A little more than a week before China’s leader arrives at the White House, President Barack Obama escalated the fight over cyberspace, saying the U.S. is readying measures to forcefully demonstrate that economic espionage won’t be tolerated.

It was the first time that the administration publicly, if indirectly, acknowledged the possibility of imposing sanctions or retaliation to counter hacking emanating from China, which has become a serious point of conflict between the world’s two largest economies.

“We are preparing a number of measures that indicate this is not just a matter of us being mildly upset,” Obama said Wednesday during a question-and-answer session with corporate executives at the Business Roundtable in Washington. 

While U.S. officials have said the administration is considering levying sanctions against people or organizations involved in hacking company or government networks, Obama suggested punishment could go further.

The U.S. is “still the best” at cyber warfare, he said. “If we want to go on offense, a whole bunch of countries would have significant problems.”

‘Weaponized’ Internet

The White House on Tuesday announced Chinese President Xi Jinping’s visit will take place Sept. 25. It will include a state dinner and meeting between the two presidents at the White House. Obama said those discussions will include behavior in cyberspace.

“We don’t want to see the Internet weaponized,” Obama said. “Our goal is to have them as a partner in helping to have a set of international rules and norms that help everybody.”

White House press secretary Josh Earnest said afterward that Obama was “intentionally non-specific” about what steps the U.S. might take. He said the administration has multiple tools available. Obama in April signed an executive order that allows the use of economic sanctions -- such as asset freezes -- against perpetrators of cyber-attacks intended to harm national security, damage networks or conduct corporate espionage.

U.S. officials have pointed to China as the source of a hack into government personnel records that exposed personal data of millions of current and former federal employees, possibly for intelligence purposes. China has denied it engages in such attacks.

‘Fundamentally Different’

Obama made clear he was drawing a distinction between governments hacking networks as a part of routine intelligence gathering and breaches intended to disrupt economic activity or steal trade secrets.

“That is fundamentally different from your government or its proxies engaging directly in industrial espionage and stealing trade secrets, stealing proprietary information from companies,” Obama said. “That we consider industrial espionage.”

Over several days last week, officials from the Justice and Homeland Security departments along with intelligence agencies met in Washington with Meng Jianzhu, the secretary of the Communist Party’s Central Political and Legal Affairs Commission acting as a special envoy for Xi on cybersecurity. National Security Adviser Susan Rice had “a frank and open exchange” with Meng when they met, according to a White House statement.

The Chinese government is suspected of waging a sweeping operation beginning more than two years ago to vacuum up data from U.S. health-care and travel companies. Additionally, the U.S. indicted five Chinese military officials in May 2014 for allegedly stealing trade secrets from companies including United States Steel Corp. and Westinghouse Electric Co.

Pressure to Act

The Obama administration “is under pressure to be tough and act, they’ve been talking about cyber issues for a long time, so the pressure is to lay something out, do something about it,” said Amy Celico, a former State Department official and China expert who is now a principal at the Albright Stonebridge Group in Washington.

While businesses share the government’s anger at hacking by Chinese interests, there’s a balance between cracking down and promoting U.S.-China business relations, Daniel Rosen, founding partner of the Rhodium Group, said Tuesday at a conference at George Washington University in Washington.

Imposing sanctions could “lead to a kind of lock-down of our commercial potential as well,” he said, saying the business community should be part of the conversation on whether to impose them.

It’s difficult for U.S. businesses because “their interests are being directly impinged upon by Chinese practices,” but they may see enough to be gained from a successful summit to say, “Hold back a sec, no need to go to Defcon One yet,” Rosen said.

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