February 1, 2012

TSG Atmospheric: The Chinese Cyber Threat: An Overview

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There are two strategic - and interconnected - drivers that define the trajectory of Chinese policy: energy security and unemployment. China's economy now consumes more oil than either Europe or the U.S., and 50% of that oil is imported from the Middle East and North Africa (by comparison, the U.S. imports 25% of its current requirements). If crude oil stays at or near its current price levels, then China will be spending more on oil than it earns in export revenues to the U.S., a turn of events that could force higher levels of unemployment and social discontent.

The strategic concern is that high oil prices will add to the worrisome increases in inflation, and, it is important to note, it was inflationary pressures that helped to fuel the Tiananmen Square protests of 1989. In China, the consumer price index is increasing at least 5% per annum. While this figure may appear rather benign when compared to the 11% inflation rate seen in Egypt following the Arab Spring, it still reflects a 100% increase in the rate at which consumer prices rose in FY 2010. It merits mention that this is based on official government figures; the unofficial estimates of inflationary pressures are higher.

To set the importance of oil supplies in context, were all the oil procured by China from sources outside the country were to be transported home - which does not happen - it would still only meet a fraction of China's imported oil needs. There is little ability to hedge against disruption in the energy supply chains. China is therefore paranoid about understanding what is happening in the global supply chains, but also in trying to gain competitive advantage in the oil sector by gathering intelligence on the activities of its main regional competitors, including South Korea, a critical American strategic ally and home to some 28,500 U.S. military personnel stationed there primarily to counter the threat from North Korea.

One of the most problematic consequences of this emerging reality is that is as spurred the Chinese government to launch the single largest global cyber-espionage effort yet seen. It is estimated that in excess of two million people are either directly or indirectly employed by the Chinese intelligence services. This expansive army, one that remains officially denied, operates in an integrated intelligence architecture to carry out systematic targeting operations against carefully defined commercial, government, industrial and military information systems. It has thus far amassed a cyber-army second to none in the world, one whose aim is to gather useful information that might allow Beijing to - amongst other things - maintain its oil stockpiles, increase reserves, and continually outwit its competitors.

This paper sets for a detailed overview of the paramount 21st century espionage technique: Chinese government-sponsored and approved computer hacking.


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