governments to borrow and spend at unsustainable rates.
China can pursue further economic reform only if it reins in its local governments. The recently concluded Third Plenum of the 20th Party Congress reiterated the country’s commitment to allowing the market to play a decisive role in resource allocation, while highlighting the need to remedy market failures. Regulating local governments’ behavior is a crucial step in this direction.
To that end, the Plenum detailed several reforms, such as the standardization of investment-promotion programs to prohibit improper industrial subsidies, and increased oversight of local governments’ debt management. But implementing these changes will not be easy. The Chinese government will need extraordinary determination and deft policymaking to lower local-government debt, redistribute spending responsibilities, and manage financial risks.
Three principles should guide this process. First, local governments should refrain from intervening in resource allocation and price formation, which should be steered by markets and enterprises. Second, the central government should manage all industrial and fiscal policies, without imposing additional spending responsibilities on subnational governments. Lastly, local authorities should focus more on basic government functions, such as building infrastructure, providing public services, maintaining social order, and correcting market failures.
These changes, if implemented, would go a long way toward supporting robust economic growth in China and meeting the Chinese government’s goal of building an advanced socialist market economy.
Huang Yiping, Dean of the National School of Development and a professor at Peking University, is a member of the Monetary Policy Committee of the People’s Bank of China.
Copyright: Project Syndicate, 2024.
www.project-syndicate.org
What looks like a rural circus rehearsal is actually a cleverly improvised form of agriculture. Rice farmers from Suqian in the northern province of Jiangsu use the buoyancy of hydrogen balloons to lift a nozzle that sprays pesticides over the fields.
Chinese cyber espionage is so extensive that the state could not do it without help. When leaked documents revealed the close cooperation between a private Chinese hacker group and the government in February of this year, the German Federal Office for the Protection of the Constitution began to dissect the data. Six months later, the agency presented a multipart analysis of its investigations.
Wilhelmine Preussen looked at the BfV publications and interviewed experts about their significance. The feedback she received: It is high time that greater awareness was created in Germany to better safeguard against possible attacks on sensitive networks and data. One important step is a bill to implement the new EU cybersecurity directive.
However, “comprehensive sectoral exemptions” explicitly exclude public administration in the German draft law. This leaves one flank of the cyberwar arena comparatively exposed. After all, China is interested in more than just industry secrets and military capacities. Access to personnel in administrations in particular also allows access to important interfaces and information sources. Past Chinese espionage activities have specifically targeted human vulnerabilities.
Incidentally, influencing people is also the strategy that Chinese tech companies use to counteract the critical eye on their work in Germany and Europe. A study by the association LobbyControl found that Huawei and TikTok are expanding their lobbying activities in Brussels and Berlin in particular. More money and growing networks are intended to represent the interests of corporations more strongly in Germany. This is legitimate and certainly a sign of things to come: Chinese lobbying in Europe will continue to increase. It can’t hurt to keep a close eye on this.
The German government is increasingly publicly blaming actors such as Russia or China for cyberattacks. Following the cyberattack on the Federal Agency for Cartography and Geodesy in 2021, the German government recently even summoned the Chinese ambassador. However, experts warn that these tougher diplomatic measures alone will not prevent cyberattacks in the future.
This is also due to the increasing professionalization of cyberespionage by private companies. In February, a data leak from the Chinese hacker company i-Soon provided a rare insight into the approach of so-called advanced persistent threat (APT) groups in China and the interplay between private and state actors.
The Federal Office for the Protection of the Constitution (BfV) has now published a four-part analysis of the i-Soon leaks, including company chats, advertising materials and presentations. The first part focuses on the organization and methods of the i-Soon advanced persistent threat units, while parts two and three deal with the ties to the Chinese security apparatus and the specific targets of the attacks. The last part will be published on Thursday, August 22.
The BfV’s series can certainly be seen in part as an advertising measure for the Office for the Protection of the Constitution itself, but it also serves to raise awareness. The goal is for German company boards, universities, research institutions, ministries and authorities to finally recognize what experts have long known: Chinese security authorities are spying in cyberspace with the help of highly professionalized private IT service providers. Operations are planned long in advance and in a targeted manner. It is becoming increasingly challenging to identify individual cyber operations. The data also clearly shows that i-Soon is not an isolated entity but operates within a flourishing Chinese cyber ecosystem.
The German government must learn the lesson that political condemnations alone are “useless,” warns Dennis-Kenji Kipker, Research Director and co-founder of the Cyberintelligence Institute in Frankfurt. It is clear that companies like i-Soon are not only working for the Chinese central government, but for whoever pays them. This creates a “market value of cyberattacks,” says Kipker.
That is why public administration in Germany must focus on its cybersecurity at a technical level, he emphasizes. The cabinet draft for the implementation of the EU’s NIS2 cybersecurity directive failed to do this by incorporating “comprehensive sectoral exemptions” into the bill. Beyond the federal level, public administration is explicitly excluded from the German implementation of NIS2.
According to the BfV, the services provided by the hacker companies generally coincide with the information demands of the Chinese state agenda: They attack networks of government agencies, international organizations and relevant companies. The documents show what the Chinese authorities’ interests are and what they are willing to pay for them. Information includes target entities as well as contract details on specific products and services. For instance, login credentials for the FBI network are offered for 13,000 and 20,000 euros.
