China Has Built a Network of Informants at the Federal Reserve to Access Non-Public Data

Federal Reserve Chair Jerome Powell speaks to the media after the Federal Open Market Committee meeting, Wednesday, June 13, 2018, in Washington. (AP Photo/Jacquelyn Martin)

An investigation by Republican staff members of the Senate’s Committee on Homeland Security and Governmental Affairs has uncovered an attempt by Communist China to build a network of paid informers who work for the Federal Reserve in order to steal nonpublic economic data, according to the committee’s report.

The investigation found that for more than a decade, employees at the Fed were offered contracts with Chinese talent recruitment agencies “which often include cash payments, and asked to provide information on the U.S. economy, interest rate changes and policies,” according to the Wall Street Journal.

At one point in 2019, the Chinese threatened to imprison a Fed economist who was visiting Shanghai unless he agreed to provide nonpublic economic data, the investigation found. At the time, China and the U.S. were engaged in a fierce trade war, and the Chinese wanted information on U.S. government policies, including tariffs, according to the Journal.

The report doesn’t say whether any sensitive information was compromised. Access to such information could provide valuable insights given the Fed’s extensive analysis of U.S. economic activity, its oversight of the U.S. financial system, and the setting of interest-rate policy.

The Republican-led investigation said the Fed failed to mount an adequate response. The report’s findings show “a sustained effort by China, over more than a decade, to gain influence over the Federal Reserve and a failure by the Federal Reserve to combat this threat effectively.”

Federal Reserve Chairman Jerome Powell was none too pleased with the report’s findings. “Because we understand that some actors aim to exploit any vulnerabilities, our processes, controls, and technology are robust and updated regularly. We respectfully reject any suggestions to the contrary,” he wrote in a letter to the committee’s top Republican Sen. Rob Portman (R-Ohio).

“We take seriously any violations of these robust information security policies,” he wrote.

China has mounted what U.S. counterintelligence officials say is among the broadest campaigns to obtain U.S. government information and proprietary business secrets and scientific and technology research. In doing so, it has frequently used talent-recruitment programs, which often include lucrative appointments at Chinese research institutes and which U.S. counterintelligence officials say offer an incentive to steal secrets.

China’s economic war on America is marked by industrial espionage on a massive scale and the outright theft of intellectual property rights. But the Chinese see nothing wrong with it. The idea of intellectual property is mostly foreign to them, and unless a product or an idea is figuratively nailed down, China sees it as fair game to use.

When an American business manufactures a product in China for export, it can expect China to sell the exact design of that product to other buyers. The problem is ideological; the idea of private property is an anathema to the Chinese Communists, so any fruits of that property are not recognized as such.

Quality Inspection:

There certainly is a different mentality in China as opposed to the West when it comes to issues of what is considered private versus public. This difference was made clear to me many years ago on my first day as an exchange student back in the 1990’s at a Chinese university located in Harbin. I returned to the dorm after lunch and found my Chinese roommate sitting at my desk with his feet on my bed, leaning back in the chair while filing through my personal belongings in the draws and on the desk.

In fact, the Chinese see the act of copying a design or an idea as the highest form of flattery.

When a Chinese manufacturer makes a product according an importer’s design, it usually tries to sell the exact same thing to other companies. Worse, samples and drawings find their way in the showrooms of various intermediaries.

Only the most professional and the largest exporters pay attention to their customers’ intellectual property. With all the others, foreign buyers need to deploy a LOT of persuasion, threatening, and monitoring.

With that attitude by the Chinese, some suppliers may not even think twice or feel embarrassed about using for their personal gain what someone else believes to be their IP.

Assisting China in running rings around U.S. businesses by handing over sensitive, non-public Fed data as detailed in the congressional report can be stopped with a little effort on the part of the Federal Reserve.

But U.S. corporations are another problem. American companies put up with these Chinese pirates because of the huge potential profits in a market of 1.4 billion people. And China knows they don’t have a choice.


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