[Joint House and Senate Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
   CHINESE HACKING: IMPACT ON HUMAN RIGHTS AND COMMERCIAL RULE OF LAW

=======================================================================


                                HEARING

                               before the

              CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 25, 2013

                               __________

 Printed for the use of the Congressional-Executive Commission on China


         Available via the World Wide Web: http://www.cecc.gov




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20402-0001



              CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

                    LEGISLATIVE BRANCH COMMISSIONERS

Senate

                                     House

SHERROD BROWN, Ohio, Chairman        CHRIS SMITH, New Jersey, 
MAX BAUCUS, Montana                  Cochairman
CARL LEVIN, Michigan                 FRANK WOLF, Virginia
DIANNE FEINSTEIN, California         MARK MEADOWS, North Carolina
JEFF MERKLEY, Oregon                 ROBERT PITTENGER, North Carolina
                                     TIM WALZ, Minnesota
                                     MARCY KAPTUR, Ohio
                                     MICHAEL HONDA, California

                     EXECUTIVE BRANCH COMMISSIONERS

                  SETH D. HARRIS, Department of Labor
              FRANCISCO J. SANCHEZ, Department of Commerce
     NISHA DESAI BISWAL, U.S. Agency for International Development

                    Lawrence T. Liu, Staff Director

                 Paul B. Protic, Deputy Staff Director

                                  (ii)


                             C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page
Opening Statement of Hon. Sherrod Brown, a U.S. Senator from 
  Ohio; Chairman, Congressional-Executive Commission on China....     1
Smith, Hon. Christopher H., a U.S. Representative from New 
  Jersey; Cochairman, Congressional-Executive Commission on China     3
Levin, Hon. Carl, a U.S. Senator from Michigan; Member, 
  Congressional-Executive Commission on China....................     5
Pittenger, Hon. Robert, a U.S. Representative from North 
  Carolina; Member, Congressional-Executive Commission on China..     6
Meadows, Hon. Mark, a U.S. Representative from North Carolina; 
  Member, Congressional-Executive Commission on China............     1
Gorton, Hon. Slade, former U.S. Senator from Washington State; 
  Member, Commission on the Theft of American Intellectual 
  Property.......................................................     7
Mulvenon, James, Vice-President, Intelligence Division, Director, 
  Center for Intelligence Research and Analysis, Defense Group, 
  Inc............................................................     9
Wen, Yunchao (Online Alias ``Bei Feng''), Independent Journalist 
  and Blogger, Visiting Scholar, Institute for the Study of Human 
  Rights, Columbia University....................................    19
Greve, Louisa, Vice President for Asia, Middle East, and North 
  Africa, and Global Programs, National Endowment for Democracy..    21

                                APPENDIX
                          Prepared Statements

Gorton, Hon. Slade...............................................    28
Mulvenon, James..................................................    29
Wen, Yunchao.....................................................    38
Greve, Louisa....................................................    49

Brown, Hon. Sherrod..............................................    52
Smith, Hon. Christopher H........................................    53


   CHINESE HACKING: IMPACT ON HUMAN RIGHTS AND COMMERCIAL RULE OF LAW

                              ----------                              


                         TUESDAY, JUNE 25, 2013

                            Congressional-Executive
                                       Commission on China,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 2:41 p.m., 
in room 538, Dirksen Senate Office Building, Senator Sherrod 
Brown, Chairman, presiding.
    Also present: Senator Carl Levin; Senator Jeff Merkley; 
Representative Christopher Smith; Representative Robert 
Pittenger; and Representative Mark Meadows.

 OPENING STATEMENT OF HON. SHERROD BROWN, A U.S. SENATOR FROM 
  OHIO; CHAIRMAN, CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

    Chairman Brown. The hearing will come to order. Thank you 
very much, Senator Gorton, for joining us, Cochairman 
Congressman Smith, and Senator Levin. I appreciate your being 
here, and especially your work on these issues and your 
legislation, which I know you will be talking about to hold 
China accountable for cyber theft. I thank the staff again for 
its tireless efforts and the work that they do on human rights 
and rule of law in this Commission. Congressman Smith and I 
have cochaired this Commission for a number of years now and 
appreciate the good working relationship there and with staff.
    We know--and Senator Gorton and I just spoke about this--
how the public is not paying a lot of attention, and we here 
are not paying enough attention either, with the exception of 
Senator Levin and a few others, to the serious threat that 
China poses in terms of cyber attacks and how that threatens 
U.S.-China relations in some ways, so much so that President 
Obama raised the issue during his recent summit with Chinese 
President Xi Jinping. It will be a key topic, we know, at the 
U.S.-China Strategic and Economic Dialogue to be held in 
Washington in a few weeks.
    Today's hearing will focus on the aspects of cyber that 
fall within the Commission's mandate, notably the impact on the 
rule of law and on human rights. Recent headlines have revived 
the debate over the appropriate balance between security and 
freedom, but we cannot overlook the enormous impact that cyber 
attacks from China have had, and continue to have, on American 
jobs and American companies. They seriously call into question 
the Chinese commitment to the rule of law.
    We are talking about massive theft of valuable technology, 
commercial secrets from American companies. General Alexander, 
Director of the NSA, calls it the greatest transfer of wealth 
in history. The scale and scope are staggering.
    The Commission on the Theft of American Intellectual 
Property, which is represented here today by former colleague 
Senator Gorton, released a comprehensive report identifying the 
People's Republic of China as the world's biggest violator of 
intellectual property [IP] rights.
    It estimates that China accounts for 50 to 80 percent of 
the IP theft in the United States and around the globe. It 
found that IP theft, including from China, costs the U.S. 
economy hundreds of billions of dollars a year and literally 
millions of jobs, dragging down our GDP and undermining our 
ability to innovate and to prosper.
    The IP Commission noted that a 2011 study by the U.S. 
International Trade Commission estimated that if China's IP 
protection improved to a level comparable to ours it would add 
2.1 million jobs to our economy, yet, the IP Commission 
acknowledges this figure underestimated the real cost to jobs 
in this country.
    The victims of IP theft include companies in my home State 
of Ohio, in Michigan, and in New Jersey. Those affected are 
hardworking Americans trying to make an honest living and 
trying to spur innovation, only to see their products, their 
services, and their technology stolen and handed over to state-
owned enterprises and other businesses in China.
    With a growing prevalence of computer networks in America's 
heavily wired economy, cyber attacks represent an increasingly 
growing threat alongside more traditional forms of intellectual 
property theft. China simply does not play by the same rules as 
we do. The Chinese Government denies these attacks, even though 
there is mounting evidence of Chinese state involvement.
    This evidence includes a February 2013 report by the cyber 
security firm Mandiant that linked attacks on 141 companies, 
including 115 based in the United States, to a unit of the 
People's Liberation Army, working from a building in Shanghai.
    The increase of attacks has coincided with the Chinese 
Government's push for indigenous innovation and development of 
key industries, creating an environment where it is perfectly 
acceptable to cheat and steal your way to the top.
    As we have seen in the last few years, it is not only 
American companies that are the targets, it is media and it is 
human rights organizations, something particularly important to 
Congressman Smith and me.
    Journalists writing about corruption in China find their 
computer systems hacked and their passwords stolen.
    For human rights organizations and activists, dealing with 
hacking attacks from China is almost a daily fact of life.
    We cannot sit idly by. That is why I support a 
comprehensive, common sense, bipartisan approach to hold China 
accountable.
    I urge Congress and this administration to do everything it 
can to combat unfair trading practices, including another 
topic, the important bipartisan Currency Exchange Rate 
Oversight Reform Act of 2013, which passed the Senate two years 
ago and has not yet gone to the House. We hope to reschedule it 
for a vote soon. I commend Senator Levin for his recent 
proposed legislation to hold China accountable for cyber theft.
    I will turn it over to Cochairman Smith. I have a vote at 
2:45, as does Carl, but I think we will be able to keep this 
going.

STATEMENT OF HON. CHRISTOPHER SMITH, A U.S. REPRESENTATIVE FROM 
 NEW JERSEY; COCHAIRMAN, CONGRESSIONAL-EXECUTIVE COMMISSION ON 
                             CHINA

    Representative Smith. Thank you very much, Chairman Brown. 
Thank you for calling this extraordinarily important hearing.
    In December 2006, and then again in March 2007, my Human 
Rights Subcommittee, the committee that I chaired, as well as 
the personal computers in my office, that of my chief of staff 
and myself, were attacked by a virus that, in the U.S. House 
Information Resource Office's words, ``intended to take control 
of our computers.''
    At that time the IT professionals cleaned the computers and 
informed my staff that the attacks seemed to come from the 
People's Republic of China. They said it came through, or from, 
a Chinese IP address. The attackers hacked into files related 
to China. They contain legislative proposals directly related 
to Beijing, including a major bill that I was in the process of 
authoring called the Global Online Freedom Act.
    Also hacked were emails with human rights groups regarding 
strategy, information on hearings that I intended to chair on 
China, and the names of Chinese dissidents. While this 
absolutely does not prove that Beijing was behind the attack, 
it raises very serious concerns that it was. Certainly Chinese 
agents have not only attempted to target me or my offices, but 
many other Members of the House and Senate have also been the 
victim of that kind of attack.
    Cyber attacks on Congress are only a small, but not 
insignificant, part of a much larger pattern of attacks that 
have targeted the executive branch, the Pentagon, and American 
businesses.
    How do we know this? In recent months we have seen in-depth 
reports come out detailing this massive intrusion into our 
cyberspace and massive theft of our cyber data. Chinese agents 
have stolen our designs for helicopters, ships, fighter jets, 
and several missile defense systems.
    They have stolen our innovative technologies, from solar 
panel designs to biotech research. These thefts appear to have 
paid off for China. In recent years, the Chinese Government has 
made tremendous jumps in its military capabilities, while 
boosting the competitiveness of China's ``national champions.''
    While cyber thefts have existed for years, increasingly we 
can prove that many of these outrageous thefts deemed ``the 
greatest transfer of wealth in history'' originate in the 
People's Republic of China, and these attacks are not random. 
We now know with some certainty that some thefts are being 
organized by the Chinese Government agencies.
    As we learn about the sources of these attacks and we are 
learning about their motivations, talented Chinese Internet 
users are working day and night to infiltrate our networks and 
to steal secrets. Chinese actions are part of the larger 
coordinated state-sanctioned effort to increase China's 
competitiveness militarily as well as commercially.
    Today we will hear about how the commercial rule of law 
system in China allows these types of attacks to occur and how 
these attacks disadvantage American businesses, innovators, 
contractors, and government agencies. We will hear about the 
size and scope of the attacks and we will hear how the U.S. 
Government remains largely unprepared for many of these 
challenges.
    We will also, however, hear about another side of this 
important topic, one that is often overlooked during recent 
discussions about China's cyber attacks. The Chinese Government 
is not only targeting American businesses and military 
organizations, but it is also targeting ordinary Chinese 
citizens seeking to advance their most fundamental freedoms.
    Chinese hackers do not simply look beyond their borders to 
steal secrets. As we will hear today, Chinese citizens, 
including those advocating freedom and rights, free speech, and 
food safety, are also targeted by state-sponsored hackers.
    These courageous citizens are also monitored, their private 
information stolen. The brave pastors seeking to organize a 
service, the father seeking to raise awareness about toxic 
foods, the wife of an imprisoned activist, the mother who was 
made to undergo a forced abortion, all of these citizens 
realize that in any instance the government may, and probably 
is, watching. China, of course, also targets those outside of 
China who similarly wish and promote human rights and political 
reform.
    Today we know the system of surveillance and theft occurs. 
We know that China is organizing these cyber attacks, or at the 
very least is complicit in their existence. The question we 
must ask ourselves is why. Clearly China's rise as a military 
power requires technology. China's economy will no doubt 
benefit from the latest innovations from abroad.
    But why is China so obsessed, so concerned about its 
domestic citizenry, especially those who advocate peacefully 
for legal and political reforms? Why is China so worried about 
international NGOs [non-governmental organizations] that seek 
to highlight official abuses and wrongful imprisonments?
    Why is China so reluctant to provide a fair regulatory 
environment in China where commercial laws and regulations will 
eventually protect all businesses, domestic and foreign, 
seeking to provide the best services for these Chinese 
consumers?
    These may be difficult questions, but thankfully today we 
are fortunate to have four guests, four witnesses who are well 
versed on these issues. They are expert on how China is 
monitoring our cyber actions and how China is attacking targets 
globally.
    I do want to point out that I will have to leave, but I 
will read their testimonies. I am chairing a hearing at 3 
o'clock over on the House side on the attack and the slaughter 
of Christians in Syria. It begins at 3 o'clock so I will have 
to leave, but I want to convey to our witnesses my sincere 
gratitude for your testimonies. I look forward to reading them 
and for the insight you provide.
    I yield back, and yield to Senator Levin.

