*Chapter 1
Contents*
**CCP
Supremacy Over the State, the PLA, and the
Economy**
*Biological
Warfare*
*Space
Technology*
*Military
Information Technology*
*Laser
Weapons*
*Automation
Technology*
*Nuclear
Weapons*
*Exotic
Materials*
**The
16-Character Policy: 'Give Priority to Military Products'**
**The
PRC's Use of Intelligence Services to Acquire U.S. Military
Technology**
**The
'Princelings'**
**Acquisition
of Military Technology from Other Governments**
*Russia*
*Israel*
*The
United States*
**Joint
Ventures with U.S. Companies**
**Acquisition
and Exploitation of Dual-Use Technologies**
**Front
Companies**
**Direct
Collection of Technology by** Non-Intelligence Agencies and
Individuals
**Illegal
Export of Military Technology** Purchased in the United
States
**PRC
Purchase of Interests in U.S. Companies**
**Methods
Used by the PRC to Export** Military Technology from the United
States
**PRC
Incentives for U.S. Companies to** Advocate Relaxation of Export
Controls
####
*Chapter 1
Summary*
his chapter describes the methods by
which the PRC attempts to acquire U.S. technology for military
purposes. The types of technology and information that the PRC and
individual PRC nationals have attempted to acquire, however, are far more
broad. The PRC appears to try to acquire information and technology on
just about anything of value. Not all of it, by any means, presents
national security or law enforcement concerns.
**The PRC's appetite for information and technology appears to be
insatiable, and the energy devoted to the task enormous.** While only a
portion of the PRC's overall technology collection activities targeted at
the United States is of national security concern, the impact on our
national security could be huge.
**The Select Committee has discovered evidence of a number of their
successes.** Given the size and variety of the PRC's overall effort, and
the limited U.S. resources and attention devoted to understanding and
countering its unlawful and threatening elements, there is clear cause for
concern that other serious losses have occurred or could occur in the
future.
**It is extremely difficult to meet the challenge of the PRC's
technology acquisition efforts in the United States** with traditional
counterintelligence techniques that were applied to the Soviet Union.
Whereas Russians were severely restricted in their ability to enter the
United States or to travel within it, visiting PRC nationals, most of whom
come to pursue lawful objectives, are not so restricted. Yet the PRC
employs all types of people, organizations, and collection operations to
acquire sensitive technology: threats to national security can come from
PRC scientists, students, business people, or bureaucrats, in addition to
professional civilian and military intelligence operations.
**In light of the number of interactions taking place between PRC and
U.S. citizens and organizations over the last decade as trade and other
forms of cooperation have bloomed, the opportunities for the PRC to
attempt to acquire information and technology, including sensitive
national security secrets, are immense.** Moreover, the PRC often does
not rely on centralized control or coordination in its technology
acquisition efforts, rendering traditional law enforcement, intelligence,
and counterintelligence approaches inadequate. While it is certainly true
that not all of the PRC's technology acquisition efforts are a threat to
U.S. national security, that very fact makes it quite a challenge to
identify those that are.
**While this report, this Select Committee, and the nation's
counterintelligence organizations are focused on national security issues,
it is thus necessary to understand the full range of the PRC's technology
acquisition effort to discern its threatening aspects.**
*Chapter 1
Text*
COMMERCIAL AND INTELLIGENCE
OPERATIONS PRC ACQISITION OF U.S.
TECHNOLOGY
## The Structure of the PRC Government
he political, governmental, military, and
commercial activities of the People's Republic of China are controlled by
three directly overlapping bureaucracies: the Communist Party, the State,
and the People's Liberation Army.
Foremost of these, and in ultimate control of all state, military,
commercial, and political activities in the PRC, is the Chinese Communist
Party (CCP).1 The Communist Party Secretary, Jiang Zemin, chairs both the
Politburo and its powerful executive group, the Politburo Standing
Committee. The Politburo, in turn, is supported by the CCP
Secretariat.
The State governmental apparatus is under the direct control of the
Communist Party Secretary, Jiang Zemin, who in his role as President
serves as the official head of the State as well. Subordinate to the CCP
Secretary in state affairs is the State Council, presided over by Premier
Zhu Rongji, also a high-ranking member of the Communist Party.
The People's Liberation Army (PLA) is also directly under the control
of the Communist Party. The top level of PLA authority is the CCP's
Central Military Commission (CMC), of which Jiang Zemin, the CCP
Secretary, is also the Chairman. The CMC's routine work is directed by its
two Vice-Chairmen, Generals Zhang Wannian and Chi Haotian.
The 24-member CCP Politburo,2 which ultimately controls the PRC's
political, military, governmental, and commercial activities, does not
usually conduct its business as a whole. Rather, due to its unwieldy size
and membership consisting of persons from outside Beijing, the Politburo
acts through its powerful seven-member Standing Committee. Involvement by
the entire Politburo in specific decisions normally occurs when there are
major policy shifts, crises need to be addressed, or formal legitimization
of a particular policy is necessary.
In contrast, the seven most senior members of the Communist Party
Politburo, comprising the Politburo Standing Committee, meet frequently.
The CCP Politburo Standing Committee wields the real decision-making power
in the PRC.
The Communist Party Secretariat officially serves as staff support to
the Politburo and oversees the implementation of Politburo decisions by
State bureaucracies. The Secretariat is composed of seven members of the
Politburo and is an executive rather than a decision-making body. The
current ranking member of the Secretariat is Vice-President and Standing
Committee member Hu Jintao.
The State Council, the top level of the PRC State governmental
apparatus, consists of the Premier, Vice Premiers, State Councilors, and
Secretary and Deputy Secretaries General. It directs the activities of all
State ministries, commissions, and offices.
**The Communist Party's
eight-member Central Military Commission (CMC) heads the People's
Liberation Army, which includes the PRC's army, navy, and air force, as
well as espionage operations** conducted through the Second Department
of the PLA. The CMC has a powerful bureaucratic status roughly comparable
to that of the Politburo Standing Committee and the State Council. It
meets regularly to address administrative matters and to formulate
military policy and strategy.
In addition to their policy- and decision-making roles in the CMC, key
members of that body by virtue of their top posts in the Communist
Party also serve a bridging function between the CCP, the State, and
the PLA.
The CMC, a Communist Party body, has no equivalent in the State sector.
The State Central Military Commission, an organization within the State
bureaucracy, is theoretically a separate decision-making body, but in
reality it has no unique powers because its membership generally mirrors
that of the Party's CMC. The PRC's Ministry of Defense, the principal
State bureaucracy for dealing with military affairs, is likewise composed
of Communist Party CMC members, and its role is primarily a ceremonial
one. The domination and control of the PLA by the Communist Party is thus
complete.
**COSTIND: The
CCP's Use of Corporations for Military Aims**
The State Council controls the PRC's military-industrial organizations
through the State Commission of Science, Technology and Industry for
National Defense (COSTIND). The State Council has a decisive role in
Communist Party policy because of its function as interpreter,
implementer, and overseer of broadly-worded and often ambiguous Politburo
policy goals.
Created in 1982, COSTIND was originally intended to eliminate conflicts
between the military research and development sector and the military
production sector by combining them under one organization. But its role
soon broadened to include the integration of civilian research,
development, and production efforts into the military.
**COSTIND presides over a vast,
interlocking network of institutions dedicated to the specification,
appraisal, and application of advanced technologies to the PRC's military
aims.** The largest of these institutions are styled as corporations,
notwithstanding that they are directly in service of the CCP, the PLA, and
the State. They are:
**ï¿½ China
Aerospace Corporation (CASC)**
**ï¿½ China
National Nuclear Corporation (CNNC)**
**ï¿½ China
North Industries Group (NORINCO)**
**ï¿½ Aviation
Industries Corporation of China (AVIC)**
**ï¿½ China
State Shipbuilding Corporation (CSSC)**
Until 1998, COSTIND was controlled directly by both the CMC and the
State Council. In March 1998, COSTIND was "civilianized" and now reports
solely to the State Council. A new entity, the General Armament Department
(GAD), was simultaneously created under the CMC to assume responsibility
for weapons system management and research and development.
**CCP Supremacy
Over the State, the PLA, and the Economy**
The PRC Constitution asserts the supremacy of the Communist Party over
all other government, military, and civilian entities.3 But the CCP also
relies on other, more pragmatic methods to ensure its primacy. The most
evident and effective of these is having senior CCP members in control of
all State government bodies.4
The most obvious example of the Communist Party's practical control of
both the State and the PLA is Communist Party Secretary Jiang Zemin's
simultaneous service as State President and CCP Central Military
Commission Chairman. Other examples include Zhu Rongji's simultaneous
service as Politburo Standing Committee member and Premier of the State
Council, and Li Lanqing's dual roles as Politburo member and Vice-Premier
of the State Council.
In addition to the CCP Politburo's control of the PRC government and
military, there are hundreds of similar connections between lower-level
Communist Party officials and the State, military, and commercial
bureaucracies in the PRC. For example, 25 of the 29 Ministers in charge of
Ministries and Commissions under the State Council are members of the CCP
Central Committee.
**Nowhere is the supremacy of the
Communist Party more clearly enunciated than with the PLA.** This
supremacy is explicitly set forth in the PRC Constitution.5 In addition,
as with the State government, it is not just law but common control that
guarantees PLA compliance with the Communist Party's dictates. The most
obvious practical example of direct Communist Party control of the PLA is
Jiang Zemin's position as Chairman of the Central Military Commission, and
the entire CMC's direct control of the PLA. Jiang is also the first
Communist Party Secretary to enforce CCP control over the military
completely by appointing no military officers to the powerful CCP
Politburo Standing Committee, although two officers remain on the
Politburo.
The slogan "the Party controls the gun" is often repeated in speeches
by both CCP and PLA officials, serving as a constant reminder of CCP
supremacy over the military. A 1997 article in the official PLA newspaper,
published in celebration of Army Day, provided a typical example:
*The Western hostile forces . . . have never given up their plot to
Westernize and disintegrate our country, and they always try to
infiltrate and corrode us by advocating the fallacies of de-partyization
of the army . . . in a vain attempt to make our army shake off the
Party's absolute leadership and change its nature.6*
## Development of the CCP's Technology
Policies
The CCP Politburo addresses broad technology matters through the
Science and Technology Leading Group.7 This Communist Party group is
headed by the Premier and includes the Chairman of the State Science and
Technology Commission8 and the Minister of COSTIND.
Broad technology policy directives originate in the upper levels of the
Communist Party hierarchy. It is up to the State Council and its organs to
fine-tune and implement those policies. In addition, the State government,
like the CCP itself, has a number of Leading Groups, including a Science
and Technology Leading Group, that provide expertise and recommendations
to the State Council and its organs. A committee of approximately 50
R&D experts meets annually and provides policy planning and technical
advice to the Minister of COSTIND. COSTIND can also call upon the many
academies and institutes under its direction.
The State Council and its sub-units are also consumers of military
research conducted by the PRC's military research bureaucracy, composed of
numerous think-tanks that provide analysis on a wide range of matters.
This military research is channeled through a State Council unit known as
the International Studies Research Center.
The Center acts as a conduit and central transmission point to channel
intelligence, research reports, and policy documents to the top Communist
Party leadership.9
**The 863 and
Super-863 Programs: ** Importing Technologies for Military
Use
In 1986, "Paramount Leader" Deng Xiaoping adopted a major initiative,
the so-called 863 Program, to accelerate the acquisition and development
of science and technology in the PRC.10 Deng directed 200 scientists to
develop science and technology goals. The PRC claims that the 863 Program
produced nearly 1,500 research achievements by 1996 and was supported by
nearly 30,000 scientific and technical personnel who worked to advance the
PRC's "economy and . . . national defense construction." 11
The most senior engineers behind the 863 Program were involved in
strategic military programs such as space tracking, nuclear energy, and
satellites.12 Placed under COSTIND's management, the 863 Program aimed to
narrow the gap between the PRC and the West by the year 2000 in key
science and technology sectors, including the military technology areas
of:
**ï¿½
Astronautics**
**ï¿½ Information
technology**
**ï¿½ Laser technology**
**ï¿½ Automation technology**
**ï¿½ Energy technology**
**ï¿½ New
materials**
The 863 Program was given a budget split between military and civilian
projects, and focuses on both military and civilian science and
technology. The following are key areas of military concern:
__Biological Warfare __ The 863
Program includes a recently unveiled plan for gene research that could
have biological warfare applications.
__Space Technology__ Recent PRC
planning has focused on the development of satellites with remote sensing
capabilities, which could be used for military reconnaissance, as well as
space launch vehicles.
__Military Information
Technology__ The 863 Program includes the development of
intelligent computers, optoelectronics, and image processing for weather
forecasting; and the production of submicron integrated circuits on 8-inch
silicon wafers. These programs could lead to the development of military
communications systems; command, control, communications, and intelligence
systems; and advances in military software development.
