Capitalism is seeping so deep into the heart of China that
even the People's Liberation Army is now considered a major
profit center. Since 1985 it has raked in more than $13 billion
from the international arms bazaar. As the Third World's main
military supplier China has peddled just about every kind of
conventional weapon from hand guns to missiles, to 25 countries
from Albania to Zimbabwe. Americans, as well, have become heavy
consumers of Chinese AK-47 assault rifles and hand guns. In the
last three years, some three million Chinese guns were exported
to the U.S.
Even more worrisome, China is also marketing its nuclear
technology. Ten Chinese nuclear reactors, capable of making
weapons and fuel, are being assembled in Iran. At the same time,
satellite photos, corroborated by on-the-ground intelligence
sources, have provided solid evidence that China supplied
Pakistan with M-11 components, enabling technicians there to
assemble these surface-to-surface missiles which can carry a
nuclear warhead 300 miles.
President Clinton vowed that "my administration will not
fail to act," if these reports are confirmed. Nevertheless he
extended China's Most Favored Nation trading status, which is
predicated partly on China's adherence to both the Nuclear Non-
Proliferation Treaty, and the Missile Technology Control Regime.
Beijing has always been ambiguous about its support of those
arms-reduction agreements. And for good reason. Its wheeling
and dealing in weaponry provides much of the hard currency needed
to modernize its own arsenal. While China's official military
budget is a scant $7 billion, revenues from international arms
sales, plus profits derived from the PLA's recent diversification
into consumer goods production, contribute another $7 billion.
But there is another reason why the PLA continues to
pursue the weapons trade. By buying, then cloning and re-selling
some of America's, Britain's, France's, Italy's and Russia's most
sophisticated combat equipment, China also seeks to undermine
those nations which it still distrusts. This strategy of "yi
jian shuang diao"(getting two birds with one stone) is aimed at
gradually tipping the military balance of power in China's favor.
However, a few other birds often get taken care of in the
bargain, as kickbacks from the arms purchases and sales seem to
slide easily into the pockets of some of the Chinese deal-makers.
Most of China's weapons business is delegated to two state-
owned import-export corporations: Xinshidai(New Era) and
Baoli(Poly Technologies. New Era specializes in tactical missile
sales. Its most potent offering is the surface-to-surface M-9
missile with a range of 400 miles. Of far greater impact on the
world arms market is Poly Technologies. Just about any weapon in
the PLA arsenal is part of its saleable inventory. Additionally,
it has the authority to manufacture and sell advanced weapons
that have not yet been introduced into China's armed services.
"Guns 'R' Us," is how one former Poly Technologies officer
jokingly describes his company. "Only the toys we buy and sell,"
he says, "are for the generals and admirals to play with. Big
high-tech toys -- planes, ships, missiles, and torpedoes."
Run by the Taizi(princelings), as the sons and daughters of
the People's Republic's founders are called, Poly is endowed with
enormous political clout. Poly's general manager, until he was
recently promoted to head of the PLA's equipment division, was He
Ping, the son-in-law of China's 88-year-old Paramount Leader Deng
Xiaoping. He Ping, one of Poly's founders, is said today to be
worth $30-40 million. He was promoted earlier this year to
Director of the General Equipment Department of the PLA and was
promoted to the rank of Major General. Wang Jun, the son of
the late vice president of the PRC, Wang Zhen, another founder
of the company who is still closely associated with it, is now
chairman of a Hong Kong Company called Continental Mariner
Investment. The current president of Poly, Xie Datong, is
also the CEO of the Dynasty Holding Company, which was
established in 1988, a corporation that also specializes in the
sale of arms -- AK 47s and Red Star and Black Star pistols, to
middlemen who then sell directly to American retail arms
companies. Through its Atlanta-based affiliate, PTK,
Polytechnologies has sold $200 million worth of guns to American
consumers since 1987. In 1992, according to company spokesmen,
PTK sold $3.4 million in guns in the US. Further augmenting
Poly's strength was the elevation last fall of General Liu
Huaqing to China's ruling seven-man Politburo Standing Committee.
The ramrod straight, 76-year-old general has been a staunch
advocate of importing sophisticated military technology, and has
allied himself closely with Poly.
The quasi-government company began working informally out of
a room in the Beijing Hotel in China's capital in 1981. The
impetus came from what China calls its "Pedagogical War," a
savage, but disastrous 16-day invasion of Vietnam, two years
earlier. Intended to punish Vietnam for overrunning Cambodia,
China's losses in that brief adventure approximate the 58,000
American lives lost during a decade of fighting in Vietnam.