  STATEMENT OF HON. CARL LEVIN, A U.S. SENATOR FROM MICHIGAN; 
      MEMBER, CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA

    Senator Levin. Thank you very much, Congressman Smith. 
First of all, I want to thank you and Senator Brown for 
organizing this very important hearing on Chinese hacking and 
its impact on human rights and on commercial rule of law.
    The hearing is timely. It is timely for many reasons. There 
have been many recent reports and indisputable evidence of 
large-scale cyber intrusions by the Government of China on a 
vast number of private, government, and nonprofit entities for 
the purpose of stealing valuable intellectual property or 
proprietary information. This is in addition to what is also 
well known, that China hacks the accounts of human rights 
activists in order to suppress human rights in China.
    American companies invest hundreds of billions of dollars 
every year in research and development. That innovation results 
from those investments. The innovation drives investments and 
drives, in turn, the growth of American companies and the U.S. 
economy.
    Unfortunately, our companies are having their intellectual 
property stolen and it is stolen right out from underneath them 
through cyberspace. Such theft threatens to undermine America's 
global competitiveness.
    Both U.S. Government and private reports point to China as 
by far the worst offender. As far back as 2011, the National 
Counter Intelligence Executive said in its annual report to 
Congress that ``Chinese actors are the world's most active and 
persistent perpetrators of economic espionage.''
    This May, the U.S. Trade Representative stated in its 
Special 301 report that ``obtaining effective enforcement of 
IPR in China remains a central challenge, as it has been for 
many years.'' The report continued that ``this situation has 
been made worse by cyber theft, as information suggests that 
actors located in China have been engaged in sophisticated, 
targeted efforts to steal intellectual property from U.S. 
corporate systems.''
    Today we will be hearing from Senator Slade Gorton, an old 
friend of mine, who is on the Commission on the Theft of 
American Intellectual Property. That report is just further 
powerful evidence of what the problem is. So, it is long 
overdue that we equip the American Government with the tools 
that it needs to fight back.
    I recently introduced Senate bill 884, the Detect Cyber 
Theft Act, with Senators McCain, Rockefeller, and Coburn. S. 
884 requires the Director of National Intelligence to produce a 
report that includes a watchlist, and a priority watchlist, of 
foreign countries that engage in economic or industrial 
espionage against the United States in cyberspace.
    The bill also requires the President--and this is the 
action forcing mechanism and the remedy--if he determines that 
such action is warranted for the enforcement of intellectual 
property rights or to protect the Department of Defense supply 
chain, to block imports of goods in three categories: First, 
goods made with U.S. technology or proprietary information 
stolen in cyberspace; second, goods made by companies that 
engage in or benefit from such theft; and third, goods produced 
by state-owned enterprises in countries designated as the worst 
cyber thieves.
    This is a powerful remedy. It is hitting countries that 
engage in cyber theft in the pocketbook and it is time that we 
fight back to protect American businesses and American 
innovation. We have to call out those who are responsible for 
cyber theft and empower the President to hit the thieves where 
it hurts most, in their wallets.
    Dennis Blair, former Director of National Intelligence and 
Co-Chair of the IP Commission report said recently, ``Jaw-
boning alone won't work. Something has to change China's 
calculus.'' Well, we think our bill will do exactly that. 
Blocking imports of products that either incorporate 
intellectual property stolen from U.S. companies or are from 
companies otherwise that benefit from cyber theft will send the 
message that we have had enough.
    If foreign governments like the Chinese Government want to 
continue to deny their involvement in cyber theft despite the 
overwhelming proof that is one thing. We cannot stop Chinese 
denials. But we are not without remedies. We can prevent the 
companies that benefit from the theft, including state-owned 
companies, from getting away with it.
    Maybe once they understand that complicity will cost them 
access to the U.S. market, they are going to press their 
governments to end it. We have sent our bill to the 
administration. We await word from the White House and from the 
administration.
    Hopefully the word will be one of support. We have stood by 
for far too long while our intellectual property and 
proprietary information is plundered in cyberspace and used to 
undercut the very companies that developed it. In other words, 
it is time to act.
    I want to thank everybody who is a part of the effort to 
stop cyber theft for their efforts, many of whom are going to 
be testifying here today. Again, I want to thank our commission 
and our staff for all the great work that they are doing on 
this subject.
    Thank you. I have to leave for a vote too, so I will yield 
to whoever is next in line.

STATEMENT OF HON. ROBERT PITTENGER, A U.S. REPRESENTATIVE FROM 
 NORTH CAROLINA; MEMBER, CONGRESSIONAL-EXECUTIVE COMMISSION ON 
                             CHINA

    Representative Pittenger. Thank you, Senator Levin. It is a 
privilege to serve with you on this important commission. I am 
Congressman Robert Pittenger. I am a new commissioner on this 
important effort. I do want to thank Chairman Brown and 
Cochairman Smith for leading this commission.
    The issue of human rights and the rule of law in China have 
been of great importance to me my entire adult life. These are 
issues I have been dedicated to since I graduated from college 
and spent 10 years in service with Campus Crusade for Christ.
    Chinese hacking is hurting the attempts by the people of 
China to advance their own human rights. Dedicated heroes are 
being subjected to relentless cyber attacks as they try to use 
the Internet to break the silence on continued persecutions of 
Chinese citizens.
    Allowing for freedom of expression via the Internet will be 
critical to advancing human rights in China. This will only 
happen if the cyber attacks cease to exist. Ironically, in 
light of the reported issues related to corruption within 
China, individuals who are people of faith provide the best 
resources and assets for the continuation and the strength of 
the Chinese economy.
    Cyber attacks by the Chinese Government have a significant 
impact, both here at home as well as on the citizens of China. 
American businesses have been affected by these cyber attacks 
to the tune of hundreds of billions of dollars.
    As the Chinese Government is propping up national 
companies, it is doing so on the backs of American companies 
playing by the rules. The Chinese Government is responsible for 
50 to 80 percent of global theft of intellectual property, 
hurting American businesses and costing American jobs.
    The United States must remain committed to monitoring the 
continued violation of the rule of law by the Chinese 
Government, not just to protect American jobs but to help stand 
with those committed to ending the persecution of Chinese 
citizens for practicing their religious beliefs.
    I yield to my fellow Congressman.

  STATEMENT OF HON. MARK MEADOWS, A U.S. REPRESENTATIVE FROM 
 NORTH CAROLINA; MEMBER, CONGRESSIONAL-EXECUTIVE COMMISSION ON 
                             CHINA

    Representative Meadows. Thank you, Mr. Pittenger. Thank you 
both for coming today and for your willingness to testify. I 
will keep this real brief so you can go ahead and share what 
you have for us. Most of what I have come to know has already 
been mentioned a number of times, but obviously in a global 
economy what we have to look at is the rule of law and the 
impacts that it has, either the respect for that or the lack of 
respect in what it does.
    So I have been fortunate enough to meet with a number of 
different people, both from the Chinese Government and also 
those that trade with our largest trading partner. In doing 
that, I think coming to real grips with a substantive way to 
address this problem is what we are all looking for. We cannot 
tolerate what we would not stand in our own backyard, and we 
have got to make sure that we address that, both from a policy 
standpoint and from a legislative standpoint.
    So with that I will yield to you, Mr. Gorton, and let you 
start off. Thank you.

   STATEMENT OF HON. SLADE GORTON, FORMER U.S. SENATOR FROM 
 WASHINGTON STATE; MEMBER, COMMISSION ON THE THEFT OF AMERICAN 
                     INTELLECTUAL PROPERTY

    Senator Gorton. Chairman Brown not only summarized the 
report, but he summarized my opening statement which simply 
adds to the fact that when I was on your side of the bench I 
always wondered about people reading written statements that I 
already had, whether they were implying that I was illiterate. 
I will not insult you by any means in that fashion. I want to 
make only two or three of the major points of this commission 
report, which we have given copies to your staff and have more 
if you wish it.
    The first, is we have found ourselves sailing in uncharted 
seas. There were no other former commissions that had looked 
into this problem in the past. I think we did a good deal of 
fairly original research to try to bring together both the 
scope and the breadth of intellectual property theft around the 
world.
    I think our conclusions are pretty cautious. We use a 
figure of over $300 billion a year. Personally, I think it is 
higher than that. That is what we could absolutely all be 
totally comfortable with. Fifty to eighty percent of it coming 
out of China is also a statement. We are quite confident, but 
we hope this will lead to more study, particularly on your 
part, of an important way in which our economy is being harmed.
    One example is on page 12. A software company, that we will 
not name, sold a single program in China for, say, roughly a 
hundred bucks. When there was an update on it, they got 30 
million calls. One to 30 million. This may be the single most 
dramatic example we have but it is far from the only one.
    So what we have done is to try to gather together the 
nature of the problem, where it comes from, and set up policy 
responses that the Congress and the administration can come up 
with that, to a certain extent, cures it.
    Senator Levin's bill is totally consistent with the 
recommendations that we make here because he gets to the 
central point, we will not really get command over this kind of 
intellectual theft in China until we have created internal 
incentives within China for abiding by rules with respect to 
intellectual property.
    At this point it is free theft. There are no consequences 
of doing so. The way to create that internal desire to do 
something better is to punish Chinese businesses and our 
government, which are making money out of doing it today.
    We have a large number of recommendations, some for 
Congress and some for the administration itself. Bluntly, I 
would say that if you did every one of them we would have 
started down the road but we would not have gotten all the way 
down the road to an honest and straightforward relationship.
    So on the very last page of the Commission report there are 
three subjects that came up during our deliberations which are 
not our formal recommendations but which are nevertheless ideas 
that we think you ought to consider. Each of them, I can say, 
is more radical than the formal recommendations of the 
Commission itself. But one is to allow cyber counter-attacks on 
the part of American interests that are hit by cyber attacks at 
the present time, something prohibited by the law at the 
present time.
    A second one has to do with requiring the United Nations 
World Health Organization to certify that when we give them 
things they are not going to be immediately stolen from them. 
Those two came from outside the Commission.
    The third was one on which I testified before a different 
Commission some time ago, and that is simply to say that every 
year the Secretary of Commerce will determine the losses we 
have talked about in here from all forms of intellectual 
property theft and that we there, for the next year, impose a 
tariff on all goods coming from China designed to produce 150 
percent of that figure.
    I do not think we would get very much money from that but I 
think we would get action for the protection of our 
intellectual properties. In fact, it would violate the WTO 
[World Trade Organization] rules, but China cannot win a trade 
war against the United States because of the huge amount of its 
trade surplus with us. It will also create within China itself 
a view that they ought to abide by the same rules that the rest 
of the world abides by.
    I will make only one final comment. When I look back on 18 
years in this body I think the single vote I most regret is 
permanent MFN [most-favored-nation status] for China. We gave 
up an ability to affect their policies by doing so and I wish I 
had that vote back over again.
    Chairman Brown. Thank you, Senator Gorton, very much.
    Thank you, Congressman Pittenger for being here, 
Congressman Meadows, thank you. I know how, during the PNTR 
[permanent normal trade relations] with China, I was in the 
House and I remember working with the North Carolina delegation 
especially.
    Let me just properly introduce both, then Dr. Mulvenon, we 
will turn to you. Senator Gorton served 18 years in the Senate, 
a distinguished member of the Appropriations Committee when it 
was a different sort of committee than now, I would 
editorialize, and he was on the 9/11 Commission after leaving 
the Senate. He is here representing the Commission on the Theft 
of American Intellectual Property and has been a real leader on 
the bipartisan initiative chaired by Governor Huntsman and 
Admiral Blair. So, thank you for your testimony.
    Dr. Mulvenon is vice president of Defense Group, Inc.'s 
Intelligence Division, director of DGI's Center for 
Intelligence Research and Analysis. He runs teams of nearly 40 
cleared Chinese, Russian, Arabic, Pashto, Erdu, and Farsi 
linguist-analysts performing open-source research for the U.S. 
Government. Thank you for joining us. He is also the author of 
``Chinese Industrial Espionage'' and knows this issue very 
well.
    Dr. Mulvenon, thank you.
    [The prepared statement of Senator Gorton appears in the 
appendix.]

   STATEMENT OF JAMES MULVENON, VICE PRESIDENT, INTELLIGENCE 
   DIVISION, DIRECTOR, CENTER FOR INTELLIGENCE RESEARCH AND 
                 ANALYSIS, DEFENSE GROUP, INC.