__Laser Weapons__ The 863
Program includes the development of pulse-power techniques, plasma
technology, and laser spectroscopy, all of which are useful in the
development of laser weapons.
__Automation Technology__ This
area of the 863 Program, which includes the development of
computer-integrated manufacturing systems and robotics for increased
production capability, is focused in the areas of electronics, machinery,
space, chemistry, and telecommunications, and could standardize and
improve the PRC's military production.
__Nuclear Weapons__ Qinghua
University Nuclear Research Institute has claimed success in the
development of high-temperature, gas-cooled reactors, projects that could
aid in the development of nuclear weapons.
__Exotic Materials__ The 863
Program areas include optoelectronic information materials, structural
materials, special function materials, composites, rare-earth metals, new
energy compound materials, and high-capacity engineering plastics. These
projects could advance the PRC's development of materials, such as
composites, for military aircraft and other weapons.
In 1996, the PRC announced the "Super 863 Program" as a follow-on to
the 863 Program, planning technology development through 2010. The "Super
863 Program" continues the research agenda of the 863 Program, which
apparently failed to meet the CCP's expectations.
**The Super 863 Program calls for
continued acquisition and development of technology in a number of areas
of military concern,** including machine tools, electronics,
petrochemicals, electronic information, bioengineering, exotic materials,
nuclear research, aviation, space, and marine technology.
COSTIND and the Ministry of Science and Technology jointly manage the
Super 863 Program. The Ministry of Science and Technology focuses on
biotechnology, information technology, automation, nuclear research, and
exotic materials, while COSTIND oversees the laser and space technology
fields.13
COSTIND is attempting to monitor foreign technologies, including all
those imported into the PRC through joint ventures with the United States
and other Western countries. These efforts are evidence that the PRC
engages in extensive oversight of imported dual-use technology. The PRC is
also working to translate foreign technical data, analyze it, and
assimilate it for PLA military programs. The Select Committee has
concluded that these efforts have targeted the U.S. Government and other
entities.
If successful, the 863 Programs will increase the PRC's ability to
understand, assimilate, and transfer imported civil technologies to
military programs. Moreover, Super 863 Program initiatives increasingly
focus on the development of technologies for military applications. PRC
program managers are now emphasizing projects that will attract U.S.
researchers.
Since the early 1990s, the PRC has been increasingly focused on
acquiring U.S. and foreign technology and equipment, including
particularly dual-use technologies that can be integrated into the PRC's
military and industrial bases.
**The
16-Character Policy: 'Give Priority to Military Products'**
In 1997, the CCP formally codified the 16-Character Policy. The
"16-Character Policy" is the CCP's overall direction that underlies the
blurring of the lines between State and commercial entities, and military
and commercial interests. The sixteen characters literally mean:
**ï¿½ ***Jun-min jiehe* (Combine
the military and civil)
**ï¿½ ***Ping-zhan jiehe*
(Combine peace and war)
**ï¿½ ***Jun-pin youxian* (Give
priority to military products)
**ï¿½ ***Yi min yan jun* (Let
the civil support the military)14
This policy, a reaffirmation and codification of Deng Xiaoping's 1978
pronouncement, holds that military development is the object of general
economic modernization, and that the CCP's main aim for the civilian
economy is to support the building of modern military weapons and to
support the aims of the PLA. The 16-Character Policy could be interpreted,
in light of other policy pronouncements that subordinate military
modernization to general economic modernization, to mean a short-term
strategy to use defense conversion proceeds for immediate military
modernization. Or it could mean a long-term strategy to build a civilian
economy that will, in the future, support the building of modern military
goods. In practice, however, the policy appears to have meant a little of
both approaches.15
The CCP's official policy on military modernization, as publicly
announced since the late 1970s by then-"Paramount Leader" Deng Xiaoping,
states that the PRC is devoting its resources to economic development, and
that military development is subordinate to and serves that goal.16 But as
Dr. Michael Pillsbury of the National Defense University has testified
publicly, the doctrinal and strategic writings of many PLA leaders and
scholars are inconsistent with a subordination of military modernization
efforts. In fact, according to Pillsbury, these views are "surprising, and
perhaps even alarming." 17
**General Liu Huaqing, former
Vice-Chairman of the CCP's Central Military Commission and a member** of
both the Politburo and the Standing Committee, stated in 1992 that
economic modernization was dependent not only on "advanced science and
technology," but also "people armed with it." Anything else was "empty
talk." 18
The PRC has indeed used the profits from
its burgeoning commercial economy to purchase a number of advanced weapons
systems. The most notable of these include the purchase from Russia of 50
Sukhoi Su-27 jet fighters and the production rights for 200 more, two Kilo
attack submarines, and two Sovremenniy missile destroyers.19
The PRC has also purchased weapons systems or their components from
Israel, France, Britain, and the United States, including
air-to-air missiles, air-refueling technology, Global Positioning
System (GPS) technology, helicopter parts, and assorted avionics.20
In addition to providing funds for the purchase of U.S. and foreign
weapons systems, implementation of the 16-Character Policy serves the PLA
in other ways. Among these are:
**ï¿½ Funding military R&D
efforts**
**ï¿½ Providing civilian cover for
military industrial companies to acquire dual-use technology through
purchase or joint-venture business dealings**
**ï¿½ Modernizing an industrial
base that can, in time of hostility, be turned towards military
production**
In this connection, since the 1980s significant portions of the PRC
military industry have diversified into civilian production. The
production of profit-producing civilian goods helps keep the PRC
military-industrial companies financially stable. The majority of them
have operated "in the red" for years, bolstered only by extremely generous
and forgiving loan arrangements from the PRC's central banks.21
**The blurred lines between
military and commercial technology that are the hallmarks of the
16-Character Policy** have also created some problems for the PRC. An
official in the State Planning Commission criticized the 16-Character
Policy for an insufficient focus on the most advanced military
technologies, particularly in aerospace, aviation, nuclear power, and
ship-building. At the same time, the official acknowledged, military
industries have been reluctant to share economically valuable technologies
with civilian enterprises.22
Pursuant to the 16-Character Policy, the PRC's emphasis on the
acquisition and development of military technology is closely related to
its interest in science and technology for economic development. At times
this has been reflected in tension between modernizing the PLA and
developing the economy. The PRC's approach to resolving this conflict has
been to seek "comprehensive national power," in which high-technology
industries, economic growth, and military modernization are all
interrelated.23
Despite the PRC's public claims, it is estimated that their actual
military spending is four to seven times greater than official figures.
During the 1990s, no other part of the PRC's budget has increased at the
rate of military spending. A large portion of this budget is devoted to
military research.24
The success achieved by the United States through the use of
high-technology weapons in the 1990 Gulf War led PLA leaders to call for a
reemphasis on military development. PLA leaders began to call for military
preparedness to fight "limited war under high-tech conditions."
The PLA's call for more attention to military aims appears to have had
some impact. In a 1996 speech, Li Peng, second-ranking member of the CCP
Politburo, then-Prime Minister, and currently Chairman of the National
People's Congress,25 said:
We should attach great importance to strengthening the army through
technology, enhance research in defense-related science, . . . give
priority to developing arms needed for defense under high-tech conditions,
and lay stress on developing new types of weapons.26
Communist Party Secretary Jiang Zemin, in March 1997, publicly called
for an "extensive, thoroughgoing and sustained upsurge" in the PLA's
acquisition of high technology.27 The PRC's 1998 Defense White Paper
pointedly stated that "no effort will be spared to improve the
modernization level of weaponry." 28
The modernization of the PLA has placed priority on the development
of:
**ï¿½ Battlefield
communications**
**ï¿½ Reconnaissance**
**ï¿½ Space-based weapons**
**ï¿½ Mobile nuclear
weapons**
**ï¿½ Attack submarines**
**ï¿½ Fighter aircraft**
**ï¿½ Precision-guided
weapons**
**ï¿½ Training rapid-reaction
ground forces**
These actions, supported by the PRC's overall economic growth, will
improve the PLA's military capabilities in ways that enable the PRC to
broaden its geographic focus. At the same time, the PRC has shifted its
military strategy towards rapid-reaction mobility and regional, versus
global, armed conflict. Under this framework, the PRC's avowed military
strategy is one of "active defense," a capability for power projection to
defend the PRC's territorial ambitions, which extend to not only Taiwan,
but also the Senkaku Islands in the East China Sea, and the Spratly and
Paracel Islands in the South China Sea.
**The PRC's Use
of Intelligence Services ** To Acquire U.S. Military
Technology
The primary professional PRC intelligence services involved in
technology acquisition are the Ministry of State Security (MSS) and the
PLA General Staff's Military Intelligence Department (MID).
In addition to and separate from these services, the PRC maintains a
growing non-professional technology-collection effort by other PRC
Government-controlled interests, such as research institutes and PRC
military-industrial companies. Many of the most egregious losses of U.S.
technology have resulted not from professional operations under the
control or direction of the MSS or MID, but as part of commercial,
scientific, and academic interactions between the United States and the
PRC.
Professional intelligence agents from the MSS and MID account for a
relatively small share of the PRC's foreign science and technology
collection. The bulk of such information is gathered by various
non-professionals, including PRC students, scientists, researchers, and
other visitors to the West. These individuals sometimes are working at the
behest of the MSS or MID, but often represent other PRC-controlled
research organizations - scientific bureaus, commissions, research
institutes, and enterprises.
Those unfamiliar with the PRC's intelligence practices often conclude
that, because intelligence services conduct clandestine operations, all
clandestine operations are directed by intelligence agencies. In the case
of the PRC, this is not always the rule. Much of the PRC's intelligence
collection is independent of MSS direction. For example, a government
scientific institute may work on its own to acquire information.
**The MSS is headed by Minister Xu
Yongyue, a member of the CCP Central Committee.** The MSS reports to
Premier Zhu Rongji and the State Council, and its activities are
ultimately overseen by the CCP Political Science and Law Commission. It is
not unusual for senior members of the CCP's top leadership to be
interested in the planning of PRC military acquisitions.
The MSS conducts science and technology collection as part of the PRC's
overall efforts in this area. These MSS efforts most often support the
goals of specific PRC technology acquisition programs, but the MSS will
take advantage of any opportunity to acquire military technology that
presents itself.
The MSS relies on a network of non-professional individuals and
organizations acting outside the direct control of the intelligence
services, including scientific delegations and PRC nationals working
abroad, to collect the vast majority of the information it seeks.
The PLA's Military Intelligence Department (MID), also known as the
Second Department of the PLA General Staff, is responsible for military
intelligence. It is currently run by PLA General Ji Shengde, the son of a
former PRC Foreign Minister. One of the MID's substantial roles is
military-related science and technology collection.
Methods Used by the PRC To
Acquire Advanced U.S. Military Technology
Th e PRC uses a variety of approaches to acquire military technology.
These include:
**ï¿½ Relying on "princelings" who
exploit their military, commercial, and political connections with
high-ranking CCP and PLA leaders to buy military technology from
abroad**
**ï¿½ Illegally transferring U.S.
military technology from third countries**
**ï¿½ Applying pressure on U.S.
commercial companies to transfer licensable technology illegally in
joint ventures**
**ï¿½ Exploiting dual-use products
and services for military advantage in unforeseen ways**
**ï¿½ Illegally diverting
licensable dual-use technology to military purposes**
**ï¿½ Using front companies to
illegally acquire technology**
**ï¿½ Using commercial enterprises
and other organizations as cover for technology acquisition**
**ï¿½ Acquiring interests in U.S.
technology companies**
**ï¿½ Covertly conducting espionage
by personnel from government ministries, commissions, institutes, and
military industries independently of the PRC intelligence
services**
The last is thought to be the major method of PRC intelligence activity
in the United States.
The PRC also tries to identify ethnic Chinese in the United States who
have access to sensitive information, and sometimes is able to enlist
their cooperation in illegal technology or information transfers.
Finally, the PRC has been able to exploit weaknesses and lapses in the
U.S. system for monitoring the sale and export of surplus military
technology and industrial auctions.
The PRC is striving to acquire advanced technology of any sort, whether
for military or civilian purposes, as part of its program to improve its
entire economic infrastructure.29 This broad targeting permits the
effective use of a wide variety of means to access technology. In
addition, the PRC's diffuse and multi-pronged technology-acquisition
effort presents unique difficulties for U.S. intelligence and law
enforcement agencies, because the same set of mechanisms and organizations
used to collect technology in general can be used and are used to collect
military technology.
The PRC's blending of intelligence and non-intelligence assets and
reliance on different collection methods presents challenges to U.S.
agencies in meeting the threat. In short, as James Lilley, former U.S.
