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As early as 1995, officials in the U.S. Commerce Department were
warned of Chinese military and commercial espionage, according to a
recently declassified secret report from the FBI. On June 1, 1999, the
acting chief of the FBI’s Litigation Unit, Scott A. Hodes, released
sections of a still-secret report on Chinese espionage in written
testimony submitted in a federal lawsuit by this reporter.

“The document is 1 of 18 documents submitted to the Court by the
Department of Commerce for an in camera inspection,” wrote Hodes in his
testimony for Federal Judge Robert Payne.

“This document is described as an FBI report dated April 1995, and
designated by the Department of Commerce as document #98-02018-OSY1-001, originated and classified ‘Secret’ by the FBI.
Portions of the document contain information responsive to plaintiff’s
request for Department of Commerce records on the subject, China’s
Commission of Science, Technology, and Industry for National Defense or
COSTIND.”

According to Hodes, the “review determined the information withheld
in paragraph 2 on page 17 and paragraph 3 on page 18 no longer warrants
classification. Therefore, I declassified paragraph 2 on page 17 and
paragraph 3 on page 18 and those portions will now be released to the
plaintiff. The remaining portions of page 17 and page 18, as well as the
cover page are not within the scope of plaintiff’s request.

“Furthermore,” wrote Hodes, “these portions remain classified
‘Secret.’ As these portions do not concern COSTIND, I am not addressing
them at this time.”

According to the FBI report, “COSTIND generally oversees a whole host
of weapons production corporations with their own needs to collect S&T.
It is the primary coordinating control over these corporations and also
tasks a wide range of Chinese commercial and research institutes to
collect high-tech military and industrial items.”

In addition, the report shows that known commercial espionage by the
People’s Liberation Army is directly linked to military and diplomatic
espionage. According to the report, “The State Science and Technology
Commission (SSTC) is the non-military counterpart of the COSTIND, and
like COSTIND it is involved in China’s S&T modernization effort. The
SSTC largely oversees civilian S&T collection, using the S&T diplomats
in the United States as a key collection tool.”

The secret report was generated as part of the standard
counter-intelligence task assigned to the FBI. The report was given to
U.S. Commerce officials at a classified level. The report describes both
PLA “collection” operations and tools such as “diplomats in the United
States.”

The FBI has come under fire recently for providing poor
counter-intelligence to the Department of Energy, concerning PLA
espionage involving nuclear weapons. Yet, counter to prevailing
opinions, as the report shows, the FBI counter-intelligence team was
busy warning the Clinton administration about COSTIND and the PLA back
in 1995.

In the past 10 years the PLA has scored a significant number of
military and commercial espionage victories against America. From
supercomputers to satellite navigation, the PLA snapped up a fire sale
of formerly defense-related equipment at bargain-basement prices.

Much of the equipment included U.S. manufacturing equipment and U.S.
training; thus, not only was the technology exported, but so were the
American jobs. Some of the documented transfers include:

  • Rockwell Collins GPS navigation to Shanghai Aviation, a company
    owned by the PLAAF, for missiles and bombers.

  • Radiation-hardened chips for nuclear warheads, including training for
    Chinese technicians inside America.

  • Blade cutters and molds for a NORINCO artillery-fuse production
    facility owned by the PLA.

  • McDonnell Douglas machine tools to PLAAF-owned China National
    Aero-Technology Import Export Corporation for fighter/bomber production.

  • SUN super-computer to COSTIND-owned Yuanwang Corp. for nuclear
    weapons development.

  • $100 million of Tandem (now Digital) computers to Great Wall
    Industries, a company owned by the PLA, for long range missiles and
    satellites.

  • AT&T fiber-optic communications systems to New Galaxy Technology, a
    PLA company, for the Chinese Army General Logistics Division.

  • Hughes secure Air Traffic Control systems directly to the PLAAF for
    “military” air defense.

  • $200 million of Motorola secure radios for the People’s Armed Police,
    the Chinese “Gestapo” that executes dissidents and runs the “Lao Gai”
    prison camps.

  • Advanced Synthetic Aperture Radar from Loral Defense to National
    Remote Sensing Center, State Sciences & Technology Commission of China,
    identified by the FBI and the Defense Department as a PLA missile
    guidance lab.

  • RSA/Security Dynamics computer security encryption technology to the
    Laboratory of Information Security, a PLA information warfare lab, under
    the control of China’s Ministry of Trade and Economic Co-operation
    (MOFTEC) and COSTIND.

During the investigation into Chinese operations to influence the
1996 U.S. presidential campaign by the Senate Government Affairs
Committee, Sen. Fred Thompson identified MOFTEC as a conduit for
“espionage — economic, political and military — for China. Kind of
like a smiling tiger; it might look friendly, but it’s very dangerous.”