The Chinese troops sent into Vietnam were poorly trained,
equipped with obsolete weapons, and supplied with outdated
ammunition. Many of their casualties came from friendly fire.
Shells that did hit their targets often didn't explode. Instead
of reaching Hanoi in a few days, as was expected, the invaders
bogged down in the border city of Lang Son. The Chinese generals
became so frustrated with resistance in Lang Son that after the
city was taken they summoned the senior class from the Army
engineering school in Nanjing and ordered them to destroy every
building in the city. "It was our goodbye kiss to Vietnam," said
one of the returning officers. "All we left behind was mud and
blood." After the Chinese abandoned the city, Vietnamese Prime
Minister Pham Van Dong visited Lang Son. When he saw the total
destruction of the city, the prime minister wept. When they
learned of this, the commanders of the occupying army announced
the news to their men and let it be know that they were
especially pleased with the work they had done in Lang Son.
The debacle of the Sino-Vietnam war proved the need for a
revolutionized military procurement program. Financed by the
Army General Staff and placed under its Equipment and Technology
Department, Poly was finally incorporated in 1983 and quickly
expanded into an elite, free-wheeling entity that could keep pace
both professionally and socially with its capitalist
counterparts. Today its officers enjoy special privileges. They
are provided cars, apartments, hotel suites and expense accounts.
The company keeps few written records, conducts much of its top-
secret business on secured scrambler phones, and operates through
an international network of go-betweens referred to as "foreign
friends." Of its 70 employees, most have military experience.
But their real power comes from their lofty Communist lineage.
Recognized as well-heeled customers, Poly's procurement
people are wined and dined in high style wherever they go. On a
1988 whirlwind tour of Royal British Navy facilities and a visit
to the Plessey Company(maker of the A-904 dipping sonar, designed
for trolling through the ocean behind anti-submarine armed
helicopters), a Poly delegation was put up in a castle near
Falmouth, where Prince Andrew and his bride, Sarah Ferguson,
spent part of their honeymoon.
The junketing shoppers moved on to France. A tour of Paris
night spots naturally preceded their visit to the Toulon Naval
Base. There an unexpected $90 million order for the Sea
Crotale(Rattlesnake), the French designed sea-to-air missile,
manufactured by Division Systemes Electroniques, a subsidiary of
Thomson-CSF. This sale was surprising, reports a former Poly
officer, because the money had originally been budgeted to by a
new wire-guided torpedo, the A-184, produced by the Whitehead
Company in Italy. The torpedoes were badly needed to equip
China's nuclear sub fleet, as many of the subs were operating at
the time with empty launching tubes.
Ordinarily, White could count on another secret weapon, a
stunning, young, Bangkok-born, part Chinese woman named Ma Ling,
to sew up some of its deals with Poly Technologies. Ma Ling is
not a Poly employee, but served as a facilitator of many Poly
purchases. She is fluent in Thai, Mandarin, English and Italian.
More important, she knows who in China's military establishment
must be given very special care, financially speaking. Poly
officers, on the other hand, suspect her of being on the payroll
of the Selenia Elsag Group, to which Whitehead belongs. Her
efforts had previously helped cement a $41 million sale to China
of Whitehead's lighter-weight A-244 torpedoes launched from
seaplanes and helicopters.
One of Poly's primary missions is to pick single pieces of
state-of-the-art equipment that can be disassembled and then
duplicated by reverse technology. In 1987, when the U.S.
destroyer Stark was hit in the Persian Gulf by two Iraqi air-t--
surface missiles, one was suspected to be a Chinese clone of the
French Exocet. In 1991, after Operation Desert Storm ended, Poly
sent a team to Baghdad to scavenge for unexploded American
Tomahawk missile debris to bring home for study. Another Poly
team turned up in Teheran to bid on some of the 107 jet fighters
and other aircraft that had hightailed it from Iraq.
Intelligence officers in Washington believe that Iran agreed to
swap the planes for 10 Chinese nuclear reactors presently under
In 1991, a U.S. intelligence report claimed Israel either
sold an American Patriot missile to China, or shared with it the
advanced technology developed by Raytheon. That accusation
sparked a nasty brouhaha between the US and Israel. If China was
privy to Raytheon's secret technology then it would be able to
make its own ballistic missiles less vulnerable to being knocked
down by Patriots.