    Mr. Mulvenon. Thank you, sir. I would like to thank the 
Commission and I would also like to thank its excellent staff 
with whom I have worked for many years on some important and 
tractable problems, particularly on this issue.
    I bring a lot of perspectives to this issue, one being a 
Chinese linguist. As you said, 20 years of building teams of 
cleared linguist analysts doing open-source research for the 
U.S. Government, particularly on cyber issues, as early as the 
late 1990s, working on Chinese Internet censorship issues with 
this commission, and then finally the perspective of being a 
victim of these attacks given my own profile and my own 
writings and trying to expel Chinese attackers from the 
ramparts of my own corporate networks on a daily basis.
    We talked a lot in the last six or nine months about 
Chinese cyber espionage. I would say that it is a multi-faceted 
issue and there is not a one-size-fits-all answer to it. I 
would just like to highlight quickly five different areas of 
cyber espionage which are different in form and require 
slightly different strategies, and I think it is important for 
us to not treat it as a monolith but to break it down into 
pieces.
    The first category, frankly, is the traditional government/
military classified defense contractor espionage. We have very 
few options in this case. Countries will always spy on one 
another. We cannot legislate against espionage, we cannot 
impose treaties against espionage, but it is important to note 
that at least since 1996 I personally have watched Chinese 
intelligence preparation of the battlefield with regard to a 
Taiwan contingency, monitoring U.S. military asset movements, 
getting into unclassified Pentagon networks to be able to get 
into logistics databases, providing, now, strategic near real-
time intelligence to Chinese leaders about our dialogues with 
them, stealing the talking points of our various meetings, and 
frankly getting into a lot of classified defense contractor 
companies, stealing critical classified technology about our 
newest weapons systems and then using that information to fine 
tune their own defensive systems and their offensive systems.
    In each of those three cases, they have almost immediate 
benefit from stealing that information, being able to 
immediately operationalize it.
    On the commercial espionage side it is a little bit more 
complicated. On the one hand, we have what we call sensitive 
business information. So you break into the sea suite of a 
major Western oil company, you steal the dollar number of what 
they are going to bid on a tract in the South China Sea, you 
hand it to your national offshore oil company, they bid $100 
over that and they win the bid. So there is an immediate 
benefit. But the one that has been thorny to us, analytically 
at least within the system, has been this issue of intellectual 
property rights.
    One, a lot of companies do not self-report the intrusions 
so we do not really have as much data as we would like, 
particularly data that shows us intrusions that steal 
intellectual property, that has been exfiltrated back to China, 
that is then given to a national champion in that sector who 
then is successfully able to reverse engineer it, who can then 
productize it, marketize it, and then show a demonstrable, 
quantifiable loss of U.S. company market share in China and 
then when they compete with them globally.
    There are actually very few cases where we have enough data 
to make that change. It primarily is because there are not 
really the guidelines for many of these companies to self-
report those problems.
    The Securities and Exchange Commission has tightened up 
some of their guidelines about reporting loss of shareholder 
value, but many of the companies I deal with feel that they are 
not properly indemnified from reporting that so in many ways 
many of them are looking to Congress for legislation that will 
provide them with the indemnification that they need to share 
information with the government without antitrust problems, or 
to even collude with one another and share intrusion data with 
one another so they can engage in collective defense without 
legal jeopardy.
    Now, we have begun to talk to the Chinese in a much more 
serious fashion about these issues, particularly in the last 
six months. I think the President at Sunnylands struck the 
right top-level tone with President Xi by pointing out the 
following fact, not to educate them about whether this is 
happening, we are not going to insult their intelligence about 
that, but to point out that the real strong pillar in favor of 
cooperative Sino-U.S. relations, particularly past the PNTR 
era, has been the business and trade community.
    Yet, that is the community that you hear now the most 
complaining about how they cannot make money in China, how the 
Chinese Government has its thumb on the regulatory scale 
favoring national champions, and how the rampant cyber 
espionage is actually reducing their competitiveness and 
stealing their core technologies.
    And so to emphasize to President Xi as we are to senior 
Chinese leaders that this fundamentally threatens the bilateral 
trade relationship, which fundamentally threatens China's 
overall economic development, which therefore threatens their 
social stability, which is the number-one priority of the 
Chinese Government.
    That is the message that is getting through to the top 
leadership and hopefully will incentivize them, along with a 
whole range of other measures that we are contemplating--naming 
and shaming, denied entities list, and all sorts of other 
measures we have--against Chinese companies and universities 
engaged in this behavior, that I think together could possibly 
stem the tide on this behavior which is, frankly, draining the 
American innovation economy.
    [The prepared statement of Mr. Mulvenon appears in the 
appendix.]
    Chairman Brown. Thank you very much, Dr. Mulvenon. Those 
companies you mentioned that are now complaining are the same 
companies that really did the heavy lifting to push PNTR 
through the U.S. Senate and the U.S. House of Representatives 
and have sort of played this bangle a lot of ways. But more on 
that later, perhaps.
    Let me start with Dr. Mulvenon on this question. I spend a 
lot of my time--my State makes more things, more products in 
terms of net worth than any State but California and Texas, 
States much larger, from aerospace, to autos, to food 
processing, to chemicals, to all kinds of things, wind 
turbines, solar panels. I spend a lot of time on shop floors. 
What you notice is that in terms of innovation, product 
innovation and process innovation so often take place on the 
shop floor.
    So when U.S. companies do the innovation in California, as 
Apple brags about often, or in Ohio, or anywhere else, or North 
Carolina, and then the production is done overseas, 
automatically that innovation is happening on those shop floors 
in terms of process and product both.
    How did this theft work beyond that? Talk that through, how 
that sort of exacerbates or enhances the opportunities these 
companies have for that kind of intellectual property theft 
when they do it from cyber attacks here, when they do it when 
our companies are actually overseas, producing overseas, if you 
would discuss that.
    Mr. Mulvenon. I think first it is important to note why 
this is happening. For the first 25 years of Chinese economic 
modernization, in my view, China was content. We have all seen 
the dramatic numbers, the covers of the magazines, everything 
that emphasizes the tremendous gains that they have made.
    But it was a very shallow modernization because there were 
enclaves in China, we would send our components over there, 
they would get reassembled and then re-exported out.
    In roughly the early 2000s, the Chinese Government looked 
at this issue and they said this is not the kind of deep 
economic modernization we want. We do not really feel that it 
is developing the national champions.
    We are not innovating within China, we are simply 
assembling other people's stuff and re-exporting it. So in 
roughly the 2005-2006 time frame, they came up with this idea 
of indigenous innovation that was mentioned earlier and they 
put out a large number of state policies, the 2006-2020 Medium- 
to Long-Range S&T Plan, and they tried to emphasize that this 
was going to be a large-scale government effort, multi-billions 
of dollars.
    What they discovered, however, was state-driven R&D is an 
oxymoron, akin to jumbo shrimp and military intelligence. That 
is not how innovation happens and so they were failing in some 
key sectors to be able to do that. The only place they could 
turn, if they could not squeeze it out of the multinationals by 
forcing them to build R&D labs in China, if they could not 
squeeze the tech transfer out of the companies that were 
competing for market share and being increasingly forced by 
regulatory ministries who were partnered with those national 
champion companies to squeeze that technology transfer out, the 
remaining option that they had, frankly, was to steal it.
    Unlike 20 years earlier where you would have had to 
physically steal it from a plant, you would have had to smuggle 
the blueprints out of the shop, you would have had to take the 
part and run out the door with it, unfortunately our move 
toward connectivity and putting all this information online 
allowed them to steal that at great distances.
    So that would not have been true in a pre-Internet era, but 
unfortunately now many companies, for a lot of reasonable 
reasons, have been putting all that information online and 
unfortunately that made it all that much easier for people to 
steal it from them, particularly China.
    Chairman Brown. Thank you. That was very helpful.
    Senator Gorton, talk about your experience and your report 
and give us thoughts on, including Senator Levin's legislation, 
what you think we should do in this body and in the House of 
Representatives.
    Senator Gorton. Well, Dr. Mulvenon put it quite correctly 
when he said we are half-blind at least in determining how much 
it really is and what is going on because lots of companies 
either see no point in saying that they have been stolen from 
or think that it would make it worse, or that they would lose 
what markets they have in China.
    So I would say one of the first things that you want to do 
is to see to it that there is one department, one office in the 
United States that is in charge of finding out the total scope 
of the problem, all of the various elements that the doctor has 
spoken about, so that you as the policymakers know how big the 
problem is.
    As I say, we have given you a conservative estimate. I 
think that estimate is low. But to a certain extent, I am just 
guessing on that. We need to know what is going on and no one 
is really in charge of this at the present time. But from the 
point of view of the cure, the cure is, again, as I think 
Senator Levin has at the heart of his bill, the cure is in 
creating internal lobbyists in China for obeying the law.
    There has got to be a group there that will say, ``We will 
be better off if we follow a fair set of rules than we are 
now.'' There is no one there who says that now because it 
simply is not true. Stealing our intellectual property is very 
largely risk free.
    But tying up the U.S. market, which is so important to them 
in one respect or another, will be very important in creating a 
group in China that will say yes rather than simply smile and 
nod their heads and go ahead down the same road.
    This is not a new problem. We were concerned about this a 
decade ago, and even more than a decade ago, but the Chinese 
economy has changed, its desires have changed and it is 
becoming worse, not better.
    Chairman Brown. Senator Gorton, is Chinese cyber theft a 
greater threat to our national security or to our economic 
security?
    Senator Gorton. Well, I really will defer to Dr. Mulvenon 
on that. It is a major threat to our national security. Even 
the solutions that I have suggested and that Senator Levin has 
suggested only indirectly get at that. How you value in dollars 
the loss of intellectual property that is important to our 
national defense is not easy to determine and the degree to 
which you can punish them directly for that is hard to 
determine.
    But at one level, at least, that is the most important 
challenge, the challenge to our national security. But the 
challenge that may have cost us 2 million jobs or more is a 
major challenge and something that we should be attempting to 
cure right now.
    Chairman Brown. Thank you.
    Dr. Mulvenon, would you like to comment?
    Mr. Mulvenon. I do not think you can dissemble the two. 
They are inextricably linked. The Chinese see them as 
inextricably linked and we should as well. In other words, any 
decline in our economic security, any decline in our 
technological competitiveness has an automatic implication for 
a decline in our national security.
    Similarly, a decline in our national security with respect 
to the Chinese impacts our ability to enforce fairness on the 
Chinese side with regard to economic competitiveness, so for me 
they are pieces of a part.
    The Chinese themselves write about their own comprehensive 
national power in a way that does not even make the distinction 
between the two, so again, talking to senior Chinese leaders 
about their impact on economic development, they will 
automatically see the connection to their own national security 
and the defense of their own country, as we should as well.
    So I do not think anything is to be gained by separating 
the issues. In fact, I think we have a greater power to 
influence them by connecting them together and not allowing 
them to be treated separately.
    Chairman Brown. Congressman Pittenger?
    Representative Pittenger. Thank you, Mr. Chairman.
    Dr. Mulvenon, as we look at the collaborative efforts among 
government agencies to address cyber, how are we doing, with 
DHS, the FBI, the U.S. Trade Representative and others? Are we 
working well together? Is there anything we could do to improve 
that?
    Mr. Mulvenon. Well, we have some very important and 
difficult seams, if you will, in the system that continue to 
bedevil the way we do things. In other countries that do not 
have our particular legal and bureaucratic system frankly have 
us at an advantage.
    But the struggle between, for instance, domestic cyber 
security under DHS and where that boundary line is between that 
and foreign cyber security with respect to cyber at NSA, 
continues to be a point of friction. I will tell you, I have 
read multiple internal Chinese military sources in which they 
talk about exploiting those seams, exploiting those 
jurisdictional issues for their own advantage.
    I will give you one example. As early as 1996, internal 
Chinese military sources were talking about how they wanted to 
delay or disrupt our logistics deployment to a Taiwan 
contingency by disrupting the Pentagon's unclassified logistics 
computer systems.
    But they said quite pointedly that they would initiate that 
attack from within the continental United States, knowing that 
that would activate a different bureaucracy, namely the FBI, 
and not the NSA and other people who would see it as a foreign 
intelligence operation, and in that window of us frankly being 
screwed up and not knowing what was going on, they would be 
able to seize that strategic advantage. So I do not think we 
are doing well on that front in particular, and I think even 
our adversaries are well aware of it.
    Representative Pittenger. Given that understanding, I am 
not trying to get you out of your box in terms of your focus, 
but how would you remedy that?
    Mr. Mulvenon. Well, to be honest, at many levels it is an 
indemnification issue because there are a lot of companies 
around the world that believe that there is sovereignty in 
cyberspace.
    In other words, that nations have boundaries and that those 
boundaries can be protected. We alone have been arguing for 
sort of an Internet freedom model that is sort of boundary-
less.
    For the Chinese, the Russians, the Iranians, all they talk 
about is sovereignty. They are frankly more Westphalian than we 
are in many of these issues with regard to cyberspace.
    At the end of the day, we have to recognize that in fact 
our best assets for defending the country on the cyber side are 
the ones that are precluded from operating within the domestic 
United States.
    I realize that this may not be the best time to raise that 
issue given the news of the day, but ultimately we want to have 
our best capabilities in terms of defending the Nation and 
those capabilities often reside with organizations within the 
U.S. system that are not currently authorized to fully exercise 
those within the United States. So the only way that is going 
to get solved is to give people top cover at the Title 10, 
Title 50 level that does not currently exist.
    Representative Pittenger. Thank you.
    Senator Gorton, thank you again for your tremendous 
perception on this issue. You believe as I do in free and fair 
markets, other realistic market leverages that we have 
remaining today to try to stop the Chinese from the continued, 
what we believe is cheating, and continued theft of 
intellectual property.
    Senator Gorton. The leverage we have is our market, the 
fact that we have purchased far more from Chinese sources than 
they purchased for us. That is a tremendous leverage and in my 
view it is the highest leverage we have. By threatening that 
market in a straightforward fashion, we will at least get them 
to begin to hear about what our concerns are and have to 
respond to them.
    Representative Pittenger. You said that American companies 
do not want to be public as much in coming out that they have 
been the recipient of cyber, what role still do they have in 
protecting themselves?
    Senator Gorton. Well, they have a tremendous role in 
protecting themselves. But I think one of the reasons that many 
of them are reluctant to talk publicly about it or to come to 
the government about it is they do not think anything is going 
to get done in any event. If we show the government that we are 
serious about the question I think we will get more cooperation 
from the private sector.
    Representative Pittenger. Do you see a public/private 
partnership then?
    Senator Gorton. Of course it is. The fundamental defense of 
the United States is a public responsibility.
    Representative Pittenger. Yes. Sure.
    Senator Gorton. But obviously every company wants to 
protect its own intellectual property and its markets.
    Representative Pittenger. Sure. Thank you.
    Chairman Brown. Mr. Meadows? Thank you, Mr. Pittenger.
    Representative Meadows. Thank you, Mr. Chairman. I can see, 
Doctor, you wanted to go ahead and make a comment on that last 
question, so go ahead.
    Mr. Mulvenon. Well, I think, frankly, this body has an 
important role to play because in the absence of strong 
government intervention on this issue I am sure many of you 
have seen the rise of certain companies that are now 
advertising as part of their services that they themselves will 
engage in aggressive defensive measures, shall we say, or even 
hack back on behalf of companies in the absence of the 
perception that the U.S. Government is going to do anything to 
help them.
    When I testified before the Huntsman-Blair Commission, we 
had a lengthy discussion about some of the outdated features of 
the 1986 Computer Fraud and Abuse Act and the fact that, 
frankly, many companies right now are looking to Congress for 
clarification, and frankly the Department of Justice, as to 
where the legal boundaries are on this issue about hack back 
and being able to aggressively go after your own intellectual 
property.
    That act is 27 years old. I believe that many features of 
it are outdated and have been rendered obsolete by technology, 
and I think it really needs to be revisited. That was certainly 
one of the most interesting debates we had in the Commission 
hearing that I testified at.
    Representative Meadows. So as we look at the Commission, I 
think, Senator, your comments were that this will get us down 
the road but it will not get us all the way. Again, I may be 
paraphrasing there, but how far down the road does it get us? I 
mean, is this a marathon of which we have gone one mile, are we 
doing a half marathon? I need to realize how far down the road 
we are going.
    Senator Gorton. Well, I think it is a marathon at which we 
are still at the starting line.
    Representative Meadows. But you were talking about, if all 
your recommendations are implemented.
    Senator Gorton. I do not think I can quantify that, except 
that I think it would be significant. It will be significant to 
exactly the extent that we have begun to create, within China 
itself, an interest group that is in favor of the protection of 
intellectual property rights.
    Representative Meadows. So how do we do that? How do we 
create within China this interest or this respect for the rule 
of law, because we see that in so many areas where there is not 
that? So how do we do that?
    Senator Gorton. By threatening the profitability of those 
Chinese companies, both public and private, that sell large 
amounts of their goods and products in the United States.
    Representative Meadows. All right. So you used the word 
``threat.'' I do not ever bluff, so let me ask you this. When 
does threaten and when does consequences to actions--because 
too many times we threaten without resolve. I guess what I am 
asking----
    Senator Gorton. Congressman, I agree with you. Do not 
threaten unless you are willing to carry it out.
    Representative Meadows. Exactly. So what you are saying is 
to have real consequences that we are committed to, regardless 
of the circumstances of implementing.
    Senator Gorton. Yes.
    Representative Meadows. All right.
    Would you agree with that, Doctor?
    Mr. Mulvenon. Well, first of all I would say, as a matter 
of principle, China and the Chinese economy and the Chinese 
Government will respect intellectual property when they have 
their own intellectual property to defend.
    Representative Meadows. I agree.
    Mr. Mulvenon. I mean, one of the real dilemmas we have is I 
know that talking about patent trolling is very popular these 
days.
    Representative Meadows. Right.
    Mr. Mulvenon. I see a tremendous upswing in patent trolling 
in China. In other words, Chinese doing patents of things that 
are registered with their own Patent and Trademark Office and 
then attempting to sue or coerce American companies that are in 
China by claiming that they have the Chinese patent for 
something that clearly is one of our patents.
    Now, the trends are going in the right direction, they are 
just not going there quickly enough in terms of China's own 
intellectual property development and therefore its own desire 
for protections.
    In my view, on the cyber side in particular, what I have 
been pushing for internally is a focus on identifying a 
specific number of companies and, frankly, a number of civilian 
universities, very large universities in China, that are known 
to have been engaged in this activity, have been supplying 
tools, have been supplying personnel, have been engaged in this 
activity and putting them on the denied entities list from the 
Commerce Department.
    That will deny them visas to the United States, professors 
will not get fellowships, graduate students will not be able to 
get fellowships over here. There will be a constituency, as 
Senator Gorton said, that all of a sudden is now feeling the 
pain of actions that they are not profiting from and it will 
create basically a constituency within China that will begin to 
say, ``All right, this is no longer a consequence-free activity 
for us anymore.''
    Senator Gorton. I would just go on to say that I agree 
almost totally. What bothers me about at least a part of that 
statement is that when the Chinese have so much intellectual 
property that they have more to defend then they have to 
attack, we will have already lost the struggle.
    Representative Meadows. It would be too late, yes. When 
they become the consumer of their own products, it is game 
over. So when we look at this--and let us go on a little bit 
further if the Chairman will indulge--it used to be that 
investing in China, American companies or foreign companies got 
a better deal from a regulatory standpoint, from an incentives 
standpoint.
    My understanding is that that is no longer the case, that 
those regulations are being beefed up. So the regulations that 
companies fleeing from America to produce in a foreign country 
are not as, I guess, lucrative anymore. Would you concur with 
that, agree with that, or disagree?
    Senator Gorton. I think maybe it is slightly too broad a 
statement because I do not think every kind of company or every 
kind of investment in China is exactly the same. Some may not 
have much in the way of intellectual property, some obviously 
still find it profitable to do business there. Many others have 
found that it costs far more than it is worth.
    Representative Meadows. Doctor?
    Mr. Mulvenon. I would probably disagree with the 
characterization that there was some sepia-toned better past 
where we actually were successful making money in China. My 
father did business in China for 20 years selling nuclear 
radiation detectors and always felt the deck was stacked 
against him.
    We used to watch people who came to China believing in the 
whole ``if everyone bought one shoe we would sell a half a 
billion shoes'' kind of philosophy repeatedly getting used. But 
I think the hope was always that the Chinese economy would 
mature to the point where it became a more level playing field 
and that there was more predictability in the regulatory 
system.
    In fact, what we are finding now is that the regulatory 
system is becoming even more predatory and more capricious as 
they are trying to force this indigenous innovation. They are 
no longer content to allow Western multinationals to have pride 
of place, but instead are trying to replace them with these 
national champions. That has created a very uneven playing 
field and a lot of, frankly, unfair activity that is in 
violation of their WTO commitments.
    Representative Meadows. And my last question is, how big 
does the problem need to get before there is a demand from the 
American people to deal with it? We are estimating today a low 
estimate of $300 billion that could be $400 or $500 billion in 
terms of economic impact. How big does it have to get before 
you see a concerted effort on all parts to come together and to 
address it?
    Senator Gorton. It is big enough right now, and the fact of 
this hearing is an illustration of that fact.
    Representative Meadows. All right. Thank you. I yield back. 
Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Mr. Meadows.
    I would even argue that a decade and a half ago, when some 
of these issues were decided in the House and Senate, that the 
public was kind of always a bit ahead of these two 
institutions, perhaps.
    I wanted to just--and then I will close for the next panel, 
but I appreciate very much Mr. Pittenger and Mr. Meadows's 
comments. I have watched this over from my House days during 
PNTR and just watched the way that--American corporations and 
the relationships in China.
    At the time of the PNTR vote in the House of 
Representatives, I remember a friend of mine that worked at 
National Airport told me there were more corporate jets there 
that week leading up to the vote than at any time in his 
memory.
    At that point I am not sure that our companies, our large 
companies' interests in China matched up with our national 
interests as a nation. I think perhaps it is more that way, but 
just a note of caution.
    As an increasing number of American companies come to the 
government and say we need help here because of cyber attacks, 
that we keep in mind--and we should be there for them--that it 
is important that our national interests match these companies' 
interests there, because I remember being lobbied by one 
company in particular in my district who said this makes so 
much sense to pass PNTR, and then two years later he moved a 
lot of his production to China. He said I had to move because 
all my competitors are there because of this new set of rules 
through PNTR. That song was sung far too many times in North 
Carolina, in Ohio, and across the country.
    So thanks very much, Dr. Mulvenon, for your work, and 
Senator Gorton, for your lifetime and continued work and 
service for our country.
    I would call up the next panel, beginning with Wen Yunchao, 
known more commonly by his online alias, Bei Feng. He has 
launched a series of online campaigns in support of human 
rights and against Internet censorship. He was awarded the 
French Republic's Human Rights Prize 2010 by the French 
National Consultative Commission on Human Rights in recognition 
of his efforts and contributions to promoting China's human 
rights movement through social media. He is a graduate of 
Harbin Institute of Technology and is currently a visiting 
scholar at Columbia's Institute for the Study of Human Rights 
in New York City.
    Louisa Greve is vice president for Asia, Middle East and 
North Africa, and Global Programs at the National Endowment for 
Democracy, where she served as director for East Asia. She has 
studied, worked, and traveled in Asia since 1980. She was a 
member of the AEI/Armitage International Taiwan Policy Working 
Group, the Council of Foreign Relations Term Member Roundtable 
on U.S. National Security--New Threats in a Changing World. She 
served as a member of the board of directors of Amnesty 
International for five years and was a volunteer China and 
Mongolian specialist from 1990 to 1999. She served two terms as 
a member of the Virginia State Advisory Committee of the U.S. 
Commission on Civil Rights. If the two of you would join us, 
and thank you very much.
    Cao Yaxue will translate for Mr. Wen. Mr. Wen, please 
proceed. Thank you.

