To Catch a Thief: China’s Rise to Cyber Supremacy
Ep 3: The Most Dangerous Time in American History
Mon, 24 Mar 2025
In Episode 3, host and former lead cybersecurity and digital espionage reporter for The New York Times, Nicole Perlroth visits a welding shop in rural Wisconsin where Chinese hackers have set up shop in a dusty, back-office server. Hackers are using the welding shop as staging grounds to attack a staggering range of American businesses, including a major American airline, fast-growing Silicon Valley start-ups, law firms and research labs, in search of capitalism’s crown jewels: Intellectual property. Nicole revisits a period that cybersecurity experts now call “the most dangerous time in American history”-- a period in which the blueprints to airplanes, stealth fighter jets, turbines, genetically-modified seeds, oil exploration strategies, even the formula for white paint, were smuggled back to China.
Chapter 1: What happened at the welding shop in Wisconsin?
Drive past the dairy farms, cornfields, and horse pastures, and you'll eventually arrive at Kate Machine and Welding in Belleville, Wisconsin. Population, 2,500. For more than 50 years, the Cates have welded fertilizer tanks, jet fighter parts, cheese molds, even a farmer's broken glasses. They thought they'd seen it all, until the day a few strangers knocked on their door in 2015.
We had probably 15 people working at our shop. Everyone knew the project you were working on, so when all of a sudden someone shows up and they're ripping apart the server room, everyone wants to know what's going on. I'm Steve Cate, and I'm the third generation owner of a small family machine shop called Cate Machine and Welding.
The men knocking on the Cate store had spent their early careers at the National Security Agency. The NSA. At NSA, they'd watched as Chinese hackers brazenly made off with American trade and defense secrets, pulling them back to servers in China. But increasingly, the Chinese were moving their operations to the one place the NSA couldn't look.
The United States, where they started setting up shop in vulnerable servers, like this one, in this dusty back office at the Cates Welding Shop. The NSA can't look at domestic traffic, at least not without a court order. And as the Chinese began staging their attacks from American servers, the NSA started going blind.
A few analysts got so frustrated that they left the agency to start a private company called Area One. Their company worked with everyday, unwitting Americans whose servers had been compromised by China, servers the Chinese were now using to stage these attacks. At least from the private sector, these analysts could trace the attacks and, when possible, block them at the source.
So they asked if they could put a server monitoring our server and just spy on the spies. And it wouldn't cost us anything or affect us, just continue business as usual. And that was the last we heard from them for months.
On the day I visited the Cates, Area 1's sensor lit up. It showed real-time connections to America's biggest brand names and fastest-growing Silicon Valley startups. As a condition of witnessing the inflow and outflows from this one server, I have agreed not to name specific victims.
But I watched firsthand as Chinese hackers leapfrogged from the Kate server to a major American airline, a Silicon Valley food delivery startup, a major Manhattan law firm, and some of our most elite university research labs.
It was nauseating watching the CCP cart off America's crown jewels, billions worth of R&D, cutting-edge research, source code, all of it moving through the Kate's dusty server here in Wisconsin, back to China. And on the off chance one of China's targets flagged some strange traffic coming from a Wisconsin welding shop, Well, who would suspect the Kates?
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Chapter 2: Who are the key players in Chinese cyber espionage?
So stealing this stuff is really not so bad. And these foreigners have so much to offer anyway.
And it goes back a long time. I was reading some memoirs from a British diplomat assigned to China in 1900. And he said that one of the things that impressed him was when a new British product showed up, there was a Chinese copy within a matter of weeks. So this has been going on for more than a century.
The theft was so blatant, at times it almost felt like they were daring their Western counterparts to do something about it.
One of the things about the Foreign Service is you change jobs every two or three years. And so I got into a new job. And the very first day, we had a meeting on McDonnell Douglas, now owned by Boeing. McDonnell Douglas built a plant in Shanghai. And the McDonnell Douglas guy said, you know, every morning when we come in, it's kind of like a fairy tale.
Every morning when we come in, things have been moved a little bit. And so your government, being a bit paranoid, put cameras in the ceiling. The standard trick, by the way, so I'm not giving anything away. The Chinese should have known better.
put government cameras in the ceiling and recorded the fact that every night the Chinese came in, disassembled every machine, took pictures of it, took pictures of what was being made, and it was like, holy cow. So that was the introduction for me for Chinese espionage. That was 26 years ago. That's been part of their growth plan since Deng Xiaoping, since the 1980s.
They don't have the same sort of sense of ownership that we have.
The McDonnell-Douglas story was hardly unique. This level of thievery had become systematic under China's joint venture requirements. Meet John Bedbrook.
My name is John Bedbrook, and I was formerly head of biotechnology at DuPont.
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Chapter 3: How did Chinese hackers use American servers?
For years, the theft was blatant, unapologetic. Subtlety was not high on the list of priorities. At the Times, I got my hands on a U.S. national intelligence estimate, a classified report that represents a consensus of all 18 U.S. intelligence agencies. Their 2009 report ranked countries by their cyber prowess. In terms of skills, the assessment found that Russian hackers were the best.
Chinese hackers were deemed pretty basic. But still, the assessment determined China represented the gravest cyber threat to the United States. Not so much for their skills, but for the sheer volume of their attacks.
the tradecraft by and large wasn't that good. And the reason it wasn't that good is because it didn't need to be, because no one was looking for them. They just told you how the industry was so myopic and understanding the threat. So you didn't really need to try hard to succeed. So why would you?
It's just not a good return on your investment to expend all this effort being stealthy and caring about being discovered when all you wanted to do is just do a quick hit and run, right? And grab your data and go.
Here's Kevin Mandia.
I used to describe them as the most polite hackers in cyberspace because they didn't author log files. They didn't delete files. They didn't change your data. They kind of let you know they were there, you know, stealing terabytes of data. And after a while, I started wondering, do they think they're doing anything wrong?
It wasn't just the IP theft. It was the trade secrets relating to pricing data, customer data, things that they could use to outcompete in the marketplace.
Jim Lewis can draw a direct line from Chinese IP theft to the rise of what is now a Chinese powerhouse.
The classic story is Nortel, a company that no longer exists.
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