On December 19, 2016, during a routine inspection of a foreign shipping container, customs officials in Melbourne noticed a suspicious blip on their x-ray scanner.
The container had arrived from South Africa carrying industrial mining equipment and an “anomaly” inside one of the machines — an iron-ore extractor — led to a physical inspection. Concealed within the extractor, inside a seven-inch-thick metal crate lined with charcoal, were 358 one-kilogram packages of cocaine and methamphetamine, a $138 million haul. Australian police later deemed it one of the largest drug seizures of that year and praised Australia’s border security, emphasizing its powerful x-ray screening technology. “Our officers have the expertise and technology to detect even the most sophisticated concealment,” said a regional commander.
What officials did not highlight was the company behind the impressive gadgetry: Nuctech, the Chinese state-owned firm that had been banned from U.S. airports two years earlier.
Nuctech, however, was happy to spread the news. Their scanner, they noted in a subsequent press release, was “instrumental” in the bust, and it marked just one success amidst a wave of recent good fortune for the firm — even despite the U.S. ban. Since inking its first-ever overseas contract, with Australia in 2001, Nuctech (as in, “nuclear technology”) has swelled into one of the largest security screening manufacturers in the world.
Today, the Beijing-based firm operates in some 160 countries, from Argentina to Indonesia, servicing airports, embassies, ports, stadiums and large events with metal detectors and other radiation-based screening machines. Nuctech claims nearly 16 percent of the $7.7 billion global market, according to sources cited by the Australian Strategic Policy Institute (ASPI), an independent think tank. It manages overseas factories in Brazil and Poland, and it also boasts the lion-share of the cargo inspection market, servicing ports and border crossings around the world.
Nuctech’s tagline is, “Creating a safer world.” The question the U.S. government has been trying to raise for almost a decade now is: For whom?
The Obama administration’s 2014 decision to ban Nuctech is not wholly understood — its review of the company’s scanners is still marked as classified — but the U.S. has stood by its decision: Last year, Nuctech was placed on the U.S. banned entities list for “its involvement in activities that are contrary to the national security interests of the United States.” Specifically, the U.S. government called out the company’s “lower performing equipment,” which impairs “U.S. efforts to counter illicit international trafficking in nuclear and other radioactive materials.” In recent months a campaign led by the State Department and the National Security Council has quietly pushed for Europeans to keep Nuctech out of its border crossings, ports and airports, according to reporting from the Wall Street Journal.
But despite the digs at Nuctech’s product quality, observers say that U.S. distrust also stems from the company’s close ties to the highest echelons of Chinese state power — Hu Haifeng, the son of former president Hu Jintao, was an early chairman — coupled with its products’ proximity to sensitive commercial and security data. A State Department spokesman told The Wire that security screening technology is “increasingly sophisticated” and “often connected to other computer and data networks.”
“The Department of State is strongly committed to the security and resilience of global critical infrastructure in order to ensure the national and economic security of the United States and our partners and allies,” says the spokesman.
This animated video, posted in 2019, shows how a Nuctech security scanner screens for contraband goods in large goods vehicles. Credit: MalininSanduk
Nuctech’s grip on a unique galaxy of data — what goods and equipment are being shipped where, when and by whom; passenger identities; and information related to counterterrorism measures — seems to be a key concern.
“Stuff that can seem kind of unimportant can become valuable if you have enough of it,” says Jonathan E. Hillman, a senior fellow at the Center for Strategic and International Studies and the author of The Digital Silk Road. “Or you can use it to develop more information about individuals that are of interest.”
Given Nuctech’s ties to Beijing, analysts say the U.S. fear is that this data might make its way back to Chinese security officials for use in larger state aims, such as political or commercial espionage or even state-directed sabotage.
“When you consider that 80 to 90 percent of global trade happens in shipping, that gives you tremendous insight into the movement of goods around the world,” says Martijn Rasser, a Center for a New American Security (CNAS) researcher and former C.I.A. analyst. “And particularly if you marry that with physical control over key port facilities, that gives you great leverage over the flow of goods. And so in a time of conflict, for example, or even just a political crisis, you could interrupt the flow of imports to the United States.”
Among some circles, Nuctech has even picked up an ominous nickname — “the Huawei of airport security” — and has flirted with similar levels of geopolitical controversy as the telecom giant. In 2020, for instance, Nuctech made national headlines in Canada after the government awarded the firm a contract to service its embassies around the globe with metal detectors. The contract set off a bomb in Canadian politics, where China was becoming an increasingly hot-button issue.
