The United States is locked in a tight race with China and Russia to build destructive cyberweapons capable of seriously damaging other nations’ critical infrastructure, according to a leading expert on hostilities waged via the Internet.

Scott Borg, CEO of the U.S. Cyber Consequences Unit, a nonprofit institute that advises the U.S. government and businesses on cybersecurity, said all three nations have built arsenals of sophisticated computer viruses, worms, Trojan horses and other tools that place them atop the rest of the world in the ability to inflict serious damage on one another, or lesser powers.

Ranked just below the Big Three, he said, are four U.S. allies: Great Britain, Germany, Israel and perhaps Taiwan.

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But in testament to the uncertain risk/reward ratio in cyberwarfare, Iran has used attacks on its nuclear program to bolster its offensive capabilities and is now developing its own "cyberarmy," Borg said.

Borg offered his assessment of the current state of cyberwar capabilities Tuesday in the wake of a report by the American computer security company Mandiant linking hacking attacks and cyber espionage against the U.S. to a sophisticated Chinese group known as “Peoples Liberation Army Unit 61398.

In today’s brave new interconnected world, hackers who can defeat security defenses are capable of disrupting an array of critical services, including delivery of water, electricity and heat, or bringing transportation to a grinding halt. U.S. senators last year received a closed-door briefing at which experts demonstrated how a power company employee could take down the New York City electrical grid by clicking on a single email attachment, the New York Times reported.

U.S. officials rarely discuss offensive capability when discussing cyberwar, though several privately told NBC News recently that the U.S. could "shut down" the electrical grid of a smaller nation -- Iran, for example – if it chose to do so.

Borg echoed that assessment, saying the U.S. cyberwarriors, who work within the National Security Agency, are “very good across the board. … There is a formidable capability.”

“Stuxnet and Flame (malware used to disrupt and gather intelligence on Iran's nuclear program) are demonstrations of that,” he said. “… (The U.S.) could shut down most critical infrastructure in potential adversaries relatively quickly.”

China, Russia have different priorities
Borg said China and Russia have similar capacity to cause mayhem, but have different priorities and skill sets.

“Russia is best at military espionage and operations,” he said. “That's what they have focused on for a long time. China is looking for crucial business information and technology. China's main focus is stealing technology. These things quite separate. You use different tools on critical infrastructure than you use for military espionage and different tools again on stealing technology."

Borg said that each has its strong suit. "The Russians are technically advanced. The Chinese just have more people dedicated to the effort, by a wide margin,” he said. “They are not as innovative or creative as the U.S. and Russia. China has the greatest quantity, if not quality."

Borg said the group featured in Mandiant’s report, the People’s Liberation Army Unit 61398, may be one of the most important groups working in China, but not necessarily the most important.

"There are at least two dozen groups carrying out aggressive operations against the U.S.,” he said. “They get in each other’s way and trip over one another, but they are all operating with the tacit approval of the Chinese government.

"They're not cooperating with each other because they don’t share capabilities," he added. "One group has good programming, but is bad at access or targeting." 

The Chinese hacking efforts are so broad, Borg said, that the highest-ranking Chinese officials “almost certainly do not know what all the groups are doing,” or the consequences. As a result, he added, they have been embarrassed by reports like the one in Tuesday’s New York Times, which first reported on the Mandiant assessment.

China is the most likely of the superpowers to leave a calling card, making their work the easiest to track. "China is very arrogant in its authorship of cyberweapons,” Borg said. “It does little to conceal its identity."

That’s in sharp contrast to the Russians, who he noted are not above writing code in Chinese to throw off investigators.

While the U.S. could respond to ongoing cyberattacks from China and Russia by shutting down the power grid of "any of its adversaries” and causing severe physical damage, Borg said it is encumbered by several factors.

One is its vulnerability to cyberwarfare as the world’s most networked nation, he said.

And from a geopolitical standpoint, Borg said, the U.S. would not want to badly damage the economy of either China or Russia. In fact, he said, the U.S. would almost certainly have to incorporate protections for critical systems like the power grid in any cyberattack.

Also, detecting the source of hostilities is not always easy, Borg said, as cybertracks are not as easy to follow as missile tracks. That means “mutually assured destruction,” the main strategic tenet of the Cold War, is problematic at best when talking about cyberwar, he said.

"It might be difficult to determine proportionate response,” he said. “It might not be simple to attack the attacker.”

For example, policymakers may think an attack has been carried out by the Chinese, when it was actually the work of the Russians or a rising power in the cyber world, like Iran. That is why intelligence -- getting insight into these operations -- is more important in a crisis than cyberforensics, which can take longer and not be as certain.

"There is no MAD in the Cold War sense," he said, "You can’t be 'assured' of attribution. The attack can be anonymous. It can be spoofed," or disguised as coming from another source. 

Iran developing 'serious capability'
The U.S. first began to develop its own offensive capabilities 20 years ago when several strategic thinkers, particularly at the Naval Post-Graduate School, began to see the possibilities. It was not so much a strategic priority, but more "people familiar with electronics and hackers exercising their imagination." (Borg says one of those thinkers, Winn Schwartau, used fiction to discuss the threat and the possibilities, in a 1991 book, "Terminal Compromise.")

While the U.S. has the means to respond and to defend itself, Borg notes that some countries have no recourse. He cited the Russian invasion of the Republic of Georgia in August 2008, when the Georgian government and media infrastructure was quickly compromised.

What was particularly interesting, Borg said, was that the Russian military and intelligence services weren’t directly involved.

"The first wave was carried by organized crime," he noted. "The second wave was carried out by a (hacker) group organized though social media.” He said Russian hackers could download the attack software from a variety of popular sites, including dating and gun-collecting websites.

In both cases, Borg concluded, the organizers apparently were tipped off early about the timing of Russian military operations, he said.

The attack on Georgia also illustrated another aspect of cyberwarfare, Borg said, noting that Georgia, Estonia and Lithuania afterward formed a cyberalliance, leaving them in a better position to deal with future assaults.

That also appears to be the case with Iran, which recently announced that it decided to establish cyber army and claimed to have 4,000 to 5,000 military personnel involved in defensive and offensive operations. That isn’t all bluster, Borg said, noting that when the U.S. leveled new sanctions on Iranian banks last year, U.S. banks suddenly came under attack.

