Conversations with Chinese Intelligence Officials

The outbreak of war between Iran and Iraq in September of 1980, a little more than one year after the Chinese withdrawal from Vietnam, presented a golden opportunity, for Chinese arms manufacturers and for the financially-troubled PLA. The Middle East conflict made it possible for the PLA to weather cutbacks in national funding for the military by exploiting new and formerly unexplored avenues of finance. The booming international arms trade first attracted the China's weapons and military equipment producers -- Norinco(China North Industries Corporation) and China Shipbuilding Trading Company(CSSC). But very quickly the PLA recognized the potential for profit in the lucrative new enterprise and was drawn into it through its own company, Poly Technologies Inc.
Poly succeeded not only in generating profits from the sale of arms, but also and more importantly, in keeping those profits within the military. The company also found other ways of taking advantage of China's arms manufacturers for the benefit of the PLA. With the emergence of Poly Technologies, the PLA had gone into business for itself, a new and very rewarding enterprise in a new era of what otherwise would have been diminished expectations for the army.
Even before the conflict began, Iran, Iraq and other Middle Eastern nations came shopping for weapons in China. But the demand for arms increased dramatically in 1980, at the same time that the PLA needed but could not afford new weapons systems for itself. Iran and Iraq began buying billions of dollars in arms from China's weapons makers at a time when the Chinese had begun to turn over the arms manufacturing to private companies to generate large profits. Norinco and CSSC had been established even before the Vietnam War as branches of the State Ordnance Industry Ministry. But during the drive toward modernization and privatization they were transformed into private companies doing business internationally.