Some American weapons, it appears, were improved on before
being passed along by Israel. China's PL-8 ground-to-air
missile, which was offered for sale at the Singapore Air Defense
Show in 1991, bore a striking resemblance to Israel's air-to-air
Python 3. Yet this same missile is listed in intelligence
reports as having a "high-degree" of U.S. technology, allegedly
having been adapted from the U.S. AIM-9L Sidewinder.
Although China did not recognize Israel until 1992, Poly
Technologies has been buying its weapons for years. A 1991 RAND
study prepared for the U.S. Defense Department estimates that
Israel had sold China between $1 and $3 billion of arms and
military technology. Sources within Poly Technologies, however,
insist that the true figure topped $6 billion.
Many of Poly's purchases were expressly made so the
equipment could be copied and sold. Israel's advanced 105-mm
tank cannon, accurate even when the tracked vehicles are bumping
over the desert at high speeds, was reproduced in China.
Ironically, it was then sold to Israel's two most feared enemies,
Iran and Iraq. Israeli technicians also spent considerable time
in China improving the Mig-21s' and MiG-23s' target-tracking
and fire-control capability, only to see that sophisticated
technology re-sold to Pakistan. Israel technicians and pilots
were sent to China to help with the hands-on training of Chinese
pilots, and in some special cases, Chinese pilots were brought to
Israel for flight training with the sophisticated new avionics
systems. The foreign experts from Israel who worked in China,
traveled with Hong Kong passports, supplied by the Chinese.
When, five years ago, a group of Israelis was detained in Hong
Kong by the customs service for carrying forged passports, a
quick telephone call to the local Xinhua News Agency, which
serves as China's unofficial representative in Hong Kong, cleared
things up instantly and the Israelis were sent on their way.
China has been peddling military equipment to its Southeast
Asian neighbors as well. In 1988, when Poly representatives
found themselves in a bidding war with South Korea to build
several 053-type frigates for the Royal Thai Navy, the Chinese
delegation reportedly arrived in Bangkok with two suitcases
filled with gold bars for the navy commander and the admiral in
charge of procurement. But what really cinched the deal was an
offer to equip the frigates with high-powered American LM-2500
gas turbines purchased from General Electric. Theoretically,
however, China was prohibited from reselling the GE engines.
"What we do is no secret," an ex-Poly man says. "Every
arms-buying and arms-selling nation in the world knows us, though
sometimes foreign sanctions force us to deal under the table, as
you Americans call it." Despite assurances to the US that it
would stop, China continued selling hundreds of surface-to-
surface HY-2 Silkworm missiles to both Iran and Iraq, to fire at
each other's oil tankers in the Strait of Hormuz during their
eight-year war. By the time peace was declared, Poly had sold
$3.1 billion worth of arms to Iran, and $5.1 billion to Iraq.
Poly also sold Saudi Arabia $3 billion worth of DF-3 East
Wind missiles beginning back in 1987. These vintage, single-
stage, single-warhead, intermediate range models had once been
deployed along the Sino-Soviet border and targeted at Moscow and
Leningrad. Even though they were delivered minus their nuclear
warheads, they can nevertheless now strike anywhere in Israel.
Secretly, on the other hand, China provided locations for the
missiles to Israel, in order to render the weapons somewhat less
Some of Poly's weapons sales have been carried out over
objections from China's Ministry of Foreign Affairs, which has
to fend off protests from the U.S. and other nations. According
to International Security, a quarterly published by Harvard and
MIT, the Saudi sale touched of an internal dispute that was
finally resolved by Deng himself. "How much money did you make?"
Deng asked Poly Technologies . "Bu xiao!"(not little), he
exclaimed when told the amount.
The Saudi deal also caught the eye of Syria's President
Hafez al-Assad, who sent a delegation to Beijing for talks on
arms sales. But Poly Technologies told the Syrians that their
new M-9 and M-11 medium range missiles, which the Syrians
intended to aim at Israel, were still in a primitive stage.
Syria was so motivated by the prospective sale that it agreed to
provide lavish sums for research and development. US officials
attempted to stop this sale to Syria, but apparently without
success. Some of the M-9s and M-11s, it is reported, have
already been delivered to Damascus, despite China's denials.
Some individuals within Poly Technologies revealed that Israel
was again apprised of locations and encrypting codes for
targeting for the missiles in order to prevent a disruption of
the relationship between the two countries.
"President Bush let those missile sales go through with a
wink and a nod," said Democratic Congresswoman Nancy Pelosi of
San Francisco. "I'm even more incensed," she adds, "that Chinese
weapons arrived in Iraq during Operation Desert Storm after being
laundered in North Korea and Jordan.