"Iran is developing a serious capability," said Borg. “It's exaggerating the present capabilities, but it’s working toward the future."

That’s especially troubling because the risk of smaller nations waging cyberwar against one other may be higher than with the online superpowers, he said.

He cited reports indicating that Iran may have been behind what he called one of the more serious cyberattacks to date -- an assault last August on the Saudi Aramco computer network that disabled more than 30,000 computers used to control the flow of Saudi oil. The Saudi Interior Ministry blamed "foreign countries" for the attack.

Borg said he believes the attack was an "Iranian fundamentalist attack ... at some point loosely the under auspices of Iran, and blessed by Iran. The fundamentalist group made a claim of responsibility. ... “Based on technical analysis, the claim has credibility."

For that reason, Borg says he is less worried about the possibility of China or Russia launching a catastrophic attack against the U.S. than he is about the emerging cyberpowers.

“What I’m really concerned about isn’t Russia or China, but attacks from Iran or terrorist groups working with state actors,” he said.

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BEIJING – On the heels of her second gold medal performance, China’s state media have come to the defense of Chinese swimmer, Ye Shiwen, ending their relative silence on the doping allegations that have plagued the young female swimmer since her recording-breaking performance last weekend.

On Saturday night, the 16-year-old Ye demolished the world record in the 400 individual medley, coming from behind to win gold in 4:28.43. Besides swimming that race nearly seven seconds faster than her winning performance at the FINA World Championships in Shanghai last year, she also incredibly outpaced American gold medalist Ryan Lochte’s final 50 in the men’s race by a split-second.

(Watch the 400 IM race here) 

Lochte won the 400 medley with the second-fastest time in history.

Ye’s dominant performance raised eyebrows among some swimming experts, including John Leonard, the head of the American Swimming Coaches Association who openly questioned the legitimacy of Ye’s victory.

“History in our sport will tell you that every time we see something, and I put quotation marks around this, ‘unbelievable,’ history shows us that it turns out later on there was doping involved,” Leonard was quoted as saying.

---

Questions were renewed Tuesday after Ye won again, this time breaking her own Olympic record in the 200 IM.  The win made Ye the first two-time gold medal winner in Chinese swimming history.

It also made her a target for pointed questions regarding her impressive performances so far.

By all accounts, Tuesday’s press conference for Ye Shiwen following her 200 IM victory was inundated with questions regarding doping and performance-enhancing drugs.

However, for the Chinese press corps yesterday, the story was not so much Ye’s answers – as the media’s questions.

Chinese outrage
One Chinese account of the press conference noted angrily that toward the end, one Western reporter directly asked Ye, “I’d like to ask you if you doped to win that gold medal. Please answer me directly with a ‘Yes’ or ‘No.’”

According to the report, Ye looked the reporter directly in the eye and shot back, “Absolutely no! Why am I the only one who is suspected of cheating when other foreign athletes also win multiple gold medals?”

The tone of the reporter’s question led to complaints from the furious Chinese press, many of whom felt professional and etiquette boundaries were breached.

“A 16-year-old genius not only can't enjoy her victory, but also has to be subjected to this ‘interrogation,’” one Chinese journalist reportedly said. “As Chinese journalists, we have the right to protest."

One person who did protest was Ye’s father, Ye Qingsong, who told a local Chinese news website here that, "The Western media have always been arrogant, and suspicious of Chinese people."

State media: a ‘deep bias’ by Western media
China’s state media have largely stayed quiet on the subject of doping, only mentioning in passing in some reports the accusations and Ye’s dismissal of them.

But following the press conference, the media stepped up to defend Ye.

China’s reliably nationalist newspaper, Global Times, chimed in with an editorial Wednesday that said negative comments about Ye were rooted in a “deep bias and reluctance from the Western press to see Chinese people making breakthroughs.”

“If Ye were an American, the tone would be different in Western media,” continued the editorial. “Michael Phelps won eight gold medals in the 2008 Games. Nobody seems to question the authenticity of his results, most probably because he is American.”

Nobody that is, except for China’s former Olympic doctor who claimed Tuesday  he long suspected Michael Phelps as a doper, but remained silent because  he had no evidence. 

The Global Times acknowledged the country’s past doping incidents were an understandable source of suspicion towards Ye, but pointedly noted that she has passed doping tests conducted by the World Anti-Doping Agency.

On China’s state broadcaster, CCTV, coverage of the Olympic Games included an on-air comment from host Zhou Yafei, who noted that Ye had passed her doping test and she hoped “the Western media will change their bias and jealousy.”

Meanwhile, on China’s Twitter-like service, Weibo, the nearly 2.7 million comments about the embattled swimmer were overwhelming supportive and helped make her the biggest trending topic on the popular microfeed service as of Wednesday afternoon.

“Do they have to be so obvious with their envy?” wrote one poster of the West’s coverage of Ye’s victories.

“All medalists and other athletes are tested at the Games,” wrote another. “It’d be way better if everyone would shut the hell up unless the test finds anyone positive from doping.”

But for many netizens in China, solidarity with Ye has manifested itself in one simple play on her name that has spread around Weibo: “Ye Shiwen = Yes she wins.”

NBC News’ Tianzhou Ye and Joy Li contributed to this report

 

BEIJING – China's economy grew at its weakest pace in three years, the government reported Friday.

According to the National Bureau of Statistics, Gross Domestic Product grew at a 7.6 percent rate in the second quarter of 2012, down from a 8.1 percent pace in the first quarter and marking the sixth consecutive quarter of slowing growth on the mainland dating back to 2009.

The data were in line with official government projections for the quarter although they serve as another reminder that China's economy is slowing faster than the government had hoped.  

China is under enormous pressure from abroad and at home to maintain steady economic growth. Amid worrying economic numbers out of the European Union and the United States, China is increasingly viewed as one of the few motors strong enough to power the global economy through this financial turmoil.

Meanwhile, here on the mainland, the ruling Communist Party has seemingly staked its legitimacy to an unspoken pact with its citizens: give up some social freedoms for continued economic prosperity.

