Date: Mon, 17 Mar 1997 04:04:04 0800
From: Diana Takata
Subject: Poly Technologies
To: Multiple recipients of list TSGL
I came across the following after doing an Internet search on Poly Technologies. I oftentimes wonder if we can pursue some kind of actions against this company in the US. Also, Cong. Benjamin Gilman had an excellent piece of legislation opposing business with companies affiliated with the PLA. There's so much attention on China business connections with the Administration these days plus new books The Coming Conflict with China, Economic Warfare, Hungry Ghosts. The time is definitely ripe for economic action on a movementwide level! Diana Takata SFT.
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Dragon's Teeth: China and the International Arms Bazaar
Larry Englemann
Capitalism is seeping so deep into the heart of China that even the People's Liberation Army is now considered a major profit center. Since 1985 it has raked in more than $13 billion from the international arms bazaar. As the Third World's main military supplier, China has peddled just about every kind of conventional weapon from hand guns to missiles, to 25 countries from Albania to Zimbabwe. Americans, as well, have become heavy consumers of Chinese AK47 assault rifles and hand guns. In the last three years, some three million Chinese guns were exported to the US.
Even more worrisome, China is also marketing its nuclear technology. Ten Chinese nuclear reactors, capable of making weapons and fuel, are being assembled in Iran. At the same time, satellite photos, corroborated by ontheground intelligence sources, have provided solid evidence that China supplied Pakistan with M11 components, enabling technicians there to assemble these surfacetosurface missiles which can carry a nuclear warhead 300 miles.
President Clinton vowed that "my administration will not fail to act," if these reports are confirmed. Nevertheless he extended China's Most Favored Nation trading status, which is predicated partly on China's adherence to both the Nuclear NonProliferation Treaty, and the Missile Technology Control Regime.
Beijing has always been ambiguous about its support of those armsreduction agreements. And for good reason. Its wheeling and dealing in weaponry provides much of the hard currency needed to modernize its own arsenal. While China's official military budget is a scant $7 billion, revenues from international arms sales, plus profits derived from the PLA's recent diversification into consumer goods production, contribute another $7 billion. But there is another reason why the PLA continues to pursue the weapons trade. By buying, then cloning and reselling some of America's, Britain's, France's, Italy's and Russia's most sophisticated combat equipment, Beijing also seeks to undermine those nations which it still distrusts. This strategy of "yi jian shuang diao" (getting two birds with one stone) is aimed at gradually tipping the military balance of power in Beijing's favor. However, a few other birds often get taken care of in the bargain, as kickbacks from the arms purchases and sales seem to slide easily into t
he pockets of some of the Chinese dealmakers.
Most of China's weapons business is delegated to two stateowned importexport corporations: Xinshidai (New Era) and Baoli (Poly Technologies). New Era specializes in tactical missile sales. Its most potent offering is the surfacetosurface M9 missile with a range of 400 miles. Of far greater impact on the world arms market is Poly Technologies. Just about any weapon in the PLA arsenal is part of its salable inventory. Additionally, it has the authority to manufacture and sell advanced weapons that have not yet been introduced into China's armed services.
"Guns 'R' Us," is how one former Poly Technologies officer jokingly describes his company. "The only toys we buy and sell," he says, "are for the generals and admirals to play with. Big hitech toys planes, ships, missiles, and torpedoes."
Run by the Taizi (princelings), as the sons and daughters of Beijing's elite power holders are called, Poly is endowed with enormous political clout. Poly's general manager, until he was recently promoted to head of the PLA's equipment division, was He Ping, the soninlaw of China's 88yearold Paramount Leader Deng Xiaoping. He Ping, one of Poly's founders, is said today to be worth $3040 million. He was promoted earlier this year to Director of the General Equipment Department of the PLA and was promoted to the rank of Major General. Wang Jun, the son of the late vice president of the PRC, Wang Zhen, another founder of the company who is still closely associated with it, is now chairman of a Hong Kong Company called Continental Mariner Investment. The current president of Poly, Xie Datong, is also the CEO of the Dynasty Holding Company, which was established in 1988, a corporation that also specializes in the sale of arms AK 47s and Red Star and Black Star pistols, to middlemen who then sell directly to Amer
ican retail arms companies. Through its Atlantabased affiliate, PTK, Polytechnologies has sold $200 million worth of guns to American consumers since 1987. In 1992, according to company spokesmen, PTK sold $3.4 million in guns in the US. Further augmenting Poly's strength was the elevation last fall of General Liu Huaqing to China's ruling sevenman Politburo Standing Committee. The ramrod straight, 76yearold general has been a staunch advocate of importing sophisticated military technology, and has allied himself closely with Poly.
