Tuesday, May 20, 2014

• U.S. Firms See Hacking Risk in Challenges to China

Đặng-Vũ Chính - Tuesday, May 20, 2014

In practically every case, the American company or union that defied Beijing ended up facing extensive break-ins by Chinese military hackers, in a pattern that could discourage further challenges.


HONG KONG — Two large American steel makers, U.S. Steel and Allegheny Technologies, each lost confidential files giving access to their computer networks.

The largest solar panel manufacturer in the United States, SolarWorld, lost technological secrets, production cost data, cash flow projections and the details of its legal strategy.
The United Steelworkers union lost computer records containing trade policy strategies and discussions about rare earth metals and auto parts.

All four had something in common besides data theft: each was in the middle of pushing back against China’s trade policies, by seeking help from the World Trade Organization or the Commerce Department.


A Justice Department indictment, released Monday, names five Chinese military personnel as being behind the intrusions and reads like a chronology of most of the major trade disputes between the United States and China during the past five years.

In practically every case, the documents say, the American company or union that defied Beijing ended up facing extensive break-ins by Chinese military hackers, in a pattern that could discourage further challenges.
The Chinese government responded furiously on Tuesday, calling in the newly installed American ambassador, Max Baucus, to protest the release of the indictment, which was accompanied by F.B.I. “wanted” posters of Chinese soldiers in uniform.

The Chinese foreign ministry and defense ministries vehemently denied any wrongdoing, while accusing the United States of engaging in extensive intelligence gathering of its own.

“China demands that the U.S. give it a clear explanation of its cyber-theft, bugging and monitoring activities, and immediately stop such activity,” the defense ministry said in a news release.

But behind the acrimony between governments lay an uncomfortable risk for many American companies, as well as businesses from the European Union and elsewhere:standing against Beijing, or even alerting foreign governments to trade issues, can carry serious repercussions.

Western companies operating in China have long been aware that they might be susceptible to eavesdropping by the authorities.

They have also faced legal cases alleging corruption, the sale of tainted food and other improprieties for which Chinese companies, particularly state-owned enterprises, are seldom investigated.

What stands out about the cases in the Justice Department indictment is that they involve executives and employees living and working in the United States, who may have been slower to think about the possibility of Chinese retaliation.
“Is China setting new rules, so that if you take them to the World Trade Organization, or if you go to the Commerce Department, then you’ll get punished?” asked David Zweig, the director of the Center on China’s Transnational Relations at the Hong Kong University of Science and Technology.
If so, companies may back off from challenging China, he said.

If China has begun retaliating against companies that seek the enforcement of free trade rules, as the indictment suggests, that could allow Beijing to begin creating an international trading system in which China has more latitude to pursue its own policies, Mr. Zweig added.
China’s surveillance of its own citizens is so pervasive that some Western executives doing business in China say that they accept it as almost routine and do not worry about it.
“People just assume everything they do is being watched — I always assume every email I send is read, every conversation I have is listened to,” said a Western executive, who insisted on anonymity because of the legal sensitivities of the issue.
The executive said that the United States was far from blameless.

He noted that Edward J. Snowden had released information documenting that the National Security Agency gathers intelligence around the world as well.

The United States government takes the position that it has been spying to gather military, political and economic intelligence, and that this is fundamentally different from, and less of an intrusion on civil liberties, than spying to gain a commercial advantage.

The usually cautious American Chamber of Commerce in Beijing issued a statement on Tuesday afternoon, essentially endorsing this position.

“The issue of cybersecurity is a major and growing concern for the business community,” the statement said. “While we cannot comment on the specifics of any particular case, AmCham China believes there is a fundamental difference between intelligence gathering for legitimate national security purposes and intelligence gathering for stealing trade secrets, and that the definition of national security ought not include economic interests. We urge both governments to reach agreement on the rules of the road regarding cybersecurity incorporating this distinction.”
Amcham China is a coalition of American companies that do business in China, and is independent of the United States and Chinese governments.

The Justice Department indictment included an unusually detailed description of SolarWorld’s troubles after it filed trade cases against China.

As waves of ever lower-priced solar panels showed up in the United States from China, the Oregon subsidiary of SolarWorld, a German company, hired trade lawyers in 2011 to ask the Commerce Department to investigate whether Chinese companies were selling solar panels below cost, called dumping, and with subsidies from the Chinese government.

A Commerce Department investigation found evidence of dumping and subsidies, and began imposing steep tariffs on Chinese imports in May, 2012.

But according to the Justice Department indictment, that legal victory marked the beginning of a new round of troubles for SolarWorld.

A Chinese soldier and at least one co-conspirator are accused of beginning a series of break-ins into SolarWorld’s computers the same month that lasted through September 2012, stealing a long list of crucial documents.

The files taken included the chief financial officer’s cash flow projections for how long SolarWorld could survive and detailed information on technological innovations and production lines, the costs for every production input, and even SolarWorld’s discussions of legal strategy with its lawyers.

SolarWorld said in a news release that it was “deeply troubled” by the indictment.
“It’s yet another example of the Chinese government’s systematic campaign to seek unfair advantage in the U.S. and global solar industry,” the statement said.

“Already, dozens of U.S. companies have closed operations, and thousands of U.S. employees have lost their jobs.”
Only two of the victims of computer break-ins cited by the Justice Department was not in the middle of a trade dispute with China: Westinghouse, which is building four civilian nuclear reactors in eastern China for state-owned Chinese enterprises, while trying to limit the sharing or expropriation of its proprietary technology, and Alcoa, which was in talks to acquire another mining company.

The indictment says that Westinghouse’s confidential designs for pipes, pipe supports and pipe routings were stolen, along with Westinghouse’s strategies in the Chinese market and its plans for preventing Chinese companies from reselling its technologies to others.

Some American industries have already reached accommodations with Beijing that may insulate them from further pressure.

With China now the world’s second-largest movie market, some Hollywood studios have begun making presentations to Chinese censors early in the production process for movies.
They have also entered into joint ventures with Chinese state-controlled enterprises and even invited Chinese officials to participate in creative decisions at some filming locations, to ensure that movies will not be banned from Chinese theaters.

Sony Pictures Entertainment announced last Wednesday that it had acquired the film rights to a book about Mr. Snowden.
But so far, there has been no sign of a Hollywood movie on “Ugly Gorilla,” the Chinese military hacker who was described in a security industry report in February and was alleged by the Justice Department on Monday to be a Chinese soldier named Wang Dong.