conversations with Chinese Intelligence Officials

Tape 4

The company, Poly was founded in 1983. What brought the formation of the company about was basically because the PLA wanted very much to establish its own echelons of channels to export its arms and to make a huge profit. To understand this questions you must understand the back ground information.

Normally the Chinese defense establishment was funded in this way. Before that, it actually the PLA just as much roll to play as the defense industries. There are always like against each other. Because the defense industries, have some powerful export oriented cooperations, like Norinco, it stands for North Industrial Cooperation, a very powerful one.(Beifung gungye gunsa) every since it was formed in 1980 dealt in conventional arms. exports, oriented. And it shipp a lot of conventional arms to both Iran and Iraq. Conventional ones. So later one, as son as the PLA found out that much of the generated revenue from these arms sales to the middle east were not being used to benefit the PLA, they were returned, in fact, to the defense industry, for rd systems. So the PLA was not happy. Also, in 1983, Mr. Deng proclaimed that the PLA would be the last to benefit from the overall modernization from China. He realized that the military modernization program would be very much dependent upon the economic status of the country. So his line, was that, since we are still poor, the military will have to wait patiently, and we will eventually accumulate enough capital for you guys to get enough money to purchase things from foreign countries.

Im basically talking about the general staff and its equipment department. And it was Mr. He Pengfei who headed the department at that time. He actually was the fourth founder of this company.
So the individuals saw profits generated at that time, outside the reach of the PLA, and they wanted to do something by themselves. They did not want to see the arms in the country flowing out of their control, since they believed that they had the same right, although they should have equal access to the stockpoile of conventional arms. So basically at that time, the PLA, although it was still poor, still had a lot of money to buy things from the West. And so to establish a company that would have things under its own command served two purposes. First, the company directly deals with foreigners. In China, military personannel were not allowed to deal directly with foreigners, at least not in uniform. This was the regulation. And so now they have their own copany, staff their own company, in civilian clothes, and they are equal status with Norinco. The second reason was the most important one, they could have a company under their own control that would perform the function of arms exporting under its own command, so it has nothing to do with the defense ministry. SEcondly, the defense industry, they have several companies, each responsible for selling their own arms out of their own stockpiles, out of their own production, but not out of the army stockpile. The army inventory. So, the defense industries produced primarily for the PLA, but since the PLA budget had been cut significantly and the purchasing price for the PLA wqas significantly lower than from markets like the middle east, for example, some of the missiles, the newly developed ones, they were sold to Iran and Iraq for $1.2 million, these were the C 801, it is the Chinese version of the French Exocet, a air to surface missiles, an anti-surface ship missile. And actually, in 1987, the US warship sTark was hit by two missiles, and one of them was a Chinese copy of the French exocet, but there was no proof at that time. But Iraq at that time had already gotten those missiles from the Chinese. The other one was the genuine French Exocet. The Americans picked up the debris, and they wanted to know where the arms came from. The first one hit them and the second one, and that second one was from China.
Also, that was the time when America, all of a sudden realized that its warships stationed in the Persian Gulf were as vulnerable to Iraq's fire as they were to Chinese missiles in the region. So the US began to see that China had influence in the Middle EAst. The USA, then began to study China's arms dealing carefully. But prior to that time, I don't think they had a clue as to what we were doing. They are always pressing the Chinese government to control their arms sales in the Middle East, but they have been unsuccessful. Because basically the State Department or the State Council or the Foreign Ministry, they have absolutely no say in the Chinese arms sales in the Middle EAst. Because China's arms sales decision making process is a very strict one, and it is probably the most efficient thing in China, and that is that the decisions can be made only from the top. They are carried out with the utmost efficiency and precision. In terms of considering the international impolications or reverberations of these sales. They were the masters of the combination of domestic needs and the international political environment.
