How China is Leveraging Foreign Technology to Dominate the South China Sea

By Zachary Haver
2021-04-21
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How China is Leveraging Foreign Technology to Dominate the South China Sea Satellite image from December 2020 showing Woody Island in the Paracel Islands, which serves as the central hub of Sansha City.
Credit: Planet Labs, Inc.

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Chinese government procurement contracts reveal that Sansha City — which administers China’s outposts in the Paracel and Spratly islands — has acquired or plans to acquire hardware, equipment, software, and materials from at least 25 different companies based in the U.S. and other countries. These items have applications in maritime law enforcement, information security, land and sea surveillance, and other areas.

For example, the city is currently set to acquire an unmanned surface vehicle — the maritime equivalent to an aerial drone — that includes components from several U.S. companies. Such a vehicle might be used to track and possibly even intercept vessels from rival South China Sea claimants like Vietnam and the Philippines.

In total, 10 Chinese party-state entities associated with Sansha City have acquired or currently plan to acquire up to 66 items worth over 6,540,000 yuan ($930,000) for use in the South China Sea, according to 13 government contracts and other associated documents. All of these contracts were signed between late 2016 and early 2021, with the majority of items coming from contracts inked in 2020.

The Chinese government’s long-standing practice of acquiring foreign technology to advance its strategic goals is a major source of tension in U.S.-China relations, with U.S. authorities turning to export controls and other tools to stem the tide of transfers. But according to experts that RFA spoke to, most of the items that Sansha City obtained from U.S. companies are unlikely to be covered by existing export control measures.

But there is one possible exception: the city appears to have acquired a counter-surveillance device from a U.S. company that could be used to protect China’s communications from unwelcome eavesdropping — including from intelligence specialists in the U.S. military who closely monitor China’s facilities in the South China Sea. This device and other equipment in the same product line have been supplied to a variety of U.S. government and military customers, contracting records show.

Scooping up foreign tech

China regards Sansha City as having jurisdiction over about 2 million square kilometers (800,000 square miles) of sea and land — the bulk of China’s claims in the South China Sea, where the People’s Republic is entangled in maritime and territorial disputes with Vietnam, the Philippines, Taiwan, Malaysia, and Brunei.

From their headquarters on Woody Island in the Paracel Islands, the leaders of Sansha City manage day-to-day affairs on China’s remote outposts and oversee the implementation of long-term initiatives, working with the People’s Liberation Army (PLA) to develop infrastructure, defense capabilities, transportation, and communications.

RFA found that Sansha City has acquired or plans to acquire technology from at least 25 different companies based in the United States, Sweden, Austria, Italy, the United Kingdom, Japan, and Taiwan, with the majority of items coming U.S. companies.

And the 13 procurement documents from Sansha City that RFA identified may just be the tip of the iceberg. In 2020 alone, the city generated over 700 bidding announcements, contracts, and other similar documents that could contain evidence of technology transfer.

The city obtains these items through third-party Chinese companies. How exactly these Chinese companies acquire the technology from foreign companies, however, remains unclear.

RFA contacted every foreign company named in Sansha City’s procurement contracts. Of the companies that responded, several said that they do not directly oversee their operations in China, instead working through networks of distributors. Others stated that their contracts preclude them from providing information on specific sales, denied having any relationship with the companies supplying Sansha, or otherwise declined to comment on the story. As such, RFA could not independently verify transfers of technology from foreign companies to Sansha.

Zetron, which is headquartered in the United States and whose products Sansha obtained for use in maritime communications infrastructure, exemplifies this ambiguous procurement chain. Zetron said that it is “contractually prohibited from divulging specific customer or system information.” But it also said that “Zetron systems sold and installed in the Asia Pacific region are done so by Zetron Australasia Ltd., which is a separate legal entity from Zetron, Inc. and is headquartered in Australia. So any Zetron systems sold in that region are done so from there, versus Zetron, Inc. here in the U.S.”

Similarly, Airmar, whose weather monitoring device is to be used by Sansha in an unmanned surface vehicle, said that “our products are sold and resold through a distribution chain around the world” and that “Airmar does not always have the ability to track where our products have ultimately ended up.”

Many of the foreign companies are multinational corporations, some with sales offices or other subsidiaries in China, which further obfuscates the transfer process. For example, one of Sansha City’s contracts explicitly names the U.S. branch of Navico, a company headquartered in Norway with offices across the globe, including in China.

From maritime patrols to tracking turtles

The foreign technology acquired by Sansha City has applications in a number of different areas, all of which support China’s interests in the South China Sea.

About a quarter of the items are designated for use in maritime law enforcement vessels: patrol boats, shipborne boats (smaller craft that are deployed from larger ships), assault boats, and unmanned surface vehicles. Sansha City uses these vessels to patrol its jurisdiction and assert China’s claims at the expense of other claimants.

