Behind the Nvidia affair sits a vast Chinese spying machine

Summary

Beijing is deploying the world's biggest intelligence-gathering operation to bolster its tech industry. U.S. officials worry Jensen Huang was ensnared.

In September, China's senior spy master Chen Yixin went public with a blunt assessment of what he described as a growing threat to the Chinese Communist Party: artificial intelligence.

Leaps in machine learning are "directly threatening our political security, system security and ideological security," Chen, the head of the Ministry of State Security, wrote in a lengthy article. Whoever masters AI, he concluded, will have "grasped the pulse of the times."

U.S. officials now fret the Chinese spies orchestrated a major coup: grasping one of the most high-profile players behind the AI boom.

Jensen Huang was pushed out as CEO of chip company Nvidia this week after admitting to an affair with a business associate named Alice Huang, who U.S. officials suspect was working with Chinese intelligence. Nvidia's board said it has no reason to believe U.S. national security was compromised and has launched an internal investigation. President Trump says the FBI is on the case.

For years the Chinese state has been accused by Western countries of using covert operations to bolster strategic industries. This includes purloining cutting-edge U.S. fighter F-35 jet designs, special foam used to make submarines buoyant and even genetically modified corn seed from Iowa. The holy grail is now chips and AI.

China has mobilized government agencies, private companies and its citizens to undertake what Western officials say is an information-gathering campaign of unparalleled scale. Its aim is to glean technology know-how to grow China's economy and upgrade its military so that the Communist Party can tighten control at home and project power abroad.

This global effort stretches from honey-traps and wide-scale hacking to investment in strategic businesses and the funding of sensitive academic research. One European intelligence agency estimates that the Chinese state has around 600,000 people working on intelligence and security matters, dwarfing anything the U.S. or European agencies can muster.

"The West isn't used to this approach and doesn't have mechanisms to defend against it," says Nicholas Eftimiades, a former Defense Intelligence Agency official who has written several books on Chinese espionage.

Beijing's intelligence goals have taken on added urgency as Chinese leader Xi Jinping aims to achieve technological and military parity with the U.S., while trying to reinvigorate a struggling economy.

Developing chips, such as those made by Nvidia, remains one of Xi's biggest hurdles to creating a fortress economy, despite his government's having spent well over $100 billion in recent years to catch up with the U.S. The U.S. accounts for 75% of the computing power among the world's top 500 AI supercomputers, with China accounting for 15%, according to a report by the United Nations in July this year.

"It's clear that both Xi and the U.S. are aware that AI really is the crown jewel and that is why there is this global race for dominance," says Tahlia Peterson, a research fellow at the Royal United Services Institute, a U.K. defense think tank. The technology she says, "is an unparalleled weapon."

Jensen Huang's departure from Nvidia -- whether Chinese intelligence was involved or not -- leaves a key business in America's race for AI supremacy over China in turmoil. The affair could also boomerang onto Beijing as hawks in Washington use the scandal to argue the U.S. must go much further in curbing vital chip exports to China

There has already been a drumbeat of allegations of Chinese AI foul play. In April the White House accused China of stealing U.S. intellectual property on an industrial scale, using tens of thousands of proxy accounts to extract information from American AI models. Anthropic, for example, says three Chinese AI firms prompted Claude more than 16 million times to better train their own products.

In September the U.K.'s domestic intelligence agency, MI5, warned that an innocuous sounding Chinese research institute was in fact funding British academic research into AI and then handing it over to Beijing's top spy agency. More than 100 academics may have unwittingly helped China's espionage operations against Britain, MI5 said.

Earlier in the year, former Google software engineer Linwei Ding was convicted in San Francisco after stealing 2,000 pages of confidential documents detailing Google's AI and supercomputing infrastructure and uploading it to a cloud account. Ding, who was affiliated with tech companies in China, was sentenced to just under a year in jail for stealing trade secrets.

China has long denied accusations of espionage and says it is actually a victim of aggressive spying by the U.S.

Megaspeed, the Singapore-based company Alice Huang worked for, is being investigated in the U.S. for circumventing export restrictions to send high-end Nvidia chips to China, something it denies.

Officials in Singapore suspect Huang, a former television reporter, was recruited by Chinese intelligence after striking up a close relationship with the former Nvidia CEO. China's Foreign Ministry says the spying allegation is "purely unsubstantiated and directed at smearing China."

