Conversations with Chinese Intelligence Officials

Tape 6

Formation of the company. The Central Military Commission at the top, CMC, and below that box the general staff, and below that box, poly Technologies.

Individuals in the company were in the army and are still in the army. It is part of the department, the supply department, these individuals are no longer in uniform. But they appreciate individuals with a military background. The founders were all individuals in the military.

The founders were He Peng fei, Wang Jun, He Ping. Who was the fourth individual? Where is a fourth individual founder. But who is he.

The Chief of Staff of the Army at that time was the fourth founder. They always have the support of the chief of staff. These are individuals who are sent there to form a company. It is easy to do. They buy an office in the Beijing Hotel and one year later it shifted to Citic. The original money for the founding came from the PLA. As soon as the company enlarged, after they hired more and more individuals, the military individuals retreated and they wanted to make it a purely civilian organization, because that made it easier to do business. There is a secret charter that founded the organization. It never involved the name of the personnel. It never described them, but only their functions. So in the initial development stage, the number one people in the company changes often, depending who is busy and who is not, and a small circle. outside. Then the children of the important people, the founders were already those individuals. Then Poly was an organization that chooses people on a strict selective basis according to their background as well as their qualifications.

How large was the Central Office of the company. The army took care of all of the connections and associations of the company. The tasks and functions were detailed, and the army smoothed all of the channels. It was a problem of reallocation. It is not a company in the sense of a western company, it was a shift of the working desks and offices from the army to another group. And they opened their bank accounts and funds. According to China's laws, any company needed to be registered under another group, and so it was registered under Citic and it is still today. But what is the relationship between the two? The relationship is only to say hello during the Christmas holidays. That is what the relationship is. Reports never go back and forth unless it is on building maintenance, use of the elevator and hygiene. And you need your guests to sign their names in the lobby. There are around 70 people in the main office. They have branches, real branches, are important branches of the military. Actually, I was involved in one of the branches. Some of them who worked with us, they wore civilian dress, but they had uniforms in their cabinets and they could put them on when the occasion required. They were in the military when they wished. We supervised the military activity when they were involved in the foreign field. Like when you are involved in technical or official meeting with men from foreign firms. We must be there to supervise the negations and do the translations. When the military is not familiar with official jargon or the official line, and I would have to tell someone, all right, you shut your mouth.
What is the structure beneath Poly? At one level are imports and exports. Those are two departments. Who are the heads of thee departments. Other branches, but how are these two branches broken up.
Literally, who handles the money? We have bank accounts in international banks. Sometimes under Citic, and sometimes under Poly. We have our operational money in a bank on the first floor, the Citic bank, that is where the operational money is. When I go to France, I write request, get signature and they provide me with the money. Then there are foreign banks in Hong Kong and in the US, there is BCCI where some of our money is. It is spread around. BCCI was heavily involved with Poly but under a different name. We never worry about this kind of thing, we have too many friends to help us. Even if there is a collapse of the communist party in Russia, many people still have faith in China and still have faith in Communism. They trust, in other words, at last, what we are doing. They are then extremely helpful to the PLA; modernization program. Extremely help. The goal is to be number one in the world, to defeat the USA, to defeat you politically, economically. By using Japan. They are not happy with the way that America performs They are not happy. They believe you are too arrogant and they want to do something about that. They foresee the gradual decline of the US, that is why they are so confident, the PLA. The top priority of the state leaders, the PLA is the tool to perform that function. Now you see why the PLA was called in at Tiananmen. All else collapsed, the police and the armed police. The PLA is the last resort of the leadership. Some believed the PLA should have been sent in earlier. But there was some hesitation. Yet in the end it saved the state, or the leaders. They believe that American will collapse and there will be a new world order. They fear an American dominance of the world, after the collapse of the Soviets. Now China they believe will be the number one enemy of America rather than the friend, now they do not need us. Look at Gates saying that we should aim our activities more toward China. China knows what he is doing. That is why when you look at a Chinese newspaper today, they are talking of preventing China from a peaceful revolution. All of the people in...All of the leaders in the company are in the Party. It is a requirement but it is not always done. Presumably, they are all in the party. Unless you are a returning overseas Chinese. Then you are better than a party member, you are as loyal as party members. A lot of people come to us wanting to help. The party in strengthening the PLA does not need to invest in the US to weaken you. The Japanese can do. They can invade you economically, abut China cannot do that. That is not the goal. Poly can make use of its own profits, when it wishes.
The deal with Thailand was not to help Thailand alone but to undermine the US. And the goal of helping the Audis was to help them and to hurt America. You convince the Saudis that China, in order the help you, will take great risks and pay great costs.
The students at Tiananmen had it all wrong. Rally. They had a grievance, but they were wrong as far as the PLA went and what it was. They didn't know. That is why when Zhao Ziyang came to the square holding the loudspeaker, crying, and he said, in Chinese, "There are a lot of things you don't understand. It is much more complicated than you imagine. Retreat from the square. I beg you." That was as far as he could go at the time. Of course, he was the official number one person at the time, we had his signature every day, he was not consulted every day and didn't make the decisions, but he approved them, generally. He knew all that was s going on. He knew there were rotten things in the state.
Poly performs the duties that the General Staff cannot perform. It is not stronger than the General Staff it is the well camouflaged right hand of the general staff, that is why we carry a dagger, too. Cloak and dagger. The iron fist in the velvet glove, that is us.
The Life styles of the individuals in Poly. They have their own cars. But you never know where they got their cars from. Mercedes or Rolls, they are imported from Hong Kong. There are a lot of cars registered with the Army; the license plates are all white.
The life styles of the individuals. It is not related. What are the perks? How many girl friends they have. They can have as many as they want. They have money and power. They don't live like westerners. They behave themselves in China. They have orderly families. Personally I didn't visit their families We never formed close friendships. The friendships were based on consent and understanding.
Apartments were quite luxurious, even by western standards, and when they come to the US they also have good quarters. They have their friends buy homes for them in the US, they are taken care of by friends here in America, under the friend’s names. But they make a point of not showing these things off in China. They are in control there.
The scholarship to the French university. That is a trivial matter. That happened every day. The admiral asked my opinion. He said, what you think. Is this god. His son then left for France. This was not of great importance. It was how business was done. As to what the money would be done with, that is up to your imagination.
One thing, they are well educated and culture individuals. I consider myself one of them. But they are more civilized than I am. They know how to behave themselves. They are discreet. They are image conscious. But at the same time they know how to have a good time without taking risks. If they want to enjoy themselves, then they go to the west. The dangers. Say, if you own three cars in Beijing, or you commit a lot of crimes, and say you assault or rape a lot of girls. Then someone is going to bring charges. Your enemies will make use of that information, especially when they have evidence. Unless you are extremely powerful you will be vulnerable to one degree. So whenever there is a trial, against misbehavior of the company, not an individual. If you are the boss, and there is a trial, then the influential individual disappears for a time, and another individual is put in that post, and this is the individual who is blamed for all the misbehavior. Once that is over, than then the son returns. This is a practical case.
Basically, what is important in China, if you have a mistress or two or three, there is no problem. Some of the officers have a telephone list. And we would be a dinner and they would bring a young beautiful woman. Nobody bothers about that. You may not accept this. As long as you are in a good position, we never look into your private life. These women may have children. They may have husbands also. They are simply service people. They make use of each other. I will open a bank account in Hong Kong if you sleep with me, for example.
Clothes, suits, that is not important. I wear certain things that are not expensive. In the high position, of course, it is required that you have a good suit, and shirts and shoes. But who bothers about this, who is envious or surprised. They don't have inexpensive things, let me put it that way. Everything for these individuals is guaranteed by the state. We go to the Army hospital if we are ill. The best medical care. We are not interested in the opera, that is for westerners. That is for tourists. We are interested in naked women, belly dancing. That is the sort of thing we are interested in. This would occur at some of the hotels in Beijing or Guangzhou. These would be Chinese women, I realize the taste of these individuals. They are interested in Mainland girls, not Taiwan, Thailand, and Singapore. That is bullshit. We Chinese, think ourselves, from the Northern part, we are the genuine Chinese, the Hans. And we get what we want. There are skirmishes over some women that is what we call them. Skirmishes. Once in the office we are in business and that does not intrude there.
The only thing that could cause you to resign would be an economic scandal. Then a deal exposed to the public would mean that an individual would have to be punished. If an individual womanized too much or drank too much then you would have to step down. But that has never happened. Once in power you know how to control yourself. I know how to control myself also.
There are some powerful women in the company, too. They the women enjoy the power of their husband. They enjoy the conveniences, the travel, and the money.
Disagreements within the company? Of course, many individuals struggling for the same power, what we call the strategic turnover, individuals try to undercut your influence. Within the company, everything is pretty clean, you are not going to change much. But everywhere else we see corruption, bribery, whatever. Why not?
I’m not talking about people from Poly. Private companies, other organizations, these are the places that are dirty. But the higher you are, the more purified you are. Purity is there at the top. The more methodical you are. The more in a position you are that is advantageous, and you form another perspective toward the whole world.
In China people develop in several stages. Lowest class, could be enlightened, agriculture class. Once they are enlightened they become educated. Then they become civilized and then they become cynical. Then there is something beyond that, and that is your break through cynicism, and you develop into responsibility people, beyond cynicism. Nixon and Kissinger were these individuals. That is why they were accepted in China. After you are too cynical, you become more realistic, you want to do something for the world, get things done. These are the people we recruit. These are the people who can look at things philosophically. Then you transcend politics. Then you can form understandings and relationships with individuals no matter what third politics. You share a perception with people who are the same as you. Mao, Zhou and Nixon and Kissinger, talking in private. They had so much in common. They were beyond cynicism. Cynics complain. Those beyond it do things and deal in the realms of pure power. That is what these leaders do. Beyond politics and beyond ideology.
I was chosen by individuals in the company. File evaluated. Interviewed. Hired. There is no family succession in the company. Family employment is there, but not succession. Most important people in the company are still in 50s and 60xs. Their children are not in company but are educated. They do not want to make it too obvious. It is like in the army, when it is not obvious. You take care of my children and I take care of yours. If I am the Beijing Commander and you are the Nanjing Commander, we watch over and take care of each other’s children. That is how it is in the company. Like the Chinese military, that is how poly is. You send your son to me and we take care of each other's families. You promote my son and I promote yours. So people working under me never know exactly where the power threads go. You don't want people to complain about this or know about this every day.
I never questioned what they did for their children. They could provide chances for foreign study for their children. But you never find out how they did this. The son may perform extremely well academically, of course.
It is young and so it is still a two generation business, fathers and sons, and so the two generations stay in the business. But we never know the relationship of individuals. They never in the office question your family background. They know where you are from, somewhere, but they never question it. It is like 1984 with the Inner and the Outer party. This is the Inner Party. We have our own private library, and that is where we keep all the information books publishes in the West, time and Newsweek and Janes Fighting ships. But not Playboy. We are a socialist country. These things are not encouraged openly. But everyone has them at home, under the pillow. They like the Hong Kong version, in Chinese with Chinese women. That is there taste. They do not have western tastes in women.
Saudi Arabia was the perfect deal, the biggest deal that China every signed. France was a tiny company, deal, spending money does not make you feel glorious. But when you generate revenue, you are a hero. That is the distinction that we always make. Making money is glorious
We keep the commission, officially. And we have the right to that. But the major revenue goes back to the PLA. They use that for the payment of American arms and technology. Like the $500 million deal we signed with Grumman. That is where the F8 is modernized. We bought 50 modification kits. So don't worry we have money to spend in America and we get it in the Middle East. It is also important that the whole PLA delegation went to Grumman. We send delegations back and forth to the defense universities.
China sends military men to the UAS and you send individual to us to study to see how we work. You are here and you are welcome and we have guys in your country doing the same thing.
The listening post in Northwestern China. The geographical location. It is jointly controlled by the US and China. The jurisdiction is China's of course. The technological knowhow is provided by the US. The Chinese officers fluent in English are assigned to the post, and in Russian, too, of course, since the post monitors the Russian. The Chinese built the base, of course. This is a perfect example of the two countries having a common enemy, after the fall of the Shah of Iran; the post was built in China, the only alternative for the US. A perfect location and a common enemy. They say that we will provide the hardware and you provide the software. It uses American satellite transmission and high resolution photographs are provided. Dozens of Americans are employed there on a rotation basis. These are Americans who are mostly from the NSA, civilians and they dress in civilian clothes. Then there are military personnel, also, but they were civilian clothing, too. The people in the area know that they are there and that they are Americans. But they are very isolated and heavily guarded. Then like American tourists they go to town shipping. They go out to travel. Families can visit them, presumably, they can stay in barracks with them but never inside the compound. The advantages to us are that we know what is happening in the Soviet Union. The agreement is that all information gathered will be shared by the two countries. China now got something that it never got before.

