Hosts, AJ Nash and Robert Vamosi, engage with John Costello, a director at WireScreen, to discuss the complexities of China's strategic competition with the United States. The conversation covers China's technological advancements, the implications of its five-year plans, challenges in intelligence gathering, and the dynamics of military-civil fusion. The discussion also touches on the importance of due diligence for businesses engaging with Chinese companies and the role of Chinese students in U.S. education.
[00:00:00] AJ Nash: Hello, and welcome to another episode of NeedleStack. I'm one of your hosts today. I'm AJ Nash. For those who don't know me, I've got a long history in intelligence. I'm the digital intelligence advocate here at Authenticate these days. But my background, I got about 19 years in the intelligence community, counter intelligence, or.
[00:00:32] AJ Nash: Counterinsurgency and counter-terrorism, and I was a linguist and all sorts of interesting things for a long time there. Chase War s for a while. Been in the private sector about 10 years, where I primarily talk about building intelligence program and intelligence driven security and host podcasts like this and, and have a pretty cool life altogether.
[00:00:47] AJ Nash: And I'm lucky enough to, to be able to hang out with Robert Ose, who is the co-host. Rob, I introduce yourself.
[00:00:53] Robert Vamosi: Hi, I am Robert Fosi and I'm an award-winning journalist author of two books, one of which with. Kevin Mitnick and I have a CI ISSP, so I've got a deep background in cybersecurity.
[00:01:05] AJ Nash: That's right.
[00:01:05] AJ Nash: And so, a great compliment. Rob's obviously the smart one of the two of us that CI ISSP and, and award-winning author proving it. But today we're joined by an amazing guest, and this is the best part about the show, is we get some awesome people. So today. John k Costello is on he's a director of Strategic Affairs at wire screen where he leads their national security and public policy focused efforts.
[00:01:23] AJ Nash: He is also a principal at Westex Advisors and a non-resident senior fellow at Carnegie Mellon University Institute for Security and Technology. So talk about being smart. Great background Mr. Costello. He was former chief of staff and principal architect of the White House office of the National Cyber Director, which was the first of that to, to exist at the time.
[00:01:42] AJ Nash: And prior to that, he also served as Deputy Executive Director of the Cyberspace Solarium Commission. If you haven't read anything from them, very interesting stuff. He was also Deputy Assistant Secretary of Intelligence and Security at the Department of Commerce. Like myself, he's a graduate of the Defense Language Institute, but unlike me, John was actually a sailor versus being in the Air Force.
[00:02:01] AJ Nash: He studied Chinese Mandarin, whereas I studied serving Croatian and he graduated with honors, whereas I barely scraped by. So our similarities fall apart very quickly, as you can see. But John, thanks for being here. We're really excited to have you today. Anything you want to add to that bio before we jump into the conversation?
[00:02:16] John Costello: No, I think that was, that was a fantastic intro. I gotta say that was if you could, I wish I could have you as my hype man everywhere I go. That was great. So
[00:02:23] AJ Nash: I am available I'll give you my hourly rate later. We can talk about it. I'm happy to show up at parties around the country and hype people up.
[00:02:30] AJ Nash: So, perfect. But as of today, let's just jump into the discussion. Rob, why don't you kick us off, man?
[00:02:36] Robert Vamosi: Yeah. So from time to time we visit various parts of the world and discuss why they're important in intelligence. And one of the areas that we don't visit very often is Asia and in particular we're gonna talk a lot about the Middle Kingdom today.
[00:02:50] Robert Vamosi: So what's new in China?
[00:02:55] John Costello: That is a great question. As the Chinese are frequently frequently remind everyone who will listen. They have over 5,000 years of rich cultural history and one of the most, the longest unbroken lines of govern of governance in, in, in the world. But what's happening with what's, what's sort of hopping with China today?
[00:03:13] John Costello: Is con, discontinued sort of air between China and the United States of strategic competition, something that has played itself out regionally with US allies and partners you know, Japan, certainly Taiwan which is, you know, will and forever be a major sensitive issue for, for, for the Middle Kingdom, as you put it.
[00:03:32] John Costello: The Philippines, Australia. And on a, a sort of broader global stage with some of the Bri countries Russia middle East, especially oil suppliers from the Middle East. And in some cases you know, the poll of Chinese tech is a, is a major issue with our friendships in our trade relationships in Europe.
[00:03:50] John Costello: But that is the, for the last 10 years, especially since China Xi Jinping. Pre Xi Jinping versus Post Xi Jinping. That is the era that we have been in, and that is, has shaped much of our policy and certainly the policy of Xi Jinping and the, the Chinese Communist Party. That while, you know, we could say whether that's new or not.
