US-China spat over cyber espionage likely to hurt US tech firms

US technology companies might take the worst hit from the US-China spat over internet security, after five Chinese military officers were named by the US Department of Justice in cyber espionage.

US equipment and software providers such as IBM Corp and Cisco Systems Inc saw their China sales fall after revelations last year by former National Security Agency (NSA) contractor Edward Snowden the US had spied on foreign governments.

According to industry analysts, doing business in China could now get tougher, though there may be no obvious fallout for US businesses in the short run.

Reuters quoted James McGregor, chairman for advisory firm APCO China as saying the environment in China for US technology companies was not very good right now, and that the US action would not improve things. He added, however, that if China was losing their intellectual property to cyber hacking it probably would see the action as necessary and worrisome.

IBM's China sales are down by a fifth or more for three straight quarters, the Armonk, NY-based firm said in April, while Cisco said last week that its China business fell 8 per cent in the quarter to 26 April.

The report also quoted a person who worked closely with US technology firms as saying that there were always risks of retribution in China.

However, though Washington's move might complicate doing business with China, analysts discount a trade war or wider disruption of ties.

The move signals a bold tactical offensive by the Obama administration, which had long complained of alleged Chinese cyber theft but held back action, even as US companies counted billions of dollars in costs from the attacks.

China, meanwhile, vehemently denied the charges and told US ambassador Max Baucus on Tuesday that the case had "seriously harmed" the US-China relationship.

According to Kerry Brown, head of the University of Sydney's China Studies Center, who spoke to Voice of America, the dispute over hacking had become a significant irritant to bilateral ties. He expected the fallout to be limited, however.

He said, he thought it was going to be a contentious issue, but he did not think the issue would escalate to an all-out trade war or even beyond that an actual conflict over some of the other political issues.

China has so far only responded by pulling out of a regular discussion with the US on cyber theft, though Beijing had dropped hints of more moves in the offing.