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The U.S. is on the Cusp of Taking Action against China for Cyber Espionage that Could Affect Apple and other Tech Firms

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In January Patently Apple posted a report titled "China has adopted new Rules that Could Require Apple to Build Back Doors into their Mobile Products." In the report we noted that "The Chinese government has adopted new regulations requiring companies that sell computer equipment to Chinese banks to turn over secret source code, submit to invasive audits and build so-called back doors into hardware and software, according to a copy of the rules obtained by foreign technology companies that do billions of dollars' worth of business in China."


In April, The New York Times did a follow-up report on this issue and noted that a letter from the Chinese Government was sent out to all banks to "suspend implementation" of the rules, which have been at the center of a brewing trade conflict between the United States and China. The rules, put into effect at the end of last year, called for companies that sell computer equipment to Chinese banks to turn over intellectual property and submit source code, in addition to other demands.


At stake is billions of dollars of business for major American companies that make the advanced computing hardware and software that crunches numbers for banks across China. Trade groups representing companies including Microsoft, IBM and Apple have complained that such policies are protectionist."


Now the suspension of China's new rules against America's largest tech companies like Apple could once again be back on the table and put into effect this time if the U.S. goes forth with their proposed actions including financial sanctions and criminal indictments against Chinese people and businesses.


The Daily Beast is reporting today that after months of passivity, the Obama administration is on the cusp of taking action against those that have engaged in hacking American companies, according to U.S. officials and Chinese analysts.


While indictments would only be symbolic as the accused would likely never see the inside of a U.S. Court, they would almost certainly be paired with economic sanctions. The report noted that China's espionage has stolen billions of dollars in trade secrets and intellectual property from companies in practically every sector of the American economy.


While Obama may engage China's President Xi Jingping later this week when visiting the White House, intelligence and law enforcement officials are generally in favor of aggressive action to punish and deter Chinese cyber espionage.


Asked if criminal indictments were in the pipeline, a Justice Department spokesman pointed The Daily Beast to comments by John Carlin, the assistant attorney general for national security, who last year promised that the U.S. would bring charges against Chinese hackers. At the time, Carlin was describing indictments the department had just announced against five Chinese military officers for their part in a cyber-espionage campaign against U.S. manufacturing companies. Carlin added that "We would not stand idly by as people hauled away our wealth in trucks. Likewise, we cannot allow it to be sucked out through the Internet."


Yet going down that road with any use of sanctions will draw a response from China, and outlined above, it's certainly to hit Apple. A serious hit by China's Government on Apple could certainly hit Apple's bottom line for 2016.


Samm Sacks, a China analyst at the Eurasia Group, told The Daily Beast that "The Chinese are likely to respond 'proportionally' to any U.S. penalties," by retaliating against specific companies in the tech sector. China has a big baseball bat it could bring to the table if the U.S. makes any real moves against them.


China's Ambassador Cui Tiankai is on record stating that "Both countries are the target of cyber-attacks, and "this means that China and the U.S. have every reason to conduct more communications and cooperation in this regard, instead of moving towards conflict and confrontation." For more on this, read the full Daily Beast report.


Yesterday we posted a report titled "TrendForce Thinks that the iPhone Revolution is coming to an End." While the iPhone story has many successful years ahead, despite the views of a single analyst, a nasty trade war with China could dampen the mood for Apple products with Chinese consumers very quickly. So there's a lot is riding on how the Obama administration handles this crisis in the coming weeks and months ahead.


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