U.S. threat of sanctions against Chinese firms leads to cybersecurity agreement

NEW YORK–The United States threatened to impose economic sanctions against at least 25 Chinese companies if Beijing failed to take cybersecurity issues more seriously, sources said.

The strong warning was issued by Susan Rice, U.S. President Barack Obama’s national security adviser, during her visit to China in late August. The visit then led to an agreement on cybersecurity issues between Washington and Beijing, according to multiple U.S. and Chinese sources.

Obama and visiting Chinese President Xi Jinping agreed in Washington on Sept. 25 that their respective governments would not engage in or support cyber-attacks aimed at stealing economic secrets.

According to several sources knowledgeable about U.S.-China negotiations, Rice presented Chinese officials with a list of about two dozen Chinese companies suspected of being engaged in cyber-attacks against the United States. The list was compiled mainly by a special unit within the U.S. military dealing with cybersecurity.

The sources said Rice told her Chinese counterparts about specific sanctions being considered against the Chinese companies, including freezing their assets in the United States.

Although China had not placed much emphasis on cybersecurity until then, the Rice visit appears to have given momentum to discussions between officials of the two nations.

U.S. government officials had argued that cyber-attacks by China caused several billions of dollars in losses to U.S. companies over the course of a year which translates into an annual loss of several hundred billion yen.

In June, a massive cyber-attack against the United States led to the leaking of personal information of several million U.S. government officials, including those in the military and intelligence services. Washington suspects China was behind that attack.

According to sources, the special cybersecurity unit that was established in 2010 spent several months compiling the list of Chinese state-owned and other companies that stole information, including intellectual property, from U.S. companies.

Pentagon officials and other U.S. government officials had pushed for sanctions against those companies, including a limit on their business activity in the United States, before Xi’s arrival in the United States on Sept. 22.

According to a former high-ranking Pentagon official, Rice issued an extremely stern warning about the cyber-attacks to Xi and Chinese State Councilor Yang Jiechi, who oversees Chinese diplomacy.

She explained details of the proposed sanctions to Chinese researchers involved in the policy-making process and high-ranking corporate executives during a meeting held at the official residence of the U.S. ambassador to China.

In response, China dispatched Meng Jianzhu, secretary of the Central Politics and Law Commission of the Chinese Communist Party and a Politburo member who oversees cybersecurity issues, to the United States on Sept. 9 as Xi’s special envoy.

An agreement was then reached to begin Cabinet ministerial-level discussions between the two nations on cybersecurity issues, sources said. Much distrust remains on both sides. Rand Institution’s Deputy Director for the Center for Asia-Pacific Policy Dr. Scott W. Harold said, “It is right to be skeptical that the U.S.-China Summit list of accomplishments on cyber will eventuate in the real world within some reasonable period of time.”

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