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COMMUNIST CHINESE CYBER–ATTACKS,

CYBER–ESPIONAGE AND THEFT OF AMERICAN

TECHNOLOGY

HEARING

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND 

INVESTIGATIONS

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

APRIL 15, 2011

Serial No. 112–14

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

ILEANA ROS-LEHTINEN, Florida, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

DAN BURTON, Indiana 

ELTON GALLEGLY, California 

DANA ROHRABACHER, California 

DONALD A. MANZULLO, Illinois 

EDWARD R. ROYCE, California 

STEVE CHABOT, Ohio 

RON PAUL, Texas 

MIKE PENCE, Indiana 

JOE WILSON, South Carolina 

CONNIE MACK, Florida 

JEFF FORTENBERRY, Nebraska 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

GUS M. BILIRAKIS, Florida 

JEAN SCHMIDT, Ohio 

BILL JOHNSON, Ohio 

DAVID RIVERA, Florida 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

ANN MARIE BUERKLE, New York 

RENEE ELLMERS, North Carolina 

VACANT 

HOWARD L. BERMAN, California 

GARY L. ACKERMAN, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

DONALD M. PAYNE, New Jersey 

BRAD SHERMAN, California 

ELIOT L. ENGEL, New York 

GREGORY W. MEEKS, New York 

RUSS CARNAHAN, Missouri 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

DENNIS CARDOZA, California 

BEN CHANDLER, Kentucky 

BRIAN HIGGINS, New York 

ALLYSON SCHWARTZ, Pennsylvania 

CHRISTOPHER S. MURPHY, Connecticut 

FREDERICA WILSON, Florida 

KAREN BASS, California 

WILLIAM KEATING, Massachusetts 

DAVID CICILLINE, Rhode Island 

YLEEM D.S. POBLETE, Staff Director 

RICHARD J. KESSLER, Democratic Staff Director 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

DANA ROHRABACHER, California, Chairman 

MIKE KELLY, Pennsylvania 

RON PAUL, Texas 

TED POE, Texas 

DAVID RIVERA, Florida 

RUSS CARNAHAN, Missouri 

DAVID CICILLINE, Rhode Island 

KAREN BASS, California 

(III)

C O N T E N T S 

Page

WITNESSES 

Pat Choate, Ph.D., director, Manufacturing Policy Project .................................. 5

Mr. Richard Fisher, senior fellow, Asian Military Affairs, International Assessment and Strategy Center ............................................................................ 11

The Honorable Edward Timperlake (former Director, Technology Assessment, 

International Technology Security, Office of the Secretary of Defense, U.S. 

Department of Defense) ....................................................................................... 25

Adam Segal, Ph.D., senior fellow, Council on Foreign Relations ........................ 35

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Pat Choate, Ph.D.: Prepared statement ................................................................. 7

Mr. Richard Fisher: Prepared statement ............................................................... 13

The Honorable Edward Timperlake: Prepared statement ................................... 27

Adam Segal, Ph.D.: Prepared statement ............................................................... 37

APPENDIX 

Hearing notice .......................................................................................................... 50

Hearing minutes ...................................................................................................... 51

(1)

COMMUNIST CHINESE CYBER–ATTACKS, 

CYBER–ESPIONAGE AND THEFT OF AMERICAN TECHNOLOGY 

FRIDAY, APRIL 15, 2011

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, 

COMMITTEE ON FOREIGN AFFAIRS, 

Washington, DC. 

The committee met, pursuant to notice, at 12 o’clock p.m., in 

room 2172 Rayburn House Office Building, Hon. Dana Rohrabacher 

(chairman of the subcommittee) presiding. 

Mr. ROHRABACHER. I call to order the Subcommittee on Oversight and Investigations of the House Foreign Affairs Committee. 

I would like to thank all of you for joining us today. And today 

we are examining the Communist Chinese cyber-attacks, espionage 

and theft of American technology. 

We will proceed with our opening statements and then introduce 

the witnesses. And, hopefully, there will be a vote coming up I am 

afraid, but let us hope we get through the testimony of the witnesses and then we will go and vote and come back and ask the 

questions. 

So, starting off with a Reuters news story this morning reveals 

that secret U.S. State Department cables trace computer system attacks colorfully code named the Byzantine Hades by U.S. investigators. They have traced these to the Chinese military itself. An April 

2009 cable even pinpoints the attacks to a specific unit of the Chinese People’s Liberation Army. According to U.S. investigators 

China has stolen terabytes of sensitive data from password for 

State Department computers to designs for multi-billion dollar 

weapon systems. 

The United States is under attack. 

Cyber-attack and cyber-espionage traced backed to China have 

been dramatically increasing every year. What kind of damage is 

being done? How is our national security being compromised? Well 

shielding our digital infrastructure from attacks, and protecting the 

intellectual property and classified information is strategically important to our national security. But how do that and what else 

needs to be done in terms of protecting this? 

The Communist Chinese Government has defined us as the 

enemy. It is buying, building and stealing whatever it takes to contain and destroy us. Again, the Chinese Government has defined 

us as the enemy. 