[00:04:11] John Costello: But that has been the, that's been the the status quo for the last few years, and I don't see that going away anytime soon
[00:04:18] AJ Nash: in, in terms of China. It's certainly new. I know the Chinese think in terms of centuries, not quarters like we do here in the us So a 10 year stretch is, is just new to China, right?
[00:04:26] AJ Nash: This is, this is all just, you know, happening, right? I, I'm curious about your thoughts. So a whole bunch, we can talk about China and I'm sure we, we will. But I, I think the first area I want to jump into as we talk about, you know, security and cybersecurity and, and the, you know, the. Nation state competition technology wise is where China stands right now in the tech race.
[00:04:48] AJ Nash: In terms of, historically, China's been very good at piggybacking, let's say, on other people's IP as opposed to inventing their own. They're pretty good at acquiring. And, and instead of doing the RD themselves, developing off of others, has that changed? Are they, are they getting better at developing their own or is it still a matter of, Hey, let's grab some, some IP that's out there and then, and then try to move forward on that or market that?
[00:05:10] AJ Nash: Particularly, I, I guess I'm gonna ask, the big question that'll come up is particularly in the AI space. No, I think that's a, that's a really good question and it gets to the heart of, I think, I mean, it gets to the heart of the, a strategic competition is to what degree can China move from its.
[00:05:26] John Costello: You know, previous history and its well trod path of taking IP and improving upon it or scaling it or productizing it, which the Chinese are particularly good at. Can they move from that towards true innovation? Can they move from that towards true disruption and in, in the, in the western sense of the word.
[00:05:45] John Costello: For background here China has conceived of their last 20 or 30 years of development, especially in the tech space as cutting around a curve or cutting around a corner. And it really, in the Chinese, actual Chinese, it really shows like a right turn and they just, you could say cut corners, but they really means like to edge someone out in a race.
[00:06:05] John Costello: They believe that the the advantages, the strategic advantages that have come with the US' Revolution and information technology are producing fewer and fewer returns every year. And we are coming to a sort of an inflection point where the the true innovation and next generation technologies you know, United States does not have a preeminent advantage like it, that it certainly, that it once did.
[00:06:29] John Costello: The one thing I'll say is this is, I haven't seen yet. China's ecosystem is really good at productization and commercialization according to a known like way of doing business according to a known technology. Even something that was a, a big innovation, like deep seek for instance, is really, is really taking existing technology and going about it and optimizing it to making it less dependent upon critical technologies that they have, you know, that they have difficulty grabbing and, and more about making it more of a product that can be sold or a product that can be utilized in, into a broader ecosystem.
[00:07:06] John Costello: So, you know, the Chinese like I don't think that there is a risk of the Chinese sort of, all of a sudden like developing and, and changing their culture to, to be extremely innovative in that way. Having said that, you know, I, you know, China has consistently and reliably you know, played against the rules and somehow like, made it work.
[00:07:26] John Costello: So you can never say never, but the, the, you know, the trends certainly don't seem to be pointing that way.
[00:07:32] Robert Vamosi: So it's interesting that you say that they may not necessarily come up with the primary technology, but they're really good at piggybacking coming up with secondary or tertiary uses of that technology.
[00:07:43] Robert Vamosi: And I guess I'm thinking of how they might be taking the lead in EVs right now. And they didn't necessarily develop that technology, but they took what they had and optimized it and productized it, as you just said.
[00:07:56] John Costello: Yeah. Yeah, that's absolutely true. If you look at some of the component technologies around EVs they're, they do really, really well when all of the ingredients for a particular industry are there and the technology is 80 and 90% there.
[00:08:12] John Costello: They're good at integrating it, packaging it as a product, and building it at scale, and then selling it. And this is where we run into the issue with it, selling it at cost or below cost through subsidies, flooding the market and dominating the market. That's the. If you use the term commoditization, China is good at and wants to corner the market on the commoditization of like, you know, basic chips, you know, basic batteries, basic LCDs.
[00:08:41] John Costello: And as technology develops that, that is certainly going to expand what that sort of commodity interchangeable pieces like looks like. That is a vastly different business model than one with the US where we take that for granted and we constantly, we wanna build new markets, disrupt old markets, and constantly be sort of like pushing forward with basic basic research rather than applied research, which is useful and important from a commercial standpoint.
[00:09:07] John Costello: But new discoveries are really, I think, what drives US Commerce and US innovation, in my opinion.
[00:09:14] AJ Nash: So where is that going to leave China or us for that matter, I guess economically as we look forward? I mean, the thought always has been, to my understanding, innovation is what's gonna drive an economy, right?
[00:09:24] AJ Nash: If you're, if you're a copycat economy, you can only go so far. And the Chinese have always done well because they've had very cheap of labor, right? So they've, they've made the money that way. Again, you know. Make things very, very cheaply. They can steal ip, which they have absolutely no problem doing. It's it's culturally acceptable.