“This contract could potentially turn Canada’s diplomatic missions into listening posts for the aggressive and ruthless regime in Beijing,” seethed one editorial in a Financial Post op-ed entitled, “Why are we still doing business with Chinese state entities?”
The contract was eventually canceled, but the episode highlighted the fact that many Western countries continue to be reliant on Nuctech. In Europe, for instance, Nuctech is increasingly dominant, especially in the ports and border crossings industry. The company has sold over €173 million worth of equipment on the continent since 2014, according to OpenTender.eu, a watchdog portal. And it has signed around 60 contracts in 22 of 28 E.U. member states.
It’s mostly circumstantial and innuendo… We haven’t been able to establish these links through any kind of smoking gun evidence.
Charles Burton, former diplomat and expert on Canada-China relations at the Macdonald-Laurier Institute
Nuctech did not respond to requests for comment but has long insisted it is not beholden to Chinese Communist Party diktats. And without any verifiable evidence to back up U.S. claims, both sides of the debate note that the concern is, at the moment, all conjecture.
“It’s the same problem that U.S. policymakers had with Huawei, where the public record is kind of thin,” says Rasser.
“It’s mostly circumstantial and innuendo,” adds Charles Burton, a former diplomat and an expert on Canada-China relations at the Macdonald-Laurier Institute. “We haven’t been able to establish these links through any kind of smoking gun evidence.”
In our age of a new so-called “cold war” with China, however, that kind of evidence might not matter.
‘BETTER AND CHEAPER’
In 1895, Wilhem Röntgen, a physics professor in Bavaria, discovered x-rays by accident while experimenting with vacuum tubes. The technology spread rapidly across the globe, mostly for use in medical settings. Within a few decades, x-rays had become so ubiquitous (and unregulated) that shrewd cobblers offered them for free so customers could view their feet bones.
It was not until the late 1980s, as global trade accelerated, that European companies began developing radiation-based screening equipment for cargo shipments to cut down on smuggling. The first such machine was developed in France and installed in the Paris airport in 1991. A newly resurgent China, dealing with its own smuggling problems, took a keen interest. The State Science and Technology Commission, a government body, promptly ordered a research unit to develop a “better and cheaper” version of the European scanners.
Scientists recruited from Tsinghua University examined the European machines and then set out on “a remarkable, painstaking act of copying,” writes Didi Kirsten Tatlow, a researcher at the German Council on Foreign Relations, in her book, China’s Quest for Foreign Technology. The design they ultimately produced was cheaper than its foreign counterparts by around a third, and eventually Nuctech engineers devised innovations of their own, such as making the scanners portable to better handle crowded Chinese ports.
In 1997, Nuctech’s parent company, a software and consumer electronics firm called Tsinghua Tongfang, went public with an IPO on the Shanghai Stock Exchange. The next year, Nuctech’s scanner passed final state approval — not exactly a surprise given the company’s close ties to the government. Tsinghua Tongfang is under the umbrella of Tsinghua University’s Tsinghua Holdings, one of China’s largest state-owned investment groups, and it is controlled by the China National Nuclear Corporation (CNNC), which belongs to the State Assets Supervision and Administration Commission (SASAC) — “an institution directly under the management of the State Council,” according to its website.1Two CNNC subsidiaries are on the U.S. banned entities list, sanctioned by the U.S. government.
Nuctech, notes Tsinghua Tongfang’s website, serves “as a bridge to inject the university’s state-of-the-art scientific and technological findings into products.” And it has been wildly successful in this endeavor: By 2005, Nuctech scanners had been exported to 30 countries and accounted for around 60 percent of the worldwide market in ports. By 2016, the company said it had 80 percent of the train cargo inspection market. And a 2020 ranking of China’s top 100 technology companies listed Nuctech at the 46th spot, according to a report by the Intellectual Property Development and Research Center, a state institution.
“Two decades ago, we were just a little-known company in China,” said Wang Weidong, Nuctech’s vice president, in 2020. “We decided to grasp the opportunities brought by economic globalization.”
But Nuctech’s rise to corporate powerhouse is peppered with scandal. In 2010, for instance, three men — including a Chinese Nuctech executive and a senior Namibian official — were charged in Namibia for involvement in an alleged $13 million kickback scheme in which Nuctech scanners were sold at inflated prices to Namibian customs so that the accused could receive multi-million dollar “commissions.” All three men were acquitted in 2019. In 2020, a senior Taiwanese aviation police official was found guilty for his involvement in a salacious “honeypot” trap involving a young Nuctech sales manager who bribed the official with money and sex to install Nuctech scanners in Taiwanese airports. The manager, who successfully fled Taiwan and denies the accusation, is still employed by Nuctech.