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“For the past 30 years, the Communist party derived a lot of its legitimacy from delivering the goods: better economy, better living standards,” says Patrick Chovanec, a professor of economics at Tsinghua University in Beijing, “If the perception is that's changed, then it introduces a real element of uncertainty.”

 

This relationship was probably best manifested at the end of 2008 when global trade ground to a halt and the country hemorrhaged nearly 20 million jobs. Beijing responded with a 4 trillion yuan ($635 billion) stimulus program that opened up lending from Chinese state banks.

The move helped kick off growth across the country as local governments went on a construction frenzy from new ports and airports to ambitious housing developments.

Internal problems
But the free-wheeling loan binge – often to state-owned enterprises with opaque accounting practices – may have helped foster the environment for today’s economic slowdown by providing a potential crush of bad loans that might very well brutalize the economy.  

“In 2008, the big problem was external, a slowdown in exports.”Chovanec told NBC News, “This year the problem is internal. It's bad debt, and the burden the bad debt is placing on the economy.”

With the government having to prepare to potentially step in and fill the holes in the national balance caused by bad debt, there is simply less money available in Beijing’s coffers to propel the economy out of its current doldrums.
 
“In many ways, they've pinned themselves to a corner,” says Chovanec, “They had this big stimulus over the past three years that kept China's GDP growth higher compared to the rest of the world, in the face of the global slowdown… But that caused twin problems of rising inflation and bad debt.”

“Particularly with bad debt right now - that problem's coming home.”

Believe the numbers
In addition, although the GDP shows a growth rate that would be the envy of any developed economy right now, there is growing cynicism over the veracity of the official economic figures being released by Beijing.
 
“There's a lot more skepticism today about Chinese official numbers, and I think it's reflective of the fact that you've got a very clear and very serious slowdown taking place in China,” says Chovanec, who noted that while figures show extraordinary high rates of private sector investment and profit gains this year, the numbers simply don’t jibe with what he’s seen in the field.

Nowhere is this disconnect more apparent than in China’s housing and construction industry.

A mere 75 miles away from Beijing resides the foundations for one of the grand-scale property developments that have been the hallmark of the boom times here in China. Conceived in 2004, Jing Jin City derived its name from the ambitions of its developers who envisioned constructing a city between the capital Beijing and the important nearby port town of Tianjin that would attract rich investors with business in both cities.

Touted by the developers as the biggest villa development in China, Jing Jin City was a $3 billion investment designed to eventually become home for half a million people. Really a satellite city of Tianjin, the city government there had aspirations of Jing Jin eventually becoming a new Manhattan.

However, as credit has dried up and speculators have now shown reluctance to sink money into risk property developments, Jing Jin City is effectively a ghost town, a surreal mixture of luxury homes that would look natural in any tony suburb in the United States and the ghostly skeletons of those only partly-built.

Surrounded by farmland, Jing Jin City’s wild underbrush and small lakes on the outskirts have become a popular place to water and feed the dairy cows from a nearby dairy.

“I haven’t seen many people around here,” said one farmer who was tending to his cows this week outside one unfinished construction phase, “I guess people think it's too far away from the cities.” 

With a primary Chinese engine of economic growth via construction in trouble, those economic woes spill over into the over 40 industries that are tied to the property industry.

As a result, local governments are said to be facing increased pressure to cook their books in order to offer a rosier view of the economic environment in their regions.

That this doctoring of economic figures may be occurring is not a surprise in China where economists and even senior Communist Party officials –mostly famously the expected future Prime Minister, Le Keqiang – have long believed that the provincial economic numbers are unreliable.

However, the New York Times last month reported that many of the economic indicators that economists and the Chinese government rely on to determine GDP growth – electricity usage, coal stocks, freight movement, etc. – may also be altered by local governments.

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BEIJING – Although blind human rights activist Chen Guangcheng has been cast into the international spotlight since his April 22 escape from house arrest and subsequent journey to the U.S. Embassy in Beijing, he still remains an unfamiliar name — even to the majority of Chinese citizens, thanks to the country’s tight control of the press and social media. 

On Friday, the U.S. and China seemed to have forged the outlines of a tentative deal to end the diplomatic standoff that would let Chen travel to the U.S. with his family for a university fellowship. In the meantime, Chen’s fate still hangs in the balance.

So what exactly did he do to anger Chinese authorities so much in the first place? It all began with Chen’s foray into social activism nearly 16 years ago, when he began fighting against the Linyi government. 

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Challenging authority

Born on Nov. 12, 1971, Chen grew up in a small village called Dongshigu, near Linyi City in eastern province of Shandong, approximately 400 miles from Beijing. He lost his sight after a severe fever when he was only a few months old. 

He enrolled in Qingdao High School for the Blind in 1994 and graduated in 1998. It was during this time that he had his first experience questioning authority.  

Deal nears on China activist Chen as US offers college fellowship

In 1996 Chen traveled to Beijing to challenge the Linyi government’s taxing of disabled people even though a 1991 law exempted them from taxation. He won the appeal. 

He kept fighting and in 1997 he irritated the local government again by appealing on behalf of his fellow villagers in a Beijing court to stop Linyi from breaking land laws.

Chen pursued these cases all without a formal law degree; he was a self-taught lawyer who had studied acupuncture and massage at Nanjing University of Chinese Medicine from 1998 to 2001. His mother originally wanted him to become a masseur, the most common job for blind men in China, but he insisted on taking law classes on the side.

In September 2003, Chen sued the company that runs the Beijing subway system for making him buy subway tickets, despite the fact that the law said the subway should be free for disabled people. Chen again won the lawsuit.

Chinese crackdown on dissident's family and friends

Fighting abusive enforcement of the one-child policy
But what really brought Chen into the crosshairs of the Chinese government were his efforts to expose harsh illegal measures by local authorities in his hometown, Linyi,  as they enforced China’s strict population control policy known as the "one-child policy." 

Chen married Yuan Weijing in 2003 and their first son was born that year; in August 2005, they had a daughter. Some say the fact that they had two children, in defiance of China’s one-child policy, explains why Chen became interested in protesting family planning. 

