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The Cyber Trade War

Author: Adam Segal, Maurice R. Greenberg Senior Fellow for China Studies
October 25, 2012
Foreign Policy

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On Oct. 8, the House Select Intelligence Committee released a report on the cybersecurity threat posed by China's Huawei and ZTE, the world's second- and fourth-largest telecommunications suppliers. The report, which described the companies as potential espionage risks and asked the U.S. government and U.S. firms to refrain from doing business with them, drew an angry response from Chinese media: Xinhua, China's state news agency, called its conclusions "totally groundless" and arising out of "protectionism"; the nationalistic tabloid Global Times said the United States is becoming an "unreasonable country"; and the state-run English language newspaper China Daily labeled the accusations "unreasonable and unjustifiable." But the fear of vulnerability from foreign technology, whether reasonable or not, is as present in China as it is in the United States -- now more than ever.

The threats China sees from dependence on foreign telecommunications, software, and hardware suppliers echo many of the concerns raised in the House report: both countries fear that dependence on foreign technology makes them vulnerable to spying and threatens network security and economic development. According to an April 2012 article in Outlook Weekly, a Xinhua publication, 90 percent of China's microchips, components, network equipment, communications standards and protocols, as well as 65 percent of firewalls, encryption technology, and 10 other types of information security products rely on imported technology. Foreign producers also dominate the market for programmable logic controllers, devices used to control manufacturing and other industrial processes. As a result, "all core technologies are basically in the hands of U.S. companies, and this provides perfect conditions for the U.S. military to carry out cyber warfare and cyber deterrence," according to a January article in the military newspaper China Defense.

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