Stephen McDonell reported this story on Wednesday, February 20, 2013 18:30:00

TIM PALMER: A secretive unit within the Chinese military has been accused of mounting large-scale cyber attacks on American companies. People's Liberation Army unit 61398 is said to be based in a drab-looking Shanghai tower block from where it collects company secrets using high-tech hacking methods.



The allegations, denied by the Chinese government, are creating considerable tension between Washington and Beijing.



China correspondent Stephen McDonell reports.



STEPHEN MCDONELL: In a pretty ordinary corner of Shanghai's Pudong district stands a rather drab-looking 12-storey building. The area is peppered with the usual bustling traffic whizzing past roadside restaurants. The location would seem anything but threatening. Yet, according to a United States cyber hacking firm, this building is home to People's Liberation Army unit 61398.



Mandiant specialises in helping American companies that have been victims of cyber attack and it says it has now traced the source of web-driven cyber espionage strikes on more than 140 companies to this unit within the Chinese military. The firm has just published a report claiming that attacks from this unit have mainly been designed to collect company secrets like the details of a potential takeover.



The Obama administration has expressed considerable concern following the findings of this report.

Victoria Nuland is spokesperson for the US state department.



VICTORIA NULAND: The president spoke about this very directly in his State of the Union address. We are working in interagency way, led by the White House, to strengthen the defence of US government networks and to protect our critical infrastructure such as the issuance of the president's new executive order.



STEPHEN MCDONELL: The US government says it's now arming American companies with better weapons to defend against industrial espionage emanating from China. According to White House spokesman Jay Carney, it's also complaining to Beijing.



JAY CARNEY: We have repeatedly raised our concerns at the highest levels about cyber theft with senior Chinese officials, including in the military and we will continue to do so. This is a very important challenge, it is one the president has been working on and urging Congress to take action on for quite some time and he'll continue to do that.



STEPHEN MCDONELL: But the Chinese military is denying the allegations. The People's Liberation Army says there is no widespread cyber espionage campaign coming out of unit 61398. The foreign ministry here in the Chinese capital has also countered that the United States remains the largest source of international hacking.



Foreign ministry spokesman Hong Lei told reporters that China is also a victim in this.



HONG LEI (translation): Internet hacking attacks are an international problem that should be resolved on the basis of mutual respect and cooperation. Continuous criticism based on basic data is irresponsible, unprofessional, and not helpful in resolving the issue.



STEPHEN MCDONELL: Australian intelligence agencies have also been warning companies of late to take greater care to guard against hacking. It seems cyber spying allegations are becoming an increasing source of tension between China and the West.



This is Stephen McDonell in Beijing for PM.