So the arms sales in the Middle East served two functions. First, of course, it is the most important one, it generated huge revenues for the PLA itesle,f for the modernization drive. We used those profits to purchase high-tech weapons from the US and from Britain. Like the missiles we sold to Saudi Arabia, that was quite advanced missiles, that was in 1985, but gegotaionats aftered in Washington between the two embassies. At that time it was Han Xu who was the spokesman for the Cinese government to the UN. He was quietly approached by the prince of a Saudian Arabian royal family. But equal important,ce China always used these advantageous poistions toward foreign policy in the Middle EAst, it was basically against first the US and then Russia. China's relationship with Middle EAstern countries began, actually, in 1985, during the Bandung Conference in Indonesia. It was at that time that Premier Zhou Enlai met Gamal Abdel Nassaer. And these two during the meeting formed a very good personal relationship. But at that time China was clearly a very good ally of the Soviet Union. So, China'`s relationship with the two superpowers basically determined its relationship in the Middle EAst. China, although it was a great power, never defnied its international relations and its revoluationary obligaionts within the borders of other countires. They said, we are also a third world country, we are poor, and we are of equal footage with Middle Eastern countires.
The only reason why were in the middle east is so that we can help you guys. Virtually out of nothing. And a lot of countries in the Middle East bought that idea, that China had nothing to gain in the Middle East except to help its friends. It had no hidden agenda, no seceret plan to exploit the friendships. And that is why China retains friendly relationships with middle eastner countries. One of the advantageous positions that China takes is that, ok, they could just very effectively explain to the Middle Eastern countries, explaining that we actually don't depend on the Middle East, unlike the USA and then the Soviet Union, for either oil or strategic position. We have no selfish means there. The US depends osn the oil and the Russians depend on the desire from the Czar period, had always cherished the ambition of occupying Eastern countires in order to gain access to warm water ports facing the Indian Ocean. And the guys based upon my experiences having to do with guys stationed in the middle eastern countries like Iran and Iraq, when I talk with them they all agree with me. China is selfless, that is her position. She was seen as a selfless friend, not selfish. But in actuallity it was very selfish. They seved two functions. Deiplomatically, the arms sales positioin was based on a lock in strategy, procedure. That is, perfect example comes in 1974, after the war against Isarel in the Middle EAst, and Egypt was defeated in the Sinai Penensula. But at that time, Egypt, in order to win the war, borrowed a lot of money from the Soviet Union. But China was not involved in the process at that time. So, Egypt borrowed arms and lost the battles, then the Russians, then after the war, just did what they did to the Chinese after the Korean War. China was fighting a war for the Soviet Union and for itself, and it borrowed a lot of arms from the Soviet Union. After the war was over, well, the Russians, they refused to clear the deck. They asked us to pay back what they had lent to us with high interest. And that is something that the Chinese never forget, never. So China remembered that after the Korean War. The hundreds of millions of Chinese were forced to rtighten their belts for the next three years because of the Russian demands, and they understood that and they did not forgeg that. Chairman Mao said, "All right, we are going to do that. Because ddI will be the last one to see us in debt to a foreign countrie. The people suffered and the children born in that time were ill nourished and suffered from a lack of everything at that time.
Then the same thing happened in Egypt. Egypt was very angry, the Russians demanded to be paid back with high interest after they fought the Isarealies. At that time the Egyuptian Air Force was ready to buy 50 American F5E fighter planes. The contract was sisnged and everything. So Egypt was very angy. They saw themselves in some ways as a prox y army. But then, because of the Russian debt, all right, because of the debt, they could not pay for these planes. Interestingly enough, the US, prior to the war, had agreed to provide $1.5 billion in military aid to the Egyptian Air Force to pay for these planes and suplies. But after the war, the US changed it's ideas, it didn't want to dhelp a defeated friend, and besides it's best friend in the Middle East was Israel. Prior to the war the Egyptian Air force knew they were going to buy these air planes from the Americans. Later on, interestingly, Egypt turned to Saudi Arabia for money. Their military, Saudi, was extremely weak. They to some extent had depended on Nasser, and depends on and Sadat, and they really depend on Egypt for national defense. They were rich and they agreed prior to the war to provide $5 billion US military aid for financial assistance to purchase the fifty airplanes. But after Egypt was defeated, they refused to do that. And so it was at that time, Egypt was in a terrible position, and Sadat was so angry, that he explelled all the Russian military advisors, technicians and diplomats out o f Cairo and sent them back to the Soviet Union. At this point China stpped in. China provided 50 Mig fighter engines, free of Charge and then committed itself to the maintenance and repair of hundreds of grounded Soviet War planes that were lacking parts and needed repairs and so on. The Chinese sent teams of technicians and military experts to help maintain the soviet planes, bbecause they were the one basically that the China used at that time, so they are familiar and they have sufficient parts to supply to the Egyptian airforce and they helped keep the Egyptian airforce going.
