The Washington Times Weekly - - Geopolitics - BY BILL GERTZ

Amer­i­can com­pa­nies do­ing busi­ness in China will face a con­tin­u­ing threat to their in­tel­lec­tual property un­der Chi­nese Pres­i­dent Xi Jin­ping’s se­cu­rity poli­cies, ac­cord­ing to a State Depart­ment se­cu­rity re­port.

China’s large-scale in­for­ma­tion hack­ing is not lim­ited to re­cent in­ci­dents like the theft of Of­fice of Per­son­nel Man­age­ment records on 2.1 mil­lion fed­eral work­ers, ac­cord­ing to the re­port by depart­ment’s diplo­matic se­cu­rity of­fice pro­duced for the Over­seas Se­cu­rity Ad­vi­sory Coun­cil.

Hack­ing is part of a much broader trend with an es­ti­mated 80 per­cent of all cy­ber­at­tacks against Amer­i­cans com­ing from China, the re­port says, not­ing that, de­spite the re­cent agree­ment by Mr. Xi to curb in­tel­lec­tual property theft, “threats to [in­tel­lec­tual property] are un­likely to dis­ap­pear soon.”

The re­port adds, “Visi­tors to China should have no expectations of pri­vacy. Taxis, ho­tel rooms, and meet­ing spa­ces are all sub­ject to on-site and re­mote tech­ni­cal mon­i­tor­ing. Fur­ther­more, the Chi­nese gov­ern­ment’s ac­cess to in­fra­struc­ture means that all forms of com­mu­ni­ca­tion, in­clud­ing phone calls, faxes, emails and text mes­sages, as well as In­ter­net brows­ing history, are likely mon­i­tored.”

The threat is not lim­ited to trav­el­ers and the in­for­ma­tion they are car­ry­ing, but could be used by Chi­nese hack­ers as an en­try point into com­pa­nies’ se­cured net­works.

“Upon suc­cess­ful in­tru­sion, threat ac­tors may enjoy con­tin­ued net­work ac­cess long af­ter the trav­eler has de­parted, fa­cil­i­tat­ing the theft not only of trade se­crets (e.g., for­mu­las, de­signs and chem­i­cal com­pounds), but of any in­for­ma­tion that would give an or­ga­ni­za­tion a com­pet­i­tive ad­van­tage (e.g., con­tacts, fi­nances and busi­ness mod­els).”

China also im­posed a new reg­u­la­tion that threat­ens in­for­ma­tion held by for­eign busi­nesses. It con­tains a pro­vi­sion that “could re­quire IT com­pa­nies to trans­fer pro­pri­etary source code to au­thor­i­ties, cre­ate back­doors in ex­ist­ing plat­forms for third-party ac­cess, and house Chi­nese cit­i­zens’ per­sonal data on Chi­nese servers.”

The mea­sure may be a “sub­tle means of ex­act­ing con­ces­sions from for­eign firms and forc­ing tech­nol­ogy trans­fer.

“Ul­ti­mately, this may leave U.S. com­pa­nies faced with a dif­fi­cult choice: com­ply and re­ceive ac­cess to Chi­nese mar­kets on the one hand, or refuse to com­ply and miss a po­ten­tially lu­cra­tive op­por­tu­nity on the other.”

Cen­sor­ship and curbs on press free­dom are in­creas­ing un­der Mr. Xi. Com­pany employees who vi­o­late re­pres­sive Chi­nese me­dia re­stric­tions face fines, law­suits and ar­rest. Ma­jor for­eign news sites also are blocked in China. So­cial me­dia also are be­ing blocked to pre­vent po­lit­i­cal change in China, with some 2 mil­lion Com­mu­nist Party cen­sors work­ing to scrub blog posts and shut down con­tro­ver­sial un­of­fi­cial web­sites.

On China’s mar­itime dis­putes, the State Depart­ment anal­y­sis warns that grow­ing gov­ern­ment-fu­eled na­tion­al­ism could lead to a con­flict and bel­li­cose rhetoric and saber-rat­tling are likely to con­tinue.

“Pub­lic sen­ti­ment could lead to an­tiU.S. or anti-claimant demon­stra­tions, as was the case with anti-Ja­panese protests in China in 2012, and this bears mon­i­tor­ing,” the re­port said, not­ing that au­thor­i­ties will prob­a­bly limit any un­rest that might un­der­mine sta­bil­ity.

The re­port warns that Mr. Xi’s sweep­ing anti-cor­rup­tion cam­paign that has net­ted tens of thou­sands of party of­fi­cials is not aimed mainly at cre­at­ing a more hon­est and open sys­tem. In­stead, the cam­paign is based on fears the rul­ing Com­mu­nist Party will be weak­ened or over­thrown.

“Xi ap­pears con­cerned about threats to the party and anx­ious to re­assert con­trol,” the re­port says.

The anti-cor­rup­tion cam­paign is tightly con­trolled by Mr. Xi and his sub­or­di­nate Wang Qis­han who are care­fully tar­get­ing cer­tain cor­rupt of­fi­cials while ig­nor­ing oth­ers. The con­trols are making it dif­fi­cult for for­eign com­pa­nies to con­duct due dili­gence on prospec­tive Chi­nese busi­ness part­ners.

As a re­sult of the new eco­nomic slow­down in China “the Com­mu­nist Party of China, led by Pres­i­dent Xi Jin­ping, ap­pears to be height­en­ing mea­sures to consolidate con­trol and min­i­mize any threats to its author­ity,” the re­port says.

“While sug­ges­tions that the party is fac­ing an ex­is­ten­tial cri­sis may be pre­ma­ture, the terms and con­di­tions of op­er­at­ing in China are likely to be­come more dif­fi­cult for the pri­vate sec­tor.”

The re­port, “XI Ways Xi is Chang­ing Chi­nese Se­cu­rity,” lists 11 fac­tors be­hind the more dif­fi­cult op­er­at­ing con­di­tions

in China (

Xi Jin­ping

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