U.S.-China Economic and Security Review Commission, "Hearing on Commercial Cyber Espionage and Barriers to Digital Trade in China (Webcast)," June 15, 2015

Monday, June 15, 2015
Dirksen Senate Office Building Room 608
Washington, DC

Hearing Co-Chairs: Commissioner Carte P. Goodwin and Vice Chairman Dennis Shea

OPENING STATEMENT OF VICE CHAIRMAN DENNIS C. SHEA

Well, good morning, everyone, and thank you for being here today. Before I go any further, I'd like to thank Senate Budget Committee Chairman Mike Enzi for the use of this hearing room and also thank the staff of the Senate Budget Committee for helping make this possible.

This morning's hearing is the last of seven in our 2015 Annual Report cycle. We have an excellent line-up of witnesses on a very important and I must say timely topic. Our hearing today concerns cyber espionage and barriers to digital trade in China.

I thank the witnesses for their written testimony submitted in advance for the record and now posted on our Web site at uscc.gov. Only two months ago President Obama declared a national emergency as a result of the quote, "increasing prevalence and severity of malicious cyber-enabled" attacks that "constitute an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States."

And only two weeks ago the nation learned that an attack on the Office of Personnel Management resulted in the theft of the personal information of four million current and former federal workers and retirees. Especially worrisome is the fact that the attackers apparently obtained the records of federal workers who have received security clearances from the OPM, which conducts about 80 percent of the security investigations and clearances for the federal workforce.

This intrusion indicates a high degree of planning and sophistication. It followed a pattern that has become all too familiar: the use of zero-day malware that eluded commercial anti-spyware detection and servers or routing indicators located in China. And, of course, the standard denials from the government in Beijing that it does not conduct espionage on the United States because that would be illegal.

I would like to ask the panelists to please keep to our seven-minute rule, seven minutes to summarize your written testimony. This provides us the time for an in-depth question and answer period--and we're not bashful about asking questions--and for discussion and debate among the panelists.

Now, I would like to introduce my co-chair, Commissioner Carte Goodwin, who will also introduce the first panel.

OPENING STATEMENT OF COMMISSIONER CARTE P. GOODWIN

Thank you, Chairman Shea.

Our first panel today will examine a disturbing trend in which the Chinese government uses standards and regulations and even censorship to create regulatory barriers to U.S. tech companies seeking to enter the Chinese marketplace.

This propensity to use regulations as a means to diminish competition unfortunately is not new. Indeed, much of this Commission's time since its creation in 2001 has been spent studying and documenting the ways in which Chinese government seeks to attract foreign investment, especially from the United States, and then spends years favoring domestic companies over their U.S. counterparts while simultaneously refusing to protect intellectual property of U.S. companies from piracy and counterfeiting.

This, of course, is especially pronounced in the information and communications tech sector. Recently the government in Beijing has proposed a series of regulatory provisions that would require U.S. tech companies and their foreign customers, especially financial institutions and banks, to turn over source code and encryption software, effectively creating backdoor entry points into otherwise secure networks, all being done, of course, under the guise of cybersecurity.

Panel I:  Barriers to Digital Trade and Costs to U.S. Firms
Samm Sacks, China Analyst, Eurasia Group, Washington, DC
Matthew Schruers, Vice President for Law & Policy, Computer & Communications Industry Association (CCIA), Washington, DC

Panel II: Commercial Cyber Espionage  
Paul M. Tiao, Partner, Hunton & Williams, Washington, DC
Dennis F. Poindexter, author of The Chinese Information War, Espionage, Cyberwar, Communications Control and Related Threats to United States Interests, Virginia
Jen Weedon, Manager, Threat Intelligence and Strategic Analysis, FireEye and Mandiant, Inc., Washington, DC

See a video of the hearing at: http://www.uscc.gov/Hearings/hearing-commercial-cyber-espionage-and-barriers-digital-trade-china-webcast