Curbing Chinese cyber espionage
May 9th, 2011
01:07 PM ET

Curbing Chinese cyber espionage

Editor’s Note: Dr. Adam Segal is the Ira A. Lipman Senior Fellow at the Council on Foreign Relations and author of Advantage: How American Innovation Can Overcome the Asian Challenge.

By Dr. Adam Segal – Special to CNN

According to public reports, over the last several months computer hackers have stolen proprietary information from DuPont, Johnson & Johnson, General Electric, RSA, Epsilon, NASDAQ, and at least a dozen other firms.  Many of these attacks have been traced back to networks in China, but it is unclear whether criminals, government agencies or some combination of the two are responsible for the attacks.

U.S State Department cables obtained by Wikileaks further describe attacks code-named Byzantine Hades on U.S. technology and defense companies that appear to be the work of China’s People’s Liberation Army.

Regardless of the source of the attacks, the United States must work independently and, when possible, cooperatively with China to reduce the threat.

Chinese cyber espionage is part of a larger effort to reduce China’s dependence on foreign technology.  Chinese leaders are unhappy with being a factory to the world.  It is too labor and energy intensive. Chinese leaders fear that Chinese firms will be trapped producing low-value components while American, Japanese and European companies dominate the high-return, intellectual-property-intensive sectors.

The desire for technological self-sufficiency is also tightly tied to concerns about national security.  As former Chinese minister of science Xu Guanhua put it in January 2006 when he unveiled a new plan designed to make the country one of the world’s leading science powers by 2020, “China still lacks capability in innovation, particularly in those strategically important areas. We would never buy or borrow the key technologies from the global leading economies.”

The move from “made in” to “innovated in” China has been pushed along by three policy instruments: industrial policy, innovation strategy, and industrial and cyber espionage.  Industrial policy involves top-down, state-directed technology programs often focused on specific sectors and the government research institutes. Innovation strategy includes more bottom-up efforts to encourage technological entrepreneurship through university-industry collaboration and small start-ups.

Cyber espionage is a concerted effort to steal all types of high-value technologies.  Cyber attacks are becoming more pervasive and often rely on spear phishing - targeted emails that trick recipients into clicking on bad links or attachments.

Efforts to raise the issue of hacking directly with Chinese policymakers have generally elicited two responses.  There is a Captain Renault-like response that Beijing is “shocked, shocked” that this could happen since hacking is illegal in China.

Other policymakers complain, with some justification, that China is itself victim to cyber attacks, many of them appearing to originate in the United States.  The People’s Daily, for example, cites a 2006 report that the approximately 27,000 Trojan horse attacks on China came mainly from the United States.

Still it may be possible to shift Chinese decision makers’ view on the utility of cyber attacks.  The security researcher Dillon Beresford’s announcement that he successfully entered the networks of central ministries and provincial governments as well as the People’s Liberation Army and universities can only heighten the sense of mutual vulnerability that Chinese and American policymakers must feel.  Cooperative efforts, like the FBI dispatching a cyber security expert to cooperate with Chinese authorities on investigations, are an important first step to building trust between the two sides on criminal hacking.

The United States may also be able to appeal to those who want China to become more innovative but think industrial policy and cyber espionage are counterproductive.  Advocates of innovation strategy fear state-led efforts will lead to the isolation of the Chinese market, further inhibiting technological development.

This innovation-strategy faction should be sympathetic to similar arguments about the deleterious effects of cyber espionage on Chinese innovation capabilities.  In fact, dependence on foreign secrets is likely to lessen the ability (and desire) of Chinese firms to push the technological envelope.

The desire to reduce dependence on foreign technology is tightly held by the Chinese leadership so progress on the cyber espionage front is likely to be halting.  This means that while the United States should continue to try to shape the debate within China on the subject, in the near term a better defense is the best option.

The views expressed in this article are solely those of Adam Segal.

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Topics: China • Innovation • Internet • Security • Strategy • Technology • Uncategorized • United States

soundoff (31 Responses)
  1. j. von hettlingen

    Here the American industry sees an opportunity to re-invent itself. Invest more in advanced technology. Re-conquer the rank as world's number one in hi-tech.

    May 9, 2011 at 5:03 pm | Reply
  2. Gabriel O. Osho-Davies

    Stealing technology is, on the long run, not so productive as those you steal from will always be ahead of you.

    May 9, 2011 at 8:31 pm | Reply
    • nickthechamp

      you Americans have such very large penis ours is so small in size.
      key phrase in most Chinese American conversations when we approach these subjects with them

      May 10, 2011 at 5:42 pm | Reply
      • T. Arantado

        That is why chinese women love marrying American men.

        May 12, 2011 at 3:14 am |
      • Atheism is wonderful

        ROFL, best comment I've read on CNN this year! **CK the Chinese, they are our factory, keep using them I say, in the meantime, we should hire and pay our network security folks more money to defend ourselves.