[00:09:38] AJ Nash: So steal the ip, make something a lot cheaper, knock off products, et cetera. But does, does there, is there a cap to that if you don't move into innovation? And the flip side of that is if you're a country that that is built on innovation, driving forward. How much of a risk is it that you're just not gonna stay ahead very long?
[00:09:53] AJ Nash: If somebody can steal your ip? Why, why spend 10 years and billions of dollars developing this new technology just to have somebody steal it and then immediately put it back on the market at half the price, or, you know, at, at a fraction of that price. What motivates people to continued with the innovation?
[00:10:07] AJ Nash: Like, where's that gonna leave the two nations as they, as they compete for, you know, the marketplace?
[00:10:12] John Costello: Yeah. So I'll answer those in turn. Those are great questions on, on the China front. Is China gonna hit a wall? Is it gonna hit a limit? Yeah, definitely. The the, the height of its ambition is gonna exceed its grasp if it cannot move.
[00:10:31] John Costello: Into the level of basic sort of research. And you can see them trying to take a very, very engineered state level approach to this, especially with very groundbreaking things. Very like new things like like fusion energy for instance. I mean, they've built this massive what looks to be an inertial confinement facility outside of NY Young.
[00:10:51] John Costello: I mean, huge. It is absolutely huge. There's very little out there, but about it. But they, they are good at placing bets like that. And I said this before, you know, we've come to this like, Hey, can China really have a dynamic market leading firms from a state directed economy, right, with low consumption domestically?
[00:11:09] John Costello: And that's not possible. You know, you know, it'd be very difficult. Well, they managed to do it. And similar thing, can China remain stable without being a defacto or strict democracy? They seem to have, like sidestep some of the major issues. So I, you know, I think that they. Almost certainly are aware of that cliff and are gonna find you know, are going to take, you know, whatever ways they can to try to get around it.
[00:11:32] John Costello: And it's not sure exactly what that is going to look like. I think the next five year plan and the five year plan after that are gonna be absolutely critical because. You know, I think by their own measure from a market leading perspective, from a state of the technology perspective, they would wager themselves likely on par with the United States as far as the state of technology, the preeminence of like their firms.
[00:11:57] John Costello: With with the developed world and the global south, I think it's very different, very different sort of, arrangement there. So the next five years, how they shift their priorities are gonna be telling on how they at least perceive they need to address it. As far as the United States, well, I wanna, sorry.
[00:12:14] John Costello: I I don't wanna, you know, grab the mic for too long. As far as the United States goes this reminds me of the old a quote from Dwight Eisenhower, which is on planning, which is the plan isn't the point, planning is the point. It's the, the endeavor and the ecosystem, the culture of trying and.
[00:12:36] John Costello: Making research, go wherever research is going to go, and then finding applications for that technology that is the inherent interest of those that are doing it right. Obviously, there's there's money to be made in business no matter what, right? But I don't think that's gonna, you know, whether China steals our IP or not, that is a massive economic problem.
[00:12:55] John Costello: But as far as that being deadening or creating a chilling effect for, you know, us peoples, like global and commercial ambitions. I don't think that's gonna do a darn thing at all.
[00:13:05] AJ Nash: Well, that's interesting. I mean, that, that does put a lot of weight on those nations that choose to be the innovators though.
[00:13:09] AJ Nash: So you're the innovators that are driving the world forward, driving humanity forward, driving knowledge forward, and then others are capitalizing on it. You're only getting a fraction of that profit. But I, I step back for a second. You mentioned something that's. One of my favorite topics to talk about, which is China five-year plan.
[00:13:23] AJ Nash: So, new five-year plans out now, or at least in the process of coming out right now this year. So I wanted to get your thoughts. You know, and I'll preface this by saying I, China is a target. I've worked, you know, quite a bit in the past, and I used to love the China five-year plan because. No other country in the world's kind enough to tell us what their priority is gonna be for the next five years, so publicly, and then we can watch them follow that, like a roadmap.
[00:13:44] AJ Nash: So I'm curious about your thoughts on the next five year plan. What does that tell us about what we should be looking for in terms of China's priorities? What, what does that tell us in terms of threats, you know, that we might expect to see in support of, of Chinese priorities, both, you know, cyber threats and, and otherwise?
[00:13:59] John Costello: Yeah, I mean, well, you know, I. The, the, the, at least the last three or four or five year plans have been I, I mean effectively shopping lists for ip. You know, they've served the, you know, none of this is really sort of, it's, it would be, I. Inexact to say that ch everything China does is state directed.
[00:14:23] John Costello: I would say that they set the priorities and they expect all the mechanisms they set up to align to those. And you know, and, and they, they're, they're comfortable with loss. They're comfortable with burning dollars or burning Remy b as it were. As long as they can know that they have pushed forward to a particular objective, what we can see is, is.
