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Cybersecurity is the latest front in the escalating US-China cold war

July 20, 2021, 11:32 AM UTC

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On Monday, the Biden administration, joined by a broad coalition of U.S. allies, accused the Chinese government of rampant skulduggery in cyberspace.

The White House, in coordination with the European Union, NATO, Australia, Britain, Canada, Japan, and New Zealand, condemned China’s Ministry of State Security (MSS), the nation’s secretive civilian intelligence agency, for colluding with “criminal contract hackers” who sought to extort “millions of dollars” by conducting ransomware operations against private companies around the world.

The U.S.-led coalition claims a “high degree of confidence” that hackers supported by the MSS were responsible for a sophisticated March attack against Microsoft Exchange’s e-mail service that compromised tens of thousands of computers around the world.

China’s “pattern of irresponsible behavior in cyberspace is inconsistent with its stated objective of being seen as a responsible leader in the world,” the White House said in a statement. “The United States is deeply concerned that [China] has fostered an intelligence enterprise that includes contract hackers who also conduct unsanctioned cyber operations worldwide, including for their own personal profit.”

The rebuke was significant in that it included Europe and NATO who, as the Financial Times notes, “have historically been wary of publicly criticizing Beijing.”

The European Council deplored the Microsoft hack as “irresponsible and harmful behavior.” NATO noted that threats to the 30-country alliance’s cybersecurity are increasingly “complex, destructive and coercive” and called on all states, “including China,” to act responsibly.

The British foreign secretary Dominic Raab lamented China’s conduct in cyberspace as part of a “reckless but familiar pattern.”

Simultaneously, the U.S. Justice Department announced that four Chinese nationals—three security officials and one contract hacker—have been indicted by a federal grand jury in San Diego for a “campaign to hack into the computer systems of dozens of victim companies, universities and government entities” in the U.S. and other countries between 2011 and 2018.

Beijing today vehemently rejected the allegations. “The United States ganged up with its allies to make unwarranted accusations against Chinese cybersecurity,” said China’s foreign ministry spokesman Zhao Lijian. “This was made up out of thin air and confused right and wrong. It is purely a smear and suppression with political motives.”

The U.S. and its allies announced no specific measures to punish China for its alleged misdeeds in cyberspace—although White House spokesman Jen Psaki said the U.S. was “not ruling out further actions to hold China accountable.”

Biden on Monday said he isn’t calling for sanctions against China for now because intelligence officials are still trying to assess the extent of the damage. He said he expects a more detailed briefing on the matter Tuesday morning.

“They’re still determining exactly what happened. The investigation is not yet finished,” Biden said.

The reality is that, aside from calling China out publicly on the issue, there may not be much the U.S. and its allies can do to retaliate.

Three men named in the U.S. Justice Department indictment—Ding Xiaoyang, Cheng Qingmen and Zhu Yunmin—are state security officials on the southern Chinese island of Hainan. The U.S. alleges those officers were “coordinating, facilitating, and managing computer hackers and linguists” for front companies hacking for the “benefit of China and its state-owned and sponsored instrumentalities.” The fourth suspect named Wu Shurong was a private hacker who allegedly penetrated computer systems used by foreign governments, companies, and universities and supervised other members of a larger hacking team.

The suspects are charged with targeting aviation, defense, education, healthcare, and pharmaceutical sectors in countries including the U.S., Britain, Canada, Germany, Saudi Arabia. But all four men remain in China—safely beyond the reach of U.S. authorities.

Tomorrow, July 21, I’ll be moderating a virtual conversation entitled “Is Globalization Worth Saving?” In the wake of populist politics and a pandemic, can the free-trade, open-market global system be saved? Should it be saved? We’ll convene an all-star panel of speakers including: former World Trade Organization director-general Pascal Lamy, London School of Economics professor Keyu Jin, former United Nations Security Council president Kishore Mahbubani, and Huawei Technologies senior vice president for global trade Craig Burchell.

Register to participate here.

More Eastworld news below.

