Corporate Counterespionage: The Only Real Defense Against China's Liminal Warfare

Practical strategies for companies that can no longer rely solely on governments

In an era of escalating geopolitical and technological rivalry, Western businesses, especially innovative startups, are confronting unprecedented risks that threaten their very existence. The warnings issued by intelligence agencies such as the Canadian Security Intelligence Service (CSIS) and the National Counterintelligence and Security Center (NCSC) are a wake-up call that governments can no longer afford to ignore, and which companies themselves must heed first and foremost.

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This intelligence document serves as a critical summary for governments, multinational corporations, and security agencies, outlining the threat of "liminal warfare" waged by Beijing and the strategies required to defend against it. International pitch competitions, though they may appear to be harmless platforms for innovation, are often Trojan horses used by Chinese entities for the predatory acquisition of technology, intellectual property, and talent. This is not conventional warfare, but a "total war" where the battlefield extends into every aspect of the economy and society.

The core message is unmistakable: current regulatory frameworks and state responses are inadequate to provide comprehensive protection. Beijing's carefully planned practices to erode entire strategic sectors exploit loopholes in legal systems and the open nature of liberal democracies. The responsibility to safeguard the most valuable assets—innovation, data, and know-how—therefore falls largely on individual companies. They must adopt a proactive corporate counterintelligence mindset and implement strict, detailed risk mitigation measures.

The solutions proposed in this article are designed to be immediately actionable. They include meticulous screening of all interacting entities, fortifying intellectual property, protecting sensitive data, and continuous monitoring of activities long after a competition has concluded. The goal is not just to survive, but to ensure that Western innovation can continue to flourish without inadvertently becoming an engine for the power projection of a systemic adversary.

Joint Intelligence Warning: The Risks for Tech Startups

In an unprecedented move, the Canadian Security Intelligence Service (CSIS) and its U.S. partners have issued a warning directly to Western startups, highlighting the serious risks associated with participating in international pitch competitions organized by entities affiliated with the PRC government or the Chinese Communist Party (CCP). These events, while offering visibility and funding opportunities, are being used as a vector for industrial espionage and covert technology acquisition.

The warning identifies several critical vulnerabilities to which startups are exposed:

• Loss of Intellectual Property (IP). During the application and competition phases, startups are often encouraged to disclose detailed information about patents, business, financial, and marketing strategies. This sensitive material can be acquired and exploited by foreign entities for their own benefit.

• Misuse of Data. Beyond IP, personal data and photos may be requested, which can then be used for unforeseen purposes. Disclosing such information increases the risk that corporate and personal data will be misused or stolen.

• Talent Recruitment. Chinese competitors can identify and recruit key talent from Western startups, weakening their competitive capabilities.

• Obligation to Establish a Business in China. In some cases, winning prizes and investments is conditional on setting up a business in China. There, foreign companies are systematically exposed to efforts to acquire their IP, data, production processes, and talent.

Organizations like the China Association for Science and Technology (CAST) are cited as central players in these efforts. The CAST, described by the U.S.-China Economic and Security Review Commission as a "constituent body of the Chinese People's Political Consultative Congress" with a key role in the government's "technology transfer efforts." Given the success of these competitions—with over 7,400 project pitches received since 2016—the warning is a clear signal that this is a systemic, not an isolated, problem.

Liminal Warfare and the Acquisition of Technology, IP, and Know-How

The Extrema Ratio report details the Chinese Strategy of "liminal warfare" as a total conflict, waged on multiple fronts to achieve global supremacy. The acquisition of technology, IP, and know-how through coercive or secret means is one of the sharpest weapons in this war.

These technology transfer practices are not accidental but are the result of meticulous planning aimed at undermining Western competitiveness in high-value-added sectors. Below is a detailed analysis of the key mechanisms.

1. Exploiting Legal and Semi-Legal Channels

• Foreign Direct Investment (FDI) and Venture Capital (VC). The Chinese government actively encourages state-owned and private companies to acquire foreign companies and invest in tech startups to gain access to IP and know-how. Western companies, driven by the desire to access the vast Chinese market, are often forced to accept terms that compromise their strategic assets. The report cites the case of high-speed rail, where foreign companies were required to form joint ventures to win bids in China. The transferred technology was then used by Chinese companies to produce and sell trains on foreign markets, in direct competition with their original partners. This pattern has been replicated across numerous sectors, from semiconductors to automotive.

• Licensing Agreements. The licensing system in China is a bureaucratic maze that forces companies to disclose sensitive information, which is not always protected after approval. The lack of clarity and the difficult approval processes are designed to facilitate government access to proprietary data and IP.

• Talent Recruitment Programs. Programs like the Thousand Talents Program offer financial incentives and research opportunities to attract foreign and overseas Chinese experts and academics to work in China, facilitating knowledge transfer. The PLA has sponsored over 2,500 military scientists and engineers to study abroad, often concealing their military affiliations to gain access to Western universities and research labs in sensitive fields such as AI, missile technology, and navigation.

