Hacked: How China is stealing America's business secrets

Chinese Vice President Xi Jinping, slated to be the next leader of the world's most populous nation, is getting an earful from U.S. officials over China's shady business practices. During Xi's first official tour of the U.S. this week, Sen. John Kerry (D-Mass.) accused a Chinese company of bankrupting a U.S. competitor by ransacking its software. And that's just the tip of the iceberg, alleges Kerry, implicating China in "cyber-attacks, access-to-market issues, espionage [and] theft." And, indeed, a flurry of recent reports indicate that Chinese hackers, backed by the government, are stealing business secrets from the U.S. Here, a guide:

What's going on?

American companies are the victim of an "onslaught of computer network intrusions that have originated in China," according to a report by the U.S. government's National Counterintelligence Executive (NCE). The report says China is trying to "build" its economy on U.S. technology, research and development, and other sensitive forms of intellectual property.

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How is the technology stolen?

Consider the company Kerry cited: Wind-energy experts American Superconductor. Its biggest client used to be China's Sinovel — until Sinovel allegedly bribed an American Superconductor employee to steal his employer's software and give it to Sinovel. In the case of cyber-attacks, Chinese hackers may leave malware inside the computer systems of American firms, where the nefarious programs can go undetected for years, slowly bleeding companies of information.

Is the Chinese government involved?

Many experts suspect so, though China denies the charges. U.S. officials reportedly believe that a dozen Chinese groups are responsible for the bulk of cyber-attacks on U.S. companies, and that they receive direction from the Chinese government or military.

What impact does the theft have on U.S. companies?

It can be devastating. Some say China is stealing $400 billion worth of sensitive information a year. The NCE report cited the case of paint company Valspar, which lost $20 million, or one-eighth of its annual profit, after its proprietary information was stolen by a Chinese rival.

Are there national security concerns?

Definitely. Some hacked companies have contracts with the Defense Department and other U.S. government agencies, putting classified information at risk. For nearly a decade, hackers had access to the computer network of telecommunications company Nortel Networks. If, as suspected, China was behind the breach, it likely gained valuable insight into the internet and telephone systems that government agencies, banks, and other businesses rely on.

What has the U.S. done about this?

Surprisingly little so far. Cyber-security experts are urging the government to show China that such acts will have serious repercussions. In the meantime, the NCE says China continues to be an "aggressive and capable" hacking threat.

Sources: Associated Press, CNN, The New York Times (2), The Wall Street Journal