Yahoo Drawn Into Growing Cyber War Between Google and China

Yahoo (YHOO) was drawn into the growing international cyber-war between Google (GOOG) and the Chinese government Saturday after it declared its support of the U.S.-based search giant. Google threatened to pull out of China after it became the victim of a massive cyber attack that is believed to be masterminded by the Chinese government. Now several other U.S. companies are also believed to have been victims of a similar attack, including Yahoo.Yahoo said it is "aligned with Google" in its rebuke of Chinese censorship, and condemned "any attempts to infiltrate company networks to obtain user information."

By supporting Google, Yahoo has drawn the ire of Alibaba (ALBCF), the Chinese internet company in which it owns a 40% minority stake. "Alibaba Group has communicated to Yahoo! that Yahoo's statement that it is 'aligned' with the position Google took last week was reckless given the lack of facts in evidence," Alibaba, which operates two of China's largest e-commerce businesses, said in a statement Saturday.

Other U.S. Companies and Chinese Dissidents Also Victims

On Tuesday, Google revealed it had been the victim of the massive attack targeting Chinese rights activists' Gmail accounts. The sophistication and scope of the attacks has led many to believe that the Chinese government was behind them, and in fact, cyber-security experts at Verisign iDefense labs said their analysis showed that "the attack is the work of actors operating on behalf of or in the direct employ of official intelligence entities of the People's Republic of China."

Meanwhile, U.S. Ambassador to China Jon Huntsman acknowledged Friday that China-based attacks on U.S. government computers have been "ongoing for a long time."

In response to the attacks, Google said it would no longer censor its Chinese search engine and was prepared to quit the country. In response, China declared its Internet "open," and said companies operating in China must follow the law.

The growing international row appeared to edge toward the brink of an all-out diplomatic and trade maelstrom after the U.S. State Department said it would formally demand answers from China about the attacks, which targeted over 30 American companies in addition to Chinese dissidents.

Other than Google, Adobe (ADBE), Symantec (SYMC), Rackspace Hosting (RAX) and Juniper Networks (JNPR), most of the other American companies targeted have not come forward publicly (it's typical practice for most corporations to not disclose information about cyber attacks). However, the list of known companies that have been targeted is increasing by the day to include U.S. defense giant Northrop Grumman (NOC), Dow Chemical (DOW), and now, internet giant Yahoo.

Yahoo's Rocky Road in China

Yahoo knew about the attack before Google notified it, but chose to remain silent, Reuters reported Saturday. Beyond efforts to keep information about cyber attacks confidential, Western companies are also wary of publicly challenging the Chinese government, which administers the world's largest population and internet market.

"They don't want to get any noses out of joint in Beijing," Clyde Prestowitz, president of the Washington-based Economic Strategy Institute, told the newswire.

Yahoo has had a particularly rocky road in China. In 2007, it suffered a major public relations backlash after revelations that it had turned over information about Chinese dissidents to the government. It's relationship with Alibaba has also been contentious. Yahoo invested $1 billion into Alibaba in 2005, when it folded its search engine into the company. Alibaba is thought to want Yahoo to sell its remaining stake in the company.

An Escalating Cyber Wa

Google's stunning decision to publicly rebuke China has pulled back the curtain on international cyber-warfare and demonstrated the pervasiveness of global network attacks. The controversy has also shown that cyber-crime -- typically associated with corporate spying or financial scams -- often has a political component.

Google explicitly referred to espionage in describing the attacks, which targeted Chinese human right activists and political dissidents. As early as Monday, the U.S. State Department plans to formally demand an explanation from China.
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