Quarter of U.S. firms in China face data theft: business lobby

BEIJING Fri Mar 29, 2013 4:50am EDT

The National Information Security Engineering Center, a building commissioned by the People's Liberation Army's Cyber Unit, is seen at the Zhangjiang High Technology Park, on the outskirts of Shanghai March 16, 2013. Faculty members at a top Chinese university have collaborated for years on technical research papers with a People's Liberation Army (PLA) unit accused of being at the heart of China's alleged cyber-war against Western commercial targets. Picture taken March 16, 2013. REUTERS/Carlos Barria

The National Information Security Engineering Center, a building commissioned by the People's Liberation Army's Cyber Unit, is seen at the Zhangjiang High Technology Park, on the outskirts of Shanghai March 16, 2013. Faculty members at a top Chinese university have collaborated for years on technical research papers with a People's Liberation Army (PLA) unit accused of being at the heart of China's alleged cyber-war against Western commercial targets. Picture taken March 16, 2013.

Credit: Reuters/Carlos Barria

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BEIJING (Reuters) - A quarter of firms that are members of a leading U.S. business lobby in China have been victims of data theft, a report by the group said on Friday, amid growing vitriol between Beijing and Washington over the threat of cyber attacks.

Twenty-six percent of members who responded to an annual survey said their proprietary data or trade secrets had been compromised or stolen from their China operations, the American Chamber of Commerce in China report said.

"This poses a substantial obstacle for business in China, especially when considered alongside the concerns over IPR (intellectual property rights) enforcement and de facto technology transfer requirements," the Chamber said.

A U.S. computer security company, Mandiant, said in February a secretive Chinese military unit was likely behind a series of hacking attacks that targeted the United States and stole data from more than 100 companies.

That set off a war of words between Washington and Beijing.

U.S. Representative Dutch Ruppersberger said last month American companies suffered estimated losses in 2012 of more than $300 billion due to trade secret theft, much of it the result of Chinese hacking.

China says the accusations lack proof and that it is also a victim of hacking attacks, more than half of which originate from the United States.

Foreign Ministry spokesman Hong Lei called the survey a "completely irresponsible action".

"We hope the relevant side doesn't politicize financial and trade problems, does not exaggerate the so-called issue of online leaks and does more conducive things for China and the United States," Hong told reporters.

The Chamber's survey was conducted among 325 members across China late last year, before the release of Mandiant's report.

Only 10 percent of companies in the survey said they would use China-based cloud computing services, with most citing cyber security concerns as a reason. Blocked Internet searches in China had impeded business for 62 percent of respondents.

U.S. officials have pressed China to address Internet attacks and cyber spying against American companies. U.S. President Barack Obama raised hacking concerns in a phone call with Chinese President Xi Jinping earlier in March.

A recent assessment by U.S. intelligence leaders said for the first time cyber attacks and cyber espionage had supplanted terrorism as the nation's top threat.

INVESTMENT STAGNATION

Most firms expressed optimism about the business outlook in China, with many reporting higher margins for their China units.

But companies gave lower expectations for investment and cited rising labour costs as a top concern. Perceptions that China's investment environment is stagnating are increasing, according to the survey.

"Members ... have not felt over the last four or five years that there have been commercially significant positive changes in the business environment or the investment environment," Chamber president Christian Murck told reporters.

"When you have an economy which is making a transition to a market economy, but which is not yet there, there is a feeling that if you are not moving forward with an indicated path of future policy that you are effectively moving backward," he said at a briefing on the survey.

The Chamber's survey also cited a steep rise in concerns over IPR enforcement, with 72 percent of respondents saying enforcement was ineffective or totally ineffective, an increase of 13 percentage points over last year.

Perceptions that technology transfer was increasingly a requirement for access to China's market also jumped 10 points to 37 percent, the Chamber said, with higher rates of concern reported in the aerospace, automotive, chemical in information technology sectors.

(Additional reporting by Sui-Lee Wee; Editing by Paul Tait and Miral Fahmy)

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