So when Sadat was assanniated, actually, later one, the relationship between the two countires was so close, in fact, that he was assissinated in 1981 in Cairo during a parade. The relationship between China and Egypt was so close, by that time, that the reviewing stand for the vips, and Sadat was sitting in the front row, of course, and immediately behind him and sitting in one corner, there were nearly a dozen Chinese military advisors, including a top airplane technicians, one of them, actually, was my classmates father. One of them, he was, the last name was Chou, and he was wounded in that attack. He was later flown back to China, and several others were wounded, also. He returned and he came to our school to see his son, and we had a talk. That shows how close the relationship between the two countries was.
The secod chance for China came in 1979, when Sadat was signing the Camp David Accords with Israel. The Soviet Union was not happy at that time, of course, with the agreement, happy to see itself left out entirely of the peace process. So they decided to instigate the rest of the Arab world, saying that Sadat was a traitor to the Arabs because he made concessions to the Israelis, our common enemy. So Egypt, all of a sudden, was isolated in the Arab world. So what is to be done at that point. So, Egypt was in a terrible bind, at that time, in 1979, and at that time, Lybia was threatening Egypt by massing its forces along the border between the two nations. And so, obviously, Sadat was isolated internationally and the US said a lot at that momnent but did very little. So Sadat and the Egyptians felt isolated. So at that time, this was the time, in 1979, when Egypt was buying the fifty 5FEs from the US. So at that time, Egypt was broke, and China stepped in again. It provided 80 China made MIG 21 fighters to the Egyptians air force, free. At that time, China was capable of producing war planes by itself. China was able to provide eighty of those planes, and in return, and in return China got one mig 23, soviet version. At that time China did not have a copy of that airplane. What we call an F8. As a friendly gesture this was done, a sort of hostage exchange, really, 80 planes for one.So it was nothing. But the one plane was what China needed, exactly. For study purposes, in order to see how advanced the Soviets were since the China are very good at copying advanced technology, especially from the United States. So, through doing so, China successfully secured it foothold in the region, and from then on, the second year was 1980. Then the Iran-iRAQ war broke out. Well, this was the golden opportunity for us, the best of all circumstances to cash in on the confilct, on the war, by supplying arms to both sides and by training both sides. The longer the war, the more fierce it was, the better it was for us. We could not lose in that war. Basically, from 1981 to 1987, China supplies about $3.1 billion to Iran, and and $5.1 billion to Iraq. China originaly supported Iraq in the war, but then shifted its stance to both sides and finaly provided more to Iraq. Now Iran was not unhappy with this situation, i can tell you. So there was a lot of money in it for China. We provided to Iran basically ground equipment, from artillery, including 122 mm to 150 caliber artillery, medium to heavy sized equipment. China provided T59 and T69 tanks then, also. And we suppoied Mig 19 and Mig 21, but not a MIG 23. We did not sell Mig 23s in the middle east, and we only had one, and had not yet been able to duplicate it. The Mig 21 was advanced for the Chinese by that time.
And naturally, each side sent pilots to China to learn to fly and China sent experts and techniciains to the field to help the sides. We also sold light strategic bombers to each side, too, to Iraq. Like the fighters, bombers, ground equipment, tanks, like the H6, like the Soviet TU95, called a "bear" by the west, a "Polar Bear." So advanced, besides, China also sold a lot of silk worm missiles to the sides, a ship to ship or shore to ship missile. It performed extremely well during the Iranian attacks on Kuwait tankers. Because what is so special about our missiles is that although they are somewhat obsolete, in so far as high technology goes, it is not on the so-called cutting edge, but it does not have very complex electronic countermeasure systems, which means it is very vulnerable to electronic jamming. But once you don't have the jamming equipment, China's missiles are god-damned effecxt, because they contain a lot of condensed explosives in the war head. So once you secure one missile you can kill one ship. That was the selling point, one missile equals one ship. Because it was very powerful. So Iranians were very pleased about this. They said, all right, this performs extremely well. And so long as you have the missile you can put the launcher on the shore or on a ship, and you aim at your target, program som coordinates, and there it goes. And anyone can do that, almost a child. And at that time, Iran and Iraq, both the navy and the airforce received training in China.