        May 30, 2011 at 9:45 am |
    • Jeff

      Not true. Just ask the Germans, from whom we "stole" and later "appropriated by force" a bewildering range of technologies, which enabled us to leap ahead of the Krauts. The internal combustion engine, the jet engine, the space rockets, much of our knowledge in modern chemistry, etc., all came from Germany. Stealing is effective. If it were not, then we'd have no cause to complain.

      May 12, 2011 at 10:53 pm | Reply
  3. Peter

    Do what South Koreans do: WORK HARD.

    South Korea was one of the POOREST nations before the Korean War.

    Their rise to the developed world class is UNBELIEVABLE.

    It was done, thanks to large government support but mostly the HARD, DILIGENT and INNOVATIVE working people of South Korea.

    Unless China can change the mindsets of its citizens, they will never be where South Korea is today.

    May 10, 2011 at 12:40 am | Reply
  4. Sonni

    it's good that the at the end of the article the author takes credit for the views expressed because it is heavily tainted with bias:

    Chinese cyber espionage is part of a larger effort to reduce China’s dependence on foreign technology. Chinese leaders are unhappy with being a factory to the world. It is too labor and energy intensive. Chinese leaders fear that Chinese firms will be trapped producing low-value components while American, Japanese and European companies dominate the high-return, intellectual-property-intensive sectors.

    Are you serious? It is that very fact of being a factory to the world that has allowed them to become the 2nd fastest growing economy. All the labor they're supposedly complaining about is what drives employment for over 1 billion citizens. China also has several indeginous firms that produce technologies that are sold home and abroad. Huawei, Zoomlion, sinospec, sinochem, the list is pretty damn long if you care to check it. Don't forget with over 1 billion in population China is also like a continent unto itself; that is a massive internal market.

    I don't know where one gets the idea that China is unhappy about thesee things and is specifically resolving their emotional problems through espionage. In an economical view, they've virtually come from nowhere to 2nd fastest developing country in 40 years, and those who have been developed for hundereds of years are very concerned. That's what this article should say, because espionage has been going on since ppl realized what the internet was capable of; Russia and U.S, Ukraine, U.K, etc have been playing a big role in that.

    May 10, 2011 at 2:23 am | Reply
    • JM

      I don't think you can get anymore un-bias here. Its population itself and cheap labor allowed them to acheive 2nd highest GDP but the GDP per capita is the real measure. Maybe 1 billion are employed but on average each make 1/10 the average person in any other country.China offers mindless jobs, almost what a monkey can do and they probably know full well any other poor nation can replace them any moment. It is an obvious fact. Its the communist regime which will hurt them in the long. This is why China will never lead the world market even if their whole GPA is higher than the US and I doubt that will happen anytime soon and maybe never as the world starts finding cheaper labor. Sad to say but China is just a tool at this point and probably will be if China's government doesn't change fast.

      May 10, 2011 at 1:00 pm | Reply
    • T. Arantado

      The quality of products made in china is sooooooooooooo low that if buyers had a choice, even if it is more expensive they would rather buy that. That is the fruit of cheap labor. These greedy American companies should rethink their priorities. By moving most of their production abroad, a lot of Americans are losing their jobs, eventually there will be nobody to buy their cheap, low quality products.

      May 12, 2011 at 3:20 am | Reply
  5. what a joke

    "There is a Captain Renault-like response that Beijing is “shocked, shocked” that this could happen since hacking is illegal in China." Yeah, piracy and bootlegging are supposedly illegal too, but nothing is being done about it in China either. As a matter of fact, pirated and bootlegged items are sold openly in department store-like buildings and on every street corner in the heart of Beijing. Give me a break!

    May 10, 2011 at 3:39 am | Reply
  6. Evan

    China can steal as much information as they want; Americans, Japanese, and Europeans will always be the ones who inspire innovation and valuable intellectual-property. If you don't allow your citizens unrestricted access to ideas and information, they won't develop the ability to think freely and creatively. They can be the best math students in the world (see Granderson's article about year-round schools) but they will never think outside the box. They will perpetually do grunt work- really good grunt work- but grunt work, nonetheless, for those who are enabled by their governments to create, explore, and imagine.

    May 10, 2011 at 3:54 pm | Reply
    • Dennis

      A very good observation Evan. It's exactly this that keeps China behind the other "Industrial" countries. Communist China will not allow it's own people to think freely and outside the box but yet they want to reap the rewards from other countries that do so. Imagine if the people of China overthrows the communist party, now that would be an industrial juggernaut of a nation. Just take Taiwan for example and what they've done outside the control of communist china and multiply that by a 100.

      May 10, 2011 at 4:27 pm | Reply
      • Jack

        @Evan @Dennis The Chinese are not the best math students. They are the best cheaters and crooks, on which they excel and perform to the best of their abilities. If China is going to be anything it will like Taiwan at the most. You should not let the Chinese steal your property, either physical or intellectual. If they do, you reciprocate their actions. It is of the utmost importance for the survival of America to strike back, and do to the Chinese what they are doing to the US, by stealing property belonging to Chinese. It has to be done NOW.

