The Chinese MID — the Military Intelligence Department of the
People’s Liberation Army General Staff is also known in the spy
community as simply the “Second Department.” According to a December
1999 joint CIA/FBI report titled “Chinese Espionage Activities Against
the United States”, the Second Department is quite successful.

“Military intelligence collection against the United States is
primarily conducted by military attaches assigned to the Defense
Attaché’s Office in the Chinese Embassy in Washington and the Military
Staff Committee at the United Nations in New York City,” states the 1999
report written by the CIA and FBI.

“For the most part, attaches openly collect information from Western
publications as well as from their contacts in accordance with MID/PLA
directives. Nonetheless, since 1987 the FBI and the U.S. Customs service
have detected and interdicted at least two MID/PLA clandestine
collection operations in the United States.

“The CIA and FBI also noted that the Second Department’s greatest
success in America is not through its uniformed agents and clandestine
operatives. The Second has set up business in America.

“During the past 20 years, China has established a notable
intelligence capability in the United States through its commercial
presence,” states the joint CIA/FBI report. “China’s commercial entities
play a significant role in its pursuit of proprietary/trade secret U.S.
technology. The vast majority of Chinese commercial entities in the
United States are legitimate companies; however, some are a platform for
intelligence collection activities. Although a commercial entity may not
be directly involved in the acquisition of information/technology, it
may provide cover for both professional and non-professional
intelligence collectors.”

The dual-use of civilian activities to cover economic and military
espionage can be directly attributed to the rise of the Chinese army as
a global force.

The People’s Liberation Army has remained loyal to the communist
party since the fall of the Soviet Union. The attempted coup that
brought Boris Yeltsin to power and the student demonstrations of 1989
frightened the Chinese communists into re-thinking their strategy,
bringing the Army into communist political power. Chinese President
Jiang Zemin is known to be a Chinese army “loyalist”. Zemin not only
leads the communist party but also has chaired the Central Military
Command since his appointment to that position by Deng Xiaoping in April
1990. The fundamental principles of the new strategy are embodied in
two People’s Army terms for national defense: “Junzhuanmin” is the
turning over of military resources to civilian use, and “junmin jieje”
is the integration of the military and civilian. Both terms refer to the
combination of the military and civilian resources such as airports,
seaports, roads and communications. However, “Junzhuanmin” and “junmin
jieje” also translate into a conversion that is reversible, with each
resource having a dual function — military and civilian. The twin
track policy has resulted in increased budgets for the Chinese army,
advanced technology for modern weapons and a strengthening of the
Chinese military-industrial complex.

According to a Commerce Department document on Chinese military
defense industries, the People’s Liberation Army’s new strategy is an
economic war against America. “(Chinese) Civilian resources should be
transferable to military industries for weapons production,” states the
document, entitled “Swords Into Market Shares,” which was forced from
the Clinton administration by a Freedom of Information lawsuit. “This
is not only to prepare for war, but also to use trading firms such as
NORINCO (China North Industries Corporation) and China Great Wall
Industry Corporation to acquire foreign technologies, such as
electronics, for military as well as economic modernization.”
Integration of the military and civilian economies has also put pressure
on the Chinese army to make money. Budget cuts in the Army funds have
been matched and surpassed by the increased income from Chinese army
owned businesses. “Arms sales to the Third World are a prime example,”
noted the Commerce Department document. “Chinese arms sellers have
found a niche in the Third World arms markets, especially in the Middle
East. They are not likely to yield to political pressure and abandon
these markets.

Whether or not these sales actually buy political influence for
China, they are evidently quite profitable. Various sources estimate
that between 17 and 25 percent of PLA profits from arms sales have been
used to make up for budget cuts.” Chinese army units have used capital
to develop profitable business interests, such as owning a hotel and
providing labor for joint ventures. U.S. Ambassador to China James
Sasser wrote a State Department report on Chinese army communications
activities with the so-called Chinese civilian Ministry of Posts and
Telecommunications or MPT. “For example,” wrote Sasser, “In laying long
distance fiber optic lines for the MPT’s telephones and digital data
network, the PLA has provided soldiers to do much of the work. The PLA
cadres are considered disciplined and hard working. Once the cable has
been laid, the MPT typically allocates some of the bandwidth to the
PLA.” “The PLA is already involved in telecommunications in a number of
other areas,” stated Sasser in his report. “The PLA is probably
involved in operation of some networks, particularly in southern China.”

The Chinese army remains the greatest benefactor of continued trade
with America. Despite budget cutbacks by the central communist
government, the Chinese army’s budget for strictly military resources
has increased over 12 percent a year since 1990. The Chinese military
continues to note that it is entitled to a “fair share” of the country’s
prosperity. The People’s Liberation Army Second Department also shared
some of its newfound wealth from U.S. trade with close friends inside
America. According to the joint CIA/FBI report, China provides cash and
benefits to American citizens in exchange for their support. “The
Chinese government continues to seek influence in Congress through
various means, including inviting Congressional members to visit the
PRC, lobbying ethnic Chinese voters and prominent U.S. citizens, and
engaging U.S. business interests to weigh in on issues of mutual
concern,” concluded the CIA/FBI report. Chinese military spies have
penetrated Capitol Hill and the White House. The new Chinese military
espionage network now extends inside the boardroom of corporate America,
and the war-room at the Pentagon. During the Clinton years, the Chinese
Army Second Department earned a reputation for success with victory
after victory against the United States.

CIA/FBI Report

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