Bloomberg News

Chinese Spying Charges Come After Pittsburgh Left Steel Behind

May 20, 2014

Craig Ponsonby grew up outside Pittsburgh in a United States Steel Corp. (X:US) town in a region defined by making metal. Those days are long gone, he said.

While the prospect of Chinese spies infiltrating the company and other old-line Pittsburgh businesses isn’t welcome, the retired banker is more worried about hacking threats to national security, he said.

“There’s not enough steel industry left to be hurt,” Ponsonby, 60, said outside the Twin Oaks Lounge near his native McKeesport, once home to the world’s largest steel-pipe producer.

The U.S. government’s indictment of five Chinese military officers on charges of spying on a union and four companies operating in Pittsburgh, including U.S. Steel, Westinghouse Electric Co., Allegheny Technologies Inc. (ATI:US) and Alcoa Inc. (AA:US), cast the area as a victim. Economic data show the real damage was done in past decades as domestic manufacturing withered and China flooded the market with low-cost steel. Pittsburgh’s economy has been on the upswing for years as it diversified into health care, education and technology.

“Pittsburgh has done a great job” in reshaping its economy, said Michael Wessel, a member of the U.S.-China Economic and Security Review Commission. “It could even have had a brighter future if China hadn’t targeted these industries.”

The indictment says that Chinese officers conspired to steal information from U.S. subsidiaries of SolarWorld, a German solar products manufacturer, the Pittsburgh companies and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial Services Workers International Union.

Snowden’s Secrets

The U.S. does its own Internet spying, including “large-scale and organized cyber theft as well as wiretapping and surveillance activities against foreign political leaders, companies and individuals,” the Chinese Foreign Ministry said in a statement on its website denying that the country stole trade secrets.

While revelations from former National Security Agency contractor Edward Snowden have pointed to the extent of the U.S. surveillance, it is for national security and not economic advantage for companies, authorities have said.

Industrial spying means that “production slows, plants close, workers get laid off and lose their homes,” David Hickton, U.S. attorney for the Western District of Pennsylvania, said in a news conference after the charges were made public. “This happens in steel towns in Western Pennsylvania, like Braddock, McKeesport and Clairton, as well as in many other similar towns and cities in the United States.”

Spreading Mess

Spying “is one of many concerns,” about Chinese efforts to beat out American manufacturers, said Leo Gerard, international president at the United Steelworkers. “Clearly, it compounds the mess that the Chinese create for our industrial economy.”

On the same day the Justice Department announced the charges, workers held a “Stand up for Steel Jobs” rally near Pittsburgh to call on the Commerce Department to support anti-dumping duties on steel products from South Korea.

The McKeesport U.S. Steel plant has reduced its workweek to five days from seven because of unfair imports, and most of its 175 union members attended the rally because management shut down the facility for the event, Mark Fronczek, president of USW Local 5852, said in a statement.

Undetermined Harm

Quantifying how many jobs hacking costs the region is difficult, Wessel said.

Pittsburgh industry holds less weight today than in years past. Manufacturing made up 7.6 percent of nonfarm jobs in the Pittsburgh metro area in March, based on preliminary Bureau of Labor Statistics data. A decade earlier, manufacturing accounted for 9.1 percent of all jobs in Pittsburgh, data show.

Industrial employment began dropping after the 1950s. In March, 86,800 Pittsburgh residents reported to work at factories, down from 374,800 in 1953, the highest March on record.

Even if manufacturing employs fewer people than in the past, it’s still a vital part of the Western Pennsylvania economy, said Sabina Deitrick, director of the Urban and Regional Analysis program at the University of Pittsburgh.

“The productivity of those companies and the impact on the economy is much higher than the employment numbers,” Deitrick said. “They are definitely advanced companies with high levels of technical and skilled workers.”

Revived Community

At the same time, Pittsburgh, which is Pennsylvania’s second-most-populous city, has beefed up education and health services, and found a new lifeline in a growing natural-gas industry. The combination has enabled an economic comeback.

The area’s unemployment rate was 6.1 percent in March, without adjusting for seasonal variations, Labor Department data show. That was down from 7.1 percent the prior year and below the 6.8 percent average for the U.S.

A decade ago, Pittsburgh was a laggard. It had a 6.4 percent jobless rate in March 2004, compared with 6 percent nationally.

In June 2013, Standard & Poor’s raised its credit rating three steps to A, citing restored structural balance in operations.

Pittsburgh Nights

Richard Lunak, chief executive officer of Pittsburgh-based Innovation Works, which invests capital and resources in startup companies, said the revival is real.

“Pittsburgh has just a fabulous ecosystem,” Lunak said. “Maybe at one time, it wasn’t a very hot commodity. But now it’s known as a tech town.”

Lunak said Pittsburgh’s colleges and inexpensive cost of living help boost its competitiveness. It’s home to both Carnegie Mellon University and the University of Pittsburgh, and the region gained 27,000 jobs in health and education between April 2004 and April 2014, federal data show.

Sitting outside a bustling downtown restaurant within sight of the Pittsburgh Pirates’ PNC Park after a dinner meeting with colleagues last night, April Miller, 33, said she feels secure in her job as a consultant with Ariba Inc., a procurement software company. Her husband found a job as a financial analyst two months after getting dismissed in 2009, she said.

While the companies named in the Justice Department charges are major Pittsburgh employers, the region doesn’t rise or fall with them anymore, Miller said.

“We have enough other businesses around with jobs,” Miller said. “I don’t think it would crash the Pittsburgh market.”

To contact the reporters on this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net; Mark Niquette in Pittsburgh at mniquette@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Justin Blum


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Companies Mentioned

  • X
    (United States Steel Corp)
    • $28.59 USD
    • -0.06
    • -0.21%
  • ATI
    (Allegheny Technologies Inc)
    • $33.36 USD
    • 1.69
    • 5.07%
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