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Britain's MI5 has accused China of bugging British business executives using memory sticks that provide access to users' computers, the Sunday Times reported.

MI5 also believes China is setting up "honeytraps" to blackmail compromised executives into betraying commercial secrets, the newspaper said.

It alleges that a leaked MI5 document describes how undercover Chinese intelligence officers have approached British businessmen at trade fairs offering "gifts" and "lavish hospitality".

The gifts, such as cameras and memory sticks, contain "Trojan" bugs that allow Chinese intelligence services remote access to any computer they are connected to.

MI5 also accuses China of electronic hacking to obtain sensitive commercial information and believes the Chinese Government "represents one of the most significant espionage threats to the UK", the report adds.

China's London embassy did not comment.