2

Chinese cyber-attacks on U.S. assets now number in the thousands every year. The 2009 report on ‘‘China’s Military Power’’ 

published by the Office of the Secretary of Defense notes that, ‘‘numerous computer systems around the world, including those owned 

by the United States Government, continued to be a target of intrusion that appears to have originated within the PRC,’’ end of quote. 

One of the high value targets that Chinese cyber warriors have repeatedly attacked is the F–35 Joint Strike Fighter program which 

is the centerpiece of future American air power capabilities. 

The heavy use of outsourcing of computer and consumer electronic production to China, not only by American but also by Japanese, Taiwanese, German, and South Korean firms, has helped create a Chinese cyber threat that now compromises the security of 

the Western world. Beijing has been given technology and a manufacturing base, making Western networks vulnerable to escalating 

Chinese capabilities. 

The Office of the Secretary of Defense in their 2010 annual report to Congress, which was the ‘‘Military and Security Developments Involving the People’s Republic of China’’ outlined this challenge. And I quote,

‘‘The PRC utilizes a large well-organized network of enterprises, defense factories and affiliated research institutes and 

computer network operations to facilitate the collection of sensitive information and export-controlled technology.’’

The Chinese often use, and here it is, the term ‘‘patriotic hacker’’ 

as a cover for their activities, as well as of course corporate spies. 

But in that dictatorship the line between state and private efforts 

is blurred intentionally to give Beijing plausible deniability. 

Chinese thinking is based on slogans such as ‘‘Give Priority to 

Military Products,’’ and ‘‘Combine the Military with the Civil.’’ 

Thus, economic and commercial spying and theft are most frequently connected with tech-heavy industries deemed to be strategic to the regime. This includes computer software and hardware, 

biotechnology, aerospace, telecommunications, transportation, engine technology, automobiles, machine tools, energy, materials and 

coating. 

A new study by the RAND Corporation, which it was ‘‘Ready for 

Takeoff: China’s Advancing Aerospace Industry,’’ that report found, 

and I quote,

‘‘China’s aerospace industry has advanced at an impressive 

rate over the past decade, partly due to the increasing participation of its aerospace industry in the global commercial aerospace market and the supply chains of the world’s leading 

aerospace firms . . . China’s growing civilian aerospace capabilities are unquestionably contributing to the development of 

its military aerospace capabilities.’’

Combine these commercial transfers with the espionage committed against American military programs like the F–35, and no 

one should be surprised by the roll out of the new J–20 ‘‘stealth’’ 

Chinese airplane last January. It was years ahead of what all the 

experts predicted that China was able to do on its own. 

3

It is what happens during ‘‘peace time’’ that determines the balance of power and governs the outcome when that peace breaks 

down. National security must be a constant concern. 

Battleships and mass armies were left behind by aircraft carriers 

and rockets. Now we must understand that today’s threat emanating from cyberspace and technology transfers as well as from 

traditional practices of espionage. 

Today we have before us four experts on the connection of technology transfers and national power in a competitive world. 

Mr. Pat Choate is currently the director of the Manufacturing 

Policy Project, a private, nonprofit institution. Mr. Choate has written widely and several books, including ‘‘Agents of Influence’’ and 

the ‘‘The High Flex Society,’’ which document the decline in America’s competitiveness and the influence of foreign powers right here 

in Washington, DC. 

Mr. Richard Fisher is a senior fellow with the International Assessment and Strategy Center. He is an active writer and a scholar 

on China having worked for the Jamestown Foundation, the Center 

for Security Policy, and The Heritage Foundation. He is the author 

of ‘‘China’s Military Modernization, Building for Regional and Global Reach,’’ and has been published in numerous newspapers and 

professional journals. 

Mr. Edward Timperlake served as Director of Technology Assessment, International Technology Security for the Department of Defense from 2003 to 2009. He identified and protected the Defense 

Department from espionage, that was his job and we’re anxious to 

hear more about that. He also served as the Department of Defense’s representative to the National Counterintelligence Executive Committee. Before that he graduated from the Naval Academy 

and served as a Marine fighter pilot, as my dad did for 23 years. 

And co-authored the book, ‘‘Showdown: Why China Wants War 

with the United States.’’

And finally, we have Mr. Adam Segal, a senior fellow with the 

Council on Foreign Relations and an expert on security issues and 

China policy. He has recently written a book entitled, ‘‘Advantage: 

How American Innovation Can Overcome he Asian Challenge.’’ He 

has taught Vassar College and Columbia University. He holds a 

Ph.D. from Cornell. 

I want to thank all my witnesses, or our witnesses for being here 

today. 

And now we’ll have opening remarks from our members, and 

then we will proceed with your testimony. 

Mr. Carnahan. 

Mr. CARNAHAN. Thank you, Mr. Chairman for holding this hearing. And I want to compliment on the interesting and timely subjects that you have brought to this subcommittee. And we look forward to continuing this work together. 

As the U.S. economy continues to recover, we must do everything 

we can to create jobs here at home and support domestic manufacturing. 

As of 2010, China was the world’s third largest buyer of products 

from my home state of Missouri ranging from machinery, 

pharmacueticals, agriculture products. We experienced a 43-percent growth in exports from Missouri to China. Nearly $1 billion 

4

sales last year alone. Missouri made products exported to China 

that are creating jobs here at home in the midwest and beyond. 

