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U.S. Ambassador Baucus says China hacking threatens national security

By Michael Martina

BEIJING (Reuters) - Cyber theft of trade secrets by China is a threat to U.S. national security, U.S. Ambassador to China Max Baucus said on Wednesday in the first major public address of his tenure, warning that Washington would continue to pressure Beijing.

Baucus' remarks come as commercial ties between the world's two largest economies have been strained over cyber espionage charges and revelations by former National Security Agency contractor Edward Snowden of U.S. spying.

In May, Washington indicted five Chinese military officers for hacking U.S. companies, prompting Beijing to suspend a Sino-U.S. working group on cyber issues. It adamantly denies the charges.

Such behavior is criminal and runs counter to China's World Trade Organization commitments, Baucus told business leaders at an American Chamber of Commerce in China luncheon two weeks ahead of annual high-level bilateral talks in Beijing.

"Cyber-enabled theft of trade secrets by state actors in China has emerged as a major threat to our economic, and thus, national security," Baucus said.

"We won't sit idly by when a crime is committed in the real world. So why should we when it happens in cyber space?" he said. "We will continue to use diplomatic and legal means to make clear that this type of behavior must stop."

Tensions over cyber security rose in late 2012 after Washington banned Chinese communications equipment makers Huawei Technologies Co Ltd and ZTE Corp from building U.S. telecoms infrastructure.

Beijing responded by pressuring big state-owned firms to stop buying U.S.-made hardware, emphasizing security risks following Snowden's revelations, people in the industry said.

U.S. equipment and software providers such as IBM Corp and Cisco Systems Inc have already seen their China sales drop after the Snowden leaks.

INVESTMENT TREATY A PRIORITY

Like a string of ambassadors before him, Baucus, a former Montana senator who arrived in Beijing in March, has made it his immediate priority to boost the two countries' commercial and economic links. He has stressed that stronger economic ties will help resolve a host of thorny political and security challenges.

Baucus said a bilateral investment treaty would help China rebalance its economy by opening up its service industries to more foreign investment and that moving forward negotiations would be among his top priorities as ambassador.

"I believe that the U.S.-China bilateral investment treaty ... today could do for China's investment regime what the WTO accession did 15 years ago," Baucus said.

The investment treaty talks, which were launched in 2008, will likely be at the center of the Strategic & Economic Dialogue that will bring U.S. Secretary of State John Kerry and Treasury Secretary Jacob Lew to Beijing in July.

Disputes over cyber security topped the agenda at last year's meeting, initiated in 2008 to help manage a relationship that is growing more complex with China's emergence as major economic and military power. However, the annual talks have yielded few substantive agreements.

Lew has said he will push China to speed up economic reforms and do more to allow markets to determine the value of its yuan currency.

Washington's aim for the investment treaty is to loosen Beijing's restrictions in key sectors from service industries to agriculture, and ensure that foreign companies receive treatment equal to Chinese private and state-owned enterprises.

China heavily restricts dozens of industries and U.S. firms have long complained they are forced to meet unfair burdens such as ownership caps and are pressured to transfer technology in exchange for market access.

(Reporting by Michael Martina; Editing by Jeremy Laurence)

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