Where? The first place was in Shing Huandao, that was a kind of a port city, situated in Bo Hai, or the Bo Sea, that was kind of China`s interior sea, and that is where the nuclear submarines are produced for China. Now this was all done in extreme secrecy of course, and the pilots were all done in their uniforms. So, but, they were in a militarily restricted area. And also in the Southern part of China, on the South China Sea, somewhere near Jeanjiang, we have another place there for training, virtually an island. All of the miltary there was restricted, that was called Ma Shie, that part was called. And so sometimes the Iranians were trained in the North and the Iraquis were trained in the south, or the other way around. They were never trained together, though. China made a point of that. They were hostile, of course, and there would no doubt have been trouble had they been trained together. This was for Silkworms and missiles and airplane training. And also in Shanghai, that is where the technicians were trained, because they received training basically in a defense factory, so they saw the streamlined production and were shown the technique, which they were then to use in their own countries, in order to maintain the missiles and the equipment. You have to know how it is produced in the first place in order to maintain it. YOu have to know how to take away parts and how to repair and replace chips in the equipment. So once they acquired this technique they no longer needed the Chinese to be there. So there was a huge stockpile of weapons there by this time.
These were basically one pilot aircraft. I heard of Chinese flying in Vietnam and in Pakistan, but I am not sure about the Middle EAst.
Were any Chinese killed in the Gulf War? They were killed during Sadat's assassination, but I don't know about others. The most successful period of China's arms sales in the Middle East was the ten years war, period. Now, turning to Saudi Arabia, China made a huge gamble because Saudi Arabia was the only country in the Middle East that did not have diplomatic relations with China. And probably Saudi Arabia was the most important country in the region because of its oil and its money. Strategic position and size. It was important not because of oil for China, which buys very little oil in the Middle East, but because of its strategic importance. If Saudi Arabia is friendly, then China could gain politically and strategically in the region. Not necessarily economically. China made its maneuver by arranging secret meetings in Washington between the two embassies in a dialogue with the Prince, Prince Bandar Bin Sultan Ibn Abd al-Aziz. Later he visited Beijing, also on a secret trip, and signed a memorandum of understanding or a letter of intention. So the deal was reached, an agreement. And so China begins selling missiles to Saudi Arabia. This is the most significant thing about Poly Technologies. This is what is important about Poly because they are the only company that is entitled to sell arms strategic arms, including nuclear technology, to foreign countries. In this regard, both Norinco and the other defense industrial groups have no power, really. So poly is involved in this and the contract is signed. It was for $3 billion. China earned a lot money from this deal. So starting from 1985 China starts shipping the missiles, called the DF3. EAst Wind(Deng Fan) a single stage single warhead missiles, originaly deployed along the Sino-Soviet border and all of them were targeted on Moscow. Or Leningrad. The range is intermediate range, IRBM, a range of over 1,700 miles. So they are capable of hitting anywhere in Israel. At that time China developed a new series of strateic arms, and nuclear missiles. So these were to be phased out. So, what to do with them? Sell them? Sell to what or to whom? Sell them first of all for money and for profits and secondly sell them for political purposes. They wanted to secure their influence in the last country with which they have no influence in the Middle East. And through Chinese eyes this is the most important country to gain and to win friends from. So this is the biggest political gamble China made since it was founded in in 1949. First of all, becdause first of all this is the first time China took something out of its strategic inventory, which was virtually deployed at that time. It was not something that was sitting in a depot, it was something that was deployed in the field. So China took the missiles out, took the nuclear warheads out and put a dummy warhead on it and said, "OK, you can put what you want in this in the way of conventional explosives," then they shipped the missiles to the Saudi ARabians. By ship.