With nearly 20 percent of the world’s population, the Chinese 

market represents an opportunity for American business to create 

job here at home by making American products at home and exporting them to China, but here’s the ‘‘but.’’ This growth, while it 

is an opportunity, it cannot and will not reach its full potential so 

long as American companies remain at risk. Given the long running efforts to illicitly acquire technology from Western companies, 

and a lack of protection of intellectual property rights there is a 

significant limitation to the export growth potential of U.S. corporations. 

While it is in our economic and security interest clearly to 

counter any and all of these issues, it is also in China’s best interest to come to the table and address them in a serious way. China 

itself is increasingly susceptible to hacking and cyber crime and 

theft of intellectual property by others around the world, especially 

given that its technology is not as superior as ours. It is in the best 

interest of both countries to diplomatically address these issues 

and encourage Chinese officials to come to the table to do just that: 

Address these issues in a serious way. 

I look forward to hearing from our witnesses today. And I yield 

back, Mr. Chairman. 

Mr. ROHRABACHER. Thank you very much. 

And we have with us, I am going to see if I am pronouncing 

right, David Cicilline? 

Mr. CICILLINE. Yes. 

Mr. ROHRABACHER. And you’re from Rhode Island. And we would 

recognize you for an opening statement. 

Mr. CICILLINE. Just thank you, Mr. Chairman. I just would like 

to welcome the witnesses and thank the chairman for scheduling 

this hearing. 

This issue of how do we support American manufacturers and 

deal with the very real issue of the theft in intellectual property 

is of great interest to me and to my constituents, and to our country. And I am particularly also interested in hearing the witnesses’ 

testimony on what we might do to further enhance cyber security. 

So, I welcome you and thank you for being here today. 

Mr. ROHRABACHER. Thank you very much. Welcome to the subcommittee. 

Mr. Choate? 

Mr. CHOATE. Mr. Chairman, members——

Mr. ROHRABACHER. I am sorry. I was trying to figure out how to 

pronounce his name so much that I did not even see him there. 

And another one of our new members, Ms. Bass. No, if you have 

an opening statement, please feel free. 

Ms. BASS. Thank you for holding this hearing. And I am also 

very interested in the testimony that you have to say, and a particular interest, I mean in addition to the cyber-attacks, is the 

whole idea of the problem in China with piracy. I know that is not 

the topic today, but hopefully in a future hearing we will be addressing that. 

Mr. ROHRABACHER. Thank you very much. 

5

You have a very easy name to pronounce. All my life with a 

name Rohrabacher I have got to pay attention to pronunciations. 

Mr. Choate, go right ahead. 

STATEMENT OF PAT CHOATE, PH.D., DIRECTOR, 

MANUFACTURING POLICY PROJECT 

Mr. CHOATE. Thank you, Mr. Chairman, members of the committee. 

Let me focus my comments on how the United States actually facilitates such cyber-espionage and talk about things that we can do 

here at home in dealing with it. 

Chinese cyber-attacks, of course, are massive, there have been 

numerous studies that have identified these attacks. We know that 

all of our major agencies, corporations, banks, research and other 

entities are subject to these attacks. 

The greatest concentration of technology, of new technologies, advanced technologies in the world is at the U.S. Patent Office. What 

we have each year is 500,000-plus applications from around the 

world, about half of those applications are foreign-based but half 

are from the United States, seeking a patent. And at the Patent 

Office what we have is a situation in which we have probably the 

oldest computers in the Federal Government are found at the Patent Office. There have been a number of comments on that by Mr. 

David Kappos, who is the Director of the US PTO. 

Another basic principle that we can assume: Anything that is on 

the internet can be hacked into, whether it is our IPhone or whether it is our personal computer, or our IPod that is connected. 

So, we have to assume that the Patent Office is regularly hacked 

into and the best information is taken from the Patent Office. I do 

not think that has received the attention that it merits. 

The second thing that happens in talking to computer security 

experts, and I have done this for a couple of books, is the first thing 

that a foreign intruder seeks is to identify the sources of this technology. 

If you go into the Patent Office, or if you just simply take the 

published Patent applications, you can narrow down the fields to 

those companies that are doing the most advanced research, large 

and small. Then once those companies are identified, the Chinese 

are particularly effective at doing a barrage of attacks upon the 

computer systems of those companies in an attempt to put in Trojan spyware that will enable them at the schedule of the intruder 

to produce the information of the company itself and literally on an 

hourly or daily basis, they know exactly what is going on with the 

technology or research there. The issue is one of how do we improve the security of information in that process. 

A second issue that I mention in my testimony relates to the entire question of the security of economic technology. We have both 

national and economic security needs in this country. We have laws 

on the books that deal with the national security, the military technology. We have laws that require the imposition of secrecy orders. 

We have no such laws on economic technology. And increasingly 

what has happened over the years is we have dual technologies 

that are used for both purposes. 

6

In the back of my testimony I have a table that I would direct 

your attention to on the number of secrecy orders that have been 

given. It’s the fifth column over. 

And what we see in during the Cold War era we would have 

hundreds of items each year that would be put under a secrecy 

order. A patent would be given, but the secrecy would not be allowed. That rate has declined by about 90 percent in recent years. 

