The World Economic
Forum in Davos. Europe’s largest ports. Airports from Amsterdam to Athens.
NATO’s borders with Russia. All depend on equipment manufactured by Nuctech,
which has quickly become the world’s leading company, by revenue, for cargo and
vehicle scanners.
Nuctech has been
frozen out of the U.S. for years due to national security concerns, but it has
made deep inroads across Europe, installing its devices in 26 of 27 EU member
states, according to public procurement, government and corporate records
reviewed by The Associated Press.
The complexity of
Nuctech’s ownership structure and its expanding global footprint have raised
alarms on both sides of the Atlantic.
A growing number of
Western security officials and policymakers fear that China could exploit
Nuctech equipment to sabotage key transit points or get illicit access to
government, industrial or personal data from the items that pass through its
devices.
Nuctech’s critics
allege the Chinese government has effectively subsidized the company so it can
undercut competitors and give Beijing potential sway over critical
infrastructure in the West as China seeks to establish itself as a global
technology superpower.
“The data being
processed by these devices is very sensitive. It’s personal data, military
data, cargo data. It might be trade secrets at stake. You want to make sure
it’s in right hands,” said Bart Groothuis, director of cybersecurity at the
Dutch Ministry of Defense before becoming a member of the European Parliament.
“You’re dependent on a foreign actor which is a geopolitical adversary and
strategic rival.”
He and others say
Europe doesn’t have tools in place to monitor and resist such potential
encroachment. Different member states have taken opposing views on Nuctech’s
security risks. No one has even been able to make a comprehensive public tally
of where and how many Nuctech devices have been installed across the continent.
Nuctech dismisses
those concerns, countering that Nuctech’s European operations comply with local
laws, including strict security checks and data privacy rules.
“It’s our equipment,
but it’s your data. Our customer decides what happens with the data,” said
Robert Bos, deputy general manager of Nuctech in the Netherlands, where the
company has a research and development center.
He said Nuctech is a
victim of unfounded allegations that have cut its market share in Europe nearly
in half since 2019.
“It’s quite frustrating to be honest,” Bos
told AP. “In the 20 years we delivered this equipment we never had issues of
breaches or data leaks. Till today we never had any proof of it.”
‘It’s not really a company’
As security screening becomes increasingly
interconnected and data-driven, Nuctech has found itself on the front lines of
the U.S.-China battle for technology dominance now playing out across Europe.
In addition to scanning systems for people,
baggage and cargo, the company makes explosives detectors and interconnected
devices capable of facial recognition, body temperature measurement and ID card
or ticket identification.
On its website, Nuctech’s parent company
explains that Nuctech does more than just provide hardware, integrating “cloud
computing, big data and Internet of Things with safety inspection technologies
and products to supply the clients with hi-tech safety inspection solution.”
Critics fear that under China’s national
intelligence laws, which require Chinese companies to surrender data requested
by state security agencies, Nuctech would be unable to resist calls from
Beijing to hand over sensitive data about the cargo, people and devices that
pass through its scanners. They say there is a risk Beijing could use Nuctech’s
presence across Europe to gather big data about cross-border trade flows, pull
information from local networks, like shipping manifests or passenger
information, or sabotage trade flows in a conflict.
A July 2020 Canadian government security
review of Nuctech found that X-ray security scanners could potentially be used
to covertly collect and transmit information, compromise portable electronic
devices as they pass through the scanner or alter results to allow transit of
“nefarious” devices.
The European Union put measures in place in
late 2020 that can be used to vet Chinese foreign direct investment. But
policymakers in Brussels say there are currently no EU-wide systems in place to
evaluate Chinese procurement, despite growing concerns about unfair state
subsidies, lack of reciprocity, national security and human rights.
“This is becoming more and more dangerous.
I wouldn’t mind if one or two airports had Nuctech systems, but with dumping
prices a lot of regions are taking it,” said Axel Voss, a German member of the
European Parliament who works on data protection. “This is becoming more and
more a security question. You might think it’s a strategic investment of the
Chinese government.”
The U.S. — home to OSI Systems, one of
Nuctech’s most important commercial rivals — has come down hard against
Nuctech. The U.S. Senate Committee on Foreign Relations, the U.S. National
Security Council, the U.S. Transportation Security Administration, and the U.S.
Commerce Department’s Bureau of Industry and Security all have raised concerns
about Nuctech.
The U.S. Transportation Security
Administration told AP in an email that Nuctech was found ineligible to receive
sensitive security information. Nuctech products, TSA said, “are not authorized
to be used for the screening of passengers, baggage, accessible property or air
cargo in the United States.”
In December 2020, the U.S. added Nuctech to
the Bureau of Industry and Security Entity List, restricting exports to them on
national security grounds.
