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FBI confidential

By Peter Navarro
web posted June 23, 2008

According to a leaked secret FBI document, Chinese counterfeiters have sold close to $75 million of fake Cisco Systems routers to the U.S. military. While this revelation has been largely ignored by the mainstream media, it raises troubling questions about both the integrity of U.S. defense cyber networks and the possible motives of a foreign government with a long rap sheet for military espionage and cyber hacking.

Routers are specialized computers that provide the virtual "pipes" to move millions of information packets through the world wide web, and it's no accident that China is counterfeiting Cisco designs. Cisco not only holds about 80% of the world's router market. It also outsources a significant share of its router production to China. Of course, once an American company outsources to China, the likelihood that its technology will be stolen and then reproduced for sale into world markets is extraordinarily high.

In fact, China is the counterfeit capital of the world. It accounts for two thirds of all the world's pirated and counterfeited goods and fully 80% of all counterfeit goods seized at U.S. borders. The long list of purloined products includes everything from auto parts, baby food, and cigarettes to prescription drugs like Viagra and Lipitor and high tech equipment like routers and switches.

In each case, Chinese counterfeit products pose significant health and safety risks. For example, fake Viagra jazzed with strychnine or "Lipitor" with no active ingredients can both cause heart attacks. Counterfeit brake pads made from inferior materials can lead to deadly crashes. Cigarettes laced with cadmium and lead make one of the most efficient killers in the world even more deadly.

In this particular case, one obvious danger with America's national cyber defense system being run through fake inferior routers is system failure at critical junctures. However, the more subtle - and far more disturbing - problem identified by the FBI is this: At least some of China's fake routers may be specially designed to provide Chinese hackers with undetectable "back doors" into the highest echelons of classified information throughout the defense department bureaucracy. That this possibility is closer to science fact than science fiction is bolstered by the work of scientists from the University of Illinois who recently demonstrated how it is possible to alter a computer chip to provide such undetectable access.

This specter of a virtual Chinese Trojan Horse deep in the bowels of the Pentagon raises an even bigger question, likewise posed by the FBI report: Are China's sales of fake Internet equipment to America's defense industry driven purely by the profit-seeking of rogue Chinese entrepreneurs?

Alternatively, are these sales the result of state-sponsored cyber-terrorism specifically designed to penetrate U.S. defenses - and perhaps disable those defenses in time of conflict?

In support of the profit motive, there is this salient fact: According to FBI data, a typical router made by Cisco costs about $1400 to make while the inferior counterfeit can be knocked off for a little over $200. That allows for a bigger mark-up than even drug trafficking - which is why counterfeiting is such big business in China. That said, anybody who believes that China's counterfeiters "come in peace" merely to make a quick buck needs to read some of the strategic tomes on cyber warfare generated by China's military think tanks.

Exhibit A in the state-sponsored terrorism case is the work of Chinese Air Force Colonels Qiao Ling and Wang Xiangsui. They have written that "the first rule of unrestricted warfare is that there are no rules, with nothing forbidden." They go on to describe a scenario in which China "buries a computer virus and hacker detachment in the opponent's computer system . so that the civilian electricity network, traffic dispatching network, financial transactions network, telephone communications network, and mass media network are completely paralyzed." Their overriding goal is to "cause the enemy nation to fall into social panic, street riots, and a political crisis."

These are sobering dangers indeed, particularly in light of how easy it seems to be to dupe even America's defense establishment into buying counterfeit goods. But what is ultimately so disturbing about all of this may well be how little attention either our government or the American people or the American media seem to want to pay to America's growing China threat. ESR

Peter Navarro is a business professor at the University of California-Irvine, a CNBC contributor, and author of The Coming China Wars. For more information, please visit http://www.comingchinawars.com.






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