How to Fight Back Against China Corporate Espionage

Home | China Law Blog | How to Fight Back Against China Corporate Espionage Table of Contents Toggle China’s Corporate Espionage Playbook Reports of intellectual property (IP) theft and corporate espionage involving China are nothing new. For those familiar with China’s business practices, these stories come as no surprise. However, recent insights from U.S. intelligence highlight how China’s tactics are evolving, creating new challenges for foreign companies. Your China IP Risks are Human, Not Just Technical To nobody's surprise, Michael C. Casey, Director of the National Counterintelligence and Security Center, recently warned that China remains the most prolific threat actor in corporate espionage. Casey emphasized that China's strategy goes beyond high-tech hacking, increasingly relying on “human assets”—employees recruited to steal data, trade secrets, or proprietary information. This updated playbook builds on long-standing patterns: insiders are key to IP theft. Casey stressed that targeting employees with financial or personal difficulties has become a primary tactic. While media often focuses on high-tech cyberattacks, the most common form of IP theft remains low-tech—perpetrated by trusted insiders. Firewalls and cybersecurity systems are necessary but won’t prevent insiders from downloading sensitive information and sharing it with competitors. China’s technology acquisition strategy is systematic, driven by government directives that target specific industries. Foreign companies should assume that IP theft will be attempted and employ strong practical countermeasures. Casey noted the delicate balance companies must protect their business while avoiding alienating their own employees and clients. Employees of Chinese descent may face external pressures due to family ties, but Casey emphasized that companies should not confuse the actions of the Chinese state with the loyalties of individuals. In other words, even your most trusted and honest employee might give up your company secrets if pressed to do so by Communist Party threats to their loved ones in China. As China steps up its efforts to exploit and steal foreign company IP, you should prepare for worst-case scenarios. Regular drills and contingency planning are essential. Building relationships with public-sector partners, such as the FBI, can also enhance preparedness. Casey advises, “If you don’t know your local FBI representative, you’re doing something wrong.” The Challenge of Human Asset and Geopolitical Risk Chinese companies will aggressively appropriate and sell IP that can be copied and resold without need for much further development work. This includes the standard items of which we are all aware: commercial software, DVDs, music CDs and MP3s, digital films, trademarks, books and magazines. Chinese companies aggressively copy simple items like clothing, shoes, toys, and furniture, but usually only after the foreign owner teaches them how to make the product. A favorite tactic of Chinese manufacturers is convincing foreign buyers to pay for the molds required to make the product and then transfer those items to a factory run by a cousin or uncle. Without a China-specific NNN Agreement or Product Development Agreement, you are virtually powerless against this. Beware: Do not use online providers for this critical agreement. What does all this mean if you are operating in China or having your products made there? You must have a realistic view of your risks and what you can do to mitigate those risks. Protecting Your IP from a Rapacious China The core principles for safeguarding IP from China remain relevant: 1. Do not rely solely on high-tech solutions for your IP protection. An Australian company came to me after its software behind a secure server located outside China was stolen. The theft was by a trusted employee who had actually written the software, downloaded the code, and then customized it for a Chinese buyer. This story has been repeated many times in China. Low-tech protections must be employed as well. 2. When having your products manufactured in China or when selling product to China, you must assume the Chinese side will aggressively seek to appropriate your IP and trade secrets, and you should protect against this with China manufacturing contracts that address your IP theft risks 3. Formal IP registrations and contract remedies are required. China has an excellent system of software copyright registration. When our China IP lawyers recommend to our clients that they make use of China's IP registration system, they sometimes insist that their technical anti-piracy controls are sufficient. This may in fact be true, but without the China IP registrations there is usually no effective remedy for IP theft. 