Saturday, July 2, 2011

Conversations With Chinese Intelligence Officials

Tape 3

The airforce wants a plane, and we , the general equipment department asks us how much it will cost, we look into the yearbooks, like Janes publications, to see roughly how much the plane would cost, finding general what the maximum amount would be. We usually ask the maximum amount of money. For example, if the plane was to cost one million, then we would tell them it is $1.2 nmillion. Or sometimes $1.3 million. We knew because of our strange system, for example, if you have this amount of money in 1980, you have to spend this amount of money before the end of the year, otherwise it just experies. You have to return the money at the end of the year from where it came originally, and it came from the army of course. From the state planning committee to the army. That was where the general fund came from. The Army wants a system that costs a million and we charge them more. The army does not spend the money, we are the ones spending the money for them. All of this is in terms of hard currency, it has nothing to do with the military budget. The company budget is based on the states hard currency reserve. /The company's activities are based on the state currency reserve and hard currency budget. Example, this year we have this amount of hard currency for arms procurement. And you guys are going to decide how much is going to the navy and the airforce or to the army. The army has the smallest budget, since the army does not require any great amount of high tech eqipment. Not so obvious. Like the navy and the air force. That is why we purchase so much material for the navy. Because that is in the development stage. So there are shortages of currency, and that is why each year we cannot purchase a lot of things. We purchase whatever our superiors figure out they need the most.
Were there any systems that, when deployed, did not work. I don't think so, at least not imported systems.
Public security has their own system of purchase. That is not through Polytechnologies. EAS belonged to the public security system, that is why the PLA got so mad about Meihong, they kicked her out of the army and she went to public security. Jing An belongs to the public security system.
Who pays for the official life style in Poly. Nobody really cares where the money comes from in Poly or when an official has it. What is important is the authority and the profits.
There are many deals. Like Sweden, Kemawa Company, we had business with them. We bought arms from them. That was a ship propulsion system, too. That was the big contractor and there were subcontractors from other countries too. But they were the biggest contractor for destroyer propulsion systems. That was in 1988, but the contract was signed in 1987. We paid a visit to the firm in 1988. In stockholm, the firm was not there. We invited some people from the General Staff and the CSSC, the China Shipbuilding Company, And they were hand picked by the company, and they just flew them around in helicopters when they were threre, to stockholm, and took them to an island resort, and led them to the mountain tops there and so on. I was in West Germany at that time, since a certain company there was a subcontractor.
As far as I know they did not provide female escorts. They knew that we were from socialist countries and so presumed that we were not interested in women. Souvenirs when left the country. They provided souvenirs that were easy to carry when we left, wristwatches from the companies we did business with, for example. This kind of stuff, for people of middle rank and for translators and so on, then bigger gifts for other individuals.
Nothing romantic in my experience in the arms trade. Not in western European countries. Well, like Asian countries, like Pakistan, Iran, Thailand, yes, they provided women and escorts for visitors.
Kemawa was a big contract. That was below 30 million, about 24 million as I remember it. Contract was signed in Sweden with them.
Arms Sales:
I was involvd d in the negotiation process only. Like in the Chinese copied the French exocet missile systems. This type of missiles we sold to Iran. They called them YJ82. This missiel we sold to Iran. That was in 1988.
Negotiations -- people from Iran and sometimes a middle man. Normally the deal is that they send some people or they have some representatives stationed in Beijing. They knew in some way that the Chinese defense industry manufactured the French Exocet. This is the missile that hit the stark in the \Persian Gulf. That was a missile that we had copied. Because of some of the deals made behind the scenes, the Chinese navy didn't get this kind of missile and the chinese air force didn't either. And of course the Chinese airforce came onto the scene in the first place. They negotiated with the Chinese aviation ministry, becasue the ministry is where the missiles are manufactured. The airforce and the army, if you want to buy the missile, if you want then you have to buy it from the ministry. But all of the military projects were severely cut and so they didn't have enough money to buy it from them. So they negotiated hard with the civil ministry. They were upset, the civil ministry, because they coul dnot get much profit out of it, obviously. As far as I could figure, the price that the airforce offered was around $900,000 and that was in Renmenbi, unconvertable to the western hard currency. That is what the airforce offered for the purchase of the missiles. This is what they offered for each missile from the Chinese Aviation Ministry, which controlled the manufacture of the missiles. This ministry controlled all the defense manufacturing and aerospace industry. They controlled defense items manufacturing. Because of the airforce budget they were limited in what they could buy. But the ministry was asking, for each missile, about $1 million, and so there was a big discrpency. And the airforce waited and waited, and all of a sudden, the Iranian friends came foreward. At that time there were people from Iraq who were interested in it too. And they heard that we had some French Exocets for sale. And of course they knew that if China sold something to them it would be cheaper than from the French, and speaking of capability and performance, they trusted the Chinese, and the Ministry informed our company, saying that the Iranian friends wree interested in buying these missiles. And of course they approached their superiors too. And we made some inquiries, and the Aerospace industry let it be known that they were going to export their products to another country. Later on this deal was permitted, and so the deal went through, they got the permission. And later on, the Iranians, they just paid for each missile, $1.2 million, and, and this sale was in American dollars. That is the currency of the arms trade. The Chinese Air Force is willing to pay in 900,000rmb, and the Iranians pay $1.2 million, and of course the ministery was very happy for that deal. Who cares about the airforce when you can generate profits and gewt a deal like this. Who cares about the CHinese air force. If you don't have the missiles, then that's ok. Those missiles are ours and not yours. Right. If you want them you have to buy themj from us and if you don't have enough money to buy, then forget about it. We are going to sell this missile to someone else. The airforce later on after this deal was closed was so mad. Disclosed. They complained everywhere they could, but it did no good. We need this missile, they said, and they were so unsettled by it.
How many missiles did the Iranians buy? I really can't tell you. I really can't tell you.
Three page letters? No, this time no three page letters involved, simply because the price was so good. At the time of hearing the quotation from our Iranian friends, $1.2 million per missile, the Aerospace ministry was so happy that they knew that they were going to make a huge profit out of the deal. But you know what, one thing they did not realize was that the Iranians, they were just so happy at China's acceptance of their quotation because this was much much cheaper than the French were asking for their Exocet missile, which was actually a little more than twice as much as the Chinese were selling at. So this is the kind of deal that was really wonderful for the country.
The technology for the Exocet. There were many Chinese studying in France and the French, the blueprints for the Exocet were nearly everywhere for everyone to see. The blueprints were not the secret. The manufacturing technique was the secret, that is the trick. Everyone knows a Tomahawk Cruise Missile is made. But China has been uanble to put one together, could not manufacutre it because of the processing techynique. And so eventually they just solve those problems by themselves. They test the process and they test the missiles and it turned out to be a good one. After this successful test. After the Middle East War with Iraq, of course, Desert Storm, after the Iraqui pulled out of the battle ground, Kuwait, the Chinese and the Soviets went in, approached the exiled government of Kuwait, saying that they wanted to go over the battle ground. And the Chinese were in Baghdad looking for debris of the Tomahwaks. And they then wanted to bring them back to China, and I don't know if they were prmitted to bring them back to China.
I knew this was true, that they were looking for Tomahawks.
The Iraqi also wanted to buy our Exocet clones. We sold them to Iran and to Iraq also.
The Silkworm is something that we sold also to Iran and Iraq, hundreds of them. And they used them handsomely in the tanker war prior to the Gulf War. The Silkworm turned out to be a very good one. Because these are the missiles that operate in a fairly primitive way. What I mean is that if there is no electronic countermeasure and no jamming fields, the fighting enviornment is really clean. It is sort of a law of the jungle weapon. Whoever gains the upper hand, whoever is more powerful wins the battle. But all of the missiles were fired at tankers and the tankers didn't have countermeasures so that the missiles would hit them and blow up the ship because they were very powerful missiles. Chinese missiles, once they hit a target, they blow up everything. It is a contact fuse, but once they hit the target, because the explosive is powerful, our explosive head is more powerful than other missiles that size.
They paid the same price for the missiles. It is silly to supply your arms to nly one party, of course. In order to keep your business going you have to sell it to both parties involved in the same war. This is, they kept spending on arms and you know that there is always a need for both parties to acquire the missiles. The need never ends. You want to the war to go on.
We had more advanced silkworms, of course. There are some weapons systems we woud not send to other countries, of course. But the Exocet system has been causeing a lot of controversy.
Heavy water and other materials like that, it belongs to the China Energy Department or Ministry. All the machinery industry...they handle the heavy water and plutonium and uranium 235 they handle all of that.