Last year there were 86 secrecy orders issued at the Patent Office. Of those, about 60 were from the National Labs and dealt with 

atomic issues. There were about 26 John Doe secrecy orders imposed. 

Now here’s the problem. We have the Department of Commerce, 

the Department of Defense, Department of State, Homeland Security imposing export controls on certain technologies because we do 

not want people who might be hostile to us to have that technology. 

At the same time, we are putting up through the Patent Office on 

the internet the patent applications and the full patent itself which 

includes the best mode for the best way to make it. So simultaneously we are losing billions of dollars of sales and we have absolutely no security benefit from that. 

So, I think this is a very rich area of study of how do we take 

our national security and recognize the dual use technologies? How 

do we make sure that we have an improved security inside the Patent Office on this publication of materials? 

Thank you, and I look forward to your questions later. 

[The prepared statement of Mr. Choate follows:]

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Mr. ROHRABACHER. Thank you very much, Mr. Choate. And appreciate you keeping it within 5 minutes, and we will have a longer 

session to ask questions and answers after that. 

Mr. Fisher? 

STATEMENT OF MR. RICHARD FISHER, SENIOR FELLOW, 

ASIAN MILITARY AFFAIRS, INTERNATIONAL ASSESSMENT 

AND STRATEGY CENTER 

Mr. FISHER. Chairman Rohrabacher, I would like to begin by 

thanking you for your consistent leadership in helping to alert this 

nation to the threat from China’s Communist Party. And Chairman 

Carnahan and other members, I would like to extend my thanks 

to you for holding this hearing today. 

Both the internet and the dual use technologies that I will cover 

in my remarks have helped to propel a far more globalized world 

economy which has produced myriad benefits, has many defenders, 

but I would also submit, Mr. Chairman, that it is time for the 

United States to devise new defenses against those who are exploiting these benefits and harming of the security of the United States. 

In my testimony one of the major points that I make is to highlight the cost of China’s cyber warfare against this country. I have 

provided some figures in a PowerPoint slide and that looks at, at 

least, open source estimates of annual expenditures. And last year 

I found an estimate that describes the cost of just cyber-espionage 

alone as mounting to almost $200 billion a year. This is comparable 

to what the United States is spending to defend ourselves or what 

is the cost of the impact of the war against in this hemisphere. Admiral Winnefeld just 3 days ago provided the figure of $181 

billion as he impact on this country of the war on drugs. 

So with that level of importance, that level of comparison, I think 

a far greater degree of public focus needs to be placed on this challenge of Chinese cyber warfare. 

In my testimony I describe some points about the order of battle 

that PLA has put together, how cyber warriors or drawn from the 

criminal sector, from the computer industry. You mentioned the 

Reuters story today that described a U.S. Embassy cable that has 

traced attacks back to a specific unit in Chengdu. The Chinese 

have a cyber army that is fully integrated into their order of battle. 

What we need to do to defend ourselves is another long and complex subject, but at minimum we need to consider how we can raise 

this issue in importance in terms of the information that we share 

with American citizens. 

Every year at the Pentagon, because of the Congress, has to 

print a report about PLA modernization, Chinese military modernization. I believe that we need a similar report that highlights 

China’s cyber war against the United States and all other democracies. 

Now I’d like to move on to looking at how American dual use 

technologies are being used by China increasingly for military purposes. I have written on this at some length in the past, and I put 

together just a few PowerPoint slides that provide some examples. 

Early in the last decade two Chinese companies basically stole 

the AM General Humvee and put it into production. One company, 

the Dong Feng Motor Company is now producing this vehicle for 

12

the People’s Liberation Army and the People’s Armed Police. It’s 

not something that AM General would talk to me about until just 

a few years ago. And it apparently is something that happens with 

the approval of the Commerce Department. And it does not appear 

that there is anyone who is aware or taking any action to address 

an American-designed vehicle being used by the Chinese military. 

Another example that I discovered at a Chinese air show in 2004 

was that two Boeing 737s have essentially been dragooned into the 

People’s Liberation Army Air Force. My sources in another country 

explained to me soon after that these airplanes were being used in 

China’s Cruise missile development program. There are now 400, 

500, 600 Cruise missiles appointed at Taiwan, and this aircraft 

helped to develop them. 

Here we see at the far left the 737s and Chinese electronic warfare and electronic technology development unit. 

Here we have another problem, and that is how China has integrated the airliners and the cargo liners that we have sold them 

into a civilian reserve force that is now helping to transport PLA 

troops and forces, and equipment. This is an exercise that took 

place in 2008, a U.S. built Boeing 747, a McDonnell Douglas DC–

10 and we see Humvees being arrayed as part of the forces being 

transported. 

This is an exercise that took place last year. China Southern Airlines just acquired this Boeing 777F and promptly went into a mobility exercise. 

Finally, there is the problem of how to control academic research, 

especially when it has a military use. I included in my testimony 

an explanation of the case of a certain professor who was allowed 

or invited to be a visiting fellow with a NASA Laboratory in the 

late 1980s. She then returned to China with her information and 

became a leading expert for China in the development of composite 

ceramic matrix materials which are used to shield spacecraft. And 

she is now involved in China’s effort to build military spacecraft 

and military hypersonic products. 

