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 TIME on politics Congressional Quarterly CNN/AllPolitics CNN/AllPolitics - Storypage, with TIME and Congressional Quarterly

PRC Acquisition of U.S. Technology

page 7

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:

  • U.S. subsidiaries of PRC military-industrial corporations in the PRC
  • U.S. subsidiaries of PLA-owned-and-operated corporations
  • Corporations set up by PRC nationals overseas to conduct technology acquisition and transfer
  • Corporations set up outside the PRC to acquire technology for a PRC intelligence service, corporation, or institute covertly
  • 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
  • Corporations set up outside the PRC by a PRC intelligence service to launder money
  • Corporations set up outside the PRC by a PRC intelligence service to raise capital to fund intelligence operations
  • Corporations set up outside the PRC by a PRC individual to hide, accumulate, or raise money for personal use
  • 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 PRCs 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-tech 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 MSSs 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 PRCs 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 PRCs 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 PRCs 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 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.

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-tech items to the PRC.84 Among the items about which Kao and several other PRC nationals were seeking information were:

  • The U.S. Navys Mark 48 Advanced Capability Torpedo
  • The F-404 jet engine used on the U.S. F-18 Hornet fighter
  • 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 Energys 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 visitors 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 PRCs plan for further research, the hope being that the U.S. scientist will release information in commenting on the PRCs 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 PRCs 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

Back  |  Forward


pages 1 | 2 | 3 | 4

PRC Acquisition of U.S. Technology
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9

PRC Theft of U.S. Nuclear Warhead Design Information
pages 1 | 2 | 3 | 4 | 5

High Performance Computers
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10

PRC Missile and Space Forces
pages 1 | 2 | 3 | 4 5 | 6 | 7 | 8 | 9

Satellite Launches in the PRC: Hughes
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9

Satellite Launches in the PRC: Loral
pages 1 | 2 | 3 | 4 | 5 | 6

Launch Site Security in the PRC
pages 1 | 2 | 3 | 4 5 | 6

Commercial Space Insurance
pages 1 | 2 | 3 | 4

U.S. Export Policy Toward the PRC
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9

Manufacturing Processes
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10

pages 1 | 2 | 3

pages introduction | A | B | C | D | E | F

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