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In 1979, even as its soldiers returned from the Vietnam conflict, the PLA found itself for the first time in it's long history suffering at the hands of its friends --the Communist Party -- because of a shift in national priorities.
In the last two months of 1978, as Deng Xiaoping consolidated his power and the national agenda was defined more and more in terms of the achievement of the Four Modernizations --modernization of agriculture, industry, science and technology and national defense.
In the announcement of the Four Modernizations, the PLA saw that defense and expenditures on the army and the military, ranked last on the list of priorities for modernization. They believed that the experience of the Vietnam war might shift the priorities for modernization of national defense from fourth to first or second. After all, the need for modernization had been demonstrated dramatically in Vietnam where a lack of reliable military hardware had cost thousands of lives, unnecessarily, the military believed. The PLA recognized the need for modernization and welcomed it. And within the PLA priority in the modernization program(Guo fan xian dia hua) was given to the Air Force, the Navy and the Second Artillery Corps. The Second Artillery Corps is the Chinese strategic arm and it looks after the strategic missiles aimed at the Soviet Union, the U.S., Japan and other potential enemies. This is an independent force parallel to the Airforce and the Navy.
But the list of priorities for modernization did not change after the Vietnam war. Modernization of the national defense, remained fourth in the list of priorities. One of the reasons for this, the PLA concluded, was due to the rise of Zhao Ziyang within the Communist Party. There had been a slight economic upturn in rural areas where reform had already taken place before 1978. The policies of Zhao, the governor of Sichuan province, where markets had been opened up and the labor force had been given greater freedom, were paying off in increased production. The Chinese began to use the phrase, "If you want to eat rice, go to Mr. Zhao Ziyang"(Yao chi liang, Zhao zi-yang). At the Third Plenary Session of the Communist Party, Zhao himself announced the new drive for the Four Modernizations. Concerned and unhappy military men pointed out that Zhao had no military background and consequently had little sympathy with the PLA.
Deng, on the other hand, came from a military background and was more a champion of the military. But he indicated that his hands were tied since he simply did not have the financial resources requested by the PLA to modernize the Chinese military forces rapidly.
The proposed modernization plan was posited on the assumption that a strong military force would be constructed based on the shoulders of strong industrial, agricultural, technological and scientific sectors of the society.
When the military requested increased funds for modernization, Deng cautioned them to be patient and to await the strengthening of the industrial and agricultural base first. Then it would be their turn. Deng repeatedly reminded the PLA that they needed to practice patience "This was the phrase that we heard constantly at that time," a military staff officer told me. "Wait patiently." In 1980, while the PLA sought desperately to replace depleted supplies of equipment and ordnance that had been used up in the Vietnam war and at the same time undertake the first stages of modernization, the military budget was cut by the State Council.
There was a good deal of discomfort and disappointment about this in the ranks of the military. The PLA had long been accustomed to the idea of "chi huang liang," or "eating imperial rice," which mean that they had previously been given first priority by the Party and traditionally enjoyed the lion's share of national resources. Now, they were pushed from first to fourth in importance to the nation.
The post-Vietnam war period was a time of crisis for the PLA. The military found that talented young people were no longer eager to join the ranks of the PLA because the living conditions in the military were increasingly demanding. The PLA experienced difficulties in quality, quantity and morale of the troops.
But Deng's assessment was that peace would prevail for a time and that the military might had to be constructed atop other strong elements in the economy. So the military must wait or come up with its own methods of finance. But it could not, for the time being, depend upon the state to place it number one in spending priorities.
Deng pointed out that the country was not in good economic condition and consequently the military simply could not be given all the funds they either requested or needed. On the other hand, there was a way out, he advised them. "Support yourself, and do not expect too much from the government, since we have huge deficits."
The PLA was told to provide for itself where it could. And where socialist economics had failed to provide the necessary funds for the military arm of the socialist state, the PLA was required to experiment with capitalist ventures to modernize itself, an irony that was not lost on the leadership of the PLA. One way to for the PLA to acquire funds was to transform some of its own internal departments into profit-making ventures and to thereby generate its own funds for the purchase of arms and supplies. The PLA managed thousands of farms and these were quickly transformed into money-making ventures. In the past they had provided food for the troops. Now the farms and plantations were cultivated with the goal of selling some of their products on the open market to compete with state and private agricultural enterprises.
Prior to 1978, the military was not allowed to carry on any sideline production at all. They could raise crops to feed soldiers, but they were not allowed to get into the business field directly. The reason for this was simple. The PLA had been given a priority in funding by the government and so there was no need to generate its own funds or profits and to compete with state-owned agricultural enterprises. This was so the military could devote time, rather than to production of goods for sale, to political education and military training. Suddenly, this was all changed.
In the quest for profit-making enterprises, military posts along the coast entered into a brisk import-export trade - smuggling -- which in many cases proved to be a unusually profitable.
The landlocked Kunming military region did have one advantage over the coastal regions -- it bordered on Burma and Laos and it was obvious that the most readily available cash crop for the PLA there would be poppies for the production of opium. The commander of the region undertook that venture and quickly generated huge profits for both his region and for the PLA in general. Those who might have been upset by this business in Yunnan province and in Golden Triangle just over the border in Burma and Laos along with mass production of heroin of unusual purity by military personnel, turned a blind eye to the venture chose not to see what was going on. Profits generated in in the Kunming region skyrocketed in the next years, much to the delight of the PLA's General Logistical Department in Beijing.
For the first time since the civil war, the military found itself largely on its own. During the next years, in the towns and villages around military bases, if you went to a small markets in the morning, you would see many new vendors, young men wearing green or blue military trousers and white shirts, selling agricultural products at small stands. Anyone could see that these youthful entrepreneuers were from the military and that they were selling a goods produced on the military farms.
Another and better answer to the financial problems of the PLA was Poly Technologies, which began operations in 1981 and was officially chartered in 1983.
When the war between Iran and Iraq began in 1980, it presented, literally, a golden opportunity for the Chinese military, which was desperately seeking money for modernization. In the first three years of the conflict, between 1980 and 1983 China's arms manufacturers sold $3.6 billion in arms to Iraq and $505 million to Iran. The profits from these sales were enormous and the situation was ideal for China's arms manufacturers, since they found themselves supplying and training both sides. Every day that the war continued meant new profits for China. Following the formation of Poly Technologies in 1983, the Chinese sold Iraq $1.5 billion more in arms and the Iranians purchased $2.5 billion. Despite this brisk in arms, however, the Chinese still lagged far behind the Soviet Union and Western Europe in arming the combatants. While China provided 13 percent of the arms sold to the two nations, Western European nations sold 31 percent and the Soviet Union 29 percent.
"The longer the war, the more fierce it was, the better it was for us," a PLA staff officer told me. "We could not lose in that war." China originaly supported Iraq in the war, then shifted its stance to both sides and finally provided more aid to Iraq.
"Iran was not unhappy with this situation, I can tell you," he said. "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. We provided T59 and T69 tanks then, also. And we supplied Mig 19s and Mig 21s.
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 TU-95, called a `bear' by the west, a `Polar Bear.' China also sold a lot of Silk Worm missiles to both sides. The Silk Work is a ship to ship or shore to ship missile. It performed extremely well, we felt, during the Iranian attacks on Kuwaiti tankers. 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 system, which means it is very vulnerable to electronic jamming. But if you don't have the jamming equipment, China's missiles are god-damned effective, 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 some 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 for firing these missiles.
"And naturally, each side sent pilots to China to learn to fly and China along with experts and technicians to learn to maintain and repair the equipment we sold them. We trained the Iranians and Iraqis in Shing Huandao, that was a kind of a port city, situated on the Bo Hai Sea, 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 in uniform. This is a militarily restricted area. We also trained them in the Southern part of China, on the South China Sea, somewhere near Jian zhiang, we have another place there for training, virtually an island. All of the miltary there was restricted, that was called Ma Shie. 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.
They fought each other with Chinese weapons. The Iranians did particuarly well with Chinese silk worms hitting many tankers attempting to make a run through the strait of Hormuz.
Exocets were sold by Poly to the Iraqis and Chinese technicians trained them in China and they were trained there for the silkworm and for the electronic countermeasures, and the Chinese also trained the naval personnel from both countries to familiarize them to man and operate the missiles and to train them in conventional naval warfare doctrine, and also to train them to use and operate Chinese manufactured frigates and torpedo boats. And China basically selected two training bases for naval personnel from the two countries. The one training base was located in Qing Huan Dao(Qing Huan Island) at Bo Hai Bay on the Bo Hai Sea. The other training facility was on the island called Ma Shie, close to Zhangjiang, which is the site of the headquarters of the Chinese Southern Sea Fleet. The personnel were rotated between the two bases, each side trained in both places. But China made the point of never training the men together at the same place.
Aside from these two, in Shanghai, the PLA Navy, also has a training base for all of the foreign military personnel and technicians. There they are trained in the technical and tactical aspects of naval warfare. The Pakistani friends and men from the Bangledesh Navy and the Royal Thai military personnel were trained in Shanghai. Especially the three frigates the Chinese navy sold to the Thai Royal Navy were manufactured and launched in Shanghai Naval Shipyards and therefore the Royal Thai Naval Personnel, it was handy for them to be trained close to where the ship was manufactured.
Norinco sold MIGS to both sides, but primarily the Iranians and the pilots were trained in China. China also sold two Romeo class submarines, conventional submarines, to Egypt before Poly Technologies was founded. Egypt at the time was China's closest ally in the Middle East. Later, Poly gained the upper hand in providing materials like these to foreign friends. So with larger and larger being generated for Norinco, a private company, the revenue-hungry PLA was getting anxious to have a direct access to this huge source of income.
China was able to clone or reverse engineer or steal the technology from the French Exocet and make a copy and then produced their version, calling it the YJ-82, a missile that was known in the west as the C-801.
In this period of time, the PLA realized that it would be utterly impossible to modernize Chinese forces without the importantion of the latest western military equipment. And they needed an international trading corporation to handle the business for them. Since it was illegal for Chinese military officials in uniform to deal with foreigners, there was a need in this endeavor for the establishment of a special trading company to work as an arm of the PLA to import equipment. The solution to this problem was the formation of Poly Technologies, Inc., which began in 1981 as an import company and rapidly expanded its role to the much more lucrative field of exportation for profit for the PLA, balancing the books by generating huge profits by the sale of arms to be rolled over and used for the purchase of newer western arms.
Any company handling the business of the PLA needed the authorization of the General Staff to handle large importations from capitalist countries. And when profit was generated, the military did not want to see the funds leaving the books and coffers of the PLA and going into the pockets of someone outside the PLA. So the trading company was established. At the same time, the PLA saw the huge profits being generated by CSSC and Norinco through sales in the Middle East and was curious about gnerating profits for the military there, too.
Poly Technologies, Inc., was given assigned a unique position in that it became the only trading corporation authorized to buy and sell arms for the PLA. It could call up arms, in other words, from the PLA inventory in order to sell them abroad if these weapons were ruled nonessential for national defense.
Prior to 1983 the miltary imported arms through Norinco and the profits stayed with that private company and left the PLA.
In 1981 Poly Technologies was formed by three individuals from within the military with solid and respectable connections to both political and military leaders. The office of the company was opened in a suite in the Beijing Hotel near Tianamen Square. The office was small, at first, with less than a dozen employees. And the primary business of the company was arms imports on a small scale. It was not yet given a name but was recognized merely as a military representative working in the business field. The chief executives of the company, the founders, were in fact individuals who were in the miltary, but who dressed each morning in business suits rather than uniforms. But the uniforms, to be sure, were still in their closets for use during special cermenoial occasions.
The founders of the organization were Wang Jun, He Ping, and He Ping Fei. Two years later, a fourth founder, Xie Datong, Joined the group to become the fourth founder. It was at the time simply an office for a group of friends who associated and carried on a small and experimental business. They decided together what to do and then did it. The funds for the enterprise were initially allocated from the General Staff and came originally from the State Planning Commision. Since the allocated mlitary budget is fixed, the money was taken from other accounts and assigned to the new trading company, originally. The State Congress holds meetings to decide how much will be allocated to the military. But they are considered merely a rubber stamp for individuals above them in power in the Central Military Commission(CMC) of the Communist Party. The CMC discussed how much money goes into the military budge and then passes its finding and recommendations to the People's Congress, which invariably approves any requests. The money is then allocated by them to the State planning Commission and from them to the General Staff.
They were drawn from the military. They There was no criteria for selecting the leaders. They had their own criteria of selecting the individuals to found the company. They grew up in the same compound, the families knew each other pretty well, right. And I know you and you know me, and I know you are trustworthy and you know I am. And this is the substantive part of their relationship and unity.l They have similar family backgrounds, so they believe they can trust each other. And each regard the other one as influential, so each is indispensable in building up the company. And that is why the company has been so successful. Of the three founders of the company, in the years before official ranks were assigned in the PLA, Wang Jun was a commander at the regimental level, He Ping-fei at the divisional level. He Ping, the son-in-law of paramount leader Deng Xiaoping, served as the PRC military attache to Washington, D. C.. Wang Jun was on the payroll of the Training Division of PLA Naval Headquarters, but actually went to the office rarely. He Pingfei's rank was equal to that of a one-star general and he worked with the General Staff in charge of procurement. Little is known of Xie Datong's background. But it ws assumed he came from an influential family with a military background. It would have been impossible for him to hold this job without such a background. His background was concealed from lower level workers in the company, but it was known that he had worked at CITIC. Yet it was uncertain what he did before coming to the company. (Eventually Yang Li, daughter of President Yang Shangkun also joined the company).
Only one year after the outbreak of war in the Middle East and the revelation of profits for Norinco, the original compnay began working out of offices in the Beijing Hotel.
Then in 1983 the original founders added a businessman to their ranks and assumed the name of Poly Technologies, Inc., and were chartered under the China International Trust and Investment Corporation(CITIC), a powerful business mnagement group that supervises international business agreements in China. But the relationship of Poly to Citic was merely a very loose formality borderin gon a Charade. Officers in the company told me they never spoke to CITIC officials, were never bothered by them and the only words they exchanged with them had to do with hygiene in the Citic building or the servicing of the elevator. For an enterprise of this scope and power, the three year period for its foundation was considered to be quick in China.
The formation of the company within CITIC corresponded to a change in American policies towards technology and arms sales to the PRC. In the sprig of 1983 Commect Secretary Malcolm Baldridge visited Beijing and notified the Chinese government at that time that China was being assigned a new, less restrictive category of technology transfer considerations in US trade regulations. The following September Defense Secretary Caspar Weinberger visited the PRC and helped arrange further for a closer military relatonship between the US and China. The next June China was granted Foreign Military Sales status at last, in June, 1984, more than five years after the US provided Mark 46 torpedoes to the PRC MFN status by the US and four years after the US began providing intelligence data and cooperation through intelligence gathering in Project 851 to the PRC. Poly Technologies was poised perfectly to take advantage of this new relationship.
The General Staff wanted Poly to roll over profits from arms sales from its inventory, and this ws the primary reason for the founding of the company. But the most important consideration was that they wanted to make sure that everyone obeyed the rules. They also arranged it so that only Poly is entitled to arms imports and arms sales abroad for the PLA. And that means that only Poly can spend the money for the PLA by purchasing supplies abroad. No other company can do that.
There were other cmpanies in China entered into discussions on the new company, they realized what profits were to be made, and they wanted the charter of Poly limited. A lot of people tried to get involved in the business, but they found that they could not.
The structure of the company ws that familes controlled it. He Ping, son in law of Deng, and he married Deng's daughter, Deng Rong, He Pengfei, is son of the late marshall, He Long. And Xie Datong came also from a very influential army family, but it was always uncertain what the family roots were there. But both his parents were influential people. Like Li Peng, although his father died in the 1930s, still he was adopted by Zhou Enlai, and that is how he beame premier in China. Wang Jun, son of Wang Jun, also very powerful in China. The fathers were founders of the PLA and the PRC. They were marshalls and there were only ten marshalls in Chinese history.
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.
Tape 6

Formation of the company. The Central Military Commission at the top, CMC, and below that box the genral 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 oganization, because that made it easier to do business. There is a secret charter that founded the organization. It never involved the name of the personel. It never described them, but only their functions. So in the iniitial development statge, 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.