Ambassador to the PRC says, U.S. agencies are "going nuts" trying to find
MSS and MID links to the PRC's military science and technology collection,
when such links are buried beneath layers of bureaucracy or do not exist
at all.30
**The
'Princelings'**
Unlike the Soviet Union, where nepotism in the Communist Party was
rare, ruling in the PRC is a family business. Relatives of the founders of
the Chinese Communist Party rise quickly through the ranks and assume
powerful positions in the CCP, the State, the PLA, or the business sector.
These leaders, who owe their positions more to family connections than to
their own merit, are widely known as "princelings." 31
Political, military, and business leaders in the PRC exercise
considerable influence within their respective hierarchies. With the
exception of those who make their way to the uppermost levels of the CCP
or State bureaucracies, however, their authority, clout, and influence
extend only to those below them within that hierarchy. They have little
ability to influence either the leaders above them within their own
hierarchy or the leaders in other hierarchies.32
Princelings operate outside these structures. Because of their family
ties and personal connections to other CCP, PLA, and State officials, they
are able to "cross the lines" and accomplish things that might not
otherwise be possible.33
Two of the currently most notable princelings, Wang Jun and Liu
Chaoying, have been directly involved in illegal activities in the United
States.
**Wang Jun is the son of the late
PRC President Wang Zhen.** Wang simultaneously holds two powerful
positions in the PRC. He is Chairman of the China International Trade and
Investment Company (CITIC), the most powerful and visible corporate
conglomerate in the PRC. He is also the President of Polytechnologies
Corporation, an arms-trading company and the largest and most profitable
of the corporate structures owned by the PLA. Wang's position gives him
considerable clout in the business, political, and military hierarchies in
the PRC.34
Wang is publicly known in the United States for his role in the 1996
campaign finance scandal and for Polytechnologies' indictment stemming
from its 1996 attempt to smuggle 2,000 Chinese AK-47 assault rifles into
the United States. He attended a White House "coffee" with President
Clinton in February 1996 and was given a meeting with Commerce Secretary
Ronald Brown the following day. He was also connected to over $600,000 in
illegal campaign contributions made by Charlie Trie to the U.S. Democratic
National Committee (DNC).35
**Liu Chaoying is the daughter of
former CCP Central Military Commission Vice-Chairman **and Politburo
Standing Committee member General Liu Huaqing, who has used numerous U.S.
companies for sensitive technology acquisitions. General Liu has been
described as the PLA's preeminent policymaker on military R&D,
technology acquisition, and equipment modernization as well as the most
powerful military leader in the PRC. His daughter is a Lieutenant Colonel
in the PLA and has held several key and instrumental positions in the
PRC's military industry, which is involved in numerous arms transactions
and international smuggling operations.36 On two occasions she has entered
the United States illegally and under a false identity.
Col. Liu Chaoying is currently a Vice-President of China Aerospace
International Holdings, a firm specializing in foreign technology and
military sales.37 It is the Hong Kong subsidiary of China Aerospace
Corporation, the organization that manages the PRC's missile and space
industry. Both organizations benefit from the export of missile or
satellite-related technologies and components from the United States, as
does China Great Wall Industry Corporation, Col. Liu's former employer and
a subsidiary of China Aerospace Corporation, which provides commercial
space launch services to American satellite manufacturers.
China Aerospace Corporation is also a substantial shareholder in both
the Apstar and APMT projects to import U.S. satellites to the PRC for
launch by China Great Wall Industry Corporation.38
A Chinese-American, Johnny Chung, during the
course of plea negotiations, disclosed that during a trip to Hong Kong in
the summer of 1996, he met with Col. Liu and the head of the MID, Gen. Ji
Shengde. According to Chung, he received $300,000 from Col. Liu and Gen.
Ji as a result of this meeting. The FBI confirmed the deposit into Chung's
account from Hong Kong and that the PLA officials likely served as the
conduit for the money.
The Select Committee determined that Col. Liu's payment to Johnny Chung
was an attempt to better position her in the United States to acquire
computer, missile, and satellite technologies. The purpose of Col. Liu's
contacts was apparently to establish reputable ties and financing for her
acquisition of technology such as telecommunications and aircraft
parts.39
Within one month after meeting with Col. Liu in Hong Kong, Chung formed
Marswell Investment, Inc., possibly capitalizing the new company with some
of the $300,000 he had received from Col. Liu and Gen. Ji.40 Col. Liu was
designated as president of the company, which was based in Torrance,
California. The company is located in southern California, in the same
city where China Great Wall Industry Corporation also maintains its U.S.
subsidiary.
Col. Liu made two trips to the United States, one in
July 1996 and one in August 1996, apparently seeking to expand her
political and commercial contacts. During Col. Liu's July trip, Chung
arranged for her to attend a DNC fundraiser where she met President
Clinton and executives involved in the import-export business.41
Shortly afterwards, Chung also arranged for her to meet with the
Executive Vice President of the Federal Reserve Bank of New York.42
Liu's August 1996 trip to the United States came at the invitation of
Chung, who had told her that he had contacted Boeing and McDonnell Douglas
regarding her interest in purchasing aircraft parts.43
That same month, Col. Liu traveled to Washington, D.C., where Chung had
contacts arrange for her to meet with representatives of the Securities
and Exchange Commission to discuss listing a PRC company on U.S. stock
exchanges.44 Soon after the meeting, when Chung and Liu's alleged
involvement in the campaign finance scandal became the subject of media
reports, Col. Liu left the United States. Marswell remains dormant.45
Princelings such as Wang and Liu present a unique technology transfer
threat because their multiple connections enable them to move freely
around the world and among the different bureaucracies in the PRC. They
are therefore in a position to pull together the many resources necessary
to carry out sophisticated and coordinated technology acquisition
efforts.46
**Acquisition of
Military Technology from Other Governments**
To fill its short-term technological needs
military equipment, the PRC has made numerous purchases of foreign
military systems. The chief source for these systems is Russia, but the
PRC has acquired military technology from other countries as well.
Specific details on these acquisitions appear in the Select Committee's
classified report, but the Clinton administration has determined that they
cannot be made public without affecting national security.
__Russia__ After years of
hostile relations between the PRC and the Soviet Union, Russia has again
become the PRC's main source of advanced weapons and has sold numerous
weapon systems to the PRC.47 The technologically-advanced weapons systems
and components the PRC either has purchased or plans to purchase from
Russia include electronic warfare and electronic eavesdropping (SIGINT)
equipment, air-to-air missiles, advanced jet fighters, attack helicopters,
attack submarines, and guided missile destroyers.48 These transfers have
been used to improve the capabilities of the PLA ground, air, and naval
forces.
__Israel__ Recent years have
been marked by increased Sino-Israeli cooperation on military and security
matters.49 Israel has offered significant technology cooperation to the
PRC, especially in aircraft and missile development.50 Israel has provided
both weapons and technology to the PRC, most notably to assist the PRC in
developing its F-10 fighter and airborne early-warning aircraft.51
__The United
States__ The PRC has stolen military technology from the United
States, but until recently the United States has lawfully transferred
little to the PLA. This has been due, in part, to the sanctions imposed by
the United States in response to both the 1989 Tiananmen Square massacre
and to the PRC's 1993 transfer of missile technology to Pakistan.
During the Cold War, the United States assisted the PRC in avionics
modernization of its jet fighters under the U.S. Peace Pearl
program.52
After the relatively "cool" period in U.S.-PRC relations in the early
1990s, the trend since 1992 has been towards liberalization of dual-use
technology transfers to the PRC.53 Recent legal transfers include the sale
of approximately 40 gas turbine jet engines, the sale of high performance
computers, and licensed co-production of helicopters.54
Nonetheless, the list of military-related technologies legally
transferred to the PRC directly from the United States remains relatively
small.
Illegal transfers of U.S. technology from the U.S. to the PRC, however,
have been significant.
Significant transfers of U.S. military technology have also taken place
in the mid-1990s through the re-export by Israel of advanced technology
transferred to it by the United States, including avionics and missile
guidance useful for the PLA's F-10 fighter. Congress and several Executive
agencies have also investigated allegations that Israel has provided
U.S.-origin cruise, air-to-air, and ground-to-air missile technology to
the PRC.55
**Joint Ventures
with U.S. Companies**
This section describes the pressures brought to bear on U.S. companies
linked with militarily-sensitive technology attempting to do business with
the PRC, and provides examples of U.S. companies conspiring to evade
export control laws in pursuit of joint ventures.
The vast majority of commercial business activity between the United
States and the PRC does not present a threat to national security, but
additional scrutiny, discipline, and an awareness of risks are necessary
with respect to joint ventures with the PRC where the potential exists for
the transfer of militarily-sensitive U.S. technology.
The U.S. 1997 National Science and Technology Strategy stated that:
*Sales and contracts with foreign buyers imposing conditions
leading to technology transfer, joint ventures with foreign partners
involving technology sharing and next generation development, and
foreign investments in U.S. industry create technology transfer
opportunities that may raise either economic or national security
concerns.56*
The behavior of the PRC Government and PRC-controlled businesses in
dealing with U.S. companies involved with militarily sensitive technology
confirms that these concerns are valid and growing. The growing number of
joint ventures that call for technology transfers between the PRC and U.S.
firms can be expected to provide the PRC with continued access to dual-use
technologies for military and commercial advantage.
Technology transfer requirements in joint ventures often take the form
of side agreements (sometimes referred to as offset agreements) requiring
both that the U.S. firm transfer technology to the PRC partner, and that
all transferred technology will eventually become the property of the PRC
partner.57
**Although many countries require
technology transfers when they do business with U.S. firms, no country
makes such demands across as wide a variety of industries as the PRC
does.58** Despite the PRC's rapid economic liberalization since 1978, it
continues to implement its explicitly designed goals and policies to
restrict and manage foreign investment so as to bolster the PRC's military
and commercial industries through acquisition of technology.59
The Communist Party has long believed that forcing technology from
foreign firms is not only critical to the PRC, but also is a cost that
foreign firms will bear in order to obtain PRC market entry.
In the past, the PRC has favored joint ventures with U.S.
high-technology companies for several reasons:
**ï¿½ The U.S. excels in many areas
of technology that are of special interest to the PLA and to
PRC-controlled firms**
**ï¿½ Many PRC scientists were
educated in the United States and retain valuable contacts in the U.S.
research and business community who can be exploited for technology
transfer**
**ï¿½ Many other countries are more
reluctant than the United States to give up
technology60**
The PRC has dedicated increasing resources to identifying U.S.
high-technology firms as likely targets for joint venture overtures.
Science and technology representatives in PRC embassies abroad are used to
assist in this targeting of technology, and to encourage collaboration
with U.S. firms for this purpose.
Unless they are briefed by the FBI pursuant to its National Security
Threat List program, U.S. companies are unaware of the extent of the PRC's
espionage directed against U.S. technology, and thus - at least from the
U.S. national security standpoint - are generally unprepared for the
reality of doing business in the PRC. They lack knowledge of the
interconnection between the CCP, the PLA, the State, and the
PRC-controlled companies with which they deal directly in the negotiating
process.61
The U.S. General Accounting Office (GAO) has found that U.S. businesses
have significant concerns about arbitrary licensing requirements in the
PRC that often call for increased technology transfer. The GAO has also
found that transparency was the most frequent concern reported by U.S.
companies.62 Because of the lack of transparency in the PRC's laws, rules,
and regulations that govern business alliances, and the dearth of
accessible, understandable sources of regulatory information, U.S.
businesses are often subjected to technology transfer requirements that
are not in writing, or are not maintained in the field, or are contained
in "secret" rules that only insiders know about.63
**The PRC's massive potential
consumer market is the key factor behind the willingness of some U.S.
businesses to risk and tolerate technology transfers.** Some of these
transfers could impair U.S. national security, as in the cases of Loral
and Hughes described later in this Report. The obvious potential of the
PRC market has increasingly enabled the PRC to place technology-transfer
demands on its U.S. trading partners.
U.S. businesses believe that they must be in the PRC, lest a competitor
get a foothold first.64 In fact, many U.S. high-technology firms believe
it is more important to establish this foothold than to make profits
immediately or gain any more than limited access to the PRC market.65 Some
of the PRC's trading partners have focused on increased technology
transfers to raise the attractiveness of their bids.
In addition to traditional types of technology transfer, many U.S.
high-technology investments in the PRC include agreements establishing
joint research and development centers or projects. This type of agreement
represents a new trend in U.S. investment in the PRC and is a potentially
significant development.66
U.S. companies involved in joint ventures may be willing to transfer
technology because they believe that the only risk is a business one -
that is, that the transfers may eventually hurt them in terms of market
share or competition.67 These businesses may be unaware that technologies
transferred to a PRC partner will likely be shared within the PRC's
industrial networks and with the PLA, or that joint ventures may be used
in some instances as cover to acquire critical technology for the
military.
