How to steal a trillion

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Written Feb 19th 2013, 21:49 by G.F. | SEATTLE

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ON FEBRUARY 19th Mandiant, a security firm, released a report alleging that hackers from a Chinese military outfit known as Unit 61398 were probably behind attacks against more than a hundred companies and government agencies around the world. Without delving into the geopolitics of the the incident, involvement in which the Chinese authorities vehemently deny (and which we write about here), Babbage decided to examine what is known about the hackers' methods.

In fact, Mandiant's detailed account of a group it dubs APT1 (after the term Advanced Persistent Threat) will not strike internet-security wonks as particularly Earth-shattering. It reveals the use of well-known techniques coupled with publicly available software—though some proprietary software, apparently perfected over many years, was also used. What has turned heads is the duration of the attacks and the range of the group's "ecosystem" of remote-control software. This combination allowed the hackers to siphon terabytes, or trillions of bytes, of data from their victims.

APT1 tried hard to retrieve password-related information, often using common cracking tools. Before being stored a password is usually fed into an algorithm called a hash function. This converts it into an obscure string of symbols, or a "hash", that offers no clue as to the original input. The function is irreversible, so you cannot work back from a hash to the password. You can, however, run different words through a hash function and compare the resulting hash with the one stored. Many such "brute-force" attacks use large dictionaries of common and less common passwords. As a number of companies discovered last year, poor passwords make for easy pickings. Some clever tools actually let an attacker log into a system using the encrypted form of a password, dispensing with the need to crack it.

For all their sophistication, however, the hackers could display incredible insouciance. For example, APT1 registered domain names for some of its systems and used either a Shanghai mailing address or included an e-mail address tracked via a simple Google search to a Shanghai-based organisation. Remote-access sessions using a Microsoft tool nearly always originated from hacker machines using the simplified Chinese keyboard layout. Backdoor software included "path" information, revealing details about folder organisation on programmers' computers, as well as the date software was written.

The post-industrial future is nigh

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Written Feb 19th 2013, 5:27 by S.C. | HONG KONG

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CHINA is known for its industrial might. Manufacturers, miners, utilities and builders accounted for over 45% of China's GDP in 2012. In America, by contrast, they contributed less than 20%. Industry has long made an outsized contribution to China's output. This is true not only in comparison with post-industrial America. It is also the case when China is compared with other economies at a similar stage of development. According to calculations by Ejaz Ghani of the World Bank and Homi Kharas, now of the Brookings Institution, manufacturing's share of China's GDP was more than 18 percentage points above the global norm in 2005. Services, in contrast, were almost eight points below.

2013 may mark an interesting turning point. It may be the year that China's services sector officially eclipses industry. According to the national statistics, services (which include transport, wholesaling, retailing, hotels, catering, finance, real estate and scientific research, among other things) accounted for 44.6% of China's GDP in 2012. That is less than one point behind industry's 45.3%. And services are growing faster.

The surge in services may reflect the ongoing rebalancing of Chinese demand away from exports and towards consumption. The surge may also help to promote that rebalancing. Because services tend to be labour-intensive, their expansion should encourage faster job creation, higher wages and greater household spending.

China's statisticians struggle to count things they cannot drop on their foot. Given these statistical shortcomings, it takes a little temerity to suggest we can identify the precise year when services will overtake industry. But, hey, that's why I'm in journalism. I would note that, if anything, China's dodgy figures probably still understate the importance of services. After the 2004 economic census, for example, China revised up its estimate of services output by a whopping 48.7%! Statistics is one service China definitely needs to develop further.

Smog and mirrors in China

The original article is from http://www.economist.com
Written Feb 16th 2013 | SHANGHAI |From the print edition

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FU CHENGYU has global ambitions. In 2005 he led CNOOC, a state-run Chinese energy giant, to make an audacious takeover bid for Unocal, an American oil-and-gas firm. That provoked a protectionist backlash, and CNOOC retreated. (It has since won approval to buy Nexen, a Canadian energy firm.) In 2011 Mr Fu took over as boss of China Petroleum & Chemical Corp (Sinopec), another state-run outfit. He has tried to transform the domestically focused firm into an international oil giant.

Beijing is reeling from the worst smog on record, and the public’s mood is as foul as the air. China’s new leaders, ever wary of anything that might cause unrest, have promised to clean up the pollution quickly. Among their targets are the country’s antiquated, filthy oil refineries. Yet Mr Fu, when asked about the smog, harrumphed to Xinhua, an official news agency, that his refineries were not at fault. He blamed lax regulations. That prompted gales of derisive laughter online.