In 2005, the Linyi government started a campaign to "strictly enforce" the one-child policy by arresting and beating up women who broke the family planning law, forcing them to have abortions or sterilizations, heavily fining them and even arresting the relatives of those who had escaped to other cities. Chinese national laws prohibit such harsh acts.

Chen and Yuan investigated the cases and filed a class action lawsuit, while also revealing the brutality to the media. The lawsuit was rejected, but through Chen’s work the brutality of Linyi officials was exposed and drew attention from both domestic and international press. 

(In particular, a Washington Post story in 2005, “Who Controls the Family?” first drew international attention to Chen’s crusade. And apparently, in thanks for that story, one of Chen’s first calls to the international media after leaving the U.S. embassy this week went to the Washington Post). 

China censors 'Shawshank' as Clinton heads to Beijing amid dissident drama

Jail, then oppressive house arrest
After Chen refused negotiations with local officials to cease his activism, Chen was taken away by the police in March 2006. He was then officially arrested in June, and sentenced to four years and three months in prison for "destruction of property and disturbing public order." His trial was a controversial one because his lawyers were detained by Yinan police on the eve of the trial, leaving him defenseless in court.

During his jail sentence, in July 2008, his wife Yuan issued a public letter to Chinese President Hu Jintao, in which she said: "I hope the country’s leader can feel the insult and helplessness I have in my everyday life. I hope the leader will listen to a jailed blind man’s concern about the country’s future." 

Chen was released from prison in 2010, but then he and his wife were subjected to house arrest which included constant 24-hour video surveillance. In February 2011 he smuggled out a video showing his life under house arrest. 

"I was in a small prison, and now I am in a larger prison," Chen says to the camera in the hour-long video, which shows security agents peering over walls into the family’s home.  

According to another video Chen released after his recent escape from house arrest, he estimated that authorities spent as much as 60 million yuan ($9.5 million) to keep him locked up.

True belief in the rule of law
During his one-and-half year long house detention, hundreds of people, including both Chinese and foreign journalists, lawyers, friends and human rights advocates, attempted to visit Chen but were all driven away, often violently by the thugs watching him day and night. 

In December 2011, Hollywood actor Christian Bale made an effort to see him along with a CNN crew and he was shoved away. 

Chen’s supporters say that ultimately his goal is to see that China lives up to the rule of law that already exists there. 

Blind dissident's case a 'hot potato' for US-China relations

"Chen Guangcheng is someone who really believes in rule of law, and he wants to put what’s written in the law into practice," said Zeng Jinyan, a long-time friend of Chen family and also a human rights activist. "While so many people who can see are still talking about securing personal safety, Chen, a blind man, is already in action." 

"People who know Chen say he is a Gandhi-esque figure and has a deep optimism that China will inevitably become a country ruled by law,” professor Susan L. Shirk, an expert on Chinese politics at the University of California in San Diego, told NBC News. “He is not a dissident, agitating for a change in government — he just wants China to enforce its own laws."  

Many people attribute Chen’s ordeal to local government enforcement, arguing what they do is out of the ordinary, while many other believe it’s an order from the very top. 

"Evidently, local officials in Linyi concluded that Chen would somehow threaten local stability if he were free to move about and speak up. Beijing did not intervene even when it realized that the actions of the Linyi officials were creating a national and international embarrassment," Kenneth Lieberthal, leading China expert at Brookings Institution, told NBC News. "The enormous reluctance by Beijing to intervene in these types of local decisions is the rule, not the exception." 

ULUGAN BAY, Philippines - Hundreds of American and Philippine troops waded ashore on Wednesday in a mock assault to retake a small island in energy-rich waters disputed with China, a drill Beijing had said would raise the risk of armed conflict.

The exercises, part of annual U.S.-Philippine war games on the western island of Palawan, coincide with another standoff between Chinese and Philippine vessels near Scarborough Shoal in a different part of the South China Sea.

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China has territorial disputes with the Philippines, Vietnam, Brunei, Malaysia and Taiwan across the South China Sea, each searching for gas and oil while building up their navies and military alliances.

China said last week the drill would raise the risk of confrontation. On Wednesday, Chinese Vice Foreign Minister Cui Tiankai said China was committed to dialogue and diplomacy to resolve the dispute.

"We are certainly worried about the South China Sea issue," Cui told a news briefing in Beijing, saying "some people tried to mix two unrelated things, territorial sovereignty and freedom of navigation."

Historical records
The comments come before high-level talks with the Obama administration. China, which claims the South China Sea based on historical records, has sought to resolve disputes bilaterally but its neighbors worry over what some see as growing Chinese assertiveness in its claims in the region.

"Location (of the drill) is irrelevant," Ensign Bryan Mitchell, spokesman for the U.S. Marines, told reporters.

"These exercises take place on a regular basis. This year it happens to be in Palawan. The planning for this took place months ago prior to any events that are currently in the headlines."

China, Russia begin naval war games

President Barack Obama has sought to reassure regional allies that Washington would serve as a counterbalance to China in the South China Sea, part of his campaign to "pivot" U.S. foreign policy towards Asia after wars in Iraq and Afghanistan.

Philippine military officials sought to play down the exercise. Lieutenant General Juancho Sabban, military commander for the western Philippines, said the drill "simply means we want to work together, improve our skills."

Sabban's area of command includes Reed Bank and the Spratlys, a group of 250 mostly uninhabitable islets spread over 165,000 sq miles west of Palawan.

The Spratlys are claimed entirely by China, Taiwan and Vietnam and in part by Malaysia, Brunei and the Philippines.

Huge oil reserves
Proven and undiscovered oil reserve estimates in the South China Sea range as high as 213 billion barrels of oil, the U.S. Energy Information Administration said in a 2008 report. That would surpass every country's proven oil reserves except Saudi Arabia and Venezuela, according to the BP Statistical Review.

A Philippine exploration firm, Philex Petroleum Corp, said on Tuesday its unit, Forum Energy Plc, had found more natural gas than expected around Reed Bank, where Chinese navy vessels tried to ram one of Forum Energy's survey ships last year.

The Philippines is due to open oil-and-gas exploration bids in Reed Bank on Friday.

