A US congressional panel claims China's hackers are stealing US defence secrets.
The warning comes in the annual report of the US-China economic and security review commission.
The report claims networks and databases used by the US government and defence contractors are regularly targeted by Chinese hackers.
US defence contractors Raytheon, Lockheed Martin, Boeing and Northrop Grumman had all seen their unclassified networks breached by hackers in the last year, says the report.
"China is stealing vast amounts of sensitive information from US computer networks," says Larry Wortzel, the chairman of the commission.
The commission says the US government must upgrade its intelligence and homeland security systems.
The report says there are 250 hacker groups in China, with some of those hackers trained by Chinese military academies.
If nothing is done to stem these hacking groups' threat, says the report, the current US conventional military dominance over China could disappear.
Read the Annual report.