Other items are intended for less sensitive uses, such as environmental and ecological monitoring, but even those activities may ultimately help strengthen China’s capacity to control contested areas.

For example, according to a contract from 2017, the city acquired equipment from U.S.-based Strix Systems for a wireless self-organizing network, which was to be used alongside numerous components from Chinese companies for a sea turtle monitoring system in the Qilian Islets in the Paracel Islands. According to the contract, the city planned to integrate this sea turtle monitoring system into a broader monitoring platform on Tree Island, another China-occupied feature in the Paracels. According to reporting in PLA Daily, a paper run by the Chinese military, maritime militia forces use monitoring capabilities on Tree Island to surveil nearby waters and feed intelligence back to a PLA command center on Woody Island.

While in many cases the foreign technology is used in combination with Chinese components, in others Sansha City has procured entire systems from foreign companies. For instance, in 2020, the city’s hospital signed a contract with a Chinese company to acquire an automatic biochemical analyzer from Hitachi. This hospital serves PLA personnel stationed on Woody Island and coordinates 5G-based telemedicine services with the Hainan branch of the PLA General Hospital.

Look Out for unmanned vessels

Among the most consequential uses of foreign technology by Sansha City is in the L30 unmanned surface vehicle, sometimes called the “Look Out.”

The developer, Zhuhai Yunzhou Intelligent Science and Technology Co., Ltd, says the 7.5-meter-long vessel can travel up to 310 nautical miles, reach speeds of 40 knots, and operate autonomously or with a human crew. It also can mount an automatic weapon station or a precision missile launcher capable of hitting targets up to five kilometers away.

State-run broadcaster China National Radio reported in 2018 that the L30 is designed to carry out duties including reconnaissance, precision strikes, and guarding islands and reefs as well as their surrounding waters. It touted the vessel as a triumph of indigenous innovation: China’s “first maritime weapons platform jointly developed by a local private military industry company and a state-owned military industry research institute.”

And though Yunzhou claims to be a leader in the field of unmanned surface vehicles, the L30 ordered by Sansha City includes 1,635,000 yuan ($233,571) of key components from three U.S. companies and one Austrian company: an automatic identification system (AIS) transponder from the U.S. branch of Navico, a weather monitoring instrument from Airmar, two drives from Mercury Marine, and two diesel engines from the Austrian company Steyr Motors.

Yunzhou is due to deliver a single L30 to Sansha City’s coastguard force before July 2021, at a total cost of 5,102,600 yuan ($730,000), according to the contract. This coastguard force works with China’s maritime militia, the PLA, and the China Coast Guard (CCG) to surveil Sansha’s jurisdiction and uphold China’s maritime claims.

China National Radio reports that Yunzhou jointly developed the L30 with the Huazhong Photoelectric Technology Research Institute, which belongs to China State Shipbuilding Corporation (CSSC), a major state-owned defense contractor. In December 2020, the U.S. Department of Commerce restricted exports to this research institute, also known as the CSSC 717th Research Institute, for “acquiring and attempting to acquire U.S.-origin items in support of programs for the People’s Liberation Army.”

This unmanned surface vehicle will be just the latest high-tech system deployed by China to monitor and control contest areas like the Paracel and Spratly islands.

According to J. Michael Dahm of the Johns Hopkins University Applied Physics Laboratory, China’s outposts in the Spratly Islands are bristling with communications and reconnaissance capabilities, which “provide the Chinese military and maritime law enforcement with the same level of knowledge and control in the Spratly Islands that they have in Chinese territorial waters.”

And some of these capabilities rely on foreign technology too. A recent investigation published in the Jamestown Foundation’s China Brief, for instance, revealed that Sansha City’s coastguard force uses a satellite communications system built around hardware from a U.S. defense contractor.

U.S. tech helping China keep secrets

RFA’s investigation also found that Sansha City is exploiting U.S. technology to safeguard sensitive state secrets.

Under a December 2018 contract, Landun Information Security Technology Co., Ltd. agreed to provide 640,500 yuan ($91,500) of communications security equipment to the Office of the Chinese Communist Party (CCP) Sansha Committee, which is the main decision-making body in Sansha and has overlapping leadership with the city’s PLA garrison.

The bundle of equipment includes two pieces of foreign technology: a camera detection device, the “Suresafe/VS-125,” which is likely from Suresafe, a Taiwanese company; and a digital phone and line analyzer, the “REI/DPA-7000,” which appears to be from Research Electronics International, a U.S. company.

A document available on Research Electronics International’s website describes the “DPA-7000 TALAN Telephone and Line Analyzer” as a “state-of-the-art capability to rapidly and reliably detect and locate illicit tampering and security vulnerabilities on both digital and analog telephone systems.” It adds that the device “provides a suite of tools in a single piece of equipment to accurately analyze phones and lines for faults and security breaches.”