     STATEMENT OF WEN YUNCHAO (ONLINE ALIAS ``BEI FENG''), 
INDEPENDENT JOURNALIST AND BLOGGER, VISITING SCHOLAR, INSTITUTE 
       FOR THE STUDY OF HUMAN RIGHTS, COLUMBIA UNIVERSITY

    Mr. Wen. Thank you, dear Senator Brown and Congressman 
Pittenger and Congressman Meadows. My name is Wen Yunchao. I am 
here to testify about the cyber attacks against me that 
occurred over the last few years.
    In September 2009, I discovered that my Gmail account was 
set up for forwarding and that it would forward all my emails I 
received to another email account not under my control. This 
was the first time I realized that my email was attacked.
    In February 2011, the so-called Jasmine Revolution broke in 
China. It refers to anonymous online calls for mass gatherings 
in public venues in major cities across China.
    At the time I was working and living in Hong Kong. Starting 
at that time, all my electronic communications, including 
telephone and Internet products and services were under severe 
attack.
    On June 2, 2011, I discovered that rather sophisticated 
hacking was being used against my Gmail account. That day I 
received an email with the subject ``Li Chengpeng Invites You 
to Participate in Voting.'' The email provided a disguised 
link. On clicking it, a flash document opened up and the 
account would authorize other users to visit. When I reported 
this to Google, they responded that they were not even aware of 
such attacks.
    The content of the email had to do with well-known Chinese 
author Li Chengpeng's campaign for election to the local 
Congress of the People's Representatives and was sent two days 
before the anniversary of the Tiananmen massacre on June 4. I 
believe the hacking was politically motivated and most likely 
an act of the government. I reported the hacking process and 
published it on You Tube.
    In June 2011, I was attending the U.N. Human Rights 
Council's meeting in Geneva as part of the Internet Freedom 
Fellows Program. I gave a speech to call for support for 
Chinese citizens who have been persecuted because of the 
Jasmine Revolution. On June 8, the day before the speech, I 
received a text message warning.
    After I gave the speech and before I left Geneva, my phone 
began to receive a large volume of incoming calls. My phone was 
attacked in such a manner between June and August 2011. At its 
heaviest on July 31, I received 311 calls in one day. All the 
calls hung up after the ring.
    I did a statistic study of the calls between late July and 
early August and I found that attackers had a very regular time 
when they start working and when they went off work. It was not 
a random person acting alone.
    In July 2011, personal information of my wife, my son, and 
other relatives were published online, including the numbers of 
my wife and my son's Hong Kong/Macao travel permits. This is 
not information average people can easily access unless they 
are the police or authorities.
    For about a year starting April 2011, unidentified persons 
bombed me on Twitter with trash information. Using software 
called Twin to filter the trash, I found the heaviest attack 
took place on April 25, 2012; a staggering 590,000 spam posts 
within 24 hours. Unidentified persons also posted viciously 
defaming information about me online at the rate of over 10,000 
times per day. As far as I know, the artist Ai Wei Wei has also 
been similarly attacked.
    Starting August 24, 2011, my Gmail account was spammed with 
an astonishing number of messages. At its peak in mid-March 
2012, that flow was as high as five gigabytes per hour. If this 
were a personal attack it would take more than 20 users to 
attack my account simultaneously to reach that kind of volume. 
Therefore, I believe it was an organized attack.
    The attackers also put my name in garbage messages to make 
it harder for me to filter them. I reported the attacks to 
Google through a third party. A Google official contacted me 
subsequently and Google made specific efforts to deal with the 
attack on me, but the results were not that great.
    Around the same time, unidentified persons also published 
hundreds of articles online to denigrate me and I believe it 
was an organized campaign to destroy my personal reputation.
    At 4 p.m. on May 28, 2012, attacks on Twitter and Gmail 
stopped simultaneously. This also shows these were organized 
behaviors.
    Chairman Brown. Ms. Cao, if you can try to wrap up in the 
next minute or two.
    Mr. Wen. We are just about done. Yes. Thanks. From April 
2009 to the present time I have received an untold number of 
phishing emails and Trojan emails from the one email attack 
system that I successfully broke into myself. I found 192 
people who were the objects of attack and they included Chinese 
dissidents, rights lawyers, and foreign journalists reporting 
on China.
    From the sources of the pack, I was able to identify, and 
also from the Mandarin I heard in the background in the earlier 
stage of the telephone harassment, I believe all the attacks 
came from mainland China.
    I hope that the U.S. Congress and the government will 
recognize such cyber attacks against human rights defenders as 
human rights persecution and impose sanctions and visa 
restrictions on organizations, companies, and their employees 
who engage in such malicious activities.
    Thank you.
    Chairman Brown. Thank you very much, Ms. Cao, and thank 
you, Mr. Wen.
    Ms. Greve, thank you for joining us.

  STATEMENT OF LOUISA GREVE, VICE PRESIDENT FOR ASIA, MIDDLE 
EAST, AND NORTH AFRICA, AND GLOBAL PROGRAMS, NATIONAL ENDOWMENT 
                         FOR DEMOCRACY

