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The Pentagon has officially accused the Chinese government of breaking into U.S. computer systems, to steal technology that its own companies have not yet developed. This charge came in an annual report to Congress on Chinese military developments that was released yesterday.
This problem of cyber-espionage has lately risen to the top of the U.S. agenda with China. U.S. officials say China is relying on theft to modernize its military, and to develop its industrial base. Private U.S. businesses are among the victims; and they're losing valuable trade and technology secrets, as NPR's Tom Gjelten reports.
TOM GJELTEN, BYLINE: The stories from American businessmen dealing with China are endless - laptops compromised, emails intercepted, blueprints stolen. A recent survey by the American Chamber of Commerce in China found that 1 out of 4 U.S. companies there reported somebody stealing data from their computers. Greg Gilligan is the chamber chairman.
GREG GILLIGAN: They know they're under attack. They just don't know who's attacking.
GJELTEN: Yesterday's Pentagon report suggests a possible answer. Some computer intrusions, it says, quote, "appear to be attributable directly to the Chinese government and military." Another report last February, from the cybersecurity firm Mandiant, went further, saying a cyber unit of the Chinese army is systematically taking intellectual property - that would include technology blueprints, manufacturing secrets or negotiation plans - from the U.S. companies it targets.
Much of this is above and beyond China stealing military secrets. Greg Gilligan says if true, it's even more alarming than traditional government-on-government espionage.
GILLIGAN: Some organized effort by some group that is attacking business interests. So this is not government to government; it's not military to military. It's attacking economic interests of United States companies.
GJELTEN: U.S. companies have long known it's risky to do business in China. But there is that huge opportunity - more than a billion Chinese ready to buy American goods. Adam Segal, a China expert at the Council on Foreign Relations, says the business temptation has so far been irresistible, no matter the likelihood of being hacked.
ADAM SEGAL: For the last 15, 20 years, companies have been willing to make the bet or the bargain that oh yes, we know we're going to lose our technology in China, but being in the China market is so important that we're going to take that bet.
GJELTEN: But the odds are getting worse. A classified National Intelligence Estimate earlier this year concluded that cyber-espionage from China is now threatening U.S. economic competitiveness. Here's why - the one big advantage that U.S. companies have in the global economy is they are inventive and creative. It's no accident that companies like Microsoft, Apple or Google originated in the United States, not in China. The business culture in China does not favor creativity. The Chinese cannot match U.S. technological innovation. But Undersecretary of State Robert Hormats says Chinese companies can get around that U.S. advantage by stealing U.S. ideas and technology.
ROBERT HORMATS: There are certainly some companies that are seeing this as part of a strategy for becoming more competitive internationally, taking innovation from somewhere else and incorporating it in their products. We want to make the Chinese know that we regard this as a threat to our most innovative companies, and are very serious about insisting that they stop it.
GJELTEN: Chinese authorities deny there is a state policy of cyber-espionage. But U.S. officials aren't buying it. Yesterday's Pentagon report is only the latest example of U.S. government complaints about Chinese cyber-espionage. President Obama raised concerns in a phone call in March, to China's president. Next came a parade of senior U.S. officials in Beijing, complaining in person - the secretary of the treasury, the secretary of state, the chairman of the joint chiefs.
Robert Hormats was also there. The message: The U.S. is running out of patience, and wants China to end its cyber-espionage now.
HORMATS: Having a prolonged dialogue is not our goal. A dialogue that leads to results - that's our goal.
GJELTEN: And you told them that?
GJELTEN: Quick results, or else what?
HORMATS: Well, we're trying to figure out what we can do. We're having discussions within our government, to figure out how to respond. Our hope is that the Chinese will take action, but we're certainly considering various options that we will take if that doesn't work.
GJELTEN: One option: Identify the individual Chinese who are stealing business secrets and if possible, prosecute them. Attorney General Eric Holder highlighted several such cases at a White House event in February.
(SOUNDBITE OF ARCHIVED AUDIO)
ERIC HOLDER: Last September in New Jersey, a jury convicted another Chinese native of trade-secret theft and other charges, for stealing information from...
GJELTEN: Another option: Deny U.S. visas to anyone in China found to be stealing economic secrets. That would hurt Chinese who want their children educated in U.S. universities. Congress could also punish China by imposing new trade restrictions. Finally, if all else fails and Chinese cyberwarriors continue to steal secrets from American companies, the U.S. military's Cyber Command could intervene in defense of the targeted U.S. firms, hacking back into the Chinese computers and taking their data.
So far, virtually no one in the U.S. government is ready to endorse that approach. But Adam Segal, at the Council on Foreign Relations, can imagine a point where U.S. companies in China are so penetrated, and have lost so many of their secrets to their Chinese rivals, that they no longer have an advantage in the Chinese market and simply call it quits.
SEGAL: Either the Chinese catch the U.S. companies, or the cost from the theft becomes so burdensome that the U.S. companies decide that it's not worth it any longer.
GJELTEN: In fact, the American warnings may have had at least a temporary effect. Security sources say the Chinese army unit most associated with cyber-espionage backed off a bit, following the high-level U.S. visits.
Tom Gjelten, NPR News, Washington.