US will not impose sanctions on Chinese firms before state visit by President Xi Jinping

The decision follows an all-night meeting on Friday in which senior US and Chinese officials reached “substantial agreement” on several key cybersecurity issues

PUBLISHED : Tuesday, 15 September, 2015, 2:25pm
UPDATED : Tuesday, 15 September, 2015, 2:25pm

The United States will not impose economic sanctions on Chinese businesses and individuals before the visit of China President Xi Jinping next week, a senior administration official said on Monday.

The decision followed an all-night meeting on Friday in which senior US and Chinese officials reached “substantial agreement” on several key cybersecurity issues, said the administration official, who spoke on the condition of anonymity because of the topic’s sensitivity.

The potential for sanctions in response to Chinese economic cyber espionage is not off the table, the official said. “But there is an agreement, and there are not going to be any sanctions” before Xi arrived, the official said.

The breakthrough averted what would have been a huge affront to the Chinese that would have overshadowed the meeting – and Xi’s first state visit.

“They came up with enough of a framework that the visit will proceed and this issue should not disrupt the visit,” the official said. “That was clearly [the Chinese] goal.”

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The agreement was reached during a visit by Xi’s special envoy, Meng Jianzhu, a member of the political bureau of the Communist Party Central Committee. According to China’s state-run Xinhua news agency, Meng met Secretary of State John Kerry, Homeland Security Secretary Jeh Johnson and national security adviser Susan Rice.

The sanctions would mark the first use of an order signed by President Barack Obama in April establishing the authority to freeze financial and property assets of individuals and entities overseas who engage in destructive attacks or commercial espionage in cyberspace.

It also enables officials to bar commercial transactions with the designated entities and individuals.

READ MORE: Details emerge of Xi Jinping's first state visit to US, but hopes for diplomatic breakthrough remain low

The administration has been developing a package of sanctions targeting companies in China that have benefited from the cybertheft of intellectual property from US corporations, officials have said.

Individuals that have conducted the cybertheft were also being considered, officials said.

Economic espionage conducted through cyberspace is a major problem for the US. China is by far the most active in that area, officials have said. Its hackers steal the corporate secrets of US industry that are then shared with Chinese companies to advance industry there, officials said.

READ MORE: Will they agree on anything? Xi and Obama have wide gaps to bridge at summit next month

Obama said on Friday, during a visit in the state of Maryland: “We’ve made very clear to the Chinese that there are certain practices that they’re engaging in that we know are emanating from China and are not acceptable.

“We can choose to make this an area of competition – which I guarantee you we’ll win if we have to – or, alternatively, we can come to an agreement in which we say, ‘This isn’t helping anybody. Let’s instead try to have some basic rules of the road in terms of how we operate’.”

The cybertheft issue is one of the most difficult in an already tense bilateral relationship, which includes China’s efforts to extend its sovereignty in the South China Sea and to devalue its currency in the face of its recent stock-market plunge.

The agreement reached on Friday did not solve the cybertheft issue with China, the official said.

“There are still big problems … The question is, after the visit and after [the UN General Assembly in late September], will they resort to their old ways? Or will there be, in fact, real progress?”