    Ms. Greve. Thank you so much. For Chinese, Tibetan, and 
Uyghur human rights activists working from exile, cyber hacking 
is a form of repression that reaches across state boundaries to 
undermine their ability to exercise the fundamental political 
freedoms they should be enjoying in democratic countries.
    Being under sustained cyber attack means these groups are 
not, in practice, able to routinely access free communications 
media in the public square. The hackers' success in hampering 
the ability of these groups to do their work normally results 
from a combination of specific targeting and the use of up-to-
the-minute hacking skills.
    Some examples. First, the activists have to contend with 
real-time and preemptive interference with their 
communications. Increasingly, hackers are no longer having the 
misspelled emails we have all experienced; you know, when 
somebody sends you something and they misspell their own name 
it is a little bit of a give-away.
    Now, the hackers are obtaining genuine emails and then 
sending them on within a malicious email within hours, which 
greatly increases their plausibility, especially when they are 
related to an ongoing conversation, upcoming event, or 
conference. I have an example from the Uyghur American 
Association. There was at least one incident when a staff 
member received an immediate reply from a colleague, which 
turned out to be the work of a hacker.
    Second, there is all-device harassment. Mr. Wen has talked 
about the jamming of his telephone. This happened in 2011 in a 
number of places. The World Uyghur Congress experienced, for a 
full week, continuous jamming of the land lines in Munich of 
the personal apartment and office telephone lines for a week. 
During the same time, which was the sensitive political 
anniversary of the July 5 riots in Urumchi, the Web site was 
down and there was the massive spam attack, 15,000 emails in 
one week.
    Then the third example has to do with the innovation. There 
is some innovation having to do with software for cyber 
attacking. This was the first-ever documented attack against 
Android devices. Now, this is getting to the Smartphones and 
the tablets.
    In fact, Kaspersky Lab, a research company, has issued a 
report saying that in March they discovered the first-ever use 
of spear-phishing email that attacked and succeeded in damaging 
Android users' equipment. The vehicle for this attack did have 
to do with the Uyghur, the World Uyghur Congress, having sent 
an email to speakers who had attended a conference.
    The sender of this copied text was purportedly a high-level 
Tibetan activist. The malware that was attached extracted data 
about the phone itself: the phone number, the OS version, the 
phone model, and the contacts stored both on the phone and on 
the sim card, and call logs, and their SMS messages, and their 
GO location.
    Now, the frequency and sophistication of all these attacks 
reveal a significant investment of resources. In fact, 
activists note an upgrading of the resources devoted to this 
campaign, including increased knowledge of the social networks 
that they are trying to attack, language proficiency, and the 
technical means.
    We should note another example, another piece of evidence 
of the nature of the political targeting, the attacks always 
surge before sensitive political anniversaries, June 4, July 5, 
and others.
    As we look at this kind of deliberate targeted hacking, why 
is it such a potent tactic for impeding the work of human 
rights activists? It is because of its numerous practical 
effects. It silences activists' ability to communicate with the 
wider public when their Web sites are down for weeks at a time 
when they have something to say; it compromises the ability of 
research groups to keep information confidential, which is 
essential when doing human rights work and helping refugees.
    It diverts the energies of the activists because they have 
to deal with recovering from the cyber attacks and double-
checking all their communications to ensure their authenticity. 
It raises the cost, the financial cost, by requiring expensive 
back-up systems, very expensive technical assistance, and so 
on.
    It undermines cooperation with the wider world. 
International organizations, the journalists, the media experts 
are also frustrated with these fake and malicious emails and 
other hacking interference. Finally, hacking, frankly, 
increases fear, again, even for those who are outside of China, 
even for those living in free countries. This is a great 
deterrent effect, making people afraid to be in touch with each 
other, to have solidarity.
    Again, while they are outside of China they do not want to 
compromise their strategies, as Congressman Smith mentioned, or 
their confidential information, and certainly in communicating 
with people inside China, given the potential for harassment 
and arrest. So this portfolio of effects, silencing critical 
voices, undermining credibility, undermining trust, increasing 
isolation, raising costs and inducing fear, this is the panoply 
of tactics of repression perfected by authoritarian regimes and 
it is now being globalized. It deserves our unqualified 
condemnation.
    Thank you.
    Chairman Brown. Thank you very much, Ms. Greve.
    Mr. Wen, first of all, thank you for your courage in 
speaking out. I know that you are in New York, at least for a 
while. I also know you have a wife and a son. If your speaking 
out does endanger you in any way or expose you to any issues or 
problems, please let us know and we will help you in any way we 
can. I think that I can speak for all the members of this 
commission, and institutionally, too, if you would keep us 
informed about any potential retribution. So, thank you for 
that.
    My question is, why didn't they just shut you down?
    Mr. Wen. In 2011, I was awarded a human rights award in 
France. Since then, I have not been able to return to China. I 
was working and living in Hong Kong until recently. That is 
why, today, I am able to sit here to tell you my story. Late 
last year, they refused to renew my Hong Kong Exit-and-Entry 
permit, so I could not stay in Hong Kong anymore. That is why I 
came to New York.
    Chairman Brown. Thank you.
    Ms. Greve, thank you for particularly your last comments 
about the draining resources, increasing costs, and instilling 
fear. It seems that a number of U.S. companies are reluctant to 
speak out because of fear of economic retribution that the 
Chinese Government or state-owned enterprises or others could 
levy against them.
    Do human rights and civil society organizations, both 
inside and outside China, feel--you talked about fear. Explore 
that a little more, the fear they may feel in speaking out or 
pointing fingers, or whatever they might want to do in 
response.
    Ms. Greve. A number of groups report that it is very hard 
to even do the basic documentation because victims and 
witnesses are afraid to speak. This can be true before the 
cyber age, but it is true in spades now, as James Mulvenon said 
about stealing intellectual property.
    Once you reveal information about yourself it becomes known 
that you have spoken out and your family can suffer back home 
in China. So there is an effect of fear. It silences individual 
victims to speak up and it certainly makes it very hard for 
journalists and human rights groups to provide the data and the 
documentation so the world can know the extent of the problem.
    Chairman Brown. So what do U.S. lawmakers do to help 
protect these civil organizations, civil society organizations 
and human rights groups and all?
    Ms. Greve. I certainly believe that the work of the 
National Endowment for Democracy, my organization which is 
supported by an annual appropriation from the Congress, is one 
lifeline. We give grants to human rights groups outside China 
who are doing their best. Then they have money for server space 
and the ability to travel to meet each other.
    So some kind of offsetting of the financial cost is the 
very least that can be done and that is certainly being done 
through my organization. There are a number of programs that 
the State Department has done to help human rights defenders, 
and these are all worth doing even though they are at a very 
micro level.
    Then certainly the voices of those in China who are still 
in China and subject not only to harassment and impeding of 
their normal work, but of course under the thumb of the 
security apparatus of the state when they raise their voices, 
it is very gratifying for them to hear Members of the Congress 
echo their concerns and recognize the justice of their cause.
    Chairman Brown. Does it always matter when--we sort of 
sometimes walk this line of judging others, of speaking out--
does that sometimes jeopardize people whom we defend as 
American elected officials speaking out individually in support 
of a Chinese citizen? Does that cut both ways? Is that 
something we should always do? Does that always help them?
    Ms. Greve. It is a good idea to ask the individual or 
advisors, but most of the time activists tell us that when they 
are ready to stand up and be counted it can only help them to 
have solidarity around the world based on universal values 
after all.
    Chairman Brown. All right. Thank you.
    Mr. Pittenger?
    Representative Pittenger. Thank you, Mr. Chairman.
    Mr. Feng, thank you for your testimony. I would like to 
just get some idea of the penalties that are enforced against 
the Chinese citizens in their efforts to expose human rights 
and how they are targeted in China.
    Mr. Wen. Internet hacking and cyber security is only one 
problem they face. In real life, their security, their physical 
security is an issue. They could be disappeared, their Internet 
ability could be invaded and their telephones monitored, and so 
on and so forth.
    Representative Pittenger. Thank you.
    Are these penalties pervasive throughout the country or are 
they different in different provinces? Does it matter where in 
China?
    Mr. Wen. The Internet attacks, the more prominent 
dissidents and activists are suffering more. But emails, like 
phishing, it is very common, very widespread. As for 
disappearance and detention, there might be little difference. 
In some provinces, like in Guangdong, it might be a little bit 
better than elsewhere, but it is also very common.
    Representative Pittenger. Thank you.
    As it relates to religious freedoms and religious 
practices, do you see that there is greater openness and 
freedom in some provinces given than there are in others, and 
does the official church--is it demanded in some provinces--is 
the underground church able to live in greater freedom in some 
areas than in other areas?
    Mr. Wen. As far as I know, in the northeastern or the 
greater northern area in China, religious persecution is very 
serious. We all know, of course, about what's happening in 
Xinjiang and Tibet. In the southern provinces, religious 
persecution might be a little milder but it depends on what is 
your standard. If your standard is universal values, the 
persecution, even in what we consider the milder provinces, are 
still very severe.
    Representative Pittenger. Thank you for that.
    Ms. Greve, thank you also for your testimony. As it relates 
to these organizations, you said that you appreciated the 
support from our government. I find myself in a predicament 
sometimes when I am addressing, for example, the Chinese 
Chamber that I have spoken to and others, and how direct I am. 
I know Chairman Brown brought this up some, but I would like to 
get a better feel how you could counsel me on addressing the 
human rights issues and concerns that I could have the greatest 
impact.
    My challenge has been not to be overbearing, but to be real 
and understanding. I have 25 years of experience in terms of 
working with the underground church in that country and their 
deep appreciation for what they have gone through. I want to be 
as direct as I can without losing them in the discussion.
    My argument has been that people of faith are the most 
dependable, moral, ethical people, that they could be 
constructive inside their own government, given all the reports 
of pervasive problems with crime and other issues inside the 
government. So I just think I would like a bit more input in 
how you would help us as legislators bring better focus and 
light to this issue that could put pressure on the Chinese 
Government.
    Ms. Greve. Even the work of this Commission proves that 
there is extensive, detailed, undeniable documentation--the 
annual report is just full--and yet merely the naming and 
shaming, merely the exposure does not bring the facts always to 
the forefront.
    When there are face-to-face encounters, there is always an 
opportunity. Sometimes people who are coming from China are not 
aware or sometimes believe active government propaganda about 
hostile forces outside China who want to needlessly smear the 
good name of China. I think the calm repetition of facts has to 
have a place in all of this.
    I think the investment in the work of documentation has a 
role, and there is also the question of the long term versus 
the short term. You may not get an immediate response but you 
have to stand for what is right for the long term. Maybe you 
are planting seeds.
    Representative Pittenger. Thank you so much.
    Chairman Brown. Thank you.
    Mr. Meadows?
    Representative Meadows. Thank you, Mr. Chairman. The time 
is late so I will be very brief, but I have one question as a 
follow-up. I have been in a number of hearings where we have 
heard about human rights abuses in China and as it continues. 
Ms. Greve, if you could comment on this.
    We understand when Congress takes an active role, when 
under the guidance of the Chairman or others when we say we 
will not tolerate human rights abuses it does not necessarily 
change it, but those that are suffering suffer less when we 
highlight it.
    So is there a time coming where, instead of a threat, where 
we truly mean what we say and that we will not tolerate the 
human rights abuses that have become so really commonplace, is 
what I understand. But when we highlight it, does it become, 
indeed, less in China?
    Ms. Greve. Numerous former prisoners report how important 
it was that political leaders and the people in charge of their 
detention institutions knew that other people were speaking up 
on their behalf, improved treatment, health, and so on. And of 
course the real hope has to come, as with the question of 
commercial rule of law, an internal transformation in Chinese 
society. This is where the long-term change will come.
    The American institutions and love for liberty and 
universal values cannot by itself change the situation on the 
ground in China. It has to come from within China. I believe 
the point should be to invest as much as possible in 
strengthening those who have the right principles, who are in a 
position to shape the institutions in the right direction and 
to have the greatest, strongest friendship for those kinds of 
people for the sake of the future of China.
    Representative Meadows. And with that, I will yield back. 
Let the message be one that we will not yield until this is 
dealt with. So I yield back, and I thank the Chairman.
    Chairman Brown. All right. Thank you very much, Mr. 
Meadows.
    Thank you all. The record will stay open for one week. If 
any of the three panelists, Ms. Cao, Mr. Wen, Ms. Greve, would 
have anything you would like to submit, and it is possible any 
of us may have questions for you, written questions, if you 
would answer those as quickly as possible. Thank you for 
speaking out. Thanks for being here. Thank you.
    The hearing is adjourned.
    [Whereupon, at 4 p.m. the hearing was concluded.]
                            A P P E N D I X

=======================================================================


                          Prepared Statements

                              ----------                              


  Prepared Statement of Hon. Slade Gorton, a Former U.S. Senator From 
                               Washington

                             june 25, 2013
    Over the past year, I have served as a member on the Commission on 
the Theft of American Intellectual Property. The Commission, co-chaired 
by Governor Jon Huntsman, the former U.S. Ambassador to China, and 
Admiral Dennis Blair, the former Director of National Intelligence, is 
an independent and bipartisan initiative of leading Americans from the 
private sector, public service in national security and foreign 
affairs, academe, and politics. The three purposes of the Commission 
are to: (1) document and assess the causes, scale, and other major 
dimensions of international intellectual property theft as they affect 
the United States; (2) document and assess the role of China in 
international intellectual property theft; and (3) propose appropriate 
U.S. policy responses that would mitigate ongoing and future damage and 
obtain greater enforcement of intellectual property rights by China and 
other infringers.
    What we found during our research and due diligence was quite 
alarming but not all that surprising. Our findings suggest that the 
value of the total loss of American IP overseas to be over $300 billion 
per year, comparable to the current annual level of U.S. exports to 
Asia. Furthermore, we estimate that China is roughly 50-80 percent of 
the problem. Most tangibly, one study suggests that if China had the 
same level of IP protection as the U.S. or the U.K., there would be an 
increase of 2.2 million new jobs within the United States. Intellectual 
property rights are violated in a number of ways including violating 
copyright and trademark protections, infringing on patents, and 
stealing trade secrets. Trade secrets are stolen primarily through 
cyber espionage, or through traditional industrial and economic 
espionage.
    Cyber theft is one of the main avenues by which these ideas are 
stolen. While hackers stealing trade secrets, money, and personal 
information are a worldwide problem, quantitatively, China stands out 
in regard to attacks for IP. A confluence of factors, from government 
priorities to an underdeveloped legal system, causes China to be a 
massive source of cyber-enabled IP theft. Much of this theft stems from 
the undirected, uncoordinated actions of Chinese citizens and entities 
who see within a permissive domestic legal environment an opportunity 
to advance their own commercial interests. With rare penalties for 
offenders and large profits to be gained, Chinese businesses thrive on 
stolen technology.
    While our topic today is Chinese hackers and commercial rule of 
law, it is important to remember that cyber espionage is only part of 
the problem. The stories that most people hear or imagine when thinking 
about IP theft, economic espionage, or trade-secret theft are the grist 
of high-tech espionage thrillers. The mention of global IP thieves 
often conjures up images of a foreign enemy based somewhere on the 
other side of a vast ocean. State-sponsored efforts immediately leap to 
mind--for example, Shanghai-based PLA Unit 61398, which has been
    identified as the source of many recent cyber attacks. However, 
while it is true that the rise of personal computing has added a new 
dynamic to protecting intellectual property, it is important to 
remember that nearly all IP loss, no matter how high-tech, still 
requires a human component. Much of today's IP theft still utilizes 
traditional economic espionage tactics. This is the apparent situation 
in the recent NYU case, where a Chinese government institution bribed 
researchers to disclose their valuable findings.
    Industrial espionage is nothing new. It is a classic business 
tactic used by less than reputable organizations to try and obtain a 
competitor's secrets in order to gain an economic advantage in the 
marketplace. So, while members of Congress continue to work on solving 
the issue of cyber theft and Chinese hacking, we would encourage them 
to consider expanding policy proposals beyond cyber theft to 
international IP theft, generally.
    Policy responses to the problem of IP theft must start with 
defensive measures here at home, to protect what we have, but this is 
not nearly enough. I believe that until there is a change in the 
internal incentive structure within China, or until there exists in 
China an interest group in favor of eliminating IP theft, we will 
likely see little progress. This is perhaps the only road to long term 
success. Purely defensive measures will likely just create better, more 
sophisticated thieves.
    Along with my testimony today, I am submitting a copy of the IP 
Commission's report that was released May 22, 2013. The final chapters 
lay out a series of policy recommendations, organized as short, medium, 
and long-term recommendations. The recommendations vary and would 
likely fall under the jurisdiction of a number of Congressional 
committees including the Senate Banking and House Foreign Affairs 
Committees. The short-term recommendations suggest changing the way the 
U.S. government is internally organized to address IP theft and suggest 
new tools to create incentives overseas. These include allowing for 
targeted financial sanctions and quick response measures for seizing IP 
infringing goods at the border. The medium-term solutions suggest, 
among other things, amending the Economic Espionage Act and shifting 
the diplomatic priorities of our overseas attaches. Our long term 
solutions focus largely on continuing to work on establishing stronger 
rule of law in China and other IP infringing countries. Additionally, 
we offer a set of cyber recommendations that this commission will 
likely find interesting given the topic of today.
    It is our hope that this report will help to inform and strengthen 
the policy changes that come from Congress and the Administration. 
Thank you.
                                 ______
                                 

                Prepared Statement of James C. Mulvenon

                             june 25, 2013

                      ``Chinese Cyber Espionage''

