Cyber hacking to overshadow summit between Obama and China's Xi

By Steve Holland and Matt Spetalnick.

(Reuters) - A shirt-sleeves summit between the world's two top economic powers is shaping up as anything but relaxing, with an assertive new Chinese leadership seeking a bigger place at the global table and the United States pushing back, especially in the battle over cyberspace.

U.S. President Barack Obama and newly installed Chinese President Xi Jinping will meet on Friday in Southern California at a relatively informal retreat aimed at allowing the pair to get to know each other away from the spotlight of Washington.

High-level U.S.-Chinese encounters of recent decades have been unable to match President Richard Nixon's groundbreaking visit to Communist China in 1972 that ended decades of estrangement between Washington and Beijing.

But China experts say if Obama and Xi can develop personal rapport - something lacking between U.S. presidents and Xi's notoriously wooden predecessor, Hu Jintao - and make at least a little progress on substantive issues, the summit could gain some historic significance.

Any feel-good vibe at the luxury resort in the desert near Palm Springs could be soured by Obama taking a hard line with Xi over Chinese cyber-hacking of U.S. secrets.

While China worries the United States is trying to encircle it militarily with its strategic "pivot to Asia," the cyber dispute is the most pressing issue for Obama.

"The president wants to be able to have, behind closed doors, a tough and straight conversation with Xi Jinping about our specific concerns," a senior U.S. official said of the cyber-security issue. "Problems and activities emanating from China have a deleterious effect on our companies, on our interests and on our relationship."

The official said Obama would not shy away from pointing out U.S. concerns about hacking, nor would he accept China's "pro-forma protestation" that it too is a victim of cyber intrusions from abroad.

In a sign of an easing of tension over hacking, an Obama administration official said on Saturday a previously agreed high-level working group on cyber security would convene for its first talks in July and meet regularly after that. The official said the panel would focus not only on hacking but on "developing rules of the road for operating in cyberspace."

"Obviously the competitive nature of the relationship will always be there, but there's also a play-by-the-rules aspect to it," another senior Obama administration official said of the cyber-security disagreements with China.

Obama has been under strong pressure to persuade Xi to take U.S. hacking worries seriously, and complaints in Congress about cyber security are growing.

"There has got to be red lines drawn. If the activity continues, there need to be some sanctions," said Shawn Henry, who fought cyber thievery as an FBI assistant director and is now president of the security firm, CrossStrike Services. "They need to understand what the risks are."

The Washington Post reported this week that China had used cyber attacks to access data from nearly 40 Pentagon weapons programs, including the F-35 Joint Strike Fighter. China dismissed the report, saying it needed no outside help for its military development.

In the two-day meeting with Xi, Obama will also likely bring up differences over North Korea, world trade and China's territorial disputes in the South and East China Seas.

The talks are an opportunity for Obama to score a foreign policy success at a time when the lack of U.S. action on Syria weighs heavily on his record. He can also turn away from controversies at home that have gotten his second term off to a rocky start.

Read More: http://www.reuters.com/article/2013/06/02/us-usa-china-idUSBRE95101H20130602