The article alleges that the China’s People’s Liberation Army (PLA) carried out a complex supply chain infiltration.
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SUMMARY
Washington, DC – Early morning on October 4th, Bloomberg Business Week posted an article titled “The Big Hack”. The article cited 17 accounts of hardware manipulation found in server motherboards of nearly 30 American companies, Apple and Amazon among them. U.S. government officials claim that a sector of China’s People’s Liberation Army (PLA) carried out a complex supply chain infiltration, inserting minuscule microchips into motherboards sold to U.S firms by the company Supermicro. These microchips would allow hackers to collect data and alter the operations of their servers. In public statements, Apple, Amazon, Supermicro, and the Chinese Ministry of Foreign Affairs have denied any knowledge of malware and have claimed to hold cybersecurity among their highest goals and values. United States’ President Donald Trump’s administration has enacted tariffs on nearly $15 billion of computer hardware from China, and officials from the White House believe firms will begin to move tech supply chains away from Chinese sourcing.
FAO GLOBAL ASSESSMENT
Financial markets reacted strongly to the news, although much of the information surrounding the hack needs further clarification. Supermicro shares were down nearly 60% by noon on Thursday, and Apple and Amazon prices fell as well. These reports will likely add tension to the U.S.-China trade war, potentially causing massive disruption in the $200 billion per year China tech exports market. Firms who decide to trust the report may likely move into countries like Vietnam, Cambodia, and Malaysia, and Taiwan for their tech components. However, these countries do not have nearly the infrastructure or human capital capacities of China. They will require significant foreign direct investment in order to properly accommodate global tech operations, making large scale supply chain moves unlikely as a direct response.
Related Links
- Bloomberg – The Big Hack: How China Used a Tiny Chip to Infiltrate U.S. Companies
- Bloomberg – The Big Hack: Statements From Amazon, Apple, Supermicro and the Chinese Government
- CNBC – Shares of the small server company at the center of a China tech spying scandal are down more than 50%
Analyst Bio
Levi Rasmussen – International Business Development
Levi is an International Business Development Intern, focusing on internal strategy and development of FAO’s consulting services. Levi Rasmussen studies International Business, Finance, and Mandarin at the University of South Carolina. At FAO Global and his studies, Levi puts particular interest in facilitating the connection and integration of U.S. and Chinese firms through consulting work and building understanding between culture in dealing with organizations from the East and West. Levi will continue his studies in International Business at the Hong Kong Polytechnic University in Spring 2019.
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ABOUT CHINA INTELLIGENCE BRIEFS
The China Intelligence Briefs are the start of a global initiative to provide context and recommendations to businesses, non-profit organizations, and policy makers who are looking for specific examples of opportunity or disruption from global events. While analyzing the macro problems we often identify specific issues that affect our clients and readers. Identifying both opportunities & challenges allow us to better identify solutions at home and abroad for a wide range of disciplines. In addition to the China Intelligence Briefs, we maintain detailed notes from interviews, overseas trips & business missions, conferences, conventions, and private events. We provide access to these notes and other analytical products for clients and paid subscribers.
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Our Analysts, Associates, Consultants, and Interns all possess extensive experience in a foreign country and a foreign language capability. Our talent pool includes graduates from the elite Tsinghua University in Beijing, Georgetown University, George Washington University, UC Berkeley, and University of South Carolina. Being based in the Washington, DC Metro Area provides our team the advantage to build relationships with policy makers, foreign diplomats, business leaders, and non-profit groups providing a holistic view of global policy and the impacts to the business community. In addition to being based in the Washington, DC area, we retain the input and advice from affiliates located in China. This allows us to maintain on-ground awareness of changing business and political environment conditions and facilitate client projects between the two countries and the greater Asia continent.
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