COSTIND, which controls the PRC's military-industrial organizations,
likely attempts to monitor technologies through joint ventures. In
addition, U.S. businesses may be unaware that joint-venture operations are
also vulnerable to penetration by official PRC intelligence agencies, such
as the MSS.
In one 1990s case reviewed by the Select Committee, a U.S.
high-technology company and its PRC partner used a joint venture to avoid
U.S. export control laws and make a lucrative sale of controlled equipment
to the PRC. Following the denial of an export license, the U.S. company
attempted to form a joint venture to which the technology would be
transferred. The joint venture was controlled by a PRC entity included on
the U.S. Commerce Department's Entity List, which means it presents an
unacceptable risk of diversion to the development of weapons of mass
destruction.
**Acquisition
and Exploitation of Dual-Use Technologies**
The acquisition of advanced dual-use technology represents yet another
method by which the PRC obtains advanced technology for military
modernization from the United States. The PRC's military modernization
drive includes a policy to acquire dual-use technologies. The PRC seeks
civil technology in part in the hope of being able to adapt the technology
to military applications. This is referred to by some analysts as
"spinning on." 68
A strategy developed by the PRC in 1995 called for the acquisition of
dual-use technologies with civil and military applications, and the
transfer of R&D achievements in civil technology to the research and
production of weapons.
The PRC collects military-related science and technology information
from openly available U.S. and Western sources and military researchers.
This accelerates the PLA's military technology development by permitting
it to follow proven development options already undertaken by U.S. and
Western scientists.
**PRC procurement agents have
approached U.S. firms to gain an understanding of the uses of available
technology,** and to evaluate the PRC's ability to purchase dual-use
technology under the guise of civil programs and within the constraints of
U.S. export controls. Additionally, the PRC has attempted to acquire
information from the U.S. and other countries about the design and
manufacturing of military helicopters.69 The PRC could use this approach
to acquire chemical and biological weapons technology.
The key organizations in the PRC's drive to acquire dual-use technology
include:
**ï¿½ COSTIND, **which acquires
dual-use technology for PRC institutes and manufacturers by assuring
foreign suppliers that the technology will be used for civil production.
COSTIND uses overseas companies to target U.S. firms for acquisition of
dual-use technology for the military.
**ï¿½ The Ministry of Electronics
Industry (MEI),70 **which is responsible for developing the PRC's
military electronics industry. Among other things, the Ministry approves
and prioritizes research and development and the importation of
electronics technologies that can be used to speed up the PRC's
indigenous production capabilities.
**ï¿½ The Ministry of Post and
Telecommunications (MPT), **which is acquiring asynchronous transfer
mode switches that could be used for military purposes by the
PLA.71
**ï¿½ PLA-operated
import-export companies, **which also import dual-use technologies for
military modernization. Polytechnologies, a company attached to the
General Staff Department of the PLA, plays a major role in this effort,
especially in negotiating foreign weapons purchases.72
**ï¿½ The Aviation Industries Corporation of
China (AVIC), and its subsidiary, China National Aero-Technology
Import-Export Corporation (CATIC), **which have sent visitors to U.S.
firms to discuss manufacturing agreements for commercial systems that
could be used to produce military aircraft for the PLA.73 AVIC is one of
five PRC state-owned conglomerates that operate as "commercial
businesses" under the direct control of the State Council and
COSTIND.
Several incidents highlight CATIC's direct role in the
acquisition of controlled U.S. technology. One clear example was CATIC's
role as the lead PRC representative in the 1994 purchase of advanced
machine tools from McDonnell Douglas, discussed more fully later in this
Report.
**Another possible example of the
PRC's exploitation of civilian end-use as a means of obtaining controlled
technology** was CATIC's 1983 purchase of two U.S.-origin CFM-56 jet
engines on the pretext that they would be used to re-engine commercial
aircraft. Although the CFM-56 is a commercial engine, its core section is
the same as the core of the General Electric F-101 engine that is used in
the U.S. B-1 bomber. Because of this, restrictions were placed on the
export license. However, the PRC may have exploited the technology of the
CFM-56. When the U.S. Government subsequently requested access to the
engines, the PRC claimed they had been destroyed in a fire.
CATIC has, on several occasions reviewed by the Select Committee,
misrepresented the proposed uses of militarily useful U.S. technology. The
Clinton administration has determined that the specific facts in these
cases may not be publicly disclosed without affecting national
security.
In 1996, AVIC, CATIC's parent company, attempted to use a Canadian
intermediary to hire former Pratt & Whitney engineers in the United
States to assist in the development of an indigenous PRC jet engine.
AVIC's initial approach was under the guise of a civilian project, and the
U.S. engineers were not told they would be working on a military engine
for the PRC's newest fighter jet until negotiations had progressed
substantially. The U.S. engineers pulled out when they were told what they
would be asked to do.74
The degree of diversion to military programs by the PRC of
commercially-acquired technologies is unclear, since the PRC's parallel
civil-military industrial complex75 often blurs the true end-use of
technology that is acquired. As a result, there may be more use of U.S.
dual-use technology for military production than these examples
suggest.
**Front
Companies**
Another method by which the PRC acquires technology is through the use
of front companies. The term "front company" has been used in a variety of
ways in public reports and academic studies in different contexts, and can
include:
**ï¿½ U.S. subsidiaries of PRC
military-industrial corporations in the PRC**
**ï¿½ U.S. subsidiaries of
PLA-owned-and-operated corporations**
**ï¿½ Corporations set up by PRC
nationals overseas to conduct technology acquisition and
transfer**
**ï¿½ Corporations set up outside
the PRC to acquire technology for a PRC intelligence service,
corporation, or institute covertly**
**ï¿½ Corporations set up outside
the PRC by a PRC intelligence service, corporation, or institute
**solely to give cover to professional or non-professional agents who
enter the United States to gather technology or for other purposes
**ï¿½ Corporations set up outside
the PRC by a PRC intelligence service to launder money**
**ï¿½ Corporations set up outside
the PRC by a PRC intelligence service to raise capital to fund
intelligence operations**
**ï¿½ Corporations set up outside
the PRC by a PRC individual to hide, accumulate, or raise money for
personal use**
**ï¿½ Corporations set up outside
the PRC by organs of the PRC Government to funnel money to key U.S.
leaders **for the purpose of garnering favor and influencing the U.S.
political process and U.S. Government decision-making
The differing meanings attached to the term "front companies" by
different U.S. agencies has led to confusion, particularly because many
PRC companies fall into several different categories, at the outset or at
different times during their existence. In addition, U.S. agencies
responsible for different aspects of national security, law enforcement,
and Sino-U.S. relations often do not share even basic data concerning PRC
espionage in the United States.
This may partly explain why, for example, in Senate testimony on the
same day in 1997, the State Department said it could identify only two PLA
companies that were doing business in the United States, while the AFL-CIO
identified at least 12, and a Washington-based think-tank identified 20 to
30 such companies.76 The Select Committee has determined that all three
figures are far below the true figure.
**The Select Committee has
concluded that there are more than 3,000 PRC corporations in the United
States,** some with links to the PLA, a State intelligence service, or
with technology targeting and acquisition roles. The PRC's blurring of
"commercial" and "intelligence" operations presents challenges to U.S.
efforts to monitor technology transfers for national security
purposes.
General Liu Huaqing, who recently retired as a member of the Communist
Party Politburo, the CCP Standing Committee, and the Central Military
Commission, was involved with dozens of companies in Hong Kong and in
Western countries engaged in illegally acquiring advanced U.S.
technology.
Yet another complicating factor is the evolution of the names used by
PRC-controlled corporations. Some corporations such as NORINCO and
Polytechnologies were easily recognizable as subsidiaries of PRC
corporations. The boards of directors of PRC companies were also easily
recognizable as PLA officers in the past.77 Recent changes, however, have
made it more difficult to recognize PRC corporations.
Some analysts note that U.S.-based subsidiaries of PLA-owned companies
in particular have stopped naming themselves after their parent
corporation, a move prompted at least in part by criminal indictments and
negative media reports that have been generated in connection with their
activities in the United States. Many PLA-owned companies in the United
States have simply ceased to exist in the past year or so, a phenomenon
that reflects these factors as well as the fact that PRC-controlled
companies often do not make money.78
The PRC intelligence services use front companies for espionage. These
front companies may include branches of the large ministerial corporations
in the PRC, as well as small one- and two-person establishments. Front
companies, whatever the size, may have positions for PRC intelligence
service officers. PRC front companies are often in money-making businesses
that can provide cover for intelligence personnel in the United
States.
PRC front companies may be used to sponsor visits to the U.S. by
delegations that include PRC intelligence operatives.
There has been increasing PRC espionage through front companies during
the 1990s. As of the late 1990s, a significant number of front companies
with ties to PRC intelligence services were in operation in the United
States.
The PRC also uses its state-controlled "news" media organizations to
gain political influence and gather political intelligence.
**In June 1993, after a
highly-publicized trial, a former Chinese philosophy professor, Bin Wu,
and two other PRC nationals were convicted in a U.S. court of smuggling
third-generation night-vision equipment** to the PRC. Wu worked at the
direction of the MSS, which he says directed him to acquire numerous
high-technology items from U.S. companies. To accomplish these tasks, Wu
and the others created several small front companies in Norfolk, Virginia.
From that base, they solicited technology from a number of U.S. companies,
purchasing the equipment in the names of the front companies and
forwarding it to the MSS through intermediaries in Hong Kong.79
Wu was a good example of the non-traditional PRC approach to acquiring
technology in that Wu himself was not a professional intelligence agent.
Identified as a pro-Western dissident by the MSS just after the Tiananmen
Square massacre, he was given a choice: he could stay in the PRC and face
prison, or he could accept the MSS's offer to help him and his family by
supporting the PRC in its quest for high technology. Wu was also a
"sleeper" agent, who was initially told to go to the United States and
establish himself in the political and business community. The MSS told Wu
he would be called upon and given taskings later.80
Wu appears to have been part of a significant PRC intelligence
structure in the United States. This structure includes "sleeper" agents,
who can be used at any time but may not be tasked for a decade or more.81
In the 1990s, the PRC has also attempted to use front companies to
acquire sensitive information on restricted military technologies,
including the Aegis combat system. The Aegis combat system uses the
AN/SPY-1 phased array radar to detect and track over 100 targets
simultaneously, and a computer-based command and decision system allowing
for simultaneous operations against air, surface, and submarine
threats.82
**Direct
Collection of Technology by ** Non-Intelligence Agencies and
Individuals
PRC intelligence agencies often operate in the U.S. commercial
environment through entities set up by other PRC Government and commercial
organizations instead of creating their own fronts. PLA military
intelligence officers do, however, operate directly in the United States,
posing as military attaches at the PRC Embassy in Washington, D.C., and at
the United Nations in New York.
Most PRC covert collection of restricted technology in the United
States is accomplished by individuals attached to PRC Government and
commercial organizations which are unaffiliated with official PRC
intelligence services. These organizations collect their own technology
from the United States, rather than rely on the PRC intelligence agencies
to do it for them.
**The Select Committee judges that
the MSS may be allowing other PRC Government entities to use MSS assets to
fulfill their intelligence needs.** These findings further illustrate
that PRC "intelligence" operations are not necessarily conducted by what
are traditionally thought of as "intelligence" agencies.
The main PLA intelligence activity in the United States is not
represented by PLA intelligence organizations, but by PRC military
industries and regular components of the PLA. Although military-industrial
corporations are not PLA-owned, they are deeply involved in arms
production and acquisition of military technology.
The activities of CATIC and its U.S. subsidiaries exemplify the
activities carried out by PRC military-industrial companies. Other PRC
companies, such as China Great Wall Industry Corporation, collect
technology for their own use and may be used as cover by PRC intelligence
personnel.
PRC technology acquisition in the United States also is carried out by
various science and technology commissions and organizations. COSTIND, for
example, has no official U.S. subsidiary but is the primary coordinating
authority over the military-industrial corporations that collect
technology in the United States. COSTIND also uses the "front company"
device to procure high-technology products.
The PRC State Science and Technology Commission largely oversees
civilian science and technology collection. The State Science and
Technology Commission also uses diplomats in the U.S. as a key collection
tool. It has provided funding to a PRC scientist to establish various
commercial enterprises in the U.S. as a means of collecting technology
information for distribution in the PRC.
**The State Science and Technology
Commission was involved in efforts to elicit nuclear weapons information
from a Chinese-American scientist.** Science and Technology offices in
the PRC's seven diplomatic agencies in the United States carry out a
substantial portion of technology acquisition taskings. The primary role
of these offices is to arrange contacts between PRC scientists and their
American counterparts.