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Nicholas Gordon. Reach him at nicholas.gordon@fortune.com

Eastworld news

Hong Kong in the middle

Hong Kong’s stock exchange stands to gain from American and Chinese efforts to regulate Chinese companies listing in the U.S. Beijing is not being subtle about its preferences: Chinese companies listing in Hong Kong are reportedly going to be exempt from the cybersecurity reviews that tripped up Didi. Hong Kong is thus well-placed to remain an important financial center—despite an advisory from the Biden Administration on the risks of doing business in the city. Fortune

Government spyware

Over the weekend, a coalition of 17 international publications revealed that Israeli spyware developer NSO Group had sold its software to authoritarian governments around the world, where it was then used to monitor the activities of activists, journalists, and opposition politicians. One leaked list of potential surveillance targets includes several Indian opposition politicians, including Congress Party leader Rahul Gandhi, leading to accusations that the Modi administration may be spying on its opponents. The Guardian

Warming to mRNA

China may finally approve the BioNTech vaccine, according to a report from Caixin. This may finally release the 100 million doses Fosun Pharmaceuticals secured for the mainland, and give it the go-ahead to manufacture almost a billion more doses domestically every year. Up until now, Beijing has promoted homegrown vaccines that use inactivated viruses—made by Sinovac and Sinopharm—which may be less effective against more transmissible variants. Fortune

Cold feet at the Olympics

Major executives at several Japanese companies, such as NEC Corporation and Fujitsu, have chosen to skip the Olympics opening ceremony. Toyota is going a step further by pulling all of its Olympics-related commercials. South Korean President Moon Jae-In is also skipping his planned trip to Japan ostensibly in response to a rude comment from a Japanese diplomat. An added setback: an Olympics composer just resigned over his past childhood bullying. Bloomberg

Xinjiang Cotton

Western fashion brands are slowly removing Chinese cotton from their supply chains in the wake of allegations of forced labor in Xinjiang. A fifth of the world’s cotton comes from China, and 85% of that comes from Xinjiang. Yet opaque supply chains mean the only way for brands to prove they don't use cotton produced by alleged forced labor is often to abandon Chinese cotton entirely. Such steps by Western brands are controversial in China, where consumers have threatened boycotts in response to critical comments about Xinjiang. Fortune

Markets and movers

Daojia The Chinese home service platform has become the latest Chinese tech firm to delay its IPO in the wake of Beijing’s crackdown on data security and overseas listings. Other Chinese firms that have delayed their IPOs include Linkdoc and Xiaohongshu

PayTM The digital payments provider has filed for a $2.2 billion IPO, which stands to be the country’s largest ever. It comes on the heels of Zomato’s IPO, which raised $1.25 billion last week.

Sydney Airport The board of Sydney's airport rejected a takeover bid worth $16.6 billion, despite a warning from the airport’s largest shareholder that the board should not set its sights too high when it comes to an asking price. “COVID’s changed a few things,” said John Pearce, Unisuper's chief investment officer. 

China’s carbon market China launched its carbon-trading scheme—the world’s largest—last week. While the move is a step towards China’s goal of peak emissions by 2030, observers think low penalties and loose regulations are unlikely to rein in polluting industries. 

Adani Group Shares in companies owned by billionaire Gautam Adani sank after India’s government on Monday announced that some firms were being investigated for violating securities rules. 

HKEX The exchange’s days of closing during periods of heavy rain or typhoons may be over. At an Asia Society event, new CEO Nicolas Aguizin asked why the exchange closes for bad weather when “people are already used to working from home.”

Final figure

$21 trillion

If China is to reach peak emissions by 2030 and net-zero emissions by 2060, it needs approximately $21 trillion of debt financing over the next forty years, according to China International Capital Corporation. At Fortune's Global Centennial Enterprise Forum, held alongside the Qingdao Multinationals Summit, speakers like Ma Jun, President of the Institute of Finance and Sustainability, noted that efforts to build a common China-EU standard for green finance could help fill this gap.

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