The Shangri La I think is our greatest failure. Actually. A major disappointment. It was supposed to be for scrapping purposes. At that time, in 1986 and early 1987. We wanted to design our own aircraft carrier. We wanted to learn some of the landing and maintenance techniques that the Us had. This was a medium sized aircraft carrier from World War II, and this as a medium sized carrier and that is what we wanted. The technology was modern on the carrier. At that time the situation in the South China Sea was sc critical. We had naval skirmishes with Taiwan and with Malaysia over the Pratley Islands sovereignty. At that time, China became to think, or was reminded of the seriousness of having long range protection force capability, an aircraft carrier was the ideal solution for the Chinese navy, since a lot of areas in the Spratley islands were simply out of the range of the shore based fighter bombers. And so China needed an aircraft carrier. Therefore, they wanted to buy one. Actually, in 1980, China purchased one carrier, the old World War II model, from Australia, the Melbourne, the city in the southern part of Australia, We bought that and disassembled it. Every part was taken off with extreme care, it was disassembled in a shipyard near Guangzhou. And it was studied and the contract originally was for scrapping purposes. But every part was evaluated. Then we found that it was not enough. We needed to buy one from the US and evaluate it. The US was more advanced. That one was from Britain, but we needed one from the US. Of course we could never buy something like the Kennedy or your modern carriers, but we needed to buy a medium sized not to old ship. For scrapping purposes. So there was an argument in China. Some wanted to keep the Shangri La and to use it as it was. But the Shangri La they had something else in mind. It was put up by sale in Philadelphia. So we immediately jumped into the bidding for the ship. And we almost got it.
They obtained assistance from Am friends who are extremely well connected here in Am. They had access to information having to do with the bidding from Taiwan. So they went through a lot of activity, and they carried on covert surveillance and observations, and they concluded that they knew what Taiwan would offer. So China didn't want to spend too much, so having information on the bidding was crucial. This was a scrapping company making the bid, a company in the North, situated on the Northern coast of China, this is still secret today. This was not an open bid, people had to know who the bidder was. The bidder was only from Taiwan, as far as I know. The bidder was a ship scrapping company on the North Coast. We know who it was. The only competitor was from Taiwan, they were willing to offer more money, and we knew exactly how much. The bidding procedures were extremely confidential. I know that China offered a slightly higher price. So theoretically, we should have had the deal. But, unfortunately, your CIA found out that we wanted to use this carrier for something. Due to influence from the government, without opening the bid from China, the ship was sold to Taiwan. Chinese personnel from the security ministry went on board and videotaped the ship. They identified themselves as from the salvage company and Poly people identified themselves as salvagers. Then a small handful of friends from the circle also came with us on the ship. Genuine blue-eyed, blonde haired Americans took us aboard the ship and helped us greatly. Not Chinese Americans
They were satisfied on the Shangri-La and found that the catapult was still intact and the large caliber cylinder was still intact, that drove the catapult, and this is what we wanted. Poly wanted that ship. We would get it from the salvage company and individuals involved in the intelligence services were involved in the deal also.
Now, they were so sure that they would get the ship, and they were extremely experienced people, and when they believe they will get something they will get it. But this time the US government intervened. So money was no longer the issue, but politics was. So they lost the deal.
And the State security people then had their friends buy cars in Philadelphia and Seattle. They knew it was going to China, and they wanted direct access to clearance in customs in China. Everyone would make a profit. Cars would be a solution to the problem. So they bought hundreds of cars in the US, new cars, ordered them. On both coasts. Not in concentrated areas. These were National Security people and their friends.
They had to resell the cars. They lost money. Some had agreements with car dealers, and returned them to friends at car dealers. But they had to eat the discount. That company generated a profit, but China lost money. The car dealers didn't have to be friends of China. The dealers arranged everything. They ordered the cars and told where to have them delivered for export, that was all legal. That was all legal, so long as you have the clearance documents, customs, and tariffs and so on. Who cares that this was going on. But once the deal was lost they had to resell the cars. The government agency would have owned the cars in China, and then resell them. That is extremely profitable. The government, of course, was not informed of the deal. The security ministry was informed of the deal, but it was a profitable venture and who cares, as long as you generate a huge profit. The security ministry was not going to buy this car, others, in the provincial governments, or in the agricultural ministry and so on. The Chinese would pay eventually, and then they could be sold to a third country, in the middle east or so on, in a third country and generate a profit there. Everyone was after a profit, of course. It could have been a collective profit, of course. A little bit of profit, of course, would have meant an awful lot of money.
Tape 7
12-18-1991

National Security Service, called the State Security Ministry. There is no direct relationship between it and the PLA. They belong to the state. It is the state intelligence service, while the Army has an independent intelligence service.

The Poly, aside from being unique in the field, also looked after impost, and it is the only company in China authorized to purchase arms for the PLA. No other company can do that. There are many funny stories behind that.

Some other companies have very nice connections. With the overseas defense firms in Britain or in Germany. And through sources they found out what the PLA air force or the Navy needed and they privately or independently approached foreign defense firms, saying that they had a client looking for some product. Then, upon their return to China, they approached the PLAS without approaching Poly, saying that, "We know that you need this and we can get this for you. And due to arrangements we have made, a huge delegation from Germany arrived in Beijing. That company booked hotels and conference rooms for several weeks and they invited individuals from the PLA and from another company. And they introduced their technology and products to the PLA. And this process went on for several months.

