Former DIA Chief Reveals China’s Playbook for Stealing American IP, From Tesla to Coca-Cola to F-35s | David Shedd
[RUSH TRANSCRIPT BELOW]From security dossiers and advanced aerospace stealth designs to the mundane technology in your living room, virtually no sector of the American economy has remained untouched by the Chinese Communist Party’s intellectual property theft campaign.
In this interview, The Epoch Times senior editor Jan Jekielek sits down with David Shedd, former acting director of the Defense Intelligence Agency and co-author of “The Great Heist: China’s Epic Campaign to Steal America’s Secrets.”
Shedd describes how China’s economic growth over the past 25 years was bolstered by stealing American intellectual property, technology, data, and know-how.
Crucially, Shedd warns that this campaign extends beyond corporate espionage. No target is too small in the CCP’s eyes if it can benefit the Party, he argues.
Shedd addresses a host of questions: How does China’s civilian-military fusion strategy turn its citizens into spies on demand? What are some major instances of China stealing information from the United States? What are the implications for national security? And how can American citizens defend themselves against theft?
Views expressed in this video are opinions of the host and the guest, and do not necessarily reflect the views of The Epoch Times.
RUSH TRANSCRIPT
Jan Jekielek:
David Shedd, such a pleasure to have you on American Thought Leaders.
David Shedd:
Absolutely delighted to be here, Jan.
Mr. Jekielek:
The Great Heist. Tell me, what is the Great Heist?
Mr. Shedd:
The Great Heist refers to the greatest transfer of illicit wealth in human history by China and from China from the United States. In other words, it is taking our intellectual property, our know-how, our capabilities associated with technology, all the way through to, yes, believe it or not, seeds and everything in between, in terms of a target by the Chinese.
Chris Wray, the former director of the FBI [Federal Bureau of Investigation], estimated somewhere in terms of the knowledge that the FBI had as of three years ago, somewhere between $400 to $600 billion per year in IP [Intellectual Property] theft alone, which is the intellectual property on U.S. technology, all the way to all the research and development. And that is really the great heist.
Mr. Jekielek:
And does that include like the willing transfer, for example, American companies going to China, setting up shop and having to give their IP as part of the deal? Does that include that?
Mr. Shedd:
No. If it’s been willingly done, obviously it’s not part of the heist. This would be the unwitting aspects on the part of U.S. companies, whether in China or here in the United States, that are targeted then by the Ministry of State Security [MSS] and other elements of the Chinese security apparatus to go after that IP. So, this is really the portion that is not willingly given up, or certainly wittingly given up by U.S. enterprises operating in China or in the United States, but obviously I think it applies more to being onshore in the People’s Republic of China [PRC].
Mr. Jekielek:
Right, and because it’s fascinating, because absolutely you’re right. It is the greatest heist. But that’s on top of another great heist, which is convincing American companies to willingly give it at a scale which is also probably almost certainly the greatest in history.
Mr. Shedd:
It absolutely is. And I think one of the things that we need to keep in mind is that this is paired up with the stealing of our data.That’s often forgotten. And I am, and in fact, the product of someone who was incentivized to write this book, The Great Heist: China’s Epic Campaign to Steal America’s Secrets. I was incentivized to do that because I was part of 22.5 million security dossiers from the U. S. Office of Personnel Management [OPM] that were stolen by the Chinese in May of 2015.
So 11 years ago, imagine that treasure trove of data. Since then, of course, Equifax has been hit, along with Anthem health insurance and others. So it’s really this pairing of the stolen technology and know-how alongside of the data that they’re acquiring illicitly.
Mr. Jekielek:
Correct me if I’m wrong, but when this breach happened, I think you were the acting director of the Defense Intelligence Agency [DIA]. Would that be, or at least very close to that time?
Mr. Shedd:
Very close to it. I had departed the Defense Intelligence Agency as its acting director in January of 2015 and had left government service as a CIA officer in February of that year. So, a mere three months later, we have this.
Mr. Jekielek:
It’s astonishing. I’m just framing this because you hear about, of course, we knew about this massive leak, but you didn’t think about it. You had a sensitive job. That’s what I’m trying to get at here. And, you know, obviously all sorts of clearances and everything else. And these are the types of people that got picked up in this breach.
Mr. Shedd:
In that breach, you need to recognize, not to get jargony about government forms, but Standard Form 86 [SF 86] is the form that gives up all your relationships in terms of family, friends, neighbors, and others, in order to get your security clearance or maintain your security clearance in terms of updates, your polygraph results, if you’ve been polygraphed. Imagine that data in the hands of the Chinese in order to find vulnerabilities. 22.5 million records, both past and present up to that point, were taken.
Mr. Jekielek:
I don’t think I fully grasped the scale of it back then, even. And I was someone who was ready to accept that such a thing happened, even though a lot fewer people were then than they are today.
Mr. Shedd:
No, and when you think of it, I think of my CIA career of nearly 33 years. I would set up its own directorate to exploit that kind of data. Because think of it, if you can find 1 to 5 percent of individuals that are vulnerable to blackmailing or to some other coercion form that you could do in terms of even finding their ideological leanings that might favor China for whatever reason within that security dossier. What a target-rich environment that produces for the targeteers, that being the Ministry of State Security [MSS].