I do not think that there is enough of an awareness or a willingness on the part of those who should be defending our technology, 

and that would be my final point, sir. 

Thank you very much. 

[The prepared statement of Mr. Fisher follows:]

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Mr. ROHRABACHER. Thank you very much, Mr. Fisher. We will 

get back to you during the questions and answer. But it appears 

that we are spending a lot of money on research and development 

here and maybe the benefit is going overseas. But we will let our 

next witnesses comment on that as well. 

Mr. Timperlake? 

STATEMENT OF THE HONORABLE EDWARD TIMPERLAKE 

(FORMER DIRECTOR, TECHNOLOGY ASSESSMENT, INTERNATIONAL TECHNOLOGY SECURITY, OFFICE OF THE SECRETARY OF DEFENSE, U.S. DEPARTMENT OF DEFENSE) 

Mr. TIMPERLAKE. Thank you very much, Mr. Chairman, distinguished members. 

I would like to submit my testimony for the record and summarize briefly. 

The 106th Congress of the First Session reported out a bipartisan document that is a tribute to the fact that the U.S. Congress 

in national security concerns come together as one, it was called 

the Cox Report. It was a report on the activities of the People’s Republic of China. I linked it in my testimony. Anybody that reads 

that can go to the Congressional Web site or buy a copy on Amazon. Read it, look at today’s headlines to check and see the lineage 

of what they went after and where it is today. I picked three quick 

examples. 

In the ’90s, the People’s Republic of China targeted ballistic missiles. Sure enough, they also proliferate, by the way. Boom goes the 

dynamite on January 11, 2007 they successfully kinetically killed 

one of their satellites. Some day that may be seen as the precursor 

to the opening round of a quasi-war in space. 

They went after high performance computers. I looked that up, 

and in 1999/2000 I think Saudi Arabia and Portugal were ahead 

of China, we had the top nine out of the ten, Japan was closing. 

And again on 20 October the BBC announced that China now has 

the top super computer in the world. So, they got that one. 

Stealth and composite technology, they went after that. Sure 

enough, as you mentioned, they rolled out the J–20 Annihilator 

and embarrassed everybody. Previous to that the Russians flew 

their F–22ski, the TF–50. Both of them were a test flight that 

caught several by surprise. Three Air Force officers did not see it 

that way, General Corely U.S. Air Force, Lieutenant General 

Deptula of the Air Force Head of Intelligence, and General Thomas 

McInerney. Unfortunately, the F–22 was stopped at 187 Raptors, 

and I think that was a strategic blunder which tell us we have to 

protect the F–35 at all cost because that is our ace in the hole coming in combat maneuvering in the future. 

Concurrently while the Chinese were spying, they did the ‘‘Revolution in Military Affairs,’’ they saw Andrew Marshall publish this 

great document in which Mr. Marshall, director of Net Assessment, 

said here was two evolutionary technologies: Precision-guided munitions and remote sensors, and information war. 

The Chinese military literature tells us in the late ’90s they were 

giving doctorates in information war. The term ‘‘cyber’’ had not 

been in vogue at that time, so they really got off the dime very 

quickly on that. 

26

I would argue though, and we will discuss this, that the PRC actually has two cyber enemies. They have the free world for whatever they can get, and the other one is their own people. And they 

are very concerned about that, so that compounds their problem 

and is an area that we can exploit. 

There are two case studies I presented. The first one was the 

Varyag, the aircraft carrier, that’s denial and deception. They sent 

a team over to buy it, it was a cold war relic. And they claimed 

that they were purchasing an aircraft carrier to be a casino Macau. 

They got though the Turkish Straits of the Bosphorus by that cover 

story. Sure enough, very recently Xinhua is on saying ‘‘The huge 

warship on the verge of fitting out, is fulfilling 70 years of China’s 

dreams for an aircraft carrier.’’ I would say that basically they 

named it the Shi Lang after the Ming Dynasty admiral. I’d rather 

call it the Casino, because that’s how they said hey were going to 

use it. 

The other case is they send bad things to bad people. Whenever 

the Chinese Government gets something, they have a 16 character 

policy which says: We get it, we filter it through the use and the 

need for the state. And in doing so it’s a brilliant strategy. They 

then perfect it and balance it by proliferation. I went to Iraq, I 

looked at all the Chinese weaponry that were oil for food violations, 

and sure enough I listed them in my report. In addition, Huawei 

a Chinese firm was in pre-war Iraq, post-war Iraq. And I was looking at the CPA, I was engaged with that. I noticed on the Web site 

they were bragging that they had gotten into Iraq and basically 

that was prohibited. In my personal opinion Huawei is an ongoing 

criminal operation as much as anything. 

How are we doing and what are we doing about it? The Justice 

Department formed up a task force in 2007 to focus on this. They 

have done a magnificent job. I give a link to that. I even gave some 

of their press releases on spy cases they have busted, and they 

really are making these cases. 