The quasigovernment company began working informally out of a room in the Beijing Hotel in China's capital in 1981. The impetus came from what China calls its "Pedagogical War," a savage, but disastrous 16day invasion of Vietnam, two years earlier. Intended to punish Vietnam for overrunning Cambodia, China's losses in that brief adventure approximate the 58,000 American lives lost during a decade of fighting in Vietnam.
The Chinese troops sent into Vietnam were poorly trained, equipped with obsolete weapons, and supplied with outdated ammunition. Many of their casualties came from friendly fire. Shells that did hit their targets often didn't explode. Instead of reaching Hanoi in a few days, as was expected, the invaders bogged down in the border city of Lang Son. The Chinese generals became so frustrated with resistance in Lang Son that after the city was taken they summoned the senior class from the Army engineering school in Nanjing and ordered them to destroy every building in the city. "It was our goodbye kiss to Vietnam," said one of the returning officers. "All we left behind was mud and blood." After the Chinese abandoned the city, Vietnamese Prime Minister Pham Van Dong visited Lang Son. When he saw the total destruction of the city, the prime minister wept.
When they learned of this, the commanders of the occupying army announced the news to their men and let it be known that they were especially pleased with the
work they had done in Lang Son.
The debacle of the SinoVietnam war proved the need for a revolutionized military procurement program. Financed by the Army General Staff and placed under its Equipment and Technology Department, Poly was finally incorporated in 1983 and quickly expanded into an elite, freewheeling entity that could keep pace both professionally and socially with its capitalist counterparts. Today its officers enjoy special privileges. They are provided cars, apartments, hotel suites and expense accounts. The company keeps few written records, conducts much of its topsecret business on secured scrambler phones, and operates through an international network of gobetweens referred to as "foreign friends." Of its 70 employees, most have military experience. But their real power comes from their lofty Communist lineage.
Recognized as wellheeled customers, Poly's procurement people are wined and dined in high style wherever they go. On a 1988 whirlwind tour of Royal British Navy facilities and a visit to the Plessey Company (maker of the A904 dipping sonar, designed for trolling through the ocean behind antisubmarine armed helicopters), a Poly delegation was put up in a castle near Falmouth, where Prince Andrew and his bride, Sarah Ferguson, spent part of their honeymoon.
The junketing shoppers moved on to France. A tour of Paris night spots naturally preceded their visit to the Toulon Naval Base. There an unexpected $90 million order for the Sea Crotale (Rattlesnake), the French designed seatoair missile, manufactured by Division Systems Electroniques, a subsidiary of ThomsonCSF. This sale was surprising, reports a former Poly officer, because the money had originally been budgeted to buy a new wireguided torpedo, the A184, produced by the Whitehead Company in Italy. The torpedoes were badly needed to equip
China's nuclear sub fleet, as many of the subs were operating at the time with empty launching tubes.
Ordinarily, White could count on another secret weapon, a stunning, young, Bangkokborn, part Chinese woman named Ma Ling, to sew up some of its deals with Poly Technologies. Ma Ling is not a Poly employee, but served as a facilitator of many Poly purchases. She is fluent in Thai, Mandarin, English and Italian. More important, she knows who in China's military establishment must be given very special care, financially speaking. Poly officers, on the other hand, suspect her of being on the payroll of the Selenia Elsag Group, to which Whitehead belongs. Her efforts had previously helped cement a $41 million sale to China of Whitehead's lighterweight A244 torpedoes launched from seaplanes and helicopters.
One of Poly's primary missions is to pick single pieces of stateoftheart equipment that can be disassembled and then duplicated by reverse technology. In 1987, when the US destroyer Stark was hit in the Persian Gulf by two Iraqi airtosurface missiles, one was suspected to be a Chinese clone of the French Exocet. In 1991, after Operation Desert Storm ended, Poly sent a team to Baghdad to scavenge for unexploded American Tomahawk missile debris to bring home for study. Another Poly team turned up in Teheran to bid on some of the 107 jet fighters and other aircraft that had hightailed it from Iraq. Intelligence officers in Washington believe that Iran agreed to swap the planes for 10 Chinese nuclear reactors presently under construction.