Various "liaison groups" constitute another PRC technology collection
vehicle in the United States. The PRC's primary official liaison
organization is the China Association for International Exchange of
Personnel (CAIEP). CAIEP operates seven "liaison organization" offices in
the United States, including one in Washington, D.C., and one in San
Francisco. It is one of several organizations set up by the PRC to
illegally acquire technology through contacts with Western scientists and
engineers. Others include a purported technology company and a PRC State
agency.
Another significant source of the PRC's technology collection efforts
outside of its formal intelligence agencies comes from Chinese business
representatives loyal to the CCP who emigrate to the United States. These
individuals pursue commercial interests independent of direct PRC
Government control. Their primary motive is personal financial gain, and
they will sell their efforts and opportunities to any willing consumer.
When asked to do so, they pass U.S. technology back to the PRC. The Select
Committee believes that the use of this technique is proliferating in
recent years.
The PRC also acquires advanced technology through the outright theft of
information. A few cases exemplify this method of technology
acquisition.
**Peter Lee, a Taiwanese-born,
naturalized U.S. citizen who formerly worked at the Los Alamos and
Lawrence Livermore National Laboratories, passed classified information to
the PRC in 1997 and in 1985.** In 1997, Lee passed to the PRC classified
U.S. developmental research on very sensitive detection techniques that,
if successfully concluded, could be used to threaten previously
invulnerable U.S. nuclear submarines. In 1985, Lee stole for the PRC
classified information about the use of lasers to create nuclear
explosions on a miniature scale. The Lee case represents a classic
non-intelligence service operation.83 For a detailed discussion, see
Chapter 2, PRC Theft of U.S. Thermonuclear Warhead Design Information.
The Select Committee also received evidence of PRC theft of technology
data from U.S. industry during the 1990s valued at millions of dollars.
The PRC used Chinese nationals hired by U.S. firms for that purpose. The
Clinton administration has determined that no details of this evidence may
be made public without affecting national security.
In 1993, PRC national Yen Men Kao, a North Carolina restaurant owner,
was arrested by the FBI and charged with conspiring to steal and export
classified and export-controlled high-technology items to the PRC.84 Among
the items about which Kao and several other PRC nationals were seeking
information were:
**ï¿½ The U.S. Navy's Mark 48
Advanced Capability Torpedo**
**ï¿½ The F-404 jet engine used on
the U.S. F-18 Hornet fighter**
**ï¿½ The fire-control radar for
the U.S. F-16 fighter85**
The case of Kao and his co-conspirators is one of several involving PRC
commercial entities attempting to illegally acquire U.S. technology.
The PRC also relies heavily on the use of professional scientific
visits, delegations, and exchanges to gather sensitive technology.
As the PRC Government has increasingly participated in the world
commercial and capital markets, the number of PRC representatives entering
the United States has increased dramatically. One estimate is that in 1996
alone, more than 80,000 PRC nationals visited the United States as part of
23,000 delegations.
Almost every PRC citizen allowed to go to the United States as part of
these delegations likely receives some type of collection requirement,
according to official sources.
Scientific delegations from the PRC are a typical method used by the
PRC to begin the process of finding U.S. joint venture partners. These
delegations have been known to go through the motions of establishing a
joint venture to garner as much information as possible from the U.S.
partner, only to pull out at the last minute.
Scientific visits and exchanges by PRC scientists and engineers and
their U.S. counterparts create several risks to U.S. national security.
This has been a particular concern in recent years regarding foreign
visitors to the Department of Energy's national weapons
laboratories.86
The first of these risks is that visitors to U.S. scientific and
technology sites may exploit their initial, authorized access to
information to gain access to protected information.87 The Select
Committee has reviewed evidence of PRC scientists who have circumvented
U.S. restrictions on their access to sensitive manufacturing
facilities.
Another risk is that U.S. scientists may inadvertently reveal sensitive
information during professional discussions.
**The PRC subjects visiting
scientists to a variety of techniques designed to elicit information from
them.** One technique may involve inviting scientists to make a
presentation in an academic setting, where repeated and increasingly
sensitive questions are asked.88 Another is to provide the visitor with
sightseeing opportunities while PRC intelligence agents burglarize the
visitor's hotel room for information. Still another technique involves
subjecting the visitor to a grueling itinerary and providing copious
alcoholic beverages so as to wear the visitor down and lower resistance to
questions.89
In one instance, a U.S. scientist traveled to the PRC where very
specific technical questions were asked. The scientist, hesitant to answer
one question directly because it called for the revelation of sensitive
information, instead provided a metaphorical example. The scientist
immediately realized that the PRC scientists grasped what was behind the
example, and knew that too much had been said.
Another common PRC tactic is to tell U.S. visitors about the PRC's plan
for further research, the hope being that the U.S. scientist will release
information in commenting on the PRC's plans.
The Select Committee has reviewed evidence of this technique being
applied to acquire information to assist the PRC in creating its next
generation of nuclear weapons.
Another risk inherent in scientific
exchanges is that U.S. scientists who are overseas in the PRC are prime
targets for approaches by professional and non-professional PRC
organizations that would like to co-opt them into providing assistance to
the PRC. In many cases, they are able to identify scientists whose views
might support the PRC, and whose knowledge would be of value to PRC
programs.
The Select Committee has received information about Chinese-American
scientists from U.S. nuclear weapons design laboratories being identified
in this manner.
Typically, the PRC will invite such a
scientist to lecture and, once in the PRC, question him closely about his
work. Once the scientist has returned to the U.S., answers to follow-up
questions may be delivered through a visiting intermediary. Such efforts
to co-opt scientists may be conducted by PRC ministries, and may involve
COSTIND.
The number of PRC nationals attending educational institutions in the
United States presents another opportunity for the PRC to collect
sensitive technology.90 It is estimated that at any given time there are
over 100,000 PRC nationals who are either attending U.S. universities or
have remained in the United States after graduating from a U.S.
university. These PRC nationals provide a ready target for PRC
intelligence officers and PRC Government-controlled organizations, both
while they are in the United States and when they return to the PRC.91
The Select Committee judges that the PRC is increasingly looking to PRC
scholars who remain in the United States as assets who have developed a
network of personal contacts that can be helpful to the PRC's search for
science and technology information.
The PRC has also acquired technological information through open forums
such as arms exhibits and computer shows. During a recent international
arms exhibit, for example, PRC nationals were observed collecting all
possible forms of technical information. This included videotaping every
static display and designating individuals to take notes. The group also
stole a videocassette from a display that was continuously playing
information on the U.S. Theater High Altitude Air Defense system, when the
Defense Department contractor left it unattended. Converting the stolen
cassette to a frame-by-frame sequence could yield valuable intelligence
information to the PRC.92
**Illegal Export
of Military Technology** Purchased in the United States
The PRC is also taking advantage of the ongoing U.S. military
downsizing. In particular, PRC representatives and companies in the United
States pursue the purchase of high-technology U.S. military surplus
goods.
In a single 1996-1997 operation, the Los Angeles office of the U.S.
Customs Service seized over $36 million in excess military property that
was being shipped overseas illegally. Among the seized U.S. military
surplus equipment on its way to the PRC and Hong Kong were:
**ï¿½ 37 inertial navigation
systems for the U.S. F-117 and FB-111 aircraft**
**ï¿½ Thousands of computers and
computer disks containing classified Top Secret and higher
information**
**ï¿½ Patriot missile parts**
**ï¿½ 500 electron tubes used in
the U.S. F-14 fighter**
**ï¿½ Tank and howitzer
parts**
**ï¿½ 26,000 encryption
devices93**
PRC representatives have been the biggest
buyers of sensitive electronic surplus material. Defense Department
investigators have noted a trend among the PRC buyers of this equipment:
many had worked for high-technology companies in the PRC or for PRC
Government science and technology organizations.94 ` The PRC has
been able to purchase these goods because, in its rush to dispose of
excess property, the Defense Department failed to code properly or to
disable large amounts of advanced military equipment, allowing PRC buyers
to pay for and take immediate possession of functional high-technology
equipment. Often this equipment was purchased as "scrap," for which the
buyers paid pennies on the dollar.95
According to the U.S. Customs Service, many PRC companies that bid on
military surplus technology intentionally used "American-sounding" names
to mask their PRC affiliation.96
The PRC also has been able to exploit U.S. military downsizing by
purchasing advanced technology, in the form of machine tools and
production equipment from decommissioned U.S. defense factories, through
industrial auctions.
For example, a multi-axis machine tool profiler, designed to build wing
spans for the U.S. F-14 fighter, originally cost over $3 million but was
purchased by the PRC for under $25,000.97
According to one industrial
auctioneer, the PRC frequents industrial auctions because they offer
accurate, well-maintained equipment at bargain prices and with quick
delivery.98 Moreover, once the PRC obtains this equipment, there are ample
resources available in the United States to upgrade the equipment to
modern standards.
A California company specializing in refurbishing machine tools, for
example, was approached in recent years by representatives of CATIC's El
Monte, California office. The CATIC representatives reportedly inquired
about the scope of the company's refurbishment capability, including
whether it could train CATIC people to rebuild and maintain the machines
and whether the company would be willing to assemble the machines in the
PRC. The CATIC personnel also reportedly asked if the company could
convert a three-axis machine tool to a five-axis machine tool. They were
told this was possible for some machines, and very often only requires
replacing one computer controller with another.99
The U.S. company noted, however, that such a converted machine would
require an export license. In response, the CATIC personnel reportedly
said, rather emphatically, that they would have "no problem" with the
export. The CATIC inquiries came at about the same time CATIC was
negotiating the purchase of machine tools from the McDonnell Douglas
Columbus, Ohio plant.100
CATIC's discussions with this particular U.S. company did not result in
either the training of CATIC personnel or the conversion of any machine
tools. It is unknown, however, what other U.S. companies were approached
with similar inquiries or whether any such inquiries resulted in
technological assistance to CATIC or the PRC.
The Select Committee reviewed evidence from the mid-1990s of a PRC
company that obtained U.S. defense manufacturing technology for jet
aircraft, knowingly failed to obtain a required export license, and
misrepresented the contents of its shipping containers in order to get the
technology out of the country. The Clinton administration has determined
that further information on this case cannot be made public without
affecting national security.
**PRC Purchase
of Interests in U.S. Companies**
A more recent method used by the PRC to obtain advanced technology from
the United States is through the purchase of an interest in U.S.
high-technology companies or U.S. export facilities. While this method
does not yet appear to be prevalent, it has been identified in at least
three instances.
**In 1990, CATIC acquired an
interest in MAMCO Manufacturing,** a Seattle, Washington, aircraft parts
manufacturer. In a highly-publicized decision that year, President George
Bush exercised his authority under section 721 of the Defense Production
Act of 1950 (also known as the Exon-Florio provision) to order CATIC to
divest itself of the MAMCO interest based on the recommendations of the
Committee on Foreign Investment in the United States (CFIUS), an
inter-agency committee chaired by the Secretary of Treasury and tasked to
conduct reviews of foreign acquisitions that might threaten national
security.101
CFIUS concluded that:
**ï¿½ Some technology used by
MAMCO, although not state-of-the-art, was export-controlled**
**ï¿½ CATIC had close ties to the
PLA through the PRC Ministry of Aviation (now known as Aviation
Industries Corporation, or AVIC)**
**ï¿½ The acquisition would give
CATIC unique access to U.S. aerospace companies**
It is likely that the PRC's strategy in acquiring MAMCO was to give
CATIC a venue from which to solicit business with U.S. aerospace firms,
both to yield revenue and to gain access to aerospace technologies,
inasmuch as CATIC has conspired to illegally acquire U.S. sensitive
technology in the past. In addition, according to public reports, CATIC
has been used for PRC arms sales to countries such as Iran.
The PRC's efforts to acquire MAMCO did not end with President Bush's
divestiture order. CATIC requested CFIUS approval to satisfy the concerns
expressed in President Bush's divestiture order by selling its MAMCO
interest to the China International Trust & Investment Corporation
(CITIC).
CFIUS noted that CITIC reported directly to the highest level of the
PRC Government, the PRC State Council, and that CITIC did not have any
colorable business rationale for wanting to acquire MAMCO. When CFIUS
began questioning CITIC's business purposes and its ties to the State
Council, CATIC withdrew its request.
CATIC then filed another request, this time proposing that it meet
President Bush's divestiture order by selling its MAMCO interest to
Huan-Yu Enterprises, a PRC company that was owned by a PRC provincial
government and reported to the PRC Ministry of Electronics Industry (now
known as the Ministry of Information Industry), which in turn reported
directly to the PRC State Council.
A CFIUS investigation concluded that Huan-Yu was a consumer, not a
producer, of aerospace parts and had no legitimate reason to acquire
MAMCO. The proposed divestiture looked to CFIUS like a "sham acquisition."
Faced with intense CFIUS interest, CATIC again withdrew its filing.
