Subtitles section Play video Print subtitles On this episode of China Uncensored, 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. You'll get some cool rewards for your contribution, including having the chance to have your question answered on the show! So sign up at pateron.com/chinauncensored. Thanks for watching this episode of China Uncensored. Once again I'm your host Chris Chappell. See you next time. As I mentioned, China Uncensored is supported mainly through direct viewer contributions. Go to Patreon.com/ChinaUncensored or click this orange button. Check out all the cool rewards you get for being a Patreon supporter— including, of course, having me answer your questions on the show.