By Anna Schecter
Rock Center
The Chinese are playing dirty in the international spy game, according to current and former intelligence officials at the highest levels of government.
“This is stealing American wealth. It's stealing American jobs. It's stealing American competitive advantage,” General Michael Hayden, former head of the Central Intelligence Agency and the National Security Agency, said in an interview with NBC News.
Hayden’s comment was echoed by a House Intelligence Committee report released on October 8th warning that two Chinese telecommunications companies, Huawei and ZTE, could be funneling sensitive information back to Beijing, and cautioned American carriers to avoid doing business with them.
Intelligence Committee Chairman Mike Rogers, R-Mich., told NBC News that the Chinese have targeted every sector of the American economy.
“Everything you can possibly imagine we have seen the Chinese make a concerted effort to steal that information and use it for their own economic advantage,” he said.
That includes blueprints for the next generation of auto parts, formulas for pesticides and pharmaceuticals, and other information that makes American companies competitive in the global marketplace.
Though the United States limits its espionage to national security interests, intelligence officials said, China has launched a well-organized campaign to steal American corporate secrets via the Internet.
“I know states steal secrets. Our states steal secrets. And we're actually pretty good at it. But we self-limit. We steal things that are valuable and useful for your security, for your liberty and for your safety,” Hayden said.
One of the first to find himself on the front lines of the economic cyber war with China at the corporate level was Brian Shields. He was a computer security specialist for Nortel, a giant Canadian telecommunications company.
A success story from the early Internet age, Nortel made cell phone and computer network equipment. At its height, the company employed 20,000 people in the U.S.
Shields said he first got wind of the Chinese in Nortel’s network in 2004. An employee working in highly technical research and development saw some curious activity on a computer server. His documents were being downloaded apparently by a senior executive named Brian McFadden, who worked in a completely different department.
Shields said McFadden had not downloaded anything. Instead, someone had hacked into the computer network using McFadden’s stolen password. Shields said he discovered that seven passwords had been stolen, including that of then CEO Frank Dunn.
Though Shields could never determine who the individual hacker was, he was able to track the activity to servers in Shanghai and Hangzhou, China.
In total more than 1,400 documents were stolen including product designs and valuable customer information, according to Shields.
“They could know what companies we're buying, how much. They could know where we saw our future product. They could know where we saw our profitability,” he said.
After the attack, Shields said he watched his company steadily lose business, while a competitor, Huawei, began to grow. Nortel went bankrupt in 2009, while Huawei has become one of the world’s premiere telecommunications companies. Shields said he believes Nortel went under as a result of spying by companies like Huawei.
Most industry insiders say that Nortel was a victim of bad business decisions coupled with the burst of the Internet bubble.
A spokeswoman for Nortel said the company responded appropriately to the 2004 attacks and “found no evidence of wide spread security issues.”
Huawei has denied stealing from Nortel or any other company. In a statement emailed to NBC News, the spokeswoman said the company has "the highest respect for the intellectual property of others."
In response to October 8th's House Intelligence Committee report, a Huawei spokesman said the accusations were based on rumors. The company defended its record as a member of the Fortune 500 list of the largest companies in the world.
“For the past 25 years, we have held an upstanding record…We have been emphasizing that Huawei is committed to cooperating transparently with any and all government agencies who wish to carry out an open and impartial dialogue about our company and the products and services that have made us successful internationally,” read a Huawei statement responding to the report.
Huawei has already sold equipment to a dozen small carriers in the U.S.
The Huawei spokesman said company is a “partner to the U.S. high-tech industry” and “helps create jobs in the U.S.”
ZTE released a statement saying that the company is China’s “most transparent, independent, globally focused, publicly traded telecom company.”
Click here to read a full response from ZTE
Click here to read a full response from Huawei
In response to this story, China’s Foreign Ministry Spokesman Hong Lei denied stealing from any corporations, adding that last year the Chinese helped international agencies address hundreds of cyber-attacks.
“China is also a victim of cyber-attacks, and we take a firm stance on continuously playing an active role in international cooperation,” Hong Lei told NBC News.
But top American brass said they are exasperated by China’s efforts to portray themselves as victims. Hayden said it is time to hold China accountable.
“Don't treat me like a child. We know what you're doing. We have good evidence with regard to what you're doing. And if you continue to do what you do actions will have consequences,” said Hayden.
Rogers advocated that the White House make Chinese cyber espionage the number one issue in bilateral relations with China.
“They do respond to embarrassment. And we ought to embarrass them for being thieves of the research and development of the United States of America.”
Editor's Note: Rock Center with Brian Williams airs Thursdays at 10pm/9c on NBC.
Leave a Comment:
This is a very interesting article, but not surprising. Just as we in the United States are trying to maintain our lead in world economics, China is doing its best to jump to the forefront (if they haven't already passed us by considering how much US debt China owns). It is naive to think that we are not at economic war with our competitors. And if we are on an economic battlefield, then it is acceptable for China to do everything it can to come out ahead (go read Sun Tzu). It is our responsibility to use the knowledge about what they are doing to defend ourselves. The only silver lining to this problem is that it will likely create new jobs in the IT security sector...so perhaps China has done us a favor after all.
How nice for detractors to attack the messenger in order to discredit what is said. Mr. Snert Lee, you weren't there, so I suppose all you can do is talk in probabilities. Well suffice it to say you are wrong. No surprise there.
