CCP relies on IP theft for legitimacy and economic growth.

Common refrains regarding the strategic significance of China’s theft of U.S. intellectual property (IP) include concerns of immediate economic losses—with estimates ranging from $250 billion to $600 billion annually—and a potential longer-term threat of disincentivizing innovation investments. However, a focus on these consequences obscures the true strategic intent of China’s cyber-enabled IP-theft campaign.

During its long march to a “moderately prosperous society” and global technological supremacy, China has encountered significant hurdles.1 In 2010, for example, after years of significant economic growth, the Chinese Communist Party (CCP) leadership publicly expressed concerns about a slowing economy and social unrest—conditions Chinese leaders associated with the middle-income trap.2 The historical consequences of failing to address these areas could put at risk both the CCP’s’ legitimacy and China’s great-power status. As part of a multifaceted strategy to mitigate the middle-income trap and stave off impending calamity, China launched a campaign of cyber-enabled theft of U.S. IP. Evidence of successfully re-innovating illicitly acquired IP was arguably behind President Xi Jinping’s confident exclamation in 2015 that growth would average 6.5% from 2015 to 2020, a target necessary for keeping the middle-income trap at bay.3 Although the United States attempted to abate cyber-enabled IP theft through diplomacy, statecraft failed, resulting in a lost opportunity to shape the rise of China when its economy was in a vulnerable state.4

Opportunity is knocking again. Current U.S. tariff policy began placing downward pressure on China’s economy in 2018 that was not anticipated when President Xi made his 2015 proclamation. The Covid-19 pandemic has posed additional unexpected economic challenges.5 Not coincidentally, the CCP again ramped up cyber-enabled IP theft in 2018, possibly to help mitigate that pressure by jump-starting additional innovation-based growth, just as it did in 2010–13.6 The first time around, the strategy of the U.S. Department of Defense (DOD), the Strategy for Operating in Cyberspace released in 2011, was misaligned with the IP-theft campaign, and U.S. Cyber Command’s capabilities were not matched to the challenge. Today, U.S. Cyber Command is a mature combatant command with 133 teams with full operational capability, and the DOD is implementing a new cyber strategy of “defend forward,” including an operational approach of “persistent engagement” to inhibit strategic gains by adversaries through cyber operations short of armed conflict. At a minimum, China may still escape the middle-income trap by taking longer than anticipated to do so; or, alternatively, its economy may backslide to such a degree as to fall victim to the middle-income trap. The United States, via its cyber strategy, may be in a strong position to influence which outcome comes to pass. This second time around, the United States has a cyber strategy better aligned to the challenge and an improved capability to execute it.