Although the military wanted to move quickly, this was quick, three years, in China, for movement like this on a large scale. And that is why in order to have a perfect attachment for Poly, it had to be registered under Citic, in order to be approved by the state council. Because basically the military were not supposed to have their own trade companies or enterprises. All trade companies were to be registered under the echelon of the state council. Farms were all right as long as you ate what your grow, but if you sell it that is illegal. But they sold it anyway to generate profits. And that is the time when the military became infolved in smuggling, on Hainan island, the Navy was caught using large transports, LSTs, to transport and ship Japanese cars without paying customs duties. The navy was caught at that time. That was in the late 1980s. They were cxaught red handed, with pants down, using LSTs, the Navy reputation was not good after that. Shipping silkworm missiles to an American comapny and then using an LST to shipping Japanese cars to the Mainland to make a huge profit. Had it been successful this would have been profitable. they were purchased at a good price, and this was the sort of thing that the National Security minsrty had on its mind when it initiated the Shangrila aircraft deal. They wanted to use the carrier to generate profits for themselves, and that is why they purchase d so many cars. No civilian officials would are to go aboard an aircraft carrier, and then you could get it through customs and you could sell it at millions of dollars of profits. But the navy was caught at that time.
The outbreak of the Middle Eastern war came at a time when the PLA itself was concerned about funding the modernization program that was deemed necessary after the problems of the war in Vietnam. other, using Chinese manufactured weapons. The profits from the sale of arms to these two oil rich nations were enormous and the Chiense place no restrictions on the sales.
Idea espoused by Zhou Enlai in 1975, under the slogan of the "four modernizaitons(industry, agriculture, science and technology and defense).
Deng Xiaoping backin power in July 1977, espoused this also. national defense ranked fourth, something that bothered those in the military. By 1980 concerns because of the Vietnam experience, painful and costly.
Military personnel were not allowed to deal with foreigners because of security problems, because of knowledge of inner workings. Profits poured into the coffers of the arms manufacturing companies and to Norinco, the principle arms dealer. They fought each other with Chinese weapons. The Iranians did particuarly well with Chinese Silk Worm missiles hitting many tankers attempting to make a run through the strait of Hormuz.
Norinco sold MIGS to both sides, but primarily the Iranians and the pilots were trained in China. China also sold two Romeo class submarines, conventional submarines to Egypt, since Egypt at the time was probably the closest ally to China in the middle east. This was all before Poly was founded. Later on, Poly gained a hand in providing materials like these to foreign friends. So With more and more profits being generated into Norinco system, the PLA was getting anxious to have a direct access to this huge revenue.
Exocets were sold by Poly to the Iraqis and Chinese trained the Iraqis at basis in China for use of the weapons. The most famous use of tghe weapon came in May of 1987 when two exocets, one of them French and the other Chinese manufactured, hit the USS Stark in the Persian Gulf, killing 37 American sailors. The Chinese used this incident to advertise to customers the effectiveness of the missiles they had cloned from the original friend design. Technicians trained them in China and they were trained there for the silkworm and for the electronic countermeasures, and the Chinese also trained the naval personnel from both countries to familiarize them to man and operate the missiles and to train them in conventional naval warfare doctrine, and also to train them to use and operate Chinese manufactured frigates and torpedo boats. And China basically selected two training bases for naval personnel from the two countries. The one training base was located in Qing Huang Dao(Qing Huan Island) at Bo Hai Bay on the Bo Hai Sea. The other training facility was on the island called Ma Shie, close to Zhangjiang, which is the site of the headquarters of the Chinese Southern Sea Fleet. The personnel were rotated between the two bases, each side trained in both places. But China made the point of never training the men together at the same place.
Aside from these two, in Shanghai, the Navy PLA, also has a training base for all of the foreign military personnel and technicians. There they are trained in the technical and tactical aspects of naval warfare. The Pakistani friends and men from the Bangledesh Navy and the Royal Thai military personnel were trained in Shanghai. Especially the three frigates the Chinese navy sold to the Thai Royal Navy were manufactured and launched in Shanghai Naval Shipyards and therefore the Royal Thai Naval Personnel, it was handy for them to be trained close to where the ship was manufactured.
Norinco sold MIGS to both sides, but primarily the Iranians and the pilots were trained in China. China also sold two Romeo class submarines, conventional submarines to Egypt, since Egypt at the time was probably the closest ally to China in the middle east. This was all before Poly was founded. Later on, Poly gained a hand in providing materials like these to foreign friends. So With more and more profits being generated into Norinco system, the PLA was getting anxious to have a direct access to this huge revenue.
The Chinese Aerospace and Aeronautic ministry, as it is called now. At that time Chinese Aerospace and Aronatuic were separte sold also in the Middle East through their own trading company.
China was able to clone or reverse engineer or steal the technology from the French exocet and made a copy and then produced their version, calling it the YJ 82, in the west it was called C 801. At that time, in 1984, the ministry really wanted to sell the missiles to Iraq in order to generate profits. But, the PLA intervened. They said the PLA Navy wanted the missiles. So, the ministry had no choice but to sell the missiles to the Navy at the price of 0.97 million renminbe each. And later on, Poly Technologies directly sold these missiles to Iraq at a price of 1.2 million US dollars. That is why the Aerospace related defense industries in China were angry. But they could do nothing. And this is one of the rationales for the establishment of Poly Technologies. Because after all, it is only a trading company. The uniformed military could not do business with foreigners, but a trading company could and then the profits would be channeled directly back into the military through the General STaff. Because Poly basically belongs to the General STaff. In doing the arms tracde befcause of the unique position that Poly held, it was never betaten by any domestic and international rivalries in the arms trade. Until, in the middle of the 1980s, the Shangri La deal. This was a humiliating blow to Poly.

POLY TECHNOLOGIES, INC.


The PLA, watching the profits generated by the arms sales, wanted part of the action. But uniformed military personnel in China were strictly forbidden from dealing directly with foreigners, due to fears of breach of security. The solution to this problem was simple -- the foundation, in 1983 of Poly Technologies, Inc., which was formed specifically to buy and sell arms as the exclusive agent of the PLA and then to turn profits over to the General Staff for use by the army.
The company is Poly Technologies, Inc., which was directly financed and controlled by the Army general staff. The individuals who worked for the compnay, through working with the company, I got to know them so well and I got to know everything about them. And how they were paid and what sorts of business scope that they were covering, and so of course I was interested. And so later on...their backgrounds, some of them had been transferred from the Army, some of them had been army officers and still were, but they dressed now in civilian clothes, and they worked now for the Company. Poly was such a famous institution, direclty involved in the arms trade, both important export, of course, almost everyone involved in the world arms trade knows that company. It is the only company in China, that handles the military forces arms importation and exportation. They have their headquarters in Beijing in the CITIC Building.
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.