Mr. Jekielek:
Absolutely astonishing. Let’s jump to the heist. Okay, give me what is the most prominent example, the thing that you would like to kind of lead with, that’s the most astonishing, that’s the most extreme. You have amazing cases in here. I mean, some of them I didn’t even know about until I was looking in your book. But what would you say is like the biggest? Let’s start, we’ll do a few, but let’s start with the biggest one.
Mr. Shedd:
Well, there’s something that in the book I’ve entitled The Billion Dollar Heist, and it’s a thumb drive. And it happens to Elon Musk as it pertains to Tesla. On a very hot summer day in Shanghai in the summer of 2018, he reaches an agreement with very high party officials of the Chinese Communist Party [CCP] in Shanghai to build Gigafactory Shanghai, a Tesla factory, for the production of Teslas in Shanghai.That ribbon cutting occurs in January of 2019. So it’s a few months later, and it’s going to produce several million Tesla cars.
All the while, Mr. Guangzhi Cao in California at Tesla headquarters, at Tesla’s operating plant, is downloading the autopilot aspects that are now currently found in the Build Your Dreams car from the BYD company, in X Motors and in others, because surprise, surprise, the Chinese enterprises shared that stolen technology, and at great expense to Elon Musk and Tesla. So that’s a billion-dollar heist.
At the other end of the spectrum, I have the example of Ms. Shannon You. Shannon You worked at Coca-Cola, and you have to scratch your head. Why would China be interested in Coca-Cola? And we all know they have the secret formula. No, the Chinese weren’t interested in the secret formula.They were interested in getting the chemistry behind the inside of the cans of Coca-Cola. And you ask yourself why.
It’s because those cans have a formulation to prevent oxidation while those cans sit on the grocery shelf or in your home, for the Coca-Cola acidity not to eat through the can. All sounds very reasonable.Why would the Chinese want that? It’s the lining now that is inside their ballistic missile fuel containers in order to protect, again, that oxidation associated with it, and she was subsequently convicted for this, but she volunteered that. And so, I give you two examples. They are at opposite ends of the spectrum, from the Elon Musk Tesla, all the way to the lining of a Coca-Cola can.
Mr. Jekielek:
Perhaps the most astonishing part that a lot of people don’t know is how acidic Coca-Cola actually is, that they need such a lining in the first place.
Mr. Shedd:
That’s something I’d rather not get into since I’m not a doctor, but you’re absolutely correct. It’s acidic.
Mr. Jekielek:
Yes, something you said is incredibly important, right? And that is that in communist China, well, maybe one way to frame it would be this. They have something called a doctrine of military-civil fusion. And this was elevated in recent years by Xi Jinping to being one of the top priorities of the regime. So, explain to me how that works and how these different institutions all end up with the same technology, which was stolen by a single actor. Why are all these apparently different, independent companies that should be competing with each other using the same technology that was stolen by a regime agent?
Mr. Shedd:
Well, you have to start with an understanding that every aspect of the Chinese economy supports the state. It supports the CCP, 80 million to 100 million members strong. And it is intended to both aggregate power to the state, but also to maintain the power of the state. And so that civilian-military fusion, if you will, is intended to be married up with this whole-of-society concept, which was really, in many ways, instantiated in law under Article 7 of their National Intelligence Law of 2017.
This is really critical for the audience to understand, in that Article 7 requires that every Chinese citizen at home, that is, on the mainland, as well as abroad, when asked—and this is underscored—when asked, this is not to suggest that every Chinese person is a spy on behalf of the state in this military-civilian fusion, but it is rather that when asked, they are coerced to cooperate or they have to volunteer, and I say that in air quotes, to support the request generally coming from the Ministry of State Security.
It is also important to understand that the first rights of refusal on the technology that’s been stolen, part of the heist, rest with the PLA [People’s Liberation Army]. And anything else is, they’re not crumbs on the floor, but then can be shared more broadly. But uniquely, the PLA may keep that monopolistically inside the PLA for their purposes.
So, when you think of the mega company now called Huawei, of their telecommunications that we all now hear about, and it’s not our father’s Huawei anymore. This is 5G-plus and production that is really first-world-class production. A lot of the leadership of Huawei is made up of former PLA officers, particularly officers that come out of the signals intelligence area, and probably increasingly from the cyber community within the Chinese ecosystem serving in the military on the PLA side into Huawei.
And so that’s part of the fusion. And we need to understand that the guardrails set by the CCP in the economic sense are completely directed at again supporting the state at all costs and on all fronts. And that’s the military-civilian.There is no distinction between them. There is no real, as we understand it, private sector that’s independent of the party-state.
Mr. Jekielek:
The less, one way to put it, now that I think about it, it’s fascinating what you just said, is that if it has no relevance to the military or the state, which there are probably some small enterprises, then maybe it’s somewhat independent. But the moment that relevance level starts increasing, the level of independence rapidly starts decreasing.
Mr. Shedd:
Exactly. Because again, when called upon, either that business element or the individuals therein, when called upon to support the state, they must do so. By the way, this also includes the idea that the ByteDance company is independent regarding the data that’s collected off of TikTok with hundreds of millions of users globally and multi-million users in the United States. To think that that’s independent of what the state requires of them, providing that data off of TikTok for influence operations, is to really essentially put your head in the sand and just believe that that’s not happening. It is absolutely happening to support the state.