[00:14:43] John Costello: If they have specific technologies, specific commercial industries they're interested in, you're gonna see state backed funds align their funding with that. You're gonna see scholarship funds like Chong Chang Scholarship, a thousand Talents, et cetera, et cetera, et cetera, align their scholarship stem, especially STEM funding towards that.
[00:15:02] John Costello: And you're gonna see certainly the more economic motivated, cyber actors start to target businesses directly that align to those industries as well as you know, it and service providers for those industries that are popular amongst those industries. A, a large part of that is coming out of the Ministry of State Security and a certain degree of cavalier ship like private hacking that thereafter sold as access.
[00:15:28] John Costello: But what I'm looking for is we are very, like, it has become very, we know what that looks like when China is trying to catch up, right? We know what they're trying to do, and we know, we know what it looks like when they're trying to invest and what they believe to be the next generation of technologies.
[00:15:48] John Costello: The question here is, is if we go off of the premise that now they feel like in some ways they have caught up. Right. They are on par. How does do their priorities change? Do we start to see something that is very different from what we've seen before? That might be a more more investment in basic research or a reinvestment in, a reinvestment out you know, away from those strict commercial industries that have been, that have sort of like, been principle like objectives for them for the last 10 years towards something else? I don't know. I don't think we will know until we see the, see the dang thing, so.
[00:16:26] Robert Vamosi: So how do we know this?
[00:16:28] Robert Vamosi: Getting back to the intelligence question, they have the great firewall, for example. They have their own social media that is separate from our social media. What are, what are some of the unique challenges Intel investigators face when looking at China?
[00:16:45] John Costello: Yeah, I mean, that's a great it's a great question.
[00:16:47] John Costello: China is. A, a very, very closed ecosystem and a very, very controlled media environment. The Chinese see cybersecurity. They include the content layer, and so a lot of the cybersecurity or organs that we're familiar with also have the additional mission of content moderation censorship and propaganda.
[00:17:07] John Costello: Which is anyone who's a cybersecurity professional like it would be really, I have to do that too, like, so, but I mean, the principle thing is the great firewall the great firewall limits Western Access, you know, any I IP outside of China. And so there's a litany you know, an ever-growing list of websites that are completely inaccessible.
[00:17:25] John Costello: You'll get a 4 0 4 error if you try to reach it. So you have to find. I would say creative means by which to you know, visit and address and get access to an ostensibly open website from a Chinese IP address. But even more than that in 20 20, 20 21, and it's not clear why they started doing this, but China really started cracking down hard on on a sensitive content online, specifically anything related to government, anything related to military.
[00:17:55] John Costello: And now you just, Chinese website is just a ton of dead links. And even more stuff got pulled behind the firewall. On the more corporate front, this has made a massive like problem. You know, corporations and US government policy to a large degree runs on open information, you know, like, public filings for companies.
[00:18:19] John Costello: And we would expect those to be, you know, open and accessible anywhere in the world, right? But for China, they are not. You have to, you know, you have to jump through so many loops to get in there and to get that sort of full understanding of the ecosystem. So I would say the challenge is for.
[00:18:36] John Costello: An Intel analyst on, you know, on either the open side or the, the high side are, are, are pretty steep.
[00:18:44] AJ Nash: Well, and you bring up an interesting point with that. So, on the one side you can look at China and, and you know, and you see, you know, they're, they're the, they're the great power, you know, competitor at this point in the United States economically.
[00:18:56] AJ Nash: And, you know, and, and militarily they're advancing. They, you know, they've, they've got, you know, battleships now and, and they're, you know, they've got the, the Silk Road or, yeah, they're expanding the Silk Road and they've got, they've got the expansion, the nine line the nine that, that was da dash nine line.
[00:19:09] AJ Nash: Nine dash line. Right. So it's been a while since they've done Chinese, you know, the expansion of, you know, from island to island to island, right. Building islands, you know, dredging up, you know, land to create an island and then claim that's territory and continue to expand. So on the one hand, you look at China and say, geez, this is, I mean, this is a country that's really.
[00:19:23] AJ Nash: Rising up and becoming the only of the world power possibly to compete with the us. On the other side, you hear discussions of, well, their entire economy might be a paper tiger. And, you know, they've got, they've got vast properties that are unoccupied, you know, wastelands and, and, and they're, you know, they have a real challenge with corruption and, and a lot of the, the wealthiest of China seemed to be moving their money outta the country.
[00:19:44] AJ Nash: Try to buy properties elsewhere, including the us. And so, I guess, not to put you on the spot, John, but which one is it? Is China this rising power we need to worry about? Or are they, are they just you know, vaporware that we shouldn't be so concerned about? 'cause they're gonna, they're gonna fall apart from within, you know, when people hear about all the threats to China, you know, from China, which, which is true, or are they both true?