Thailand deal. That deal was in 1987, when it started. We signed the contract finally in 1988. The first two ships were launched in March, 1990 in the Shanghai shipyard.
China ran into hot competition from other countries because we wanted to make a profit by selling our frigates to other countries. No matter who the buyer is, we don't care. And Thailand, it turned out, was the country that was interested in buying a couple of these, equipped with advanced weaponry. They wanted to buy some at a cheaper price. The arms sales we already made to them, we sold them the MIG 19 planes, and the 21s, although they were not very satisfied with the quality, but the price was right, that we offered. It was the friendship price that we offered, a special term that we used to describe the price that we offered to Thailand. Because Thailand is so important to China, it is like Pakistan. So Thailand we just made our supplies to the Khmer Rouge. In Kampucha. Thailand is the other face of our dice on the table. AGainst the Vietnamese. One of the possibilities. And we have military personnel, advisors sent to Thailand too, but that is something of a secret. One of my friends, we grew up together, and he used to serve in the military area i the South, and he was sent to Thailand, to help in the training and the use of some of the equipment systems, such as the large caliber cannons. Apcs, like those used at Tiananmen, all these conventional weapons were sold to them, tanks and airplanes, fighters, everything-- why don't they buy them from the US? Because American weapons are more expensive to buy. And what's good about Chinese equipment -- just like what we sold to Egypt, MIG 19 fighters -- the Egyptian airforce really like these planes. They were not so expensive to buy and they were not so advanced to learn to fly. Almost any pilot could handle it. We trained the pilots in China, the Egyptian Airforce personnel