The founders were He Peng fei, Wang Jun, He Ping. 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 oganization, because that made it easier to do business. There is a secret charter that founded the organization. It never involved the name of the personel. It never described them, but only their functions. So in the initial development statge, 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 re-allocation. 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 bacnk 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 bulding 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 froj foreign firms. We must be there to supervise the negoations 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 is imports and exports. Those are two departments. Who are the heads of thee departments. Other branches, but how are these two branches broken up.
1983, the reason for the founding of the company and the environment under which it is created. There were 100 missiles that Norinco wanted to sell to Iran. And we stepped in. We are the same as the equpment department of the General STaff. We do things for them and they do things for us. Poly does not have to do that, we are the same as the equipment department of the general staff. Once you have to deal with foreigners, then it is Poly Technologies that does the business. Once some domestic issue is involved, the Genral Staff is going to step in. Say, they want to sell missiles to Iran, and the General STaff steps in, and they say, the PLA needs these missiles, then you cannot sell them. Then the PLS buys these missiles from Norinco at an extremely low price, and then we sell them at a high price and make a profit for the PLS. That is why the other companies involved in the business -- that is exactly what happened -- that is why the other companies -- involved in the business, always cherich strong grievances against Poly because we have the advantage. In truth, in formally, Poly is really a branch of the PLA supply department, but officially it is registered under the Citic Group. Unofficailly, behind the lines, it is the supply department of the PLA. Everyone knew that you guys on the elevator going to the seventheenth floor, to our company, you cannot do so without permission. It is not something you do without permission. You just don't knock on our door and open it. Even if you are senior people or ordinary people, they don't know what is going on.
The telephone line between the General STaff and Poly? We don't need that. They have their secret telephone numbers. and we have them. SEcondly, they have direct access to those people's compounds, which is extremely heavily guarded. But some of the individuals that I work with, th9is evening I am going to speak to Yang Shankun, and at first he was just trying to impress me, I thought. I didn't believe him. And then he did it. And he told me, I just drove my car into the compound. And I thought, "My God, you just drove into the compound!" And in fact, he just drove in. The guard saw the plate number, and he didn't look at the face. He just looked at the plate. If you are in the car you are safe. Some of these guys can drive into see Deng Xiaoping whenver they want to. But the foreign minister, if he wants to see Deng, they tell him wait a minute, you have to find out if he is busy or not. Access at any time, and if Mr. Deng is taking a shower he will still interrupt it to see us. I'm 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. When the department was founded, he was promoted to major general with one star. He was both. companies, until Deng Xiaoping personally ordered the sons and daughters of the vip and the military must choose one career or the other, either business or military, that was in 1988. Deng began to be serious about it at that time because of corruption and individuals holding too many titles. In 1987, or 1986, he transferred to the major general, head of the equipment department, and then resumed the psot of general manager of the post(He Ping). Then he had no position in the company, officially, but he was constantly there. Sometimes he is introduced to foreign businessmen as the general manager. But he makes the final decisions on a lot of things. He Ping was deputy prior to that time, and so was Xie Datong. Xie Datong now, they say, He Ping is gone a d he now is the ge;neral manaager, but it is not verified. These are the major individuals in the arms procurement fields, and they work well as a team. TEamwork in Poly was really good. They were all in the same field although they came from different families and they promoted the same things, they had pressures from Norinco, from the sTate Council, which controlled all the Defense industries, and they produced. State Council is civilian, and under it is defnese industries, the Space, CSSC, Norinco group, and the Third Mechanical Ministry, renamed the Chinese Nuclear Energy Ministry, all these are defense oriented, sell goods to foreign countries, but after Poly was founded, military got a hand in this market and generated profits for itself. Poly was the only company authorized or entitled to get direct access to the PLA inventory. Without having to go to the Defense industries for products or items. And not only that, but if the Defense industries had a newly designed product, such as the Exocet, then Poly, could with the help of the General Starff, buya these itsm from the ministries and resell them for a profit. He Ping was on the post since 1988, as general manager. But He Pingfei was influential from behind the scenes. He could order goods from anywhere. and that is why Poly is so powerful today. No other commpany can rival their position. State Council did not like the idea of a trade company that directly represented the military. The state council is supposed toa be the legitimate organization to handle arms exports, and arms industrial production. But it is still a civilian channel. So the Central Military Cpommission is something else.

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. Security clearance for employees? I casme from a good family. And that is what they look for. My father joined the army in 1938, and my mother in 1945. And later on my father was promoted to the major general.
Obviously, before I worked for the company, I was interviewed. By a section chief. They spoke with me in English at first. I know that my English is not perfect at that time. They thought that it was excellent and so they brought me into the company.
What was surprising to you on the inside of the company. When I was trying to get a job with the company, I did know something about it but not in much detail. But during the first couple of days, when I worked for the company, everything sedemed to me so naormal. It seemed just like other business companies. It was a s though we were sometimes signing contacts, making documents, everything was typerwriters and papers and computers and contracts. But t hen day after day as things started to become more familiar to me, I started to discover that it was not like other companies. There was something very unuusal in this company. Because all of a sudden some sort of document would show up and it would be signed by the very top individuals in the country. And ;it was just sitting setting ther eon the tgable and aouwould be passed around for everybody tgo see. These were contracts, in the final stages. But there would be letters of intention, memorandum of understanding. There would be a letter from our own government.
Somehow this would be so stunning. And I went, Oh, gee. And I didn't show my surprise of course. Because if you show your surprise, you would never work for the company. If you get really excited, you shout or you become demonstrative and you stand up, people would say you are stupid. And you would not last long. To stay there, working, you really have to be cynical.
Files. The files were destroyed on a regular basis. They were supposed to be kept for a certain short period of time. But after that, you just threw them away. There was no permanent record of what was going on. The memorandum, the original would be kedpt. Somewhere in China there is an archive, with these individuals names on things, on documents. With all the deals you've made with foreign firms, there are records of these. A lot of people have had their hands in these things.
The business of the company, very simply, is the import and export of weapons for the army.
The airforce wants a plane, and we , the general equipment department asks us how much it will cost, we look into the yarbooks, like Janes publications, to see roughtly 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.
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
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impolications or reverberations of these sales. They were the masters of the combination of domestic needs and the international political environment.
I know personally the reporting echelon from Poly to the Politburo, or to the CMC, they report that directly. When I was working in Poly, almost daily I saw the signatures from Li Peng and Zhao Ziyang, they just signed off on our business. That is the funny part about the business. The funny part about the Chinese arms sales business to international market is that those people who are in the position, like if you are the premier or the genral secretary of the party, you must sign the documents. Because tomorrow, at 8 in the morning, the first thing you see on your desk is a report from Poly or from the General Staff, saying that we want to buy or to sell something from the Middle EAst or from the West, and now we need your signature. These people What they are concerned about at that time, is that they want to stay at their post for as long as they can. They do not want ever to offnd the military, they know that the military is always powerful in China.
When it comes to official reports, nobody is going to stop them. If you are Zhao Ziyang you have to sign. Even though you might not be entirely sure as to what is going on. Although you know so little about what is going on. The people who really know the business, who come up with the ideas of what to do, they were always behind the scenes and there is no way you can stop them. When it comes to the official report, no one is going to stop them. You sign, even though you know so little about what is going on. Behind the scenes are the people who really formulate policy, and there is no way -- believe me -- that you can stop them.
That is the funny part of Poly Technologies. That is why, say, Norinco, if you have a hundred missiles to sell to Iran, and Poly knew that you were ging to generate profits for yourselves, then, ever since Poly was established in 1983, because it was so powerful, and it has the full support of the military and the general staff, and because of the personnel connections, the son in law of this one and the daughter of that one, son of the marshall and daughter of the marshall, they were then extremely powrful, even though these guys are no loner at their posts. They are out of power but they are still in position. See, what I mean is this.
The people who are involved in the decision making process. Sometimes they are a general and sometimes they are civilian. But on the top post, you held the post before, you retired then. That means you no longer hold the post. Right. You know longer go to the official office, but you are still in a position to make the final decision. Like Mr. Deng. He retired from everything but he holds the final say in virtually every decision. This is exactlyu the pattern that the arms trade in China follows. It has nothing to do with loyalty. It is just a common idea that holds together a small circle of people. And they reach an agreement. And they say, all right, if we sell this missile to Saudi Arabia, we make a political gamble, like three or four people, and they ask, all right, but is it going to be politically risky. Somebody will say that it is, but they don't care about that. And besides, they believe, if we sell missiles to Saudi Arabia, then Saudi ARabia's government is going to be more friendly toward China, and then later on we can establish diplomatic relations with Saudi Arabia. That is exactly what was talked about before the decision to sell missiles to Saudi Arabia was made. Se. They already foresaw the political implications of the deal. Not only for money. Not for money alone, of course. Once the agreement was made, they generate a report and put it in a written form. And then it circulates in a small circle at the top. The official channel. The report finally reaches Zhao Ziyang. But the report, what is written on the report, is not the same material that they discussed behind the scehes. They discussed, behind the scenes, the defense modernization drive, now comes to a critical stage, and we are in a critical situation and we are extremely short of funds, and based on the current evaluations, we came to the following conclusions. The best way to generate the funds is to sell the miossiles to certain countries. One of them is Saudia Arabia and one of them is Syria. And what they need, they need something that we don't need. They need something that we want to sell, because we are now outphasing some of the equipment and one of them is ballistic missiles. See Zhao Ziyang was never trained in military aspects at all. He cannot realize the implications, the strategic implications of ballistic missiles, all he knows is the kind of missiles that we have we no longer want to keep. And if we sell them, we are going to generate a lot of money for the PLA. There is no cheaper way to do that. Because you guys no longer need these missiles. So why not sell them?
So the report was ratified. And the decision is already made. So all the PLA is going to do is just to work something out, make sure that the strategic defenses system is shipped off to Saudi Arabia. And the PLA was already committed to the ground maintenance, or installation of this defense system.
Do American military people realize how poer is distribued in China/ No, not really. I don't think so. They are always shown something official, like a military parade. They never draw the conclusion that they may be speaking to someone with or without any ral power. One thing you must know is that they are not shown everything and they do not meet everybody. They meet only those that they need to meet and never any more than that. The more you are involved in a military relationship or a commecrial relationship with the PLA then the more people you meet. And the more you become involved, the more you meet people like me. But still the people you do business with are in civilian clothes. And you also never know where we are going to spend the money that we get from these deals. It is none of your business. But I am still in civilian clothes, I am a company doing business, and that is all you need to know. That is why my company is involved in both export and in import, because they must go hand in hand. What is fantastic about the company is that we seldom keep money. Seldom. Of course we keep it for a certain time before it is turned over. But, the objective is to spend it for the PLA. So, like Norinco, it has one hundred missiles that they want to sell to Iran, right. And the PLA, we can step in, and this is exactly what happened.
The money is used to buy weapons from the US and from other countries. Part of the revenue is kept for ourselves, but the biggest portion goes to the PLS because that is our objective, our reason for being.
Talk about overseas Chinese later on.