Mr. Jekielek:
You know, there’s one other comment. With this 2017 national intelligence law, it’s also part of the law that if you are asked, as you say, to work for the state, to spy, to collect intelligence, and so forth, it’s also the law that you’re not allowed to disclose that you’re doing that. That’s correct, as it would happen.
Mr. Shedd:
So there’s a clandestine element, but I also want to say there’s another side of the coin of that law, in particular, Article 7. It may very well be that it’s an academic who is in the advanced degree stages at one of our Ivy League schools, and I think of the MITs [Massachusetts Institute of Technology], for example, that would be required to write a paper on robotics and do that research jointly with MIT, other collaborators, maybe even the defense research area called DARPA [Defense Advanced Research Projects Agency].
We have a case like that where what you see are these robotic dogs. That was actually a joint project with Chinese collaboration, which now is part of the Ministry of State Security. It’s part of their public security apparatus, and they have replicated this off of a PhD student at MIT who provided all the CAD [computer-aided design] drawings and all that. So it was hiding in plain sight.
The collaboration, which we put into this idea of the Thousand Talents Program, is tapping that know-how in the highly academic area of STEM [science, technology, engineering, mathematics] research and that sort of thing is enabling the CCP to advance its causes hiding in plain sight. I can’t even call that espionage. But that student was required, when asked, to prepare that paper and provide all those details, which were then transferred to China. And then the manufacturing took place, and now you see these dancing dogs that are robotic dogs.
Mr. Jekielek:
Very briefly, explain the Thousand Talents program.
Mr. Shedd:
It’s a program that for the previous decade has gone through several iterations. Into knowledgeable scientists and researchers that would again contribute to the objectives of in the last 10 years, Made in China 2025, which was Xi Jinping’s, as the leader of China. The program intended to collect about 12 technologies. Think of it as a requirements process of which the Thousand Talents program are contributors.
I’ll give you a case in point. There were between 100 and 150 Chinese scientists at Los Alamos National Laboratory. In total, there were probably between 12,000 and 15,000 in the Thousand Talents Program taking direction from the Ministry of State Security. About 150 to 160 scientists were there at Los Alamos. About 10 per cent have all gone back to China. What did they take with them? In the late 2010s, they took out of Los Alamos the know-how on wind tunneling. And you scratch your head, who cares about wind tunneling?
Wind tunneling is an essential element of creating hypersonic vehicles. Think about this in terms of the August 2021 hypersonic test by the Chinese that landed well within the parameters of a successful test. It flies around the globe, lands within a football field plus in location. Those same scientists contributed to that because wind tunneling was an essential part. And so, what the audience needs to understand is that there wasn’t a van that drove up and put a hypersonic vehicle, drove to the Mexican border, and got it out. There’s no spycraft associated with that.
Mr. Jekielek:
Although there’s a bit of that, you know, I’m thinking about these F-35 parts that just kind of disappeared, right? But let’s talk about that after. Please continue. This is incredibly important.
Mr. Shedd:
And so it was the knowledge and the capabilities that went back to, in this particular case, Shanghai University and applied then to the PLA’s program for hypersonics, which are these vehicles that fly at plus five to seven Mach speed and are elusive to telemetry, and so real challenges are associated with hypersonic vehicles. It led to defense officials in 2021, in August, when this took place, scratching their heads.
The very senior ones who spoke to me while working on the book and said, how in the world did they do this? How did they accomplish this, which was a feat that we hadn’t even been able to accomplish? That’s the story of the hypersonics’ Thousand Talents Program inside the cradle of the Manhattan Project that created the atom bomb, Los Alamos, New Mexico, had this taken right from them under their nose.
Mr. Jekielek:
And, like, with no laws being broken, apparently.
Mr. Shedd:
This was all a cooperative exchange between scientists or among scientists for the good of the greater good.
Mr. Jekielek:
So, is that part of the heist or not? That’s part because it wasn’t someone saying, here, take this. Yes, okay, got it.
Mr. Shedd:
No, they took it out and applied it to it. And so now you get into challenges on how you value that dollar-wise. But what you do know is, and we’ll get to the F-35, you know the value. Unlike the billion-dollar thumb drive with Tesla, that’s Elon Musk’s number. That’s what he estimates. Now, to Elon Musk, that might be a small number. In the context of a heist, it’s a big heist.
Mr. Jekielek:
In the context of most people, it’s a big number.
Mr. Shedd:
Right.
Mr. Jekielek:
Yes. Let’s briefly talk about these F-35 parts. This is, maybe just explain the scenario to me.
Mr. Shedd:
They’re delivered, I think, through Hong Kong and all of that. But there’s a much bigger story about the F-35, so big that it’s the cover of the book with the F-35, the Chinese FC-31. It’s quite popular now to call them digital twins. That it looks like, oh, because it all is architected around the F-35 when it comes to the FC-31 that the Chinese have as one of their most advanced aircraft. So these parts were a contributor to that.
But the other side of the story is that the stealth portion of that, developed by Northrop Grumman, part of our defense industrial base, one of the larger companies, along with Lockheed Martin and others, had about a hundred million dollars worth of stealth software taken from the F-35 and put into the operating system of the FC-31. That is costing mitigation alone well over $120 million by Northrop Grumman to counter the heist of that software of the F-35 for the FC-31.