Sinopec is not like a Western oil firm. As an arm of the state (and a more powerful one than the environmental-protection ministry) it has a lot of say in writing its own rules. That is perhaps why in much of China regulations allow the sulphur content in petrol to be as high as 150 parts per million, whereas European standards cap it at 10 ppm. A pundit in the Shanghai Daily said his comments were “a massive public-relations disaster” and “highlighted a serious lack of responsibility”.

This row will hit Sinopec’s finances hard. They were already suffering because, unlike its Chinese peers, Sinopec is heavily exposed to refining. It owns half of the country’s refining capacity. The snag: Sinopec must buy crude at global prices but its refined petrol and diesel can be sold only at artificially low prices set by the government. The result is red ink (see chart).

Now Sinopec will be squeezed further. The ruling State Council announced earlier this month that it will unveil new standards for diesel in June and petrol in December that will cap the sulphur content at 10 ppm, to be implemented nationwide by 2017. Refiners must upgrade facilities, or else. Sinopec already spends a fortune maintaining and upgrading its refineries. Moody’s, a ratings agency, says it will need to spend an additional 30 billion-40 billion yuan ($4.8 billion-6.4 billion), most likely paid for by borrowing.

Sinopec to diversify away from refining and into exploration. To do so, Sinopec may need to go deeper into debt. That points to the third recent blow to Mr Fu’s credibility. This month Sinopec irked investors by unveiling a $3 billion share placement with a handful of parties that diluted the holdings of minority shareholders. The firm says the money will be used for “general corporate purposes”, whatever that means.

China's history in Myanmar

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Written Feb 11th 2013, 9:17 by J.J. | BEIJING

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THE border between Yunnan province and northern Myanmar (formerly Burma) has always been porous. To the people who live in the region, the border is a crooked mark on other people’s maps, an arbitrary boundary snaking its way 2,400 kilometres through rugged and wild terrain. The authorities in Beijing have seen the same land as a lawless borderland, a place to be controlled.

(Bypass a lot of history material here)

Subsequent Chinese governments would gain a modicum of control over Yunnan. But even into the 20th century local leaders maintained a high level of autonomy, and the frontier continued to harbour its share of fugitives and rebels. In the aftermath of the Communist victory in 1949, thousands of troops nominally loyal to Chiang Kai-shek fled into Burma and Thailand. Many continued the fight, supported with arms and money from Taiwan and the United States. Others joined criminal gangs, supporting themselves through poppies and piracy.

Today, as the governments of Burma and China expand their reach into the isolated valleys and hillsides of the Sino-Burmese frontier, local communities are finding it increasingly difficult to maintain their autonomy. The Chinese government sees this as a triumph for nation-building and the rule of law. The local people however have a longer memory. Over the past millennium they have been conquered many times, but never allowed themselves to be truly governed. Why start now?

The Big Four auditors - Accountable in China?

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Written Dec 8th 2012 | New York and Shanghai | from the print edition

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BUYING Autonomy, a British software company, once seemed like a good idea to Hewlett-Packard (HP). Western investors were once eager to buy into Chinese companies that had secured listings on American exchanges. Neither idea seems so hot now. Both these changes in sentiment raise awkward questions for the Big Four accounting firms: Deloitte, Ernst & Young, PwC and KPMG.

HP first. The computer giant announced last month that it was writing down the value of Autonomy by $8.8 billion, in part because of “accounting improprieties, misrepresentations and disclosure failures”. (Mike Lynch, Autonomy’s former boss, denies the charges and has set up a website demanding that HP detail its accusations.) With so few global auditors to choose from, a saga like this ends up sucking them all in. Deloitte was Autonomy’s auditor; Ernst & Young is Hewlett-Packard’s. KPMG provided advice on the deal. PwC has been hired by HP to sort through the mess.

If HP’s claims are true, Deloitte, Autonomy’s auditor, will be the one in the cross-hairs. If they are false, Ernst & Young, which will sign off HP’s huge write-down of Autonomy, will have a lot of explaining to do. HP says the third of the Big Four, KPMG, “audited” the deal; KPMG says it provided only a “limited set of non-audit-related services”.