Intermarriage in the company. It is kind of a family run business you might say, but that still is not quite accurate. Because it is run by several families. And they are inerchangeable. Almost like the Mafia. You could say that. There are a lot of things in the company, but you cannot understand it. There is a code of silence like in the Media, an agreement of consent, Omerta, I know what you are doing, but I nver ask you. That is what it is. And you know what I am doing, but you never ask me about it. I don't feel comfortable if you ask me too many quyestions. That is what happens inside the company. That is why, when I left the company, nobody seemed to care. You are no longer with us when you go. There are about a half a dozen, no more, that intermarry and run the company. But some of them, although the foreigners tend to think, of Deng Xiaoping and Yang Shankun, that they are the most important leaders. But actually, there are a lot of people from the military families, individuals with careers in the military, whose father's may have been genrals or martials, and they are well entrenched. And they are extremely well informed, and very well informed and influential. Each day, at eight in the morning, they read information that is then forwarded to Deng. They provide a summary to him. What is happening in the world. They get the same information. These are never diplomatic officials, of course. But they are more powerful. These are not the guys you read about in the papers. What they say is extremely business like. That is the bottrom line. They are businessmen. What is the bottom line of business. As to Saudi ARabia. They will write: Saudia Arabia. Critical stage. Need arms. Cannot buy from the US. Fantastic opportunity for us to step in. Then political costs. Financial costs. Yes. Military considerations. Isarel possible response. Appendix one. Israel relationship or ambition for relations with China. How we can make use of that. Conclusion. Israel will remain silent. We can do this. The reports are generated from the head of the state security agency for the army intelligence, they have agfents or spies around the world, of course. Very few people are involved in the final processing of this information. A large number of course are involved in gathering the information. But they read purified information and they purify information, they condense it. They put their ideas, their twist or spin on it. They are then responsible for their anaylsis. The archives for these rports are maintained. On a couple of occsions we saw these reports. They are kept in a small circle of individuals within the families. They then keep it within the families. What are the last names of the families -- six of them. So, they are, this is the perfect background for understanding Poly. If you say it is like the Mafia, then it is. If you use that word, you use it. But I would not use it. This is a small family group with a code of silence, tremendously powe;rful and influential. And the cardianal characteristic of them, of course, heavily comitted.
Heavily committed but to what? But, not at a post. Committed to the modernization of the PLA. These are extremely loyal individuals, you must remember. Loyal to the PLA. The individuals writing the reports, generating them, of course, they know exactly what it is that will attract the attention of these leaders. And those who generate repots, know what the others are thinking and how they think. So in the case of Saudi Arabia, the political risks, costs, Chinese involvement in installation and maintenance were all part of the report. Isarel response, US response, and so on. And then the best way of doing the business, to keep it a secret, that also is part of the report. Possible US response. In order to keep it a secret, the best way of shipping, arrangements, payments, and so on. And how many pepople will beinvolved in the business arrangements, and finally it is stamped top secret. And if you look at the fucking real world, the public world, the Chinese newspapers, the People's Daily, then they talk about something esle.

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.