So, and all these activities conducted at the expense of the company. They expect a lot out of this. They know that this business can be successful in China, because they knew this company owned something that the PLA really needs. So, there must be a deal later on. They were right. Later on there was a deal. The PLA later on filed a report saying yes, really, this is exactly what we need, and we need hard currency around so many millions and they read their expectations, and the PLA general staff ratified that, saying it was all right, that they would appropriate the money to buy, but the deal could only be made through Poly Technologies. And that meant that from that point on, that company had nothing to do with the deal. Leave it alone. And so they lost whatever time and money they had previously put into it. So Poly guys, and I was involved in this on a couple of occasions, personally, my boss threw some files on my desk, relating the technological specifications and the inquiries and the equipment, which I knew little about, specifications, inquiries, introductions about equipment. So from that point on I am the middle man. I am the man. Who is going to supervise the entire deal? I felt very strange and unique about this, when I stepped into the big conference room with all of the guys there, with the foreigners sitting on one side of the table and the Chinese on the other and they are all in uniform. But I was in a conspicuous position since I was representing Poly, the foreigners were totally boggled. They didn't know what was going on. They asked, "Where are our friends?" They wanted the representatives from the previous company. But they no longer showed up. All of a sudden it was turned over to poly by the General Staff, the individuals who have the money. They said no problem. You need the money. We'll give you the money. But only Poly could spend the money. So that company was left out, and that means seventh months of their activities were in vain. But that is the way it works. When the results are ready to be produced, then Poly steps in and takes over. Now they were extremely angry at this.
The point is that the General Staff, the reason why they did this, was not simply because they wanted Poly to profit, but the second and the most important consideration, was that they wanted to make sure that everyone obeyed the rules, that only Poly is entitled to arms imports and arms production for abroad for the PLA. And that means that only Poly can spend the money for the PLA and for the PLA, buying things from abroad. No other company can do that. There were other countries involved in the feud was that they knew that the PLA had money. Any business company, they tend to look after the rich client, whoever has the money and is a good customer for the company. A lot of people tried to get involved in the business, but they found that they could not.
So, because of that, the other companies were involved in exports, and not imports. And that explains why these companies have been active in the arms export business. Because this is the only channel for their profits. While Poly they could very comfortably spend the money for the PLA.
Competition in selling Arms? Since that was the case, a lot of companies want to proceed. And they said, OK, from now on only Poly will deal with this area. When Poly saw the possibilities of profits from arms sales to the Middle East or the third world, they want to have a hand in that, and take care of extremely sensitive items. Not the ordinary, conventional arms, like the AK47, that isn't a problem. Poly does not want to intervene in those areas. But when it comes to selling things from the PLA inventory or from the PLA equipment itself, in order the General Staff wanted to make a point for that.
So they misperceived, and Poly would only look after the imports, some felt, but Poly perceived potential profits out of arms sales, so they managed to get involved successfully in arms exports too. This resulted in strong competition among all the arms exports companies. Poly had strong backup of the general staff and so was able to win contracts and power. That means they were entitled to selling arms directly out of the PLA arms inventory will look after the selling of sensitive items, such as ballistic missiles to foreign countries. There is one indication, a detailed stor6y, about this.
Catic, abbreviation that stands for Chinese Aviation Technologic Import Corporation(company). CATIC. In April, 1989, a certain company in the US was interested in obtaining certain models of the PLA silkworm launchers. Probably they purchased this sort of thing for the US army or navy, for study purposes. But we were never clear on who they were or who they represented. The company had permanent representatives in Hong Kong and an office. CATIC is also a very powerful arms exporting company that belongs to the Chinese Aviation and Aeronautics Ministry. It is actually the selling arm of that ministry. And they obtained information, and they learned that there was an American company asking how they could acquire two missile launchers. So they saw a profit. So where to get this missile Launcher. So they quietly approached the PLA Navy. Actually, the Navy had a testing site. The base was in Jing Xi, a port city in Bo Hai, on the Bo Sea. The Interior sea for China. Of course they have several other ones, but this is the primary one, and so they have the launchers for the missiles. And the testing base wanted some money too. But the problem was that the testing base, the missile launchers belonged to the PLA Naval Air Arm. And headquarters of Naval Air Arm was situated in Beijing, in a western suburb. So, through --the suburb is called Feng Pai -- located in the Western suburb, the headquarters of the PLA Air Arm. So the Catic representative, through family personnel connections, approached the Admiral working in the Naval Air Arm, and they obtained permission, the green light and the go ahead. And so they obtained even written permission granting the sale, which is really unusual. But the letter was never of course made open to anyone else. So the Catic representatives carried that letter, and they went to Jing Xi to the testing base, and they talked to the commanders and the general political commissar of that base. They were all admirals. They said we need to sell these missile launchers to the United States Company. And the company asked for a certain price, and they asked then for an accurate quotation for the price of sale of these items to the US. And several days later, the bosses of the testing base reached an agreement. They raised the price considerably. The concluded, "Well, this is the only place where there are launchers like this. And this is the only price, absolutely, that we are willing to sell these at. Anything lower than that and we will not sell." As far as I can recall it was $5 million each. That was a high price. So there were two plus the missiles. HY2 was the model of the silk worm that they wanted, the shore based launcher for coastal defense purposes. This is exactly what the PLA used. This is exactly what the PLA navy uses. Exactly. And once of course a foreign intelligence agency gets hold of these missile launchers they know, they know your national defense system, they know your setup on your whole coastal defense. So anything the PLA Navy uses is quite different from anything we sell to Iran and Iraq. Although they were both silkworms, HY2s, but the PLA navy uses the advanced version and that means many of the things on it are modified, and we also encrypt the electronic countermeasure system, ESM, it means we use electronic countermeasure systems for the missile, the system goes with the Missile, hand in hand, and this is what we did not sell to Iran and Iraq, but they were both silkworms. The ESM system manages to avoid electronic jamming from the target. That means the missile is capable of hitting the target despite electronic jamming performed by the enemy. So, the Catic representative, they were in Beijing talking. The ESM system is to counter electronic jamming by the system. If you do not have it the target can jam the frequency and the automatic homing system. You cannot acquire the target, and they can use a flare to deflect the missile.
It has a magnetic homing device, it only goes after Iron and Steel and nothing else. But on the other hand it is extremely vulnerable to electronic jamming. This is the system that we use. And we did not sell this in the Middle East, but we only sell the silk worms to Iran and Iraq. And this is regarded as a secret, and once the enemy = and we presume this is the USA -- once they know that you have an electronic countermeasure device, now we have electronic counter-counter measures. And that means, naturally, that you cannot avoid my jamming not matter what measures you take. But that is something much more advanced.
So the American company in Hong Kong and its representatives in Beijing, they accept this price, without argument. And so the deal is made. What is so funny is that the Naval Testing Base did not know that the Catic guys who only had a letter of permission granting the Sale. They assumed, incorrectly, that these guys had full permission from the Communist parties committee of the PLA Naval Air Arm. Still, they wanted a low profile, and they wanted no one else to know that they had probably sold something to the US and probably to American intelligence, the NSA. On the other hand, we were still concerned that we could not sell the missiles to foreigners, even though we can sell them at a profit. And Catic said, "Don't worry, you can sell missiles to us. And you pretend that you don't know where they are going, actually. So the Naval guys said, All right, that sounds nice. So they sold the missiles.
Catic are well connected businessmen with a strong military family background. Not related, of course, to Poly, and that is why they were caught. The problem was that supposedly, the Navy testing base, if you want to sell something directly from your inventory arm, you need to make a report, and the report will have to be approved by the Navy headquarters, as well as the PLA general staff. And then the General Staff would notify Poly to sell the missiles, and this is official channels, and this is the only channel that both the PLA general staff and Poly have been struggling to maintain. This is what they want. But this is something that happened not in that way, of course. The testing base said, simply, we don't know and we don't care where the missiles goes, and the only thing we know is that we will sell the missiles to you guys for scientific research purposes. And then the PLA Navy, the transportation base provided transportation for the missiles and used one of their ships to transport the vessels the missiles directly, and they asked where do you want to see the missiles go, where are they to be delivered. They told them, "We prefer Dalian." That is the port for Beijing. And they said, All right, what time, what day." And they agree on the place and the time of delivery. So then Catic immediately informed the American businessmen and they hired a freighter that was registered in Hong Kong to proceed to Dalian. The ship then sailed on that day, at that moment, to Dalian, and they waited out at sea while the Catic guys waited at the port, then the PLA naval vessel carried the missiles and the launchers, and all of this was highly irregular and against the law, and they knew that -- the Admirals cautioned them, make this secret and tell know one what you are carrying. And so they carried the material to the port of Dalian and everything was signed and received and signed over. And then the Navy guys sailed away. The Catic men then signaled the Hong Kong ship to come into port and to transport these missiles to their ship.
Now all of this was carried out with extremely high efficiency. All this happened between April and June of 1989, when things were in turmoil in Beijing. The Americans aboard the ship, they knew the real significance of what was happening. They were utterly astonished at the efficiency of this maneuver because they knew that in dealing with China. That required a lot of patience and that is what American businessmen learned. But they had never experienced this sort of efficiency before. And besides that, they were buying something out of the national defense system of China. They were not idiots. They could hardly believe this was happening, could hardly believe their eyes. So these missiles were loaded on the Hong Kong registered ship and it immediately sailed to the USA. And those missiles are now in the US. We don't know where but we tracked that ship and we know it came here.
Now all of this was supposed to e done in secret. But it just so happened, that we had a man stationed at this port because this is the port that we use sometimes too, and some employees from our company, officers from our company were taking an afternoon walk on the beach. And they watched this naval ship come into port. And now these were guys who dealt with the navy and so they watched, this was the sort of thing that they did. So they stood there near the port and they saw what was unloaded. One of them was astonished, and he said, "Oh my God." It was an LST, an amphibious landing vessel. So it was mixed together, naval and commercial. They saw a naval vessel unloading but they sensed something. Two launchers and two missiles. They smelled something fish. They predicted, at that moment. That something was very wrong. They became more curious. It was over 10 meters long each.
So these two guys lingered. They watched what was happening. Then they saw this Hong Kong ship sail in and load the missiles. There was only a very short hiatus there, and the guy from Catic used a huge canvas to cover the missiles, but the Poly people saw all of this. They were stunned, really. Now the Naval testing base had enough missile launchers and they had so many that for a moment one could not tell if one was missing. They had dozens of them. They had a large depot where things were stored. And the Navy, the testing base, once these launchers were gone, the Navy office pulled two more from their depot and replaced them within half an hour so nobody could tell from a cursory look what happened. And in the afternoon, when people were taking a nap -- a xioxie -- these missiles were replaced. So it was everyone, when the story was disclosed, everyone was simply astonished, even the Chinese, at the secrecy and the efficiency under which this deal was conducted.
You see, it was both against regulations and against the law. So the two guys from Poly remained there long enough to see the missiles loaded on the ship from Hong Kong. Then they started to check. They had written down the ship number and wrote what they saw and filed a report. They thought something was amiss here. Then they informed the General Staff. The GS is really extremely powerful, they supervise everything. So they were asked to check on this and wanted to know what the General Staff was doing with missiles at the Dalian Port. But the Navy, unfortunately had not the slightest damn idea as to what was going on. Finally, after several telephone calls, the Admiral who actually signed the letter, Admiral, the director of the political department of the Naval Air Arm, Mr. Liu, Admiral Liu, he was the deputy director of the political department of the Naval Air Arm. So he finally, there was a house cleaning following this.
Poly found out that it was Catic guys who were at the port, and they immediately questioned them. They were afraid of Poly because they knew they had done wrong. After several efforts at explaining around what happened, they were left with no other choice but to tell the truth. And the truth was incredible. "We are very sorry, they said, we should have informed you. We thought someone had informed you, but due to a breakdown in communications, you were not duly informed and we are sorry for that. Really But it was just a kind of missile that we wanted for scientific evaluations and that is all that we needed it for.
And the Poly spokesmen said, wait a minute, damn it, we saw those missiles going on board a Hong Kong ship and sailing away.
And they said, "Oh, really. We didn't know that. We had no idea what was happening. Tell us what you saw."
The Poly questioners didn't know where the damn missiles had come from, of course. They just saw the naval vessel unloading the missiles, that was all. But once they saw the guys from Catic there, they suspected something was wrong with all of this.
So the whole story then came down to this. And they said they did have this business with the testing base and they did obtain the missile for research purposes and no more than that . And so the General Staff questioned the Navy to find out what happened to these two missiles. They were missing now. Where were they. They wanted to know why they had not been informed about the sale of the missiles. Here was PLA equipment going to a civilian company.
I mean this is the only instance that we know of where the Chinese company sold to American intelligence service our state of the art weapons for them to study. The Navy then contacted the testing base and requested a full report of what they had done.
So, they were caught. But they continued to pretend at the base that they didn't know what had gone on. Everyone pleased ignorance saying that Catic approached them and that they then sold the missiles to Catic, which may have been all right. But some guy working at the testing base, looking after the bank account transactions, they told us that the missiles were sold to Catic, for sure, but instead of getting the renmenbi or Chinese national currency for the missiles, he pointed out that they had been paid in American dollars. That means that the PLA testing base received hard currency from another country, which is against the law. They are not allowed to do that. And if they do that, they have to hide it somewhere. Military units are not supposed to keep foreign currency reserves.
Catic must have charged a ten percent commission, that is the usual commission for Catic, that is the standing rule in China for the sale. And so they charged that plus ten percent to the Americans.
So where did the money go? A lot of cash was involved. That is why there was a huge scandal. Once they carried out the transaction, they could deposit it into local banking account, where it is legal to have a foreign currency reserve account. In many banks in China you could deposit foreign currency, and this would be a provincial branch of the Bank of China. And this guy leaked the story and said that a lot of big transactions were carried out. And everyone in the bank knew that it had to be related to the sale. So the ;trail led then to foreigners. And they questioned Catic personnel.
Finally, Catic admitted it. We sold these, probably to the United States.
"What?" "The United States. My God.
Immediately there was trouble. As soon as this was revealed, the deputy director of the political department of the Naval Air Arm was severely questioned and at first he denied anything and said that he had signed no letters. But then the Catic guys revealed that they had the letter with the real signature, and we examined it and it was really his and his seal.
So finally the Central Military Commission had a disciplinary meeting, a disciplinary committee met, and immediately, the PLA General Staff made a report to this committee and they said, "We caught something here. It is bad." And after one month investigation and questioning. They questioned the PLA admirals and political commissars and many of them were very apprehensive, and afraid of losing their own jobs. They said they would accept whatever the penalties might be imposed on the navy, but not on them personally, they said. The testing base did something wrong, they said, but they had not. The agreement reached, then was that the Navy, the number one people would never get sacked, but those working under them would be disciplined. So this would be like an Oliver North. They had to find an Oliver North. The whole military saw the report, the army, air force and the navy leaders all saw this report, and this was to caution these guys from now on to sell no arms to foreigners without notification. They then fired the commander, deputy commander, the political commissar and the deputy political commissar of the testing base, together with the stupid guy who was the deputy director of the political department of the Naval Air Arm, and from that point on, Catic was in a very unfavorable position, because it had a very bad reputation.
I mean everyone, later on people who dealt with the Navy and the Air Force, they questioned your credibility, because you were the company that was caught dealing illegally with the Americans, so you are not clear, you are not a clean guy and we cannot deal with you.
At that time this was the biggest military scandal in China. At the same time that Gorbachev was visiting Beijing, and that Tiananmen was happening, March to May was the scandal unfolding, and that is why a lot of things were unclear. They made use of the unclear situation, Catic did, to do some "real business" and make some "real profits," they thought that they might bypass the whole bureaucracy, and they could show to foreign companies that these this really an efficient company and they can do business. From negotiations to actually delivery, only took two months time. Payments were made, profits made and the whole thing was done. The payment was made in paper dollars. This was not in the official report.
Catic, the company, the head changed too. The head of Catic was sacked, too. Not the number one guy, but the people who worked under him at that time, because they had promised foreign firms that they could do some real business for the PLA. But only Polytechnologies was authorized to do business for the PLA and nobody else. The Chinese democracy movement provided them with a good chance to do business and they used it. That was the biggest scandal at the time for the PLA Navy. So we knew later on, don't do something like that again. From now on Poly handles the sales from the PLA inventory and absolutely nobody else, after that time.
I mean it was, speaking of the testing base, ever since it was founded it was the largest scale of housecleaning ever performed in the PLA. It had never happened before like this in the PLA Navy history have so many admirals fired at the same time. They were decommissioned, they were deprived of their titles, they were deprived of their party membership, they were deprived of their titles and they became basically nothing. And later on, a second order from the CMC was that these individuals were forced to retire, and they had to live in a quiet compound in a suburb of Beijing, contemplating what they had done to their country.
The Americans got everything they needed with this deal. The Chinese countermeasure system was not very well advanced, and the country that discussed countermeasures and needed the missile launchers was the USA Navy or the Army, for research, so they could do research on it. We never did learn what the Americans did with those missiles again. From that point on it was never our story. They just disappeared and to this day we don't know where they are. The manuals, everything, went along with the missiles. Except for technicians, they did not, Thank God, send along an army of technicians to help. The Catic guys even had everything of the missiles printed in English, parameters, firing range and so on.
The missiles had the warheads removed before they were sold. The normal procedure is to deactivate the warheads, but I don't know what happened in this case. But I believe they were equipped with the warheads, because without it there is no reason for individuals to purchase the e missiles. That is why these missiles were extremely effective in the Persian Gulf against the Kuwaiti tankers, basically they are one missile, one hit and one ship. They are extremely powerful. More powerful than any American conventional warhead. The warhead is tnt, standard explosives, but extremely large, and condensed. So once it explodes it is just deadl7y. This is why the Iranians liked the missiles during the initial stage of the war was because, they were extremely proud of the Chinese missiles, because they had inflicted enough damage to international shipping in the region, through the Persian gulf with our missiles. Everything that they hit was destroyed by the missiles.