In 1991, a US intelligence report claimed Israel either sold an American Patriot missile to China, or shared with it the advanced technology developed by Raytheon. That accusation sparked a nasty brouhaha between the US and Israel. If China was privy to Raytheon's secret technology then it would be able to make its own ballistic missiles less vulnerable to being knocked down by Patriots.
Some American weapons, it appears, were improved on before being passed along by Israel. China's PL8 groundtoair missile, which was offered for sale at the Singapore Air Defense Show in 1991, bore a striking resemblance to Israel's airtoair Python 3. Yet this same missile is listed in intelligence reports as having a "highdegree" of US technology, allegedly having been adapted from the US AIM9L Sidewinder.
Although China did not recognize Israel until 1992, Poly Technologies has been buying its weapons for years. A 1991 RAND study prepared for the US Defense Department estimates that Israel had sold China between $1 and $3 billion of arms and military technology. Sources within Poly Technologies, however, insist that the true figure topped $6 billion.
Many of Poly's purchases were expressly made so the equipment could be copied and sold. Israel's advanced 105mm tank cannon, accurate even when the tracked vehicles are bumping over the desert at high speeds, was reproduced in China. Ironically, it was then sold to Israel's two most feared enemies, Iran and Iraq. Israeli technicians also spent considerable time in China improving the MiG21s and MiG23s targettracking and firecontrol capability, only to see that sophisticated technology resold to Pakistan. Israel technicians and pilots were sent to China to help with the handson training of Chinese pilots, and in some special cases, Chinese pilots were brought to Israel for flight training with the sophisticated new avionics systems. The foreign experts from Israel who worked in China, traveled with Hong Kong passports, supplied by the Chinese. When, five years ago, a group of Israelis was detained in Hong Kong by the customs service for carrying forged passports, a quick telephone call to the local Xinhua New
s Agency, which serves as China's unofficial representative in
Hong Kong, cleared things up instantly and the Israelis were sent on their
way.
China has been peddling military equipment to its Southeast Asian neighbors as well. In 1988, when Poly representatives found themselves in a bidding war with South Korea to build several 053type frigates for the Royal Thai Navy, the Chinese delegation reportedly arrived in Bangkok with two suitcases filled with gold bars for the navy commander and the admiral in charge of procurement. But what really cinched the deal was an offer to equip the frigates with highpowered American LM2500 gas turbines purchased from General Electric. Theoretically, however, China was prohibited from reselling the GE engines. "What we do is no secret," an exPoly man says. "Every armsbuying and armsselling nation in the world knows us, though sometimes foreign sanctions force us to deal under the table, as you Americans call it." Despite assurances to the US that it would stop, Beijing continued selling hundreds of surfacetosurface HY2 Silkworm missiles to both Iran and Iraq, to fire at each other's oil tankers in the Strait of H
ormuz during their eightyear war. By the time peace was declared, Poly had sold $3.1 billion worth of arms to Iran, and $5.1 billion to Iraq.
Poly also sold Saudi Arabia $3 billion worth of DF3 East Wind missiles beginning back in 1987. These vintage, singlestage, singlewarhead, intermediate range models had once been deployed along the SinoSoviet border and targeted at Moscow and Leningrad. Even though they were delivered minus their nuclear warheads, they can nevertheless now strike anywhere in Israel. Secretly, on the other hand, China provided locations for the missiles to Israel, in order to render the weapons somewhat less menacing.
Some of Poly's weapons sales have been carried out over objections from China's Ministry of Foreign Affairs, which has to fend off protests from the US and other nations. According to International Security, a quarterly published by Harvard and MIT, the Saudi sale touched of an internal dispute that was finally resolved by Deng himself. "How much money did you make?" Deng asked Poly Technologies . "Bu xiao!(not little)," he exclaimed when told the amount.
The Saudi deal also caught the eye of Syria's President Hafez alAssad, who
sent a delegation to Beijing for talks on arms sales. But Poly Technologies
told the Syrians that their new M9 and M11 medium range missiles, which the Syrians intended to aim at Israel, were still in a primitive stage. Syria was so motivated by the prospective sale that it agreed to provide lavish sums for research and development. US officials attempted to stop this sale to Syria, but apparently without success. Some of the M9s and M11s, it is reported, have already been delivered to Damascus, despite Beijing's denials. Some individuals within Poly Technologies revealed that Israel was again apprised of locations and encrypting codes for targeting for the missiles in order to prevent a disruption of the relationship between the two countries.
