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China has not been behaving like a friend

Published Mon, 02/27/2012

Vancouver Sun

February 27, 2012

An electronic stealth operation allegedly based in China hacks into Nortel Networks Inc., Canada's high-flying telecom superstar, loots its secrets for a decade and, says one cyber-security expert, con-tributes to the company's fatal implosion.

Queen's University professor David Skillicorn points out that after the hackers penetrated Nortel around 2000, they began stealing technical papers, research and development reports, and strategic business plans.

After that, Nortel couldn't compete for contracts "because the hackers had their technical knowledge, their financials, their bids, before they sub-mitted them," Skillicorn told Postmedia News. "How can you compete in an environment like that? These hackers weren't into Nortel just out of curiosity. They were using the stuff they got."

A Wall Street Journal report quotes Brian Shields, a 19-year Nortel veteran who led the internal investigation into the hacking. Shields apparently found spy software so deeply embedded in company computers that it took years to realize the size and pervasiveness of the problem.

There's a bigger concern. In bankruptcy, Nortel sold off assets to other major telecoms. Those assets may have included computers and routing hard-ware already infected with the same spying software.

Nortel had plenty of other serious problems. Its top executives now face charges they fraudulently misstated financial reports. Still, it's worth noting who now occupies the business landscape littered with the rubble that once was Nortel.

It's Huawei, one of the Canadian company's chief rivals from China. In fact, Nortel unsuccessfully tried to buddy up with Huawei Technology Co. Ltd. in 2005 as a way of cracking the Asian market.

There's no suggestion Hua-wei, which rocketed from a no-name start-up in 1987 to its rank among the world's top three vendors of telecommunications equipment, had any-thing to do with Nortel's problems - internal or external - and eventual collapse.

However, there's a fascinating irony in Huawei announcing it will double the staff at the research and development centre it established in Ottawa in 2010. It plans to expand its research, development and engineering staff from 120 to 250 employees by 2013, right at the epicentre of the market crater left by Nortel.

In the meantime, there's a report from McAfee, the Inter-net security company. It reports that for five years hackers ran-sacked the computer systems of at least two Canadian government agencies. Even a fraction of the stolen data represents a massive economic threat to Canada, said a Reuters story about the incursion. Once again, the electronic trail led back to China.

And in 2010 a background paper prepared for Parliament warned of "an ongoing and increasingly aggressive cyber espionage campaign being waged against U.S. interests and those of its allies," with China one of the principal instigators.

"China's suspected cyber spying first gained public interest in 2003, when reports emerged that it was behind a massive, coordinated operation in which sensitive government and private-sector computer systems in the United States, the United Kingdom, Australia, New Zealand and Canada had been compromised," the report said.

To point out China's apparently pervasive role in the alleged theft of economic, industrial, military and diplomatic secrets and other intellectual property is not to indulge in Sinophobia, although apologists for China are prone to characterize such interest as a resurgence of "Yellow Peril" racism.

So let's be clear. The Chinese Communist Party and the government it controls are neither the culture of China nor its diverse and admirable people. To examine the activities of the Chinese state is not to denigrate the value and richness of Chinese culture, whether in Asia or among Canada's vibrant Chinese communities. It is simply to examine what transpires in 21st-century geopolitics.

And this examination must inevitably lead to questions about what this phenomenon signifies for a Canadian political landscape that a Conservative majority government seeks to recast, in part by promoting a sudden and dramatic expansion in economic engagement with China, a nation which is rapidly emerging as our chief ally's major military and economic competitor.

China, of course, denies nefarious activities. A student of history might say, the more things change in strategic geopolitics, the more they stay the same.

Five hundred years ago, English privateers plundered the Spanish Main. They were judiciously ignored and publicly lamented by the English Crown, so long as Spain suffered and Queen Elizabeth I got her cut.

Today, intelligence experts say China routinely turns a blind eye to "patriotic hackers" - so long as they turn over any sensitive data for the state's own use.