And so it’s an example of it, but there is no end to the efforts to obviously, in violation of exports and all of that, by the Chinese to acquire these parts, which they then readily replicate and put into their PLA Air Force control contingencies for aircraft that, God forbid, someday would be fighting our aircraft. So, can you imagine?
Mr. Jekielek:
Right. And so, I want to touch on this recent disclosure that these parts are missing. I don’t know if they were ever found, if they’ve been found yet or not, but I don’t think they have. I don’t think so. And the point here is that there are people that will ask the question. You know, maybe they’re just lost, right? Or, like, what evidence do you have that these parts were exploited by the Chinese?
Like, this is a narrative that exists, right? And more than one would expect, right? Given the realities, I want to explore this a little bit. I find it fascinating that it’s not unbelievably obvious based on many decades of historical precedent with almost no exceptions, right, that this isn’t an obvious attempt at exploitation or profit, even though we don’t know exactly what happened.
Mr. Shedd:
Well, sometimes the simplest answer is the best answer; they were stolen. These would be parts that would be in highly controlled inventory. In terms of their sensitivity, we have export controls under the framework of ITAR [International Traffic in Arms Regulations]. So clearly, where would they go? The simplest answer might be: they were sent out in UPS [United Parcel Service] packages, and they disappeared through Hong Kong, and that would be the most logical explanation.
There is maybe a low-percentage probability of them being lost, that’s not likely. They don’t lose parts in these plants. At scale, that was taken. I think that’s the simplest explanation. As you say accurately, a repeatable act of wash, rinse, and repeat. And the playbook is very clear to them for decades, by the way, of stealing our proprietary information and/or the parts and everything associated with it, is that this is part of the heist.
Mr. Jekielek:
And, you know, the subtext here, perhaps, is, well, how much pushback has there been from us to this? The greatest heist in the history of the world. I mean, that’s what you’re arguing, and I think you make a compelling argument.
Mr. Shedd:
We have to go back a little bit, and it was in June of 1984 that Deng Xiaoping, at the time—and it’s eight years after Mao Zedong’s death—they’re coming out of a very tumultuous cultural revolution, great famine, and all of that, says to a Japanese audience on June 30th, 1984, that China is going to redirect its path of development toward managed capitalism. Now it was said in more flowery words than I’m using because it was in Mandarin, and it wasn’t as clear as I’m saying it right now; managed capitalism, Chinese-style, alone with a single party state.
So it was very clear that you had the antecedents in 1984, which in June of 1989 you would see evidenced in Tiananmen Square, that there was no room for dissent. Tiananmen Square, for the audience, is just a reminder of the massacre that takes place in Tiananmen Square. And so that’s the antecedents. They already had, through their Ministry of Science and Technology, an operating plan, and it was a secret operating plan that the book lays out, known as 863, on requirements to acquire from the West technologies.
Think of the sort of things if you went back 40 some years, of what they would want to have. And they’re not all that different today in terms of technologies and things, things that would avert the Great Famine again, that sort of thing. And that’s where seeds come into it, modified seeds, and all of that, because China, just as a reminder to everyone, has about 10 per cent arable land. They have challenges in growing food and all of that for the size of population that they have, estimated at 1.4 billion, if you can believe the number, but let’s say it’s that.
Mr. Jekielek:
Can I just jump in for one sec? It’s true that China does have a food problem, but this famine was almost entirely created by really bad policy. I just want to make sure that our audience understands this part.
Mr. Shedd:
Yes, a very good point. That’s very, very much the case. And then you sort of fast forward: How does this happen?The policy in the 1990s, then, to fast forward from the 80s, is to get China into the World Trade Organization [WTO], which they then joined in December of 2001. There was a $1.3 trillion economy compared to today’s estimated $22 trillion economy. And by just orders of magnitude, we’re approximately $29 trillion. So they have made this quantum leap, not to overuse the word quantum, but this meteoric rise in 25 years in a way that cannot be explained outside of, again, the illicit acquisition of both technology and that.
We all know what happened on 9/11, or September 11, 2001. I’m sitting in the White House myself in terms of serving President George W. Bush at the National Security Council staff, and 9/11 occurs. There is a major pivot, as we all know, that becomes the global war on terror. We go after Al Qaeda; out of Al Qaeda comes ISIS, along with other Islamic radical groups, such as Al Shabaab in Somalia and other places, and we go after those. I was taken off of the China issue.
But I also say there were two assumptions made that have proven tragically erroneous, and it was bipartisan. And I underscore it was bipartisan about China joining the WTO, which is the former General Agreement on Tariffs and Trade [GATT]. Assumption number one was that they would abide by rules that they did not—they, being the Chinese—did not put in place on trade and finance. We know that with the lifting of the restrictions on the most favored nation status that they had, the rules were immediately violated and dumping began.
That is underpricing, and there is a flood of cheap Chinese goods that start to come in over the first decade of the 2000s after WTO. And they have not abided by the rules. Just ask the U.S. Trade Representative’s office, and every year they get a failing mark on abiding by the rules. So I don’t think that’s in question.