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 whgere 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 eople 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 politicallly, economically. By using Japan. They are not happy with the way that America performs.l They are not happy. The belive 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 pefrorm 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. Sopme 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 anew 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. Plly can make use of its own profits, when it wishes.
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 miported 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 pers. 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. Personnally 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 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 friends names. But they make a point of not showing these things off in China. They are in control there.
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, ifyou own three cars in Beijing, or you committ 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 extremeley powerful you will be vulnerable to one degree. So whenever there is a trial, against misbehavior of the companyt, not an individual. If you are the boss, and there is a trial, then the influential individual disappears for a time, and a nother individual is put in that post, and this is the individual who is blamed for all the misbheavior. Oncxe 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, thetre is no problem. Som oe fht officers have a telephone list. And we would be a dinner and they would bring a young beaautiful woman. Nobody bothers about that. YOu may not accept this. As long as you are ina a good position, we never look into your pvivate life. These women may have children. They may have husbands also. They are simply service people. They make use of each other. I will oepn 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 wer are interested in. This would occur at some of the hotels in Beijing or Guanzhou. These would be Chinese women, I realize the tate of these individuals. They are interested in Mainland girls, not Taiwan, Thailand, Singapore. That is bullshipt. 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 wer 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 idnvidiaul whould 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, everythihg is pretty cldan, you are not going to change much. But everywhere else we see corruption, bribery, whatever. Why not?
Im 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 sevveral stages. Lowest class, could be enlightened, agriculture class. Once they are enlightened they become educated. Then the become civilized and then they become cycnical. Then there is something beyond that, and that is your break through cynicism, and you develop into reponsiblity people, beyond cycnicism. 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 thir 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 imporatant people in the company are still in 50s and 60xs. Their children are not in company but are eduated. They do not want to make it too obvious. It is like in the army, when it is not obvious.lx You take care of my children and I take care of yours. If I am the Bewijing Commander and you are the Nanjing Commander, we watch over and take care of each others 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 promite 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.
We keep the commision, 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 hve guys in your country doing the same thing.
The Poly, aside from being unique in the field, also looked after impots, 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 airforce 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 huyge delegation from Germany arrived in Beijing. That comapny 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 occsaions, 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, introductons 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 baggled. 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.
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 bacnk 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 bulding 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 froj foreign firms. We must be there to supervise the negoations 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 is 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 whgere 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 eople 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 politicallly, economically. By using Japan. They are not happy with the way that America performs.l They are not happy. The belive 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 pefrorm 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. Sopme 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 anew 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. Plly can make use of its own profits, when it wishes.
What surprised me most at first, when I cxame to the company,w as one day we were talking,a nd I discovered that eveyrone had a miltary backgroun. |And if they didn't they came from miltary familes. Even the women. All were military associated. They were if out of the military, they kept their uniforms in their draers and could put it in. He Ping was also serving in the military. He had been the military attache to WAshington DC. Many people served dual posts, and these were the typical indiviaudls . Once there was a banquet for the National Defense Ministry, on August 1sat, the found day of the army, and there was a banquet in the Great Hall of the People and on those days we would wer uniforms and get acquainted with foreign military attaches to BEuijing. Those were the days when we neded to put on our uniforms. Secnd occasion when there was a defense exhibition, an aeronatucai exhibition, and those wer were also in uniform. Mewetings with the general staff or the genera l political division, we also wore uniforms for those also. Costine National defense(Costind) the abbreviation for the China National defense Science and TEhcnology Commission. So, this was the only time when these people were really, let me put it this way, they were able to put on uniforms.
No high ranking people ever came into the office. Every. And officers of the company had access to the highest individuals in the government, through private Channels. itwas very common to see the signatures of Zhao Ziyang, when a report of arms sales to overseas, you must have the names of the president on the document. And people explained it to us that business must be ratified by those from the time. top. But they can tell you that, telling you is one, thing, then you see suddenly the signature of Zhao or Deng and it surpriese you if you've never seen it before. You know that it has passed through their hands and been personally approvaed and signed. Then you feel in a very special way. \It adds a lot of weight to what you are doing. What you are seeing though is not a signature, it is a seal, a chop, of the invididual. But it lools like the signature, and the secretary may have done it for him, and that would save a lot fo time. That is though a requirement.
How find out about personal vices. Anyone working for the company for a certain period of time, if you are not supitd you know that something is going on. Someone gets a call and you can tell from personal expressinons what is going on. the individual looks very gored and he wants to hang up at anay moment. And later on there would be gossip about that, who has amistress and where she is and who she is. And sometimes his wife would call and ask wehre her husband has been for the past week, when he was coming back from his trip, and of course he hwas been in the office the whole time, but just not going back to his home in the vening. THis was one of the vcovers of the individuals, the higerh ups in the company. It is always soething nice to talk about. They told me, alsok where do you come from. And I told him and he waid, Oh, I thought you were living somehwere else.
I came into contact with all the officials every day. Of curse, we are on the same floor and if I wanted to speak to him directly, I did. He is a nice man. He succeeded He Ping. He succeeded Wang Jing to be general manager. A real gentleman, actually. He speaks perfect English, of course. Very competent man. But he makes no mistakes in his English, with a slight British accent.
The amounts of money didn't surprise me, because I was awre of this from working with the military. What surprised me, was that say when our section chief let alone the people like He Ping, it is always the common procedure for somehwone working for a company in China, if he wants to go on business to a foreign country, he must borrow money from his company, and later on bring back the receipts. But this is never the practice for this coumpany. These people are above that. What struck me, in 1985 when I went to Italy for the first time, this was the first time I went to a foreign country and I felt very excited, indeed very excited. But those peopl,e the other people, my secitn chief, the other day went to west gernamny and in the afternoon we talked about different things and it looks like everything is normal and alal of a sudden he tell s me he is going to Weste Gernamny and he is going alone on business. That was all. I dare not ask other questions. But what surprised me was that his flight left at 8 that night and it was 6:309 and he was still working. And all he took with him was a small suitcase, nothing more, and then he went to West Germany, and this was common life for him. It was part of everyday work for him, like someone going abroad. And people would say one day, Oh I'm tired, I'm going to the Embassy. And then they would say they were just walking over to have their visa approaved. And those people had their conections and they would walk to the Embassy and the next day they would have their visa. See. So simple. Poly didn't need to borrow money. They spent money out of their own pockets. But they did bring back the bills for reimbursement. Then the company paid them cash. And the difference was in someone who has money and someone who hasn't. Different tings. In my case I had to borrow money from the company beause I didn't have the cash, obviously. But for them, bringing up enough foreign notes, with you, is not allowed at the airport in Beijing. and I don't think they brought a lot with them, but they had access to cash and banks in foreign countries. I don't know where they get the money, but I do know that they nver left with a lot of cash. But where abroad do they get their money. The other thing is that they need not borrow money and they still had enough to spend when they arrived in a foreign country.
The end of the party in June 3rd. In China there is a difference between being a party member and being a party true believer. There are a lot of people who are party members in China. But how many of them actually believe in it, that is a serious problem. A lot of people believe, rather, that Party members hip is a ticket, the ticket, to an important career. No more than that. Few people bother to waste time reading Karlm marx or Lenin or even Mao anymore. That is not the case any longer. Party membership is the ticket now to something important, and that is all. That is the sole reason why so many people today struggle for it.
So if the party comes to an end, there will just be another vehicle for these individuals to come to power. Nothing more than that. It, in some cases, it looks like the Republican party today in America. Right. So longas you sign up your name, you are a Republic. But how much to you believe in the dictaes of the party. How much do you believe in the party. I mean, does any one in the Republic party read Abraham Lincoln of Dwight Eisenhower. I don't think so today. I don't think so.
Political conviction is no longer the requirement for an important organization in China. But the ticket is the requirement, and the ticket is the Communist party. And that is too complicated. Yu work hard right, and you develop respect for your superiors and know how to behave yourself and then you are a party member. People from Poly, according to my observation, and something that strikes me after working for the company was that a lot of people had their own private cars. And others had their own cars but they did not own them. They would have cars driven by a chauffer even, and then they would have their own cars. And all the cars were registered as a military vehicle, and that means that they have a white license plate. And all the cars belonging to the company have a white plate. And that is unique for a company at citic, but still this is what they have there. The car you have can be registered as a military car and once you have a white plate on you are driving a military vehicle, then your kind of plate, is free from police interruptions, for the most part, comparatively speaking, military behicles are relatively safe. And the public security bureau has very strict control about car egistrations and if you do not pay a certain fee you are not allowed to own the car, but once you have an army plate you have no problems. No problem.
There were no privileges in the company that you or other individuals didn't nedcessarily have before they came into the company. But still, you had to meet certain requirements when you came into the compamny. They must have looked into my military background. My personal military background, where i went to school and this convinced them that I was the woman they were looking for.
Difficulties in Poly. Very very few. In our company we have strict lines. Your business is yours. I never go into your area. But it goes the other way around, too. My businessa I handle and you are not supposed to get involved in my sbusiness, too. Sometimes I make my own contracts, look after a certain area for which I am solely responsible. If I am going to Britain, it is my responsiblity and I will go. In aontoerh company it would be different. There are a lot of people who are not connected with what is going on, but because of their personal connections they want to be included into the trip, into what is going on. It was never the case in my company. Of course there are exceptions. My trip to Britain, for exacmple, was one of the exceptions. Solely, purely, business oriented.
If you sell the DF# missiles to sAudi Arabia, people from one section were not to ask questions about that. Who cares, as long as you generate enough profit and that is good for the country and that is good for the company, and what is good for the company is good for all of us.
|Relationship between Norinco and Poly. What can one do that the other cannot. In certain areas Plly ios the most powerful. Restrictions on Norinco. Who is Norinco. They are separte companies. Norinco does not belong to the army, difference number one. Difference number two is that Norinco belongs to the ordnance department of the State Council, so they are able to have the excess of all the conventional weapons manufactured but not yet provided to the military service. And only if even then, they are, theortically speaking, they are entitled to that access, but they are restricted. Poly often cuts them behind their back. But, Norinco was the original starter in the arms export business. And later on, once the Army found out selling arms could be a very profitable benture, once the army decided to get its hands into the arms trade business, then Norinco was no match for them. For some of the missiles, that were to be sold to Iran, and Poly came up with the idea and they told the General STaff, and the General Staff told Norinco, all right, the Army wants the missiles, and they said, what for and the Army said it is none of your business. So they have to sell the arms to the general staff at an extremely low price and the PLA purchase level. And, later on, these missiles were sold by Poly. China Precision Import and Export Corporation, which sells the M Series Ballistic Missiles. Is this true? There is another understanding that needs to be made here. You cannot simply rely on published facts and figures. You lack a bsic understanding of the entire defense system. Precision Corporation is an affiliate organization of Poly Technologies. For some of the things that Poly does not want to get deeply involved in, either due to the consideration of its reputation or for whatever reason, it redirects to Norinco and to Precision, but not as much as it does to Precision, which is more than Norinco. Machinery is an affiliated arms trade division of Poly and so is Catic. The other day I told you the admirals were caught in selling missiles to the US. But if they did that correctly in getting permission from Poly and the General STaff in the first place, then there is no problem. So who runs China Precision Machinery IMport and Export. Not the same family members as Poly. If you go to Precision. That is in a large building but they occupy only one floor. They are affiliated also to the Aeronautic and Aerospecace ministery. But their primary funciton is to import machinery. The only reason why they got involved in the arms trade businessis because of the name. Machinery, that means a lot of things. It could be basically that. Everyone knows that this is a good place to cover some of the deals in the arms trade. And it is not the only company that does business for Poly or with the approval of Poly. But also other companies. There are sseveral others too that work very closely with Poly. But on the other hand, these companies have a connection with Norinco too. Actually, Norinco and Poly are the two big companies. While under each echelon there are individual affiliated groups or trading companies. Does that make sense(no). Only in arms trading business. If you go to the head of these corporations, you never see anything unusual. theyu are exactly the civilian trade companies, except that there is always what we call Arms Items Office. It is a division, actually, you see the lable. Arms Items Division, that would be the direct translation of Jin Pin Bo. That means that these people are involved in the arms trade. And these people, even in those affiliated companies, enjoy priveleges. That means that they only report direclty to the boss. And.