In 1996, Sunbase Asia, Incorporated purchased Southwest Products
Corporation, a California producer of ball bearings for U.S. military
aircraft. Sunbase is incorporated in the United States, but is owned by an
investment group comprised of some of the PRC's largest state-owned
conglomerates as well as a Hong Kong company. According to a Southwest
executive, the purchase will "take [Sunbase] to the next level" of
technology.102 The Clinton administration has determined that additional
information on this transaction cannot be made public without affecting
national security.
**China Ocean Shipping Company
(COSCO), the PRC's state-owned shipping company **which operates under
the direction of the Ministry of Foreign Trade and Economic Cooperation
and answers to the PRC State Council,103 attempted to lease port space
that was being vacated by the U.S. Navy in Long Beach, California. The
lease proposal led to a heated debate between Congress, which wanted to
prevent the lease based on national security concerns, and President
Clinton, who supported the lease. Legislation passed by both houses of
Congress in 1997 barred the lease and voided the President's authority to
grant a waiver.104
Other information indicates COSCO is far from benign. In 1996, U.S.
Customs agents confiscated over 2,000 assault rifles that were being
smuggled into the United States aboard COSCO ships.105 "Although presented
as a commercial entity," according to the House Task Force on Terrorism
and Unconventional Warfare, "COSCO is actually an arm of the Chinese
military establishment." The Clinton administration has determined that
additional information concerning COSCO that appears in the Select
Committee's classified Final Report cannot be made public without
affecting national security.
**Methods Used
by the PRC to Export Military Technology** from the United
States
Once the PRC acquires advanced technology in the United States, it
requires secure means to export the information or hardware out of the
country. Weaknesses in U.S. customs can be exploited to smuggle classified
or restricted U.S. technology.
Diplomatic pouches and traveling PRC diplomats offer another avenue for
illegal technology exports. Almost every PRC Government commercial and
diplomatic institution in the United States has personnel who facilitate
science and technology acquisitions.
The Select Committee believes that these means of communicating with
the PRC could have been exploited to smuggle nuclear weapons secrets from
the United States.
These are some of the further means that have been used to illegally
ship sensitive technology to the PRC:
**ï¿½ In 1993, Bin Wu, a PRC
national, was convicted of transferring night-vision technology to the
PRC.** Wu used the U.S. postal system to get technology back to the
PRC. He mailed the technology he collected directly to the PRC, mostly
through an intermediary in Hong Kong.106
**ï¿½ The PRC uses false
exportation documentation and has falsified end-user certificates.**
In one case reviewed by the Select Committee, the Department of Commerce
reported that a U.S. subsidiary of a PRC company used a common illegal
export tactic when it falsely identified the machine tools it was
exporting. The U.S. Customs Service also indicates that the PRC's use of
false bills of sale and false end-use statements are common illegal
export tactics.
**ï¿½ The PRC has used at least one
commercial air carrier to assist in its technology transfer efforts.**
In 1996, Hong Kong Customs officials intercepted air-to-air missile
parts being shipped by CATIC aboard a commercial air carrier, Dragonair.
Dragonair is owned by China International Trade and Investment Company
(CITIC), the most powerful and visible PRC-controlled conglomerate, and
the Civil Aviation Administration of China (CAAC).107
**ï¿½ A common PRC method for
transferring U.S. technology to the PRC uses Hong Kong as the shipment
point.** This method takes advantage of the fact that U.S. export
controls on Hong Kong are significantly less restrictive than those
applied to the rest of the PRC, allowing Hong Kong far easier access to
militarily-sensitive technology.
**The more relaxed controls on the
export of militarily-sensitive technology to Hong Kong have been allowed
to remain in place even though Hong Kong** was absorbed by the PRC and
PLA garrisons took control of the region on July 1, 1997. U.S. trade
officials report that no inspections by the Hong Kong regional government
nor by any other government, including the United States, are permitted
when PLA vehicles cross the Hong Kong border.
Various U.S. Government analyses have raised concerns about the risk of
the diversion of sensitive U.S. technologies not only to the PRC, but to
third countries as well through Hong Kong because of the PRC's known use
of Hong Kong to obtain sensitive technology.108 Some controlled dual-use
technologies can be exported from the United States to Hong Kong
license-free, even though they have military applications that the PRC
would find attractive for its military modernization efforts.
The Select Committee has seen indications that a sizeable number of
Hong Kong enterprises serve as cover for PRC intelligence services,
including the MSS. Therefore, it is likely that over time, these could
provide the PRC with a much greater capability to target U.S. interests in
Hong Kong.
U.S. Customs officials also concur that transshipment through Hong Kong
is a common PRC tactic for the illegal transfer of technology.109
**PRC Incentives
for U.S. Companies to** Advocate Relaxation of Export
Controls
U.S. companies in the high-technology sector are eager to access the
PRC market. The PRC often requires these U.S. firms to transfer
technologies to the PRC as a precondition to market access. U.S. export
regulations can be seen as an impediment to commercial
opportunities.110
Executives wishing to do business in the PRC share a mutual commercial
interest with the PRC in minimizing export controls on dual-use and
military-related commodities. The PRC has displayed a willingness to
exploit this mutuality of interest in several notoriously public cases by
inducing VIPs from large U.S. companies to lobby on behalf of initiatives,
such as export liberalization, on which they are aligned with the PRC.
**The PRC is determined to reduce
restrictions on the export of U.S. communications satellites for launch in
the PRC. **From the perspective of the PRC, provision of such launch
services creates a unique opportunity to consult with U.S. satellite
manufacturers, access information regarding U.S. satellite technology, and
obtain resources to modernize their rockets.111 U.S. satellite
manufacturers are, in turn, anxious to access the potentially lucrative
PRC market, and realize that launching in the PRC is a potential condition
to market access.112
By agreeing to procure numerous satellites from Hughes Electronics Co.
(Hughes) and Space Systems/Loral (Loral) in the early 1990s, the PRC
created a mutuality of interest with two companies well-positioned to
advocate the liberalization of export controls on these platforms.
For example, Bernard L. Schwartz, Chairman
and CEO of Loral Space & Communications, Ltd., the parent company of
Loral, met directly on at least four occasions with Secretary of Commerce
Ron Brown after 1993, and accompanied him on a 1994 trade mission to the
PRC.113
C. Michael Armstrong, the former Chairman and Chief Executive Officer
of GM Hughes Electronics, the parent company of Hughes, has served as
Chairman of President Clinton's Export Council since 1993, working with
the Secretary of State, the Secretary of Commerce, and others to "provide
insight and counsel" to the President on a variety of trade matters.114
Armstrong also serves or has served as a member of the Defense
Preparedness Advisory Council, the Telecommunica-tions Advisory Council,
and the Secretary of State's Advisory Council.115
Both Armstrong and Schwartz, as well as other executives from
high-technology firms, advocated the transfer of export licensing
authority from the "more stringent control" of the State Department to the
Commerce Department. Armstrong met with the Secretary of Defense, the
National Security Advisor, and the Secretary of State on the matter, and
both Schwartz and Armstrong co-signed a letter with Daniel Tellep of
Lockheed- Martin Corporation to the President urging this change.116 The
changes they advocated were ultimately adopted.
Between 1993 and January 3, 1999, Loral and Hughes succeeded in
obtaining waivers or export licenses for an aggregate of five satellite
projects.117
**Another example of the incentive
to advocate the relaxation of export controls** involves the Charoen
Pokphand Group (CP Group), Thailand's largest multinational company and
one of the largest investors in the PRC. CP Group executives have served
as economic advisors to the PRC Government and were chosen to sit on the
committees dealing with the absorption of Hong Kong.118
The CP Group was a founding member of Asia Pacific Telecommunications
Satellite Holdings, Ltd. (APT), a consortium run by PRC-controlled
investment companies, including China Aerospace Corporation. APT imports
satellites manufactured by Hughes and Loral as part of the Apstar program
for launch in the PRC by China Great Wall Industry Corporation.119
On June 18, 1996, several CP Group executives attended a coffee with
President Clinton at the White House. These executives included Dhanin
Chearavanont (CP Chairman and Chief Executive Officer), Sumet Chearavanont
(Vice Chairman and President), and Sarasin Virapol (employee and
translator). The CP executives were invited to the coffee by their
Washington, D.C., lobbyist, Pauline Kanchanalak.120
According to one participant, Karl Jackson of the U.S.-Thailand
Business Council, the CP executives "dominated the conversation at the
coffee." The discussion included U.S.-PRC relations, Most-Favored-Nation
trade status for the PRC, and U.S. technology. Jackson's characterization
of the role that CP executives played at the event is corroborated by
other participants.121
## The PRC's Efforts to Assimilate Advanced
U.S. Military Technology
The PRC's approach to U.S. technology firms proceeds from the premise
that foreign firms should be allowed access to the PRC market only because
such access will enable the PRC to assimilate technology, and eventually
to compete with or even overtake U.S. technology. The PRC thus views
foreign firms as a short-term means to acquire technology.
In theory, as the PRC is increasingly able to develop its own
technology, it will need less and less foreign help. In practice, however,
the PRC faces numerous challenges in integrating foreign technology into
both its civilian and military industrial bases.
Among the areas in which the PRC is particularly dependent upon U.S.
technology are computer hardware and microelectronics, telecommunications,
commercial aircraft, and machine tools. The PRC, therefore, will most
likely continue to rely heavily on joint ventures with foreign firms to
provide advanced technology in these areas.
There are several reasons that the PRC has absorbed and assimilated
only some, and not other, U.S. military and civilian technologies:
**ï¿½ The PRC's funding of
technology development, especially in applied sciences, conflicts with
other priorities,** including supporting PRC state-owned enterprises
as they restructure.
**ï¿½ While the PRC has targeted
very sophisticated U.S. military technology, including aerospace and
electronics technology, it has not achieved the levels of training and
maintenance** necessary to absorb it. But the emphasis on acquiring
the most sophisticated technologies continues, even as some senior PRC
officials call for a greater focus on "building block" technologies.
**ï¿½ The PRC has a reputation for
violating intellectual property rights,** making some foreign
investors hesitant to transfer their most advanced technology.
**ï¿½ There is a tendency of CCP
and PLA officials to look toward their personal gain** and
aggrandizement first, and only second to use State assets for the
benefit of the PRC.
**The PRC has benefitted from
advanced U.S. and Western military technology in several areas, including
ground force weapons, communications, remote sensing, and tactical and
strategic systems.** A 1995 study by the Office of Technology Assessment
found that the PRC's joint ventures with the United States in commercial
aircraft production appear to have enabled the PLA to machine smoother
skins on its fighter aircraft.122 Other PRC military products, such as
air-to-air and surface-to-air missiles, submarines, and short-range
ballistic missiles, also appear to have benefitted from foreign technical
help.123
The PRC has also succeeded in reverse-engineering military hardware
acquired from the United States and other countries, thereby defraying the
high cost of weapons development. For example:
**ï¿½ During the 1980s and 1990s,
the PRC is presumed to have diverted U.S. military technology through
civilian programs.** In 1983, the PRC is presumed to have exploited
the CFM-56 jet engine technology from a civilian program. The CFM-56
contains the same core section as the engine used in the B-1B
bomber.
**ï¿½ The PRC developed its Z-11
helicopter** by reverse-engineering the French Aerospatiale AS-350
Ecureuil helicopter.124
**ï¿½ The PRC's C-801 anti-ship
cruise missile** is believed to be a copy of the French Exocet
anti-ship cruise missile.125
PRC scientists have been pressured to reverse-engineer U.S. high
technology rather than purchase it, even though this means that it may be
difficult to maintain because of the lack of service, training, and
documentation.
For example, the PRC was able to reverse-engineer a high-performance
computer and produce a copy for far less than the U.S. equipment would
have cost. By the time they achieved this success, however, a
commercially-available desktop computer with the same power could have
been purchased for a small fraction of their costs in time, money, and
effort. The PRC seems willing to pay this cost in order to avoid long-term
dependence on U.S. technology.
The Select Committee judges that at least some of the PRC's statements
about its technical progress are distorted so as to increase the PRC's
ability to gain access to foreign technology. By claiming substantial
indigenous progress in areas ranging from supercomputers to stealth
technology, the PRC can allay foreign fears that providing it with
advanced technology will improve the PRC's capabilities. This tactic was
used, the Select Committee believes, to overcome U.S. and Western
objections to transfers of high performance computers to the PRC.
The Select Committee's classified report includes further material
details and examples of PRC acquisition of advanced U.S. military
technology, which the Clinton administration has determined cannot be made
public without affecting national security.
## U.S. Government Monitoring Of PRC
Technology Acquisition Efforts In the United States
Because of the historical counterintelligence focus on the Soviet Union
throughout the decades of the Cold War, the U.S. Government has never made
the PRC's technology acquisition activities in the United States a
priority. Moreover, because of the breadth of the PRC's decentralized
collection efforts, the U.S. Government cannot completely monitor PRC
activities in the United States.