The HP-Autonomy saga points to another feature of the Big Four’s business model. The quartet may market themselves as seamless global firms but in fact they are a string of legally independent local partnerships. That is why Britain’s Deloitte LLP can do things that would be forbidden for Deloitte LLP in America, despite their common membership in the Deloitte Touche Tohmatsu network.

For a while, Sino-American negotiations seemed to be making some progress on a compromise. A few months ago officials from PCAOB were allowed to observe their Chinese counterparts during a “trust-building” exercise. But a meeting between the two sides in November appears to have ended frostily, and the SEC hardened its position this week by declaring that “firms that conduct audits knowing they cannot comply with laws requiring access to these work papers face serious sanctions.” The PCAOB is expected to declare by year’s end that if a foreign auditor has not been inspected properly by American authorities, it will be deregistered.

If such a rule is upheld by courts and confirmed as policy, it would mean the Big Four’s affiliates in China could lose many multinationals as clients, as American laws require firms to use registered auditors. It might also force the exit of scores of Chinese firms listed in America. Perhaps in anticipation, China Development Bank, a state-run institution, has recently set aside more than $1 billion to help smaller firms leave American exchanges.

The Big Four claim that their global scale and multidisciplinary scope are good things. In one sense they are right. Consulting is the fastest-growing of the Big Four’s businesses; Asia, the zippiest of the regions they operate in. But the events of the past few weeks show there are perils, too, in trying to have the best of all worlds.

Time to choose

The original article is from http://www.economist.com
WrittenNov 17th 2012 | from the print edition

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The nature of elite political power has changed since the days of Mao Zedong. His word was law and he led China into chaos. After Mao, Deng Xiaoping saw that economic reform was China’s salvation. The next two generations of Chinese leaders—Jiang Zemin, the party chief from 1989 to 2002, and Mr Hu—continued economic reform but saw their own power decline as the influence of interest groups within the party grew. Mr Xi now inherits their problem. Leaders of state-owned enterprises, senior army figures and former leaders (including Mr Jiang and now Mr Hu) will all push their interests directly or through their proxies on China’s most powerful party body, the Politburo standing committee, which is now ruled more by consensus. Vested interests have become so entrenched that reform is hard. Are the new men up to the job?

The list of changes needed is a long one. The party must reduce the power of the state-owned enterprises, which hog credit and stifle the growth of private enterprise. It also needs to reform a financial system that shovels the savings of individuals towards the inefficient state sector. Building a welfare state has become an economic priority, as well as a social one. Politically, there are a growing number of voices, even within the party, saying that broader reform is needed. There is little sign of political change, even though control may be more sophisticated (see article).

Local government is a mess. As well as opening up the economy, Mr Xi needs to start reforming the Chinese state at the ground level: introducing more competition into the appointment of government officials; reforming the courts to break the party’s insistence that it stands above them and the rule of law; and privatising land as a way to boost productivity, empower farmers and curb local officials who enrich themselves by grabbing rural land to sell for development.

China- the picture of the enemy

The original article is from http://www.economist.com
Written Oct 1st 2012, 4:18 by N.D. | SHANGHAI

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There is an established interplay between popular culture and the politics of Sino-Japanese relations. Japan’s inability to issue sufficient apology for its aggressions in the second world war—as compared with Germany’s good example, say—or to pay reparations to its victims, is perpetually offensive to China. Key moments of imperialist aggression, such as the Nanjing massacre, are revisited endlessly in  Chinese television, films, radio dramas and novels, with a patriotic zeal. State media puffs up the resentment, as it is doing so with the current fisticuffs over the Diaoyu (or Senkaku) islands.

 In the decades following the second Sino-Japanese war (1937-1945), when China’s wounds were still smarting, anti-Japan feeling barely registered in the official propaganda. In the history textbooks of the 1950s, 60s and 70s, Japanese aggression was consigned to a few sentences, written in simple, dry language. In the 1980s the tone changed. “The government found nationalism to be a politically useful tool to rally support to a regime in crisis,” says Yinan He, an expert on Sino-Japanese relations who is based in America.

Chinese people’s attitude towards history is a serious problem, according to Mr Lu. “We always say that we have thousands of years of history, and we are proud of this”, he says. “But we destroyed all the records, pulled down the buildings, and buried the truth.” He adds that people took issue with “City of Life and Death” because it went against their history lessons. Though his film was pulled early from cinemas, Mr Lu felt satisfied to see people talking about the issue.”