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Houston, long a target for Chinese hackers, may face reckoning over consulate closure

Houston Chronicle logo Houston Chronicle 7/23/2020 By James Osborne, Staff writer

WASHINGTON - The sudden decision by the Trump administration to close the Chinese consulate in Houston set off a fresh wave of speculation around Chinese espionage activity in Texas, dealing what appears to be another blow to the region’s lucrative trade relationships with China.

With sensitive targets including medical research laboratories, massive energy and petrochemical infrastructure, and aerospace facilities and companies surrounding NASA’s Johnson Space Center, Houston industries have lived under the threat of Chinese hacking for years. But what, if any of that activity, may have emanated from the Houston consulate, located in Montrose around the corner from a Starbucks, remains unknown. Nor is it clear why the Trump administration chose to order that facility closed — and not one of China’s other consulates in New York, Chicago, San Francisco or Los Angeles.

An indictment released by the Justice Department Tuesday against two suspected Chinese hackers alleged they had targeted U.S. companies conducting COVID-19 research. Within Houston’s medical complex, Houston Methodist, Baylor College of Medicine and other research facilities are involved in that work, as is the University Texas Medical Branch in Galveston, which is conducting research on vaccines.

The indictment also charged the hackers stole “business proposals and other documents concerning space and satellite applications” from an unnamed Texas technology firm. The firm, however, was just one of 25 victims across the United States and abroad that were named in the indictment, signaling a far-reaching espionage effort that stretched well beyond the boundaries of Texas.

“Maybe there are smoking guns, but they haven’t given us any indication yet,” said Steven Lewis, a China fellow at Rice University’s Baker Institute for Public Policy. “There doesn’t seem to be any more activity here (in Houston) than anywhere else. They say Chinese hackers are trying to steal COVID-19 research data, and since we’re a medical research area it might be related. But we’re not the only ones doing that work.”

The closure of the Houston consulate presents a clear threat for Texas industry, not only making more difficult interactions with a Chinese government that has maintained a presence in Houston since 1979, but also complicating an already struggling trade relationship between the two nations. Texas industries, particularly petrochemical manufacturers and liquefied natural gas exporters, have bet heavily on China as a major market, investing billions of dollars to build and expand chemical plants and LNG export facilities along the Gulf Coast.

Last year, exports from Texas to China fell by more than 30 percent to $11.3 billion, after President Donald Trump placed tariffs on many Chinese goods in a bid to get China to import more U.S. agricultural goods and other products. Despite a tentative deal with Trump earlier this year, the Chinese have largely held their ground, putting in place retaliatory tariffs against U.S. goods, including energy products.

Concern here is growing that consulate’s closure could further disrupt trade and make it even harder for Texas companies and products to enter one of the world’s biggest markets. In addition, it could drive the Chinese to start pulling business from Texas that officials had worked hard to lure, said State Rep. Gene Wu, a Houston Democrat.

Rewards, risks

For instance, the Chinese copper company Hailiang announced last year it was investing $165 million to refurbish a 200-acre manufacturing plant west of Houston in Sealy. And Chinese medical company Shandong Weigao Group paid $850 million for a private medical manufacturer outside Dallas in 2017.

China is “building factories here, building headquarters here. Companies are putting down roots and distribution centers,” Wu said. “Elected officials from around the state have gone to great lengths to court them to come to Texas instead of Louisiana or Oklahoma or somewhere else.”

But letting Chinese companies into the United States does not come without risk, with Houston’s sprawling oil and energy complex making a particularly alluring target for Chinese spies. In November a Chinese employee of Houston refining giant Phillips 66 pled guilty to stealing confidential information on the company’s next generation battery technology.

Nations around the world have grown increasingly wary about using the Chinese company Huawei’s 5G technology for fear the Beijing government will use it at a tool for spying. In recent years, the Chinese government has scaled up its cyberwarfare efforts, with an estimated 50,000 to 100,000 military and civilian workers employed, said Anthony Roman, a New York-based security consultant.

“The Chinese effort is unprecedented. Their cyber intelligence and hacking operations are unprecedented,” he said. “All the critical infrastructure in the U.S. is the target of the Chinese cyber effort.”

The Chinese government, however, has long maintained its intelligence efforts are no different than those conducted by other nations, including the United States. A spokesman for China’s Foreign Ministry said Wednesday that U.S. officials had harassed their diplomatic staffers, as well as Chinese students studying in the United States - in some cases detaining them without charges.

“For some time, the US government has been shifting the blame to China with stigmatization and unwarranted attacks against China’s social system,” said the spokesman, Wang Wenbin. “The unilateral closure of China’s consulate general in Houston on short notice is an unprecedented escalation of its recent actions against China.

Secretary of State Mike Pompeo, speaking at an event in Denmark on Wednesday, described the closure as a penalty for “this long challenge of the Chinese Communist Party stealing intellectual property. “

“We are setting out clear expectations for how the Chinese Communist Party is going to behave,” Pompeo said, “when they don’t, we’re going to take actions that protect the American people.”

July surprise?

But for now, many experts remain wary of connecting any specific attack with Trump’s decision to close the Houston consulate, pointing out that the activity disclosed in Tuesday indictment has been going on for years. With the presidential election looming in November, some are wondering whether the diplomatic dust up is an attempt to distract the public from Trump’s struggles to contain the coronavirus.

“Is it politically motivated because the election is closing in or is it based on hard reliable intelligence?” said Roman, the security consultant. “That is not being revealed yet.”

Paul Takahashi and Benjamin Wermund contributed to this report.

james.osborne@chron.com

twitter.com/osborneja

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