Their children intermarried? Don't know. He Ping, and Deng Xiaoping's graddaughter, is too young to marry. She is now in medical school, studhing here in the US. But she is in her early 20s, and perhaps a husband will be chosen for her. What we call the Prince Party, is what we are talking about here(in Chinese....). That means the group of sons and daughters of the late marshalls and the state founders, they are influential people, and they are already important in Chinese society. And they have succeeded in making connections and working relationships among themselvers, so as to extend their influence into other fields of Chinese life. They will, they expect, finally take contyrol of China and succeed their fathers. They are working very hard on that right now. Actually, Chen Yun's son, his name is Chen Yuan, he is the deputy chairman of the People's Bank in China, and Mr. Song Renchung's daughter is also an influential figure in Chinese politics. They came to Los Angeles, about a month ago, and their purpose to come here, was to actually, they had their own houses in Los Angeles, and they telephoned some democracy leaders from China here, and the names were mentioned during the movement and now they are in exile. And the Prince Party members came here to talk to them about the future of China. They want to form an understanding and cooperation with the democratic movement in the US. For what purpose? To gain some solidarity with the people in exile so as to back up their political influence here. Then when they are back in China, they can build on this, going into the power grabbing process, while still enjoying the support of the overseas Chinese. So this is killing two birds with one stone. Not the rabble, like Cai Ling and Wuer Kaishi, they are just bullshitters and nobody trusts them and they are too young. I am talking about people who held important positions before they fled China -- like Chen Yizhi. Those people who are in the middle layer of the democracy movement. They used to be the think tank leaders working for Zhao Ziyang before he was overthrown. These individuals have a profound understanding ofr the Chinese political structure. Every Chinese in the US understands the term, "Prince Party." But the Americans never write about it, I am (Hai Zidang), prince party.



The manpower losses were considered great but not significant, ironic. Both in terms of personnel and in supplies. The biggest loss, naturally, was the loss of prestige, the weaknesses of the PLA was exposed, in terms of discipline and disobedience.
Exocets were sold by Poly to the Iraqis and Chinese technicicnas trained them in China and they were trained there for the silkworm and for the electronic countermeasures, and the Chinese also trained the naval personnel from both countries to familiarize them to man and operate the missiles and to train them in conventional naval warfare doctrine, and also to train them to use and operate Chinese manufactured frigates and torpedo boats. And China basically selected two training bases for naval personnel from the two countries. The one training base was located in Qing Huang Dao(Qing Huan Island) at Bo Hai Bay on the Bo Hai Sea. The other training facility was on the island called Ma Shie, close to Zhangjiang, which is the site of the headquarters of the Chinese Southern Sea Fleet. The personnel were rotated between the two bases, each side trained in both places. But China made the point of never training the men together at the same place.
Aside from these two, in Shanghai, the Navy PLA, also has a training base for all of the foreign military personnel and technicians. There they are trained in the technical and tactical aspects of naval warfare. The Pakistani friends and men from the Bangledesh Navy and the Royal Thai military personnel were trained in Shanghai. Especially the three frigates the Chinese navy sold to the Thai Royal Navy were manufactured and launched in Shanghai Naval Shipyards and therefore the Royal Thai Naval Personnel, it was handy for them to be trained close to where the ship was manufactured.
Norinco sold MIGS to both disde, but primarily the Iranians and the pilots were trained in China. China also sold two Romeo class submarines, conventional submarines to Egypt, since Egypt at the time was probably the closest ally to China in the middle east. This was all before Poly was founded. Later on, Poly gained a hand in providing materials like these to foreign friends. So With more and more profits being generated into Norinco system, the PLA was getting anxious to have a direct access to this huge revenue.
The Chinese Aerospace and Aeurnautic ministry, as it is called now(then it was called YJ-82). At that time Chinese Aerospace and Aronatuic were separte?)
China was able to clone or reverse engineer or steal the technology from the Frenchy exocet and made a copy and then produced their version, calling it the YJ 82, in the west it was called C 801. At that time, in 1984, the ministry really wanted to sell the missiles to Iraq in order to generate profits. But, the PLA intervened. They said the PLA Navy wanted the missiles. So, the ministry had no choice but to sell the missiles to the Navy at the price of 0.97 million renminbe each. And later on, Poly Technologies directly sold these missiles to Iraq at a price of 1.2 million US dollars. That is why the Aerospace related defense industries in China were angry. But they could do nothing. And this is one of the rationales for the establishment of Poly Technologies. Because after all, it is only a trading company. The uniformed military could not do business with foreigners, but a trading company could and then the profits would be channeled directly back into the military through the General STaff. Because Poly basically belongs to the General STaff. In doing the arms tracde befcause of the unique position that Poly held, it was never betaten by any domestic and international rivalries in the arms trade. Until, in the middle of the 1980s, the Shangri La deal. This was a humiliating blow to Poly.
No high ranking people ever came into the office. Every. And officers of the company had access to the highest individuals in the government, through private Channels. itwas very common to see the signatures of Zhao Ziyang, when a report of arms sales to overseas, you must have the names of the president on the document. And people explained it to us that business must be ratified by those from the time. top. But they can tell you that, telling you is one, thing, then you see suddenly the signature of Zhao or Deng and it surpriese you if you've never seen it before. You know that it has passed through their hands and been personally approvaed and signed. Then you feel in a very special way. \It adds a lot of weight to what you are doing. What you are seeing though is not a signature, it is a seal, a chop, of the invididual. But it lools like the signature, and the secretary may have done it for him, and that would save a lot fo time. That is though a requirement.
How find out about personal vices. Anyone working for the company for a certain period of time, if you are not supitd you know that something is going on. Someone gets a call and you can tell from personal expressinons what is going on. the individual looks very gored and he wants to hang up at anay moment. And later on there would be gossip about that, who has amistress and where she is and who she is. And sometimes his wife would call and ask wehre her husband has been for the past week, when he was coming back from his trip, and of course he hwas been in the office the whole time, but just not going back to his home in the vening. THis was one of the vcovers of the individuals, the higerh ups in the company. It is always soething nice to talk about. They told me, alsok where do you come from. And I told him and he waid, Oh, I thought you were living somehwere else.
I came into contact with all the officials every day. Of curse, we are on the same floor and if I wanted to speak to him directly, I did. He is a nice man. He succeeded He Ping. He succeeded Wang Jing to be general manager. A real gentleman, actually. He speaks perfect English, of course. Very competent man. But he makes no mistakes in his English, with a slight British accent.
The amounts of money didn't surprise me, because I was awre of this from working with the military. What surprised me, was that say when our section chief let alone the people like He Ping, it is always the common procedure for somehwone working for a company in China, if he wants to go on business to a foreign country, he must borrow money from his company, and later on bring back the receipts. But this is never the practice for this coumpany. These people are above that. What struck me, in 1985 when I went to Italy for the first time, this was the first time I went to a foreign country and I felt very excited, indeed very excited. But those peopl,e the other people, my secitn chief, the other day went to west gernamny and in the afternoon we talked about different things and it looks like everything is normal and alal of a sudden he tell s me he is going to Weste Gernamny and he is going alone on business. That was all. I dare not ask other questions. But what surprised me was that his flight left at 8 that night and it was 6:309 and he was still working. And all he took with him was a small suitcase, nothing more, and then he went to West Germany, and this was common life for him. It was part of everyday work for him, like someone going abroad. And people would say one day, Oh I'm tired, I'm going to the Embassy. And then they would say they were just walking over to have their visa approaved. And those people had their conections and they would walk to the Embassy and the next day they would have their visa. See. So simple. Poly didn't need to borrow money. They spent money out of their own pockets. But they did bring back the bills for reimbursement. Then the company paid them cash. And the difference was in someone who has money and someone who hasn't. Different tings. In my case I had to borrow money from the company beause I didn't have the cash, obviously. But for them, bringing up enough foreign notes, with you, is not allowed at the airport in Beijing. and I don't think they brought a lot with them, but they had access to cash and banks in foreign countries. I don't know where they get the money, but I do know that they nver left with a lot of cash. But where abroad do they get their money. The other thing is that they need not borrow money and they still had enough to spend when they arrived in a foreign country.
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.
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 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 oganization, because that made it easier to do business. There is a secret charter that founded the organization. It never involved the name of the personel. It never described them, but only their functions. So in the iniitial development statge, 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.