2. Espionage and Illicit Information Gathering

The theft of IP and know-how is a core component of the Chinese strategy and takes various forms.

• Cyber Espionage. State-sponsored cyber espionage is the most pervasive threat. Hacker groups affiliated with the Ministry of State Security (MSS) and the PLA conduct global-scale attacks to steal trade secrets, technical data, and negotiating positions, which are then transferred to Chinese companies. The Extrema Ratio report cites the case of a GE Aviation employee who was recruited by an MSS official in Belgium to steal technical information.

• Non-traditional and Hybrid Espionage. China leverages a vast network of individuals, including researchers, academics, and businesspeople, to gather information through exchanges, conferences, and scientific collaborations. The saying "picking flowers in foreign lands to make honey in China" perfectly summarizes this strategy. A practical example is the case of a Scottish renewable materials company that had laptops stolen after a visit from a Chinese delegation. Subsequently, a Chinese company produced a nearly identical device, leading to the demise of the Scottish firm.

3. The Role of Legislation and "Military-Civil Fusion" (MCF)

China has created a legal framework that mandates cooperation between businesses, citizens, and the intelligence apparatus, making every commercial actor a potential arm of the state.

• National Security and Intelligence Laws. The National Intelligence Law (NIL) of 2017 obligates all Chinese organizations and citizens to "support, assist, and cooperate" with national intelligence efforts. This means that companies like Huawei and ZTE are legally required to share data and information with Beijing. The law applies globally, extending the CCP's jurisdiction to overseas subsidiaries of Chinese companies.

• Military-Civil Fusion (MCF). This strategy is a cornerstone of liminal warfare. Its goal is to merge the defense industry with the civil one, ensuring that technological innovations advance both economic and military objectives simultaneously. This "dual-use" approach is particularly evident in critical technologies like AI, semiconductors, 5G, and biotechnology. MCF allows the PLA to leverage civil expertise and infrastructure, such as commercial ports and ships, to project its power abroad.

The Erosion of Supply Chains and Strategic Economies

China's predatory practices have led to a systemic dependence of the West in vital sectors, a situation Beijing can weaponize for geopolitical advantage.

• Dependence on Critical Raw Materials. China has consolidated a near-monopoly in the production and processing of minerals essential for the energy transition and defense. The EU is 100% dependent on heavy rare earth elements and 97% on magnesium from China, both of which are crucial for electric vehicles and aerospace alloys. The 2024 NATO report on critical defense raw materials highlights that supply disruptions could compromise the alliance's deterrence and security.

• Industrial Dominance in High-Tech Sectors. Through massive subsidies and "dumping" policies, China has gained a dominant position in semiconductor production (15% of global output in 2020) and in renewable energy technologies, such as solar panels (96% of those installed in Europe in 2023 were from China). The European wind industry, once a leader, is now being squeezed by Chinese competition, which benefits from vast economies of scale and full control of the supply chain.

• Dumping and Overcapacity. Beijing uses its productive "overcapacity" to flood foreign markets with low-cost goods, destroying local competitors. This is particularly evident in the EV sector, where foreign manufacturers are losing market share in China. The European Commission has imposed provisional tariffs on Chinese EVs following an investigation into state subsidies, but the long-term effectiveness of these measures remains uncertain.

Mitigation Measures and a Call to Action

This analysis demonstrates that protection against China's liminal warfare cannot be left solely to governments. The nature of the conflict demands that companies act as the first line of defense.

1. Advanced Due Diligence and Corporate Intelligence. Companies must go beyond basic due diligence. They need to invest in intelligence services to identify affiliations with foreign governments, the origins of funding, and the true intentions of business partners or event organizers.

2. IP and Data Protection. Registering patents not only in the U.S. but also in host countries where competitions are held is crucial. Implementing non-disclosure agreements (NDAs) and strict data handling protocols is essential. It is vital to have "no expectation of privacy on electronic devices" when traveling abroad.

3. Supply Chain Diversification and Resilience. Companies must diversify suppliers and reduce dependence on any single country, especially in critical sectors.

4. Awareness and Training: Training staff on the risks of espionage, talent recruitment tactics, and cyber threats is essential. Employees must be aware of the warning signs of potential hostile activities, even when they are presented as tempting business opportunities.

5. Public-Private Collaboration: It is imperative for businesses and governments to collaborate and share threat information, as suggested by the joint U.S.-Canada warning. Creating partnerships between the private sector and intelligence agencies can help map vulnerabilities and develop effective responses, balancing economic interests with national security.

This is a call to action: in the absence of an adequate state protection network, the defense of Western innovation is a collective responsibility that starts at the corporate level. Liminal warfare is not a future threat but a present reality, and the only way to win is to fight it with the same precision and planning that the adversary has deployed.