Technicians and Chinese soldiers, by the thousands, accompanied these missiles, but on a rotation basis. Roation basis, if 500 people in the first group to go, and later on, after two years, they return to China and they are replaced by another gorup of 500. It was about a two year rotation. The chief liaison officer was my classmate and had a talk with me in Beijing. So, the reason why I say this, is for the first time we sold stategic arms deployed in the field, to a country, a capitalist country, with whom China has no diplomatic relations. We did not hae an embassy there. This is a political gamble China played. But all great secrecy and in silence. The US knew but it didn't protest. The Isareli's also knew, and they were upset. At that time they quietly approached China. And they asked, "Why did you sell those missiles?" Because we are within range. That means that they are going to hit us if they want. They approached us through a third country. This was a starting point when Israel began providing technology and assistance, a lot, to China. Why? Because, China through some quiet sources, guaranteed things to Israeli, said that the reason we sold those missiles to the Arabians was becasue they agreed that they would never fire the missiles first, unless they are fired upon. And secondly, we did not sell them nuclear warheads. You may rest assured and not be to disquieted by that. Israel said that they would like something in return. And China asked them what. They said that they needed diplmoatic recognition. And it is going to be realized soon, one of these days. But if China recognizes Israel, China runs a risk because China always claimed to be the friend of the Arab world. And they always used in their dealings the fact that they did not recognize Israel, they only recognized Israel's right to exist. But we also recognized the PLO and we also recognize the claims of the Arab world to the lost territories occupied by the Israeli forces. So China played a double line, and made use of this situation. They wanted to make use of Israeli's urgency to break international isolation. Becasue the US and the western world were their only friends. They wanted recognition both from the Soviet Union and from China, and they wanted it most from China, since the Soviet Union was impossible. So, China said, OK, in order to do that, you not only can't protest the Chinese arms sales to Saudi Arabia, you must remain silent on that, but you are also going to assist us in defense modernization program.
They provided a lot of technological assistance, that could not be provided, namely by the US, and a lot of military intelligence concerning the US. How? They provided...a lot of the Israel technological assistance came to the Chinese by way of aviation technique, software modernization deisgn, and modification of the fighters avionics. So now China's Mig 21s and Mig 23s, there is a lot of software provided by the Isreali air force, successfully integrated into the cockpit of the planes thanks to the Israeilis. They brought in individuals in groups and in delegtations, secretly, and they were holding the passports of a third country, British passports from Hong Kong.
They worked in several places where design and manufcaturing and testing took place. They worked in airplane factories, in April of this year, the CSSC, the Chinese State Shipbuilding Cooperation, the ship building giant of China, they displayed aunique ship to air defense system. For ship born applications, for destroyers and for frigates. And they were willing to sell that technology. Or at least, they were putting that technology on display during the Singapore Air Defense show in April, 1991. It was called the PL8 series. And the missiles they displayed, bore significant resemblence to the Israeli Python missile. Yeah.
CSSChad a stand at the show. And they said this was their very effective ship to air defense system. But they would sell this system through Poly, and it was only for display purposes. Many westerners came to the show and saw this and they thought, "My God, they were astonished. Because the Israeli Python is an air to air missile. See, it was pretty advanced, as advanced as the American sidewinders. Used on the F15s. They were the equaivalent of the air to air defense system. The only possible way that China could have converted this missile defnse system was China must have the missile, otherwise it was impossible. And I know China had the missile, too, and China successfully converted this missile from air to air, to ship to air purposes, with the help of the Israelies. China was very smart, and it was all done with the Israeli assistance.
CSSC was headquartered in Beijing. The Israelis were not interested in siteseeing at all. They were serious businessmen. They were like the Japanese. We drew the conclusion that the Israelis and the Japanese were serious businessmen. Do you think the Isaeils could be identified in China. China had a toruist office in Tel Aviv, to facilitate travel. The agency could issue visas. The technicians were men and women. I am not concerned with this basically, they were concerned with an air base? That is for later? How far is this story going?
