China's Secret War

When FBI Assistant Director Dan Szady, who heads the agency’s counter-intelligence division, made a rare public appearance to speak at the National Intelligence Conference and Exposition held last month in Alexandria, Virginia, it wasn’t to discuss Iran, Iraq, or any country in the Middle East, as many may have expected. Instead, the 33-year veteran of the Bureau discussed the “huge” threat posed to our national security by the Chinese intelligence apparatus.

His most harrowing charge, among many other disturbing accusations, concerned the existence of an estimated 3,000 Chinese front companies that presently operate within the US. The main purpose of these pseudo-businesses, he said, is to facilitate often-illegal technology transfers to the Chinese government. In a USA Today interview conducted nine months earlier, Szady had detailed the same threat. He suggested that this intensifying Chinese effort was targeting a wide expanse of American assets, including defense research labs and universities.

While some neophytes may have been surprised by the emphasis on China, those with experience in such matters welcomed it as a long awaited realization. The transfer of highly sensitive technology to foreign countries has recently increased exponentially, with the number of cases growing 20 to 30 percent every year, the main culprit being China. The People’s Republic has recently initiated a full-scale assault on sectors critical to America’s national security and economic viability. When combined with its rapidly advancing military and economic power, China’s thriving espionage network within the United States allows it to challenge American power on the world stage.

“Foreknowledge cannot be gotten from ghosts and spirits, cannot be had by analogy, cannot be found out by calculation. It must be obtained from people, people who know the conditions of the enemy”.

The Chinese seem to have taken Sun Tzu’s sage advice to heart. As detailed in the Cox Report of 1997, the Chinese have created an intricate network of spies that continues to provide them with a wide range of classified American technology. As the Cox committee stated forebodingly eight years ago, “The PRC’s appetite for information and technology appears to be insatiable, and the energy devoted to the task enormous.” The Chinese do little to hide their desire for advanced technology, producing intelligence manuals that detail, in exact terms, methods through which agents can procure advanced technical information from American sources. Recently, this strategy appears to have been honed to a sharp edge.

Nowhere is this massive theft felt more acutely than in the heart of America’s technical development industry, Silicon Valley. Rather than dispatching a few agents to the area, the Chinese have “flooded the zone,” enlisting dozens, possibly hundreds, of their own citizens to aid the overall effort. One US intelligence source detailed the strategy, stating to Time Magazine last month that, “The Chinese are very good at putting a lot of people on just a little piece and getting a massive amount of stuff home.” Numerous cases over the past decade have demonstrated the depth and reach of the network. Several of these instances of Chinese espionage have come to the forefront within the past year. The cases that have been uncovered are alarming. But they become terrifying when one considers that they represent only the tip of the iceberg.

Among the most troubling instances is the case of Martin Shih. A 61-year-old Silicon Valley businessman and resident of the United States, Shih owned an impressive coterie of corporations, including Night Vision Technology in San Jose and Queening Hi-Tech in Taiwan. At the same time as Shih ran his profitable international businesses, he was also a critical asset of Chinese intelligence. At Beijing’s behest, Shih shipped cutting edge night vision technology to Chinese technical research centers, such as the North China Research Institute, which are closely linked to the PRC military. Taking his betrayal a step further, Shih traveled to China in June 2002 where he met with Chinese scientists, to whom he imparted the latest American advances in the field. They were then able, with Shih’s invaluable aid, to manufacture optical technology on par with modern American designs. Shih was arrested in May 2004 and faces 45 years in prison. But the damage had been done. Almost single-handedly, Shih destroyed America’s advantage in night optic technology—a critical component of our continuing dominance on the battlefield.

And night vision technology was not the only modern weapon system that China hoped to compromise. Also in Chinese crosshairs was the newest version of the Hellfire anti-tank missile, which utilizes an advanced radar guidance system. In early 1999, the University of Beijing placed an order with a California firm for 25 low-noise amplifier chips that are an important component of the overall guidance system. When unable to make the delivery because of export laws, the California firm was told by the university that they had another supplier. This supplier was Ting-Ih Hsu, a former employee of Lockheed Martin who ran several Orlando based corporations. One of these corporations, Azure Systems, ordered the same chips six months later from a Lockheed subsidiary. Fortunately, this came to the attention of U.S. Customs, which put Mr. Hsu under surveillance. Custom agents witnessed a business associate of Hsu receive the chips, then attempt to send them to Hong Kong, where they were to be forwarded to Beijing Ghz Electronics, a state owned corporation. In 2004, both Hsu and his associate were charged with illegally attempting to export protected technology. The Hsu case is yet another example of China’s unrelenting style in procuring technologies they consider important in their quest to challenge American supremacy.