Nuctech also ran afoul of officials in Europe, where the company was accused of systematic dumping practices in 2009 by a top European competitor, Smiths Detection Group; Nuctech’s scanners were being sold for up to 20 percent less than Smiths’. The EU court sided with Smiths, slapping Nuctech with European import duties of around 36 percent. Nuctech eventually opened a factory in Warsaw to sidestep the new European duties.
Nuctech continues to offer irresistibly low bids — some are up to 50 percent lower than competitors’ — but analysts note its rapid success is not only due to low ball offers. Most of Nuctech’s business has been in border crossings and ports, which, while representing a smaller market than airports, are significantly less regulated, making it easier for Nuctech to gain market share. Observers say Nuctech has developed a unique, and at times curious, reputation in this space.
Hardy Vinter, a former manager with Danish Customs who now advises for E.U. customs offices, notes that Nuctech often fills whatever onerous requirements a client might throw at them, however “odd,” from “coffee machines to heated floors,” Vinter says. “Everything you can imagine, they’ll put it in the tender.” Other manufacturers, he adds, typically don’t bother to meet such flippant requests. Flush with state-backed loans and other monetary assistance, Nuctech is often happy to pay for the additions.
“Quite a lot of the tenders that are going out can pretty much only be met by Nuctech at this point because of the technical specifications [being put forward], and we don’t know why that is,” adds Tatlow.
Nuctech also has a practice of striking agreements with clients before they reach a public tendering stage. Its products are often included in larger Chinese government state assistance packages or trade negotiations. In 2005 and 2007, for example, Nepal received two scanning systems from Nuctech free of charge. Slovakia has been given a $4.4 million cargo scanner, and Guyana was gifted a $5 million Nuctech mobile container scanner by the Chinese government. In Venezuela, China has swapped Nuctech scanners for oil, and in Turkmenistan Nuctech products were included in a binational trade negotiation. Many of these examples were listed in the Smiths antidumping suit as unfair practices.
Supporters of the company say these tactics are simply sound business practice in a bruising industry. Daniel Goh, a Singaporean who worked for Nuctech in Beijing for three years and now advises them, chalks the security concerns up to “governments who have paranoia against China” and poor corporate PR on Nuctech’s part. Moreover, so what if Beijing lends them support now and then in the form of preferential loans and other funds?
“It’s no different from having the U.S. government doing a ‘Buy U.S.A.’ initiative,” he says. “Obviously, there are certain countries where policies are geared towards supporting their local manufacturers. But the state influence [in the company] is really not very apparent on a day-to-day basis.”
It’s no different from having the U.S. government doing a ‘Buy U.S.A.’ initiative… Obviously, there are certain countries where policies are geared towards supporting their local manufacturers.
Daniel Goh, a former Nuctech employee and current advisor
Others disagree, pointing to the fact that the company is both state-owned and quite unabashed about its close ties to Chinese officialdom. Nuctech representatives have said they are proud to serve state interests: “We make national requirements our own responsibility,” said Fu Qiyuan, a Nuctech Netherlands manager, in 2017.
“My own concern about Nuctech is primarily political,” Tatlow says. “I just don’t see how a company that must listen to the Communist Party of China has any place running the world’s cargo and persons security systems.”
The party does seem to pervade the company. Many of the company’s leadership executives have party titles, ensuring close coordination between the company and Chinese officialdom. Nuctech’s current president, Chen Zhiqiang, a bespectacled, mild-mannered physics professor, is also the firm’s CCP party secretary, for example, which requires a certain degree of ideological maintenance. Li Zhijun, Nuctech’s senior vice president and Nuctech’s deputy party secretary, suggested, in 2018, using party-building activities to advance the firm.
The company also does business with Chinese defense industries. FoundMacro, a Nuctech subsidiary, was founded in 2016 to cater to the defense market. Among its “counterterrorism” products is a vehicle-mounted system that can remotely control automobiles with microwaves and an AI-enabled predictive warning surveillance system jointly developed with Russian scientists.
According to research by ASPI, Nuctech has also sold equipment to police departments and checkpoints in Xinjiang, where the authorities have been accused of surveillance and suppression of Uyghurs and other minorties.