The U.S. Defence Department, in a report on security developments involving China, last year confirmed "a large, well-organized network of enterprises, defence factories, affiliated research institutes, and computer network operations to facilitate the collection of sensitive information and export-controlled technology." Testimony in early February at hearings by the U.S.-China Economic and Security Review Commission in Washing-ton, D.C., reported that state-owned enterprises in China are ubiquitous and often serve as strategic instruments for advancing state policy.

"They are run by high-level [Communist] Party cadres or their children," said Derek Scissors, a research fellow in Asian economics with the Heritage Foundation.

He listed the key industrial sectors controlled by the Communist party to advance state goals: information technologies, telecommunications, oil and gas and shipping.

Given the prevalence of these state-owned enterprises and the degree of control that China exercises over Internet portals, security and telecommunications, it beggars belief that "hackers" capable of operating on such a scale and for so long as the ones who looted Nortel and rummaged about in Canada's federal government could be anything other than government proxies.

The Pentagon's 2011 report to the U.S. Congress, for example, says specifically that Chinese technology companies maintain close ties with the Chinese military and have been linked directly to Beijing's intelligence service.

The U.S. department of defence maintains that "economic espionage, supported by extensive open source research, computer network exploitation, and targeted intelligence operations" are part of China's global strategy for obtaining technologies to advance both its military and its industrial competitiveness against the West.

The Organization of Economic Cooperation and Development warned in 2010 that state-owned enterprises of foreign governments can be effective as "Trojan horses," serving as conduits of illicit technology transfers as well as outright espionage.

Analysts say another key element in Chinese military theory is "strategic deception," creating misperceptions about intent while manoeuvring into a strategically advantageous position.

So let's consider Alberta's oilsands, frequently cited as a future source of crude oil in a magnitude similar to Saudi Arabia's conventional reserves.

Back in 2007, Chinese officials were publicly complaining that the Conservative government was giving them the cold shoulder. In 2008, Stephen Harper and the Conservatives even campaigned on a promise that Alberta's bitumen would not be exported to a jurisdiction with lower environmental standards than our own.

But in a paper in the Canadian Political Science Review published in January, University of Alberta scholar Laura Way points out that in 2009, PetroChina abruptly acquired 60 per cent of the Athabasca Oil Sands Corp.

Then in 2010, Sinopec, a state-owned enterprise ranked No. 5 on the Fortune 500, bought into Syncrude. Sinopec promptly used its seat on the board of Canada's largest oil-sands producer to veto plans to increase upgrading of bitumen in Canada. This was effectively a vote for exporting skilled refining jobs to China.

Chinese companies have now invested almost $20 billion in acquiring Canadian oil assets. And that's just in the past few years.

Ottawa not only appears to now lack the means to control these resources, Way observed, it appears not even to aspire to control them, a peculiar position for a nation whose government keeps touting itself as orchestrating Canada's emergence as an energy superpower.

Robyn Allan, the economist who was formerly the Insurance Corp. of British Columbia's president, points out in a recent Edmonton Journal article that one strategic implication of the proposed Northern Gateway pipeline project is that it promises a major negative impact upon other regions of Canada.

"Enbridge documents filed with the National Energy Board confirm that, once the Northern Gateway pipeline is built," Allan wrote, "oil producers plan to restrict supply of conventional and heavy crude oil flowing to Ontario refineries.

"The pipeline will be used to redirect 20 per cent of the sup-ply currently going to refineries in Ontario to refineries in northeast Asia. Reduced access to reasonably priced feedstock will threaten the economics of Canadian refineries and many will struggle to survive."

This shift would certainly be in the interests of China, but would it be in the interests of Canadians?

Meanwhile, since 2006, U.S. government agencies have recorded 26 major cases linking China to attempts to acquire technological secrets involving everything from integrated microwave circuits to major weapons systems, advanced materials research and uranium enrichment processes.

In 2010, "numerous computer systems around the world, including those owned by the U.S. government, were the target of intrusions, some of which appear to have originated within the PRC [People's Republic of China]," says the Pentagon report.

