The Journal. - Chinese-Made Cranes at U.S. Ports: A New Trojan Horse?

Episode Date: March 11, 2024

Nearly 80% of ship-to-shore cranes at U.S. ports are made by ZPMC, a Chinese state-owned company. In recent years, U.S. officials have grown concerned that these giant cranes could be used for spying on the U.S. China says these concerns are “paranoia-driven.” WSJ’s Aruna Viswanatha reports on why cranes have become the latest point of contention in U.S.-China relations.  Further Reading: - Pentagon Sees Giant Cargo Cranes as Possible Chinese Spying Tools  - Espionage Probe Finds Communications Device on Chinese Cranes at U.S. Ports  Further Listening: - The Billionaire Keeping TikTok on Your Phone  - How a Balloon Burst U.S.-China Relations  Learn more about your ad choices. Visit megaphone.fm/adchoices

In the last few years, U.S. government officials have grown increasingly concerned about Chinese espionage over things like TikTok. The proposed legislation comes amid growing concerns over the threat the Chinese-owned social media platform poses U.S. national security issues. And telecom company Huawei. The U.S. has banned most American companies' transactions with Huawei over fears that it will help Beijing spy on other nations. There was even the Chinese spy balloon from last year. Intelligence officials have called the Chinese craft a surveillance balloon, while those in the Chinese government claim it was a weather monitoring vessel. But there's something else worrying U.S. officials. Cranes. More specifically, the kind of cranes you see around ports. These cranes are these like giant structures that sit

at every port and, you know, loom hundreds of feet in the air. That's our colleague Aruna Vishwanatha. You know, over the course of a couple of decades, it turned out that a Chinese state-controlled company ends up making pretty much all of these cranes. And it got to a point where national security officials started thinking about, you know, what vulnerabilities that potentially posed. And some national security officials have likened this to a sort of Trojan horse. as you remember, you know, from Greek mythology, the Trojan horse is something that comes in seeming innocuous, but like hidden inside it are real dangers. And so with these cranes, you have structures that seem just part of the port infrastructure, but lurking within it is the potential for it to be used as an intelligence collection tool and also a potential tool to throttle port operations.

China says these concerns are driven by paranoia and that the U.S. is trying to obstruct trade between the two countries. and that the U.S. is trying to obstruct trade between the two countries. Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh. It's Monday, March 11th. Coming up on the show, why U.S. officials are worried about Chinese-made cranes. biggest cast. Everybody buckle up. With Cate Blanchett, Kevin Hart, Jack Black, Ariana Greenblatt, and Jamie Lee Curtis. Wow, you never see that. Borderlands. According to Wikipedia, a crane is a machine used to move materials both vertically and horizontally. That's true. Utilizing a system of a boom, hoist, wire, ropes, or chains,

and sheaths for lifting and relocating heavy objects with the swing of a boom. That's all true. There you go. Yeah. But the cranes we're talking about today are the ones in the ports. Not just the ones in the ports,

but the biggest ones in the ports. Not just the ones in the ports, but the biggest ones in the ports. They are really crucial to the operations of these ports and to the U.S. supply chain. Without these cranes, you can't get anything really off of a ship and like loaded onto a truck and off to, you know, the markets for American consumers and vice versa. You can't you know, the markets for American consumers and vice versa. You can't take American goods and put them onto a ship to send them out. So they are really very crucial aspects of the U.S. supply chain. Right. Everything and anything that is imported. Soybeans going out, dishwashers coming in. Right. For years, China's been dominating the production of these cranes. About 80% of cranes used in American ports are made in China by a company called ZPMC.