The other one, and I think more insidious, if I can be so bold, was this idea that they would democratize. That economic choice would lead to, as had happened after the collapse of the Soviet Union in Eastern Europe—that collapse, of course, taking place in late 1991, with the Berlin Wall coming down in November of 1989—there would be political openings. Well, Tiananmen completely belied that in June 1989, that they were ever going to allow that. And Deng Xiaoping had made very clear in 1984 that wasn’t the path that China was going to go on. So whether Jiang Zemin or Hu Jintao, the previous leaders pre-Xi Jinping in 2012, was going to take a different course, what were we believing? We wanted to believe a certain outcome that certainly wasn’t the case.
But meanwhile, our focus really was on this global war on terror for really the first 15, bordering on 20 years of that. And the first Trump administration, to its credit, really started to hone in and focus on China’s rise.We were seeing again the combination of IP theft alongside our data being taken.And so you saw Trump administration policies, term one, really focused on China; that has somewhat eroded in the second term.I’m happy to talk about that as well in terms of what we’re seeing with China. So, this was all happening literally and figuratively right under our noses.
Mr. Jekielek:
And you argue this is because of the distraction of, well, at the very least, the war on terror, but probably some others. I mean, this is, in fact, described as the Chinese policy of the Chinese approach to dealing with the United States, right? Keep them distracted. Very prominent Chinese scholars have talked about this very specifically.
Mr. Shedd:
Sure, they’d love for us to be distracted. They also like to infuse chaos in the United States, and I think they are more than happy to have us politically divided. I’m not saying we wouldn’t be politically divided independently of that, but they engender and they promote that division wherever they can through influence campaigns that are clearly surreptitious, covert, and influencing events in the United States. So distractions actually enable them to sort of hide in plain sight as they continue to grow in the way that they have through illicit actions that we see.
Mr. Jekielek:
But do I understand from what you’re telling me that essentially until the first Trump administration, there was no pushback?
Mr. Shedd:
No, I wouldn’t say there was zero pushback. I think we can all recall toward the latter part of the Obama years and Xi Jinping’s visit.I believe it was in 2015, the famous, or I would call it the infamous, commitments that Xi made on cyberattacks on the United States Rose Garden. It was called the Rose Garden agreement at the White House. And so, no, it wasn’t that it was zero.
And I think there was an emerging sense that, oh my goodness, truly gambling is going on in this casino of our two nation-states in terms of the relationship of China toward not only the U.S. but the West as well.We would see them, the growth, and I’ve already mentioned Huawei, their really epic-sized telecommunications. They were going after Ericsson in Denmark. I mean, we know.
Mr. Jekielek:
And also built on, again, I guess infamously, if you’re Canadian like me, the Nortel technology, exactly, yes.
Mr. Shedd:
Nortel was certainly a big target for them. And so there was a growing, if I can use the word appreciation, maybe it’s better, an awakening, that something was truly amiss and that it needed serious attention even before the Trump years. But it’s the Trump first term that sets up the task force, which obviously combined the Department of Justice with FBI because you needed the investigators and the agents working the cases on commercial spying that the Chinese were doing at scale and the Department of Justice for prosecutions.
That task force, unfortunately, has never been restored. The Biden administration took it down inside of justice, but it hasn’t come back. It’s the kind of energy and message from the top of the seriousness of this that started to get traction as a result of the focus by the first Trump administration on China. But it built on at least a modicum of interest toward the latter years of the Obama years that something was awry.
Mr. Jekielek:
There were lots of examples of this theft, and I mean, various components to the great heist, let’s call it that, right? And that they were happening, you know, for decades, and I don’t know, I don’t have like a, you know, a graph showing the total number known or something like that. Of course, in many cases, corporate entities would not disclose that because, of course, you might hit the stock price, whatever reason, right? So, the scale of it’s much greater than we even fully appreciate. And that’s true.
But just you would think, right, that at some point there’s just so much of this happening, right? And certainly your, you know, the institutions that you were a part of, the CIA, DIA, and so forth, were aware of a lot of this, right? I mean, I don’t think we’re completely blind, but never mind prosecutions, but like, there just seemed to be almost like it was just kind of allowed to happen without, like, I don’t know, a ton of prosecutions started really at scale a lot later in this timeframe. I just think it’s astonishing that, you know, did we cyber attack them in response? I’m trying to imagine, was there any? It feels to me like there was no message sent that this is a problem.
And this is kind of going on a bit of a rant here, but when something becomes normalized, it just kind of becomes a part of business, how business is usual. And it feels to me like it just became business as usual that this was happening, that there was this huge trade imbalance, that dumping was perfectly fine, kind of gutting the American industry through that dumping and so on and so forth, to the point where when the Trump administration comes along and says, hey, wait a sec, we’re not going to let you do this through various instruments, people are shocked. Then the Chinese say, wait, we had a good arrangement here, right? Like that, okay, this is a bit of a very broad sweep, but can you comment on this?
Mr. Shedd:
I have three observations regarding your rant. No, it wasn’t a rant—they were really good observations. The first observation is that it’s going to be a bold word to use, but there’s an addiction to cheap goods in America and in the West more generally, and they come from China. As the FBI interviewees told me, they have concluded that China was okay with producing something at about 80 per cent of the quality of what’s produced in the West for somewhere around the 35 to 40 per cent price. And that’s what has filled—and I’m not attacking Walmart or Target and those stores—but they’re filled with Chinese goods.
