China 'using cyberwarfare to challenge US power'

By Richard Spencer

China is using cyberwarfare to challenge American power and distorting economic policy to exert political influence over other countries, according to a hostile congressional report.

The report accuses China of using its foreign exchange reserves, built up through "heavy-handed government control" to buy influence.

In one recent example, a government sovereign wealth fund agreed to use the reserves to loan money to Costa Rica in return for its dropping diplomatic recognition of China's rival, Taiwan.

Meanwhile, it has built up its army of cyber-spies to such an extent that it can launch attacks "anywhere in the world at any time".

The number of attacks on US government, defence companies and businesses rose by a third in 2007, to 43,880 incidents affecting five million computers, according to the claims by the US-China Economic and Security Review Commission.

Some were so sophisticated that they might be impossible to counteract, or even detect. Meanwhile, its space programme, targeted at what one Chinese military strategist called "America's soft ribs", was steadily increasing the vulnerability of US assets.

"China is intent on expanding its sphere of control even at the expense of its Asian neighbours and the United States," it said.

Pentagon and other Washington studies have accused China of using computer hacking to steal information and threaten disruption to both civil and defence services before, and particularly since an alleged co-ordinated attack in 2002, code-named by the US "Titan Rain", downloaded huge quantities of information.

The Chinese government vociferously denies being involved in such attacks.

But the current report comes at a time of great American unease that China will benefit from the global financial crisis to cut into its economic, political and even military dominance.

A separate US study published yesterday said that by 2025 America would probably have to share world leadership with India and China.

The increased attention given in the report to China's economic policy is another sign of that unease.

China has been accused of keeping its exchange rate too low, boosting its exports artificially and using the dollars it is forced to buy as a result of the policy to lend back to the United States, exacerbating the recent credit bubble.

"Rather than use this money for the benefit of its citizens – by funding pensions and erecting hospitals and schools, for example – China has been using the funds to seek political and economic influence over other nations," Larry Wortzel, the Commission chairman, said at the report's launch.

The regular publication of such reports over the last six years with cross-party backing – the committee consists of six Democrats and six Republicans – has not deterred President George W Bush from pursuing ever closer business and diplomatic relations with China, a policy set in place by his father, the first President Bush.

China is waiting anxiously to see whether an Obama presidency brings less hawkishness on international relations, or a more protectionist trade policy, which Beijing fears.

The commission called for legislation pressuring China to raise the value of its currency and to demand its main sovereign wealth fund, China Investment Corporation, disclose investments it is making in the United States.

"China appears far less likely than other nations to manage its sovereign wealth funds without regard to political influence that it can gain by offering such sizeable investments," the report said.