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Why Chinese Hacking May Backfire

Rick Newman

There's no dispute that China has become the world's most aggressive sponsor of global computer hacking. What's less clear is whether it's doing China any good.

A new White House report declares that "the pace of economic espionage and trade secret theft against U.S. corporations is accelerating." The report traces most of that espionage to China, while listing several specific cases in which proprietary information belonging to Ford, DuPont, General Motors, Dow Chemical, Cargill, Motorola and other U.S firms ended up in Chinese hands. Elevating the issue to a presidential level suggests the Obama administration may take concrete action against China rather than simply jawboning about it.

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Meanwhile, Chinese hackers have shown new brashness recently by cracking into the Wall Street Journal, the New York Times and other media organizations, apparently to monitor and perhaps preempt negative coverage of China. The proliferation of attacks, meanwhile, has spawned a rapidly growing cyber security industry that's raking in dough from corporate customers concerned that China will somehow snatch their crown jewels. "It's a real threat," says Adam Segal, a China expert at the Council on Foreign Relations. "We should be putting pressure on China to change their behavior."

But even if there's an epidemic of Chinese hacking, that doesn't mean cyber crime is giving China economic or military advantages it doesn't already have. It's important to distinguish among three types of hacker attacks emanating from China: economic espionage, cyber warfare propagated by the military, and attacks by "hacktivist" groups with a social or political agenda. The distinctions may matter less in China than in the United States--since the Chinese government is far more pervasive and probably sponsors all types of attacks--but it's worth noting that attacks do occur for many different reasons.

China has been an economic pirate for decades, stealing and copying the blueprints for everything from automobiles to fighter jets to software. While the Chinese theft of intellectual property has long been one of the top complaints of western corporations, many grudgingly accept it as a cost of doing business in China.

The prominent incidents of economic espionage listed in the recent White House report, in fact, are all examples of old-fashioned espionage, in which an insider who once worked at a big U.S. company essentially walked out the door with trade secrets that would be valuable to a competitor. The report does note an increase in cyber crime and international hacking, along with intensified efforts by the FBI to crack down on it. But it doesn't provide any specific examples of cyber crime that significantly harmed U.S. corporate interests.

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The extent of cyber warfare practiced by military units is even murkier. There's plenty of evidence that China is aggressively enhancing its ability to tap into Pentagon computers, disrupt U.S. command and control systems and rely heavily on cyber warfare if there's ever a military conflict with the United States. But the Pentagon does precisely the same thing, and may be a lot better at it that China's digital warriors. One remarkable (if still shady) U.S.-backed success was the Stuxnet computer virus that infected the Iranian nuclear program a couple of years ago.

Authorities in China, in fact, may worry more about cyber attacks than their American counterparts. "The Chinese press is filled with articles saying, 'We're vulnerable to U.S. cyber attacks," Segal points out. Chinese hacking attempts, such as the recent ones on media outlets that drew widespread attention, may simply be more detectable and amateurish than probes directed by U.S. agencies. So it's possible that Chinese hackers simply get caught more often, creating the impression that they're the only ones doing it.

Whatever the case, the growing frequency of hacking attempts traceable to China is creating the image of an adolescent economic power that can't shake bad habits preventing it from reaching adulthood. For all its manufacturing power, China still hasn't shown the type of institutionalized innovation that produced the Internet, the mobile phone, the Hollywood blockbuster, the ATM or even the latte.

China is rapidly climbing the economic food chain, but ongoing efforts to steal other people's ideas may hinder China's economic progress, not help it. . "China's national strategy to acquire technology illicitly from Western companies handicaps its own development," James Lewis of the Center for Strategic and International Studies wrote recently in Foreign Affairs. "There is a puzzling lack of faith in China's own strengths. Beijing has concluded that now is not yet the moment to tame the decades-old effort to pilfer technology."

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That doesn't mean U.S. companies should be complacent. China's electronic capabilities will undoubtedly get better, and the risk posed by cyber attacks would rise significantly if Chinese hackers shared their expertise with terrorist groups or other third-party malefactors. But for now, the western backlash against China's cyber-meddling may have become more of a problem than Chinese authorities anticipated. Perhaps the party bosses in Beijing should instruct the hackers under their command to be a bit more discrete.

Rick Newman's latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

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