Communications Construction Company, which is a really crucial company within China and has been part of their broader Belt and Road Initiative to build out infrastructure in key areas of significance to the Chinese government across the world. And is it a private company or is it a Chinese state-owned company? It's owned by the Chinese state. And in China, companies operate to a degree at the mercy of the Chinese government and are obligated to do what the Chinese government asks them to do. Who was ZPMC's competitors as it was coming up? So there's a couple of European providers of these cranes, and they sort of dominated the market at that point. When ZPMC came onto the market, the quality might not have been quite at that same level, but what they were offering was a pretty good product at like a much cheaper price. And

so, you know, just as a comparison, I was talking to a port operator in Georgia who they decided they wanted to stick with a Western provider rather than go with ZPMC. And whereas ZPMC, you could get the equipment for, you know, between 13 to 15 million a crane with the European provider, it was something more in the ballpark of $20 million. So you're talking about real money for any port operator. And that was their calling card. And that was how they pushed into the U.S. market so successfully. As ZPMC grew, its offerings became more advanced and high-tech.

It even struck up a partnership with Microsoft. In a 2018 video posted by Microsoft, the former ZPMC chairman plugged the company's software that allowed for remote monitoring of the cranes, even from mobile phones. monitoring of the cranes, even from mobile phones. ZPMC officials were often celebrated around the U.S., like in Charleston, South Carolina, where a top ZPMC official presented a model of a crane to a middle school. One thing I'm wondering about is how do they get these giant cranes to U.S. ports?

That's another interesting aspect of this story. So these cranes are built and fully assembled within China. Then they get welded onto a ship and basically a ship sets out carrying potentially, you know, two or three of these cranes, sails, you know, around the tip of Africa through the Atlantic Ocean and ends up on the east coast of the United States. And with these, you know, 200, 300 foot high structures already built on these ships coming in. So the port operators don't really have a great sense of what's in them or on them. They do run their own tests and run their own scans, but these structures come in fully assembled already. And so they're not being brought in in parts and then assembled.

And so in that sense, you know, they don't have like 100% visibility into what all has gone into it. Sort of like a Trojan horse. Could be, yes. And recently, Pentagon officials have been growing concerned that these cranes are hiding equipment and software that could allow China to spy on U.S. ports and military operations. So at a lot of ports, you have naval bases nearby and the Pentagon uses commercial ports often to ship out military supplies and get stuff in. They don't have their own ports. And so the fact that, you know, you have Chinese-made cranes transporting, potentially moving military equipment, and being able to register what was going out, where it was going, what was coming in, that sort of surveillance, that immediate surveillance concern was a big one.

These concerns go beyond spying and surveillance. go beyond spying and surveillance. Even early on in the Trump administration, they had gamed out if the U.S. got into a hot conflict with China, how might China respond and what tools would they have at their disposal? And they came to the conclusion that because these ZPMC cranes were so prevalent at so many U.S. ports and could be accessed remotely, that China could potentially shut down all U.S. ports and could be accessed remotely that China could potentially shut down all U.S. port activity with, you know, barely lifting a finger and like not even having

to use its Navy. But that's sort of like an extreme scenario, right? Yes. Yeah. The more near-term concern is the surveillance aspect of it. And then the more extreme scenario is the ability to potentially get in and remote control them. ZPMC says that it abides by all laws and regulations, and that it manufactures its cranes in accordance with international standards. But these security concerns have been gaining momentum. That's next. We'll see you next time. your business is unique, so your business insurance should be too. Whether you're a shop owner, a pet groomer, a contractor, or a consultant, you can get customized coverage for your business.

Contact a licensed TD Insurance advisor to learn more. Seth and Riley's Garage Hard Lemonade, a delicious classic with a vibrant taste of fresh lemons. The perfect balance of sweet and sour with a crisp, zesty edge. Welcome to The Garage, the place of refreshing hard lemonade. Available at the LCBO. Must be legal drinking age. Please enjoy responsibly. In the fall of 2021, the FBI raided a cargo ship that was delivering ZPMC cranes to the port of Baltimore. An agent said they found equipment on board that could be used for intelligence gathering.

A port executive said the port hadn't found any issues while testing the cranes. But Aruna says this raised some big questions. If you think about the way kind of signals like intelligence collection works, if you had any kind of collection device at the top of these cranes, you can basically collect every signal in a 25-mile radius. And so with these cranes, you potentially had the ability to put a very small device at the top of these cranes, and you could collect information about anything happening on the base. In the years since, U.S. lawmakers have called for security reviews of U.S. ports and hearings over Chinese cranes.

