UPDATE 1-Theft of trade secrets worsening in China-U.S. business

By Doug Palmer

WASHINGTON Oct 3 (Reuters) - Chinese theft of valuable U.S. trade secrets, often obtained by sophisticated cyber-attacks, is becoming a more serious problem, U.S. industry officials said on Wednesday.

"This matter requires more attention," Jeremie Waterman, head of the U.S. Chamber of Commerce's China division, told a U.S. government panel hosted by the U.S. Trade Representative's office.

It "has risen substantially in importance over the last year, year and a half," Waterman said at an annual hearing on China's compliance with World Trade Organization rules.

In one recent case, two Chinese citizens in Kansas City, Mi ssouri, w ere charged with a ttempting to pay $100,000 for stolen trade secrets from Pittsburgh Corning Corp, an affiliate of PPG Industries Inc <PP G.N> an d Corning Inc <G L W.N>, a t its Sedalia, Mo. facility. The Justice Department said the pair were trying to purchase the trade secrets so a rival plant could be opened in China.

U.S. chemicals giant Dupont also is in the midst of a legal battle over allegations that China-based Pangang Group Steel Vanadium & Titanium Co Ltd <0 00629.SZ> c onspired to steal its trade secrets.

Earlier this year, T he New York Times reported that an Austrian-based employee of the Massachusetts wind-energy company American Superconductor <A MSC.O> s t ole intellectual property from the firm and sold it to Chinese wind turbine manufacturer Sinovel <601 558.SS> for $1.5 million.

Peter Dent, a vice president at Electron Energy Corp, told t he government panel t hat both large and small U.S. companies face "persistent and increasingly complex cyber-attacks (from China) in an effort to steal intellectual property from company computer networks."

Defending trade secrets against the attacks was "very difficult" and a costly drain on resources, he said.

Companies need the U.S. government to take action, which could include suspending "trade benefits to countries sponsoring these actions," Dent said.

The DuPont, Pittsburgh Corning and American Superconductor c ases a re "just the tip of the iceberg," a U.S. industry official said. U. S. companies are dealing with rampant "state-supported theft of trade secrets," he said.

T he hearing on Wednesday was part of USTR's annual evaluation of how well China is meeting the commitments it made to join the World Trade Organization in 2001. A r eport is usually released on Dec . 11, the anniversary of Beijing's accession to the WTO.

U.S. exports to China have soared since China joined the WTO in 2001 and the country is now the third-largest foreign market for U.S. goods. But business groups told the USTR-led panel China maintains a extensive web of discriminatory policies that prevent U.S. companies from making additional sales and investments in the world's second-largest economy.

Both the U.S. Chamber of Commerce and the U.S.-China Business Council called on Wednesday for a "bilateral investment treaty" that would open up ar e as of the Chinese economy to inv estments by U.S . com panies.

China maintains foreign ownership restrictions in nearly 100 business sectors, the business groups said.

Industry officials also complained about continuing Chinese piracy and counterfeiting of U.S. goods, and urged the U.S. government to aggressively challenge Chinese government subsidies that undermine U.S. competitiveness.