The parameters on American weapons were available also. Like the direct manual for the US, specifications of the aircraft landing gears, the aircraft catapulting system, along with the large caliber cylinders under the deck. These were through the help of some of the very patriotic overseas Chines3e, they were able to obtain these materials and ship them to China. They were immediately translated into Chinese for us. This happens by the way all the time. This never stops. How does it work

They have friends of family members serving on board US ships, basically. Of course, they then have access to these materials and they are willing to sell it for a profit. I do not know what the price was for the material, but it is extremely risky business and so I imagine that the price is high. In fact, nobody has ever been caught providing this information to us, but others were caught -- Pollard and the Walkers, for example -- but no Chinese or friends of Chinese thank God have ever been detected in their espionage activities.

The wire-guided torpedoes. The episode. These were wire-guided torpedoes, A184, Whitehead torpedoes. See, I have a wristwatch from whitehead, the name of the company that specialized in torpedo production. This is in Italy and that is why I went there.

The, I think we can talk about something else at the moment. This is sensitive material. If you publish this you are probably making a mistake. I mean, if you publish this story, involving this torpedo, the A184 torpedo, a lot of people will be extremely interested. And then you will be safe but I won't.

The Chinese covert activities against the Vietnamese during the war, more brutal than anything ever written by Americans about Vietnam. Few people realize this. Few people. I am talking about the 1979 war, not the American war. Not MY Lai. In 1979 I was in school and a lot of people at that time, officers, who were involved in reconnaissance purposes, after the war was over they were sent to our school and to other places, and many of them were my friends from the time we were kids. They joined the army and then they became involved in the intelligence aspects of the war, in the analysis after the conflict was over. Reconnaissance is what they were involved in, so they were equipped with the best equipment and sent to the battle front, and so when the war.

First of all, the brutality on our side. In 1979, in January, the war, like the Chinese army, the first main objective, Liang Shan, we called that city. Because they had experienced so many causalities(Lang San) on the way to that objective, and because the price we paid was so high, we wanted to wreck vengeance upon the Vietnamese, give them something they will never forget in return for the fighting that took place there. So they wanted to retaliate. It was taken by ground forces, a city, we thought, of about 60,000. We thought the city was defended by a division and that was not the case. Bad intelligence. Probably one regular division \and a lot of paramilitary forces involved. We used a lot more against it. A lot of civilians were killed. This was a tremendous seize on our party....



