Chinese Cyber Theft Presents Massive Problem for U.S. Economy

The People’s Liberation Army isn’t going to hand over five of their officers who were recently indicted by the U.S. Attorney General for cyber stealing the secrets of five Pittsburgh-based companies and one labor union. And the United States will not be going into China to bring the five back to face trial. Cybersecurity and trade experts say the point of the May 19 indictments was to draw attention to the widespread, persistent theft of industrial and trade secrets by the Chinese government. The indictments could be part of a longer process in slowing the theft, but outside of showcasing the massive scale of the problem, it will accomplish little.

“The indictments are not about enforcing U.S. criminal law on economic espionage,” David Paul Fidler, a fellow at the Indiana University Center for Applied Cybersecurity Research, wrote in an e-mail.  “The purpose of the indictments was to shift attention about cybersecurity threats back to China, which was perceived globally as the main cyber threat before Snowden entered history. For nearly a year, the U.S. has been on the defensive, reeling from the disclosures Snowden has made. These indictments will not slow down Chinese cyber espionage, including against U.S. companies.”

Four of the companies targeted by the Chinese are headquartered in western Pennsylvania: U.S. Steel, Westinghouse Electric, Alcoa, and Allegheny Technologies. Also targeted were the United Steelworkers International Union, which is fighting, alongside U.S. Steel, the practice of steel dumping by the Chinese and other countries.

PMA Executive Director, David N. Taylor, said that many countries engage in economic espionage, but that the Chinese are by the far the worst actors. Taylor cites a 2011 study, "Foreign Spies Stealing U.S. Economic Secrets in Cyberspace,” from The Office of National Counterintelligence Executive. “The report makes it clear that the People’s Republic of China is the world’s most active and persistent perpetrator of economic espionage,” Taylor said. “Hundreds of billions in American R&D have been stolen by the Chinese government in this continuing assault on our economy, and America’s competitive edge will continue to erode until and unless our government defends our national interest by taking effective countermeasures.  More than merely stopping these intolerable robberies, the United States government must re-evaluate our entire relationship with the dictatorship in Beijing.”

Until recently, the scale of economic espionage was difficult to quantify. But last July, the Washington D.C. based Center for Strategic and International Studies (CSIS), released a report entitled “Estimating the Cost of Cybercrime and Cyber Espionage,” which calculated a $100 billion annual loss to the U.S. economy and as many as 508,000 U.S. lost jobs as a result of “malicious cyber activity.”

In reaching the numbers, CSIS said in a statement that it looked at more than the loss of financial assets or intellectual property. “There are opportunity costs, damage to brand and reputation, consumer losses from fraud, the opportunity costs of service disruptions ‘cleaning up’ after cyber incidents and the cost of increased spending on cybersecurity. Each of these categories must be approached carefully, but in combination, they help us gauge the cost to societies,” the statement said.

Cybersecurity experts say it’s not just the U.S. government that has to do more. Indiana University’s David Fidler wrote that the persistent nature of this threat, along with other perpetrators of illegal cyber intrusions, should underscore that corporate America must take cybersecurity more seriously in order to protect its intellectual property, trade secrets, and sensitive information. “The Chinese have sophisticated capabilities, but too many U.S. corporations make it far too easy for the Chinese to infiltrate corporate information systems and pilfer valuable information,” Fidler wrote.

Last year, the FBI notified more than 3,000 companies they had been hacked. Steven P. Bucci, Ph.D., Director of the Douglas and Sarah Allison Center for Foreign and National Security Policy at the Heritage Foundation, said it’s important to note that not just the largest companies are vulnerable. Bucci said that recently a U.S. furniture company with 100 employees had designs stolen. “Six months later, the Chinese were shipping furniture back to the states at half the prices. That quickly, the company was out of business,” he said.  

Whether dumping steel or stealing secrets, the motive for the Chinese is the same: keep their economic engine running, and maintain stability at home while simultaneously undermining the economic power of the United States.

“The Chinese bet the farm on this (stealing secrets) because they have virtually no R&D,” said Bucci. “The only way for them to keep up with western economies is to steal. They take everything, then sort through what they have and discard what they don’t need.” He added, “We have to do more than indict these five guys. But it seems hard for us to find the stomach when the Chinese hold so much of our debt. That’s a problem we have to deal with as well.”