Welcome to the LEHMAN, LEE & XU Firm’s “Corporate Governance in China” newsletter, June 7, 2013 edition. |
LEHMAN, LEE & XU China Lawyers |
China Corporate Governance News |
June 2013 |
The China Corporate Governance News keeps you on top of business, economic and political events in the China. |
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In the News |
China tapped Google server secrets |
Chinese hackers who breached Google’s servers several years ago gained access to a sensitive database with years’ worth of information about U.S. surveillance targets, according to current and former government officials. The breach appears to have been aimed at unearthing the identities of Chinese intelligence operatives in the United States who may have been under surveillance by American law enforcement agencies. It’s unclear how much the hackers were able to discover. But former U.S. officials familiar with the breach said the Chinese stood to gain valuable intelligence. The database included information about court orders authorizing surveillance — orders that could have signaled active espionage investigations into Chinese agents who maintained email accounts through Google’s Gmail service. “Knowing that you were subjects of an investigation allows them to take steps to destroy information, get people out of the country,” said one former official. The official said the Chinese could also have sought to deceive U.S. intelligence officials by conveying false or misleading information. Although Google disclosed an intrusion by Chinese hackers in 2010, it made no reference to the breach of the database with information on court orders. That breach prompted deep concerns in Washington and led to a heated, months-long dispute between Google and the FBI and Justice Department over whether the FBI could access technical logs and other information about the breach, according to the officials. Google declined to comment for this article, as did the FBI. Last month, a senior Microsoft official suggested that Chinese hackers had targeted the company’s servers about the same time Google’s system was compromised. The official said Microsoft concluded that whoever was behind the breach was seeking to identify accounts that had been tagged for surveillance by U.S. national security and law enforcement agencies. “What we found was the attackers were actually looking for the accounts that we had lawful wiretap orders on,” said David Aucsmith, senior director of Microsoft’s Institute for Advanced Technology in Governments.”If you think about this, this is brilliant counterintelligence,” he said. “You have two choices: If you want to find out if your agents, if you will, have been discovered, you can try to break into the FBI to find out that way. Presumably that’s difficult. Or you can break into the people that the courts have served paper on and see if you can find it that way. That’s essentially what we think they were trolling for, at least in our case.” The U.S. government has been concerned about Chinese hacking since at least the early 2000s, when network intrusions were discovered at U.S. energy labs and defense contractors. The Chinese, according to government, academic and industry analysts, have stolen massive volumes of data from companies in sectors including defense, technology, aerospace, and oil and gas. Gen. Keith Alexander, the director of the National Security Agency, has referred to the theft of proprietary data as the “greatest transfer of wealth in history.” The Chinese emphatically deny they are engaged in hacking into U.S. computer systems and have said that many intrusions into their own networks emanate from servers in the United States. Experts said an elaborate network of interconnected routers and servers can make the Internet tailor-made for the shadowy work of spying and counter spying. It stands to reason, they said, that adversaries would be interested in finding vulnerabilities in the networks of the companies that authorize surveillance on behalf of the government. “It is an absolute rule of thumb that the best counterintelligence tool isn’t defensive — it’s offensive. It’s penetrating the other service,” said Michael Hayden, a former director of the National Security Agency and the CIA, who said he had no knowledge of the incidents. Hacking into a surveillance database, he said, “is a form of that.” Google’s crisis began in December 2009, when, several former government officials said, the firm discovered that Chinese hackers had penetrated its corporate networks through “spear phishing” — a technique in which an employee was effectively deceived into clicking a bogus link that downloads a malicious program. The hackers had been rooting around inside Google’s servers for at least a year. Alarmed by the scope and audacity of the breach, the company went public with the news in January 2010, becoming the first U.S. firm to voluntarily disclose an intrusion that originated in China. In a blog post, Google chief legal officer David Drummond said hackers stole the source code that powers Google’s vaunted search engine and also targeted the email accounts of activists critical of China’s human rights abuses. As Google was responding to the breach, its technicians made another startling discovery: Its database with years’ worth of information on surveillance orders had been hacked. The database included data on thousands of orders issued by judges around the country to law enforcement agents seeking to monitor suspects’ emails. The most sensitive orders, however, came from a federal court that approves surveillance on foreign targets such as spies, diplomats, suspected terrorists and agents of other governments. Those orders, issued under the Foreign Intelligence Surveillance Act, are classified. Michael DuBose, former chief of the Justice Department’s Computer Crime and Intellectual Property Section, declined to comment on either the Microsoft or Google case. But, he said, in general such intrusions serve as “a wake-up call for the government that the overall security and effectiveness of lawful interception and undercover operations is dependent in large part on security standards in the private sector. “Those,” he said, “clearly need strengthening.” Source : The Japan Times News