The espionage targets also included the communications of NATO chief Jens Stoltenberg, British government and activist organizations as well as employees of elite French universities. The analysis does not mention German targets in this particular case, but the data set is highly relevant for the German security authorities and counterintelligence.
“This type of cyber espionage by state-affiliated companies is a typical Chinese pattern, especially in comparison to Russia, which relies even more heavily on the historically grown cybercrime sector,” says Kerstin Zettl-Schabath, cyber conflict researcher at the European Repository of Cyber Incidents (EuRepoC) at the University of Heidelberg.
She believes China is not necessarily interested in paralyzing infrastructure or extorting money with ransomware attacks. It is more about high-level targets and then, in consultation with the client, attacks. The country also systematically analyzes the vulnerabilities of its potential espionage targets in order to cause the greatest possible damage should the need arise.
The public attribution of cyberattacks is a “first step in the right direction,” says Zettl-Schabath. “If it is not publicly addressed that China regularly violates standards, these cannot be internalized in the end.” However, the expert also insists that companies and authorities must strengthen their level of technical security to ensure the best possible protection against this type of actor.
Decentralization of decision-making from the central government to local authorities is widely regarded as one of China’s most effective policy reforms of the past four decades. As the Communist Party’s priorities shifted from class struggle to economic development, decentralization turned out to be a tremendous catalyst for growth.
Compared to the centrally planned system, local governments were better positioned to tailor economic decisions to local conditions. Local governments were also better placed to facilitate economic activity in an underdeveloped market, including by protecting ownership rights and coordinating business transactions.
Once the reform took hold, subnational governments competed fiercely to deliver rapid economic growth, with studies showing a positive correlation between local leaders’ opportunities for advancement and their jurisdictions’ GDP growth. Mayors acted as CEOs of municipal economies, and all levels of local government implemented investment-promotion programs, offering a wide range of subsidies to potential investors. As a result, local governments were crucial to China’s economic takeoff.
But decentralization is not the same as market liberalization, even though it did initially lead to efficiency gains. The power to allocate resources remains in the hands of government, albeit local rather than national.
Turning municipalities into agencies that fulfilled both governmental and business functions was, to a certain extent, a transitional arrangement. And it worked for some time, especially during the first three decades of reform, when China’s markets were not functioning properly. But that period is over. Today, local governments are arguably the greatest source of market distortion and financial risk in China.
For example, municipalities derive a substantial share of their revenue from the sale of state-owned urban land, the proceeds of which go exclusively to local governments. This is one of the main factors behind China’s ever-growing property bubble and the associated financial risks. Moreover, local leaders often spend much of this revenue on vanity projects – parks, concert halls, and airports – that are rarely fully utilized.
Local governments also promote the development of industries targeted by the central government. In the case of green energy, for example, they try to attract companies by offering tax reductions, access to subsidized credit, and the free use of land. But instead of overcoming technological bottlenecks, this localized industrial policy mainly serves to expand production capacity.
Making matters worse, local governments sometimes discourage failing companies from shutting down, out of concern for local employment and living standards. This approach to “investment promotion” tilts the playing field, distorts resource allocation, lowers the quality of goods, and exacerbates the overcapacity problem.
Perhaps most worryingly, the massive volume of local-government debt, representing 32 percent of Chinese GDP in 2023, is a major financial risk. The starting point of this dangerous over-leveraging was the mismatch between local governments’ fiscal resources and their spending responsibilities.
To make ends meet, cash-strapped local governments adopted innovative revenue schemes, one of which was the local-government investment vehicle. But while local governments were borrowing from the market, investors considered only the central government’s ability to service debt. This permitted local governments to borrow and spend at unsustainable rates.
China can pursue further economic reform only if it reins in its local governments. The recently concluded Third Plenum of the 20th Party Congress reiterated the country’s commitment to allowing the market to play a decisive role in resource allocation, while highlighting the need to remedy market failures. Regulating local governments’ behavior is a crucial step in this direction.
To that end, the Plenum detailed several reforms, such as the standardization of investment-promotion programs to prohibit improper industrial subsidies, and increased oversight of local governments’ debt management. But implementing these changes will not be easy. The Chinese government will need extraordinary determination and deft policymaking to lower local-government debt, redistribute spending responsibilities, and manage financial risks.
Three principles should guide this process. First, local governments should refrain from intervening in resource allocation and price formation, which should be steered by markets and enterprises. Second, the central government should manage all industrial and fiscal policies, without imposing additional spending responsibilities on subnational governments. Lastly, local authorities should focus more on basic government functions, such as building infrastructure, providing public services, maintaining social order, and correcting market failures.
These changes, if implemented, would go a long way toward supporting robust economic growth in China and meeting the Chinese government’s goal of building an advanced socialist market economy.
Huang Yiping, Dean of the National School of Development and a professor at Peking University, is a member of the Monetary Policy Committee of the People’s Bank of China.
Copyright: Project Syndicate, 2024.
www.project-syndicate.org
What looks like a rural circus rehearsal is actually a cleverly improvised form of agriculture. Rice farmers from Suqian in the northern province of Jiangsu use the buoyancy of hydrogen balloons to lift a nozzle that sprays pesticides over the fields.