The list of additional recent Chinese espionage cases is long and disturbing. It includes, among others, the theft of Blackhawk helicopter engines and optical devices by a South Korean man arrested last year. A Chinese-American couple in Wisconsin was arrested in 2004 for sending over $500,000 worth of computer parts to the Chinese government that can be used to improve missile guidance systems. Statements from officials such as Szady hint that cases like these are just a small sample of the overall secret Chinese war against America. Indeed, in the words of one unnamed senior FBI source, “the Chinese are stealing us blind, the 10 year technological advantage we had is vanishing.”

To defend itself from this wave of Chinese espionage, America relies on its primary counter-intelligence agency, the FBI. Unfortunately, just as the Chinese efforts against the United States accelerated in the 1990s, the bureau’s political masters saw fit to cripple their ability to counter such a threat. Under the Clinton administration, joining the counter-intelligence division became a good way to ruin a promising FBI career. Funds were cut, hundreds of agents were transferred to other divisions, and morale was at an all-time low. This degradation of America’s counterintelligence defense would set the stage for some high-profile blunders on the part of the FBI.

One such misstep was the controversy surrounding the Taiwanese-American nuclear scientist Wen Ho Lee. Lee, who had been an employee at the Los Alamos National Laboratory since 1978, was considered by the FBI to be a major security risk. In 1999, Lee was fired and then imprisoned for nine months on 59 felony counts. His case, however, quickly became a total debacle. In the words of prosecutor and special investigator Randy Bellows, "This investigation was a paradigm of how not to manage and work an important counter-intelligence case.” With the collapse of the investigation, questions concerning Lee’s suspicious actions, such as his transfer of classified nuclear data to computer disks that have never been found, will probably go forever unanswered. The FBI’s mishandling of the Lee counter-intelligence investigation either imprisoned and defamed an innocent man or, quite possibly, allowed an American scientist who would have been considered a top Chinese agent to walk away from his betrayal a free man.

A further disaster was in store for the FBI’s struggling anti-China effort. In the late 1970’s, the FBI recruited Katrina Leung, a Chinese student at the University of Chicago. However, according to government prosecutors, Leung was actually a highly effective Chinese double agent. When Leung was arrested in 2003, she had in her possession extremely sensitive classified documents dealing with the FBI’s efforts against Chinese espionage, including the home phone numbers of FBI counter-intelligence agents. It was revealed early on in the government’s case against Leung that she had conducted relationships with two high ranking FBI agents, giving her access to comprehensive accounts of espionage investigations carried out at government labs, including the inquiry into Wen Ho Lee. The stark conclusion of some FBI counter-intelligence experts was that Leung had fed her Chinese handlers detailed information concerning the investigations, allowing them to tailor their espionage efforts accordingly. The FBI also realized that perhaps Leung’s highly regarded information, which had landed on the desk of four U.S. Presidents, might have all been a wildly successful Chinese disinformation plot. Leung’s case was overturned by a federal judge last month on the grounds of prosecutorial misconduct, a dismissal which is currently being challenged by the government.

With budget cuts, failed investigations, and reckless actions taken by two high ranking agents, the FBI has proven to be a brittle shield against the veritable deluge of Chinese intelligence operatives infiltrating the United States. Fortunately, in the past four years, the FBI leadership seems to have awoken to the threat, with Director Robert Mueller making counter-intelligence his second highest priority, after counter-terrorism. This reemphasis is a long time coming, and will hopefully be continued by administrations that realize the importance of a concerted government effort against Chinese espionage. Still, even with these positive developments, the bureau faces a monumental challenge, considering the scope of the PRC’s espionage effort.

The Chinese have constructed a spy network whose scope would have impressed even the KGB. The existence of such an apparatus should trouble American policy makers who only recently listened as CIA director Porter Goss testified in unusually blunt terms about China’s efforts to counter American military power throughout Asia. In addition, the Pentagon’s upcoming Quadrennial Defense Review is expected to express a harsher and more realistic view of China’s military ambitions than ever produced before. The Chinese, for their part, have responded with their standard bellicose rhetoric: China has recently approved an “anti-succession law,” which serves as a severe warning to U.S. ally Taiwan.