And so part of trying to respond to it is that there was almost this dependency on cheap goods that started creating an interdependency on goods coming out of China. Just to underscore, China owns roughly 28 to 30 per cent of the global manufacturing capability in the world. So it produces an increasingly high quality of its goods. So that’s observation number one as to why the tardy response.
Two, there’s a psychology at play that as long as this hasn’t happened to me, it’s not really real. It might have happened to my neighbor in terms of the cyber attack or the human penetration into the business that stole their goods, but it hasn’t happened to me. Concurrently with that, there’s the idea that I’m too small; they don’t care. There is nothing too small that the Chinese aren’t interested in if it contributes to what they’re looking for. Obviously, that has to play into it.
So, there is no business too small. There’s no business too medium-sized that isn’t of interest to them. It’s not just the Fortune 500 or 100, all of whom, by the way, have suffered some form of attack of this. That has increased in terms of the awareness of getting past that psychological barrier, it hasn’t happened to me. It’s somebody else. I’ve heard stories that it’s happened, but drip, drip, it’s just not there.
The third thing is, and I think this is increasingly evident, in the second term of the Trump administration, it started its manifestation in the Biden administration post-2020. And that’s the dependency that we have on supply chains from China, and nothing speaks to it more clearly than the dependency on rare earth minerals and magnets.
Just to give you a sense of order of magnitude, approximately 80 per cent of the global mining that takes place in rare earth minerals is owned and controlled by the Chinese. And about 70 to 75 per cent of the processing—not all of the processing is done in China, but think of Africa, think of elements of the southern cone of Latin America and the Andean countries, so Peru, Bolivia, Chile, and even Argentina, in terms of rare earth minerals. There’s some in Brazil as well.
All of a sudden, think about every operating system of a vehicle today and its reliance on silicon chips and semiconductors requiring these rare earth minerals. So, how much do you push back? And you’ve seen President Trump in the second term pull back tariffs. After basically there was going to be an embargo on rare earth minerals, it’s not a coincidence; those are matched.
And so the softer line, whether it’s on Russian oil that reaches China, which of course they have a dependency, especially after Venezuela and after the Strait of Hormuz and Iran being cut off, it is kind of looked the other way because there’s a supply chain dependency with China that is very real for us. Now, efforts are underway to do that, but those take time. You don’t just.
Mr. Jekielek:
To deal with it, yes.
Mr. Shedd:
Yes, you don’t open a spigot, and all of a sudden you have all the rarer earth mineral rights, you know, both to mine it as well as process it. So those are sort of three elements that sort of explain everything from the naivete all the way to the realpolitik of dependency on China.
Mr. Jekielek:
Can I make maybe two more observations? One is that there seemed to be this extreme aversion of our diplomats at the State Department to ever publicly say anything that might offend the Chinese. There’s this idea that, well, you have to let them save face. And I think that was weaponized in a very extreme way because, in effect, you know, the statements where the Chinese will be taken to task now are, I mean, extremely rare over time. That’s the first observation.
The second one is, and there have been a few quite good books written on this, it’s just simply the moment that the financial relationship was created with some of the most prominent names in American business and finance, it became a lot harder to do things that might endanger those flows of money.
Mr. Shedd:
No question about it. I mean, as you think of Chinese investment in U.S. bonds and that dependency, another thing we haven’t talked about is the WTO. It also led to U.S. businesses seeing China as a huge opportunity. And certainly, well after 2001, Warren Buffett invested somewhere in the 208-210 million in BYD in 2024, 2025. Warren Buffett of Berkshire Hathaway saw that as one of their most lucrative investments that they ever made, and with no qualms about it.
And you get Sequoia Capital, you get Shenzhen Capital Group coming in and investing in U.S. companies, exactly to your second point of this interdependency that was built into now the economic fabric that a sudden light switch turn off would create global chaos. I mean, we would have it on both sides of the Pacific, whether in the United States or China. And so those are very realistic observations that you just made.
Mr. Jekielek:
And just comment on BYD. I mean, for those that might not be aware, these advanced cars, built on Tesla technology, are roaming around. There’s just a recent case in Norway. I saw a translation of some articles from Norway where there was a military drill of sorts that they were doing. This was around Oslo, in the Oslo area, and they had rented Hertz vehicles to do this. This was kind of a serious training exercise, right?
Some of these cars were, I don’t know, I’m not 100 per cent sure it was BYD, but it was one of the, I think it was BYD or a related company, one of those companies that had created these cars in China. And they found that the soldiers found that these cars were collecting, which, of course, they’re giant sensors, right, all sorts of information, including things like gate codes to the military installations and storing them. And, in effect, they didn’t have another option.
By the way, Hertz is owned by Volvo, and Volkswagen is owned by Communist China, and nothing is independent, as you have very eloquently described earlier. And they made the call to just continue using these vehicles because they didn’t actually have another option. They have a contract with Hertz, the Norwegian military.
So, this is the level that we’re at. And by the way, I’m amazed that the Norwegians disclosed this. There’s a lot of humility in that. I’m very happy they did. But I imagine there are all sorts of instances of exactly this sort of thing happening where people are like, don’t talk about it, right?
