Legal and technology experts in Silicon Valley are alarmed. Espionage was big during the Cold War when the U.S. would catch Soviet spies and expel them, and vice versa. Now, it's done by having hackers break into computers no matter how secure they're thought to be.
The obvious concern is that China's military would have details of American technology that it can copy or develop ways to defeat it. The top secret designs compromised include an advanced Patriot missile, ballistic missile defense systems, the Osprey helicopter, and the cutting-edge F-35 fighter jet in development that is costing taxpayers $1.4 trillion.
Military espionage has moved into the digital age. "In the old days, the spy had to be actually here in the U.S. to do something damaging. Nowadays, they can do it from overseas so that presents a very different picture," said Santa Clara University law professor David Sloss.
Chinese hackers have reportedly also broken into defense computers in Australia. James Foster is a cyber-threat expert who has worked for the Navy and has testified on Capitol Hill. "There are countries building out entire arsenals, teams, of cyber-experts, China being one of the biggest ones that's out there today," he said.
The Pentagon's vulnerability was exposed in a classified section of a report by the Defense Department Science Board. Among its findings -- "DOD's networks are built on inherently insecure architectures that are composed of, and increasingly using, foreign parts. DOD and its contractor base have already sustained staggering losses of system design information."
And that point means when secret weapons are compromised, it can render a system useless. "You've now got a defensive system that may have cost you $50 billion that's not very effective," Foster said.
It's expected that President Obama may bring up this delicate subject when China's president visits California next month. "This is a very important relationship for both countries, right? And neither one of us wants to have tensions escalating to a point where it becomes really threatening," Sloss said.
Experts say it's probably a fair assumption that the U.S. is also engaged in cyber-espionage, but to what degree isn't known.