        August 5, 2011 at 12:01 pm |
  7. another viewpoint

    North american penis size in comparison with the chinese is hugh with their wee-willie wonka,parts included.But being penis envy that the chinese male is with their american counterparts is furthermore staggering to say the least with their wee-willie wonka that was made in china.

    May 10, 2011 at 8:46 pm | Reply
  8. hallowed ground.

    The chinese have a sense of honour that goes well with prestige that they will ultimately be bestowed upon in their lifetimes alone in all subleties.Alot goes in the flow of things accordingly to their yin and yan.

    May 10, 2011 at 8:58 pm | Reply
    • Jack

      You're either joking or ignorant. The Chinese have no integrity. They are liars, thieves, extortionists.

      August 5, 2011 at 11:51 am | Reply
  9. SDT

    Am I the only one wondering if the Chinese have hidden spyware-like logic in the chips on PCs and other devices they manufacture for sale in the West? What if each Lenovo or other Chinese-built device transmitted private / corporate / governmental data without our knowledge?

    May 10, 2011 at 10:51 pm | Reply
    • Mike

      Of course they do, this is obvious (apologies, my intention is not to speak down to you). It has already been proven that your blackberry can be hacked into and exploited within 6 minutes of arriving in India due to parts being manufactured there. Companies and government agencies are only starting to catch onto this, that is the sad thing....

      May 11, 2011 at 12:18 am | Reply
  10. Tod

    joke all you want and dismiss the concern.

    meanwhile, it is a FACT that the Chinese government bankrolls strategic industries seeking to compete directly with Western firms in key manufacturing and infrastructural development/construction. Case in point: high speed rail.

    Also, take not that Chinese universities and research are leaping forward. All of you who presume that the West plus the Japanese will always lead the Chinese do so at the very peril of your social and economic welfare. How long does it take for a recorded idea and a blueprint to be stolen once someone is aware of it?

    The idea that the Chinese will be subsumed into the global market culture as most other countries seem to fall in line is a foolish idea. They will lie, cheat, steal, bully, and force their way into a stronger and stronger position and never stop. Message to West: you better get tough, act swiftly, and harsh NOW. This will NOT end and I doubt that businesses with key technological information and application will safeguard their intellectual property well enough. The collective Americas, Australia, Europe, etc. better get their cyber security and strategically important information either protected or completely offline and filed away NOW.

    You of the West see the effect of the younger generation's attitude, globalization, and the so-called "End of History" in a way that differs greatly from the mindset of a group of nationalists-and their obedient workers- in a large, booming East Asian economy. Despite the success and variety of political views/anti-government views within China, there remains a core identity and nationalism which can be used very effectively. I have doubts that some Westerners right now understand this.

    May 11, 2011 at 4:06 am | Reply
  11. JakeFoxe

    China's (and to an extent Russia's) cyber esponage is a credible threat to the US and Europe's prosperity and security. Chinese companies will steal entire factory plans from US corporations and then replicate the factory in China. This means not only does the US miss out on money from the intellectual property generated, what could have been good paying US factory jobs are now in China.

    I've also heard stories from credible sources that Chinese (and Russian) companies are stealing competitive information, like proposal bids, and than out-bidding the US and European companies to win business. This is far more common than we'd like to believe. I've heard the percentage of US companies compromised goes well into the double digits

    May 11, 2011 at 11:46 am | Reply
  12. edheres

    Having lived in China and worked in education here for four years, the threat of Chinese innovation and creativity is minimal for the next generation or two. The kind of creative thinking and questioning thought that leads to creativity is the same kind that so threatens the political structure. As a result, it's often praised, but rarely practiced in this follow-the-leader-without-questioning society. Unfortunately, national fortunes aren't made by innovating or inventing the product, they are made instead by adding value in the production of things and that's the bit where China will maintain it's advantage. A few Cupertino designers figured out the i-Products, thousands more in China make relative fortunes by manufacturing them. Apple makes it either way.

    May 12, 2011 at 12:41 am | Reply
  13. Jack

    You're a wuss, Dr Segal. You don't cooperate with China in order to reduce the threat, you reciprocate China's attacks. China's desire to reduce dependence on foreign technology will continue to perpetuate their cyberattacks to America because they want to steal such technology rather than pay for it. Don't you get it? It is weak and ineffectual people like you who tolerate such behaviour. The United States has to strike back. Hard.

    August 5, 2011 at 11:14 am | Reply
  14. Brett

    In today's new age of cyber espionage, it's important to protect yourself and your company. If you visit you will find cyber counterintelligence experts, many who formerly worked for the U.S. government, who will help you protect yourself from this new wave of cyber espionage.

    October 2, 2012 at 12:40 pm | Reply

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