Security scanners across Europe tied to China govt, military

[Nomen Nescio]

At some of the world’s most sensitive spots, authorities have
installed security screening devices made by a single Chinese
company with deep ties to China’s military and the highest
levels of the ruling Communist Party.

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 to 50 percent 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 E.U. imposed an anti-dumping duty of 36.6
percent 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 Uighur
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 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 percent 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 percent 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 percent interest in Nuctech, holds a stake
of more than 7 percent 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.”

___

Associated Press researcher Chen Si in Shanghai and reporters
Menelaos Hadjicostis in Nicosia, Cyprus, Aritz Parra in Madrid,
Nina Bigalke in London, Nicholas Paphitis in Athens, Justin
Spike in Budapest, Liudas Dapkus in Vilnius, Lithuania, Zeynep
Bilginsoy in Istanbul and Barry Hatton in Lisbon contributed to
this report.

<https://apnews.com/article/technology-business-china-russia-
europe-120b7dedacd8d545bf4521a1948bc31e>