Chinese hacker was suspected attacking Western Media.

Chinese hacker was suspected attacking US Media.

Last week we learned that the computers systems of The New York Times had been suspected attacking by Chinese hackers following publication of its story on Prime Minister Wen Jiabao's accumulation of wealth over his period. Then it quickly came out that The Washington Post andThe Wall Street Journal had also been hacked.

This follows in the wake of the Chinese hacking of Google and a variety of other companies. The hacking seems to be tied in some way to the Chinese government and apparently has various motives, ranging from identifying sources for stories on China to distorting markets in favor of native Chinese companies.

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In the case of Google, the attacks resulted in significant destruction of its business and its displacement as the leader in the Chinese market by the Number 1 Chinese search engine Baidu which it is expanding to many countries.

The enthusiasm over the past decade of foreign businesses to invest, produce, and sell in China has been fueled primarily by two assumptions. One is that China has truly chosen the capitalist road and that business is a matter of free market competition without government interference. In the other hands is that the costs of doing business are extraordinarily low in China and therefore, to be globally competitive, a company has no choice come to there.

It is now clear that both of these assumptions are false. China is only halfway onto the capitalist road. Government has not withdrawn from the economy and especially not from control of information. Moreover, the government wants Chinese companies to succeed and predominate in a wide variety of industries. A consequence of all this is that the hidden cost of doing business in China can be very high. Indeed, far from having to produce in China to be globally competitive, it may well be the case that in order to survive globally a company must avoid producing in China.

Certainly any significant business needs to be extremely careful in how it deploys and operates in China. It will almost inevitably become, if it already isn't, a target for hacking and electronic espionage. It must understand that even more than in other environments, in China, business is war.

It must also understand that business is often a matter of national strategy and of nationalist sentiment in China. That means it will be under observation not only by business competitors but perhaps also by the government or government-linked entities. In calculating the true costs of producing and doing business in China, it is important to incorporate these factors into the equation. The true costs may be much higher than the estimates made by the business accountants based simply on normal business costs.