Qing Quentin Huang, 53, from Waterdown, Ont., was arrested in nearby Burlington on Saturday, just two days after the RCMP say they became aware of the allegations against him.
The RCMP allege that they learned on Thursday that Huang was taking steps to pass on classified information to China relating to Canada's national shipbuilding strategy.
Huang is a Canadian citizen and an employee of Lloyd's Register, a subcontractor to Irving Shipbuilding Inc., the RCMP said Sunday at a news conference to announce the arrest.
"These are documents of a confidential and sensitive nature to the government of Canada that relate to their vessels that support our marine services in relation to sovereignty here in Canada," said RCMP Chief Supt. Jennifer Strachan.
The company is a supplier to Irving Shipbuilding on a contract for arctic offshore patrol ships, and Irving's president said in a statement that security of information is tightly controlled at his company. Huang was never on Irving property, Kevin McCoy said in the statement.
Huang didn't have security clearance and didn't have direct access to any classified or controlled information in Lloyd’s Register Canada Ltd’s possession, Lloyd's said in a statement.
Huang has worked as a structural design appraisal engineer for Lloyd's at its Toronto Design Support Centre since April 2006, the Lloyd's statement said.
"Mr Huang is being suspended forthwith without pay until the matter is fully investigated and resolved," the Lloyd's statement said.
"We are doing everything we can to assist the RCMP with their investigation."
The federal government has said Irving's shipyard in Halifax would build between six and eight Arctic offshore patrol ships.
The national shipbuilding strategy also includes frigates, naval auxiliary vessels, science research vessels and ice breakers, Strachan said.
"In these types of cases sharing of information may given a foreign entity a tactical, military or competitive advantage by knowing the specifications of vessels responsible for defending Canadian waters and Canadian sovereignty," she said.
"Having access to the products of very valuable and costly research and development may also provide unfair competitive and economic advantage."
Huang communicated with someone at the Chinese embassy in Ottawa, the RCMP said, though the Mounties would not say if that was how they became aware of Huang's alleged activities.
Huang is charged under the Security of Information Act with two counts of attempting to communicate classified information to a foreign entity. He could face life in prison. Huang is being held in custody pending a bail hearing Wednesday in Toronto, the RCMP said.
His alleged actions were not state-sponsored, Strachan said. He is suspected to have worked alone. Lloyd's Register co-operated with the investigation and was "extremely helpful," Strachan said.
Police were able to act swiftly to safeguard the information and the investigation involved various policing agencies, the RCMP said.
"National security investigations are complex in nature and this one was no different, despite that we were able to move quickly to disrupt a threat to Canadian interests," RCMP Chief Supt. Larry Tremblay.
"It is important to understand that there is more to national security investigations than focusing solely on terrorism. It is about protecting Canadian interests and taking the steps we need to protect our Canadian sovereignty."
The RCMP is not aware of any threat to public safety at this time, said Strachan.
"Based on the information we gathered during the operation a decision was made to arrest the suspect yesterday and put an end to his efforts to undermine our sovereignty," she said. "We are confident that our prompt and firm intervention has limited the damage to our collective safety and security."
Huang's arrest is only the second such case in recent memory, the RCMP said.
Jeffrey Delisle, a naval intelligence officer, was sentenced to 20 years in prison earlier this year after pleading guilty to selling classified Western intelligence to Russia during a four-year period starting in 2007.
A CSIS analysis declassified in September warned that the Delisle case typifies the "insider threat" acts including espionage, unauthorized disclosure of secrets, embezzlement, sabotage and theft.
It cited research by the American Defence Personnel Security Research Center, which found that almost all spies were loyal and trustworthy when given their initial security clearance.
The research found most rogue insiders were male and were spurred to betray their country by factors such as revenge for a perceived wrong, the need for cash to support an addiction like gambling, divided loyalty that prompted a desire to help another country, or radicalized beliefs that made them see their organization as an adversary.