NYT: Signs of an Asian arms buildup in India missile test

Vietnam reasserted its claim to the Spratlys and the Paracel islands, known in Chinese as the Xisha islands, further west of Scarborough Shoal in what it calls the East Sea.

Self-ruled Taiwan, which China considers a renegade province, reiterated its claims over territories in the South China Sea and urged "countries concerned to exercise self-restraint so that peaceful resolutions can be reached through consultation".

Sabban said the military drill was not focused on China.

"Never was China ever mentioned in our planning and execution," he told reporters. "China should not be worried about Balikatan (shoulder-to-shoulder) exercises."

Amphibious assault
Nearly 7,000 American and Philippine troops were launched from U.S. and Philippine ships in the simulated amphibious assault to recapture an island supposedly taken by militants.

Commandos came ashore from U.S. and Philippine ships in a simulated amphibious assault to recapture an island supposedly taken by militants.

Jumping from rubber boats as they hit the shore, the commandos engaged in a mock firefight, making their way inch by inch from the beach to a navy facility to rescue "hostages" and recapture the base.

Read more China coverage on our Behind The Wall blog

Four days ago, commando teams rappelled from U.S. helicopters and landed from rubber boats in a mock assault to retake an oil rig in northern Palawan, 11 miles off the town of El Nido on the South China Sea.

The annual war games come under the 1951 Mutual Defense Treaty, part of a web of security alliances the United States built in the Asia-Pacific region during the Cold War.

The drills are a rehearsal of a mutual defense plan by the two allies to repel any aggression in the Philippines.

Hundreds of kilometers to the north, a Philippine coast guard ship patrols near Scarborough Shoal, a group of half-submerged rock formations 124 nautical miles west of the Philippines' main island of Luzon.

Philippine and Chinese ships are often in the same areas of the South China Sea, with two Chinese maritime surveillance ships a few miles away from the coast guard vessel and five Chinese fishing boats working the waters nearby.

BEIJING – Apple’s recent market valuation of over $500 billion has invited countless comparisons, even inspiring a website that gleefully chronicles the places and things the tech giant is now valued more than.

Among other things, Apple is now worth more than the entire GDP of Poland, all the gold in the U.S. Federal Reserve Bank of New York and America’s entire aircraft carrier fleet.

But is that enough to take the sting out of the $1.6 billion in compensation Proview Technology (Shenzhen) is rumored to be demanding in exchange for settling the thorny dispute over ownership of the iPad trademark in China? 

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Last Wednesday, Guangdong’s Higher People’s Court heard an appeal from Apple after a lower court ruled in favor of Proview and declared them the actual owner of the iPad name in China. 

The significance of the case has not been lost in Chinese. Both local and foreign media were said to be staked outside the courtroom. In response to greater calls for transparency from the government, Wednesday’s legal proceedings before the three-judge panel were actually live-blogged by the court on a twitter-like service called Tencent Weibo.

The court now has almost 80,000 followers – but their decision has not been announced yet. According to Chinese law, the time limit for ruling on an appeal is three months. 

The stakes are high for everyone involved: Apple, Proview, the Chinese government and other Western investors.

High stakes
China is Apple’s second largest market behind the United States. It is also where most of its products are made –  including the highly anticipated iPad 3 which some tech-watchers are speculating may be released as soon as tomorrow. 
 
This court is typically the final word on legal proceedings in China, although Apple could still appeal to the Supreme People’s Court in Beijing. A loss would leave two undesirable options: An appeal to a Supreme Court that is not known for overturning many decisions of its lower court; or settling with the cash-strapped Proview. 

For Proview, a company that at one time was an industry leader in the manufacturing of computer displays before falling on hard times, a win or an out-of-court settlement could set the stage for a dramatic revitalization of a company that now counts the Bank of China and China Banking Corp. as creditors. 

According to a Chinese-language report out last Friday, Proview’s consortium of creditors are said to be seeking $400 million from the cash-strapped company.

A settlement with Proview may be anathema to Apple; effectively inviting similar copycat suits against them in other jurisdictions, but the alternative of changing the name of a product they’ve already sold 32 million of worldwide is an equally bitter pill to swallow.

A warning for Western investors?
The need to legally resolve this issue is also uncomfortable for the Chinese government, which stands to lose politically regardless of who wins the case. 

Should Proview prevail and receive control of the trademark in China, it would stir up a certain crisis-of-faith among the foreign business community, whose concerns about intellectual property have become louder in recent years.

Sixty-six percent of respondents to the American Chamber of Commerce’s 2011 China Business Climate Survey said intellectual property rights protection is “very” or “critically” important to their business.

One U.S. businessman, who declined to be named for this piece, noted that while Apple’s spat with Proview is over the sale of a trademark and not the legal standing of the trademark itself, he would nevertheless be concerned about the strength of his company’s own trademarks in China should Apple lose. 

“Remember that line from the movie, ‘The Social Network,’ ‘You better lawyer up!’? You bet we have our lawyers looking closely now at all our company’s legal arrangements.”

It’s an example of corporate skepticism of the legal system here and a growing sentiment among the foreign business community of economic inequality between foreign and domestic companies.

That’s a sentiment that China’s ruling Communist Party wishes to avoid at all cost. In recent years the government has worked hard to improve intellectual property rights law in the country. They touted them as the Guangdong Higher People’s Court did on its Weibo feed of the court proceedings, inviting China’s web sphere to “witness the progress of intellectual property right protection in China.”

Ironically, the enforcement of those laws could potentially unravel the goodwill they were intended to build with foreign companies and investors.

Best for all? Out-of-court settlement
An Apple victory may mollify Western companies. It will also likely draw the ire of a more nationalist section of the population here that may view it as an example of China serving foreign interests before those of its own companies.

As unlikely as it may seem that a decision in Apple’s favor could lead to any mass resentment towards the government, in this sensitive time leading up to China’s leadership transition later this year, the Party is hyper-attuned to perceived public discontent.

So in the meantime, China’s government is quietly pushing through the court’s judges their dream solution to this dispute: out-of-court settlement. At the end of the hearing on Wednesday, the judge apparently gently urged Apple and Proview to consider a private settlement.