[00:20:07] John Costello: That is a that is a really hard question to answer.
[00:20:11] AJ Nash: I've been learning from Rob how to be a journalist. I'm trying really hard.
[00:20:14] John Costello: Well, I was that, that is, that is, is one of those you
[00:20:18] Robert Vamosi: don't
[00:20:18] John Costello: have to answer
[00:20:19] Robert Vamosi: if you don't feel
[00:20:20] John Costello: comfortable. I gotta call my, I I gotta call my media guy. Gimme a second. No, no.
[00:20:23] John Costello: It's it's a good question. I mean, I look, I think you can respond like this, like China is a country that should be taken seriously. They they do the things they say they're going to do. They managed to accomplish them. They're highly motivated, capable of absorbing an incredible amount of loss and cost.
[00:20:42] John Costello: Their political system is extremely resistant. It is brittle, but it is resistant. It's not as resilient as a democracy, right, which is, you know. You know, that's, that is risky from a, from a geopolitical perspective, but I mean, they, they should be taken seriously. China is not. China is, if you read some of the Chinese, and they have a coded way of saying this they're aware of their problems, they're aware of.
[00:21:08] John Costello: That issues that are endemic to their bureaucratic culture things that are like, you know, reporting up only good news, right? They're aware of that, but consistently they've shown that they're able to absorb that loss. They're able to shift and pivot very quickly to cover down. I mean, another thing you could mention is they have a growing demographic issue.
[00:21:28] John Costello: They have an aging, an incredibly aging population. They have a, a smaller safety social safety net than you would expect. They've got very few children in a culture that children have traditionally. Supplied that sort of old age care and they have a, you know, a shrinking population and a population that, despite a pullback of the one child rule doesn't seem to be super keen on having a ton of kids.
[00:21:51] John Costello: So, like, all, all that's true. No way to, no way to diagnose the problem. Specifically, but all, all points indicate it should be taken like seriously.
[00:22:01] AJ Nash: You make a good point. When you mentioned the aging population going back to the five-year plan, I know two, five-year plans ago, that was one of the focus areas was gerontology and, and how to address.
[00:22:11] AJ Nash: Aging population and how to learn about social safety nets and things like that. And I remember, 'cause I, I still was studying at the time and it was one of those things where, not surprisingly, another thing in that five-year plan was credit worthiness was a big challenge for 'em. And not surprisingly, two of the things they started stealing was, you know, when they would reach out to do cyber attacks was to go after organizations who.
[00:22:30] AJ Nash: We're in the credit worthiness business or we're in gerontology, you know, healthcare organizations and things like that. So it was, it was an easy precursor to say, this is something they wanna learn about. And they have a voracious appetite for learning. And the best way to do it is to take the information from people who already have done the learnings.
[00:22:44] AJ Nash: So, I don't know how they've capitalized on that, so I'm not sure if they've gotten better, but it definitely was something they diagnosed and publicly stated what, 10 years ago now at this point. So it's interesting to see that you, you mention that.
[00:22:54] John Costello: Yeah. You'd be surprised on the military front, which is which is my home, so to speak.
[00:23:00] John Costello: I mean, they're very candid. Xi Jinping himself is very candid about where, where their military, I mean, like, if, if, if our if our president were to say some of the things that Xi Jinping has said about their military, I'd be like, oh man. They're like, our officers can't command, they don't know how to be agile.
[00:23:15] John Costello: They don't know technology. And you're like, you're like. I mean, at some point you're like, bruh, like it's, it's a little rough, right? But like they, you know, obviously they're not blasting this out on like foreign media, but you read the Chinese and you're like, yep, that is, that is a very sober reading of the limitations of the pla LA.
[00:23:34] John Costello: And that at least demonstrates that they're aware how they do, how they go about doing that. You know, you know, there's gonna be, you know, hundreds or thousands of people jailed for corruption to get them out, to bring in like the new people which is. You know, which is one way that they has been a popular way to, to, to enact change in reform.
[00:23:53] John Costello: But but yeah, man, like it's they, they, they're aware of their problems and they do work to address them. The, the question is, is like, you know, is there, is there a problem that is so endemic, so systemic that they, that they can't. They can't do that. And but the, you know, the opposite of that is like, do we, like, what would a destabilizer, desta unstable China look like?
[00:24:15] John Costello: That's that's not a that's not a great that's not a great thing to think of either, right? So.
[00:24:21] Robert Vamosi: So I believe in another conversation you mentioned to me that they have a different GPS system, and I'm wondering how that frustrates or complicates any investigations given that the other half of the world has adopted pretty much the standard that that is accepted and the other half of the world.