Finally, the issue of cyber security; it’s a black swan event, which 

is a great book. Basically, expect the unexpected, the highly improbable. And we formed up the U.S. Cyber Command. I want to 

give Mike Wynne a credit to his vision, the Billy Mitchell of our 

generation. He saw the need early with the U.S. Air Force Cyber 

Command that melded into the bigger cyber command picture. 

I really do believe that we as Americans have a challenge but we 

will, because of hearings like this, address that challenge. 

Thank you, sir. 

[The prepared statement of Mr. Timperlake follows:]

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Mr. ROHRABACHER. Thank you very much for your testimony. 

And now Dr. Segal. 

STATEMENT OF ADAM SEGAL, PH.D., SENIOR FELLOW, 

COUNCIL ON FOREIGN RELATIONS 

Mr. SEGAL. Mr. chairman and members of the committee, thank 

you very much for asking me to testify on this very important subject. 

I would like to place cyber-espionage in a larger context, which 

is a push on the Chinese for extremely techno-nationalist technology policy driven toward reducing dependence on advanced 

countries for foreign technology, and particularly reducing dependence on the United States and Japan. That policy was enshrined 

in the 2006 Medium-to Long-Term Science and Technology Development Plan, introduced the idea of ‘‘indigenous innovation,’’ and 

it set the goal for China to become an innovated-oriented society 

by 2020 and among the world’s scientific and technology leaders by 

2050. 

The pursuit of these goals follows three tracks. The first track is 

industrial policy, which is basically a top-down, state-led focus on 

big science, but also includes the use of standards policy, the use 

of procurement and the failure to protect intellectual property 

rights, as well as forcing technology transfer between foreign companies that want access to the Chinese domestic market. 

The second strand is what you would call innovation strategy, 

and this is a much more market-oriented focus on creating technological entrepreneurship and new growth in the Chinese economy. 

And the third strand is cyber-espionage and traditional espionage. 

These three strands clearly are overlapped and intertwined, although plucking out the individual strands is difficult to do. In 

some cases it’s very easy. We can see private companies as they 

grow larger begin to accept funding and support from the state. 

And also in the case of cyber-espionage as the ‘‘Shadows in the 

Cloud’’ report shows that there is a nexus between criminal and 


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state hackers and the information that those hackers find sometimes shows up on the black market and other times it seems to 

work its way back to state institutions. 

The question for the United States, of course, is how do you respond to this? And I think the most important response is domestically: How do we defend our own networks? How do we move to 

risk management? Because I think most of this is in the end is 

going to be very difficult to protect, and so we have to think about 

what type of information we actually want to be digitalized and 

placed on networks. But also, how do we raise the cost for Chinese 

hackers, and that’s probably going to involve some forms of active 

defense. 

But I think the larger issue as well is: What are U.S. companies 

saying about this problem? Because like with intellectual property 

rights theft, U.S. companies do not like to talk about when they 

have been hacked. We saw with the Google hack, Google said 30 

other companies were attacked in this hacking, but then no other 

company publicly stated that, yes, this was a problem for us. And 

I think the reasons that they do not state it is because they are 

afraid of retribution from the Chinese Government. So the United 

States has to figure out how are you going to respond to that problem and get U.S. Government more involved. 

And then the third area, I think, is how do we shape this debate 

within China. Because we can see with the technology policy there 

is, in fact, people who question the wisdom of this—excuse me this 

technology policy, this top-down state strategy. They think that 

that is not going to be successful long-term and they are afraid that 

in fact China will fall further and further behind. That Chinese 

standards will only cut them off from the rest world. 

And as Chinese technology companies themselves become more 

global, they have a stake in a digital infrastructure that is more 

open and more global. So what the United States wants to do is 

to think about how we strengthen those individual units. 

I suspect, although I have no evidence, that those same factions, 

we can call them the innovation strategy factions, are also suspicious of a technology policy that is based on espionage. Copying 

is not going to create incentives for innovation. So those people are 

the ones that we want strengthen, those are the ones we want to 

convince that they have an interest in these global structures and 

these open infrastructures, and to convince them that China is increasingly becoming more vulnerable to cyber-attacks itself. 

This is not going to be easy. The techno-nationalist view is widespread in China. It is, in fact, held by the innovation strategy faction. They also want to reduce dependence on the West, but they 

at least are pushing in more open ways of doing it. So that I think 

it is important to engage the Chinese on that front, but the more 

important short-term is probably going to be defending ourselves 

and raising costs to Chinese hackers. 

I’ll stop there. 

[The prepared statement of Mr. Segal follows:]

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Mr. ROHRABACHER. Thank you very much. 

And Mr. Carnahan may not be able to join us after the next series of votes, so I think we will give you the courtesy of asking your 

questions now. 

Mr. CARNAHAN. Great. Thank you, Mr. Chairman. And thanks to 

all the panels here today. This has been a very good overview. 

I wanted to start with just an overall question to really any of 

the panelists that want to weigh in on this. President Obama had 

stated that ‘‘our ability to partner is a prerequisite for progress on 

many of the most pressing global challenges.’’ I wanted to get your 

assessment of the willingness of the Chinese to engaged with the 

U.S. in this manner regarding cyber threats and technology 

threats. And why do we not just start with Mr. Choate and work 

our way across? 