In June 1999, Congressman Randy Cunningham said the commercial deals
made with the Chinese army are like “dealing with a deadly Cobra. You
might be able to grab the snake and milk it. You might even do some good
with the poison … but be careful where you let it go.”

According to the Cox report there are 2,000 front companies on the
loose, doing business inside America. One of the largest of the PLA
front companies is Hutchison Whampoa, which is run by
Chinese billionaire, Li Ka Shing. The Senate Committee revealed that
Hutchison Whampoa’s subsidiary, HIT, has business ventures with the
China Ocean Shipping Company. COSCO is owned by the PLA and its ships
carry Chinese missiles, missile components, jet fighters and other
weapons technologies to nations such as Libya, Iraq, Iran and Pakistan.

In 1996, the U.S. Customs Service seized a shipment of 2,000
Polytechnologies Co. machine guns destined for agents posing as American
drug gangsters aboard a COSCO ship at the port of Oakland, Calif.
According to the Customs agents, U.S. Poly Tech officials had to call
back to Beijing to obtain permission to ship the machine guns.

Wang Jun, head of Poly Tech, is a known international arms dealer who
had coffee with Bill Clinton along with Charlie Trie. Wang Jun also sits
on the board of CITIC, the China International Trust
and Investment Corporation. CITIC is the chief investment arm of the
Chinese central government and the bank of the PLA, providing financing
for Chinese army weapons sales and for the purchase of Western
technology. Wang Jun’s fellow CITIC board member is Li Ka Shing,
chairman of Hutchison Whampoa Ltd.

Li is so close to the Chinese government that the Clinton White House
included his bio along with Chinese President Jiang Zemin to the CEO of
Loral Aerospace, Bernard Schwartz, just prior to the 1994 Ron Brown
trade trip to Beijing. According to documents provided by the Commerce
Department, Brown and Schwartz were to meet both Li and Gen. Shen
Rougjun of COSTIND.

Serving as a middleman for PLA satellite purchases, Li has financed
several satellite deals between the U.S. Hughes Corporation and China
Hong Kong Satellite, a company owned by the PLA unit, COSTIND.

Besides trying to buy satellites for the PLA, in 1997, Li and the
Chinese navy nearly obtained four huge roll-on/roll-off container ships
from America. These ships were intended to transport PLA military cargo.
The ships were part of a multi-million dollar deal that would have been
financed by U.S. taxpayers.

A man with considerable clout, Li has invested more than a billion
dollars in China and owns most of the dock space in Hong Kong. In an
exclusive deal with the People’s Republic of China’s communist
government, Li has the right of first refusal over all PRC ports south
of the Yangtze River. Furthermore, Li currently owns both the Pacific
and Atlantic ports on the Panama Canal. And it was Li who attempted to
purchase the military port of Long Beach, Calif. for COSCO and the
Chinese navy.

A June 1997 Rand report (“Chinese Military Commerce and U.S. National
Security”) stated, “Hutchison Whampoa of Hong Kong, controlled by Hong
Kong billionaire Li Ka Shing, is also negotiating for PLA wireless
system contracts, which would build upon his equity interest in PLA arms
company Poly Tech-owned Yangpu Land Development Company, which is
building
infrastructure on China’s Hainan Island.”

In 1998, Li attempted to issue $2 billion in bonds in the U.S.
through his Hutchison company. According to the Dow Jones Newswire,
Hutchison revealed that 50 percent of the bonds would be used through a
subsidiary known as Chung Kiu Communications Ltd., which had signed
agreements to provide cellular services and equipment to joint ventures
between the
PLA and the Chinese Ministry of Posts and Telecommunications.

In June 1999, Li and his PLA partners bought their way into the
communications grid of northeast America, bringing PLA signals
intelligence (SIGINT) operations inside the United
States. Hutchison Telecom and the PLA are now major players in the
American mobile-phone business with the recent investment of nearly $1
billion into VoiceStream Wireless.

The $957 million deal, the PLA biggest investment yet in America,
will allow funding of VoiceStream’s merger with Omnipoint. Omnipoint
provides a service to more than 100
million subscribers, predominantly in the northeastern cities of the
U.S., including critical military, commercial and diplomatic sites in
New York, Boston and Philadelphia. The
opportunity for PLA profits and communications espionage now spans the
massive East Coast of America.

The deputy chairman of Hutchison’s sister company Hutchison Whampoa,
Victor Li Tzar-kuoi, described the investment as a “milestone for the
group,” saying it would be funded by “internal” sources.

“It is something we have been working on for a while,” said Hutchison
Telecom managing director Canning Fok Kin-ning. “People have been
wondering what (we) were going to do with
(our) cash,” said Fok. “We are a very conservative company. Rather than
going in and taking a big position at the start, we do it step by step.”


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