[00:24:45] John Costello: Yeah. So, yes. So, most of the, like, whether it's glow ass or whether it's Galileo or GPS all you know, the stand, like easy to transpose, you know, lat longs between coordinates between those systems. China uses Beto and any. Domestic mapping technology that that would be available on the internet, like Beto map excuse me, Baidu Maps or City eight, or just two, two examples.
[00:25:13] John Costello: They use the Beto system. So, you know, it's, it. So, it's not so easy to transfer coordinates between the two. Say you're like trying to look up an address and you're like, okay, now I, I know the coordinates for that. You plug it into Google Earth or something, or even just arc just, and it's gonna come up and you'll be like, that is, you know, between, between a half a kilometer and 10 kilometers away from where I'm going, which is, which is problematic. The other problem is is addresses of course the Chinese addressing system is for those of us in the West, you know, a street starts with one and then, you know, continues sequentially in Asian countries and in certain cities in China.
[00:25:52] John Costello: It goes, what, what building was built first? And then that is what it would be one, and then, and so it can pop around. Addresses also aren't as clear cuts sometimes as a number. It could be a what they call a chu, which is like a community, like a small community that has a colloquial name that is the defacto name, but not the.
[00:26:12] John Costello: Official name eh, those cause issues, but like you can you just have to really know Beijing and Shanghai really well. And if as long as you know Beijing and Shanghai really well, you'll be fine. So,
[00:26:26] John Costello: The, sorry, go ahead. No, I was gonna say that, you know, you, you brought up something like, you know, a big, a big concept that that you have to contend with just sort of studying China is a lot of people would call it military civil fusion. And it is a banner concept for the Chinese. I mean, this goes back, you know, decades to the seventies, but it really sort of hit its heyday in the nineties with Jon Zain, Jon Zain, utilize the machinery of the PLA to build infrastructure and to build business. And the military was the center of academic research, the center of commercial enterprise. There's a lot of factories still owned by the PLA today. Their Supercomputing chips are owned by a are, are produced by a PLA owned company, which is bizarre to us in the United States.
[00:27:16] John Costello: But that military civil fusion is is really at the heart of when you're doing business with a ostensibly private company in China. You know, they're, it could be one or two hops away from the military, one or two hops away from the central government. And they, you know, could very much be a supplier to their sort of state security.
[00:27:34] John Costello: That's another sort of thing that a lot of people I think a lot of people know, but they don't sort of grasp or gr what that looks like or how frequent they, well, I know this guy, this guy's great. Like he wouldn't work with the pla LA, it's like he does, like, he's published papers with the PLA, right?
[00:27:50] John Costello: Like, he's published papers with like intelligence professionals, but that, that's not like. That's encouraged, that's considered, you know, units file patents in China, which is bizarre, but it happens. Right? So I wanted to bring that up as like another, a structural feature of the, of, of that environment.
[00:28:07] AJ Nash: That's a really good point and it, it, it reminds me of something. So, this is several years ago now, but I was in the private sector at least, and I was working with a company. I had a customer who had reached out to us 'cause their CEO had just announced publicly that they were going into a partnership with a Chinese non-government organization.
[00:28:24] AJ Nash: Right. Yeah. The, for those who aren't watching, you should have seen John Winz when I just said that. Is is the only, it's the only country in the world that has government, non-government organizations. That is a legit, that is, that is that sounds like I'm making that up. That is, that is a very real thing.
[00:28:41] AJ Nash: Right. So I, I was with a team doing Intel work and so we were asked by their Intel team to do some research on this organization and. Not surprisingly this was far from what we would consider a non-government organization. So it didn't take long for us to come back. This is a giant pharmaceutical company.
[00:28:55] AJ Nash: It didn't take long for us to come back with a report that said, well, see, here's all the people that you're talking about doing business with in this non-government organization, and here's this org chart of two PLA, and if you overlay them on top of each other, they're the same same people, same building.
[00:29:11] AJ Nash: By the way, they didn't bother to use a different address. So here's this person in civilian clothes. Here they are at Uniform one. After the next. We said, well, we don't really recommend this. If you do this, your IP is going to end up in Beijing. And worse yet, if, if you try to back out of it, now they've decided you're a target, which means they're going to attack you with a cyber attack and your IP is probably still gonna end up in Beijing.
[00:29:32] AJ Nash: Now I, I say this, it's an allegory. Of course. Unfortunately the response wasn't what we would've hoped for. The Intel team said, well, we can't tell the CEO that. And so they fired us as the intel supplier instead of I don't think any of those people still have jobs anymore, but it, it. The question I want to ask on that is, going forward, it's kind of an easy tee up question, if you're gonna do business with Chinese organizations, how important is it to have an Intel team and do some research in advance to find out what your risks are and how to mitigate those risks?