The financial motivations are there for both parties to come to the bargaining table, but Apple’s participation will either require a dramatic change of heart by the company which has refused to come to the table so far or a more pessimistic analysis of their chances in court.

Either way, you can bet the Apple CEO Tim Cook is thinking twice about his bold earlier statement last month that the company “has more money than it needs.”

HONG KONG & SHENZHEN, China – Anchor babies. Birth tourism. Cross-border births.

It’s a growing global phenomenon driven by Chinese with wherewithal and wealth.  Chinese from a China that – even as it continues to grow and open up to the rest of the world – still faces a restrictive enough present and an uncertain enough future that they choose to give birth outside of China.

Some do it to avoid the one-child policy.  Many do so for the benefits the child will receive as a citizen of the country into which it’s born: free or better education, the freedom to travel, good social services, a safe haven.

The United States is overwhelmingly the most popular destination for wealthy Chinese, a phenomenon covered by NBC News.

But a close second is Hong Kong, the tiny former British colony of 7 million people.

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Since its return to Beijing’s oversight  in 1997, and as China has made it easier for its people to travel, tens of thousands of mainlanders regularly head over the border to book up maternity wards at Hong Kong’s good quality and affordable public hospitals.

Of the 88,000 births in Hong Kong in 2010, roughly 45 percent were delivered by mainland Chinese women, according to Hong Kong's government.

The growing number of cross-border births isn’t just straining health care resources and the local population’s goodwill.  It’s also helped to provoke an identity crisis that 15 years after the handover has alienated local residents from their northern neighbors.

A business catering to pregnant mainlanders
For four years, Gordon Li has been running a business from Shenzhen, southern China, arranging travel to Hong Kong for pregnant mainland Chinese women. 

(*Gordon Li is not his real name; he did not want to divulge his identity.  Just last week, another agent from mainland China pleaded guilty to breaching Hong Kong immigration laws for helping mainland women give birth in the city.  It was Hong Kong’s first prosecution of its kind and, given the current mood, may not be the last.)

“We work like a travel agency [and] the fee depends on the client –whether they want to stay in a luxury hotel or a small hotel, etc.,” said Li, who charges his clients between a few thousand yuan and 20,000 yuan ($3,200) to navigate the system.  Most of his customers are from the mainland’s wealthiest regions like Guangdong, Zhejiang, Beijing, and Shanghai.

Li estimates that he has helped at least a few hundred mainland women to have babies in Hong Kong.  “Last year was the most,” he said. 

His early clients were trying to get around the mainland’s strict one-child policy, but today most of his new customers travel to Hong Kong because, Li says, there are “a lot of conveniences.”

The public health system in freewheeling capitalist Hong Kong is considered better and safer than it is in its communist neighbor.  Maternal mortality ratio statistics collected by organizations like the World Health Organization support Hong Kong’s reputation for good quality health care for mothers and newborn babies.

Other benefits for newborns include being automatically eligible for “the right of abode” in Hong Kong, which means becoming permanent residents.  Which in turn means unfettered access to free public education considered superior to that in the mainland; political freedoms; and ease of travel anywhere in the world.

And they are entitled to all of this without giving up their China citizenship.

In fact, more than 10,000 mainland Chinese children who were born in Hong Kong, but live in China, go across the border every day to attend school in the former British colony.

Hong Kong is fed up
Huang Lijuan is a 27-year-old kindergarten teacher from Guangdong Province.  She and her husband, Tsing Ho Nan, a 32-year-old engineer from Hong Kong, met in Shenzhen and moved to Hong Kong after getting married.

“I’m three months pregnant, and the due date is August 5,” Huang told NBC News one afternoon in a community center in Tsuen Wan, Hong Kong.  “But I haven’t been able to book a hospital bed in a maternity ward.  All of the public hospitals are fully booked.”

“There are 80 to 100 [mainland women married to Hong Kong men living here] who are pregnant, but they failed to book any hospitals to deliver their babies,” said Koon Wing Tsang, an organizer with the Mainland-Hong Kong Families Rights Association.  Like Huang, they are all casualties of recent restrictions on non-local women.

Under popular pressure, the Health Authority (HA) in Hong Kong has instituted quotas for non-local residents.  Currently, only 3,400 births by non-local women are permitted at public hospitals this year – down from 10,000 in 2011.  Private hospitals are allowed 31,000 births by non-local women.

“The government and the HA are committed to ensuring that local pregnant women will be given priority in the use of the services over non-Hong Kong residents (non-eligible persons, NEPs),” said a Health Authority spokesman in a written response to NBC News requests for an interview.

But even the new quotas may not be enough.  As Huang found out, all the maternity wards in Hong Kong’s public hospitals – and many private clinics – are fully booked until September. 

Moreover, the quotas don’t prevent mainland women from using the emergency wards as a last resort.  More than 1,600 such births last year were delivered in Hong Kong’s emergency rooms – an unnecessary medical risk since such wards are not equipped or staffed properly for deliveries.

Some Hong Kong government officials have raised the possibility of an outright ban on mainland Chinese women giving birth in the city, but critics have argued enforcement is problematic. 

Others have suggested ending the practice of granting automatic permanent residency status to babies born to non-local parents.  To do so, according to legal experts as well as Hong Kong’s Chief Executive Donald Tsang, would mean having to reinterpret the Basic Law – the territory’s mini-constitution. 

Any such action would require consultations with Beijing, which could prove to be a political minefield for Hong Kong, which prides itself on its Western-style democratic values.

China to ban names that signal 'orphan' status

'Locusts' & 'running dogs'
Adding fuel to the fire is a recent series of tense confrontations between local and mainland residents.

Last month, Hong Kong citizens were outraged over a report that a Dolce & Gabbana boutique had banned local shoppers from taking photographs of its shop, but allowed mainland Chinese tourists and other visitors to snap away.  A Facebook campaign days later galvanized more than a thousand people to protest outside the shop, forcing it to shut early.

Barely a week later, a heated dispute broke out on the Hong Kong subway when a mainland Chinese child was asked to stop eating on the train – a practice banned in the territory.  The argument between locals and mainlanders was captured by a cell phone camera, and the video went viral on the Internet.

