The Chinese military means business, and the effect on America’s defense industry is pronounced and multifaceted. The bad news is that U.S. contractors have become targets of Chinese cyber-espionage, and have found brutal competition from a burgeoning defense industry in China. The good news is that a strong Chinese military means smarter purchases by the United States to maintain its overwhelming military and intelligence advantage.
IN BED WITH THE ENEMY? ESPIONAGE AND THE DEFENSE INDUSTRY
Targeting by Chinese electronic espionage is nothing new for defense contractors. Perhaps the most famous infiltration (that we know of) involved the penetration of BAE Systems, the British defense behemoth. It is believed that over the course of eighteen months, China managed to steal BAE’s telemetry data on the F-35 Lightning II. Mandiant, the Virginia-based cybersecurity firm, found the fingerprints of the People’s Liberation Army all over the theft.
If only it ended there. The vast array of weapons systems compromised by Chinese attacks on other defense contractors includes the F/A-18 fighter jet; the Aegis Ballistic Missile Defense System; the Patriot Advanced Capability-3 missile; the Black Hawk helicopter; the Littoral Combat Ship; the Terminal High Altitude Area Defense system; and the V-22 Osprey.
While the defense industry isn’t exactly holding press conferences to announce such security breaches, they have been forthright about the cybersecurity problem. A spokesman for Northrop Grumman told the Washington Post that the company “is experiencing greater numbers of attempts to penetrate its computer networks,” and Lockheed Martin noted the cunning of electronic spies. When the electronic defense grids of major contractors hold, China begins targeting smaller members of the supply chain. “For now,” said a Lockheed Martin spokesperson, “our defenses are strong enough to counter the threat, and many attackers know that, so they go after suppliers. But of course they are always trying to develop new ways to attack.”
Not even QinetiQ, the famed British espionage and defense research-and-development company is safe. Last year, it was reported that over a three-year period, China “compromised most if not all of the company’s research.”
CHINA AND THE CYBERSECURITY INDUSTRY
The upshot is that if you’re in the cyber-security industry, business is only going to skyrocket.
The Chinese threat to Western defense contractors isn’t limited to frontal assaults. China is now working to take their money—legally. In October, in a stunning turn of events, Turkey announced the purchase of a three-billion-dollar long-range missile defense system from China Precision Machinery Export-Import Corp, rejecting overtures from Raytheon and Lockheed Martin. As the New York Times reports, it was indelible proof that China has become a major player in providing the world’s armaments. Between 2008 and 2012, Chinese arms exports reportedly increased 162-percent, placing them in the top five weapons exporters in the world. Key areas of Chinese investment include conventional and stealth fighter jets and engines, and it is estimated that in the next ten years, China will reach parity with the U.S. and her allies in terms of the technology itself. In the meantime, however, not every country’s military needs top-of-the-line hardware. China’s present “good enough” technology, sold at bargain-bin prices, is perfect for emerging markets in Africa and South America. Today, China’s biggest customer is Pakistan.
All is not bad for the U.S. defense industry, of course. The Obama administration recently loosened restrictions on exports by defense contractors, transferring control from the State Department to the Commerce Department and allowing for the nearly unfettered delivery of military parts to any country in the world. As explained by export.gov, “The United States controls more than arms. It controls everything that feeds into a weapon system, including any specialty nut, bolt, or screw that is used.” Previously, such military equipment set for export required State Department scrutiny and approval. Because of the red tape, countries were opting to make such parts on their own, or outsource the designs to countries other than the U.S., costing us jobs and dollars. Worse yet, such outsourcing made tracking said parts a challenge, increasing the risk that they’d end up in countries with abysmal human rights records.
Meanwhile, China has embarked upon a “long-term, comprehensive military modernization program designed to improve the capacity of its armed forces to fight and win short-duration, high-intensity regional military conflict.” This has not escaped America’s radar, so to speak, and U.S. and allied defense contractors will reap the benefits as the U.S. works to counter China’s progress. One such example of the Pentagon turning-on-a-dime to counter Chinese military advances occurred last year, when the Navy approved a $65 million, three-year agreement with Exelis, a defense contractor in McLean, Va. The deal involves fitting electronic warfare systems on twenty-four warships that sail near China’s seas. The systems, according to the Navy, are “necessary to thwart an immediate threat for naval fleet operations.”
THE NEXT COLD WAR
These are early days yet in a looming game of defense cat-and-mouse, the likes of which the U.S. hasn’t seen since the Cold War. Whether it’s protecting our computers and our navy from electronic warfare, or protecting our domination of the global defense industry, it’s clear that China wants to cut off the United States at the knees. It’s going to fall to U.S. defense contractors make sure that doesn’t happen.