Mr. CHOATE. Well, I think we can anticipate—well I think I can 

start by looking at our own history. From 1790 to around 1838 the 

United States was under a very aggressive policy of technology acquisition under a manufacturing strategy put together by Alexander Hamilton. We literally stole everything that we could from 

any place in the world. 

And I think that China, and any other developing country, would 

feel an obligation to do almost the same thing. From our perspective I think we must assume that for years to come as long as our 

technology is superior, they have ever incentive in the world to go 

out and steal our technology. That gives a series of mandates on 

what we should do as a country. 

We should be not naive. We should take a look at the way that 

we have agglomerated technology, who has access to it, how we in 

effect have our companies understand that one of the things 

they’ve got do is take certain of their computers off of the internet. 

We need to take a look at our policies with the Patent Office with 

all of the new technologies there. In other words, we must assume 

as a policy that not only China, but Germany and Brazil and other 

countries are out to steal to our technology. It’s our responsibility 

to not make it easy as we do now. 

Mr. CARNAHAN. And before I get to the next witness, to the extent that China is becoming a target increasingly of intellectual 

property——

Mr. CHOATE. Yes. 

Mr. CARNAHAN [continuing]. Is that going to get them to the 

table on these issues? 

Mr. CHOATE. Not really, I don’t think so. 

One of the things that is happening with the Chinese, they have 

made in their last 5-year plan a major effort to do patenting in 

China. Probably the largest set of patenting in the world now is 

done inside China. So their conscious about the need to create legal 

rights and at the same time they’re conscious about securing their 

own technology. So I do not think that we’re really going to wind 

up with any real cooperations. I think we must proceed on that 

basis. 

Mr. CARNAHAN. Thank you. I am going to try to get everybody 

in if we can after this bell went off. 

Mr. Fisher? 

Mr. FISHER. Thank you, Mr. Chairman. 

44

I do not see that the Chinese Government today shares any interest in partnering with the United States in an effective way, at 

least as we would view it. The cyber warfare effort along with the 

range of miliary modernization efforts that we have seen underway 

all date back to the 1989 Tiananmen uprising. That scared the 

bejesus out of the Chinese Communist leadership. And all that 

they have done since then in the military strategic sphere has been 

devoted to protecting their dictatorship, their control, their position 

of power to include this aggressive campaign of cyber warfare. 

They are not going to be interested in talking to us until they 

have reached a level of power for which they are comfortable. And 

I am not sure that their concepts of partnering will include any 

kind of concept of equality that we have, that we will share interests and then move forward. Once they gain a position of superiority, they are going to want to start dictating and changing the 

rules, rewriting rules. 

Mr. CARNAHAN. Let me move on to Mr. Timperlake. 

Mr. TIMPERLAKE. Yes, sir. Thank you for the question. 

I think you have to approach it from two perspectives. The first 

is they are very good at denial and deception, which is their charm 

offensive. They will stay engaged and do whatever accrues to their 

advantage. No problem, no debate on that. What they will do, 

though, is take it to their advantage first and foremost through 

their 16 character policy. Where I think you can actually find their 

true intentions is if you read their War College literature. Surprisingly, or not surprising, the Chinese will tell you, the PLA, what 

their intentions are. In fact, they are quite proud of what they are 

doing. 

So the engagement policy always has to go in with that huge caveat that they are very, very good, as you saw, taking an aircraft 

carrier and calling it a casino, and then converting it into a ship 

of war. So when you engage at that level be careful. 

Mr. CARNAHAN. Mr. Segal? 

Mr. SEGAL. I do not fundamentally disagree with most of the bad 

news that the panelists have given you, but I will try to give a 

glimmer of hope here. 

On one hand, I think there are some parts of the Chinese bureaucracy that are beginning to think about how they defend themselves from these vulnerabilities. We see a track now that is going 

on with some members of the Ministry of State Security and MIIT 

that are participating on these discussions. 

At the U.N. the Chinese have unwillingly gone along with the 

Russians for discussions about cyberspace arms control agreements. 

And in my own dealings with members of the Ministries, they 

are beginning to practice certain arguments, rule them out about 

how they want to engage in cyberspace. 

I think it is very early. I am not expecting any progress on those 

fronts, but I think within the Chinese bureaucracy there is some 

thinking about it. But I do not widely disagree with the generally 

negative that the panel has given. 

Mr. CARNAHAN. Great. Thanks to all of you. 

Thank you, Mr. Chairman., Yield back. 

Mr. ROHRABACHER. Thank you. 

45

How many minutes do we have? We have 10 more minutes to get 

to the vote, and I think what I am going to do is get my questions 

now and seeing that our other members are not here, that will be 

the end of the hearing. So, we do have 10 minutes. 

So if you would like to any moment, because we are restricted 

here, you can jump in and ask a follow-up question as well, Mr. 

Carnahan. 

What about joint ventures with Chinese companies? We have 

aerospace industry and others who are pushing in that area. Is this 

going to work for us or against us? And be succinct and we will go 

on down? 

Mr. CHOATE. Basically what we are doing is giving away our 

technology. 

Mr. ROHRABACHER. And so the things that we have developed 

and spent billions of dollars developing will then be eventually 

used competitively against us? 