Tensions were further inflamed by comments from a Peking University professor, who when shown the video of the subway dispute, called the territory’s residents “running dogs of the British imperialists.”

This month, a group of concerned Hong Kong citizens bought a full-page ad in a popular mainstream Chinese-language Hong Kong daily newspaper that called mainland visitors “locusts.”  The term refers to the large numbers overrunning the territory to consume all its resources.

A “locust” song even made the rounds on the Internet, with spiteful lyrics poking fun at mainland Chinese, and inspiring at least one group of young Hong Kong men to roam around singing the song at visiting mainland Chinese.

An identity crisis
“I think the real reason that Hong Kong people are upset is because they feel helpless politically,” said Wen Yunchao, a mainland blogger and activist now living in the territory.  “The rules they believe in are being broken by all these mainland visitors, and yet they still have to rely on China economically.”

Dr. Elaine Chan at the Center of Civil Society and Governance at Hong Kong University agrees the tension is “a manifestation of something deeper.”

“Hong Kong people do not have a very positive view of mainlanders,” she said.  “Not just because they are buying properties and not just because they are buying all the luxury goods.  But also because of how they carry themselves.”

Both Wen and Chan argue there’s an underlying sensitivity to and awareness of the fact that Hong Kong is bound up with China –culturally, historically, politically, and economically – and yet there remains a gap in fundamental values between the two: in terms of the rule of law or basic civility.  That tension makes some people in the territory uncomfortable.

For now, Beijing has remained silent at least on the cross-border births issue, although authorities in neighboring Guangdong province have promised to find a solution.

But another hot-button topic may soon eclipse that of birth tourism.  The main topic of conversation last week was a government proposal to open up the border to mainland Chinese drivers and their vehicles.  Concern over road safety issues is so great in Hong Kong that an online petition has already gathered 7,000 signatures.

With additional reporting by Bo Gu.

BEIJING – Retired NBA star, Yao Ming, carved out an eight-year career protecting the hoop in the NBA. His next defensive assignment though may be a considerably taller task for the 7’6” all-star, if not a lot cuter and fuzzier than his former basketball opponents.

Yao was in the central Chinese province of Sichuan on Wednesday, where he presided over the opening of a new phase in the giant panda-breeding program that some experts hope will help pandas born in captivity eventually assimilate back into the wild through a regimen of acclimation and survival training. 

“I think it is most important to keep a balance between modern living and nature,” said Yao to reporters in Sichuan. “We have been talking about it for many years but it is never an easy thing to do.”

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Chinese experts constructed a $4.75 million habitat called “Panda Valley” in the area around the town of Dujiangyan – a place heavily hit by the 2008 Sichuan earthquake. The 50-acre park will serve as a large, open-area school where researchers will be able to slowly teach the pandas the art of survival in the harsh, elevated mountain wilderness that pandas thrive in.

Over time, organizers plan to expand the panda habitat to eventually allow for up to 30 pandas to live there. It is hoped that eventually 100 pandas from this facility will be released back into the wild over the next 50 years.

Panda researchers in China screened the 108 pandas in captivity at the Wolong Panda Reserve in Sichuan over the period of a year and whittled the list down to six final candidates. The roster included such panda celebrities as twin brothers, Xingrong and Xingya, and one panda named Gongzai, who was the inspiration for “Po” the rotund, fighting panda featured in the “Kung Fu Panda” movies.

These pandas were selected for this pilot project based on criteria that encompassed age, health and genetic background. 

It is hoped that the pandas selected will demonstrate the best combination of strength to defend themselves from wild pandas, while being young enough to allow them the opportunity to grow up and adapt to their wild surroundings.

The ultimate goal is for these pandas to grow up, assimilate into the wild and give birth to new pandas ready to survive in the wild.

The preserve’s opening comes as China is in the midst of a nationwide panda census that is conducted every ten years. There are an estimated 1,600 pandas living in the wild and an additional 300 living in captivity.

Despite China being at the forefront of panda research and the masters of a highly successful breeding program, some experts feel that the park is simply too expensive and that previous attempts to create similar preserves for other species have come with mixed results.

A similar attempt to reintroduce pandas back into the wild in China ended in failure in 2007 when Xiang Xiang, a five-year-old male panda trained for three years by researchers was found dead after he was killed by wild pandas.

Related link: Six pandas amble toward freedom in China preserve
 

BEIJING – Wenzy Duan dreams about becoming a delegate to the United Nations.

“I know this [ambition] is pretty high,” said the 17-year old Beijing native.  “But I think I can give it a shot.” 

To prepare, Duan wants to study international relations at an American college – someplace like the University of Washington. “I hear [it] is good at social science," she said.

The University of Washington is one of approximately 10 U.S. universities Duan plans to apply to in the coming year with the help of an education consultant she hired last summer.

“I know that the scores is not the only thing that the university will consider whether you can get in or not,” said the high school senior.

Duan is not alone.  Today, China sends more of its students to America than any other country. During the 2010-11 academic year, 157,588 Chinese students were studying in the U.S. – an increase of 23 percent from the previous year, according to the Institute of International Education. 

The growing market of Chinese students wanting to go to the U.S. has created various cottage industries in China and the U.S. –  among them are education consultants who help students navigate the maze of college applications and "brokers" representing American universities who seek student candidates paying full tuition. But it's also fueled anxiety among American students and their parents about increased competition from abroad.

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Education consultants: the main cottage industry
“When [Chinese students] decide to come to the U.S. and study in the U.S. school, they have no idea,” said Steven Ma, president of ThinkTank Learning, the consulting group with which Duan is working.  "What do colleges in the U.S. look for anyway?  What do they want?  What type of students they want?  And that’s where we come in.”

ThinkTank Learning, based in Santa Clara, Calif., offers tutoring and college counseling.  Most of the students contracting its services have been Asian-American, but Ma said increasingly his firm began fielding calls from mainland Chinese families wanting their advice. 

Eventually ThinkTank Learning opened a branch in Shenzhen in 2009 and then in Beijing a year later.  It charges anywhere from $17,000 to almost $40,000 for tailored consultation packages lasting six to 12 months, dispensing advice on choosing the right schools, writing essays, or preparing for interviews.  