Tape 8

The PLA Army engineering school, the Gong cheng bing Ji Shu Xue Yuan , at that time, the entire graduating class that year, and what they did for them, as a final examination, at the order of the general commander of the battle, the entire graduating class, everyone, was sent to Lang San immediately for demolition purposes because they ere extremely skilled at that. They were trained for that. So they wired up the whole city, the dug every day, for about a month, they did nothing else, put explosives here and there and everywhere, movie theaters, municipal buildings, civilian houses, so long as there is something standing, they wired it up with explosives. God knows how many thousands of tons of explosives were used in the ground, and there were stacks of civilian bodies everywhere. So the PLA later on, the whole military evacuated the city, pressed the button and the whole city was no longer there. And later on, the Chinese army monitored this through their intelligence, because they could hear the talk of the people, the Vietnamese who were sent to the site to see what we had done. At that time the prime minister of Vietnam was Pham Van Dong, he personally went to see Lang Son. This guy, we were told, cried only once before, when Ho Chi Minh died, but now, when he saw Lang Son, he cried, all morning. He said, in Vietnamese, and we monitored it -- we had the technology to listen, and we heard him, he shed tears, and he said, "We never knew the Chinese could be so brutal." You can imagine what happened to the city. God knows how many were there. The buildings were blown up. All that we left behind was blood and mud and nothing else. The only time the Chinese used up most of their explosives was against the Vietnamese. They knew we could not march further down the line, and they6u7 knew eventually we would retreat, and they knew we would retreat, so we wanted to leave them something to show them, "We will never forget you guys." It was the largest city Vietnam had in the North, and when we left there was nothing there. And when the war was over, there were not many prisoners. When the PLA soldiers, captured Vietnamese were difficult to handle. A lot of soldiers didn't sleep for days, and when they had a chance the Vietnamese paramilitary would shoot our soldiers from the sides and the back, in ambushes. This was common in the war.
This happened a lot in the war. So Chinese soldiers lost all interest in taking prisoners. They began shooting back. And of course the Vietnamese did the same thing to the PLA soldiers, so the war lasted for so many months. And later on, part of the Sino Vietnamese agreement was an exchange of prisoners. And not many pows showed up because there were not too many. They killed them all. One of the things that angered people was the female snipers. That one is, actually, since they marched south, while the places they left behind were considered safe places in the rear. And that is where tanks moved in. A mountain road and a turning point, and all the tanks would have to stop and make a maneuver and turn left. So, in the jungle, when the tanks were moving, there is an aiming hold for the cannon to see outside. The T59 standard tank, a small aiming hole in the tank, and when you make that turn the hole is vulnerable. A sniper fired in a tank and killed the operator, and the same thing happened to six or seven tanks making this turn. All were shot. And so they didn't dare go on since they thought they had encountered, before Long San, stiff resistance. So we halted the whole operation. And through their radios reported that they encountered formidable resistance. This was a tank company not supported by ground forces. So a whole company of soldiers came to the rescue of these vulnerable tanks, that were aiming and firing in all directions, looking for the enemy. The jungle was around them. And they marched on and proceeded, and finally they watched and searched and found a girl, a sniper, with a rifle. How many soldiers she killed nobody knew. God knows how many this woman killed. And they surrounded her and finally caught her, and jumped on her from behind, she was captured alive. A tank officer then saw her. They took off all her clothing, tied her up. And then called up a tank and drove the tank over her body back and forth and back and forth until nothing was there any more, until she was in the ground. The soldiers were enraged by all of this.
You can imagine how the soldiers and officers felt at this time. And the PLA was psychologically prepared to fight this war, really. They thought it would be a conventional battle, I guess, and they never knew that anyone who was a civilian would also be a soldier. And Vietnam was a country of civilian soldiers. We never learned from the Americans and their experience. The Vietnamese would capture female Chinese soldiers, and they would rape them and the women of the Vietnamese would approach the soldiers as thought they were friendly, and they would approach the troops, and then one of them would throw a grenade or they would blow themselves up with the soldiers. Chinese experienced that with some helicopters on the ground.
Mr. Deng knew that the PLA was not really ready to fight that war, but the reason he fought that war was because he knew if China suffered enough, he had reason to beef up the national defense spending, because they he could tell his other colleagues, see the war has showed that after all of these years of peace, no war at all, we lacked military training, our equipment was not advanced, and the Vietnamese war, against Vietnam, served the very good purpose to use it as an excuse to give more effort to beef up the military and it worked. Besides, a lot of ammunition, used against the Vietnamese at that time, was manufactured in the 1950s. There was a period of usefulness and it had passed, expired, and that means that if you did not fire this sort of weapon or this explosive shell, then the due period was passed and the effectiveness had expired. And that is why a lot of soldiers were killed using anti tank rockets, for example, they had to stand d up to use it, and when they stood up and fired, and the shell hit the tank it didn't explode. And, but, it showed the Chinese were stupid to try to use this kind of weapons in the first place, but in the second place, you knew that this was a very good way for Deng to show that we had old weapons and ammunition.
When Mr. Deng was here in 1978, anyway, our understanding was that Mr. Deng achieved an understanding with the White House saying that, next year, we are going to punish Vietnam. And the Vietnamese at that time occupied not only Kampuchea, but they also infiltrated into Laos at that time. Through which they fired on Thailand, Thailand, especially the border area with Laos, was actually under fire by the Vietnamese. But Thailand was the closest American ally at that time, on very good terms with China, since China supplied the Khmer Rouge, through Thailand. And at that time China began supplying arms to the Thai army also. Yes, so there was a relationship formed. But nobody was going to defend the Thais and they knew that. The Americans refused to commit themselves to another Vietnam War. The only force left there to protect Thailand was China and they knew that. China was not happy at that time, because Cambodia was occupied by Vietnamese and Thailand was under fire. Vietnam was expanding all over Indochina, and China was not happy about that. The only way to save Thailand and to teach Vietnam a lesson was to attack Vietnam. But at that time, China was concerned about the response of the Soviet Union from the North, since we could surely not fight two wars at the same time. The Russians, of course, supported the Vietnamese. And for that reason Mr. Deng had to come to the USA, and there were some other reasons, too. he was not here just for that purposes, of course, but he used that occasion to express ...he came home with an agreement from the Americans. The Americans then provided satellite photographs of the Vietnamese and the Soviet military maneuvers along the Sino-soviet border. So the intelligence gathering told the Chinese, and really made them confident that although this time the Soviet union expressed their concern, they said, all right, even if you are going to invade Vietnam, we are going to do something, to the North, because vn is our friend, and we cannot let our friend just be punished by you and not do anything at all. See. And at that time, Deng was pleasantly surprised, so basically what we wanted from the Americans was the photographs of the Soviet forces on the Sino-Soviet border, that is exactly what we were concerned with. So we knew, what they were doing. So, because of this intelligence information provided by the US we knew that this time the Soviets were not that serious. But still, we needed the precaution, and our forces were massed along the Soviet border. And they were still placed on alert since they had to be prepared for a Soviet invasion from the North. So they knew this time that the Soviets were not going to do anything. But then while the war was going on the land, there was something happening on the sea.
At that time the Paracel Islands, Xi Sia) the Chinese had captured them in 1974 and we were building on those islands now, a short airstrip. And the islands were still at that time in the hands of the navy and the responsibility of the navy. And so at that time a Soviet Task force, a very formidable one, all of a sudden headed into the South China Sea towards the Paracel Islands, like a show of force against us. And the navy had to prepare itself for this because all of the major warships, like the destroyers, they were all concentrated in the North, near Liushan and Tsingtao and all we had in the area were lighter ships like frigates, and these were the only things that we had at that time. So at that time, the South China Sea navy was put on alert, and the Soviets responded on the Sea to show us that they were loyal to their friends. So the Navy was extremely concerned. So there were immediate reinforcements of the fighter forces from the naval air arm. Emergency measures were taken in the South near Hainan Island, and all of the forces in the light forces were concentrated and put on red alert. The torpedo boats, what was so funny is that they were missile boats, not torpedoes, they were missile boats, each capable of firing four, China had only one kind, but hundreds of them, they were for this missile boat, because of the limited range, they were forced, to maintain a force at sea close to the Paracels, these boats, they made a sortie out to a certain range then stayed there for about half an hour and returned. The range was short. So they were then rotated in that area. But they could not stay there in the battle zone for long, and once they the missile boats patrolled another group left port to replace them and so when they were low on fuel they were replaced by boats both from the Paracels and Hainan. And at that time the General Commander and the political commissar of the navy were called to the South from Beijing. This was it. They were ready for a fight with the Soviets. The destroyers, meanwhile, were called from the North, but it took them a time to get there, after the Russians had converged on the islands. And so it was the missile boats and the submarines that had to defend the islands, along with fighter cover and frigates. The navy thought this was enough to protect the islands, but there was still a concentration of soviet forces with not only destroyers but also cruisers heavily armed with missiles, and they were very apprehensive of this. This task force was without an aircraft carrier. Only surface vessels approaching the Paracels. And the frigates were there, too. Because the range was limited, and so they stayed for half an hour and then returned to port. They were there day and night to defend the islands. We were also receiving intelligence from the US on the movements of the Soviet fleet.
But at that time, there was a fortuitous coincidence, in that behind the Soviet surface group, an American task force followed the Soviets at a great distance, followed by an aircraft carrier, the Coral Sea. NV43, I remember the number was. The Soviets were aware of that, of course.
What happened is that the Americans were following them, and they knew that the Chinese navy was vulnerable at that time. The Russians knew they could knock out the Chinese navy but at a cost, a big cost. The Soviets were superior in fire power, but they had fewer ships, but higher in tonnage. So once they lost one ship that would be a big loss for them. We didn't know, whatever the reason, as they approached the Paracels, they suddenly changed course, and they made a sharp turn to the East and left the zone. What a surprise, and then the Americans quietly departed too behind them.
So our navy was extremely relieved at that time, seeing the Soviets gone. My God, we thought. This was to be the only Soviet response against the Chinese for the Vietnam invasion and now it had been terminated. The fleet came, probably from the Indian Ocean. They were there. The planned this ailing for some time and had planned well for it. They showed their force perhaps to impress the Vietnamese and to scare the Chinese. The Chinese navy figured out that what the Russians probably wanted to do was to shell the island and scare us and make us think that there would be more to come if they didn't withdraw from Vietnam. But they were surprised, suddenly, to find that the Chinese was working, it almost seemed, in coordination with the American navy. We saw all of this on radar and they saw the Americans behind them on radar.
There was no concern at that time, keep in mind, with what the Khmer Rouge were doing to their own people in Cambodia. None at all. No matter how brutal. They were friends to China. That is the only thing we cared about. They wanted to see their friends in power. As to what they do in power, with power, all that is the internal affair of a foreign country. That should by no means be interfered with by an outside power. China included. What you do is your own business. As long as you are my friend, that is important. And by that time, too, China felt somewhat ashamed, as far as I saw it, because they knew that the Navy was not strong enough, and they were unable to support the Khmer Rouge when they were under fire. So they just hate the Vietnamese for that. We were proven to be helpless. We saw the Vietnamese occupy everything. So we had to do something.
The Original alliance got into trouble because of border incursions by the Vietnamese, the Vietnamese, they were extremely provocative. Really. They were so many soldiers at the border region and they reported that they were constantly fired upon by the Vietnamese, the Viet military disguised themselves as peasants and they crossed the border and carried out sabotage and then returned. The point of this was, that the Viets, they were strong enough, they believed, to be a rival to China. They felt they were as strong as we were. They claimed that their military was the third largest in the world. And they wanted to prove that they were the strong and the dominant force in Indochina and that now they would call the tunes there.
The brutality of the war, was really something. The Vietnamese, what they did to the Chinese prisoners was incredible. The killing and the crimes, in particular against the Chinese female soldiers. They were in the battle region also, they served to work in field hospitals and as aids. They would set up camps near the front. But at that time, the war swirled around us and the situation was confusing and nobody knew rally where the rear was. During the daytime the Viets were farms and at night they were soldiers against us. Just like against the Americans. We should have learned that. And at night they would ambush Chinese troops or shell them. They overran some rear areas, captured Chinese women soldiers, raped them and killed them. We were told many stories about this. They used sharpened bamboo to impale the women prisoners. And then they left them for us to find. They left them like that to die on the ground. Well, that cannot go unpunished and it did not. My God, they were extremely brutal. When I first heard that story I was really surprised. Really. And the Chinese they learned then to do the same thing against the Vietnamese But that was only later on. The Vietnamese did it in the first place, make no mistake about that, please. Extremely brutal. And they captured and they knew that when they captured female soldiers against the Chinese army was very effective because they knew that there were not many female soldiers in China and all these female soldiers had good family backgrounds. Otherwise, they could not have gotten into the military. That means, a lot of commanders in the field had family members with them, women, and they were no longer alive. They put female prisoners together, they stripped them, brutalized them, and put barbed wire through their breasts to link them together, one wire linking a half dozen women together. So they could not go. And they used the bamboo shoots and had the women sit on it until they died. No one helped them. My god. And all the commanders, all the stories coming out of the war, the soldiers were extremely upset by this, outraged. They were the first ones to see these things with their own eyes. They could not stand this. Could not take it. So they retaliated against the Vietnamese. And the bombardment of Lang Son was the perfect example, and Pham Van Dong, later one, when he spoke to the reporters later on was totally in tears. But we were happy to do it. Would do it all over again. Also, I heard they did this to Cao Bang also. But I saw Lang Son blown up. Good. To show them that this is what they would pay, this is what we would do to them.
Today, you can imagine how the soldiers feel when they see the foreign ministers of the two nations embrace. The soldiers coming out of the war, when they see full restoration of the bilateral relationship, of course, we all had second thoughts. I don't know what is on their minds. You can imagine. Extreme anger. These Vietnamese, what a fucking country. What a fucking country. Nobody could be more brutal than them. Some of them had pictures, and we published some of them, for limited circulation, propaganda materials telling what the Vietnamese did to us. Some of the pictures were the bodies of the girls, raped and killed. But not the other way around, of course. Brutal. My God. They were like the Japanese in World War II. The psychological impact was tremendous on the Chinese. The Japanese seemed to enjoy themselves when they did that. That is why, we fought and did what we did in Vietnam. We were extremely angry, and when you are enraged all you do is shoot and destroy, set houses on fire, kill all the people. That is what we did gladly.
There is a sort of scorched earth policy that we used. Phosphorous mines were nearby where there army, they said, had been founded. That was close to Lang Son and was an important historical site near to them. The material was phosphorus. In those mines, we found. This was the biggest mine they had in the North. While we were bombarding Lang Son, we removed the entire mining facility and took it -- everything that could be picked up. We took it back to China. And what we could not take we destroyed We destroyed the mind and plowed up the roads leading to the mind. We left nothing behind. Nothing but destruction.
At the graves, when you see the fires at night, what causes the fire. Phosperous. That is what the mines were. This was the biggest mine we saw there and we took it from them. Phospates. Phospates mine. The biggest mine. We shipped everything that was shippable from there. We left no stones unturned and blew up the mines then, the tunnels, blew them all up.
The number of men that we lost was not significant and was never publicized.


Tape 9

How profit oriented China is. Really. Including the military. The overseas Friends.

Tobacco making factory in Yuxi, where they produce cigarettes from tobacco, a well known plant. They produce different brands of cigarettes there. It is the most famous one in Yunnan province, and it is famous for tobacco because of the weather there.

After the civil war, in the late 1949, the troops marched toward the Southwest to conquer the so-called leftovers from the KMT. And these troops dispatched a force, and this was a force that marched into Tibet. This is the second Field Army, that belongs to Deng Xiaoping. They occupied three provinces, and later on they invaded Tibet that was in 1950. They had a collision at that time with the Dali Lama, who fled Tibet, in 1955. Ya Dong County, this belongs to China, and this is a military path over here.(showing me on the map). It is here where the biggest concentration of listening posts is, northeast of Sikkim. So they this is the big place, geographical location.

