China’s latest cyber offensive — and what to do about it – AEI – American Enterprise Institute: Freedom, Opportunity, Enterprise

6th October 2018 Off By binary
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Tensions between the United States and China have been rising, but the worst may be ahead.

The disclosure by Bloomberg Businessweek that the Chinese military allegedly implanted microchips onto thousands of motherboards used by the US government and major businesses is the most damning evidence to date of a massive Chinese espionage campaign. Shortly after the revelations were published, Vice President Mike Pence stated, “China is meddling in America’s democracy.”

This, on the heels of new tariffs and an “unsafe” military confrontation in the South China Sea.

For years, the US intelligence and national-security communities have warned that the Chinese Communist Party might interfere with electronics manufactured in China. Last year, the Defense Science Board went so far as to state that China’s offensive cyber capabilities “exceed the United States’ ability to defend key critical infrastructures.”

But Thursday’s revelations provide the first public evidence of extensive interference in both civilian and military supply chains.

The Chinese military allegedly inserted tiny microchips onto motherboards manufactured in China for Super Micro Computer Inc., based in San Jose, Calif. These chips were designed to evade detection and to create a backdoor for entry into sensitive systems. According to reports, thousands of motherboards were sent to 30 separate companies and the US government, where they were used by organizations ranging from Apple and Amazon to the Defense Department.

Apple and Amazon have both disputed the story, particularly the elements related to their prior knowledge of the alleged implants. Yet, Bloomberg’s reporting relied on 17 separate sources, including a variety of unnamed sources within the US government as well as Apple and Amazon themselves, which suggests that there is likely some truth to the story.

There is good reason to think that the revelations uncovered a serious pattern of malicious behavior. After all, China’s pursuit of US technology is already well documented. The former head of the National Security Agency, Keith Alexander, famously called Chinese cybercrime “the greatest transfer of wealth in history.” Leading assessments have concluded that US losses from intellectual-property theft amount to between $225 billion and $600 billion per year, with China accounting for roughly 70 percent of those losses.

A recent study on the Chinese Communist Party’s approach to cyber-enabled economic warfare concluded that the scope and scale of Chinese activities is not yet fully understood.

China’s “Made in China 2025” road map for next-generation information technology sets ambitious domestic-production targets for everything from mobile-phone chips to industrial robots and renewable energy. There’s nothing wrong with indigenous innovation, but much of China’s has been driven by stolen technology.

What can be done to ensure that Beijing plays fair? President Trump’s tariffs are one, albeit blunt, approach.

But a better long-term strategy would target malicious actors and bad behavior. As a first step, the US government should work to publicize Chinese activities, incentivize private companies to release information about intrusions and explain how espionage fits into China’s larger industrial strategy.

Today, most cyber incidents still go unreported, and many companies refuse to admit losses from cyber theft. One study estimates that only 44 percent of victim companies report attacks. Many others victims remain unaware of the attacks. Even when intrusions are disclosed privately, specific information rarely becomes public due to various sensitivities.

The US government should call out bad actors by name and maintain a list of Chinese companies that steal or use US intellectual property. Putting public pressure on these companies for engaging in or benefitting from industrial espionage would make them pay a price for malicious behavior.

The Trump administration has tried a variant of this approach with solar technology, where it has seen some success, but it should expand its efforts to other targeted sectors.

Finally, the Trump administration would be wise to expand its effort by working with a coalition of allies and partners to pressure China to cease its economic espionage. For policymakers across the globe, intellectual-property theft isn’t just a matter of commercial competition but of national security.

That’s why this challenge can no longer be ignored. Implanted microchips may be tiny, but their impact can be massive.

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