a tiny tiny chip caused a big problem.

Welcome back to China Uncensored,

I'm your host Chris Chappell.

Computers connect the world!

Why, you and I are connected right now.

But computers don't just bring you the world's best

China-related edutainment on YouTube.

Computers do all sorts of things!

Like transmitting sensitive data that's critical to national security,

which gets bounced around on servers throughout the United States.

With that in mind, maybe someone should have realized

it might be a problem that the backbone of these computer networks

is being built in China.

Oh wait, US intelligence agencies

have been warning about this for years!

But instead of listening to those intelligence agencies—

what do they know anyway?—

a lot of major US companies ignored them,

because who can say no to low prices?

So these tech companies went for all the gold that was

surely waiting for them at the end of the Chinese rainbow.

What's that, Shelley?

Chinese rainbows don't have a pot of gold?

What do they have instead?

Ok, that sounds painful.

Yes, it turns out, the relentless pursuit of cheaper products

had a horrible, horrible downside.

At least according to this Bloomberg article.

It says China used microchips to infiltrate US companies.

This is a server motherboard.

Get a bunch of these together,

and they're basically like the neural network

of a giant multi-computer brain.

But wait!

What's that?

Don't see it?

How about now?

No?

Keep going.

There we go.

That is a tiny microchip about the size

of the tip of a sharpened pencil.

Wait, what's that Shelley?

Ah.

To clarify for our younger viewers, this is a pencil.

In the olden days we would take sticks of wood

filled with graphite and drag them across thin sheets

made from more dead trees to draw letters.

It was a primitive form of writing

before the widespread use of computers.

Anyway, the chips were small.

But it turns out the size doesn't of the chip doesn't matter.

It's how you use it.

And according to Bloomberg,

which cited 17 unnamed intelligence agents and other sources

within different tech companies,

the Chinese Communist Party may have managed

to pull off the most sophisticated hack

the world has ever seen.

They allegedly installed these microchips

on servers used by around 30 companies,

including Amazon and Apple,

as well as US government agencies.

“[These] servers could be found in

Department of Defense data centers,

the CIA's drone operations,

and the onboard networks of Navy warships.”

The microchip would have given the Chinese Communist Party

secret access a huge number of these private networks.

Oops.

So, how did the microchips get there?

Well you see, there are essentially

two ways to hack a computer.

The most common kind is software hacking.

This is probably what you associate Chinese hackers with.

Like when they hacked the Office of Personnel Management

and stole data on over 22 million Americans.

Then there's hardware hacking.

That involves making physical changes

or additions to the guts of computers—

which builds in loopholes that can later be exploited

by software hacking.

Hardware hacking is really really hard to do.

According to one expert Bloomberg interviewed,

“Having a well-done, nation-state-level hardware implant surface

would be like witnessing a unicorn jumping over a rainbow.

Hardware is just so far off the radar,

it's almost treated like black magic.”

But while hard to pull off, if pulled off,

it would give foreign agents major control of

critical computer infrastructure.

And it's a little easier to pull off when you're the country

that makes about 75% of the world's mobile phones

and 90% of its PCs.

Here's what's alleged to have happened.

There's a company called Elemental.

They make cubes that shoot other cubes with lasers I guess?

Actually they specialize in video processing and storage.

Their technology has been used for everything

from helping stream the Olympic Games,

to communication with the International Space Station,

to even handling drone footage for the CIA.

In 2015 Elemental was bought by Amazon.

Wow, Amazon really does everything.

Elemental is an American company.

And their main product is assembled by

another American company,

Super Micro Computer Inc.

They sell more server motherboards than almost anyone else.

One US intelligence official told Bloomberg,

“Think of Supermicro as the Microsoft of the hardware world.”

So...like Microhard?

No, forget that, it's a terrible name.

Anyway, it turns out, Supermicro's core product—

their motherboards—

are mostly made by contractors in China.

So what seems to have happened is this:

Agents for the People's Liberation Army

strolled into these contractors' factories

and offered some bribes to change

the motherboard design ever so slightly.

Just add this one teensy weensy little extra microchip, ok?

Of course, “If that didn't work,

they threatened factory managers

with inspections that could shut down their plants.”