The Chinese leaders don't seem to take such warnings
seriously. "We believe the US remains firmly committed to a
policy of mutual trust," says another former Poly Technologies
officer, who claims that America has been quietly sharing limited
military intelligence and technology with China. The
unpublicized cooperation, he explains, dates back to 1978 when
Jimmy Carter's National Security Adviser, Zbigniew Brzezinski,
visited Beijing along with Deputy Secretary of Defense, Morton
Abramowitz surprised his hosts by handing over a sheaf of
satellite reconnaissance photographs of Soviet military
installations and armor facing China. The biggest surprise,
however, was the Americans' promise to equip and help man a
series of SIGINT(Signal Intelligence) listening posts near the
Soviet border. Called Project 851 by the Chinese and American
joint venture constructed two posts with large dish antennae
operating in Xinjiang Province in northwest China. The first
post completed stands today near the top of Tianshan(Sky
Mountain), where it is disguised as an earthquake monitoring
station. In the next years the US constructed nine more such
posts across China, using special Pentagon funds. These stations
tracked underground nuclear tests of the former Soviet Union.
The strained relations of the US and China following the
Tiananmen massacre in 1989 did not include any change in
cooperation on the listening posts. President Bush and his aids
said at the time that the continued operation was important to
the long-term strategic relationship with China.
Today, Project 851 remains shrouded in secrecy. Some 30
American intelligence experts from the National Security Agency,
the CIA, and various US military services are still stationed at
Tianshan. They are well provided for by a Chinese support staff
of 200 men and women. Many of the Chinese officers from Luoyang,
where the intelligence unit of the PLA trains its Russian-
language experts, agree to government-arranged marriages to
classmates, who are sent with them to the remote outpost for a
five year assignment.
As the listening posts in northwest China were being
constructed, the Chinese also constructed new listening posts in
Tibet. These posts, constructed with the latest surveillance
technology, enabled the Chinese to listen in on American naval
vessels in the Mediterranean and the Indian Oceans, and to
intercept all transmissions from the island of Diego Garcia to
the American fleet, Washington and other installations around
the world. By late 1982 the Chinese in Tibet were tuned in on
all naval transmissions from Europe to Thailand, listening not
only to the calls of servicemen to their wives, children and
friends, but also deciphering the maneuvering of every American
ship in the region. None of this was possible, the Chinese
suggest, without the use of American technology, which was
diverted from Xinjiang to Tibet.
During Deng Xiaoping's visit to the US in January, 1979,
only weeks before China made the final decision to go to war with
Vietnam, Deng voiced concern about threats from Vietnam's
principal ally, the Soviet Union, and the damage that the Soviet
fleet might bring to Chinese naval installations in the
Paracel(Xisha) Islands. Deng was especially interested in the
American Mark-46 wire-guided air-to-sea torpedo, that could be
launched from a helicopter.
"For years we had been trying to get advanced torpedoes," I
was told by a Chinese naval officer. "And the top of the line
at the time was the American manufactured Mark 46, a very
advanced weapon. It was a closed loop torpedo so when it is
fired it leaves no trail in the water. It is also fast, running
at about 40 knots and it is quiet and does not generate a lot of
noise, so it is very difficult to detect and then destroy before
it hits its target.
"We were unable to duplicate the Mark 46. But soon were
learned of Mr. Deng's coup in Washington. A group of American
ships from Subic Bay, headed by the Coral Sea, came into the
South China Sea near the Xisha Islands. And as the Americans
patrolled in the area, either an American ship or helicopter
with the group dropped several Mark 46 torpedoes near the
islands. They beached themselves, unharmed, in the mud near our
naval forces. we were able to salvage them successful and bring
them ashore. Quite obviously, they were intended for us, and the
object of the Americans was to provide them to us both secretly
and intact. That was done. The two Mark 46s were armed.
Everything. They were complete. Although those of us in the
Xisha islands were not privy to arrangements made between
Beijing and Washington, we do know when and where they were
launched and we do also know that no one in the area from the US
Navy ever reported them missing.
"Once we had them, then reverse engineering was the problem
to be solved. Years later, that would be 1987, the US Navy sold
us two more Mark 46 torpedoes to us. But still it was not enough
but still we had difficulty duplicating them.
"We studied the American torpedoes. We carefully
disassembled them and then sent different parts to different
research institutes for examination. This enabled the Chinese
research institute belonging to the CSSC(China State Shipbulding
Corporation) to produce their own copies of the Mark 46. These
were constructed for study and then test fired in a pool at a
special testing site in a suburb of Kunming. There is a very
advanced test facility there. The tests of our copies of the
Mark 46 showed that although everything looked exactly the same
with the American and Chinese versions, the performance of the
Chinese model was inferior to that of the American. But the
research continued until China officially obtained more Mark 46s
from the U.S. through legal and open channels in 1987.