“It’s not just commercial,” said a U.S.
government official who was not authorized to speak on the record. “It’s using
state-backed companies, with state subsidies, low-ball bids to get into
European critical infrastructure, which is civil airports, passenger screening,
seaport and cargo screening.”
In Europe, Nuctech’s bids can be 30-50%
below their rivals’, according to the company’s competitors, U.S. and European
officials and researchers who study China. Sometimes they include other
sweeteners like extended maintenance contracts and favorable loans.
In 2009, Nuctech’s main European
competitor, Smiths Detection, complained that it was being squeezed out of the
market by such practices, and the EU imposed an anti-dumping duty of 36.6% on
Nuctech cargo scanners.
“Nuctech comes in with below market bids no
one can match. It’s not a normal price, it’s an economic statecraft price,”
said Didi Kirsten Tatlow, and co-editor of the book, China’s Quest for Foreign
Technology. “It’s not really a company. They are more like a wing of a state
development drive.”
Nuctech’s Bos said the company keeps prices
low by manufacturing in Europe. “We don’t have to import goods from the U.S. or
other countries,” he said. “Our supply chain is very efficient with local
suppliers, that’s the main reason we can be very competitive.”
Nuctech’s successes abound. The company,
which is opening offices in Brussels, Madrid and Rome, says it has supplied
customers in more than 170 countries and regions. Nuctech said in 2019 that it
had installed more than 1,000 security check devices in Europe for customs,
civil aviation, ports and government organizations.
In November 2020, Norwegian Customs put out
a call to buy a new cargo scanner for the Svinesund checkpoint, a complex of
squat, grey buildings at the Swedish border. An American rival and two other
companies complained that the terms as written gave Nuctech a leg up.
The specifications were rewritten, but
Nuctech won the deal anyway. The Chinese company beat its rivals on both price
and quality, said Jostein Engen, the customs agency’s director of procurement,
and none of Norway’s government ministries raised red flags that would have
disqualified Nuctech.
“We in Norwegian Customs must treat Nuctech
like everybody else in our competition,” Engen said. “We can’t do anything else
following EU rules on public tenders.”
Four of five NATO member states that border
Russia — Estonia, Latvia, Lithuania, Poland — have purchased Nuctech equipment
for their border crossings with Russia. So has Finland.
Europe’s two largest ports — Rotterdam and
Antwerp, which together handled more than a third of goods, by weight, entering
and leaving the EU’s main ports in 2020 — use Nuctech devices, according to
parliamentary testimony.
Other key states at the edges of the EU,
including the U.K., Turkey, Ukraine, Albania, Belarus and Serbia have also
purchased Nuctech scanners, some of which were donated or financed with
low-interest loans from Chinese state banks, according to public procurement
documents and government announcements.
Airports in London, Amsterdam, Brussels,
Athens, Florence, Pisa, Venice, Zurich, Geneva and more than a dozen across
Spain have all signed deals for Nuctech equipment, procurement and government
documents, and corporate announcements show.
Nuctech says it provided security equipment
for the Olympics in Brazil in 2016, then President Donald Trump’s visit to
China in 2017 and the World Economic Forum in 2020. It has also provided
equipment to some U.N. organizations, procurement records show.
Rising concerns
As Nuctech’s market share has grown, so too
has skepticism about the company.
Canadian authorities dropped a standing
offer from Nuctech to provide X-ray scanning equipment at more than 170
Canadian diplomatic missions around the world after a government assessment
found an “elevated threat” of espionage.
Lithuania, which is involved in a
diplomatic feud with China over Taiwan, blocked Nuctech from providing airport
scanners earlier this year after a national security review found that it
wasn’t possible for the equipment to operate in isolation and there was a risk
information could leak back to China, according to Margiris Abukevicius, vice
minister for international cooperation and cybersecurity at Lithuania’s
Ministry of National Defense.
Then, in August, Lithuania approved a deal
for a Nuctech scanner on its border with Belarus. There were only two bidders,
Nuctech and a Russian company — both of which presented national security
concerns — and there wasn’t time to reissue the tender, two Lithuanian
officials told AP.
“It’s just an ad hoc decision choosing
between bad and worse options,” Abukevicius said. He added that the government
is developing a road map to replace all Nuctech scanners currently in use in
Lithuania as well as a legal framework to ban purchases of untrusted equipment
by government institutions and in critical sectors.
Human rights concerns are also generating
headwinds for Nuctech. The company does business with police and other
authorities in Western China’s Xinjiang region, where Beijing stands accused of
genocide for mass incarceration and abuse of minority Uyghur Muslims.
Despite pressure from U.S. and European
policymakers on companies to stop doing business in Xinjiang, European
governments have continued to award tens of millions of dollars in contracts —
sometimes backed by European Union funds — to Nuctech.