                              Introduction

    Thank you, Mr. Chairman and the other members of the Congressional-
Executive Commission on China for the opportunity to take part in the 
hearings you are holding today on the topic of ``Chinese Hacking: 
Impact on Human Rights and Commercial Rule of Law.'' My remarks will 
focus on Chinese cyber espionage.
    Chinese cyber espionage has emerged as a top issue in Sino-US 
relations, primarily because of concerns about theft of intellectual 
property. As I discuss in Chapter 9 of my book, Chinese Industrial 
Espionage, there are many different features of Chinese cyber activity 
towards the United States and there is no ``one size fits all'' 
approach for all of them.
                        the scale of the problem
    Cyber espionage is the latest and perhaps most devastating form of 
Chinese espionage, striking at the heart of American military advantage 
and technological competitiveness. Without mentioning China, General 
Keith Alexander, NSA Director and Commander, USCYBERCOM, told an 
audience at the Aspen Security Forum on 26 July 2012 that cyber 
espionage represents the ``greatest transfer of wealth in history.'' 
Other government agencies are less circumspect about calling out 
Beijing for its cyber theft.\1\ The Office of the National 
Counterintelligence Executive's 2011 report Foreign Spies Stealing US 
Economic Secrets in Cyberspace boldly asserts ``Chinese actors are the 
world's most active and persistent perpetrators of economic 
espionage.'' \2\ While the media began reporting rumors of large-scale 
intrusions in 2005,\3\ U.S officials did not publicly acknowledge 
exfiltrations of data until August 2006, when the Pentagon asserted 
that hostile civilian cyber units operating inside China had launched 
attacks against the NIPRNET and downloaded up to 20 terabytes of 
data.\4\ In March 2007, then Vice-Chairman of the Joint Chiefs General 
Cartwright told the US-China Economic and Security Review Commission 
that China was engaged in cyber-reconnaissance, probing computer 
networks of US agencies and corporations.\5\ This view was seconded in 
the 2007 China Military Power Report, an annual Pentagon assessment 
mandated by the National Defense Authorization Act, which claimed 
``numerous computer networks around the world, including those owned by 
the US government, were subject to intrusions that appear to have 
originated within'' the People's Republic of China.\6\ Former White 
House and DHS cyber official Paul Kurtz told Business Week that the 
Chinese activity was ``espionage on a massive scale'' \7\ A 2009 study 
by Northrup Grumman for the US-China Economic and Security Review 
Commission concluded ``Chinese espionage in the United States now 
comprises the single greatest threat to US technology . . . and has the 
potential to erode the United States' long-term position as a world 
leader in S&T [science and technology] innovation and 
competitiveness.'' \8\ And the problem appeared to be getting worse 
over time. Robert Jamison, the top cyber-security official at DHS, told 
reporters at a March 2008 briefing, ``We're concerned that the 
intrusions are more frequent, and they're more targeted, and they're 
more sophisticated.'' \9\ After the Operation Aurora intrusions against 
Google and other Silicon Valley companies in 2009 and 2010, officials 
worried that China was escalating its intrusions. Whereas before the 
activities were targeted at government and military networks, 
threatening US military advantage and government policies, the new 
intrusions went beyond state-on-state espionage to threaten American 
technological competitiveness and economic prosperity.
    Because the underlying evidence was classified, government and 
military officials could not provide detailed evidence of these 
allegations against the Chinese government and military, which 
naturally led to scrutiny of the specific attribution to China. In his 
confirmation testimony questions, current CYBERCOM Commander General 
Alexander agreed that ``attribution can be very difficult.'' \10\ 
Former senior DHS cybersecurity official Greg Garcia told the New York 
Times in March 2009 that ``attribution is a hall of mirrors.'' \11\ 
With respect to China, Amit Yoran, the first director of DHS's National 
Cyber Security Division cautioned, ``I think it's a little bit naive to 
suggest that everything that says it comes from China comes from 
China.'' \12\ Yet other officials were more confident in the assessment 
of Chinese responsibility. Then Director of the DNI National 
Counterintelligence Executive, Joel Brenner, told the National Journal 
in 2008:

        Some [attacks], we have high confidence, are coming from 
        government-sponsored sites . . . The Chinese operate both 
        through government agencies, as we do, but they also operate 
        through sponsoring other organizations that are engaging in 
        this kind of international hacking, whether or not under 
        specific direction. It's a kind of cyber-militia . . . It's 
        coming in volumes that are just staggering.\13\

    Other reports by non-governmental actors reach varying levels of 
confidence in their determination of Chinese government 
involvement.\14\ Given the technical challenges of attribution, 
however, a more fruitful approach might be to first understand the 
strategic context of Chinese cyber espionage, and then ask the question 
``who benefits? '' from the activities attributed to Chinese actors, 
specifically the possible means, motives and opportunities.
  strategic context of chinese cyber espionage: china and cyber as an 
                       overt tool of state power
    As a rising power, Chinese national interests have logically 
expanded with the growth in its economic, political, diplomatic and 
military power. Yet its rise has occurred within a world system still 
dominated by American unilateral authority. Because of these 
imbalances, China has naturally sought to find asymmetrical advantages, 
and cyberspace at first glance appears to be a dimension of national 
power in which the United States is asymmetrically vulnerable because 
of its greater dependence on information systems. Moreover, China seems 
much more comfortable with cyber power as an legitimate, overt tool of 
state power, especially compared with the United States, which still 
treats cyber operations as a highly classified, compartmented 
capability. What do we mean by overt? Countries like China and Russia 
seems more comfortable with the overt use of cyber conflict, even by 
non-state proxies acting on their behalf, as we saw in numerous Chinese 
``patriotic hacker'' events in the late 1990s and the Russian cyber 
conflicts in Estonia in 2007 and Georgia in 2008. When confronted with 
their potential involvement in these incidents, both Beijing and Moscow 
appeared to believe that the plausible deniability of the network was a 
sufficient fig leaf to cover their barely veiled affiliations and 
common cause with the attacks. By contrast, Washington does not even 
have a vocabulary for discussing these capabilities in public, as seen 
in the incoherence of official US comments about possible computer 
network exploit activities against Milosevic during ALLIED FORCE and 
the Stuxnet industrial control systems hack in 2011.
                          why cyber espionage?
    Within the rubric of the Chinese government's view of cyber as a 
tool of national power, it is clear that this new dimension offers 
Beijing certain key strategic advantages, particularly with respect to 
intelligence collection, technological competitiveness, intelligence 
preparation of the battlefield, and strategic intelligence to 
policymakers.
Intelligence Collection Advantages
    Cyber espionage is now a favored mode of tradecraft for China, 
principally because of its logistical advantages and the promise of 
plausible deniability. On the first issue, Joel Brenner highlights the 
relative ease of cyber versus other traditional forms of espionage: 
``Cyber-networks are the new frontier of counterintelligence . . . If 
you can steal information or disrupt an organization by attacking its 
networks remotely, why go to the trouble of running a spy? '' \15\ Take 
the case of Greg Dongfan Chung, discussed in Chapter 8, as an example. 
Managing Chung required significant institutional resources, including 
case officers, covert communications, money transfers, and travel 
arrangements. In the end, Chung was caught, and his ``perp walk'' and 
public trial proved to be an embarrassment to the Chinese government. 
Now imagine a scenario in which the same volume of information can be 
exfiltrated out of Boeing or Rockwell's computer networks in a single 
evening via an exquisite computer network exploitation operation, 
covered by the plausible deniability of network intrusions. Given the 
choice between the two modes, it is only natural that intelligence 
services would increasingly pick the less risky, cheaper, and faster 
way of doing business.
Technological Competitiveness Advantages
    After more than thirty years of serving as the world's assembly 
point and export processing zone, the Beijing government has clearly 
made the decision to transform Chinese economic development by 
encouraging ``indigenous innovation.'' \16\ Since 2006, James McGregor 
and others have highlighted ``Chinese policies and initiatives aimed at 
building 'national champion' companies through subsidies and 
preferential policies while using China's market power to appropriate 
foreign technology, tweak it and create Chinese 'indigenous 
innovations' that will come back at us globally.'' \17\ In the 
information technology sector, McGregor notes ``Chinese government 
mandate to replace core foreign technology in critical infrastructure--
such as chips, software and communications hardware--with Chinese 
technology within a decade.'' Among the tools being actively used to 
achieve these goals are:

        A foreign-focused anti-monopoly law, mandatory technology 
        transfers, compulsory technology licensing, rigged Chinese 
        standards and testing rules, local content requirements, 
        mandates to reveal encryption codes, excessive disclosure for 
        scientific permits and technology patents, discriminatory 
        government procurement policies, and the continued failure to 
        adequately protect intellectual property rights.\18\

    Missing from this excellent list, however, are traditional 
technical espionage and technical cyber espionage, which many companies 
believe are already eroding their technical advantage. The logic for 
these latter approaches is clearly outlined by David Szady, former head 
of the FBI's counterintelligence unit: ``If they can steal it and do it 
in five years, why [take longer] to develop it? '' \19\ Rather than 
destroying US competitiveness through ``cyberwar,'' former DNI 
McConnell argues that Chinese entities ``are exploiting our systems for 
information advantage--looking for the characteristics of a weapons 
system by a defense contractor or academic research on plasma physics, 
for example--not in order to destroy data and do damage.'' \20\
    Examples of Chinese cyber espionage to obtain science and 
technology can be divided into two broad categories: external and 
insider. The 2011 NCIX report offers three illustrative examples of 
insider cyber threats:

          David Yen Lee, a chemist with Valspar Corporation, 
        used his access to internal computer networks between 2008 and 
        2009 to download approximately 160 secret formulas for paints 
        and coatings to removable storage media. He intended to parlay 
        this proprietary information to obtain a new job with Nippon 
        Paint in Shanghai, China. Lee was arrested in March 2009, 
        pleaded guilty to one count of theft of trade secrets, and was 
        sentenced in December 2010 to 15 months in prison.
          Meng Hong, a DuPont research chemist, downloaded 
        proprietary information on organic light-emitting diodes (OLED) 
        in mid-2009 to his personal email account and thumb drive. He 
        intended to transfer this information to Peking University, 
        where he had accepted a faculty position, and sought Chinese 
        government funding to commercialize OLED research. Hong was 
        arrested in October 2009, pleaded guilty to one count of theft 
        of trade secrets, and was sentenced in October 2010 to 14 
        months in prison.
          Xiangdong Yu (aka Mike Yu), a product engineer with 
        Ford Motor Company, copied approximately 4,000 For documents 
        onto an external hard drive to help obtain a job with a Chinese 
        automotive company. He was arrested in October 2009, pleaded 
        guilty to two counts of theft of trade secrets, and sentenced 
        in April 2011 to 70 months in prison.\21\

    External cyber threats to scientific and industrial data, believed 
to originate in China, have been well-documented in reports by outside 
vendors. Some examples include:

          In its Night Dragon report, McAfee documented 
        ``coordinated covert and targeted cyberattacks have been 
        conducted against global oil, energy, and petrochemical 
        companies,'' ``targeting and harvesting sensitive competitive 
        proprietary operations and project-financing information with 
        regard to oil and gas field bids and operations.'' \22\
          In his Shady Rat report, McAfee's Dmitry Alperovitch 
        identified 71 compromised organizations in one set of 
        intrusions, including 13 defense contractors, 13 information 
        technology companies, and 6 manufacturing companies.\23\
          In January 2010, Google reported a ``highly 
        sophisticated and targeted attack on our corporate 
        infrastructure originating from China that resulted in the 
        theft of intellectual property,'' including source code.\24\ 
        Google claimed that the intrusion also targeted ``at least 
        twenty other large companies from a wide range of businesses--
        including the Internet, finance, technology, media and chemical 
        sectors,'' and was corroborated in separate admissions by 
        Adobe.\25\
          In its GhostNet report, researchers at Information 
        Warfare Monitor found 1,295 infected computers in 103 
        countries, including a range of political, diplomatic and 
        economic target organizations such as Deloitte and Touche's New 
        York office.\26\ The follow-on report, Shadows in the Cloud, 
        identified additional targets, including Honeywell.\27\

    Each of these reported intrusions were traced to IP addresses in 
China, and almost certainly represent only a fraction of the known 
hacks, given the reluctance of companies to report data breaches.
Intelligence Preparation of the Battlefield (IPB)
    It is also important to contextualize China's interest in cyber 
espionage within Beijing's threat perceptions of potential scenarios 
for military conflict. In the minds of the Chinese leadership, the 
available evidence suggests that the most important political-military 
challenges and the most likely flashpoints for Sino-US conflict involve 
Taiwan or the South China Sea. Should the late 1990s, the PLA has been 
hard at work bolstering the hedging options of the leadership, 
developing advanced campaign doctrines, testing the concepts in 
increasingly complex training and exercises, and integrating new 
indigenous and imported weapons systems.
    Yet cyber operations are also expected to play an important role in 
these scenarios, necessitating intelligence preparation of the cyber 
battlefield. At the strategic level, the writings of Chinese military 
authors suggest that there are two main centers of gravity in a Taiwan 
scenario, both of which can be attacked with computer network 
operations in concert with other kinetic and non-kinetic capabilities. 
The first of these is the will of the Taiwanese people, which they hope 
to undermine through exercises, cyber attacks against critical 
infrastructure, missile attacks, SOF operations, and other operations 
that have a psyop focus. Based on assessments from the 1995-1996 
exercises, as well as public opinion polling in Taiwan, China appears 
to have concluded that the Taiwanese people do not have the stomach for 
conflict and will therefore sue for peace after suffering only a small 
amount of pain. The second center of gravity is the will and capability 
of the United States to intervene decisively in a cross-strait 
conflict. In a strategic sense, China has traditionally believed that 
its ICBM inventory, which is capable of striking CONUS, will serve as a 
deterrent to US intervention or at least a brake on escalation.\28\
    Closer to its borders, the PLA has been engaged in an active 
program of equipment modernization, purchasing niche ``counter-
intervention'' capabilities such as anti-ship ballistic missiles, long-
range cruise missiles and submarines to shape the operational calculus 
of the American carrier strike group commander on station.\29\ 
According to the predictable cadre of ``true believers,'' both of the 
centers of gravity identified above can be attacked using computer 
network operations. In the first case, the Chinese IO community 
believes that CNO will play a useful psychological role in undermining 
the will of the Taiwanese people by attacking infrastructure and 
economic vitality. In the second case, the Chinese IO community 
envisions computer network attacks against unclassified NIPRNET and its 
automated logistics systems as an effective way to deter or delay US 
intervention into a military contingency and thereby permit Beijing to 
achieve its political objectives with a minimum of fighting. In both 
cases, China must conduct substantial computer network exploitation 
(the military term for cyber espionage) for intelligence preparation of 
this battlefield, and the alleged intrusion set into NIPRNET computer 
systems would appear to fulfill this military requirement.
    Why does the Chinese military believe that the deployment phase of 
US military operations, particularly the use of the unclassified 
NIPRNET for logistics deployments, is the primary focus of 
vulnerability? Since DESERT STORM in the early 1990s, the PLA has 
expended significant resources analyzing the operations of what it 
often and euphemistically terms ``the high-tech enemy.'' \30\ When 
Chinese strategists contemplate how to affect US deployments, they 
confront the limitations of their current conventional force, which 
does not have range sufficient to interdict US facilities or assets 
beyond the Japanese home islands.\31\ Nuclear options, while 
theoretically available, are nonetheless far too escalatory to be used 
so early in the conflict.\32\ Theater missile systems, which are 
possibly moving to a mixture of conventional and nuclear warheads, 
could be used against Japan or Guam, but uncertainties about the nature 
of a given warhead would likely generate responses similar to the 
nuclear scenario.\33\ Instead, PLA analysts of US military operations 
presciently concluded that the key vulnerability was the mechanics of 
deployment itself. Specifically, Chinese authors highlight DoD's need 
to use civilian backbone and unclassified computer networks (known as 
the NIPRNET), which is a function of the requirements of global power 
projection, as an ``Achilles Heel.'' There is also recognition of the 
fact that operations in the Pacific are especially reliant on precisely 
coordinated transportation, communications, and logistics networks, 
given what PACOM calls the ``tyranny of distance'' \34\ in the theater. 
PLA strategists believe that a disruptive computer network attack 
against these systems or affiliated civilian systems could potentially 
delay or degrade US force deployment to the region while allowing the 
PRC to maintain a degree of plausible deniability.
    The Chinese are right to highlight the NIPRNET as an attractive and 
accessible target, unlike its classified counterparts. It is attractive 
because it contains and transmits critical deployment information in 
the all-important time-phased force deployment list (known as the 
``tip-fiddle''), which is valuable for both intelligence-gathering 
about US military operations but also a lucrative target for disruptive 
attacks. In terms of accessibility, it was relatively easy to gather 
data about the NIRPNET from open sources, at least before 9/11. 
Moreover, the very nature of the system is the source of its 
vulnerabilities, since the needs of global power project mandate that 
it has to be unclassified and connected to the greater global network, 
albeit through protected gateways.\35\
    DoD's classified networks, on the other hand, are an attractive but 
less accessible target for the Chinese. On the one hand, these networks 
would be an intelligence gold mine, and is likely a priority computer 
network exploit target. On the other hand, they are less attractive as 
a computer network attack target, thanks to the difficulty of 
penetrating its high defenses. Any overall Chinese military strategy 
predicated on a high degree of success in penetrating these networks 
during crisis or war is a high-risk venture, and increases the chances 
of failure of the overall effort to an unacceptable level.
    Chinese CNE or CNA operations against logistics networks could have 
a detrimental impact on US logistics support to operations. PRC 
computer network exploit activities directed against US military 
logistics networks could reveal force deployment information, such as 
the names of ships deployed, readiness status of various units, timing 
and destination of deployments, and rendezvous schedules. This is 
especially important for the Chinese in times of crisis, since the PRC 
in peacetime utilizes US military web sites and newspapers as a 
principal source for deployment information. An article in October 2001 
in People's Daily, for example, explicitly cited US Navy web sites for 
information about the origins, destination and purpose of two carrier 
battle groups exercising in the South China Sea.\36\ Since the quantity 
and quality of deployment information on open websites has been 
dramatically reduced after 9/11, the intelligence benefits (necessity?) 
of exploiting the NIPRNET have become even more paramount.\37\ Computer 
network attack could also delay re-supply to the theater by 
misdirecting stores, fuel, and munitions, corrupting or deleting 
inventory files, and thereby hindering mission capability.
    The advantages to this strategy are numerous: (1) it is available 
to the PLA in the near-term; (2) it does not require the PLA to be able 
to attack/invade Taiwan with air/sea assets; (3) it has a reasonable 
level of deniability, provided that the attack is sophisticated enough 
to prevent tracing; (4) it exploits perceived US casualty aversion, 
over-attention to force protection, the tyranny of distance in the 
Pacific, and US dependence on information systems; and (5) it could 
achieve the desired operational and psychological effects: deterrence 
of US response or degrading of deployments. Looking back over more than 
ten years of China-origin intrusions into the very NIPRNET systems 
identified by PLA analysts as a high-priority network attack target as 
early as 1995, the logic of the intrusion sets becomes much clearer.
Strategic Intelligence
    An additional motivation for cyber espionage is strategic 
intelligence about the policies and intentions of civilian and military 
officials as well as the internals of debates within the US government 
and political parties:

        1.  In June 2006, the State Department was victimized by a 
        series of intrusions at its foreign posts and headquarters in 
        Washington. According to the Associated Press, ``hackers stole 
        sensitive information and passwords, and implanted `back doors' 
        in unclassified computers to allow them to return.'' Employees 
        told the AP that State's East Asian and Pacific Affairs Bureau 
        was particularly hard hit by the intrusion, suggesting that the 
        intruders had a special interest in Asia-related 
        information.\38\ Two reporters from Business Week relate the 
        story of what happened:

    ``The attack began in May, 2006, when an unwitting employee in the 
State Dept.'s East Asia Pacific region clicked on an attachment in a 
seemingly authentic e-mail. Malicious code was embedded in the Word 
document, a congressional speech, and opened a Trojan ``back door'' for 
the code's creators to peer inside the State Dept.'s innermost 
networks. Soon, cyber security engineers began spotting more intrusions 
in State Dept. computers across the globe. The malware took advantage 
of previously unknown vulnerabilities in the Microsoft operating 
system. Unable to develop a patch quickly enough, engineers watched 
helplessly as streams of State Dept. data slipped through the back door 
and into the Internet ether. Although they were unable to fix the 
vulnerability, specialists came up with a temporary scheme to block 
further infections. They also yanked connections to the Internet. One 
member of the emergency team summoned to the scene recalls that each 
time cyber security professionals thought they had eliminated the 
source of a ``beacon'' reporting back to its master, another popped up. 
He compared the effort to the arcade game Whack-A-Mole. The State Dept. 
says it eradicated the infection, but only after sanitizing scores of 
infected computers and servers and changing passwords.'' \39\

        2.  In 2007, intruders broke into the e-mail system for Defense 
        Secretary Robert Gates's office, and the Pentagon shut down 
        about 1,500 computers for more than a week while the attacks 
        continued. Officials told the Financial Times ``an internal 
        investigation has revealed that the incursion came from the 
        People's Liberation Army. One senior US official said the 
        Pentagon had pinpointed the exact origins of the attack. 
        Another person familiar with the event said there was a `very 
        high level of confidence . . . trending towards total 
        certainty' that the PLA was responsible.'' \40\
        3. In the summer of 2008, the FBI informed both the Obama and 
        McCain presidential campaigns that their computer systems had 
        been infiltrated. Newsweek quoted an FBI agent as telling both 
        teams: ``You have a problem way bigger than what you understand 
        . . . You have been compromised, and a serious amount of files 
        have been loaded off your system.'' \41\ The Financial Times 
        later cited investigators ``had determined that the attacks 
        originated from China, but cautioned that they had not 
        ascertained whether they were government-sponsored, or just 
        unaffiliated hackers.'' \42\ In a cybersecurity policy speech 
        early in his Presidency, Obama referred to the incident: ``I 
        know how it feels to have privacy violated because it has 
        happened to me and the people around me. It's no secret that my 
        presidential campaign harnessed the Internet and technology to 
        transform our politics. What isn't widely known is that during 
        the general election hackers managed to penetrate our computer 
        systems. To all of you who donated to our campaign, I want you 
        to all rest assured, our fundraising website was untouched. So 
        your confidential personal and financial information was 
        protected. But between August and October, hackers gained 
        access to emails and a range of campaign files, from policy 
        position papers to travel plans. And we worked closely with the 
        CIA--with the FBI and the Secret Service and hired security 
        consultants to restore the security of our systems.'' \43\

    These three sample cases show that Beijing clearly views cyber as a 
collection modality for obtaining strategic intelligence at the highest 
levels of the US Government.
                       chinese government denials
``The lady doth protest too much, methinks''--Shakespeare, Macbeth

    In counterintelligence offices in Washington, one often sees the 
following sign: ``Admit Nothing, Deny Everything, Make Vigorous 
Counter-Accusations''. This philosophy is also a deeply held conviction 
of the Chinese side when it comes to discussing their possible role in 
cyber intrusions. First, they admit nothing and deny everything. When 
asked about the China-origin intrusions into German Chancellor Angela 
Merkel's office network, for example, ``the Chinese Embassy in Berlin 
describing the accusation of state-controlled hacking as 
``irresponsible speculation without a shred of evidence.'' \44\ Chinese 
officials also point to Chinese laws as an ironclad defense of its own 
lack of involvement. Reacting to accusations from that Chinese hackers 
were responsible for the intrusions revealed by Google in January 2010, 
Foreign Ministry spokeswoman Jiang Yu countered that ``Chinese law 
proscribes any form of hacking activity.'' \45\ After the release of 
the Office of the National Counterintelligence Executive's 2011 
``Report to Congress on Foreign Economic Collection and Industrial 
Espionage,'' Chinese officials denigrated the quality of the analysis, 
asserting that ``identifying the attackers without carrying out a 
comprehensive investigation and making inferences about the attackers 
is both unprofessional and irresponsible.'' \46\ Then, the Chinese 
government impugns the motives of the accusers, making its own counter-
accusations. In his response to questions about GhostNet, Foreign 
Ministry spokesman Qin Gang accused foreigners of having a ``Cold War 
mentality'':

        The problem now is that some people abroad are keen to 
        fabricate the rumor of the so-called `Chinese cyber spy 
        network.' The allegation is utterly groundless...There is a 
        ghost called Cold War and a virus called China's threat theory 
        overseas. Some people, possessed by this ghost and infected 
        with this virus, fall ill from time to time. Their attempts of 
        using rumors to disgrace China will never succeed. We should 
        rightly expose these ghosts and viruses.\47\

    Wang Baodong, a spokesman for the Chinese government at its embassy 
in Washington, darkly hinted that ``anti-China forces'' are behind the 
allegations.\48\ After the US-China Economic and Security Review 
Commission's release of a Northrup-Grumman report on Chinese cyber 
espionage, Qin Gang railed:

        The report takes no regard of the true situation. It is full of 
        prejudice, and out of ulterior motive. We urge the so-called 
        commission not to see China through colored lens and not to do 
        things that interfere with China's internal affairs and 
        undermine China-US relations.\49\

