COMMENT:

The Obama-era cyber-truce with China is over, possibly for good.

Since Donald Trump started his trade war with Beijing, cyberattacks on the US by Chinese state actors have increased sharply. This implies recent concerns about Chinese companies such as Huawei may not be over-exaggerated - and predictions about a splintering of the internet on East-West lines could actually come to pass.

President Obama agreed a cyber-security deal with Beijing in 2015 - and there was a noticeable decrease in attacks that were blamed on China following the truce.

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However, a report out this week shows cyberattacks on the US from Chinese state actors rose in the wake of Donald Trump's trade war.

US cybersecurity group CrowdStrike, the security company that revealed the Russian hack on the Democratic National Committee in 2016, recorded a significant "increase in tempo from China-based adversaries" since the middle of 2018.

In June last year, the White House slapped 25 per cent tariffs on more than US$50 billion ($73b) of Chinese goods.

It is no coincidence that industries targeted are central to the Asian nation's technology strategy, as laid out in premier Li Keqiang's Made in China 2025 plan, which was unveiled in 2015.

The current US administration sees this as an attempt to capture US technology by foul means and wrestle technological leadership away from US innovators.

The policy targets many fields including robotics, artificial intelligence, smart appliances and electric vehicles. Technology transfer from the US to China has therefore been a central part of the antagonistic Trump trade war - but the CrowdStrike report suggests that, while making positive diplomatic noises, cyber-espionage has now increased significantly.

"Many of the strategic goals outlined in the [MIC 2025] plan are likely predicated on specific intelligence collection requirements, which CrowdStrike Intelligence has noted as the primary basis for China-based cyber operations," the report noted.

"Although Beijing toned down its rhetoric later in 2018 and reduced mention of the MIC 2025 in state media, these requirements are essential to decreasing Chinese reliance on critical foreign components - especially in technology, energy and healthcare - and it is highly unlikely they will be abandoned."

This, when combined with China's Belt and Road Initiative, which is trying to make much of the world's trade routes and infrastructure dependent on Beijing, is a long-term competitive threat to the West.

China's hacking targets in 2018 included telecoms systems in the US and Asia, according to CrowdStrike. Groups linked to Iran and Russia also targeted telecommunications, a sector that yields "the most bang for your buck" for hackers due to the large number of users that can be accessed after breaching a single network, says Adam Meyers, CrowdStrike's vice-president of intelligence.

Unfortunately but unsurprisingly, the trade war and Trump tariffs have been a blow to the global economy, souring equity market sentiment. It has exacerbated a slowdown just as many observers were concerned about the bull market becoming too long in the tooth.

China wants a deal before the March 1 deadline and is being very diplomatic in its language, despite clandestine online activity.

It is likely that some form of trade deal will be struck relatively soon - and it will benefit the presidents of both countries in the short term.

However, the new Cold War will continue online. The US government needs to do more to support technological innovation.

Indeed, president Trump signed an executive order last week directing federal agencies to allocate more resources for research and development, promotion and training in AI, yet provided no new funding to meet this goal.

MIC 2025 is undeniably well funded by the Chinese state. This has led to concerns that China will easily be able to leapfrog the US in terms of its AI technology, which has wide-ranging applications in industries such as healthcare and defence, within five years.

This increase in state-actor cyberattacks from China is also bad news for Huawei, which the US wants allies to exclude from its next-generation telecommunications networks because of fears of cyber espionage.

Any risk posed by involving the Chinese technology company in UK 5G telecoms projects can be managed, according to the UK's National Cyber Security Centre.

However, this has been dismissed as "naive" and "irresponsible" by the Royal United Services Institute, the defence think tank that was founded by the Duke of Wellington in 1831.

Australia, the US and New Zealand have already banned Huawei equipment in its 5G networks, with Canada holding back on a view because of the political difficulties following the arrest of Meng Wanzhou, Huawei's chief financial officer, at the request of US officials.

The increase in cyberattacks also boosts the argument that the internet is likely to split over the longer term because of the different aims and value systems that define East and West.

Indeed, Russia recently announced plans to disconnect the country from the global internet - albeit temporarily - to simulate an all-out cyberwar.

The trial run is scheduled to take place before April 1, although a specific date is yet to be set.

However, it is clear the march towards a global "splinternet" continues unless some permanent resolution between Beijing and Washington can be found.

Until then, the new Cold War continues.

- Garry White is chief investment commentator at wealth manager Charles Stanley.