4. Your agreements must outline your IP issues and provide clear path for enforcement in China. For example, if you are selling sophisticated manufactured product to a Chinese company, you should include a contract provision stating that your Chinese buyer agrees not to appropriate any of the technology embodied in your product. This is required for China. This provision must include a substantial penalty, and it must be enforceable within China. See Drafting China Contracts That Work. 5. If you are having your products made in China, you should assume that the ultimate goal of your Chinese manufacturer is to appropriate the design and technology of the product for its own purposes. Chinese manufacturing companies know that many of their buyers are seeking to move their manufacturing out of China and they are in the process of stealing your IP to better prepare for that day. Preventing this appropriation must be a central feature of your contractual relationship with your Chinese manufacturer. Your manufacturing contract must clearly define what is protected, include specific penalties for piracy, and outline the enforcement mechanism to ensure those penalties can be imposed. The Basics on China IP Protections Don’t rely solely on technical solutions. While Cyber defenses are essential, they are not enough. Insider theft remains the most common threat. Trusted employees often bypass cybersecurity to steal valuable data. Use enforceable China manufacturing contracts to formalize your IP protections. Agreements with your Chinese partners should prohibit IP theft, include specific and enforceable penalties for doing so. Without these protections, enforcement becomes difficult. Register your IP in China. Relying only on technical fixes or unenforceable foreign contracts is a mistake. Registering patents, trademarks, and copyrights locally provides crucial legal recourse. Conduct regular internal audits: Identify vulnerabilities and potential threats through routine system reviews. Train your employees on security best practices: Educate your employees on corporate espionage risks and how they should report suspicious activity. Limit access to sensitive information: Grant access only on a need-to-know basis. Implement strong cybersecurity measures: Use firewalls, intrusion detection systems, and other tools to safeguard your systems and data. Conduct due diligence on your China business partners: Do your due diligence on your Chinese partners before doing business with them. Conclusion Companies that assume IP protection in China is impossible often fail to take meaningful steps to protect themselves against China. Instead of registering their intellectual property in China and using enforceable China manufacturing contracts, foreign companies rely solely on ineffective technical fixes or unenforceable agreements. This is a mistake. China has created a system for protecting IP, technology and trade secrets and that system works reasonably well. But it only works for companies that have taken steps to avail themselves of this system. Companies that act only after their IP has been stolen face an impossible task. Check Out Our China Law Services Share Twitter Facebook LinkedIn E-mail Comment Dan Harris Dan Harris is a founding member of Harris Sliwoski, an international law firm where he mostly represents companies doing business in emerging market countries. Most of his time is spent helping American and European companies navigate foreign countries by working with the international lawyers at his firm in setting up companies overseas (WFOEs, Subsidiaries, Rep Offices and Joint Ventures), drafting international contracts, protecting IP, and overseeing M&A transactions. In addition, Dan writes and speaks extensively on international law, with a focus on protecting foreign businesses in their overseas operations. He is also a prolific and widely-followed blogger, writing as the co-author of the award-winning China Law Blog. Harris Sliwoski Attorney Read more posts [email protected] Read More Intellectual Property (IP), International Manufacturing Related Posts September 15, 2026 Your AI-Drafted China Contract Says It Needs a Lawyer. Listen to It. September 11, 2026 Forensic Accountants in China Business Litigation: How True Numbers Can Tell the Wrong Story September 4, 2026 China NNN Agreement or Trademark Registration? You Usually Need Both September 1, 2026 AI Didn't Replace Lawyers. It Gave Us the 48-Page Contract. August 27, 2026 Do I Need a China NNN Agreement or a China Manufacturing Agreement? Usually Both. August 26, 2026 China’s New Overseas Investment Rules: Can Your Chinese Investor Actually Get the Money Out? August 24, 2026 International IP Protection for Startups: What to Protect and Where August 19, 2026 The Documents Are the International Deal August 19, 2026 China Supplier Fraud in Yiwu: Why We Recommended the Police, Not a Lawsuit August 17, 2026 China Trademark Registration: Why U.S. Companies Need More Than a Filing Agent August 10, 2026 Buying Expensive Equipment from China: Seven Questions to Answer Before You Pay August 7, 2026 DDP Shipping Risks: What Boise Cascade’s Guilty Plea Means for U.S. Buyers August 6, 2026 Protecting Your Artwork Internationally: What Artists Need to Do Before the Work Travels August 5, 2026 Your China Employee Signed the Vacation Policy. You Can Still Lose. July 29, 2026 The RedNote Contract Lesson for Companies Doing Business in China Leave a comment Cancel reply