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Editorial: Trade Secrets

Monday, May 26, 2014
For years, the Chinese government has been stealing secrets from American companies. Last Monday, the United States finally put its foot down. The Justice Department announced that five Chinese military officials have been indicted on charges of espionage against American steel, solar and nuclear power companies — the first time the U.S. has brought such accusations against another country.

It’s the right thing to do. Cybercrime that targets trade secrets and intellectual property is a booming business, costing U.S. companies billions each year. It’s been called the greatest transfer of wealth in human history. And China’s legions of cyberspies are, by general consensus, the world’s worst offenders.

The U.S. has now signaled that it will protect companies against such intrusions after years of private warnings to the Chinese. And, more important, the indictment may remind China that curtailing this kind of abuse is in its own economic interest.

The indictment amounts to a defense of a long-established principle of espionage: While governments can spy to protect national security, as the U.S. does, they shouldn’t steal corporate secrets to benefit their own businesses. The Chinese government has been ostentatiously flouting this norm for years.

Take Solarworld, a solar-panel maker. The indictment alleges that in 2012, Chinese military hackers stole thousands of files from the company’s U.S. subsidiaries relating to pricing, cash flow and corporate strategy, and that they pilfered privileged attorney-client communications related to trade litigation. Around the same time, it says, Solarworld’s Chinese competitors were dumping products onto the U.S. market below cost, hoping to gain market share.

Such intrusion has no plausible national-security rationale; it’s purely theft. And it’s by no means anomalous. A study last year by the computer-security company Mandiant Corp. said that hackers associated with the Chinese army had stolen hundreds of terabytes of data from 141 companies in 20 industries.

This might make sense for China in the short term: When U.S. companies spend time and money researching new products, only to have the resulting technology stolen and given to their Chinese competitors, China gains an obvious competitive edge. In the long term, however, the strategy of aggressively mixing espionage with commerce is doomed.

First, if China intends for its homegrown companies to become global leaders, it’s going to have to convince international customers — not to mention foreign regulators — that their products aren’t being bugged. Huawei Technologies Co., China’s biggest maker of phone-network equipment, offers one cautionary example: Regulators have repeatedly blocked it from making business deals in the U.S. and elsewhere over espionage fears.

Second, China should realize that a new era of espionage has only just begun. Its own companies will face digital intrusions as they become global powers, and their intellectual property and business secrets will also be lifted by unscrupulous competitors. Helping to build an international consensus about the rules of the game now will help ensure that such disputes don’t escalate dangerously.

Last week’s indictment carries plenty of risks. It could worsen tensions between the U.S. and China. It could make for an awkward diplomatic dynamic with American allies, such as Israel and France, that also engage in economic espionage, albeit on a much smaller scale. And China could retaliate.

Yet it conveys a powerful symbolic message. If it signals to China that its brazen theft of American trade secrets and technology will no longer be tolerated, and forces its government to finally grapple seriously with the long-term costs of economic espionage, it’s worth all those risks — and then some.

Bloomberg News




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