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Corporate governance in China |
(MENAFN - Khaleej Times) China's economy has, over the last three decades, staged the strongest growth over any given period in history, as the country moved away from a purely state-owned, centrally-planned economic system to one where foreign capital and private enterprises are allowed. http://menafn.com/qn_news_story_s.aspx?storyid=1093293426
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Further banking reforms |
The banking sector occupies a key position in China's financial system. The capital market in China is relatively underdeveloped and the banking system is the main source of domestic financing. The banking sector influences economic growth, poverty alleviation and the allocation of assets, hence it is critical to identify policies that encourage efficient bank operations. The remarkable progress that China's banking industry has made in the last several decades has attracted a lot of attention around the world. The government has transformed the banking sector from a centralized and government-owned system to a more commercially driven system. The recapitalization and equitization of the four biggest wholly State-owned banks, namely the Bank of China, China Construction Bank, the Industrial and Commercial Bank of China and the Agricultural Bank of China, was one of the most recent and significant steps in moving bank restructuring forward. More importantly, the regulatory authorities have put more effort into regulating corporate governance according to international standards. Many measures have also been taken to increase foreigners' access to the banking sector, such as subsidiaries and ownership of banks. By allowing foreigners to access the domestic market, a greater supply of aggregate bank credit has been provided to domestic borrowers, which has helped firms with financial constraints, although only a certain type of borrower has benefited. Foreign competition has also helped domestic banks to run more efficiently. However, the domestic private ownership share of banks in China is rather low. There are various reasons for this. One explanation is China's judicial system is less efficient and the protection of private property is weaker than in Western countries. Thus many of China's domestic private firms are more short-term oriented. It is generally agreed that short-termism is associated with greater risk and this affects both corporate governance and asset allocation. Higher risk preference and the low quality of many domestic private firms' corporate governance have made China's banking industry regulators more reluctant to issue approval to open a private bank or a new branch. China's foreign ownership share is not high either. Although China's financial openness is increasing, so far foreign bank entry still remains at a relatively low level. The percentage of bank assets at foreign-owned banks in China is still below 4 percent. China's economy is still in the process of transition and there is ample evidence that foreign banks are more efficient than domestic banks in transition economies. Why is the foreign banks' ownership share still low after China joined the World Trade Organization? People in Western countries like to complain about unfair or inappropriate competition in China's banking sector. They argue the capital requirements are a de-facto barrier to entry and so foreign ownership has been effectively limited. Other complaints include overly restrictive requirements for a foreign bank to offer financial services in renminbi and a very slow and cumbersome process for obtaining approval to open a new bank or branch. Some claim that without the preferential treatment offered by the Chinese government, most of the State-owned commercial banks would have no competitive advantage over their foreign counterparts in China's financial markets. Whether these claims are true or not is hard to test. But no one is able to deny that problems, though hidden, still exist in China's State-owned commercial banks. Although their profitability is increasing, there is a likelihood of a sharp rise in nonperforming loans if there is a big drop in housing prices or a wave of local government debt defaults. Besides, underground banking has been flourishing and hidden exposure has been accumulated, which is also likely to give rise to nonperforming loans in the banking industry. To facilitate risk management and to mobilize resources, the ownership arrangements of China's banking industry should be broadened to introduce more competition. A higher degree of openness to both domestic and foreign investors is needed. Moreover, given the global trend, China's regulatory system should move toward supervision and away from regulation. http://www.china.org.cn/opinion/2013-06/05/content_29033110.htm |
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