Wind Power

60 Minutes Investigates Chinese Cyber-espionage in Wind Industry

A story that covered in 2012 was featured in the popular news program 60 Minutes on Sunday January 17. The program covered the plight of Massachusetts-based American Superconductor (AMSC) whose Intellectual Property (IP) was stolen by Chinese company Sinovel.  Dejan Karabasevic, an employee of AMSC who was based in Austria, helped perpetrate the IP theft. Karabasevic was arrested and served time in jail in Austria for the crime. However, the Chinese government did not investigate Sinovel’s role in the theft, prompting AMSC to bring a civil lawsuit against Sinovel.

According to 60 Minutes, after the US $1.2 B lawsuit was filed in Chinese court, Chinese cyber-espionage experts hacked into AMSC by sending a fake email purportedly from one member of the AMSC board to the other members of the board. The subject of the email was the headline from the story that ran in 2012:  “A Harsh Winter for China’s Wind Industry and Its Leading Turbine Manufacturer: Sinovel” and the body of the email contained an attachment with malicious spyware. Once someone in the company clicked on it, the malware was unleashed, basically “opening the front door” to the spies, said experts on the segment.

Lou Schwartz was the author of the article. An American attourney and business consultant based in Pennsylvania, Schwartz, who is fluent in Mandarin, has covered the Chinese wind industry for since 2007, when the website began posting his Renewable Energy and Sustainable Development Reports and other articles he has written on China’s fast-growing renewable energy industry.  Schwartz said he was “startled” but not surprised that Chinese hackers used his article as “a Trojan Horse” to gain access to AMSC’s computer systems.

According to Schwartz, the reason for the prolific use of cyber-spying by the Chinese is its lack of ability to innovate. “Unlike the United States whose ‘DNA’ allows it to be a world leader in innovation, China has struggled to create an ‘innovation economy,’” he said.

Schwartz explained that China must transition its economy from one that is “dominated by mature industries, such as steel and concrete, to one where service industries, such as information technology and advanced manufacturing predominate,” he said. He added that crucial to that transformation is China’s “ability to adopt new technologies.” Schwartz said that some argue that the Chinese can fulfill this need through partnerships with western companies or by purchasing technology or “as the 60 Minutes segment showed, through theft of crucial IP,” he said, however, he doesn’t believe that will ever be enough. “I, for one, do not believe that beg, borrowing and stealing high technology is a substitute for the Chinese creating their own indigenous self-sustaining innovation economy and no amount of IP theft will be an adequate substitute.” 

Hurting Themselves in the Long Run

Schwartz made an interesting point about IP theft. He said that while it is certainly damaging for the companies whose IP is stolen, the theft is often damaging to the Chinese companies as well. When the members of Unit 61398, the People’s Liberation Army’s cyber workforce operations were indicted by the U.S. government in 2014, using Sinovel/AMSC as an example, Schwartz wrote the following:

What remains perplexing is how the Chinese continue to suffer from self-inflicted wounds brought about by their habitual expropriation of Western technology. Just ask the once important but now has-been Chinese wind turbine manufacturer, Sinovel. Rather than continue a somewhat pricey, but still profitable relationship with its key U.S. supplier American Superconductor, Sinovel reproduced AMSC’s proprietary technology and proceeded to fall from grace. When the inevitable over-production of wind turbines led to insidious price competition and a downward spiral in profitability for the turbine industry, the usual outlet for the Chinese — exports — was largely foreclosed to Sinovel by admirably vigorous IP protection in the US and the EU. 

Lead image: Industrial espionage. Credit: Shutterstock.