Neither the Department of Commerce, the Department of the Treasury,
the Federal Bureau of Investigation, the Central Intelligence Agency,
nor, apparently, the Department of Defense126 has in place a program,
system, or effort specifically tasked with the ongoing collection of
information concerning the following:
**ï¿½ Efforts by the PRC, or by commercial entities owned or
controlled by the PRC, to merge with, acquire a controlling interest in,
or form a commercial partnership or joint venture with, commercial
entities in the United States**
**ï¿½ Efforts by the PRC, or by
commercial entities owned or controlled by the PRC, to establish
commercial entities in the United States**
**ï¿½ Efforts by the PRC, by
commercial entities owned or controlled by the PRC, or by agents
thereof, directly or indirectly, to identify, locate, or acquire
advanced technologies from U.S. sources**
**ï¿½ Commercial connections or
interactions between U.S. companies and commercial entities owned or
controlled by the PRC,** specifically including connection or
interaction involving advanced technologies
**ï¿½ Commercial affiliations (for
example, as officer, director, employee) between PRC nationals and either
U.S. or foreign owned or controlled commercial entities**
Each of
the U.S. Government's departments and agencies with responsibilities in
this area has reported to the Select Committee that it is monitoring some
aspects of PRC commercial activity in the United States, but that such
monitoring is usually narrow in focus or reactive in nature. There is
little or no initiative taken; rather, attention is paid to PRC commercial
activity only when an allegation, problem, or issue arises that demands
attention.
Because the CIA is not authorized to conduct broad collection
activities within the United States, it defers to the FBI on the matter of
PRC interaction with U.S. companies domestically. But there is little or
no coordination within the U.S. Government of counterintelligence that is
conducted against the PRC-directed efforts to acquire sensitive U.S.
technology.
**The Department of Commerce**
has contracted with private entities to produce an assessment of the PRC's
technology acquisition efforts. In addition, three Commerce Department
bureaus have duties that relate to PRC commercial activities in the United
States. Specific activities in this regard include: 127
**ï¿½ Commerce contracted with DFI
International to do research and write a report on the issue of
technology transfers to the PRC through commercial joint
ventures.**
**ï¿½ Commerce also contracted with
DFI International to establish a database of information on technology
transfers from U.S. and foreign firms in the aerospace and
telecommunications industries.** This project will produce periodic
reports summarizing trends and analyzing implications of technology
transfer on national security and international trade policy.
**ï¿½ The Bureau of Economic
Analysis collects and publishes significant data for statistical
purposes regarding foreign direct investment in the United States.**
More specifically, BEA collects data needed to prepare the U.S. balance
of payments and international investment position, financial and
operating data regarding foreign-owned U.S. companies, and data on U.S.
businesses that have been newly-acquired or established by foreign
investors. BEA does not have any direct information on the acquisition
of advanced technologies by the PRC.
**ï¿½ The Bureau of Export
Administration controls the licensing of exports of dual-use goods and
technologies pursuant to the Export Administration Act and the Export
Administration Regulations. **The Bureau develops export control
policies, issues export licenses, and prosecutes violators. The Bureau's
controls include the regulation of the export of specified goods and
technology to the PRC, including the transfer of controlled technology
to PRC nationals in the United States.
**ï¿½ The Bureau of Export
Administration, along with the Customs Service, is also responsible for
investigating possible violations of the Export Administration Act and
the Export Administration Regulations, including possible improper
transfers of technology to PRC nationals in the United States.** While
the Bureau may obtain information during an investigation concerning
commercial activities of PRC nationals, that information is not the
focus of the investigation and is not collected in a manner that permits
aggregation of data.128
**The Treasury Department** has
an indirect role in monitoring PRC commercial activities in the United
States. Through the Customs Service, Treasury investigates violations of
U.S. export laws. These investigations are not part of a PRC-specific
monitoring process, but are carried out based on specific facts indicating
a violation of U.S. laws.129
In addition, any commercial entity,
whether from the PRC or any other country, that wants to acquire control
of a savings-and-loan or a national bank must file an application with
Treasury's Office of Thrift Supervision or the Office of the Comptroller
of the Currency.130
Treasury also chairs the Committee on Foreign Investment in the United
States (CFIUS), an inter-agency committee to which the President has
delegated the authority to review and investigate foreign investment
transactions and conduct investigations pursuant to the Exon-Florio
provision of the Omnibus Trade and Competitiveness Act of 1988. CFIUS
membership includes the Secretaries of the Treasury, Commerce, Defense,
and State, as well as the Attorney General, the United States Trade
Representative, the Chairman of the Council of Economic Advisors, the
Director of the Office of Management and Budget, the Director of the
Office of Science and Technology Policy, the Assistant to the President
for National Security Affairs, and the Assistant to the President for
Economic Policy. Other agencies are asked to participate when a
transaction falls within their areas of expertise.131
Notification to CFIUS of a proposed transaction is voluntary. The
statute does not provide for the targeting of specific countries. If the
transaction involves a foreign entity that is controlled by or is acting
on behalf of a foreign government and the transaction could affect
national security, a formal 45-day investigation is required. At the
conclusion of an investigation, CFIUS submits a report and recommendations
to the President.
**The Securities and Exchange
Commission** collects little information helpful in monitoring PRC
commercial activities in the United States. This lack of information is
due only in part to the fact that many PRC front companies are
privately-held and ultimately - if indirectly - wholly-owned by the PRC
and the CCP itself. Increasingly, the PRC is using U.S. capital markets
both as a source of central government funding for military and commercial
development and as a means of cloaking U.S. technology acquisition efforts
by its front companies with a patina of regularity and
respectability.132
*Chapter 1
Notes*
**1** In practice, it is just as accurate to say the PRC Government
is made up of just two bureaucracies (since the PLA is actually the "fist"
of the CCP), or even one bureaucracy (since both the PLA and the State are
subservient to the CCP). The distinctions between are them largely
artificial. For general information on this topic. See CRS Report,
"Chinese Government Structure and Function, Policies on Military and
Industrial Modernization, and Technology Acquisition," November 10, 1998;
Kenneth Lieberthal, Governing China, W.W. Norton & Company, Inc.,
1995.
**2** The Politburo currently has 22 members and two
alternates.
**3** See Constitution of the People's Republic of
China, Articles 2, 3.
**4** Lieberthal, Governing China, refers to
this technique as "interlocking directorates."
**5** PRC
Constitution, Article 29.
**6** Jienfangjun Bao, Beijing, July 30,
1997, as cited in the BBC Summary of World Broadcasts, August 8,
1997.
**7** Leading Groups are a key mechanism for policy
coordination and decision-making in the PRC. They are comprised of senior
Communist Party, State, and PLA officials with relevant expertise and
authority for specified areas. See generally, CRS Chinese Government
Structure.
**8** The State Science and Technology Commission was
recently dissolved and replaced by the newly-formed Ministry of Science
and Technology.
**9** Deba R. Mohanty, "Hidden Players in Policy
Processes: Examining China's National Security Research Bureaucracy,"
Institute for Defense Studies and Analysis, July 1998.
**10** For
the official report on this program, see "Decade-Long Hi-Tech Program
Bears Fruit," Xinhua News Agency, September 27, 1996.
**11** Su
Kuoshan, "Road of Hope-Reviewing the Accomplishment of the '863' Project
on the 10th Anniversary of its Implementation," Jiefangjun Bao, April 5,
1996, reproduced in Foreign Broadcast Information Service, Daily Report,
May 8, 1996, FBIS-CHI-96-089.
**12** Major Mark Stokes, "China's
Strategic Modernization: Implications for U.S. National Security," USAF
Institute for National Security Studies, July, 1998.
**13** Cui
Ning, "Hi-Tech Projects Highlight Five Areas," China Daily, April 3, 1996;
in FBIS. See also Ding Hennggao, COSTIND Director, speech delivered on
March 28, 1996, "Review of the 863 Plan over the Past Ten Years";
Stokes.
**14** John Frankenstein and Bates Gill, "Current and Future
Challenges Facing Chinese Defense Industries," China Quarterly, June 1996.
**15** See Frankenstein and Gill, ibid; "Future Military
Capabilities and Strategy of the People's Republic of China, "Department
of Defense Report to Congress, 1998 Report; Letter from RADM Mike Ratliff,
USN to JCS (J2), 9 November 1998, transmitted to the Select Committee
November, 24, 1998.
**16** Frankenstein and Gill.
**17**
Testimony of Dr. Michael Pillsbury before the Senate Select Committee on
Intelligence, September 18, 1997.
**18** BBC Summary of World
Broadcasts, Far East, 11 November 1992.
**19** For open source
discussion, see Richard Fisher, "Foreign Arms Acquisition and PLA
Modernization," Heritage Foundation, June 1, 1998.
**20**
Ibid.
**21** James Mulvenon, "Chinese Military Commerce and U.S.
National Security," RAND, July, 1997: Greg Mastel, "A China the World
Could Bank On," Washington Post, December 29, 1997.
**22** Wei Ke,
"Army Re-Tools Commercial Production," China Daily August 17-23, 1997; in
FBIS.
**23** John Frankenstein and Bates Gill, "Current and Future
Challenges Facing Chinese Defense Industries," China Quarterly, June 1996.
See also Zalmay Khalizad, Abram Shulsky, Daniel Byman, Roger Cliff, David
Orletsky, David Shlapak, Michael Swaine, and Ashley Tellis, "Chinese
Military Modernization and Its Implications for the U.S. Air Force
(draft)," RAND, October, 1998.
**24** See Frankenstein and
Gill.
**25** The National People's Congress is a putative
legislature, and officially China's supreme body of State power. It
officially elects the State Council. Recent evidence suggests the National
People's Congress has an increasing role in policy deliberation. Kenneth
Lieberthal, Governing China, W.W. Norton & Company, Inc.,
1995.
**26** Li Peng, "Report on the Outline of the Ninth Five-Year
Plan for National Economic and Social Development and Long-Range
Objectives to the Year 2010," delivered to the Fourth Session of the
Eighth National People's Congress on March 5, 1996.
**27** BBS
Summary of World Broadcasts, April 7, 1997.
**28** "China's National
Defense," Information Office, PRC State Council, July 27,
1998.
**29** Testimony of Nicholas Eftimiades, October 15,
1998.
**30** Interview of James Lilley, November 17,
1998.
**31** These individuals often jump many bureaucratic levels
to take their positions. Tai Ming Cheung, See, e.g.,"China's Princelings,"
Kim Eng Securities, January 1995; Murray Scot Tanner and Michael Feder,
"Family Politics, Elite Recruitment, and Succession in Post-Mao China,"
Australian Journal of Chinese Affairs, July 1993.
**32** Interview
of James Mulvenon, October 16, 1998.
**33** See Murray Scot Tanner
and Michael Feder, "Family Politics, Elite Recruitment, and Succession in
Post-Mao China," Australian Journal of Chinese Affairs, July 1993.
Frankenstein and Gill.
**34** James Mulvenon, "Chinese Military
Commerce and U.S. National Security," RAND, July 1997; David Jackson,
"U.S. Probes Whether Beijing Gave Money to Influence Policy," Chicago
Tribune, February 14, 1997.
**35** Ibid.
**36** Tracy Connor,
"New Asiagate Figure Has Military History," New York Post, November 7,
1998.
**37** Interim Report of the House Government Reform and
Oversight Committee ("HGROC Report") Chapter IV C.
**38** Deposition
of Shen Jun before the Select Committtee (Dec. 8, 1998); Japanese Firms
Buy Into Satellite Telephone Co., Information Access Newsbytes (July 9,
1996).
**39** See generally, "Liu's Deals with Chung: An
Intercontinental Puzzle," David Jackson and Lena H. Sun, Washington Post,
May 24, 1998.
**40** Interim Report of the House Government Reform
and Oversight Committee ("HGROC Report") Chapter IV C.
**41**
Ibid.
**42** Ibid.
**43** Ibid.
**44** "Red Face Over
China; Did a Chinese plot persuade Clinton to let a U.S. company give
China its rocket science? No. Politics (and policy) did," Eric Pooley et.
al., Time, June 1, 1998.
**45** Interim Report of the House
Government Reform and Oversight Committee ("HGROC Report") Chapter IV C.
"Liu's Deals with Chung: An Intercontinental Puzzle," David Jackson and
Lena H. Sun, Washington Post, May 24, 1998.
**46** Testimony of
James Mulvenon, RAND, before the Select Committee (Oct. 15, 1998); John
Frankenstein and Bates Gill, "Current and Future Challenges Facing Chinese
Defense Industries," China Quarterly (June 1996).