I may be going too far already when I tell you this.
The Python agreement was only one of the agreements with the Israelis. There were not problems with the Israelies and they came to Polytechnologies on several occasions and did business with us. The military coopration with Israeli was for purchasing purposes, which they were very willing to provide. And I seriously doubt if any other country other than Israel provided as much technological information and material to China more than Israel.
Arms to the PLO, AK47s and small weapons. But only small weapons. But not much.
Countermeasures for the DF3. There was an exchange of information in order to assure our Israeli friends. And we provided them with a whole set of parameters regarding the DF3, and so we gave them all the information they needed and so they could easily provide their own defense system, like the Scud. So they received all of the statistics and materials we had on the missiles, and they received information on their location and on their mobility, so they could take them out easily when and if they needed to. This was part of the cooperation between the two countries. The Israelis were far more advanced, technologically, than Saudi Arabia. So they were capable of designing their own air defense system, like the Patriots against the Scuds. These were mobile missiles but they were deployed at semi-permanent locations. The Israelis were told where those were. deployed(where were they deployed?) The only thing they know, the Saudis, is that China was extremely friendly to them, and that is all. China played a double line with them.
July 21st this year. The two countries established diplomatic relations. What drove that? Because, the US, was standing out and openly protesting the deal. Saudi Arabia felt offended.
The Israeilis upgraded the planes. To modernize and advance the planes. Chinese pilots also did go to Israel. And they trained there. A very interesting development and that now China established a tourist agency in Tel Aviv, and Israel already had a trade office in Beijing, but these were the organizations that were extraordinarily powerful. They were basically the replacement for official foreign establishments, like the Qinghua in Hong Kong but much smaller in scale and in size. Like the North American Friendship Cooperation AGency that Taiwan has on both the East Coast and the West Coast of the US, they are capable of issuing visas and passports, too. Why do you need an embassy and you can have this. But now Israeli pushes very hard. They say, ok, we have contributed enough. We have showed our good will and our friendlienss, and now is the time for our two countries will officially establish relations. And now China is officially considering that. Last week the Chinese newspaper reported that the Chinese foreign minister said that China is going to estalblish relations with Israel soon. And Israel said the same thing. And that means that an agreement has been reached. The implications of that is that China was forced to do that at the expense of its relationship with the ARab world in the Middle East. And China was able then to play the double line. This time, because one effective way just to prevent the ARab world from misunderstanding the Chines eposition towards Isreal is that China is going to play the card of the US in the Middle EAst, because the US, when the Soviet Union is gone, which was regarded the US as the only enemy in the Middle EAst, although you guys helped Saudi Arabia achieve victory over Saddam Hussein, no matter what the outcome, the Arab world was unhappy with the US military presense in the region.
So long as the Saudi ARabians they are not stupic people, they know what they are going to do with their missiles. And there are still Chinese technicians in Saudi Arabia manning their missiles. And when the hostilities broke out, China's technicians retreated to our embassy in Turkey, the only place they could go was to go to Turkey, because we have a very powerful and very bigt embassy in Turkey They left Iraq and the bombs were dropping. The Iraqi missiles were to be managed by the Iraqis themselves. The Chinese military was not involved in the war. Iraq did not have access to missiles from China. They had missiles from the soviet union but that was all.
The Chinese were there to help the Iraqui airforce. And a long time before that. The Chinese knew that htis time Saddam had overextended himself in the international world. And actually Syria cooperated with the Chinese in the Middle EAst. Was basically alured into the Chinese market. Syria used to be a close ally to the Soviet Union, but after Gorbacheve they were put in an embarrassing posiiton. They still needed technological and military assistance from the Soveit Union, but once Gorbacheve came to power. Syria was in a very embarrassing position, first of all, they still needed assistance, but with G in power and the Soviet Union became to fall apart, and ASSAD, the president, was irritated and worried a lot. So where to turn. To the US? That was impossible because of the strong position in the Middle EAst of the US, so China was in a unique position at that moment. And China was a good source, an excellent source, for Assad to obtain technological assistance, so Syria sent its agents to China, saying that, yy Syria was interested in Chinese arms too.