In 2017, Research Electronics International launched an updated version of the TALAN, which has the same basic capabilities as the older DPA-7000. The newer TALAN 3.0 has applications in technical surveillance countermeasures, wiretap detection, eavesdropping detection, intelligence protection, surveillance equipment detection, and electronic surveillance detection, the company’s website says.

Publicly available contracting records show that Research Electronics International has supplied the TALAN line of products to numerous U.S. government and military customers. These include the Federal Bureau of Investigations, the U.S. Department of Defense, the U.S. Navy, and the U.S Coast Guard — specifically the Coast Guard Counterintelligence Service.

This suggests that Sansha City might be leveraging counter-surveillance technology from a U.S. defense contractor to secure the city’s communications against U.S. signals intelligence collection efforts.

U.S. intelligence collection in the South China Sea region has long rankled the PLA, which maintains numerous sensitive facilities in the area, ranging from submarine bases to missile sites. Over the past 20 years, Chinese forces have repeatedly intercepted U.S. intelligence, surveillance, and reconnaissance platforms operating in or above the South China Sea. These interceptions have caused major incidents on several occasions, like in 2001 when a PLA fighter crashed into a U.S. EP-3 signals intelligence aircraft, killing the Chinese pilot and forcing the U.S. plane to perform an emergency landing in Chinese territory.

Tech transfer feeding tensions

According to experts, Sansha City’s efforts to acquire foreign technology mirror longstanding Chinese government practices, which have become a major source of tension in U.S.-China relations and emerged as a priority for the new Biden administration.

For several decades, China has systematically acquired technology from the United States, Japan, Germany, and other advanced economies in a bid to boost domestic industries and facilitate an ambitious military modernization program.

Emily Weinstein, a research analyst at Georgetown’s Center for Security and Emerging Technology, told RFA that China acquires foreign technology through “legal, illegal, and extralegal means.”

“These can involve everything from M&A [mergers and acquisitions] and investments, to copyright infringement and traditional espionage activities, to gray areas like front organizations and United Front operations like professional associations and overseas scholar returnee organizations,” Weinstein said.

According to Ashley Feng, a specialist on U.S.-China economic relations, transfers of technology to China have security as well as economic implications, making them a major concern for U.S. authorities.

The U.S. government uses a range of tools to impede these transfers, including export control mechanisms. “Through the Export Administration Regulations, the Munitions List, the Commerce Control List, and the Entity List, the U.S. government can control what technology is exported out of the United States both by where the export will end up and/or whose hands it will end up in,” said Feng.

In recent years, the U.S. government has pursued export control reforms aimed at China and repeatedly placed restrictions on specific Chinese entities. For instance, since August 2020, the U.S. Department of Commerce has repeatedly restricted exports to Chinese companies for their roles in building artificial islands, militarizing occupied features, and supporting coercion against other claimants in the South China Sea.

Experts told RFA that the items acquired from U.S. companies by Sansha City are unlikely to be covered by existing export control measures. “At first blush these appear to be technologies just below the controls threshold,” explained James Mulvenon, director of intelligence integration at defense contracting firm SOS International, who described these types of transfers as a “vexing problem” for the U.S. government.

“But the civilian nature of the purchase is simply part of the Potemkin nature of the Sansha political entity, which was only created to give a demilitarized, civilian cover for what is more accurately a military occupation of disputed possessions,” Mulvenon said.

But there is one potential outlier: the countersurveillance device that Sansha City appears to have acquired from Research Electronic International. According to the company’s website, the DPA-7000 TALAN Telephone and Line Analyzer falls under export control classification number (ECCN) 5A992.b, which suggests that relevant U.S. authorities may view the device as a sensitive item subject to certain export restrictions on national security grounds, though this particular ECCN is outdated thanks to reforms in 2016.

The U.S. Department of Commerce did not respond to RFA’s request for comment.

Research Electronics International told RFA that “all of our sales, throughout the world, are made in full compliance with the law and US export regulations” and that “we have no records of the companies you are inquiring about and we have not made any sales to Sansha City.”

If the company’s statement is accurate, then Sansha City may have acquired the DPA-7000 through illicit means. According to Mulvenon, “China uses a wide array of strategies to get this tech, but the sensitive nature of the South China Sea issue makes it more likely for them to use cutouts and front companies and then divert the technology to the real destination and purpose.”

Sansha City’s acquisitions of foreign technology, licit or otherwise, appear poised to continue unabated. In late February, the city signed a procurement contract for three maritime law enforcement patrol boats, which are slated to use outboard engines, communications equipment, night vision devices, and other components from companies in the United States, the United Kingdom, Sweden, and Japan.

That means, unless the U.S. government and other relevant authorities take action, China’s efforts to dominate the South China Sea will continue to be supported by foreign technology.

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