(Side Two of the Tape) and Iran and Iraqi pilots in China. That's right. We made apoint of having separate training sites for them. We didn't want to train them in the same base, that would be terrible, of cvourse. We knew that. So we trained them separatedly, one in the north and one in the south. In the North, the city was, one is at[XXX] one training base in the Bohai Sea, in a port facing that sea. The other one is in the very south of China, facing Hainan Island(XXX). Why should the Americans care about this. Supposedly they knew what was going on, but who should care. This is an internal affair of China. And both sides in the Gulf War knew that we were training pilots from both countries. Our former classmates, he was constantly involved, there was one place in Shanghai, and that was for the Navy, and that is where they trained officers from Iran and Iraq. One year would be one and the next year would be the other. This was constantly on a switch basis. They didn't seem to mind, officers from Iran and Iraq. This was contantly going on. They were after all in a foreign country so there was little that they could object to.
Thailand deal. The Thai's wanted to purchase some frigates from China. And that's why people from the CIC virtually carried bars of gold, CSSC, and they carried gold to the Thai Navy head. Our company was also involved, but that's a sort of, they formed a special team with both Poly and CSSC involved, since CSSC actualy manufactures the ship. And if you took a ship from them you had to negotiate with them. They manufactured the ship. We had to talk with them to see if they were willint to accept the price or not, and in this insiance of course they were willint to sell, they wanted to sell them but the navy was short on cash, the same thing happened, they wanted to sell these ships to a foreign country to make some profit.
The Thai expressed interest in buying ships from South Korea initially, and they were building for themselves, but they also had some shipbuilding complexes in Pusan(Fusan)? and they had a special shipyard. They did the bidding process. So everyone could compete. They said, you guys figure out what price you want to accept. And China, we just, because China, our relationship with Thailand wa s so good. And second to the US, China is their second biggest ally, against the Vietnamese, of course. Our relationship with Thailand was so good. The Viets posed a big danger to Thailand at that time. Of course, they could rely on the US also, but the US is somewhere so much further away, of course. So China is so much closer and so is reliable. They relied on us locally. That is why we have military advisors and different kinds of arms there to them. Military advisors, they were there, involved.
A perfect example of American military people working in uniform with the Chinese military officers working in uniform with Chinese military officials. You have the army intelligence people in uniform, because of the mutual agreement between the two countries. Because of a mutual agreement between the two countries, they were allowed to operate in China, for intelligence purposes. I am talking about a special intelligence gathering complex in North China, in the Northwest with Americans in uniform, and the common enemy at this station is the late Soviet Union. And a lot of the English speaking Chinese officers in that complex, where is this post.(XXXX).The problem in terms of myself, as to who knows where it is? I am crossing the border when I tell you this material. I am crossing the border. I am crossing the line on this.
According to a secret agreement between the two countries, China would supply the maintenance personnel for the US while you would provide the top intelligence experts and technicians and they then cooperate in Sinjian, and it has existed now since 1986 and it has operated jointly for so many years, since then. And it is still going on, before I came over here...and it was not affected by Tiananmen. Come on, your government is not so stupid as to interrupt something like that, they may deliver a speech, but covert action transcends politics. One of the big things is that because the US supplied all the advanced equipment, and if you go to that complex, I have close friends who were there, and they were involved in this, and they were sent there. What is pitiful for these guys, both men and women, was that sometimes their marriage had to ge arranged, once you were in the complex you are not supposed to leave for a certain amount of time. That means your correspondence had to be read with individuals outside the complex. And if you correspond you have to use a different return address. If your marital status is not settled the organization would find a woman for you there to marry. That is one of the reasons why they needed to recruit females for the base, too. The Americans just work there, conscientiously, but China is going to profit from this special project, too, and according to the agreement they gather data and it hsas to be shared by the two countries, and there is a large group of Americans working there, dozens of them, actually.