“They’ll just tell you when you need to get something done by what deadline and how do you prepare your application to the school’s standards,” said Julia Yin, Duan’s mother, a petroleum engineer who hails from Hunan province.  “Basically, everything is DIY [do it yourself.]"

Go West, Young Man (and Woman)
China sent its first student to an American college in 1850: A native of Guangdong Province named Yung Wing earned his degree from Yale University, paving the way for thousands more over the following century.

The flow of students from China to America dried up in the 1950s when the establishment of the People’s Republic of China gave way to tumult and isolation, and did not re-start until 1974 1978.

From then until just a few years ago, "It was almost all graduate students, most of them funded by the host universities through research assistantships or teaching assistantships," said Peggy Blumenthal, senior counselor to the president at the Institute of International Education (IIE).

Now, Chinese undergraduates drive the growth, particularly in the past two years.  At the start of the 2006-07 academic year, 9,955 Chinese undergrads were enrolled in U.S. schools. The following year, that figure jumped to 16,450.  By the 2010-11 academic year, 56,976 undergraduates made up a third of all Chinese students living in the U.S.

“What you’re seeing is the growth of the middle class of China who can really afford to send their kids to the U.S.,” said Blumenthal.  “The Chinese undergrads are all coming virtually self-funded.”

The fact that so many students pay their own way has not gone unnoticed.

"Foreign students spend about $21 billion a year in the U.S. in tuition and living expenses for them and their families,” said Charles Bennett, Minister-Counselor for Consular Affairs at the U.S. embassy in Beijing – where Ambassador Gary Locke has made among his top priorities the expansion of visa processing capacity in China.

“That’s a very large sum of money for U.S. academic institutions,” continued Bennett, especially as so many face shrinking endowments or reduced state funding.

The Chinese comprise at least 21 percent of all international students newly enrolled in American schools, which means that they and their families contribute roughly $4 billion to the American economy, according to the U.S. Department of Commerce.

Edging out American students in America?
Recent reports, however, have suggested mainland Chinese students and their ability to pay full tuition are costing American students placement in American colleges. A bankrupt state school system in California – one of the most popular destinations for Chinese students – has meant that its well-regarded schools are seeing record enrollments from out-of-state and international students. 

For the 2010-11 academic year, California welcomed the most international students – 96,535. And for the tenth year in a row the University of Southern California was the leading host U.S. institution for overseas students, enrolling 8,615, according to the IIE.

But the IIE argues adding mainland Chinese students is helpful for diversity.  “Most Americans will not study abroad. On the other hand, their careers will be global,” observed Blumenthal.  “They need to learn how to interact with professionals from other countries, and many of them will be from China.  There are very few industries or business not affected by China.”

Moreover, at the graduate level, Chinese students aren’t competing against American students for a seat in the classroom, according to Blumenthal.  “There still aren’t enough Americans in the pipeline wanting to get graduate training in the fields of science, technology, engineering, and math,” she said.

But detractors note other challenges have surfaced as a result of so many Chinese students going to U.S. schools.  Among them is whether some applicants from the mainland are cheating their way into admissions by falsifying their academic records or achievements. 

One consulting company in Beijing that works U.S. universities, Zinch China, says 90 percent of Chinese undergraduates submit false recommendation letters for their U.S. college applications and that 70 percent enlist someone else to write their essays.

The dishonesty works the other way, too.  A growing number of “education brokers,” who work on behalf of U.S. institutions to solicit Chinese students, have led to misrepresentations and predatory fees, according to a revealing report from Bloomberg News. Some agents promise admission to top-flight schools, charge exorbitant fees, in some instances including a portion of scholarship funds, and students can end up at schools that are a far cry from the "dream schools" they hope to attend.  

Can China produce innovative thinkers?
The desire among Chinese students to seek an American college degree has grown stronger over the years owing to a number of factors.

Above everything else, there is the fierce competition for gaining admissions to a preeminent Chinese university. The selection process is decided solely by the gaokao, an annual national college entrance examination that lasts nine grueling hours over two to three days.

This past year, more than 9 million students across China took the gaokao.  And believe it or not, that number has been declining since 2008 as more students opt out of the gaokao and sign up for exams like the TOEFL (Test of English as a Foreign Language) and the SAT (Scholastic Aptitude Test), both of which are generally prerequisites for applying to any U.S. college or university.

A lively debate is growing about whether China’s education system can produce innovative thinkers who can enable the country to lead – not just catch up with or follow in the footsteps of industrialized economies like the U.S. or Britain. Such concerns triggered a widespread discussion online when Steve Jobs died earlier this year.

“The students here are not as robotic as Americans think,” said Gene Hwang, a 27-year-old Taiwanese-American, who has been working in China for ThinkTank Learning for almost two years.  “But they are held back by some of the systems in schools, which emphasize rote memorization….  We work with them on [developing] critical thinking.”

Broadening those horizons
“When I get into America, I can get [a liberal] education [that] could open my mind,” said Zhang Yuqi, a soft-spoken but intense 17-year-old high school senior.

He’s been working with a ThinkTank Learning consultant for three months, reviewing which schools to apply to and working on his essays.  A possible math major, he has his eye on Carnegie-Mellon and Emory where he hopes to find a climate that differs from his elite Beijing high school, which he says has too many “planned activities.”

Duan wants to study in the U.S., because “they accept all different kinds of different ideas.  You can dream about anything,” she said.  “In America, I can experience more…maybe all kinds of things I will never experience in China.”

For high school junior Dolly Luo, it's simply about getting the best education.  “The U.S. has the most well-developed college education," said the 16-year-old Beijing native who loves Harry Potter and dreams about attending an Ivy League college.

Her parents have similar faith in the U.S. college experience.

“She will have more opportunities, and it will broaden her horizons,” said William Luo.  In fact, Dolly’s father had harbored his own U.S. scholarly ambitions, but he didn’t have the financial resources to enable him to pursue his graduate studies in America.

“I hope when Dolly goes abroad and she learns American values or Western values that she can absorb the Western education – the good parts: the culture, the education,” continued Luo.  “In China, we would need that.”