"President Bush let those missile sales go through with a wink and a nod," said Democratic Congresswoman Nancy Pelosi of San Francisco. "I'm even more incensed," she adds, "that Chinese weapons arrived in Iraq during Operation Desert Storm after being laundered in North Korea and Jordan."
The Chinese leaders don't seem to take such warnings seriously. "We believe the US remains firmly committed to a policy of mutual trust," says another former Poly Technologies officer, who claims that America has been quietly sharing limited military intelligence and technology with China. The unpublicized cooperation, he explains, dates back to 1978 when Jimmy Carter's National Security Adviser, Zbigniew Brzezinski, visited Beijing along with Deputy Secretary of Defense, Morton Abramowitz.
Abramowitz surprised his hosts by handing over a sheaf of satellite reconnaissance photographs of Soviet military installations and armor facing China. The biggest surprise, however, was the Americans' promise to equip and help man a series of SIGINT (Signal Intelligence) listening posts near the Soviet border. Called Project 851, the Chinese and American joint venture constructed two posts with large dish antennae in Xinjiang Province in northwest China. The first post completed stands today near the top of Tianshan (Sky Mountain), where it is disguised as an earthquake monitoring station. In the next years the US constructed nine more such posts across China, using special Pentagon funds. These stations tracked underground nuclear tests of the former Soviet Union. The strained relations of the US and China following the Tiananmen massacre in 1989 did not include any change in cooperation on the listening posts. President Bush and his aids aid at the time that the continued operation was important to the lo
ngterm strategic relationship with China.
Today, Project 851 remains shrouded in secrecy. Some 30 American intelligence experts from the National Security Agency, the CIA, and various US military services are still stationed at Tianshan. They are well provided for by a Chinese support staff of 200 men and women. Many of the Chinese officers from Luoyang, where the intelligence unit of the PLA trains its Russianlanguage experts, agree to governmentarranged marriages to classmates, who are sent with them to the remote outpost for a five year assignment.
As the listening posts in northwest China were being constructed, the Chinese also constructed new listening posts in Tibet. These posts, constructed with the latest surveillance technology, enabled the Chinese to listen in on American naval vessels in the Mediterranean and the Indian Oceans, and to intercept all transmissions from the island of Diego Garcia to the American fleet, Washington and other installations around the world. By late 1982 the Chinese in Tibet were tuned in on all naval transmissions from Europe to Thailand, listening not only to the calls of servicemen to their wives, children and friends, but also deciphering the maneuvering of every American ship in the region. None of this was possible, the Chinese suggest, without the use of American technology, which was diverted from Xinjiang to Tibet.
During Deng Xiaoping's visit to the US in January, 1979, only weeks before China made the final decision to go to war with Vietnam, Deng voiced concern about threats from Vietnam's principal ally, the Soviet Union, and the damage that the Soviet fleet might bring to Chinese naval installations in the Paracel (Xisha) Islands. Deng was especially interested in the American Mark46 wireguided airtosea torpedo, that could be launched from a helicopter.
"For years we had been trying to get advanced torpedoes," I was told by a Chinese naval officer. "And the top of the line at the time was the American manufactured Mark 46, a very advanced weapon. It was a closed loop torpedo so when it is fired it leaves no trail in the water. It is also fast, running at about 40 knots and it is quiet and does not generate a lot of noise, so it is very difficult to detect and then destroy before it hits its target.
"We were unable to duplicate the Mark 46. But soon were learned of Mr. Deng's coup in Washington. A group of American ships from Subic Bay, headed by the Coral Sea, came into the South China Sea near the Xisha Islands. And as the Americans patrolled in the area, either an American ship or helicopter with the group dropped several Mark 46 torpedoes near the islands. They beached themselves, unharmed, in the mud near our naval forces. We were able to salvage them successful and bring them ashore. Quite obviously, they were intended for us, and the object of the Americans was to provide them to us both secretly and intact. That was done. The two Mark 46s were armed. Everything. They were complete. Although those of us in the Xisha islands were not privy to arrangements made between Beijing and Washington, we do know when and where they were launched and we do also know that no one in the area from the US Navy ever reported them missing.
"Once we had them, then reverse engineering was the problem to be solved. Years later, that would be 1987, the US Navy sold two more Mark 46 torpedoes to us. But still it was not enough and still we had difficulty duplicating them.