Mr. Shedd:
Yes, that’s exactly right. I know Mexico quite well, having served there for five years. And just recently, I gave a warning related to our Northern Command, which obviously has a relationship with Canada and Mexico. Mexico is carved out in Northern Command and not Southern Command, so it’s Mexico up north. But the dependency now, their military communications that we share military information on, and joint security aspects, rests on Huawei. And you’re going, you know, that’s being exfiltrated. Huawei, as I already described, is a quasi-military institution, cloaked or dressed up as a civilian organization, but they’re all ex-PLA, certainly the leadership, as I explained earlier in our commentary.
So, whether it’s Volvo being owned by the Chinese, and it indeed is, and then by extension Hertz and all of that, the dependency is one thing we need to realize. Whether it’s the Chinese version of Siri or these sensors on vehicles, they’re all information collectors. There’s just been this attack on a refrigerator, as maybe the audience has heard. And it’s because anything that has sensors in it is a data collector.
The question is, who’s that data going to? If it’s BYD, X Motors, or many others, they really do dominate the EV market outside of the United States. We haven’t allowed them in. But there are grave concerns about allowing them in, not only because of the competition that it would provide, but because they’re about 60 to 70 percent the cost of a U.S.-built car.
They’re building a BYD plant in Brazil worth $1.2 billion. I do predict that Bolsonaro Jr. will win the presidential election on the 25th of October. That will create hundreds, if not thousands, of jobs in terms of what it creates. And so China is becoming embedded in these economies in a very real and material way, including these sensors in terms of the data extraction.
Mr. Jekielek:
The scale of it, right? Whether you just take Huawei, and Huawei is the primary telecom infrastructure in over 100 countries, I think, right now. Why? Because it was a good deal. And why was it a good deal? Because it was part of their industrial policy with a national security priority.
Mr. Shedd:
And they paid it forward. So, in other words, they would build the infrastructure, our version of pennies on the dollar for it, knowing full well they’ll recover it over time. Very shrewd investors in that way. And I think it’s important to underscore Belt and Road, which was really driven even harder by Xi Jinping. It had antecedents in the previous Chinese regime before 2012, but he really energized it.
These infrastructure projects are now beginning to get replaced by Chinese companies that would be in our Fortune 50, like the Alibabas. They’re going into these third and second world economies with large investments that are, with all the definitions of commercial investment, with expected returns that we would have in a capitalist context. But let’s remember, those are always under the control of the CCP. Those are allowed to happen.
Mr. Jekielek:
And how powerful is it when you control the telecommunications infrastructure of a country?
Mr. Shedd:
It’s the heart of collection. And so when you…
Mr. Jekielek:
But also, it’s raw power. It’s raw power. You can say, hey, if push comes to shove, you want it to work or not? It could stop working tomorrow. Are you sure you want to make that decision?
Mr. Shedd:
Yes. And remember that off of that telecommunication structure, in China, you’ve got WeChat and others where they’re just harvesting the data on their own citizens for nefarious reasons when they need it.
Mr. Jekielek:
Well, in Iran, which of course has Huawei infrastructure, I mean, they’re that same kind of turnkey social credit style system of repression, they essentially white-labeled it, I guess. I mean, that would be a way of putting it.
Mr. Shedd:
This is why this is prompting me to think about writing the second book on the use of technology for the suppression and the persecution of the underground church, the Uyghurs, the Tibetans, but it obviously will be factually based on what that persecution looks like. But I’m as interested, if not more so, in the means for doing it.
Because I think the ubiquitous nature of what you just described on social credits, the facial recognition that places everybody at a moment in time among the throngs of people and then processed through very capable AI models, will be the enabler of persecution like we haven’t seen before. I often say the early Christian church, as an example, required a snitch, a very technical word, by the way, a snitch in their congregation to report it to the Romans or to whomever the authorities were.
That’s not necessary in the Chinese context. And, you know, whether Pastor Ezra Jin, who was just recently released, tells the story of just how ubiquitous the nature is, and this is what’s prompting me to think about this second book. Again, focused on technology, less on the heist piece of it, but now its application to doing this.
Mr. Jekielek:
So, two comments. One is with respect to Pastor Ezra Jin and why he was picked up, and some of the other pastors involved in the church were picked up. I mean, this was a church that really went to extreme lengths to not do things that the Communist Party wouldn’t like.Their crime was: COVID hits, they go online, and they become incredibly popular, while still maintaining their approach. But it was the popularity. I mean, so that itself is a threat, exactly. It’s just really worth noting.
The second thing is there was a case that, I would say, very unfortunately, was at the Supreme Court. It had spent about 15 years moving through all sorts of systems. The question was, based on the Alien Tort Statute, which a lot of conservative judges don’t like, whether it was possible to take to trial a case where at least the discovery materials, the evidence available, suggested that Cisco helped build a system of repression for communist China and marketed itself that way in the very early 2000s against Falun Gong practitioners. This case was rolling for quite a long time.
The Ninth Circuit said yes, it can go to trial, but ultimately the Supreme Court decided no. And I think it’s based on the fact they don’t like the use of this statute, not other reasons. But now we’re in a situation where, you know, if a company were to market itself to a communist regime to help repress some of those people, it would face no consequences in America. There isn’t a statutory approach to dealing with that question. It would be great if there was, I think, but that’s a whole different, but something for your book. That’s why I’m talking about this case, right? Yes, it seems like a good fit for your book.