The South Koreans were in hot competition with your company. Our company was the one that was representing CSSC, and just to make sure that once we made the deal we would be selected by the Thai Royal Navy, and as far as we know, South Korea was pretty close to us, and we sent a delegation to Thailand, and we told this to CSSC, and this was the trip, and this was in the beginning of 1988. And two of these individuals carried suitcases filled with gold bars, they were very heavy, pretty heavy. It was a big load because it was a significant bribe. Later on, we in the office talked about this so much, and they stayed in Bangkok, and of course, the receiving party knew of their presence, and they were tpicked up and transferred to another hotel for official business discussion. The deals were made under the table in the evening, when they were guided by the local office people.
The delivery of the gold. What if the Thias accepted the gold and then reneged on the deal. What could be done? Then I guess someone from the office would be held responsible and they would disappear within a few days. They would be gone. They would be transferred. To aonther office in China. That would be punishment enough. After all, it was not his gold. The China working for that company were tough people.

Women, liquor and so on for these individuals. A friend from the office described some of the stuff to me. They went on a trip to Europe and to Asia. They said they saw different kinds of things. Since you offered gold to them and then they were allowed to do whatever they wanted. They were not in Thailand provided with anything. They did not offer these guys women, but if you buy from them(?), the money went to the General Commander of the Thai Royal Navy as well as a Lt. Admiral in charge of the Naval Procurement at that time.

After the gold was passed to them, about five or six onths later, after a long wait, the contract was signed. And the next thing I knew the two shps were prepared to be launched and I went to Shanghai myself to see the launching. One of the ships was loaded with high tech equipment from the United States LM 2500 from the United States. This was, of course, not legal. The Thai wanted, loved to buy from the GE company the LM 2500 from the US, but the price was pretty high. But the Chinese had already signed the contract with GE, one of the benefits of signing the contract, if you want to buy more, you can get them at a cheaper price. And so China offered Thailand a better deal, teolling them, we are going to put on board LM 2500, don't ask us where we got this equipment, but we will just give you a friendly price for this. So both of them were equipped with two sets of LM 2500. to propel their ships. Altogether they bought four ships, but the first two that were sold had the LM 2500 and they had everything else on them that was the latest high tech equipment. Nothing surprises me anymore. I am too undercultured now.

Sale of small arms to other countries. Our company never became involved in the sale or transfer of small arms, such as AK47s, we only deal with high tech arms. Of course, and that is where the most money is spent.

Saudi Arabia. My former classmate from the school was involved in that. The USA and Israel objected to this, of course. The project has been going on for many years. Make it after 1982. One of my former classmates, who speaks arabic, wenht on that trip, and later on, in 1986 I guess, when I was in Beijing, another classmate was chosen to go there, his name is the same as mine, and he and I met the whole group, that was supposed to be on the trip. They were all in uniform, they were handpicked for this specific operations team. As far as I know, it was DF# missiles, it was long range surface to surface missiles. Intermediate range missiles, really, in western definition. These missiles were simply called the DF#, not the destroyer or the red star or something like that. capable of carrying a nuclear warhead. Waht was so fantastic about it was that you could put anything on it that you wanted as long as it did not supersede the payload. If it exceeds the payload it is going to cause problems and reduce the range, and then there were secret negotiations with the Saudi, and the soldiers, of course, went in civilian dress. They were chosen to go to Ausi Arabia to help these individuals deploy and operate these missiles on a daily basis. Operate is the word to keep in mind here. Some of them were so good at what they did, radio transmissions and radar and so on, and good at the technical aspects that were required to perate these missiles. As to the Saudis, let me put it this way, they are not quick learners. And so before they were competent in managing the system, we sent a team of experts to help them. Actually we had interprets there to assist in the negotations went on since 1982 and the contract was signed in 1985 and the shipment of missiles began in 1985 and that is when the group of experts was chosen from the army. The team was there for several years, in fact, and then came back.
How long was the team there? For several years. They then came back. But they were rotated out, since new people came in, and there are today less Chinese manning the missile sites. We had at one time 3,000 soldiers in Saudi Arabia for their missile sites.
They were in uniform, as far as I know. How ere their living conditions? The life there was very rigorous, really really really boring. One friend of mine was smoking three or four packs of cigarettes very day because there was so little to do. All of the men lived together and they could not go out on the street without guards with them. They lived in rooms, apartments, and each had their own room. They had their own kitchens so they could cook for themselves. And they also could eat together in a dining room. Everyone ate together and they could have very cheap expenses, they were givin cigarettes and developed even worse habits of smoking. And his wife worried also.
Recreation? Sometimes they had some time, when they had to hold conferences and learning sessions. But when they were free they were really limited. They said that the situation was very serious and that if they went out and were recognized by anyone then it would be a very serious situation.

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