"We studied the American torpedoes. We carefully disassembled them and then sent different parts to different research institutes for examination. This enabled the Chinese research institute belonging to the CSSC (China State Shipbulding Corporation) to produce their own copies of the Mark 46. These were constructed for study and then test fired in a pool at a special testing site in a suburb of Kunming. There is a very advanced test facility there. The tests of our copies of the Mark 46 showed that although everything looked exactly the same with the American and Chinese versions, the performance of the Chinese model was inferior to that of the American. But the research continued until China officially obtained more Mark 46s from the US through legal and open channels in 1987.
"Years later," he said, "I remember very clearly, in the negotiations room of the Systematic Engineering Division of the CSSC, which is not far from the naval compound in Beijing, some American friends gave us technical introductions to the Mark 46, advanced version. And the Chinese experts present questioned the American specialists about the possible modifications of the Mark 46 used by the US navy compared to the earlier versions say, those used around 1979! What revolutionary advances had the US made? The American experts said that none at all had been made. But actually the Chinese experts at the table could hardly hold in their laughter, because they knew the truth. They knew that these Americans were lying. They knew what changes had been made. Yet the Americans in Beijing never knew how Chinese could know this. These experts from the sales
department of the Mark 46 manufacturer had never been told that our American friends had delivered two of their products to us in 1979."
For years Beijing has tried to acquire an aircraft carrier. Back in early 1988 Poly Technologies escorted a Navy delegation to Philadelphia disguised as executives for the Sea Rainbow Ship Demolition Company. Their announced purpose was to buy the aircraft carrier ShangriLa, which was built during the Second World War and then modernized to participate in the Korean and Vietnam conflicts, for scrap. Discovering that the mothballed vessel still included its catapults, which the Chinese needed badly in order to construct their own carrier, the Chinese secretly planned to buy it and then use it as a model for their own shipbuilding industry. The only other bidder was a crap iron company from Taiwan, and Poly's American contacts had already made sure that China knew what the Taiwanese company would bid and that China might then bid slightly higher. So confident was the Poly delegation, in fact, that word was given to employees of China's National Security Police working in the US that the ShangriLa purchase was
a done deal. They, in turn, went on a buying binge purchasing new cars to transport aboard the carrier back to China for sale at a very handsome profit. But when the FBI discovered what was going on, the Taiwanese Kaochung company was awarded the ShangriLa for $7.2 million on September 27, 1988, and the Chinese were stuck with a fleet of cars they had to sell second hand. Poly considers the loss of the ShangriLa as its greatest
failure in dealing with the Americans. In the next years the Chinese continued shopping for an aircraft carrier. In 1991 they sent a delegation to the Ukraine to look over the 67,000ton Varyag, nearing completion in the Black Sea port of Nikolayev. But the price was too high and a deal could not be made, not even after the collapse of the Soviet Union. But since the dissolution of the Soviet Union the Chinese have been buying up Russian weapons, frequently at firesale prices. Its biggest purchase to date was the 26 Sukhoi27 jet fighters, which can be refueled in flight, thereby extending China's air cover over the South China Sea to the Nansha (Spratly) Islands, which may be rich in oil and which are claimed by several other countries including Vietnam, Taiwan, Malaysia, Brunei and the Philippines. A second order of S27s is being negotiated, although two of the original planes have been disassembled to determine if they can be duplicated at the MiG manufacturing plant in Chengdu. China is also bidding for M
iG29s and MiG31s.
The Chinese were surprised in late August by a secret Russian offer in Vladivostok. There, a group of Chinese naval officers, in civilian clothing, discussed issues of "mutual concern" to the two nations. Suddenly, the Russian officials proposed the sale of a large part of the fleet anchored in Vladivostok to the Chinese. The Chinese were then shown more than a dozen submarines, armed and fully operational, and twice as many frigates. When the Chinese delegation suggested that the hard currency for such an extensive purchase might not be readily available, the Russians suggested that the Chinese could lease the ships for up to six years and then tow them to China under the guise of purchasing them for scrap.
Chinese military officials are now discussing the offer. This aggressive weapons acquisition program has not gone unnoticed by the Pentagon, which is presently reducing US forces in the Philippines, South Korea, and Japan. Beijing's military leaders, while denying any expansionist designs, secretly view the US as their country's biggest threat, now that the Soviet Union no longer exists. Most particularly, China's generals and admirals fear that the "peaceful evolution," which Americans predict will eventually eradicate Communism in China, will lead to chaos instead. "The trouble in Tiananmen Square," claims a former Poly employee, "reminded the People's Liberation Army of Mao's old dictum: 'Political power comes from the barrel of a gun.'" That remains the motivating force behind Poly Technologies.