The American listening post in the mountains near Turfan, in a suburb of Urumchi, that is in the mountains, not in the desert. So, the Kunming military region was the command post for the overall operations then, while all the military, Long Wu and Dao Shan, these are military district, what we call Fun Chu, these two were heavily engaged in heroine processing and logistical support purposes. And for the people inside here. So we had a policy toward individuals in the Golden Triangle who were still in the mainland. And so we began giving them special treatment. Before that time, after 1970, everyone knew before that time that they were relatives of the former KMT, during the Cultural Revolution. The turning point for them became 1976, when the Cultural Revolution had come to an end, Mao died, and the Gang of Four was arrested. China was from that time implementing a new policy. It was a prelude to economic reform. So, we gave them special treatment, and we let it be known to people in the Golden Triangle, and so they knew that the communist party had a new policy. Some of them dared enough now to approach the border. So the border guards because they had received orders, arranged everything. The communicated with them, said, all right, we are not going to harm you. You will be all right. Take it easy. We provided transportation and whatever was needed for these people to return home to visit their relatives. All means but air, land and river transportation. Late on, with the implementation of these policies, more and more people began being lured to return to the mainland. And this is to visit their families. And what is so funny is that their families had a strange policy, too. They were allowed then to visit them. Later on, because there were some very famous big guys over here, Kun SAh being the big one, he personally was lured into China, but he did not go so far. But we did arrange a meeting with him. This is where, in these towns, where the border discussions were held, in Meng Hai and Jing Gian and Su Mau. These meetings were held then, people from the army in civilian clothing, to make them look like the represented the government, and in a sense this was true, too. If you belong to the army then you represent the government. So they assured these people that whatever you want to for, whatever you need, we are going to provide you free of charge. But they, according to my brother, this policy went on for one or two years. So these people really saw some benefits in that period of time. So later on the army people sent some special individuals spies, but, you know, they penetrated into the triangle and mingled with these people, they could do that, they spoke the same dialect, if you were a former officer, it was Mandarin, but if you are from the local area, you speak the local dialects. So they infiltrated. And the top people knew they were infiltrated. And they knew. They didn't care. Because they had received support from the army. Logistical support, medical supplies, arms I don't know. All I know is that the Army, there is a chance that they were getting arms, they had a secret agreement with the Burmese government. In the 1950s there was a fierce battle going on in the area and the government forces were defeated by the KMT. They said that the KMT forces were the best in the world, after the Communist forces in China. So they had no problems resisting the local forces, the Burmese and the Thais. And so this was all done according to an arrangement. They had their secret border. And they negotiated a hands off and non-interference policy between the Burmese government and the KMT forces in the region. Everything was done in secret, a sort of Gentlemen's agreement between the drug growers and the local government in Burma. But until 1975, the people growing poppies in the area, their relatives suffered a lot, they didn't accumulate a lot of money as today, and their living conditions were harsh and their medical circumstances were primitive, and living conditions were poor, because transportation was blocked, in reality, from all sides. And the Chinese army in the region knew that. And they knew the only logical way for the people to receive some outside support. From Mainland china. So we talked with these people. And we sent people over for family visiting purposes, and visitors were welcomed here. They were shown touring spots of attraction and later on they formed an arrangement. China agreed to send certain supplies to them, food, medical materials, and logistical supplies, free of charge to the people here. Arms were to be included, also, along with information. If arms were not included, of course, it would not make much sense. That would be just AK47s, B40 rockets. But no planes or tanks. In that region anyway they would make no sense. But in return they provided to provide the products of their agriculture and have them shipped back to China, and in the process China became a major heroin refining country, along the border, and only under the control of the border. The name they used to refer to the business was "tobacco and affiliated processing plant." Munghai and Xumau were the biggest plants, and the biggest one is Yusi. These plants did receive some tobacco from the big tobacco plants and they did produce cigarettes, too. But, actually, what they did most, was process heroine. They also grew poppies in the region. The army of course had its own plantation in the region. In Chinese they call it Military Cultivated Plantations(Chinese Name). This was at the battalion level. But they had trucks, bulldozers, and machinery. They were secretly engaging in a marijuana and poppy growing. They make profits in this. But of course, the things that grow here are not as high quality a products as those that grow further south, because of the weather difference. Marijuana is such a crop that it is heavily affected by the weather conditions. So they helped these individuals in the Golden Triangle and they had them shipped both on the road or on the Mekong River. Actually, this part of the Mekong River, because of the arrangements between the people here was not very heavily controlled by the Burmese government. But still the Burmese government consented to it. So the army did pay a fee to Burma to use that area.
We also began to send technical experts into the area, technicians and construction workers. They supervised the use of fertilizers, temperature control and upgrading for solar energy purposes. And we provided them with solar energy, too, because electricity was a major problem in the area. We provided them with whatever you can imagine. Whatever you need, imagine yourself situated in the mountains there. You need technology and you need outside supply. Because they were facing enemies on three sides. But now they have their friends back at home, so they feel very much relieved. And they have their own processing plants, too, in that region. They built it for themselves. Once China built its own, we let these people come back for a visit, to see how advanced we were in this. And these guys made up their minds. They agreed with the army to sh9ip part of their products into China to have it processed. At first, once we processed this kind of thing we shipped it back to let them see how we did it. They had their own strict traffic routes, of course. They did not use the mainland much. But after 1976, because of the agreement, they thought the army represented the communists, and they said, all right, it is very difficult for us, to ship these kinds of materials out, because it you want to ship in the past and get their materials to the sea, they have to pay a high price to people controlling the local area, the local landlords, the black societies. So in the past, these people growing the material were not the people actually exporting it. But since things were moving toward a change. They did not export them to Burma or Thailand. So they shipped it more and more back to China. Once you process this stuff you can ship it back to China. We sent people to them and found out more how their business worked, how much it weighed and what it cost to ship. We provided them with experts and they provided their marketing information to the army, then the army made sure that this material was shipped to Hong Kong and to Taiwan, to Fujian, they used to have a former military region over in that area. So the military region of Kunming, the business totally belongs to the logistical department. There are three departments, commands in each military region. Political, operational, logistical. Logistical department directly contacted the logistical department of this area, because once you have an outlet on the coastal area, you must have the support of the military. The logistical looks after the general welfare of the military region, the plantations, food supply, medical and this sort of thing. Fujou had their own military region, their own logistical department, her father, used to be the commander of the logistical department of the region, only a one star general, major general. They were over here, and they secretly, according to the arrangement, and they then made contact with Taiwan and shipped it there. They used sea route transportation. They sent their ships here, and they had no problem having them loaded on board ships eventually, ships from foreign countries. They just moored at sea and we used small ships that belonged to the army, and directly transported the materials to the big ship, that was registered to a foreign country and then the big ship headed to an unknown destination.
It was very easy for them to get to Taiwan, after they got to Guangzhou. Very easily. They go down the Pearl River, easily, since this is heavily controlled by the military. I believe these guys, working for the army, have their own domestic connections in Guangzhou and in Hong Kong. The CMC, all it would see would be the annual report on how much profit is generated. Nobody cares where the profit is made from. The only thing they care about is that now you are able to take care of yourself. Fine.
The government officially, of course, is against drugs. And they execute publicly drug dealers every month. These, though, are the small dealers, the civilian dealers who sometimes steal from the army, and they run a small business. After all, there is some heroin production done privately. And some is shipped through other routes, too. And they have their own plantations. So a lot of leaks have to be plugged, so to speak. And when drugs get into the hands of the local people, something has to be done. There have to be prosecutions of what they call "hooligans." And once these guys are caught and put on trial, the Chinese government looks good. So China looks clean to the world while the traffic prospers. The US cannot figure it out, it seems, they think the Chinese government is clean. So if something is coming out of China, they seem to think that the Chinese government cannot control it. And in one sense they are correct. The government is indeed unable to control it. In a sense they are correct. They don't want to stop it. And it is controlled on a regional basis.
Huge profits, naturally, are not reported. These go directly to the local area officials and to the army how they spend it, I can't tell you. Once you have the money, then how are you going to invest it. You can count on one thing, individuals don't profit from the business. They do it purely for the support of the army. So theoretically individuals do not profit. The army retains the profits. The army is clean, and they don't use the drugs. Because China is not so advanced in the area. But the people who are able to lay their hands on the drugs, I can't guarantee it.
The object of the profits in the end is to modernize the army. And part of the modernization is to upgrade it with systems from America. But the army from this military region is not so advanced in weaponry since they are regarded as a sort of rear defense, unlike the air force and the navy. And so they are neglected in a way by the Central Military Commission, but still they are able to take care of themselves.
What is so funny is that later on the Burmese government intervened, in 1979 and 1980, after the war with Vietnam, and China showed a lot of strength, to this sort of government. Before they carried a lot of grievances. They wanted to protect their sovereignty and their integrity. And so the army secretly negotiated through these people, approached the Burmese government, starting in 1980, and supplied arms to the Burmese government, to the Burmese regime, to get them to shut up. And they were then able to use arms from China to clamp down on their own people and maintain their own regime. Due to the secret understanding, there was nothing on paper and no signatures, and so we will just do it. This is all handled through the Kunming military region, and supplied the Burma government, with pieces of large artillery, giving it to them.
So now, for many years, the Kunming military region secretly supplied arms, but they did it with the understanding from the Central military command, because supplying the Burma government suited Chinese national policy. In 1976, actually, the China government supplied the resistance groups of the Burmese, but since 1978 China began to normalize its relationship with the government but not the resistance groups, in order the change its image in the world. What happened was that the military air command, must have had the acknowledgement of the CMC, began supplying arms to the Burmese government in Yung Guang. Why should anyone care about this, the Burmese. They allowed the Chinese to operate on their soil and they could not do anything about it. Their government forces were not strong enough to conquer the land. The people in the Golden Triangle have secret agreements with the governments of Thailand, Burma and Laos. They annually pay tributes to those governments. The only reason they could operate in the area without military interference from three governments was because militarily the people in that area were too strong because they were Chinese. And secondly, they didn't want to fight too much, they wanted to carry on business. And so the agreement was this, all right, if you allow us to operate on your land, annually, we will pay you a tribute. The heroin was going, of course, primarily to the US. Part of the heroin may be shipped to Taiwan and consumed there, maybe, but all that I know for sure is that the Chinese military is heavily engaged in that process. Huge profits are involved in this. You can imagine. The army agreed with the people growing heroin in the golden '/triangle, and they agreed in sharing of the international market price. See, the production costs of that kind of heroine is very cheap. Like growing tobacco, but once you sell the product,(footnote here) this is a very profitable business. Very low production costs, low utility of the land. So the people in the Golden Triangle did not pay the army a tribute, they just cooperated with each other. If you can find this published anywhere I would be pretty much amazed.
So they were, later on, the people were happy too. They did not have to worry too much about finding efficient and safe traffic routes. In the past, they used to pay a high price. This local landlord, he would say, if you want to use our traffic route, we are going to help you ship this material overseas, but we must maintain a commission, like ten percent. But ten percent is really a lot of money. So these people are squeezed. But once they ship their cocaine to China, the army can make a profit too, they don't have to rig so many things. Because the army takes care of the traffic route. That explains why the business goes on so smoothly, and expands, as the years pass, despite the strict measures applied by the US government and police -- against drugs in Latin America and in Europe. In fact, the US has even sought cooperation with the Chinese government. And the Chinese police agreed that each year they would arrest ten guys, which is very easy to do. My God, to pick up ten guys from the street and then shoot them all is simple. Who knows who they are. But in the meantime the traffic goes on. And as far as I knew, the Navy, in the South China Sea fleet was involved also in the shipping of the heroin from the port of Jenzhiang. So the Navy was involved also. They did not go so far as to use their own ships, but they did allow foreign freighters to use their own ports. These were Taiwanese and Hong Kong ships, among others. You know what, to understand this you must understand that anything that comes out of China, to be reloaded on foreign ships, the ship cannot be too close to China's coast.
They cannot, never. They cannot come into port. If you stand in the port you can see the ship, with the binoculars. So you need the support, absolutely, of the local military. They use their own small ships. And the local customs officials cannot stop army military vehicles. They can't. They don't have the power to check military transportation. So the local government does not have to be aware of what's going on, since the military takes care of that. The local officials don't even know what is going on. There is no profit for them, of course not.
The only guys that were involved were the local air force and military in the region. Later they dispatched their engineering personnel to this area. Helicopter landing pads, later on they helped these people build one or two helicopter landing pads, and they used helicopters too.(What is he talking about here).
They are loaded at JenZhiang by ship to ship, not by helicopters. Even if you informed, and told someone what was going on, who in the world would care. Nobody there can supervise the military. When someone is arrested it is for political purposes. This is simply to show that the government is really serious. The individuals arrested and executed, it is said that they are drug dealers. But who can tell. China always makes a big story by saying that someone was arrested at the airport for carrying as much as, two kilograms of heroin. That's funny. That is considered they say a big amount. The public security agents arrest the local guys and put them on trail.
Any leakage from this. The people working at the processing plant. They know what is going on. But they don't know where the heroin is from or where it is going. And they didn't care. Of course, they might be some people with connections who would know what is going on. But they don't tell the story to a journalist.
The new road that they are building in the area, as to exactly where they are going to build it, I don't know. Do they really need a new road in that area. I don't think so.
These individuals don't have new expensive cars in Yunnan. The army profits and generates huge profits for themselves, and they use that sort of thing, not just to import arms for themse.ves, and they didn't care about high tech arms there, they can just put the soldiers and offices on better living quarters and on a better social welfare system. Each month they give their soldiers a bonus, and they distribute the profits equally among some people. It is a remote and underdeveloped are with a lot of minorities. It is in the only province in China with so numerous minorities. So the guys in the military are primarily Han, and they supervise everything. Once they generate the profit I don't know where they are going to spending it. We are talking about millions and millions of dollars over the years. And the problem with me is I don't know where they spend the money.
Some of the profits of course make it to Beijing. But these individual s also have their own bank, in Chinese they call it Xiao Jingquo. Small golden devil. That means your little golden container, that means this money is solely yours and nobody else is even supposed to know the existence of it. You report 60 percent of the profit annually and the turnover, the profit is in US dollars, and Swiss francs. The money goes overseas and so the money paid is in foreign currency. It can be converted then into renmenbi.
I believe that these individuals also have bank accounts abroad, but I am not sure about that, I have no first hand information. But I can tell you this, what if you had hundreds of millions of dollars in profits and you could not spend it in your country. What would you do? Where would you put it.
What if you are the general commander and I am your deputy. Right, and we have a general political commissar and one day in the afternoon the three of us go out and we have dinner and we talk about business. Once we retain ten percent of the profits this year and distribute it between the three of us. This conversation is off the record, no one has a tape recorder, do you agree or not. And if you don't, let’s forget about it and turn over all the profits. And of course, these individuals made that agreement of consent. Nobody says no.
JenZhiang, is headquarters of the Southern Sea Fleet, it is a deep water port, ocean going freighters come in there and so there are no problems. But of course for heroin you don't need an ocean going freighter. If you just have a thousand ton ship, there is no problem. How much heroin do you ship on one ship.
Some goes out to Hainan, of course. Hainan, all parts are controlled from Jenzhiang and the southern Sea fleet, and they use this port for foreign transportation too. Actually they were caught, not with heroin, but transporting foreign vehicles, cars. The army was caught once in this. By the local customs officials and they reported what they did. The navy was caught once and the local naval commander was sacked for that. But that was part of the Chinese house cleaning effort. And once you are caught you are in trouble. God knows how many times they were caught. But as far as I can recall this is the only time they were caught.
That was in 1986, when China started its house cleaning. These guys were taught because they were stupid. They were too obvious. They used LSTs to transport Japanese cars, and they put them on deck uncovered, people could see them. And so of course they were caught. The market for the cars was all over China. Like the Shangri la business. All the local governments have money, and they are willing to pay because they want foreign luxurious cars to show off. They don't have to worry about paying for it. They have money. The central government puts strict quotas on importations of foreign cars. That means if you are going to import one car from Japan you are going to pay a high duty on it when you bring it in legally.
This reveals how profit minded people are all over China, particularly the military.