And then last week, the Wall Street Journal reported that an ongoing congressional investigation found more than a dozen modems inside ZPMC cranes at U.S. ports. Some of these modems have active connections to the operational components of the crane and could transmit information, you know, externally. And this is according to lawmakers who are investigating this. They have said that the ports themselves had not asked for these modems. And so that raises a lot of questions about, you know, why they were put there. How unusual is it for there to be modems

or kind of communication devices inside these cranes? I mean, these things are designed for remote access by design, but that's, it can just as easily, you can view that through an innocuous lens of, you know, you need to be able to access these things remotely to be able to troubleshoot them and work on the maintenance and things like that. And then through a nefarious lens, it becomes an avenue for control.

ZPMC says that reports about its cranes in U.S. ports as potential tools for spying were misleading and made without sufficient factual review. The Chinese government and the embassy in Washington has dismissed these concerns as paranoia-driven and, you know, designed to just hurt China's rise and was sort of using fake national security concerns as a way to, you know, crush a Chinese company. The Biden administration is concerned enough that last month it announced a plan to improve cybersecurity at U.S. ports and to start replacing Chinese cranes. and to start replacing Chinese cranes. They are pumping $20 billion into both improving port security and specifically trying to stand up domestic production of these cargo cranes. How are they just conjuring up U.S. production of something that hasn't been built here for decades?

That is a good question. that hasn't been built here for decades? That is a good question. So what they have said so far is that a U.S. subsidiary of a Japanese company is planning to onshore some manufacturing capacity where they're going to start trying to make these cranes. And so some of the mechanics of how exactly this is going to work

is still not totally clear, but there is a company that is planning to do this and has taken steps to start doing this. And this is the effort that the administration is getting behind. And how did the national security officials you spoke with respond to this notion that their concerns are just paranoia? to this notion that their concerns are just paranoia. They point to everything that these major Chinese state-owned companies are doing in the United States as an extension of what the Chinese government is doing. The sectors it wants to dominate, the ways in which it is leaning on its companies to promote its military capabilities and its foreign policy agenda.

Like every step the Chinese government has been taking is moving in this direction over the course of 20 years is how they're looking at this. And they point to this broader picture and this pre-positioning in the event that they want to attack U.S. critical infrastructure as all pieces of a puzzle that show you in plain sight what they believe the Chinese government is gearing up to do. That feels like what they're talking about is a 20-plus year master plan to embed Chinese technology around the United States for a potential conflict. Like, that's quite a long term scenario plan. It's not that the embedding was preparing for a conflict,

but the longer term play was to dominate these sectors, very strategic sectors that are important both economically and for national security purposes. And then once they control all those markets, they can use them for leverage in a host of other arenas. It's sort of ironic, right? Because the U.S. has for a long time tried to bring the Chinese economy into the global economy. Yes. Tried to, like, develop commercial infrastructure in China. And this feels like that's part of the product of that. Right. You sort of see this playing out very plainly, even with ZPMC.

I mean, it was not that long ago that you had the chairman of ZPMC visiting schools near these ports and presenting to school children, you know, models of these cranes and extolling their work in the community. And you had ZPMC working with Microsoft to develop software and enable these cranes to do different things. And they've been producing these cranes, taken over, you know, 80% of the U.S. market and driven out sort of most of their competition. It's at that point that U.S. national security officials start getting concerned about this and trying to figure out what they can do about it. That in a microcosm seems to replicate the broader U.S.-China relationship. And so for the U.S. government to sort of get into the business of trying to build up capacity in the private sector to make something we don't make anymore seems pretty striking to us. something we don't make anymore seems pretty striking to us and, you know, a pretty striking illustration that they really do view this as a major threat.

That's all for today, Monday, March 11th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Shen Liu, Gordon Leubold, and Dustin Volz. Thanks for listening. See you tomorrow.