“China has a military-civil fusion posture as a state, and a lot of the services that Nuctech wants to provide other countries are dual-use services,” says Hannah Kelley, a technology researcher at the Center for a New American Security. “They have practical applications, but they also have a lot of strategic applications for the Chinese government if, and when, they want to utilize it.”
GLOBAL ENTRY
Much to the U.S.’s chagrin, the rest of the world seems to be playing catch up to this realization. For Barth Groothuis, a Dutch E.U. parliamentarian, the Chinese 2017 National Intelligence Law, which obliges any Chinese company to hand over data to Chinese intelligence agencies if requested, marked a turning point. The law, he says, “is the most important argument against using Nuctech.”
Groothuis says he has been in touch with U.S. officials about Nuctech, and in October, he put forward a supply chain review law that would require cyber-related companies in “key sectors” to take national security concerns into consideration when choosing vendors, not merely price and quality. Groothuis says his proposal, known as NIS2, has been endorsed by the European Council, and he is confident it will pass into law, though it would not be implemented for at least a year.
“Without a doubt, Chinese companies cannot be on board for facial recognition, or for scanning military cargo or scanning NATO equipment at the harbors in Europe,” he says. “I think any supply chain review will say that this is not in the national security interest of European nations.”
Indeed, for many Western democracies, the suite of shared disagreements with Beijing — from anger over perceived economic malpractices to diplomatic feuds to ongoing human rights abuses in Xinjiang and elsewhere — are enough to fuel the distrust in Nuctech.
“Nuctech was seen as simply part and parcel of this misbehavior,” says Burton, the Canadian analyst who testified at a recent hearing on Nuctech to Canadian parliament. Burton is in favor of putting in place a similar review process in Canada to the one outlined in NIS2.
…[T]he U.S. can ring the alarm bells, but if you’re not offering a robust alternative, states and industries have bottom lines… It’s tough to convince them of the national security risk without giving something back that’s going to meet that bottom line.
Hannah Kelley, technology researcher at the Center for a New American Security
Backchannel efforts from the U.S. also seemed to be influencing the current Nuctech backlash.
“[The] U.S. is ‘quite concerned’ that [Global Affairs Canada] has apparently agreed to purchase security equipment for embassies from a Chinese company,” Canadian diplomat Martin Loken wrote to a colleague in an email publicized during the Canadian Nuctech hearings. A meeting with the White House was reportedly “set up” before Nuctech’s embassy contracts were eventually canceled.
Lithuania, too, had a recent bout of Nuctech backpedaling. In February, citing national security concerns, the country banned Nuctech scanners from its airports. This action, said a Lithuanian defense official, “shows that Lithuania has decided not to be part of the techno-sphere being created and controlled by China.” Robert Gilchrist, the U.S. ambassador to Lithuania, applauded the decision. “I congratulate the Lithuanian government on taking the step, which seeks to secure Lithuania’s national security and its critical infrastructure,” he said.
But U.S. influence and pervasive distrust of China can only go so far. In September, the Lithuanian Customs Department inked a multimillion-euro contract to install a Nuctech scanner at its overwhelmed Belarussian border. The deal — which came “with a huge list of conditions and preconditions,” the defense official noted — illustrates how American efforts to keep Nuctech out of allied countries often run up against hard, market realities.
“One of the issues, and this was true in the Huawei case as well, is that the U.S. can ring the alarm bells, but if you’re not offering a robust alternative, states and industries have bottom lines,” says Hannah Kelley, of CNAS. “It’s tough to convince them of the national security risk without giving something back that’s going to meet that bottom line. That’s why pricing is so huge.”
Meanwhile, as Western countries debate their options, Nuctech is expanding its repertoire of low-cost security offerings. In the U.S., though the company is banned from airports, Nuctech has been nudging into the private prison industry, with body scanners that detect contraband on inmates. The new president of Nuctech U.S. is J. Barry Johnson, the former deputy secretary at the Pennsylvania Department of Corrections.
Nuctech is also marketing the Feverblock Infrared Face Temperature Screening System, which measures body temperatures in airports and ports for Covid-19 and other infectious diseases. The product, which was “developed in twenty days,” was sold all around the world in 2020 and 2021, including in Australia, which is still a major Nuctech customer despite the country’s recent measures to combat Chinese interference in its affairs.
Australia has banned Huawei and other companies “likely to be subject to extrajudicial directions from a foreign government that conflict with Australian law.” But thanks in part to its drug-busting scanners, Nuctech, so far, has avoided that fate.
Brent Crane is a journalist based in San Diego. His work has been featured in The New Yorker, The New York Times, The Economist and elsewhere. @bcamcrane
