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China and the Cyber Challenge

Thursday, June 6, 2013

Cyber issues will likely determine the tenor of U.S.-China ties over the coming months, and how the United States addresses these problems will be a harbinger of its overall approach to the challenge China poses.

As President Barack Obama and Chinese President Xi Jinping meet at this weekend’s summit, hopes of their developing a strong rapport may be undermined by China's cyber espionage. Indeed, cyber issues will likely determine the tenor of U.S.-China ties over the coming months, and how the United States addresses these problems will be a harbinger of its overall approach to the challenge China poses.

Because of their respective standings as an established and rising power, the United States and China are naturally competitive, as manifested in differences on security issues. Yet the two countries are also cooperative, particularly in trade, education, and people-to-people exchanges. U.S. efforts to emphasize partnership and downplay disagreements have often led to the compartmentalization of issues with China. For instance, for fear of harming economic relations, the United States has put little substantive pressure on China to cooperate in halting the North Korean nuclear program, and has de-emphasized human rights issues.

However, cyber espionage is harder to compartmentalize and de-emphasize because it presents an immense challenge to the overall health of U.S.-Chinese economic ties. A February 2013 report published by Mandiant, an information security company, documents Chinese attacks against 141 targets in primarily English-speaking nations in numerous high-value sectors, including information technology, financial services, energy, and aerospace. Such widespread infiltration has already cost U.S. companies billions of dollars. The persistence of this theft could erode American confidence in pursuing closer economic ties in a way that no other issue has thus far. It will likely increase American reticence towards allowing significant Chinese investment in the United States, for example.

Alleged Chinese hacking of defense contractors and the compromising of our most advanced weapons systems not only damage our competitiveness, but also threaten our national security.

But cyber espionage has other implications as well. Alleged Chinese hacking of defense contractors like Lockheed Martin and the compromising of our most advanced weapons systems such as the F-35 Joint Strike Fighter and Aegis Ballistic Missile Defense not only hurt our competitiveness, but also threaten our national security. Similarly, intellectual property theft (including outside the cyber sphere) is damaging the academic and the business ties intended to build trust between the United States and China. Just last month, three Chinese citizens working at New York University were charged with conspiring to accept bribes from a Chinese government-sponsored research institute in exchange for information from a National Institutes of Health-funded medical imaging project.

President Obama has recognized, though somewhat belatedly, the seriousness of cyber espionage, and administration officials have been conscientiously raising the issue’s profile. In March, National Security Adviser Thomas Donilon publicly called upon the Chinese government to take action, and the Pentagon’s annual China report published in May acknowledged the Chinese military’s involvement in cyber espionage. The United States and China have also established a working group on cyber. Beyond dialogue, the Justice Department is considering measures to indict state-sponsored cyber agents and Congress passed a provision banning the purchase of Chinese-made computers and other electronics for federal use through the end of the fiscal year.

The administration should build on this foundation and communicate to China that cyber espionage has a direct impact on all parts of the U.S.-China relationship. Because China continues to deny state involvement in cyber attacks, this message must be transmitted firmly in the cyber working group, or those talks could be a non-starter.

For fear of harming economic relations, the United States has put little substantive pressure on China to cooperate in halting the North Korean nuclear program and has de-emphasized human rights issues.

If dialogue proves fruitless, the United States could slowly start enacting cost-imposing measures that hold China accountable for current cyber activities and deter future ones. Admittedly, this will be difficult. How does a government react to small, everyday occurrences in cyberspace?

Modest cost-imposing measures are likely to be more effective in demonstrating the detrimental effects of cyber and intellectual property theft if they are made in areas of U.S.-China collaboration. A commission co-chaired by former Director of National Intelligence Dennis Blair and former U.S. Ambassador to China Jon Huntsman recently put forth several interesting ideas to punish and deter IP theft in the private sector, such as denying use of the U.S. banking system to offending companies. To address state-sponsored activities, the United States could cancel summits and cooperative exchanges in response to high-profile hacking incidents, or pursue punitive economic actions comporting with World Trade Organization commitments.

Cyber espionage undermines every facet of the U.S.-China relationship, and it therefore cannot be compartmentalized and sidelined as other issues have been in the past. If dialogue fails, China should be subject to costs imposed in areas where it enjoys cooperation with the United States. Those are the messages President Obama has to convey when he raises this issue with President Xi.

Lara Crouch is a research assistant in Asian Studies at the American Enterprise Institute.

FURTHER READING: Crouch also asks "Is the China Threat Overhyped?" and reiterates that "Cyber Must be Addressed in U.S.-China Relations." Michael Mazza writes "I Spy? Not Anymore" and identifies "The True Crisis in the Asia-Pacific." Sadanand Dhume says "On India, China Has Overplayed Its Hand," Dan Blumental explains "Why China Frets Over America's Retreat," and Michael Auslin laments "More Jaw-Jaw While China Steals Us Blind."

Image by Diana Ingram/Bergman Group

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