Last year, as Finance Minister Jim Flaherty prepared for a G20 economic summit in Paris, hackers penetrated Canada's Treasury Board and department of finance computer net-works. They also infiltrated the House of Commons network. Later analysis identified a particular interest in MPs with large numbers of ethnic Chinese in their constituencies.

Canada's Communications Security Establishment tracked this hacking operation to the Chinese embassy in Ottawa and from there to computer servers in Beijing, reported CTV News. Japanese diplomatic missions have been compromised by a computer virus originating in China which provided outside access to data on embassy servers and networks, reported the newspaper Asahi Shimbun. It said that sensitive information in the Japanese parliament was targeted for electronic espionage. The operation was traced back to China.

In 2011, the U.S.-China Economic and Security Review Commission reported that hackers routing commands through a ground station in Norway took total control of two U.S. surveillance satellites gathering data for non-military scientific research. While the report did not accuse China directly, it did observe that the events which occurred were consistent with "Chinese military tactical writings."

A Reuters investigative team reported in 2011 that according to U.S. investigators, "China has stolen terabytes of information - from user names and passwords for state department computers to designs for multi-billion-dollar weapons systems. And Chinese hackers show no signs of letting up."

Reuters said U.S. state department cables obtained by WikiLeaks and made avail-able to Reuters by a third party reported that the department's Cyber Threat Analysis Division had traced the intrusions to Chengdu, China, right to the door of the Chinese army's First Technical Reconnaissance Bureau.

In 2010, the New York Times reported that the U.S. Chamber of Commerce was informed by the FBI that its computer net-works had been compromised and that hackers deploying from servers based in China had stolen emails for six weeks. These emails involved most of the largest corporations in the U.S. The hackers were also spying on and stealing information from the chamber's four Asia policy experts.

In January of 2010, Google complained it had been attacked by hackers trying to access the accounts of human rights activists in China.

British, French and German governments all report being penetrated by hackers which they traced back to China. Even German Chancellor Angela Merkel's accounts were targeted.

Ed Turzanski, of the Foreign Policy Research Institute in Philadelphia, was quoted by CTV News as saying that Chinese hackers conduct these high-profile intrusions because there have been no consequences.

And so, permit me a few impertinent questions: How is it that our federal government is suddenly fawning all over these guys, who are clearly not our friends, nor the friends of our closest allies in the U.S. and NATO?

Defence Minister Peter Mac-Kay told Parliament that, "There is growing and concrete evidence of a massive Chinese network actively spying and reporting on the activities of Canadian citizens and engaging in economic cold war activity." He said industrial espionage was costing the economy $1 billion a month.

"Chinese spies were and are tapping phones and waging campaigns of threats and harassment, all actions that contravene Canadian laws," MacKay said. "China has a huge interest in owning our natural resources and dominating our economy."

So how is it that our Conservative government is now so assiduously courting the same people who are still, apparently, rummaging busily through Canada's most sensitive financial information, stealing industrial and trade secrets?

How is it that the 2008 campaign promise not to export Alberta's oilsands bitumen to a country with lower environmental standards, such as China, has morphed overnight into a plan to ship 190 million barrels a year - to China?

These are all reasonable questions. They should be the starting point for a national conversation.

Perhaps this sudden rapprochement with China is a good idea; perhaps somebody's wisely hedging bets against perceived cracks in the American empire; maybe it's a prescient strategy for more fully engaging China with the global economy and thus stabilizing the world; maybe it's terrific for Canadian development.

But maybe it's a really bad idea to be jumping into bed with our best friend's principal competitor for influence in the Pacific; maybe the perils inherent in possibly alienating the U.S., if push comes to shove over strategic oil supplies, far outweigh the immediate benefits from sales to China; maybe we're being played for suckers in the contemporary version of what Rudyard Kipling called "The Great Game."

Meanwhile, somebody check those new pandas for bugs, please - and I don't mean fleas.