China’s Internet espionage capabilities are deeper and more widely dispersed than the U.S. indictment of five army officers last week suggests, former top government officials say, extending to a sprawling hacking-industrial complex that shields the Chinese government but also sometimes backfires on Beijing.
Some of the most sophisticated intruders observed by U.S. officials and private-sector security firms work as hackers for hire and at makeshift defense contractors, not the government, and aren’t among those named in the indictment. In recent years, engineers from this crowd have broken into servers at Google Inc., Lockheed Martin Corp. and top cybersecurity companies, former U.S. officials and security researchers alleged.
The Chinese have often told their U.S. counterparts they don’t condone hacking but also that they can’t police what they don’t control, according to former U.S. officials. While it is possible Beijing makes this claim simply as an excuse for inaction—given its strict control of domestic Internet traffic—experts in the field, including former U.S. officials, say the Chinese hacking landscape is chaotic and hard to follow.
This structure brings “a political gain to being able to say ‘we can’t control all attacks,’ ” said Adam Segal, a China and cybersecurity scholar at the Council on Foreign Relations in New York. “But I think there is a cost when hackers go after targets that are too sensitive or get involved in a crisis and the government can’t control the signaling.”
Sometimes freelancers appear to take orders from the military, at other times from state-owned firms seeking a competitive advantage, U.S. security firms say. It remains unclear how exactly those orders are given, security researchers said.
Sitting in an empty Papa John’s pizza restaurant, real-estate developer Yang Boqun said he would somehow catch up on loan payments for 150 million yuan ($24.7 million) he borrowed to finish a five-story shopping mall in the eastern Chinese city of Jinhua.
But the mall’s only tenants are a Bentley car dealership, movie theater and the restaurant—and the loan’s interest rate is a steep 40%. The reason: When construction costs on the two billion-yuan project soared surprisingly high, traditional banks couldn’t lend more to Mr. Yang.
So he turned to Credit China Holdings Ltd, one of the thousands of so-called shadow lenders in China. Mr. Yang got the money—and now Credit China wants it back.”
I am a loan shark but a legal one,” said Raymond Ting, chairman and executive director of Credit China, in an interview about 750 miles away at a wine store he owns in Hong Kong. He made a fist and said he is “squeezing” Mr. Yang by threatening to seize a piece of the shopping mall.
Mr. Ting is an unusually aggressive example of the shadow bankers who have stepped in to lend to debt-hungry businesses and households as the Chinese government tries to rein in traditional banks.
The shadow-banking industry includes trust companies, pawn shops, informal lenders, microfinance and a handful of publicly traded companies like Credit China that tap the capital markets to keep loans flowing. Such firms often use lending practices that aren’t permitted at traditional banks. Mr. Ting charges the highest interest rate allowed by Chinese regulators—four times the prime lending rate, now 6%—and adds consulting fees that can boost the total borrowing cost to 50% per year.
“We don’t loan to friends,” the banker said while sitting in his wine store. Wearing loafers and no socks, Mr. Ting whirled a glass of 1985 Château Mouton Rothschild from his collection of more than 50,000 bottles.
Mr. Ting says he is trying to meet demand from borrowers who can’t get money in China’s traditional banking industry, where giant, state-owned banks make most of their loans to giant, state-owned companies.
“Getting a loan at a bank takes months, taking people out for dinner and karaoke, waiting for approvals, and still it’s no guarantee,” he says. Credit China’s turnaround time on loans is about two weeks. Its license as a pawnshop operator allows the company to accept real estate as collateral.
Arguably the most intriguing business story of the past month has been taking place back in San Francisco, where a group of U.S. developers is planning the biggest real-estate expansion there since the 1906 earthquake. The group isn’t getting financing from an American bank or pension fund. No, the money, some $1.7 billion of it, is coming from the China Development Bank, a policy arm of the Chinese state. Capital has its prerogatives and so it is with CDB, which has attached a special proviso. It’s asking that China Railway Construction Corp. a state-owned infrastructure builder with roots in the People’s Liberation Army take part in the projects, which will develop up to 20,000 new homes along two prime positions in the housing-starved city. And yet the most upsetting thing about the San Francisco plan isn’t what it says about Chinese encroachment. It’s what it says about U.S. business.
Burned by awful land deals before the financial crisis, American pension funds and banks simply weren’t prepared to make such a large loan as the one made by the Chinese, nor were they comfortable with the length of the projects, which will go on for two decades. That squares with more disturbing attitudes emanating from U.S. companies, who have largely ditched investment for share buybacks and other forms of shareholder optics. The numbers make a simple point. U.S. companies have spent the last three years weaning themselves from capital investment. In all, S&P estimates U.S. firms slowed their investment pace by some $175 billion from 2009 to 2011. While those levels have recovered in 2012, there is still a spending hole that hasn’t been filled. Companies can “defer maintenance and other new purchases only for so long without hindering future growth,” notes S&P analyst Andrew Chang.
This past week several senators spent their time and public money to introduce the Team USA Made in America Act which would require that future Olympic uniforms be made in the U.S. Once again Congress chose to focus on political hot button issues instead of the big China issues that matter to U.S. business: protection of intellectual property rights, market access, forced transfer of U.S. technology, and the ability of China’s state owned enterprises to crush competitors. http://online.wsj.com/article/Made in China
U.S. manufacturing lost 6 million jobs between 1997 and 2010. But lately there are signs of a reversal of the offshoring trend and a modest comeback in U.S. manufacturing. Since 2011 manufacturing jobs have risen by 489,000 to 11.9 million.
Most of this increase is due to the general economic recovery; however, an estimated 25,000 manufacturing jobs are related to reshoring.
Reshoring product manufacturing to the U.S. doesn’t always correlate to an equal number of manufacturing jobs. Many of the parts used in the final assembly are still sourced in China. In many cases, there are no longer U.S. suppliers, or existing vendors are not competitive with Asian suppliers. China and other Asia nations remain very competitive. Once expertise and supplier networks become entrenched in a country, it is very difficult to move them. The U.S. also suffers from a shortage of trained workers in some areas vital for manufacturing; such as engineering and operation of computerized machinery. The relatively higher U.S. corporate tax doesn’t help the cause.
U.S. manufacturing has become attractive for some companies as Asian wages have surged over recent years and the wage gap between U.S. and China has narrowed. In China’s big manufacturing hubs, labor rates are now as much as $3.50 per hour. The drop in the dollar over the past decade has made U.S. produced goods more competitive. Higher oil prices have increased the cost of shipping goods across oceans, making domestic manufacturing more attractive.
There will probably not be a mass rush to move manufacturing back to the U.S. However, it is no longer a slam dunk to manufacturer all products in Asia. Companies are now carefully assessing the pros and cons of producing domestically or overseas. Global companies are still expanding production capacity in Asia to serve their faster growing markets. Companies will move towards a regional manufacturing model in which Asian plants serve Asian customers and North American plants serve the U.S. http://online.wsj.com/article/Reshoring