US firms likely to suffer as Chinese military is accused of cyber spying

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Beijing and Shanghai - US technology firms are likely to bear the brunt of soured ties between Beijing and Washington over internet security, after the US Department of Justice charged five Chinese military officers with cyber espionage.

US equipment and software providers such as IBM and Cisco Systems have already seen their China sales drop after last year’s revelations by former National Security Agency (NSA) contractor Edward Snowden of US government spying.

Doing business in China could now get tougher, although any Chinese retaliation over the charges might not be obvious, executives and industry analysts said yesterday.

“The environment in China for US technology companies is not very good right now, and this won’t make it better,” James McGregor, the chairman of advisory firm APCO China, said. “But if they’re losing their intellectual property to cyber-hacking they probably see this action as necessary and worrisome.”

IBM’s China sales had fallen by a fifth or more for three consecutive quarters, the firm said last month.

Cisco said last week that its China business declined 8 percent in the quarter to April 26.

“There’s always a risk of retribution in China,” said a person who works closely with US technology firms. “[But] the damage is so pervasive that no company is going to say that the [US] government has acted inappropriately.”

The person added: “Companies in any industry seen as a priority for China’s industrial policy could be at risk.”

In December, Google, Microsoft and six other US global technology companies called for an overhaul of practices and laws to limit how governments collect user information amid growing concerns about online surveillance.

And last week Cisco chief executive John Chambers wrote to US President Barack Obama calling for “standards of conduct” to ensure that government surveillance did not undermine the ability of US technology companies to sell products globally, the Financial Times reported.

China has consistently denied accusations of cyber espionage, and summoned Max Baucus, the US ambassador to China, to a meeting with assistant foreign minister Zheng Zeguang, state media reported yesterday.

“The Chinese government and military and its associated personnel have never conducted or participated in the theft of trade secrets over the internet,” the Xinhua news agency quoted Zheng as telling Baucus. Zheng “protested” against the actions by the US, saying the indictment had seriously harmed relations between both countries, the Foreign Ministry said.

Zheng told Baucus that depending on the development of the situation, China “will take further action on the so-called charges by the US”.

The US Department of Justice’s move signals a new strategy for Washington, but also caught firms operating in China off guard, sparking fresh concern that business could be damaged. People at a number of US companies and trade sources said they had not been given a heads-up before the hacking charges were made public, and were concerned that China could make life difficult for US companies.

Beijing and Washington have traded blows over cyber espionage and online theft of intellectual property for years.

The tension was ratcheted up in late 2012 after the US banned Chinese communications equipment makers Huawei Technologies and ZTE Corporation from any role in building US telecoms infrastructure.

China’s government returned fire by putting pressure on big state-owned companies to stop buying US-made hardware, emphasising security risks following Snowden’s NSA revelations, people in the industry said.

“The issue of cyber security is a major and growing concern for the business community,” said Gregory Gilligan, the chairman of the American Chamber of Commerce in China (AmCham).

“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 to include economic interests,” Gilligan said in e-mailed comments. – Reuters


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