[00:30:01] AJ Nash: 'cause again, if they reach out to you and wanna do business with you, the fact of the matter is your, your information now interests them and you know that, which means if you can't find a way to do business with 'em, there's a good chance they're gonna target you anyway. Do you have any advice on how to.
[00:30:13] AJ Nash: Mitigate that threat, how, how to dance through those, those minefields.
[00:30:17] John Costello: Yeah, so I would say just in general, number one, I would say this is, you know, I think a lot of people get spun around the axle just doing business with Chinese companies in general. And I would say the same way I would say to like concerns about Chinese students in the us.
[00:30:31] John Costello: It's not that every Chinese student in the US is a spy. It's that any Chinese student in the US could become a spy. And you know, I would say similar things with, with, with, with with companies. Chinese intelligence services are not dumb. They are extremely smart. They have extremely you know, wide sort of information networks and they know that if there is an access and they can create the opportunity. And that can create a lot of coming into the term, like if you guys watched succession, funky chowder, like when dealing with dealing with with Chinese companies.
[00:31:06] John Costello: I would say if you are a company of you know, the tools are out there certainly at this point, but you do need to be aware of the company you're doing business with, even like who owns them, who's the old ultimate beneficial owner. We've seen this time and time again, Chinese companies like, like you said, same building.
[00:31:23] John Costello: Same same structure, same officers changing the name you know, registered in a different name or using a, not an official name, but like a, a non-official name in doing business. And unfortunately that trips a lot of, that can trip a lot of companies up when it comes to compliance, especially when you're doing business with the government.
[00:31:41] John Costello: More than that though is you know. It's getting less and less as a company d defensively with the, the informa, the market's responded, right? The, a lot of this information is out there. It's, it's sort of, it's sort of knowable, but I know that boards and the US government and us enforcement agencies are getting less and less.
[00:32:02] John Costello: I would say tolerant of hearing, well, I didn't know, right? Like how could I have known? Right. Basic due diligence on who you're doing business with, who owns them. If there are any deep connections to Chinese state Security, which if they're there, they're there and they will be loud. Is, you know, something I think.
[00:32:19] John Costello: Companies of any appreciable size really need to really need to do. And it is certainly possible whether they can afford their own internal intel team or whether they you know, find other solutions. I know the market's responding either way, but I I agree with you. That's, asking the honest with you man, asking the basic questions like, of who, who am I doing business with?
[00:32:37] John Costello: What's their history? How long have they been in business? Who owns them? Who owns shares in their company? Even basic questions like that beyond just the obvious or what's filed in the US is, is, is a, a huge. A step in just understanding your own risk.
[00:32:53] AJ Nash: Yeah, it's, it's a good point. It, it does seem like basic due diligence.
[00:32:56] AJ Nash: I was surprised at the time and, and I'm surprised now still that it comes up where people, people are like, gosh, I just didn't really realize, you know, it's a multi-billion dollar business. But it didn't occur to me. I should check to see if there's any risks here. You know, you mentioned students and that's another one I was curious about.
[00:33:10] AJ Nash: So, you know, for. Generations. Not at this point. Students from around the world have come to the US to study and, and certainly a lot of them from China. Right. And, and as you said, not everybody who shows up in the US is a spy clearly. But certain countries, it's a possibility that they, even if they didn't come here for that purpose, they could be, you know, put in a position where they're forced to provide some information back to the, to the.
[00:33:29] AJ Nash: You know, their original nation. And that certainly can happen. So I'm, I'm curious your thoughts, you know, with Chinese students, obviously you don't see Americans very regularly going to Beijing study, for instance, seems like there's more of an influx in one direction than the other. What are your thoughts on, on the risk of that?
[00:33:43] AJ Nash: I know there's been talk about cutting back on that, about, you know, about, you know, the US government limiting who can come here, but that you know, doesn't seem to be getting a lot of traction. There was some backlash the other direction. What are your thoughts on the pros and cons of. You know, foreign students come to the United States learning here and then bringing that knowledge back to their country.
[00:34:00] AJ Nash: China obviously specifically comes to mind but other countries I'm sure you know, would come up as well.
[00:34:06] John Costello: Yeah, I mean, I think it's a good that's a good question. Look I I'm scared of car accidents. Scared of dying in a car accident, right? I still gotta drive. I still need to, 'cause I gain far more by driving than, than I do by not driving. And I, I sort of see the Chinese students in a similar way. China produces more STEM graduates, than the rest of the world far, far more than us like, and us, you know, we are happy to have that talent, right? Not only from a research perspective but an academic perspective.