Tape 2:

Buying of arms.

With other countries. I was involved in a deal with the American company ITT. That was close to San Francisco in Gilfrand, where ITT is located. We purchased in 1987, at the end of 1986 we purchased three radar systems from ITT called Falcon, for the Navy, a shore based radar system. For sea traffic surveillances. A defense system. They sent a delegation to Beijing, gave a seminar on their product, this was conducted, and we expressed our interest in buying the system and they got the deal. Not very big, only about $15 million. There was no competition for this system.
Sometimes we bargained hard. Not from my company, but especially from the end user. That was so funny in China, the Navy and the Air Force, they were the ones who eventually would use the system. We didn't make a profit at all in this. The Chinese system is strange, especially in terms of my country, that is you never worry about money. Because you always knew that if you didn't have the money, you don't have to worry about buying anything. The only time you are interested in buying anything is when you have the money, and you know how much you are going to spend. This makes it a lot easier and actually, what's so funny, is that, if for example, the air force wants to buy an airplane, and then we just randomly figure out, all right, this plane.

The second negotiation that I was involved in immediately after this one, was the British ASW helicopter system. This time it was only the sonar system. The British company this time were from Aerospace and a GEC(General Electric Corporation), also accompanied by GEC, like the US but the British corporation. Accompanied by GEC. Two companies. This involved a different weapons system, and it involved sonar buoys. Also this was 1986. All these negotiations that I was involved in at first, the deals didn't go through.
Things like Toll Sonar, or night images. I was involved in that for the army and for the cockpit for the air force. For the pilots, night imaging. These were the fields in which the British were really advanced, at that time. At that time we didn't have a lot of negotiations with the Americans, it seems to me. Not a lot of business with the Americans. The Japanese were not involved much. It involved principally the West Germans, the Swedes, and others. We didn't make this deal. Later on I went with a delegation to Britain and I was on that trip. To see the weapons system. And there were virtually saw the Lynx helicopters and the Sea King helicopters. The US navy used the Sea King helicopters as the ship born air antisubmarine missions too. But Sea King has different versions. We paid a visit to the Royal Naval Base in ...my goodness, I don't remember off hand...if I told you that Naval Base, people after reading this story would be able to identify me. It was on the very southwestern tip of Britain, Culdrose, a very famous British Royal Navy antisubmarine naval base. That's where the training helicopter was stationed. We were shown everything there. We went on board the helicopter. And THEY EVEN allowed us into one of their Sea King helicopter simulators, real situation simulators, once you were inside it you feel exactly like the pilots once they are airborne. You feel the noise and feel the wind blowing in the air, you can virtually hear the noise and feel the sound the ramp on the ship and so on. They let us see it because they wanted to sell the simulators to us, not only the helicopters. We were taken to the naval base to see this aircraft how it performed and how the training was managed and the software and hardware system. Then we went to another location where we virtually saw the very advanced beeping sonars(?). It is attached behind the helicopter, they use a winding machine, and through a cable they can put it in the water and then actually hear noises emitted by a submarine. We were not in London, we made a lot of trips. The helicopter headquarters at that time was in Kent. We stayed in Rochester in a luxury hotel, of course. Later on they used naval planes to fly us back and forth.
The British, you know, are honest. Really. The businessmen and the naval service. Really. They were honest and gentlemen and I really liked them a lot. Unfortunately, partly because of their honesty they could not make a deal with the People's Republic of China. But they could make a more successful deal in the long run, no doubt. The French, I don't like them. They are rubbish, really. And we knew that when we dealt with them. Agh. French women can be beautiful, but anything else, never.
We never bought that sonar system. I don't know what the problem was at that time.
The British expressed their dismay and disillusionment with us on several different occasions.
Of course, on several different occasions. On several diplomatic occasions they knew that I was sort of their friend, and they told me man to man, OK, what kind of a corrupt system do you guys have? You just keep purchasing garbage from the French, for God's sake. We believe these systems will never work in a real war situation. It's true.
Another example would be, one year later, I went to Italy on a survey trip, at that time we had nuclear power submarines and conventional submarines, but the problem was the torpedo we used were still gas powered torpedoes. That is why the Argentines, in their Falkland's war against the British, used really obsolete torpedoes, the same kind that we had. And so we were trying to phase out this system and come up with something better. We were shopping at that time for some advanced wire-guided torpedoes there. And we tried to make a deal with the Italian companies. In Italy, they have a very powerful defense industry group, called Selenia Elsag, and they produce and sell different sorts of weapons system. The technology of the wire-guided torpedo is this. Once the torpedo leaves the tube, the wire guided torpedo, in the water, can be controlled very well. Another torpedo used remote control, but sometimes the signals sent out by the remote control can be adversely affected by the range of the torpedo. Once the torpedo is out of range, the signal is so weak it is beyond control or it is not accurate enough, so the torpedo may miss the target. Or if it hits the target it might not explode, in that it was not programmed to explode at that time, not primed for an explosion at that time. So some scientists figured out a way to put wire beyond the torpedo, a very thin cable, but it is almost transparent, very thin, otherwise the weight would be overwhelming. This would be a miles long wire, perhaps as long as 10 miles of wire to trail behind it. The torpedo then is always connected with the mother ship and many signals can be sent through the wire and that is more accurate than signals through the air. The wire makes it the best guidance system for a torpedo. And that is what we were shopping for in Italy. There were two trips to Italy for shopping at that time, one of them we went to Taranto, a southern naval port of Italy and that is where this sort of torpedo tested. So we went there with the Italian navy representatives to see the trial and it turned out very successful. We were there not just for torpedoes, of course, some of them stayed in Milano, and they were shopping from other weapons system. So but the manufacturer was the Whitehead Company, they were the number one manufacturer of torpedoes in the world, and they were situated in Livorno, close to Pisa, where the leaning tower was. We visited there on our time off. They transported us from one place to another at that time by helicopter. The torpedoes, after the trip was completed, the Italians, the president and the general manager of the Company from Salenia Elsat, and the president used to be the chief commander of the Italian Navy. I knew him personally because he knew me. ON different occasions he came too talked to me. I seemed to be one of the decision makers at that time. He is indeed well known, the former Italian naval commander, he has a difficult name to remember, and he was the president of the group. He visited Beijing on several different occasions and he wanted to convince the Chinese that these torpedoes were a really good buy. But we had but one budget at that time. The budget was for $90 million. And this was exactly the amount of money that we needed to pay if we made a contract with Silaneo Elsat. So at that time, what is so funny, is that our because Chinese, we are also short of ship to air missiles systems, too. And the French were the manufacturers of that system, which we were shopping for. And they were the ones that approached China. Because at that time, we had naval forces fighting with the Vietnamese in the South China Sea, and after that Naval Clash, we had a territorial dispute with the Vietnamese over the Paracel and the Sprately Island, and immediately after that, the Vietnamese stationed two squadrons of SU 26, that is a fighter bomber, from the Soviet Union, they sent them to the very southernmost province of southern Vietnam. That meant that all the ships that we sent out on the South China Sea, were within their range. But it turned out that our ships lacked sufficient anti-air weapons systems, because we were inadequate in that field. We received then instructions from our superiors, telling our company that now you have the money and you start looking for something else, for some ship to air missile systems, and a lot of people from the air force and the navy were involved again, and actually the French, the original price of the Sea Crotale, that is a rattling snake or a sidewinder,(translation: sea rattlesnake), anyway, that was what we interpreted it to be, like a sidewinder, or like a rattling snake. That was the French term to refer to the sidewinder. Actually, on one occasions I was approached by the US Army attaché to Beijing, and he told me personally that because the Embassy had a banquet and I was invited there and I talked business there, and he said, "Listen, if you buy that stupid god damned French system, I can tell you for a fact that in a real wartime situation, this system will never shoot down a single plane. Not one." And he said this loud enough so that everyone at the table heard him talking about this. He said this to everyone around the table, and everyone heard him refer again and again to this "stupid system" that the French were trying to sell us. And once again the French approached our general staff, and they approached especially the equipment department, and they kept telling us that this advanced system is really good and this is really what you need, especially in the South China Sea.
They used the South China Sea as a perfect example. They knew nothing about what was happening there. And our side, and we were sort of pleasantly surprised, because this fit into our scenario perfectly. Now at that time the wire-guided torpedo was called A-184, and we were already to sign the contract with them because of our need. But then we just received instructions from the equipment department as to spend this amount of money before the end of the year. Originally we didn't have any plan to purchase any ship to air system, but because of this sudden instruction, it seems to me that we had to spend this huge sum of money, either on a torpedo system or on ship to air system. Because this amount of money had to spent before the end of the year -- the Western calendar year. So there was hot competition. But the Italians, unfortunately, had no idea what was going on in China. No idea at all because they just didn't have the correct channel. But the French knew exactly what was going on in China. The couple passed on information, but they had some personal connections, too, to the generals in the equipment department. Like the VIPS and the generals, they knew. They maintained a very good relationship, for example, with He Ping, the general manager of our company. He is really on good terms with the French. So before the contract was signed, almost everyone had strong feelings that this time again the French might get the deal. And what happened? The Chinese Navy, strongly proposed that because of all of these submarines, which had empty launching tubes at that time because they were phasing out the old torpedoes, the advanced models of the submarines, which was a big fleet, but the advanced ones because the diameter of the tubes was larger and they required a more advanced torpedo, and we were short of them right at that moment, and we needed to import from foreign countries immediately, and the A184 seemed to fit into every criteria that were we looking for at the moment. So the navy very strongly proposed that we must provide money on this fighting system otherwise if we had war or hostilities, then the submarines, especially the best submarines that we had, they would have no torpedoes.
