Was the Chinese Consulate in Houston Really a Hotbed of Economic Espionage?

People close to China-related investigations in Houston say the decision to close the consulate may be more about politics than spy threats.

A detail view of the Chinese flag is seen outside of the China Consulate General building, Thursday, July 23, 2020, in Houston.
The China Consulate General building on July 23, 2020, in Houston. Photo: Aaron M. Sprecher/AP

As the deadline for the closing of the Chinese consulate in Houston approached on Friday afternoon, employees hauled out bags of supplies and heaved them into a van. Then, shortly after 4 p.m., a locksmith forced his way inside using power tools and a crowbar, and the U.S. State Department took over. The transition was complete, as least as far as the U.S. government was concerned. But the reason given for closing the consulate — that it was the epicenter of economic espionage and research theft in the United States — baffled many in the city, including people with direct knowledge of past investigations into research transgressions.

“We announced the closure of the Chinese consulate in Houston because it was a hub of spying and intellectual property theft,” Secretary of State Mike Pompeo declared in a speech last week. In a call with reporters on Friday, an unnamed senior State Department official alluded to the Houston consulate being involved with efforts to steal coronavirus vaccine research, but the department has provided no evidence to support that claim.

“I think that this is more smoke than fire,” said Gordon Quan, an immigration attorney who has helped coordinate dialogue between the local Asian American community and the Houston field office of the FBI, which oversees domestic economic espionage investigations. “For the government to throw around accusations is not unusual. But when it comes to proof, they oftentimes come up lacking. There’s a lot of skepticism as to whether this consulate was really the hotbed of spy activity in the country.”

“I think that this is more smoke than fire.”

Embassies and consulates the world over commonly facilitate spying for political purposes, and as a major rising power with sophisticated intelligence agencies, China is particularly active in this space. A recent Department of Homeland Security document describing Chinese influence in the United States repeatedly mentions Chinese diplomats. (The dispatch appears in the BlueLeaks trove of hacked documents.) But the U.S. government distinguishes such routine spying from economic espionage, or spying for the express commercial gain of a foreign country’s corporations, which is a federal crime in the United States. And among the hundreds of economic espionage-related cases brought across the country in the past few years, there have only been a few tied to Texas. The most notable inquiry into aberrant behavior by researchers in the region was a controversial 17-month FBI investigation involving scientists at Houston’s MD Anderson Cancer Center that yielded no criminal charges.

While it’s possible that the consulate was involved in activities that haven’t yet been publicized, the Trump administration has provided little evidence beyond the broad statements made by Pompeo and others. (The State Department sent The Intercept a boilerplate statement but declined to answer questions or make officials available for an interview.) Lindsay Gorman, a fellow at the German Marshall Fund’s Alliance for Securing Democracy, said that the scant information given raises the possibility that this is “just another escalation of the anti-China strategy that we have seen the White House really double down on over the last couple weeks and months.” She added that “China’s espionage and China’s authoritarian rise” are a significant concern but that countering them requires a focused strategy grounded in U.S. interests.

The New York Times obtained a seven-page document last week that purportedly outlined several FBI investigations connected to the Houston consulate. One concern it highlighted was “talent recruitment plans to persuade more than 50 researchers, professors and academics in the area to turn over tightly held research or information to Chinese institutions,” the Times reported. That is likely a reference to the Thousand Talents Plan, a recruitment scheme created by the Chinese Communist Party to attract prominent researchers, particularly ethnic Chinese, to work in China. But while the program has been linked to a few instances of technology transfer or intellectual property theft, most violations have concerned grant fraud or unreported research affiliations — hardly an imminent threat to U.S. national security that would require closing a consulate.

Grant fraud and the Thousand Talents Plan figured prominently in the MD Anderson investigation, which began in 2017. The case was spearheaded by the FBI’s Houston field office and the U.S. National Institutes of Health, which administers federal grant money for biomedical research and has asked institutions around the country to investigate scientists for violating its policies. As part of the investigation, MD Anderson gave the FBI access to the network accounts of 23 employees. As the inquiry progressed, several ethnic Chinese employees were put on leave. One researcher with ties to China was placed under video surveillance and charged in state court with possession of child pornography, only to see the charges dropped when a grand jury declined to indict him.

Under leadership that included chief medical executive Stephen Hahn, MD Anderson assisted the FBI and NIH in compiling detailed files on its employees. In the end, some researchers lost their jobs, resigned, or unexpectedly retired, but no one was charged with a crime relating to economic espionage or intellectual property theft. The affected researchers included endowed professors, a senior administrator, and a former department chair. One prominent researcher who was investigated, Xifeng Wu, returned to China, where she became active in coronavirus research.

When Todd Ackerman and I broke the news of the investigation in the Houston Chronicle and Science in 2019, faculty at the research center were apoplectic, confronting Hahn in a tense meeting. But Hahn weathered the ordeal. Later that year, President Donald Trump appointed him commissioner of the U.S. Food and Drug Administration.

Although the investigation has sometimes been held up nationally as an example of the threat to U.S. technology posed by China, in some quarters of Houston it is remembered as a witch hunt tainted by ethnic bias, which dealt with cancer research, not sensitive technology. The investigation prompted the Asian American community to mobilize. Earlier this spring, after a man stabbed an Asian American family at a Sam’s Club in Midland, Texas, community groups took out ads in the Houston Chronicle decrying hate crimes.

“The U.S. government has been playing this China card since Trump came into office.”

Critics now worry that the MD Anderson saga is being exploited for political gain. “It started with a few scientists, with those few isolated incidents, and gradually heated up to the consulate being closed,” said Helen Shih, a Houston-area medical practitioner and community organizer. “If you connect the dots, then you can see where it’s headed. The U.S. government has been playing this China card since Trump came into office.”

“People are concerned that this could be just the beginning of a continued escalation in the next 100 days, before the election,” said Steven Pei, an engineering professor at the University of Houston.

Another possible driver for the consulate’s closure could be a case highlighted in a dispatch sent out by the FBI’s Office of Private Sector in February. The document, which was released in the BlueLeaks hack, discusses the role played by Shan Shi, a former researcher at Texas A&M University, in a conspiracy to steal information on how to make syntactic foam, a technology that it says China’s government has identified as critical for its emergence as a maritime power. The document mentions the Thousand Talents Plan but does not mention the consulate. Shi was sentenced to 16 months in prison in February.

China has pursued a number of aggressive or disturbing actions over the past few months, including disclosing incomplete information about the coronavirus’s spread, imposing a problematic national security law in Hong Kong, and using Uyghur labor to produce personal protective equipment. But some worry that the closure sends U.S.-China relations into unpredictable territory at a time when the United States is already struggling with a pandemic. On Friday, China ordered the closure of the U.S. consulate in Chengdu in retaliation.

“The Trump administration’s credibility in the information and messaging arena is so degraded that we’re at a point where it’s unclear who to trust,” said Gorman, adding that a lack of coherent strategy gives China the opportunity shape the narrative. “We need a U.S. government that we can trust to take action with solid grounding.”

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