[00:34:40] John Costello: You know, having some of these students in class who know their stuff and can participate and, you know, learn collaboratively in an academic environment with US students is. Is the type of environment that we want in our our our universities, which irrespective of how our economy is doing, irrespective of our culture, how strong McDonald's is like trading or how or, or like how, how, how prominent Big Macs are across the world.
[00:35:06] John Costello: Our universities are the shining beacon of the us. Like everyone comes here because our schools are the best. They are the best. And you know. So they're gonna keep bringing in that talent and we want them to there are elements that we can de-risk. I think especially with government funding and making sure that there is a little bit more due diligence.
[00:35:30] John Costello: But I think even a savvy actor is gonna be able to get around that if they need to. I think there are no easy solutions to this. And the blunt one the blunt ones of like. Sort of dramatic reduction. I think we lose far more than we gain. Those students that are coming in, you know, it would be like playing Whack-a-Mole to try to find one, if one, you know, if, if the MSS or the Chinese Intelligence Services wants, you know, is aware of a student that has access to a particular type of technology then you know, they're, they'll, they'll, they'll find a way to leverage.
[00:36:01] John Costello: Right? That's, that's, that's, that is the, that is the principle lever of the MSS is the diaspora, like the, you know, the community across the world. It's our first approach, but I think it's asking the wrong question to say like, how do we, how, like, how do we reduce this? I think the question, the question in my mind is, is how do we.
[00:36:20] John Costello: How do we, how do we get them to stay here and start businesses, right? How do we get them to stay here and to put money back in the US economy? How do we take the IP and show them that they're they, they can gain far more here in the United States in a welcoming environment where all their dreams can come true.
[00:36:37] John Costello: Right. And I'm sorry, you gotta put a plug in here for public funding. Right. Like the, there's a 2016 report by the Obama administration that talked about quantum information science. It was an incredible, incredible report. The biggest takeaway from that report is not that the US doesn't fund science and technology research enough, so they don't do it consistently.
[00:36:57] John Costello: If you're an academic who's looking to build a career. It's better if you have long time horizons. So you wanna know that I, hey, I'm not gonna have funding next year. I wanna know I have funding three or four years from now. Right? And when you don't have that surety, your risk appetite goes way down.
[00:37:14] John Costello: And your ability to incentivize international students to stay behind, to pay their salary, to have them stay on board. Which can generate patents, IP start businesses goes way down. So it's the consistency of funding the United States that public funding is absolutely essential in paying these people, getting them to stay and giving them surety that they can take risks and the kind of risks that have created, made the United States a, a global technology superpower.
[00:37:42] John Costello: Sorry I didn't, I didn't mean to go on for too long, but I wanted to do a plugin for, for public research funding, which I think we all that old chestnut, so
[00:37:52] Robert Vamosi: I think we all support that. Well, thank you John for being on Needles Stack today. Really appreciate your insight into China and the. Intel around that.
[00:38:02] Robert Vamosi: Wanna thank the audience for being here? We can't do this show without you, so thank you. And if you wanna find transcripts and other episode information, you can go to authenticate.com/needles stack. That's the word, authentic with the number eight.com/needles stack. And be sure to let us know, there's a comment button there.
[00:38:22] Robert Vamosi: Write, write a comment for us to read. We do take a look at them and also follow us on social media. We're at. Needle stack, sorry. We are at Needles Stack Pod and you can find us on all the social media platforms that are out there. And wherever you're listening or watching the show today, be sure to subscribe.
[00:38:39] Robert Vamosi: We don't want you to miss out on future episodes. So that's it for me. What about you, aj?
[00:38:44] AJ Nash: No, I just want to echo that. Again, thank you to everyone and thank you John for being here. John, do you wanna plug how people can get ahold of you and your organization as well?
[00:38:51] John Costello: Certainly. So, wire screen dot ai.
[00:38:54] John Costello: Please visit us and follow us on LinkedIn. You can reach out to me info at wire screen.ai. But great company and obviously they hired the. Best, so like, look forward to hearing from everyone.
[00:39:05] AJ Nash: All right, well that's a good plug right there as well. So yeah, wire screen, very interesting.
[00:39:09] AJ Nash: Definitely reach out, talk to John, talk to those guys, and thanks everybody for, for being here, for spending time with us. And listen, we realize everybody's busy. You've got other things you can do with your time. So every time, you know, somebody decides they wanna tune in and listen to us, talk to some interesting guests like John, we really do appreciate it.
[00:39:22] AJ Nash: If there's any, anything we can do to make show better, please do provide feedback. Rob will read 'em all. I probably will occasionally. But please do provide feedback if we can make it better. We want to the show is about the guests and the audience. It's definitely not about us. So with that in mind, thanks again to everybody.
[00:39:35] AJ Nash: I appreciate your time and attention, and we are gonna go ahead and close it out for today. So this has been another episode of Needle Stack.
