Hackers Doing No Favors for China's Image

Katie Holliday I Writer CNBC Asia
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The recent hacking allegations against China puts another negative mark on the country's image and comes even as new leader Xi Jinping has repeatedly vowed to fight corruption.

Earlier in the week, U.S. computer security firm Mandiant issued a report that a group associated with the China's People's Liberation Army - suspected to be based in a 12-storey building near Shanghai - has stolen data from 141 global companies since 2006.

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No specific companies were named, but the report said it targeted industries ranging from IT, telecommunications, aerospace and energy.

"The most recent hacking attacks certainly don't lend themselves to strengthening the strained U.S.-China relations, especially as the two countries are at a standoff related to the audits of Chinese companies," said Brian Fox, founder of audit confirmation solution

Tension has been building up in recent months between the U.S. regulatory watchdog - the Public Company Accounting Oversight Board (PCAOB) - and Chinese authorities over inspecting the work of accounting firms that audit financial books of U.S. listed Chinese corporations, Reuters has reported.

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China has also come under scrutiny in recent weeks following a string of negative headlines, where various corporates have publicly voiced concerns about hacking from alleged Chinese sources.

Several media organizations and corporates, most recently technology giant Apple and social networking firm Facebook, have joined the tirade of accusations against China.

(Read More: Apple Hit by Malware That Affected a Small Number of Macs)

John Rice, chief executive officer of global growth and operations at General Electric, told CNBC Asia's "Squawk Box" on Wednesday that cyber attacks were a key concern for his company.

"We are really well protected but you can never let your guard down. It is getting harder to do that as the people who are doing it are getting more sophisticated. We get hacked on a regular basis and I think most companies do these days," he said.

(See Video: We Get Hacked All the Time)

Xi Jinping
Lintao Zhang

Unfair Perception?

Although some analysts argue the hacking allegations have exacerbated China's association with corruption, some industry commentators say China's image of a corrupt country is an unfair one.

"The hacking claims paint an unfair picture of China as a land of corruption and crooks," said Chris Fordham, managing partner of global accountancy firm Ernst & Young's Asia Pacific Fraud Investigation & Dispute Services.

"In fact there are far worse places than China in terms of corruption, if you look at the Transparency International's Corruption Perceptions Index, China is mid-table and there are many other countries that have worst corruption levels," he said.

According to the index, China is ranked 75th out of 182 countries.
However, a Transparency International poll found that over the past three years, 46 percent of people surveyed said corruption levels in China had increased. Business was considered the most corrupt sector, followed by the police, political parties and parliament.

Corruption Agenda

Fighting corruption is reported to be a high priority for the new Chinese government and recent measures including a crackdown on the culture of giving expensive gifts to government officials, have gone some way in helping the issue.

(Read More: Gift-Giving Crackdown Hits China Luxury Retailers)

China has also defended itself against the latest hacking allegations, saying the claims are "unfounded accusations based on preliminary results," and that "China resolutely opposes hacking actions and has established relevant laws and regulations, and taken strict law enforcement measures to defend against online hacking activities.''

But Mandiant CEO Kevin Mandia told CNBC on Tuesday that China's denial was weak.

(Read More: Chinese Hacking Defense 'Hard to Believe': Security Expert)

"China has a controlled internet access, everything people do on the internet is monitored there," Mandia said. "So it's hard to believe ... that the Chinese government does not notice thousands of attacks coming from a neighborhood that happens to be co-located with units 61398 [of the People's Liberation Army], it's hard to believe they don't notice."

However, Philip Chan, managing director of institutional sales at investing company Shenyin Wanguo Securities, said the hacking stories would be dismissed by most corporations as "market noise".

"The accusations, in the context of investment, are more related to 'noise'," said Chan. "We do not expect the new hacking claims to put new investors off for Chinese equities," he said.

Chan added that China's association with corruption was not an issue that can be eroded overnight.

"It will likely take at least the next 10 years before China's 'corruption' image can be dissipated. In my opinion, it will be very difficult to completely eradicate but this is no different to many emerging economies," he said.