    Finally, the Chinese government describes itself as the victim of 
cyber intrusions. After a detailed expose of Chinese cyber espionage 
appeared in Business Week, Wang Baodong emailed the magazine's editors, 
claiming that China is ``frequently intruded and attacked by hackers 
from certain countries.'' \50\ When asked in early 2010 about Google's 
complaint that it had been hacked from China, Foreign Ministry 
spokesman Ma Zhaoxu said Chinese companies have also been hacked, 
adding that China resolutely opposes the practice.\51\ Other officials 
have cited the fact that most of the world's botnets are controlled 
from servers in the United States, insinuating that Washington needed 
to get its own cybersecurity in order before accusing other countries 
of hacking. Finally, the Chinese government tries to paint itself as 
the patron of global cybersecurity, in contrast to the ``militarized'' 
US approach to cyber: ``China is ready to build, together with other 
countries, a peaceful, secure and open cyberspace order.'' \52\ While 
Beijing's style of strategic communications is not limited to cyber 
espionage, as seen in its rhetoric during crises (Belgrade Embassy 
bombing in 1999, EP-3A hostage crisis in 2001, etc.), the reaction of 
its officials has the unintended consequence of increasing suspicion.
                 how good are they? or does it matter?
    Measuring Chinese cyber espionage capability also involves the 
assessment of a group or country's ability to generate new attack tools 
or exploits. Outside analysts, many of whom are programmers themselves, 
tend to reify countries like Russia that abound with highly talented 
programmers, and look down upon countries or individuals that simply 
use off-the-shelf ``script kiddie'' tools or exploit known 
vulnerabilities, preferring to admire more advanced cyber operators who 
can discover their own ``zero-day'' vulnerabilities.\53\ Indeed, 
analysts who have examined Chinese intrusions in detail often comment 
on their relative lack of sophistication and especially their sloppy 
tradecraft,\54\ leaving behind clear evidence of the intrusion and 
sometimes even attribution-related information. For example, analysts 
who examined possible Chinese intrusions into energy companies 
concluded that Chinese hackers were ``incredibly sloppy,'' ``very 
unsophisticated,'' ``made mistakes and left lots of evidence.'' \55\ 
Perhaps the Chinese cyber operators are so convinced of the plausible 
deniability afforded by the current global network architecture that 
they do not see the need to hide more effectively, or perhaps they 
believe that their communications are secure because they are using 
Chinese language. Both are true to some extent, especially the latter, 
as many Chinese correctly perceive that their difficult language is 
actually the country's first line of defense, its first layer of 
cryptography, and there actually few foreigners with the skills or 
bandwidth to penetrate the veil. Most important, however, the Chinese 
probably perceive that they do not need to ``up their game'' because 
their relatively primitive and sloppy efforts have thus far been wildly 
successful and therefore see no need to change. In fact, one could 
argue that China's cyber espionage successes to date are more a 
function of the vulnerability of US systems than any inherent 
capability on the Chinese side. As time passes, however, one would 
expect Chinese capability to improve, particularly as information about 
China-origin intrusions becomes more widespread and victims begin to 
take concrete measures to protect themselves. This view is endorsed by 
former counterintelligence chief Joel Brenner, who told the National 
Journal in 2008 that Chinese hackers are ``very good and getting better 
all the time.'' \56\
                             * * * * * * *
    \1\ ``General Warns of Dramatic Increase of Cyber-Attacks on US 
Firms,'' Los Angeles Times, 27 July 2012.
    \2\ Office of the National Counterintelligence Executive, Foreign 
Spies Stealing US Economic Secrets in Cyberspace: Report to Congress on 
Foreign Economic Collection and Industrial Espionage, 2009-2011, 
October 2011, http://www.dni.gov/reports/20111103_report_fecie.pdf
    \3\ Tom Espiner, ``Chinese Hackers US Military Defenses,'' 
Silicon.com, November 2005; and Bradley Graham, ``Hackers Attack Via 
Chinese Web Sites,'' The Washington Post, August 2005.
    \4\ Dawn Onley, Dawn and Patience Wait, ``Red Storm Rising: DoD's 
Efforts to Stave Off Nation- State Cyber Attacks Begin with China,'' 
Government Computer News, August 2006.
    \5\ See General James E. Cartwright, in hearing, China's Military 
Modernization and Its Impact on the United States and the Asia-Pacific, 
US-China Economic and Security Review Commission, 110th Cong, 1st 
Sess., March 29-30, 2007, p. 90, at www.uscc.gov/hearings/2007hearings/
transcripts/mar_29_30/mar_29_30_07_trans.pdf.
    \6\ Shane Harris, ``China's Cyber Militia,'' National Journal, 31 
May 2008.
    \7\ Brian Grow, Keith Epstein and Chi-Chu Tschang, ``The New E-
spionage Threat,'' Business Week, 21 April 2008, pp.32-41.
    \8\ Bryan Krekel, Capability of the People's Republic of China to 
Conduct Cyber Warfare and Computer Network Exploitation, published by 
the US-China Economic and Security Review Commission, 9 October 2009.
    \9\ Harris, ``China's Cyber Militia.''
    \10\ ``Advance Questions for Lieutenant General Keith Alexander 
USA, Nominee for Commander, United States Cyber Command,'' published by 
Senate Armed Services Committee, accessed at: http://armed-
services.senate.gov/statemnt/2010/04%20April/Alexander%2004-15-10.pdf
    \11\ Shaun Waterman, ``Chinese Cyberspy Network Pervasive,'' 
Washington Times, 30 March 2009.
    \12\ Harris ``China's Cyber Militia.''
    \13\ Ibid.
    \14\ For a range of views on the attribution issue, see Krekel, 
Capability of the People's Republic of China to Conduct Cyber Warfare 
and Computer Network Exploitation; McAfee Foundstone Professional 
Services and McAfee LabsTM, Global Energy Cyberattacks: 
`Night Dragon', 10 February 2011; Shishir Nagaraja and Ross Anderson, 
``The Snooping Dragon: Social-Malware Surveillance of the Tibetan 
Movement,'' UCAM-CL-TR-746, University of Cambridge Computer Laboratory 
Technical Report 746, March 2009; Dmitri Alperovitch, Revealed: 
Operation Shady RAT, McAfee, August 2011; and Information Warfare 
Monitor, Tracking GhostNet: Investigating a Cyber Espionage Network, 
Toronto: SecDev and Citizen Lab, 29 March 2009.
    \15\ Harris, ``China's Cyber Militia.''
    \16\ James McGregor, ``China's Drive for `Indigenous Innovation': A 
Web of Industrial Policies,'' Washington, DC: US Chamber of Commerce, 
July 2010.
    \17\ James McGregor, ``Time to rethink US-China trade relations,'' 
Washington Post, 19 May 2010. See also McGregor, ``China's Drive for 
`Indigenous Innovation.' ''
    \18\ Ibid.
    \19\ Nathan Thornburgh, ``The Invasion of the Chinese Cyberspies 
(and the Man Who Tried to Stop Them),'' Time, 29 August 2005.
    \20\ Nathan Gardels, ``China is Aiming at America's Soft 
Underbelly: The Internet,'' The Christian Science Monitor, 5 February 
2010, accessed at: http://www.csmonitor.com/Commentary/Global-
Viewpoint/2010/0205/China-is-aiming-at-America-s-soft-underbelly-the-
Internet
    \21\ Office of the National Counterintelligence Executive, Foreign 
Spies Stealing US Economic Secrets in Cyberspace.
    \22\ McAfee, Night Dragon.
    \23\ Alperovitch, Operation Shady RAT.
    \24\ http://googleblog.blogspot.com/2010/01/new-approach-to-
china.html
    \25\ http://blogs.adobe.com/conversations/2010/01/adobe--
investigates--corporate--n.html
    \26\ Information Warfare Monitor, Tracking GhostNet: Investigating 
a Cyber Espionage Network, Toronto: SecDev and Citizen Lab, 29 March 
2009, accessed at: http://www.scribd.com/doc/13731776/Tracking-
GhostNet-Investigating-a-Cyber-Espionage-Network
    \27\ Information Warfare Monitor and Shadowserver, Shadows in the 
Cloud: Investigating Cyber Espionage 2.0, Toronto: SecDec and Citizen 
Lab, 6 April 2010, found at www.shadows-in-the-cloud.net
    \28\ Office of the Secretary of Defense, Annual Report to Congress: 
Military and Security Developments Involving the People's Republic of 
China 2011, p.3.
    \29\ Ibid., pp.2-4, 28-29.
    \30\ Ibid., p.22.
    \31\ Ibid., p.31.
    \32\ Ibid., p.34.
    \33\ Ibid., pp.29,78.
    \34\ For a PACOM/J4 perspective on the issue, see http://
www.navsup.navy.mil/scnewsletter/2009/jan-feb/cover1
    \35\ For an unclassified summary, see http://www.disa.mil/Services/
Network-Services/Data/SBU-IP.
    \36\ ``Whom, If Not China, Is US Aircraft Carriers' Moving onto 
South China Sea Directed Against? '' Renmin Ribao, 24 August 2001.
    \37\ The Department of Defense's revised web site administration 
guidance, which can be found here (http://www.defenselink.mil/
webmasters/policy/dod_web_policy_12071998_with_ 
amendments_and_corrections.html), specifically prohibits the following: 
``3.5.3.2. Reference to unclassified information that would reveal 
sensitive movements of military assets or the location of units, 
installations, or personnel where uncertainty regarding location is an 
element of a military plan or program.''
    \38\ ``Computer Hackers Attack State Dept.,'' Associated Press, 12 
July 2006.
    \39\ Grow, Epstein and Tschang, ``The New E-spionage Threat.''
    \40\ Sevastopluo, Demetri, ``Chinese Hacked into Pentagon,'' 
FT.com, 3 September 2007.
    \41\ Evan Thomas, ``Center Stage,'' Newsweek, 6 November 2008; 
David Byers, Tom Baldwin and Tim Reid, ``Obama computers 'hacked during 
election campaign,' '' Times Online, 7 November 2008.
    \42\ Financial Times, November 2008.
    \43\ ``Remarks by the President on Securing our Nation's Cyber 
Infrastructure,'' Office of the Press Secretary, The White House, 29 
May 2009.
    \44\ ``Merkel's China Visit Marred by Hacking Allegations,'' 
Spiegel Online International, 27 August 2007.
    \45\ Helft, Miguel, and John Markoff, ``Google Alerted Activists of 
Attacks,'' New York Times, 15 January 2010.
    \46\ ``China Rebuts US Accusation of Hacker Attacks,'' China Daily, 
31 October 2011.
    \47\ ``China Denies Allegations on `Cyber Spy Network'.''
    \48\ Grow, Epstein and Tschang, ``The New E-spionage Threat.''
    \49\ Clayton, Mark, ``Google cyber attack: the evidence against 
China,'' Christian Science Monitor, 13 January 2010.
    \50\ Grow, Epstein and Tschang, ``The New E-spionage Threat.''
    \51\ ``China Says Google, Foreign Firms Must Respect Laws,'' CIOL, 
19 January 2010.
    \52\ ``China Rebuts US Accusation of Hacker Attacks,'' China Daily, 
31 October 2011.
    \53\ http://en.wikipedia.org/wiki/Zero-day_attack
    \54\ Keizer, Gregg, ``Chinese Hackers Called Sloppy but 
Persistent,'' Computerworld, 12 February 2011.
    \55\ Ibid.
    \56\ Harris, ``China's Cyber Militia.''
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  Prepared Statement of Hon. Sherrod Brown, a U.S. Senator From Ohio; 
         Chairman, Congressional-Executive Commission on China

                             June 25, 2013

    I thank Cochairman Chris Smith, the other Commissioners, and our 
esteemed panel for attending this important hearing.
    I also thank the staff for their tireless efforts in supporting the 
work of this bipartisan Commission and its important task of monitoring 
human rights and rule of law developments in China.
    Cyber attacks from China pose a serious threat to U.S.-China 
relations.
    So much so that President Obama raised the issue during his recent 
summit with President Xi Jinping. It will be a key topic at the U.S.-
China Strategic and Economic Dialogue to be held in Washington in a few 
weeks.
    Today's hearing will focus on the aspects of cyber that fall within 
the Commission's mandate, namely the impact on the rule of law and 
human rights in China.
    While recent headlines have revived the debate over the appropriate 
balance between security and freedom, we must not overlook the enormous 
impact cyber attacks from China have had and continue to have on 
American jobs and companies. Indeed, they seriously call into question 
China's commitment to the rule of law.
    We are talking about the massive theft of valuable technology and 
commercial secrets from American companies--what General Keith 
Alexander, director of the National Security Agency and head of U.S. 
Cyber Command, calls the ``greatest transfer of wealth in history.''
    The scale and scope is staggering. The Commission on the Theft of 
American Intellectual Property, which is represented here today by our 
former colleague Senator Slade Gorton, released a comprehensive, report 
identifying China as the world's biggest violator of intellectual 
property rights.
    It estimates that China accounts for some 50 to 80 percent of IP 
theft in the United States and around the globe. It found that 
international IP theft, including from China, costs the U.S. economy 
hundreds of billions of dollars per year and millions of jobs, dragging 
down our GDP and undermining our ability to innovate and prosper.
    The IP Commission noted that a 2011 study by the U.S. International 
Trade Commission estimated that if China's IP protection improved to a 
level comparable to ours, it would add 2.1 million jobs to our economy. 
Yet, the IP Commission acknowledged this figure underestimated the real 
cost to American jobs.
    The victims of IP theft include companies in my state of Ohio and 
across the nation. Those affected are hard-working Americans trying to 
make an honest living and trying to spur innovation, only to see their 
products, services, and technology stolen and handed over to state-
owned enterprises and businesses in China.
    And with the growing prevalence of computer networks and America's 
heavily-wired economy, cyber attacks represent an increasingly growing 
threat alongside more traditional forms of IP theft.
    China simply doesn't play by the same rules as we do. The Chinese 
government has denied these attacks, even though there is mounting 
evidence of Chinese state involvement. This evidence includes a 
February 2013 report by the cyber security firm Mandiant that linked 
attacks on 141 companies, including 115 based in the United States, to 
a unit of the People's Liberation Army working from a building in 
Shanghai. The increase in attacks has coincided with the Chinese 
government's push for indigenous innovation and development of key 
industries, creating an environment where it's perfectly acceptable to 
cheat and steal your way to the top.
    And as we've seen in the last few years, it's not only American 
companies that are the target of cyber attacks. It's also media and 
human rights organizations. Journalists writing about corruption in 
China find their computer systems hacked and passwords stolen. For 
human rights organizations and activists, dealing with hacking attacks 
from China is almost a daily fact of life.
    We can't sit idly by while the Chinese government, either through 
active measures or by turning a blind eye, continues to perpetuate 
theft on a grand scale and to threaten the advance of human rights for 
the Chinese people, Tibetans, Uyghurs, democracy advocates, religious 
followers, and Falun Gong practitioners.
    That's why I support a comprehensive, common sense, bipartisan 
approach that utilizes every tool in our arsenal to hold China 
accountable and to level the playing field. I urge Congress and this 
Administration to do everything it can--from leveraging access to our 
markets, trade negotiations, and WTO cases--to combat China's unfair 
trading practices. That includes taking up the bipartisan Currency 
Exchange Rate Oversight Reform Act of 2013 which I introduced earlier 
this month.
    And I commend Senator Levin for his recent proposed legislation to 
hold China accountable for cyber theft. I look forward to hearing from 
our witnesses on what more we can do to address this most pressing 
issue.
                                 ______
                                 

Prepared Statement of Hon. Christopher H. Smith, a U.S. Representative 
  From New Jersey; Cochairman, Congressional-Executive Commission on 
                                 China

                             june 25, 2013
    In December of 2006 and then again in March of 2007, my Human 
Rights Subcommittee's computers were attacked by a virus that, in The 
U.S. House Information Resources Office's words, ``intended to take 
control of the computers.'' At that time, the IT professionals cleaned 
the computers and informed my staff that the attacks seemed to come 
from the People's Republic of China. They said it came through or from 
a Chinese IP address. The attackers hacked into files related to China. 
These contained legislative proposals directly related to Beijing, 
including a major bill I authored, the Global Online Freedom Act. Also 
hacked were e-mails with human rights groups regarding strategy, 
information on hearings on China and the names of Chinese dissidents. 
While this absolutely doesn't prove that Beijing was behind the attack, 
it raises very serious concern that it was.
    Certainly, Chinese agents have not only attempted to target me or 
my offices. Cyber attacks on Congress are only a small, but not 
insignificant, part of a much larger pattern of attacks that has 
targeted the executive branch, the Pentagon, and American businesses.
    How do we know this? In recent months, we have seen in-depth 
reports come out detailing this massive intrusion into our cyber space 
and massive theft of our cyber data. Chinese agents have stolen our 
designs for helicopters, ships, fighter jets, and several missile 
defense systems. They have stolen our innovative technologies, from 
solar panel designs to biotech research. These thefts appear to have 
paid off for China. In recent years, the Chinese government has made 
tremendous jumps in its military capabilities, while boosting the 
competitiveness of China's ``national champions.''
    While cyber thefts have existed for years, increasingly, we can 
prove that many of these outrageous thefts--deemed ``the greatest 
transfer of wealth in history''--originate in the People's Republic of 
China. And these attacks are not random. We now know, with some 
certainty, that some thefts are being organized by Chinese government 
agencies.
    As we learn about the source of these attacks, we are also learning 
about the motivations. Talented Chinese Internet users are working day 
and night to infiltrate our networks and to steal secrets. China's 
actions are part of a larger and coordinated state-sanctioned effort to 
increase China's competitiveness, militarily and commercially.
    Today, we will hear more about how the commercial rule of law 
system in China allows these types of attacks to occur and how these 
attacks disadvantage American business, innovators, contractors, and 
government agencies. We will hear about the size and scope of the 
attacks. And, we will hear how the U.S. government remains unprepared 
for far too many of these challenges.
    We will, also, however, hear about another side of this important 
topic--one often overlooked during the recent discussions about China's 
cyber attacks. The Chinese government is not only targeting American 
business and military organizations, but also targeting ordinary 
Chinese citizens seeking to advance their most fundamental freedoms. 
Chinese hackers do not simply look beyond their borders to steal 
secrets. As we will hear today, Chinese citizens--including those 
advocating for human rights, free speech and food safety--are also 
targeted by state-sponsored hackers.
    These courageous citizens are also monitored; their private 
information stolen. The brave pastor seeking to organize a service, the 
father seeking to raise awareness about toxic foods, the wife of an 
imprisoned activist, the mother who is made to undergo a forced 
abortion--all of these citizens realize that, in any instant, the 
government may be watching. China, of course, also targets those 
outside of China who similarly wish for human rights and political 
reform.
    Today, we know this system of surveillance and theft occurs. We 
know that China is organizing these cyber attacks--or is, in the very 
least, complicit to their existence.
    The question we must ask ourselves is why? Clearly, China's rise as 
a military power requires technology, and China's economy will, no 
doubt, benefit from the latest innovations from abroad.
    But, why is China so concerned about its domestic citizenry--
especially those who advocate peacefully for legal and political 
reforms? Why is China so worried about international NGOs that seek to 
highlight official abuses and wrongful imprisonments? Why is China so 
reluctant to provide a fair regulatory environment in China, when 
commercial laws and regulations will eventually protect all 
businesses--domestic and foreign--seeking to provide the best services 
for Chinese consumers?
    These may be difficult questions. Thankfully, today we are 
fortunate to have four guests who are well versed in these issues. They 
are experts on how China is monitoring our cyber actions and how China 
is attacking targets globally. I would like to thank them for their 
participation here today, and I look forward to hearing their insights 
on these critical issues.

                                 
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