It is obvious that effective intelligence is a vital part of the Chinese effort to achieve their goal of regional dominance. One senior FBI official put it best: “China is trying to develop a military that can compete with the U.S., and they are willing to steal to get [it]." As they mine the American defense industry for technology, the Chinese also appear to be close to procuring European weapon equipment, allowing them to quickly make up for their deficiency in sophisticated command and control technology. As prominent military experts recently suggested, the European technology represents “The missing pieces of the People's Liberation Army puzzle.”

With their fervent pursuit of American secrets and their newfound ability to purchase advanced western weaponry from our French and German “allies,” the Chinese seem well on their way to achieving their stated goal of effectively countering American military might in the Pacific. While the recent steps taken by the Bush administration against Chinese espionage are promising, it will require a determined government-wide effort—backed by a significant amount of political will—before the United States can begin to root out the powerful Chinese intelligence network in its midst.

Patrick Devenny is the Henry M. Jackson National Security Fellow at the Center for Security Policy in Washington D.C.

I want to be clear that you wrote a very good article.
Thank you for your labor.

The issue of Chinese bribery at the highest levels would make a very long article, or even a series.

It is probably the most important issue of today, but is buried deeply under more sensational and provacative news events.

If you choose to write about it, be careful.

Comments on PRC espionage in Silicon Valley. Firms here hire H1Bs who carry PRC passports, and, they transfer, on L1s, managers hired in the PRC to the US for various stints. I have personally hired an H1B with a PRC passport, albeit, one who had that passport due to being an HK unfortunate who had been unable to get out prior to the handover. I had to use my own judgment to ensure this individual was not likely to be a PRC asset, since neither the corporate security screening nor the (at the time) INS approval process would have been capable of doing so. It is significant to note, that all H1Bs are treated essentially the same, whether they are from Canada or the PRC. The operational security inherent in hiring practices at high tech firms essentially sucks. And there is really no ongoing surveillance of H1Bs from the PRC, to see whether or not they are spying. Final note, at my current firm, there are PRC national H1Bs with access to the main corporate books. Ponder that ...

When Communists steal our secrets, when they are non signatory to the INF (thereby threatening our Asian allies, in a manner in no way different than the USSR, back when, with their SS-20s), when they supply rogue states and proliferate, and when they slowly, inexorably, prepare, mostly in the shadows, for great war (why else would one want Tu-95s, Tu-22Ms, ICBM subs, or a blue water navy?) - confrontation will happen. Is all of this news to you?

We were fooled by the Sino-Soviet split and our beloved "China Card." Something occured to me. Given what has transpired since we adopted the mentality of "the China Card" I now must call into question the root causes of the Sino-Soviet split. The Sino-Soviet (apparent?) split, by causing the US to adopt the China Card mentality, has perhaps set up the US for long term defeat. Putting on my Sun Tzu hat, a fake Sino-Soviet split, even with all those deaths during the late 60s with real bullets and artillery and planes, would fit right into classic Sun Tzu tactics on the part of China, and even, perhaps, on the part of Russia. After all, both the PRC and Russia might share the booty if we are conquered.

I'll say this, you ought to fully explore the H1B / L1A angle for a future article. Simply studying the government rules on this would probably be telling. There are gaps a mile wide, no doubt ...

There are many people in this country, maybe even a majority, that have views like johnmilliken. Their view is that nothing bad can happen to the US.

This is most likely due to the fact most people in this country have never really experienced hardship like the depression or WWII and obvioualsy the civil war.
This country could very well experinece an economic collapse or a major war with 100's of thousands of casulaties.
We are a bunch of babies anymore if you really think about it. Our biggest concerns is having to wait in the line at starbucks for more than 3 minutes. Look at the people crying and wringing their wrist over 1200 casualties in Iraq. There was what 35 thousand dead at Gettysburg in 2-3 days????

Sad to say but one day I fear the US people are going to get a harsh reality of the real world real quick...and they will be trembling

From what I have been able to gather, our technological military lead is fast fading – and has faded in some areas. Once it is demonstrated that something is possible, others quickly figure out how to do it.

Excellent! bump

I remember a saying about "closing the barn door..."

I hope it's not too late, but afraid we may wake soon, to find the local buffet is really an infiltration cell...

RE: Look at the people crying and wringing their wrist over 1200 casualties in Iraq. There was what 35 thousand dead at Gettysburg in 2-3 days????

Imagine 35 million in 3 days. Imagine 100 million ...

That's a scary thought.
So what is the USA to do now ? since everyone is gaining on us in military technology ?
And what ace in the hole does the USA hold now ?
Is it because we are still the most powerful nation on earth in military and economically ?
When does anyone see some other nation being in the same Super power status as the USA ?

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