And while one tiny microchip sounds like it can't do a lot,

it doesn't have to.

According to Bloomberg,

“They were capable of doing two very important things:

telling the device to communicate

with one of several anonymous computers

elsewhere on the internet that were loaded with

more complex code;

and preparing the device's operating system

to accept this new code.”

And this would give the Chinese military complete access

in a very hard to detect way.

For example, they could make a secure machine

not ask for a password.

That way, hackers from China could just waltz right in.

Now for a long time,

many Americans believed that China

would never do something like this

because it would jeopardize China's place

as the workshop of the world.

And so everyone was happy being naïve,

taking advantage of China's low-cost manufacturing.

Meanwhile, China continued to play a major role

building global computer infrastructure.

And so companies became dependent on China.

Oops.

The fact that China has been a major state sponsor

of cyber espionage is nothing new.

Back in 2015, there was even an agreement

between Xi Jinping and President Obama

that China would stop stealing US intellectual property.

That was the same year

the Chinese microchips were first discovered.

One official told Bloomberg that the White House

may have suspected at the time that

“China was willing to offer this concession

because it was already developing

far more advanced and surreptitious forms of hacking

founded on its near monopoly of the technology supply chain.”

Not that the US government could do much about it.

Because it was the big American companies

that were actually to blame for exposing themselves

to the China supply chain—

and they refused to listen to the government's warnings.

So it shouldn't surprise you

that both Apple and Amazon

have denied the Bloomberg report.

Except “The companies' denials are countered

by six current and former senior national security officials.”

In fact, not only did the companies know about it—

according to those officials—

but Apple had reported their discovery of it

to the FBI in the first place,

and Amazon went even further,

by cooperating in a government investigation about it.

But of course, neither company said this to the public.

If it happened at all.

Because, as I said, they totally deny it.

Interestingly, “Apple did sever its relationship

with Supermicro in 2016,

but claimed this was due to an unrelated

and minor security incident.

Amazon reportedly distanced itself

from Supermicro's compromised servers

by selling its Chinese infrastructure to a rival,

for unknown reasons at the time.”

Again, Apple and Amazon totally deny they were hacked.

Reporters asked a Chinese Foreign Ministry spokesperson for comment,

and he said, “We did it!

You finally caught us!”

Haha, just kidding.

He denied it—as usual—

saying the “reports are totally groundless.”

And that China, too, is a “victim of cybercrime.”

And you can't blame a victim!

The Department of Homeland Security sort of backed up

Apple and Amazon's denial, saying they,

“have no reason to doubt the statements” from those companies.

Which is not exactly a strong confirmation or denial.

But of course, it's one thing to warn that

Chinese telecommunication companies like Huawei and ZTE

could potentially spy on us.

But publicizing this giant microchip hack

would be incredibly humiliating—

and it would also damage American companies.

But the Trump administration

may be taking action in another way.

They've put computer and networking hardware,

like motherboards, on the list of Chinese tariffs—

meaning they'll be a lot more expensive to import.

The goal is partially to get these companies

to shift their supply chains to other countries.

Because clearly, getting hacked isn't

a good enough reason on its own.

It's like if a big kid at school

keeps getting beaten up by a smaller kid,

but he's so embarrassed that he doesn't tell anyone,

so it keeps happening.

Eventually grandpappy Trump has to step in

and put a stop to it.

So what do you think of US tech companies

and their reliance on Chinese manufacturing?

Leave your comments below.

And before you go,

now is the time when I answer questions from you—

the loyal members of the China Uncensored 50-Cent Army

who support the show on the crowd funding website Patreon.

Largezo asks:

“What kind of a court system does the PRC have?”

Why China has one of the greatest court systems in the world!

They convict over 99.9 percent of defendants!

Now, they're not perfect.

In 2015,

about a thousand people out of 1.2 million were found not guilty.

But I am confident that the Chinese Court system

will soon be able to reach a 100% conviction rate.

After all, when you think about it,

isn't everyone guilty of something?

Thanks for your question, Largezo.

And do you have a question you want to ask me?

Then join the China Uncensored 50-Cent Army on Patreon.

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Thanks for watching this episode of China Uncensored.

Once again I'm your host Chris Chappell.

See you next time.

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