China Halts Cybersecurity Cooperation After U.S. Spying Charges

China’s decision to suspend its involvement in a cybersecurity working group with the U.S. after being accused of commercial spying threatens to undo efforts aimed at finding common ground to tackle hacking.

China halted the dialogue and threatened further retaliation after the U.S. indicted five Chinese military officials yesterday for allegedly stealing trade secrets. China’s Foreign Ministry called the U.S. move a “serious violation of the basic norms of international relations,” while China’s State Internet Information Office likened the U.S. actions to “a thief yelling ‘Catch the thief.’”

The group was established last year when U.S. Secretary of State John Kerry visited Beijing and the two sides tried to patch up ties that have long been dogged by accusations of cyber espionage. It met in Washington in July, even after former U.S. National Security Agency whistle-blower Edward Snowden began making revelations about Amercia’s cyber-spying that included hacking into computers in China since 2009.

“Beijing and Washington had reached a certain consensus that both sides don’t point the finger at each other regarding cyber-hacking,” said Shi Yinghong, director of U.S. Studies at Renmin University in Beijing. “Now this hard-won dialogue channel in this strategic area has been damaged.”

The charges follow a campaign by the Obama administration dating back at least three years to escalate public pressure on China to stop economic spying. By bringing the indictment, the U.S. draws a distinction between government surveillance for national security and the theft of commercial secrets of private companies to boost Chinese competitors.

Job Losses

While hundreds of U.S. entities have been penetrated by Chinese military hackers since 2002, the Justice Department focused on five companies specializing in solar panels, metals and next-generation nuclear power plants. David Hickton, U.S. Attorney for the Western District of Pennsylvania where four of companies are headquartered or have main offices, blamed the hacking for job losses, plant closures and billions of dollars to companies in lost research and development costs.

“The FBI action paints China as a threat to commercial interests above all else, and this will probably have traction in the U.S. domestically where there is a feeling that China is waging a form of economic warfare,” said Kerry Brown, director of the China Studies Center and professor of Chinese politics at the University of Sydney. “Beijing might decide to take some punitive actions against U.S. companies, but I think it more likely they will not do this explicitly.”

The working group established a mechanism for dialogue on cybersecurity that may resume once the current furor has died down, Brown said.

‘PLA’ Hackers

China urged the U.S. to “revoke the so-called prosecution,” according to Qin’s statement. Assistant Foreign Minister Zheng Zeguang summoned U.S. Ambassador Max Baucus yesterday to lodge a formal protest.

China-based hackers with links to the People’s Liberation Army have been conducting commercial espionage on western companies despite the Chinese government’s denial of the accusation last year, Mandiant Corp., the information security firm, said in a report posted April 10 on its website. Mandiant has since been acquired by FireEye Inc.

Those indicted were officers in Unit 61398 of the Third Department of the Chinese People’s Liberation Army. The Justice Department identified them as Wang Dong, Sun Kailiang, Wen Xinyu, Huang Zhenyu and Gu Chunhui. The move by the Justice Department was almost certainly symbolic since there is virtually no chance that China would turn over the five People’s Liberation Army members named in the indictment.

‘U.S. Hypocrisy’

China is a staunch defender of network security and China’s government and army have never been engaged in or were involved in cyber-theft of trade secrets, the Defense Ministry said in a statement today.

“From Wikileaks to the Snowden incident, the U.S. hypocrisy and double standards on the issue of network security have long been obvious,” the ministry said. “China’s military forces have suffered severely from such U.S. actions.”

The U.S. is the biggest attacker of China’s cyberspace, with U.S. servers taking control of 1.18 million Chinese host computers between March 19 and May 18, according to the Internet information office.

“China has repeatedly asked the U.S. to stop, but it never makes any statement on its wiretaps, nor does it desist, not to mention make an apology to the Chinese people,” Xinhua News Agency reported, citing citing a spokesperson for the office.

Confront China

The Obama administration decided last year to publicly confront China with claims that it is behind a campaign to hack into U.S. agencies and corporations to steal trade secrets and potentially disrupt computer networks operating banks, power grids and telecommunications networks.

“Success in the global marketplace should be based solely on a company’s ability to innovate and compete, not on a sponsor government’s ability to spy and steal business secrets,” U.S. Attorney General Eric Holder said yesterday, emphasizing that U.S. surveillance and spying is not used for commercial purposes.