**47** Bates Gill
and Taeho Kim, "China's Arms Acquisitions from Abroad, A Quest for Superb
and Secret Weapons," Stockholm International Peace Institute, Oxford
University Press, 1995.
**48** Richard Fisher, "Foreign Arms
Acquisition and PLA Modernization," Heritage Foundation, June 1, 1998. See
also Bates Gill and Taeho Kim, "China's Arms Acquisitions from Abroad, A
Quest for Superb and Secret Weapons," Stockholm International Peace
Institute, Oxford University Press, 1995.
**49** Bates Gill and
Taeho Kim, "China's Arms Acquisitions from Abroad, A Quest for Superb and
Secret Weapons," Stockholm International Peace Institute, Oxford
University Press, 1995.
**50** Ibid.
**51** "Worldwide
Challenges to Naval Strike Warfare," Office of Naval Intelligence, March
1997; "Information Warfare Grips China," Damon Bristow, Jane's
Intelligence Review- Pointer, November 1, 1998.
**52** Bates Gill
and Taeho Kim, "China's Arms Acquisitions from Abroad, A Quest for Superb
and Secret Weapons," Stockholm International Peace Institute, Oxford
University Press, 1995.
**53** Ibid.
**54** For a more
detailed discussion of the jet engine acquisition, see Chapter 10,
Manufacturing Processes; Bates Gill and Taeho Kim.
**55** Shawn L.
Twing, "Congress Calls for Sanctions if Israeli Technology Transfer to
China is Proven," The Washington Report, November/December 1996. See also
Bates Gill and Taeho Kim, "China's Arms Acquisitions from Abroad, A Quest
for Superb and Secret Weapons," Stockholm International Peace Institute,
Oxford University Press, 1995; Tony Capaccio, "Israeli Arms Transfers of
U.S. Technology Remain and Abrasive Issue," Defense Week, June 5,
1995.
**56** "The National Security Science and Technology
Strategy," U.S. Office of Science and Technology Policy,
1996.
**57** Kathleen Walsh, "U.S. Technology Transfers to the
People's Republic of China," DFI International, December,
1997.
**58** Paul Blustein, "China Plays Rough: Invest and Transfer
Technology, or No Market Access," Washington Post, October 25,
1997.
**59** Kathleen Walsh, December, 1997.
**60** Walsh,
December, 1997, (stating the United States is "somewhere in the middle"
among countries in its willingness to transfer technology).
**61**
Testimony of Nicholas Eftimiades, October 15, 1998.
**62** See
"Challenges and Opportunities for U.S. Businesses in China," testimony of
JayEtta Hecker, GAO, before the Committee on Banking and Financial
Services, U.S. House of Representatives, July 29, 1996.
**63**
Interview of John Foarde, September 23, 1998.
**64** See, e.g.,
Walsh, December, 1997; Letter to the Select Committee from Sandra Taylor,
Vice-President, Eastman Kodak Company, November 18, 1998.
**65**
Walsh, December 1997. See also Joseph Kahn, "McDonnell's Hopes in China
Never Got Off the Ground," The Wall Street Journal, May 22, 1996 (quoting
McDonnell's President as saying it should do "whatever it takes" to "carve
out a place" in China).
**66** Walsh Testimony and Letter to the
Select Committee from Sandra Taylor, Vice-President, Eastman Kodak
Company, November 18, 1998.
**67** Letter to the Select Committee
from Sandra Taylor, Vice-President, Eastman Kodak Company, November 18,
1998.
**68** See John Frankenstein, "China's Defense Industries: A
New Course?" The Chinese concept of a "spin-on" is in marked contrast to
the "spin-off" approach of the U.S. at the end of the Cold War, where the
goal was to convert military technology to commercial uses.
**69**
"News Digest," Helicopter News, March 28, 1997. "The Z-11 is a
reverse-engineered copy of Eurocopter's single-engined
Ecureuil."
**70** This Ministry is now known as the Ministry of
Information Industry.
**71** "Sale of Telecommunications Equipment
to China," Karen Zuckerstein, David Trimble, and John Neumann, General
Accounting Office, November 1996.
**72** Testimony of James
Mulvenon, October 15, 1998.
**73** See the Manufacturing processes
chapter for examples of CATIC's involvement in this process.
**74**
Interview of Tom Nangle, October 8, 1998.
**75** Almost all Chinese
military production lines are co-located with civil/commercial production
lines.
**76** "Commercial Activities of China's People's Liberation
Army (PLA)," Hearing Before the Committee on Foreign Relations, United
States Senate, November 6, 1997.
**77** Testimony of James Mulvenon,
October 15, 1998.
**78** Ibid.
**79** Interview of Bin Wu,
October 20, 1998. See also John Fialka, "War by Other Means," W.W. Norton
and Co., New York (1997).
**80** Ibid.
**81**
Ibid.
**82** "Aegis Combat System," United States Navy Fact
File.
**83** See Chapter 2, "PRC Theft of U.S. Thermonuclear Weapons
Design Information," for a more detailed discussion of the Peter Lee and
other espionage cases.
**84** Ronald Ostrow, "FBI Arrests Chinese
National in Spy Ring Investigation," Los Angeles Times, December 5, 1993:
Bill Gertz, "Spy Sting Gets Chinese Man Deported," The Washington Times,
December 22, 1993.
**85** Ibid.
**86** "DOE Needs to Improve
Controls Over Foreign Visitors to Weapons Laboratories," Gary L. Jones et.
al., General Accounting Office, September 1997.
**87**
Ibid.
**88** "Chinese Spies Just as Active as Soviets Ever Were, FBI
Says," Ruth Sinai, Associated Press, March 9, 1992. Statements in article
are attributed to Patrick Watson, the FBI's Deputy Assistant Director for
Intelligence.
**89** Testimony of Nicholas Eftimiades, October 15,
1998.
**90** "Chinese Intelligence Operations," Nicholas Eftimiades,
Naval Institute Press, 1994.
**91** Ibid.
**92** "Chinese spy
openly at weapons fair," Kenneth R. Timmerman, The Washington Times, March
24, 1997.
**93** "Department of Defense Disposition of Government
Surplus Items," hearing before the Senate Judiciary Subcommittee on
Administrative Oversight and the Courts, July 8, 1997; "Defense Inventory:
Action Needed to Avoid Inappropriate Sales of Surplus Parts," General
Accounting Office, August, 1998; "On the Introduction of The Arms Surplus
Reform Act of 1997," statement by Rep. Pete Stark in the U.S. House of
Representatives, October 1, 1997.
**94** Ibid.
**95**
Ibid.
**96** U.S. Customs briefing to Select Committee Staff,
October 28, 1998. In response to this situation, in October 1997,
Representative Pete Stark introduced H.R. 2602, the Arms Surplus Reform
Act of 1997, to place a moratorium on all surplus arms sales until DOD
certified to Congress that steps had been taken to correct weaknesses in
the surplus sales program. The Act did not pass, but a section was added
to the Defense Authorization Act for Fiscal Year 1998, Pub. L. 105-85,
Sec. 1067, requiring similar steps. The DOD submitted its report to
Congress in June, 1998, identifying problem areas and steps taken to
address them.
**97** Robert Greenberger, "Let's Make a Deal: Chinese
Find Bargains in Defense Equipment as Firms Unload Assets," Wall Street
Journal, October 21, 1998; Dr. Stephen Bryen and Michael Ledeen,
"China-Related Challenges," Heterodoxy, April/May 1997 (Submission for the
record by Rep. Tillie Fowler in the U.S. House of Representatives, June
26, 1997).
**98** Robert Levy, President, Norman Levy Associates,
as quoted in Robert Greenberger, "Let's Make a Deal: Chinese Find Bargains
in Defense Equipment as Firms Unload Assets," Wall Street Journal, October
21, 1998.
**99** Interview of Jerry Remick, October 8, 1998;
Interview of David Duquette, October 14, 1998. In a response to written
interrogatories, officials of CATIC, USA denied it was aware of the
existence of the U.S. company. Letter to Daniel Silver from Barbara Van
Gelder, October 22, 1998.
**100** A more detailed summary of the
CATIC purchase of McDonnell Douglas machine tools appears at Chapter
10.
**101** "Message to the Congress on the China National
Aero-Technology Import and Export Corporation Divestiture of MAMCO
Manufacturing, Incorporated," The White House, February 1,
1990.
**102** Bruce Einhorn, "The China Connection," Business Week,
August 5, 1996: "Sunbase Asia Acquires Specialty Bearing Company," PR
Newswire, January 17, 1996.
**103** Briefing by U.S. Treasury
Department to Select Committee staff, October 29, 1998.
**104** See,
e.g., Stan Crock, "China and the U.S.: The Sparks May Start Flying,"
Business Week, November 16, 1998; Robert Little, "Controversial Carrier,"
The Baltimore Sun, November 8, 1998.
**105** See, e.g., Timothy
Maier, "Long March Reaches Long Beach," Insight, September 8,
1997.
**106** Interview of Wu Bin, October 20, 1998.
**107**
Bruce Smith, "Dragonair Misstep," Aviation Week and Space Technology,
September 16, 1996; "Michael Mecham, "China Expands Stake in Cathay,
Dragonair," Aviation Week and Space Technology, May 6, 1996.
**108**
See, e.g., "Hong Kong's Reversion to China: Effective Monitoring Critical
to Assess U.S. Nonproliferation Risks," GAO, May, 1997.
**109** U.S.
Customs briefing to Select Committee Staff, October 28,
1998.
**110** Kathleen A. Walsh, "U.S. Technology Transfers to the
People's Republic of China," 1997.
**111** Testimony of Loren
Thompson, Clayton Mowry and Ray Williamson, November 13, 1998; deposition
of C. Michael Armstrong, November 17, 1998.
**112** Deposition of
Bernard L. Schwartz, November 21, 1998; testimony of Clayton Mowry,
November 13, 1998.
**113** Deposition of Bernard L. Schwartz,
November 21, 1998.
**114** Deposition of C. Michael Armstrong,
December 17, 1998.
**115** Ibid.
**116** Deposition of C.
Michael Armstrong, December 17, 1998; letter from C. Michael Armstrong,
Bernard L. Schwartz, and Daniel Tellep to the President, October 6, 1995.
**117** Aerospace Industries Association, "Presidential Satellite
Waivers and Other Related Launch Information"
(http://www.aia-aerospace.org/homepage/china_table1), October 26,
1998.
**118** Far Eastern Economic Review, January 23,
1997.
**119** Deposition of Bansang Lee, November 16, 1998. CP
divested itself of its holdings in APT in late 1997. See Jonathan Sprague
and Julian Gearing Bangkok, "Past Ambitions Catch Up To Charoen Pokphand,"
Asiaweek, May15, 1998.
**120** SCGA Report.
**121** Testimony
of Karl Jackson before the SCGA, September 16, 1997; testimony of Clark
Southall Wallace before the SCGA, September 16, 1997; testimony of Beth
Dozoretz before the SCGA, September 16, 1997.
**122** "Other
Approaches to Civil-Military Integration: the Chinese and Japanese Arms
Industries," Office of Technology Assessment, Congress of the United
States, March, 1995.
**123** Richard Fisher, "Foreign Arms
Acquisition and PLA Modernization," Heritage Foundation, June 1,
1998.
**124** "News Digest," Helicopter News, March 28, 1997. "The
Z-11 is a reverse-engineered copy of Eurocopter's single-engined
Ecureuil."
**125** "Briefing- Air-to-Ground Missile Programs,"
Jane's Defense Weekly, September 8, 1998.
**126** The Department of
Defense failed to respond to the Select Committee's inquiry of September
22, 1998 in this regard.
**127** Letter to Chairman Christopher Cox
from William Reinsch, Department of Commerce, October 22, 1998; Letter to
Chairman Christopher Cox from General Counsel, Department of Commerce,
October 21, 1998.
**128** BEA collects information concerning
investment in U.S. businesses in which a foreign person holds an ownership
interest of ten percent or more. Pursuant to federal law, the FDIUS data
that BEA collects is confidential, and individual company data, including
the names of survey respondents, cannot be released or disclosed in such a
manner that the person or firm that furnished the information can be
specifically identified. Use of an individual company's data for
investigative purposes is prohibited, as the data can only be used for
statistical and analytical purposes.
**129** Letter to Chairman
Christopher Cox from Linda Robertson, Department of the Treasury, October
29, 1998.
**130** Ibid.
**131** Briefing by U.S. Treasury
Department to Select Committee Staff, October 29, 1998. See also Letter to
Chairman Christopher Cox from Linda Robertson, Department of the Treasury,
October 29, 1998.
**132** Letter to Chairman Christopher Cox from
Susan Ochs, SEC, September 18, 1998; Briefing by SEC to Select Committee
Staff, October 16, 1998.
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