Obama's Impact on Chinese Hacking 'Limited,' Huntsman Says

The stepped-up government negotiations on cyberhacking that President Barack Obama will open with Chinese President Xi Jinping this week can have only "limited" impact on China's conduct, says his former ambassador to China, Jon Huntsman.

The hacking, which harms U.S. national security and costs businesses hundreds of billions of dollars, stems from both government and business activity in China, much of it at the local level, Huntsman said in an interview.

While the U.S. government and businesses both need to protect themselves more aggressively, he added, the most important progress will come over time as China moves up the innovation quality ladder and finds protection of intellectual property is in its own interests, too.

"You can create red lines, boundaries that are set," he said in the New York interview. "The longer-term play is going to be on engaging this entrepreneurial society that's coming in China. They're coming up very quickly. They want to have name-brand, respected entities, they want to go global, they want to come to the United States."

"If you carry that image and reputation as being a rip-off artist, that's going to hobble you in the marketplace. They're going to be ripped off, too."

Huntsman carries one of the most distinctive resumes in American politics. The fluent Mandarin speaker served as the Republican governor of Utah before Obama tapped him to become ambassador in Beijing in 2009.

(Read More: China's Strength Could Become Its Weakness)

Later, Huntsman resigned to challenge Obama's re-election as an unsuccessful candidate for the 2012 Republican presidential nomination. He's considering another presidential bid in 2016.

Huntsman called this week's informal summit in southern California a unique opportunity for Obama to shape his relationship with the "sophisticated, confident" President Xi.

"He's somebody who gets the whole economic side, understands investment and trade and what it takes to make a marketplace work," Huntsman said of the new Chinese leader. Among his goals:"Figure out a role for the Internet in society. You can't block it and expect China to become an innovative and prosperous country longer-term."

Getty Images

Jon Huntsman, former U.S. Ambassador to China and onetime GOP presidential hopeful, makes an appearance during the 2012 campaign.

Cybersecurity will move to the top-tier of key concerns in that relationship, alongside instability on the Korean peninsula. Questions about the value of China's currency—long a complaint of American politicians who said it was held down to improve Beijing's export power—have receded.

"Currency was always a temporary and fleeting kind of issue, because they're appreciating 3 percent per year when you're factoring in inflation," Huntsman said. "They're going to have to wind up at a destination for their own purposes,so it's a nonsensical conversation."

"Cyber, on the other hand, is real—and it's a big dollar volume that we're losing out on as a country. I would guess it would come up as the premier economic issue that would be infused into the dialogue."

Nor should Americans be overly worried, Huntsman added, about a Chinese conglomerate's purchase of the iconic American ham company Smithfield Foods. Though the deal should be vetted for any threat to U.S. interests, he explained, it and others like it, could help lift the conduct of Chinese firms to U.S. standards.

(Read More: Chinese Purchase of Smithfield Unlikely to Sway Bacon Buyers)

"We're part of a global economy, and we need to accept that fact," he said. For the Chinese, "the sensitivity will be if America is going to accept its investment, or if it's going to respond like it did 20 years ago with Japanese investment, which would cause a breakdown of our entire economic relationship."

"But here's the other part: they're going to have to clean up their act as well—whether its IP theft, market access, greater transparency in corporate governance," he said. "They're going to have to look a whole lot different as entities as they enter the U.S. market,and that's a good thing. Let the reviews occur on the downside risk, but let's not forget that there's an upside, too."

(Read More: Cyberthreats Are the New Cold War, Expert Says)

Huntsman said the U.S.-China relationship "has come farther, faster" than any in the world, citing the two nations' current $500 billion in trade, up from none 40 years ago. But while cooperation on security issues such as Iran and North Korea has improved, "We don't have enough trust in the relationship" to develop specific contingency plans for potential crises.

"It's not the confrontation that I worry about—that's way overblown," Huntsman said. "What concerns them is the same thing that concerns us, and that is an implosion on the Korean peninsula by a crazy leader that unleashes uncertainty in a region that is now close to being 20 percent of the world's GDP."

In U.S. politics, Huntsman has begun urging the Republican Party to ramp up its focus on identifying new policies to enhance economic growth and on seeking compromise with Democratic adversaries in Washington.

"Scandal-mongering, however serious these issues are, is not a strategy," Huntsman said. "All of the things that will kind of bring this nation back on its feet, that's what Americans want to see and hear about. They want to know their country works and that their country is relevant, and sometimes that conversation isn't seen enough on Capitol Hill."

"Republicans need to be seen as problem-solvers," he added. "You have to compromise. So long as compromise is seen as something analogous to treason, we will lose."

Huntsman pointed to overhauling the tax code by phasing out loopholes and deductions as "a way to move forward, clean up the tax code, make us more competitive, broaden the base, lower the rate and leave this nation with a much more competitive code." By promoting that and other ideas, such as achieving energy independence, he said he'll learn whether another White House bid is worth the effort.

(Read More: US, China Agree to Hold Regular Talks on Hacking)

"I think this cycle will be driven by ideas, and less by personalities," he said. "The next two years will really tell that story. I'm ready and willing and prepared to serve."

"But the ideas will drive that or not. If you find early on that people just really don't like your ideas, why waste your time?"

—By CNBC's John Harwood. Follow him on Twitter @JohnJHarwood.