You have to consider this proposal strategically. Because, there was a known enemy, Vietnam, of course, but still Vietnam is no big deal to the Chinese. Even if they cross the border or do damages to your ships, it is only two or three ships. But torpedoes, is something that involves the nuclear submarine force, you can't leave these nuclear submarines with nothing in their torpedo launching tubes, with no torpedoes. Now that was stupid. They literally were launched and they had nothing in their tubes. Nothing at all. Sometimes, some of the research institutes were deeply involved in developing and designing our own torpedoes, but at that time they had not actually come out, and some of their designs were not up to the standards of the Chinese Navy. So they continued to work on it. They worked on it, but still the Navy desperately needed something at that time. Now. I am not the only one that thinks we have to buy those torpedoes because the whitehead company is going to lose out and we are both going to be left out the same way. Because was we understand it, both of these are going to turn out the same way. And it has to be based on this sum of money because both of them are ninety million dollars and so the French approach us again, I knew that something was going on. I knew that something was going on because the admiral this time, he should speak for the Navy, he should speak up in favor of the navy, and he spoke up not openly against the navy, but not actually against the Navy, but he said something to the extent that, "Ok, we want the torpedo design, we basically could rely on ourselves and we don't have to import from foreign countries, and he said this at a table, I was at the occasion, and foreign importation was important but we could not solely rely on it because we want to rely on ourselves, like Chairman Mao told us. Since we were at this meeting with Poly technologies sitting on one side of the table and the admiral on the other, and the meeting took place and the general invited poly to sit in on this meeting. And a lot of people from the Navy said, all right we are in very sharp need of foreign torpedoes. On the other hand, the people from the army said, all right, the ship to air missile systems, that we have on the very top of our list for acquisitions. Speaking of ship to air capabilities we need things from other countries, to be sure. This was a hot debate, and then all of a sudden that admiral stood up and said, now foreign torpedo importation from other countries, "I'm not saying that foreign importation of torpedoes from other countries, is not important, it is important. But what I am saying is that at this time, China is speaking about a torpedo industry and we are advanced too in the world. Comparatively speaking we are relatively advanced, too, so we can rely on ourselves at this stage. And so the people from the equipment department, it is time that they decide, and since they were approaches so many times by the French about what was going on and so this time the French got the deal. And so on the 26th or the 27th approaching the end of November, we just signed the contract with the French. With Aerospecial again, they won a 90 million dollar contract. For the Sea Crotale. The rattlesnake.
There was never again a three letter memorandum for this deal. But the French knew how to operate. The meeting lasted a couple of days and we all stayed in the same hotel during the negotiations. For group discussions. The meeting discussions. The second day of the negotiations, we talked, and I talked with the secretary of the admiral, and I asked, "Hey, what's going on. The Italian torpedo is really a good one. And why did you guys go for the other deal. " He said, "You know what is going on. I don't have to tell you again." And he laughed. At that time, Admiral Li's son, who was already in Paris.
I was so angry about this deal, because I had been in Italy making a survey of the torpedo testing, and I saw this system and I saw how well it worked. And then the USA Army attaché told us that this sort of French bullshit never really works in war time. And the US military is very advanced in the anti-air systems, like the patriot missile systems, we tend to believe what the Americans say. And the funny thing is that once again, the Sea Crotale system was something that the French Navy never used itself. Again, China ended up pitifully as one of the countries that actually used this system on board their ships. Saudi Arabia also used it, and the Yemen Navy had the system, and a few other countries. Once we signed the contract, then the execution of the contract took place, once the French had the money then came the execution of the contact and we had to send people to France to see the system work on board French naval forces, and we had to see the production and so on. The training could last as long as 12 months for a system like this.
I was so frustrated by this. Of course, there were other deals. And now if you pay a visit to the Chinese and the PLA naval force, you will find one thing for sure: We have Dolphin helicopters, because we purchased them from the French and now we have a stream lined production of them in Harbin. For the Dolphin helicopters, but just to make very short story. June 4th of 1989, was the day that the Tiananmen Massacre took place. On June 3rd, when Beijing was in Chaos, and everyone was out in the streets, there was no public transportation and no policemen in the streets, and everything was out of control, in our office on the 5th floor of the Citic building, we signed another contract with the French of $45 million for an additional for another four Dolphin helicopters. On the night of June 3rd, after 5 o clock. Then we had a banquet. That night, and that is why I had a lot of problems on getting home that night. The banquet was on the 28th floor of the building, in a restaurant that we call the Window of the World, a lot of people say that is the best restaurant in Beijing. The Window of the World. A big delegation of the French was there, the head of the Aerospeciale and the general manager of Thompson CSF were there in a signature ceremony. Because that is where the weapons system was produced for some platforms for helicopters. In the restaurant we could watch everything. The restaurant was well illuminated and so it was difficult to see what was happening in the dark streets below. So at five o clock in the afternoon we signed the contract in the afternoon. Later we told our British and American Friends and they all laughed. They said, "Oh, sure, that's the French." "That's the French people," they said. "They are just money oriented." They were never surprised. Money and no political considerations. No surprise at all. And they knew on that day that the French helicopters were flying over the Square. And they were just pleased by that. And for the whole day they stayed in our Citic building. We were all there for the final stage of the contract and we were all very busy. And later on employees from other companies, on the 6th and the 7th stormed the offices of Poly and God only knows where they came from, they broke the windows and they shouted up and down the corridors and if you were coming not there on the elevator, they pointed their fingers in your face and they yelled at you and questioned you as to what you had done. OK, they said, look what you spent your money on, all those stupid things, they said, accusing us of what had happened in the square. And that is why we moved to the fifteenth floor later on. There were other businesses in the building, and the security guards, two of them, for the building, in stupid uniforms, they were no longer there. On the 3rd, the whole building was virtually unguarded and anyone could get in. I don't know why that happened and we were so preoccupied with signing the contract. We wanted to sign in the morning, but because of some technical problems we were postponed in the afternoon.
So we signed the contract with the French for four helicopters. $45 million for four helicopters, Dolphins, with avionics, with two equipped with avionic systems, something inside the cockpit and the other two were empty and didn't have the high tech stuff in them. The people who were present were worried, everyone was worried, and they didn't talk about it. Who was not worried at that time. Who. We didn't know what was going to happen. No one left in the middle of the dinner. Everything was going on as normal before that. I had watched with my own eyes what was happening in Beijing, I was for the students, but I could not leave work. I couldn't go to the square. I had to prepare the contract for the signings. I had to work hard in those last days and I had to perform my job. At that time, from what I saw, when I saw the contract signing, all I could think of at that time was that I really hated the French, from the depth of my soul I hated them. I thought, the French, My God, I will never have respect for them. I'll never have a friendship with hem again, never in my life. I'll never speak to them again. They are filthy. They knew, they knew what they were doing. It was not as though they just arrived in Beijing on the third, and they didn't know what was happening. They had been in Beijing for one month, and they knew everything that was happening. That is why everyday when they came to our building they had a lot of trouble in their transportation. Sometimes they were held up. Sometimes their hotel, the car that was supposed to bring them to us, refused to carry them to Citic. Because the taxi drivers were on strike too at that time. They stayed in the Great Wall hotel. In the citic building we didn't have facilities for them.
I felt disillusionment with the government, too. That is why I left the company after that. I saw from the inside how the whole system was functioning, I knew the deals that were made with the Thai Royal Navy and others. This is not the end of the story. This is just the beginning of the story. Other than that. I was not talking about arms exports at this time. Exports were the other aspect at this time.
That sort of thing never stopped. We dealt also with the General Electric Company, American companies.
GE Company negotiations started in 1985, that was the biggest contract that we ever signed with a foreign firm was with this one. Now your Grumman Aerospace, they signed a $500 million contract and that was made for the Chinese Air force through our company too. That was the biggest one. The second largest was with GE, the Grumman deal was signed in 1987. Actually the Chinese air force personnel are still with Grumman at that time. When I was in Poly I was in the western European Arms section.
GE contract. That was signed for $120 million, and that was for the LM 2500, a ship born gas turbine, very large, twenty meters long, a turbine system for propelling a big ship. You would not use that to propel a torpedo boat but it would propel a destroyed. It is gas propulsion system.
I served as an interpreter on a couple of occasions for this deal. I was brought in. The guy from their office was not very satisfied, and they called on me to help them out.
The sessions were started of course as they always were with a senior. At that time the Americans were competing with a West German company. The company in Germany was MTU, the biggest gas turbine manufacturer in Germany at the time. At that time USGE and MT were in hot competition. The US got the deal, although GE was higher in price, we found that it w as much better in quality. And this time quality entered into the quotient. The Americans never tried bribery, at least not in China. They may have, but it is not to be knowledge. No three page letters. The Americans did not understand China as well as the French did. The American businessmen were reluctant to go into much detail when they presented their products. They just told us, well this is the system we have, like it or not, take it or not, this is what it is. So that is the kind of thing that actually attracted us a lot. And if you anxiously want to sell something, we thought, then there is something wrong. If you are in a hurry and explain too much of the details and make too big a promise, then the more we distrust you. Because we know there is a reason for you to do that. But if you trust the whole system and you know that it is really going to work for you, then it is not necessary for you to go into much detail. You see you believe in yourself and that was what we were looking for. They told us, Look, this system is going to work for you on your ships, it is perfect, believe it or not. If you believe us buy it and if you don't believe it, then don't buy it.
We were smart guys in our company. And we tried to figure things out in this way from the sellers.
The Americans used this system on their destroyer fleet. I assume there are a lot of navies in the world that use this system. LM 2500 system. This negotiation took place in the Beijing hotel and when we got this deal we had a big signing ceremony, and that was in 1987 and for a foreign business firm, that hold s a banquet in the Great Hall of the People. That virtually faces Tiananmen, and that is where normally state banquets are held but because the GE Company is willing to pay and spend money for this banquet. They said, we want to express our gratitude, just tell us the best place is that we can have dinner. And we said, and we said, OK, the best place in Beijing well, let me think, well that must be the Great Hall of the People. Let's make it that place. And we asked them if it might be too much and they said, "Well, don't worry about the cost. No problem. I was there at that banquet, not very luxurious., but in terms of the place it was symbolically very important. We had a band there playing music, modern music a brass band playing band music.
The Grumman negotiations, I knew about the deal but was not directly involved in that.
This Admiral was with a delegation to Britain to look into the Sea King helicopters. But he was supposed, after this trip, to go directly to France. He was a newly promoted rear Admiral. So the French they picked him, and there were people higher than him in rank at this time on the way to France. And we got to our hotels, and his was in the suburbs in Paris, for some reason. And he was given a key and he was supposed to share his room with another guy. He was so angry at this, he complained, and later on he refused to go to the negotiation room saying that he could not sleep well. But of course, we have an office in Paris, and we knew the situation was bad, so we took him out of the hotel and had him stay in one of our offices in Paris, our offices there are very spacious. We let him spend the night there and it was much better than the hotel. The next day he refused to attend the negotiations. Later on, the other admiral, who was head of the delegation, he was concerned and he told the French, "Don't ever do this again. And the next day the French moved the Admiral and his staff to much better quarters.
We didn't stay on the Champes Elysese. We stayed in best hotels in Paris and they were not on that street. There are some hotels in the suburbs of Paris, like the Shangri La that are really nice.
Everyone spoke a little Chinese, very little though, among the foreigners. But none were fluent in Chinese. We had to speak their language or speak English. They didn't employ American born Chinese, it seemed to us, either.
The Chinese air force sends a lot of interpreters to the US to help out. We don't think it's strange, we know that the foreign business firms are not equipped with interpreters. They just hire, when they had such a need, temporarily, they never put an interpreter on their staff. The Japanese never sell arms so we had no dealing with them. They have a constitution that forbids that, but they buy arms primarily from the UAS. They have things very advanced, like the P3C, ASW patrol aircraft, a very big one with a long tail behind, that is the one that the Japanese import to look for soviet and Chinese submarines.