Anna, great job on an overall story. The real truth is that espionage has been around for ages. What has changed is the means by which to do espionage. Today's computing model is inherently insecure and with Internet access the risk of compromise is EXTREMELY high if you have something of value. Beware Fortune 500 company CEO's, I can assure you of this much, if you allow your employees to use the Internet, you can not keep out of your network nation state sponsored intruders. Years ago computing security was much better with mainframes, dumb terminals and no Internet connectivity. There are so many issues today including: OS integrity, application vulnerabilities, patching, remote access, wireless, bring your own device, insufficient security resourcing, IT operations prioritizing, reliance on automated solutions, and IT personnel lack of experience with advanced intrusions. My entire 30+ years working career has been just in IT security, so I have seen the changes and issues. You won't keep these bad guys out.
What brings down a giant of a company like Nortel that had nearly 100K employees just over ten years ago? Perhaps grossly inept management, but that was not our case. The company was a strong competitor in the Telecom space, a critical infrastructure. Their main market was in the profitable North American and in European markets although they also sold around the world. Just how does a 100 year company so quickly in the span of about 8 years (from the time the skid began) go bankrupt? Unfair competition. This isn't about government spying for the sake of national security which all governments will do. This is about Economic Espionage for the sake of taking over an entire industry to provide jobs back home. It is about time Executive's and government start taking this threat seriously otherwise there will be more Nortel stories and lots of lost jobs.
Brian
How nice for detractors to attack the messenger in order to discredit what is said. Mr. Snert Lee, you weren't there, so I suppose all you can do is talk in probabilities. Not surprisingly your assessment of what happened missed the mark.
Anna, great job on an overall story. The real truth is that espionage has been around for ages. What has changed is the means by which to do espionage. Today's computing model is inherently insecure and with Internet access the risk of compromise is EXTREMELY high if you have something of value. Beware Fortune 500 company CEO's, I can assure you of this much, if you allow your employees to use the Internet, you can not keep out of your network nation state sponsored intruders. Years ago computing security was much much better with mainframes, dumb terminals and no Internet connectivity. There are so many issues today including: OS integrity, application vulnerabilities, patching, remote access, wireless, bring your own device to work, insufficient security resourcing, IT operations prioritizing, reliance on automated solutions, and IT personnel lacking experience dealing with advanced intrusions. My entire 30+ year working career has been just in IT security, so I have seen the changes and issues. I can assure you of this much, you can't keep these bad guys out. We keep accepting more and more risk over time even though the dike has more holes in it than we have fingers to plug them with.
What brings down a giant of a company like Nortel that had nearly 100K employees just over ten years ago? Surely grossly inept management would, but that was not our case. The management team may have made some mistakes, but nothing extremely hurtful to the company. We were a strong competitor in the Telecom space and this industry is an important critical infrastructure. Their main market was in the profitable North American and European regions although they also sold around the world. So, just how does a 100 year old company so quickly in the span of about 8 years (from the time the skid began) go bankrupt? The answer is simple, unfair competition. Predatory pricing is what causes companies to miss their sales targets and ultimately the continued layoffs year over year in an effort to save the company. This isn't about government spying for the sake of national security which all governments will do. This is about Economic Espionage for the sake of taking over an entire industry to provide jobs back home. It is also about using that technology to conduct further espionage as this infrastructure becomes an enabler for rotten things (breaking into companies and governments). Telecom Carriers want the least expensive equipment to run their networks so they can compete with other carriers. They will be in denial (minimizing) about the threat of espionage until there is a major incident one day. Until then, they will buy from Chinese companies just like Walmart has. I knew when (Fall 2008) they started buying from Chinese competitors on big sales opportunites in our own back yard that the future looked bleak. Their government over there has good reason to subsidize them given the espionage potential of abusing telecom networks around the globe. It is about time Executive's and government start taking this threat seriously otherwise there will be more sad stories like Nortel and a lot more lost jobs.
Brian
The Chinese have been eating our lunch for years and sadly we have stood by and allowed it to happen.This was my thought as I saw jobs going to china.This story points out how much worse the situation is. Now what to do since the hourse is out of the barn and it is too late to close the barn door.I hope there is a plan for how to cut the Chinese off.
This was a great story very well done!
Anybody know any good Chinese language classes? I got a feeling we're gonna need it. :-(
Years ago, the product price drops made me think we had enslaved the Chinese people. Unfortunately it's the other way around.
We need a strong President to call them on this stuff, in A PUBLIC 1000 channel speech to us. 1st we gave simple manufacturing, but now anything -all Clinton!
These guys fight tough and we've been nothing but pus-ssiies -all over the world! (20 min speech . -like the old days -it worked ...and now? I have no idea just from apathy!)
One day, China will call us on all the debt we owe and the government will have to give China their holdings (land, business, etc -ok by some 'one world' judge or ...ours!). Then they bring their people here and solve their population problem.
Let's all dance with Lady Gaga like dooorks until then!
hello-fact-horn river basin/north easten b.c-most concentrated natural gas reserves globally-cdn govt sold entire reserves to china-long term@4x market value today-i wonder if there is an automatic annual price increase?/political errors-the bush admin neglected to control annual revenues fro global sales of iraq oil-to payback trillion spent-really dumm admin/NHL-why havnt owners/players demanded firing of that ice -cold bettman-earning $8mmusd annually-doing nothing/mr huggard
We are our own worst enemies. Thank you American executive management for outsource your advanced technologies and product development to China and India.
Do not bite the hand that feed you.
It takes so many years to discover the ugly truths about China. How did China getting too far and too fast to become world dominance?
Like Chinese government and its great leaders, Chinese companies and Huawei have little respect to the laws and rarely play by rules, and breaking their own protocols to see its fits.
The House Intelligence Committee called Huawei executive Charles Ding to answer questions about the company'scorporate structure, ownership, finances, and management. The committee seemed to get nowhere.