Mr. Shedd:
It’s very good, and of course, you’re talking about Zion Church in the first example with Pastor Ezra Jin and daughter Grace and others, but there are many others who remain under arrest for it. But on your latter point,I think right now you’re really dependent on the name and shame of companies. The Cisco version of it, when you identify them for doing what they’re doing that enables that repression. We need to do it because, as you say, the law was, the Ninth Circuit didn’t…
Mr. Jekielek:
And I just, I mean, it’s worth having it litigated because I want to highlight, like this is, you know, when I look at the discovery materials, it looks compelling, but ultimately, I was hoping the court would decide on the evidence, right? Unfortunately, there just isn’t a way to hold an American company accountable for this. I would think that in a free society, we’re not supposed to do stuff like that.
Mr. Shedd:
Exactly. But again, greed and money and all of that plays into it, as we well know.
Mr. Jekielek:
So, I mean, absolutely fascinating conversation. Thank you for coming. Perhaps a final thought as we finish?
Mr. Shedd:
I guess it’s a reminder that, as I often sign my books, to keep the faith. I think there’s an element of wanting to throw up our hands and capitulate. We cannot do that. There are things that corporate America can clearly do that I invite you to read in the book, but just very briefly, you need to increase corporate security; you need to strengthen your cyber perimeters.
Around this, you need to recognize, as I’ve already mentioned, no one’s too small, no one’s too medium-sized. Don’t think that you’re protected because no one on the Chinese side will notice you. I guess you have to ask yourself, is there a possibility to get creative? Is there a possible military application for what you’re doing? If there’s even a remote hint of it, there’s absolutely interest, right?
And you need to ask yourself if that’s your differentiator. How much value do you put on that should it be lost? Think about it the day after. What will your business look like when it’s taken? And so, what’s the premium that you put on protecting that IP that’s so unique, whether you’re going to China for the manufacturing of it, or whether you’re doing it here in the United States? And that’s just a reminder in corporate security.
I sit on a number of boards, public and non-public boards, for-profit, non-profits. And every time I go, I want to talk to the security officer in this company. I want to understand their chief technology officer. I want to hear from them. What are they doing about that? And so there’s hope in that, in really fortifying, strengthening the protections around it. On the government side, we need to pick up on the fact that additional resources, both in people and dollars, and then a commitment from the very top to go after these cases at scale as well.
Because even as you get the breaking stories at LAX [Los Angeles International Airport], where the spy on the Taiwan family is picked up, or the mayor of a small town in California, wherever they are, there are breaking stories all the time. The Chinese think those are the tip of the iceberg. There’s a whole lot more below that surface. You need to strengthen the capabilities of the public-private partnership.
And I have just one recommendation that’s really in public policy. Harry S. Truman stood up the organization that I served with for nearly five years, the National Security Council. Why did he do that? He did that because in the aftermath of World War II, you had sort of chaos in terms of our international policy or our national security policy among the departments at the time in 1946, 1947. So, right after World War II, he passes, and obviously Congress does, and he signs into law the National Security Act. That creates the CIA, that creates the National Security Council.
We need an Economic Security Council. We have never faced the kinds of challenges of an institutional, whole-of-society attack on our commercial sector.And in order for us to better understand how the Department of Commerce issues export licenses, the Department of State controls other aspects of it, the intelligence community contributes to the intelligence to understand that. And I go so far as to say perhaps we even need to do espionage into our adversary’s private sector again, in air quotes, selectively.
Mr. Jekielek:
Well, because it’s not a private sector.
Mr. Shedd:
It’s not a real private sector.
Mr. Jekielek:
It means us ill.
Mr. Shedd:
Exactly. It intends to do us damage, untold damage, as the F-35, FC-31 story and Northrop Grumman, and again, the parts that you talked about and asked about. Those are just symptomatic aspects of the problem that is much, much deeper, that requires a whole-of-government approach on our part. And by the way, I bring in the allies. You need to have this conversation.
We have in the intelligence community, as you well know, the Five Eyes. These are the Canadians, the UK, Australia, and New Zealand. But it’s also the NATO countries where they’re under attack, you know, the 32 NATO countries. And so our friends and allies need to be a part of this story because this is a different war than we have been traditionally facing.
Mr. Jekielek:
Well, and you know, you’re just making me think I really, I’m going to have to come back to you and get your thoughts on this, you know, sort of Canada’s foray into partnering with Communist China, the implications for Five Eyes, and everything that we’ve just talked about.
Mr. Shedd:
And you can throw the UK in that too because Starmer, you know, primarily, then Prime Minister Starmer, reached an agreement, which included the biggest Chinese embassy building in a European capital next to the fiber optic lines that, of course, are going to be a very lucrative target for the Chinese.
Mr. Jekielek:
So, we’ll do something like this. Maybe it’ll be an article, or I don’t know. But I absolutely want to get your thoughts on all this.
Mr. Shedd:
I would be happy to do that.
Mr. Jekielek:
Well, David Shedd, it’s such a pleasure to have had you on.
Mr. Shedd:
Thank you for having me, and thank you for promulgating this message of the great heist.
This interview was partially edited for clarity and brevity.