Mr. CHOATE. Yes. 

Mr. ROHRABACHER. Mr. Fisher? 

Mr. FISHER. Absolutely, I agree with Pat on this. 

We are helping the Chinese to build competitors to Boeing and 

Airbus, and that advantage will be much narrower by the end of 

this decade. And the Chinese are taking all of this technology and 

applying it to military programs that will be largely aimed at us 

as well. 

Mr. ROHRABACHER. This policy has destroyed several manufacturing industries in the United States already. And for us to put 

at risk the aerospace industry with this type of involvement, would 

the Chinese who are clearly our adversaries, certainly more than 

just our competitors but our adversaries and perhaps our enemies? 

Mr. Timperlake? 

Mr. TIMPERLAKE. Yes, sir, I think you are exactly right. In fact, 

one dimension of the role out of the J–20 that catches my interest 

is they are notorious proliferators. So in addition to perfecting a 

fifth generation aircraft, you can expect them to try and sell a fifth 

generation aircraft. And that will intrude on the international aircraft market to their benefit. So they steal stuff, they build something and they proliferate it and they do it for money, or they will 

buy their way in. And they are very good at that. 

Mr. ROHRABACHER. Mr. Segal? 

Mr. SEGAL. Clearly in aerospace and avionics the joint ventures 

are probably not going to be good for U.S. national or economic security interests. But I think in a range of other economic sectors 

companies have moved away from the joint venture model because 

of the technology transfer reason. They have moved to wholly foreign-owned ventures and not wanting to partner for this technology 

transfer reason. And they themselves have become gradually over 

time more sophisticated in breaking up technology into specific 

components and making sure that the most advanced components 

do not go into China. But I think for national security reasons 

there are certain sectors that do. 

Mr. ROHRABACHER. Of course, it is not necessarily what goes into 

China physically, but——

Mr. SEGAL. Yes. 

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Mr. ROHRABACHER [continuing]. Perhaps what the Chinese can 

hack into and bring the plans over. 

Mr. Fisher, you had something you wanted to add? 

Mr. FISHER. ...is important as well, because in my opinion, at 

least what some Chinese sources have told me, they have their own 

F–35 program as well. A lower cost fighter, fifth generation fighter 

that, as Mr. Timperlake mentioned, will be on the market probably 

within the decade. 

Mr. ROHRABACHER. And is that based on our research and development, Mr. Timperlake? 

Mr. TIMPERLAKE. It is an important point. What I found in my 

research is that the Chinese acquisition system which we still are 

trying to figure out, we have trouble with our own of course, is develop, develop, steal, develop, steal, buy, develop; whatever. But 

what happens is they go dark for a period 5 to 7 years so they can 

surprise you. 

And if they laid out the J–20 as more a surprise then anything, 

what is next, and what is next is cascading in from the great spy 

cases of the ’90s and those cyber intrusion to this day. So, there 

are surprises still coming in their perfection of technology. 

Mr. ROHRABACHER. We have a major economic challenge before 

us. And I would suggest that from the testimony we hear today a 

considerable amount of that challenge can be traced to the fact that 

we now have permitted in wealth in the form of research and technology development to be stolen or just transferred to a competitor. 

Yes, Pat? 

Mr. CHOATE. The problem really extends across our advanced 

technology trades. Department of Commerce does an analysis. We 

are running an $80-billion-a-year deficit in advanced technology 

trade. The largest part of that deficit is now with China. 

I think that what we have to be leery about is that the Chinese 

on certain technologies, once they gain control of those, they will 

use that as they have their control of 90 percent of the world’s rare 

earths as strategic leverage, foreign policy leverage. Our risk is 

that we become totally dependent upon China or the countries immediately around China, in the China sphere those ten countries 

for certain of our most vital technologies. And we are well on the 

way of having such a dependency. 

Mr. ROHRABACHER. Well, let me just note that we are going to 

break in a few minutes. So, I am sorry, I apologize for that but this 

is the way it has worked out today. 

We face many challenges as a free people. One is how are we 

going to be prosperous and our people are going to have a decent 

standard of living. And number 2, of course, and which is probably 

the number one concern, is how are we going to make sure that 

we are safe from threats to our security and the safety of our people. And in both of these goals that should be primary goals of the 

Federal Government, the transfer of technology and the cyber theft 

of American technology is putting our ability to have a prosperous 

and have a safe American, it is putting that at risk. This is an 

issue that I am pretty happy this is one of the first things we covered in this subcommittee. We will be coming back to that and 

probably asking you gentlemen to return in a few months. But we 

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have broken the ground here. And we want to make sure that we 

have a national debate on where we draw the line. 

I would say the American people would be outraged to understand that tens of billions of dollars that have been taken from 

them in order for research and development in our country has 

ended up in the hands of an economic and military adversary like 

Communist China, which is also one of the world’s worst human 

rights abusers. 

So, if we are going to preserve the peace and we are going to 

have prosperity in America, we have got to come to grips with this 

challenge. 

I have got to come to grips because I have got 31⁄2 minutes left 

to vote. 

I would like to thank you all for testifying. 

This hearing is adjourned. 

[Whereupon, at 1:01 p.m., the subcommittee was adjourned.] 

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