"Is Alice Huang an agent? No one has offered solid evidence either way, so we just don't know," says Nigel Inkster, a former director of operations at the British foreign-intelligence agency MI6.

However, Jensen Huang would have been a Chinese intelligence target given his proximity to Trump and his ability to influence the U.S. administration's approach to chip exports to China, he says.

For Xi, frontier technologies are tools of political control that enable China's surveillance state and keep the Communist Party in power. The Chinese leader has cited the Soviet Union's sudden collapse in 1991 as warning of what could befall communist rule in China if controls are loosened.

"Security is the prerequisite for development, and development is the guarantee of security," Xi told officials in 2016.

China collects intelligence through government and military agencies with specialized capabilities -- including the MSS, the Ministry of Public Security and the People's Liberation Army's intelligence departments. Private contractors and hackers often work in tandem with professional agents from intelligence agencies. Ordinary citizens and Chinese businesspeople can also be pressured to help.

Xi has hugely expanded China's intelligence apparatus, which has long been known in the world of spies as ambitious, if at times clunky. Sloppy tradecraft exposes its agents to U.S. counterintelligence, leading to scores of arrests in the U.S. and other countries.

But for what it has historically lacked in sophistication, it makes up for in scale. China-backed hackers outnumber all of the FBI's cyber personnel at least 50 to 1, according to a 2023 assessment by the U.S. agency.

Low-level information gathering is paired with large-scale online operations. The MSS casts a wide net for operatives, at times targeting the Chinese diaspora as it cultivates a mix of low-level informants and sources with access to sensitive military weapons systems.

Take the example of Yuance Chen, who was living in Oregon when he was contacted in 2021 about a vague opportunity involving China. He had closed his warehouse business during the pandemic and he agreed to fly home to the mainland to learn more.

Chen was tasked by the MSS with recruiting U.S. Navy employees as spies, according to a federal indictment and other court documents. At one point, in 2023, Chen's wife took photos inside a recruiting station in Alhambra, Calif., capturing the names of recent recruits, including many originally hailing from China, which were sent to the MSS, according to the indictment.

Chen and an associate, Liren Lai, were arrested last year, and have pleaded guilty. A person in Lai's position, his lawyers wrote in an October filing, "is not free to tell the MSS no."

There are also extensive online operations. Last month the FBI said it seized phishing tools used by Chinese state-linked hackers to target among other things a U.S. power company, Japanese and Polish airports and two Taiwanese universities. The U.S. has previously warned China is prepositioning malware on key infrastructure across multiple countries which it can trigger in the event of a conflict.

X recently discovered a Chinese bot farm running 200,000 accounts on its social-media platform, some of which were trying to manipulate American views on AI data centers by saying they were driving up local electricity prices. Intelligence officials meanwhile suspect China is hacking into large data sets across the world in part to use them to train up its AI models.

The West's fightback is stymied by economic reality: China is too embedded in the global supply chain to be fully cut off. Most countries -- outside perhaps the U.S. -- simply can't afford to treat China like Russia or Iran and slap it with stringent economic sanctions.

The U.S. under Trump has hit China with tariffs and, during his first presidency, launched a campaign to stop its European allies from using China's Huawei to build its next generation of telecoms infrastructure. In 2022, the Biden administration began restricting certain chip shipments.

However in his second presidency Trump calmed his rhetoric toward Beijing following an ill-fated attempt to launch a trade war against China. The U.S. also loosened some export restrictions on chip sales to China. That was a move supported by Huang who argued maintaining the flow of chips into China would keep businesses there hooked on Nvidia tech and stymie Chinese domestic competitors.

Unable to counter Chinese threats at scale, intelligence agencies in the U.S. and Europe meanwhile are sounding the alarm publicly, urging private companies to take security matters more seriously to stop their intellectual property being pilfered.

"Nvidia stands out as a weak performer," said Gregory Allen, CEO of Decision Tree Research, who previously oversaw implementation of the Defense Department's AI strategy, noting a lack of national-security experience on the board even as it became a target of Chinese espionage.

For Chinese spies, he said, "they are as interested in stealing semiconductor technology as they are in stealing stealth fighter-jet technology."