"Years later," he said, "I remember very clearly, in the
negotiations room of the Systematic Engineering Division of the
CSSC, which is not far from the naval compound in Beijing, some
American friends gave us technical introductions to the Mark 46,
advanced version. And the Chinese experts present questioned the
American specialists about the possible modifications of the Mark
46 used by the US navy compared to the earlier versions -- say,
those used around 1979!. What revolutionary advances had the US
made? The American experts said that none at all had been made.
But actually the Chinese experts at the table could hardly hold
in their laughter, because they knew the truth. They knew that
these Americans were lying. They knew what changes had been
made. Yet the Americans in Beijing never knew how Chinese could
know this. These experts from the sales department of the Mark
46 manufacturer had never been told that our American friends had
delivered two of their products to us in 1979.
For years China has tried to acquire an aircraft carrier.
Back in early 1988 Poly Technologies escorted a Navy delegation
to Philadelphia disguised as executives for the Sea Rainbow Ship
Demolition Company. Their announced purpose was to by the
aircraft carrier Shangri-La, which was built during the Second
World War and then modernized to participate in the Korean and
Vietnam conflicts, for scrap. Discovering that the mothballed
vessel still included its catapults, which the Chinese needed
badly in order to construct their own carrier, the Chinese
secretly planned to buy it and then use it as a model for their
own shipbuilding industry. The only other bidder was a crap iron
company from Taiwan, and Poly's American contacts had already
made sure that China knew what the Taiwanese company would bid
and that China might then bid slightly higher. So confident was
the Poly delegation, in fact, that word was given to employees
of China's National Security Police working in the US that the
Shangri-La purchase was a done deal. They, in turn, went on a
buying binge purchasing new cars to transport aboard the carrier
back to China for sale at a very handsome profit. But when the
FBI discovered what was going on, the Taiwanese Kaochung company
was awarded the Shangri-La for $7.2 million on September 27,
1988, and the Chinese were stuck with a fleet of cars they had
to sell second hand. Poly considers the loss of the Shangri-La
as its greatest failure in dealing with the Americans.
In the next years the Chinese continued shopping for an
aircraft carrier. In 1991 they sent a delegation to the Ukraine
to look over the 67,000-ton Varyag, nearing completion in the
Black Sea port of Nikolayev. But the price was too high and a
deal could not be made, not even after the collapse of the Soviet
Union. But since the dissolution of Soviet Union the Chinese
have been buying up Russian weapons, frequently at fire-sale
prices. Its biggest purchase to date was the 26 Sukhoi-27 jet
fighters, which can be refueled in flight, thereby extending
China's air cover over the South China Sea to the Nansha(Spratly)
Islands, which may be rich and oil and which are claimed by
several other countries -- including Vietnam, Taiwan, Malaysia,
Brunei and the Philippines. A second order of S-27s is being
negotiated, although two of the original planes have been
disassembled to determine if they can be duplicated at the MiG
manufacturing plant in Chengdu. China is also bidding for MiG-
29s and MiG-31s.
The Chinese were surprised in late August by a secret
Russian offer in Vladivostok. There, a group of Chinese naval
officers, in civilian clothing, discussed issues of "mutual
concern" to the two nations. Suddenly, the Russian officials
proposed the sale of a large part of the fleet anchored in
Vladivostok to the Chinese. The Chinese were then shown more
than a dozen submarines, armed and fully operational, and twice
as many frigates. When the Chinese delegation suggested that the
hard currency for such an extensive purchase might not be readily
available, the Russians suggested that the Chinese could lease
the ships for up to six years and then two them to China under
the guise of purchasing them for scrap. Chinese military
officials are now discussing the offer.
This aggressive weapons acquisition program has not gone
unnoticed by the Pentagon, which is presently reducing US forces
in the Philippines, South Korea, and Japan. China's military
leaders, while denying any expansionist designs, secretly view
the US as their country's biggest threat, now that the Soviet
Union no longer exists. Most particularly China's generals and
admirals fear that the "peaceful evolution," which Americans
predict will eventually eradicate Communism in China, will lead
to chaos instead. "The trouble in Tiananmen Square," claims a
former Poly employee, "reminded the People's Liberation Army of
Mao's old dictum: 'Political power comes from the barrel of a
gun.'" That remains the motivating force behind Poly