Nuctech says on its Chinese website that
China’s western regions, including Xinjiang, are “are important business areas”
for the company. It has signed multiple contracts to provide X-ray equipment to
Xinjiang’s Department of Transportation and Public Security Department.
It has provided license plate recognition
devices for a police checkpoint in Xinjiang, Chinese government records show,
and an integrated security system for the subway in Urumqi, the region’s
capital city. It regularly showcases its security equipment at trade fairs in
Xinjiang.
“Companies like Nuctech directly enable
Xinjiang’s high-tech police state and its intrusive ways of suppressing ethnic
minorities. This should be taken into account when Western governments and
corporations interface with Nuctech,” said Adrian Zenz, a researcher who has
documented abuses in Xinjiang and compiled evidence of the company’s activities
in the region.
Nuctech’s Bos said he can understand those
views, but that the company tries to steer clear of politics. “Our daily goal
is to have equipment to secure the world more and better,” he said. “We don’t
interfere with politics.”
Complex web of ownership
Nuctech opened a factory in Poland in 2018
with the tagline “Designed in China and manufactured in Europe.” But ultimate
responsibility for the company lies far from Warsaw, with the state-owned
Assets Supervision and Administration Commission of the State Council in
Beijing, China’s top governing body.
Nuctech’s ownership structure is so complex
that it can be difficult for outsiders to understand the true lines of
influence and accountability.
Scott Kennedy, a Chinese economic policy
expert at the Center for Strategic and International Studies in Washington,
said that the ambiguous boundaries between the Communist Party, state companies
and financial institutions in China — which have only grown murkier under
China’s leader, Xi Jinping — can make it difficult to grasp how companies like
Nuctech are structured and operate.
“Consider if the roles were reversed. If
the Chinese were acquiring this equipment for their airports they’d want a
whole variety of assurances,” Kennedy said. “China has launched a high-tech
self-sufficiency drive because they don’t feel safe with foreign technology in
their supply chain.”
What is clear is that Nuctech, from its
very origins, has been tied to Chinese government, academic and military
interests.
Nuctech was founded as an offshoot of
Tsinghua University, an elite public research university in Beijing. It grew
with backing from the Chinese government and for years was run by the son of
China’s former leader, Hu Jintao.
Datenna, a Dutch economic intelligence
company focused on China, mapped the ownership structure of Nuctech and found a
dozen major entities across four layers of shareholding, including four
state-owned enterprises and three government entities.
Today the majority shareholder in Nuctech
is Tongfang Co., which has a 71% stake. The largest shareholder in Tongfang, in
turn, is the investment arm of the China National Nuclear Corp. (CNNC), a
state-run energy and defense conglomerate controlled by China’s State Council.
The U.S. Defense Department classifies CNNC as a Chinese military company
because it shares advanced technologies and expertise with the People’s
Liberation Army.
Xi has further blurred the lines between
China’s civilian and military activities and deepened the power of the ruling
Communist Party within private enterprises. One way: the creation of dozens of
government-backed financing vehicles designed to speed the development of
technologies that have both military and commercial applications.
In fact, one of those vehicles, the
National Military-Civil Fusion Industry Investment Fund, announced in June 2020
that it wanted to take a 4.4% stake in Nuctech’s majority shareholder, along
with the right to appoint a director to the Tongfang board. It never happened —
“changes in the market environment,” Tongfeng explained in a Chinese stock
exchange filing.
But there are other links between Nuctech’s
ownership structure and the fusion fund.
CNNC, which has a 21% interest in Nuctech,
holds a stake of more than 7% in the fund, according to Qichacha, a Chinese
corporate information platform. They also share personnel: Chen Shutang, a
member of CNNC’s Party Leadership Group and the company’s chief accountant
serves as a director of the fund, records show.
“The question here is whether or not we
want to allow Nuctech, which is controlled by the Chinese state and linked to
the Chinese military, to be involved in crucial parts of our border security
and infrastructure,” said Jaap van Etten, a former Dutch diplomat and CEO of
Datenna.
Nuctech maintains that its operations are
shaped by market forces, not politics, and says CNNC doesn’t control its
corporate management or decision-making.
“We are a normal commercial operator here
in Europe which has to obey the laws,” said Nuctech’s Bos. “We work here with
local staff members, we pay tax, contribute to the social community and have
local suppliers.”
But experts say these touchpoints are
further evidence of the government and military interests encircling the
company and show its strategic interest to Beijing.
“Under Xi Jinping, the national security
elements of the state are being fused with the technological and innovation
dimensions of the state,” said Tai Ming Cheung, a professor at UC San Diego’s
School of Global Policy and Strategy.
“Military-civil fusion is one of the key
battlegrounds between the U.S. and China. The Europeans will have to figure out
where they stand.” -AP
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