What was surprising to you on the inside of the company. When I was trying to get a job with the company, I did know something about it but not in much detail. But during the first couple of days, when I worked for the company, everything sedemed to me so naormal. It seemed just like other business companies. It was a s though we were sometimes signing contacts, making documents, everything was typerwriters and papers and computers and contracts. But t hen day after day as things started to become more familiar to me, I started to discover that it was not like other companies. There was something very unuusal in this company. Because all of a sudden some sort of document would show up and it would be signed by the very top individuals in the country. And ;it was just sitting setting ther eon the tgable and aouwould be passed around for everybody tgo see. These were contracts, in the final stages. But there would be letters of intention, memorandum of understanding. There would be a letter from our own government.
Somehow this would be so stunning. And I went, Oh, gee. And I didn't show my surprise of course. Because if you show your surprise, you would never work for the company. If you get really excited, you shout or you become demonstrative and you stand up, people would say you are stupid. And you would not last long. To stay there, working, you really have to be cynical.
Files. The files were destroyed on a regular basis. They were supposed to be kept for a certain short period of time. But after that, you just threw them away. There was no permanent record of what was going on. The memorandum, the original would be kedpt. Somewhere in China there is an archive, with these individuals names on things, on documents. With all the deals you've made with foreign firms, there are records of these. A lot of people have had their hands in these things.
The business of the company, very simply, is the import and export of weapons for the army.
The airforce wants a plane, and we , the general equipment department asks us how much it will cost, we look into the yarbooks, like Janes publications, to see roughtly 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.

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.
I know personally the reporting echelon from Poly to the Politburo, or to the CCMC, they report that directly. When I was working in Poly, almost daily I saw the signatures from Li Peng and Zhao Ziyang, they just signed off on our business. That is the funny part about the business. The funny part about the Chinese arms sales business to international market is that those people who are in the position, like if you are the premier or the genral secretary of the party, you must sign the documents. Because tomorrow, at 8 in the morning, the first thing you see on your desk is a report from Poly or from the General Staff, saying that we want to buy or to sell something from the Middle EAst or from the West, and now we need your signature. These people What they are concerned about at that time, is that they want to stay at their post for as long as they can. They do not want ever to offnd the military, they know that the military is always powerful in China.
When it comes to official reports, nobody is going to stop them. If you are Zhao Ziyang you have to sign. Even though you might not be entirely sure as to what is going on. Although you know so little about what is going on. The people who really know the business, who come up with the ideas of what to do, they were always behind the scenes and there is no way you can stop them. When it comes to the official report, no one is going to stop them. You sign, even though you know so little about what is going on. Behind the scenes are the people who really formulate policy, and there is no way -- believe me -- that you can stop them.
1983, the reason for the founding of the company and the environment under which it is created. There were 100 missiles that Norinco wanted to sell to Iran. And we stepped in. We are the same as the equpment department of the General STaff. We do things for them and they do things for us. Poly does not have to do that, we are the same as the equipment department of the general staff. Once you have to deal with foreigners, then it is Poly Technologies that does the business. Once some domestic issue is involved, the Genral Staff is going to step in. Say, they want to sell missiles to Iran, and the General STaff steps in, and they say, the PLA needs these missiles, then you cannot sell them. Then the PLS buys these missiles from Norinco at an extremely low price, and then we sell them at a high price and make a profit for the PLS. That is why the other companies involved in the business -- that is exactly what happened -- that is why the other companies -- involved in the business, always cherich strong grievances against Poly because we have the advantage. In truth, in formally, Poly is really a branch of the PLA supply department, but officially it is registered under the Citic Group. Unofficailly, behind the lines, it is the supply department of the PLA. Everyone knew that you guys on the elevator going to the seventheenth floor, to our company, you cannot do so without permission. It is not something you do without permission. You just don't knock on our door and open it. Even if you are senior people or ordinary people, they don't know what is going on.
The telephone line between the General STaff and Poly? We don't need that. They have their secret telephone numbers. and we have them. SEcondly, they have direct access to those people's compounds, which is extremely heavily guarded. But some of the individuals that I work with, th9is evening I am going to speak to Yang Shankun, and at first he was just trying to impress me, I thought. I didn't believe him. And then he did it. And he told me, I just drove my car into the compound. And I thought, "My God, you just drove into the compound!" And in fact, he just drove in. The guard saw the plate number, and he didn't look at the face. He just looked at the plate. If you are in the car you are safe. Some of these guys can drive into see Deng Xiaoping whenver they want to. But the foreign minister, if he wants to see Deng, they tell him wait a minute, you have to find out if he is busy or not. Access at any time, and if Mr. Deng is taking a shower he will still interrupt it to see us.
Fourth founder of Poly Technologies. The fourth Founder, is...original were Wang Jun, He Pengfei and He Ping, and the fourth He Datong. They were all drawn from the military. They There was no criteria for selecting the leaders. They had their own criteria of selecting the individuals to found the company. They grew up in the same compound, the families knew each other pretty well, right. And I know you and you know me, and I know you are trustworthy and you know I am. And this is the substantive part of their relationship and unity.l They have similar family backgrounds, so they believe they can trust each other. And each regard the other one as influential, so each is indispensable in building up the company. And that is why the company has been so successful, in achieving the support of the military.
Structure of the Company.The familes in control, He Ping, son in law of Deng, and he married Deng's daughter, Deng Rong, He Pengfei, is son of the late marshall, He Long. And He Datong came also from a very influential army family, but it was always uncertain what the family roots were there. But both his parents were influential people. Like Li Peng, although his father died in the 1930s, still he was adopted by Zhou Enlai, and that is how he beame premier in China. Wang Jun, son of Wang Jun, also very powerful in China. The fathers were founders of the PLA and the PRC. They were marshalls and there were only ten marshalls in Chinese history.
Their children intermarried? Don't know. He Ping, and Deng Xiaoping's graddaughter, is too young to marry. She is now in medical school, studhing here in the US. But she is in her early 20s, and perhaps a husband will be chosen for her. What we call the Prince Party, is what we are talking about here(in Chinese....). That means the group of sons and daughters of the late marshalls and the state founders, they are influential people, and they are already important in Chinese society. And they have succeeded in making connections and working relationships among themselvers, so as to extend their influence into other fields of Chinese life. They will, they expect, finally take contyrol of China and succeed their fathers. They are working very hard on that right now. Actually, Chen Yun's son, his name is Chen Yuan, he is the deputy chairman of the People's Bank in China, and Mr. Song Renchung's daughter is also an influential figure in Chinese politics. They came to Los Angeles, about a month ago, and their purpose to come here, was to actually, they had their own houses in Los Angeles, and they telephoned some democracy leaders from China here, and the names were mentioned during the movement and now they are in exile. And the Prince Party members came here to talk to them about the future of China. They want to form an understanding and cooperation with the democratic movement in the US. For what purpose? To gain some solidarity with the people in exile so as to back up their political influence here. Then when they are back in China, they can build on this, going into the power grabbing process, while still enjoying the support of the overseas Chinese. So this is killing two birds with one stone. Not the rabble, like Cai Ling and Wuer Kaishi, they are just bullshitters and nobody trusts them and they are too young. I am talking about people who held important positions before they fled China -- like Chen Yizhi. Those people who are in the middle layer of the democracy movement. They used to be the think tank leaders working for Zhao Ziyang before he was overthrown. These individuals have a profound understanding ofr the Chinese political structure. Every Chinese in the US understands the term, "Prince Party." But the Americans never write about it, I am (Hai Zidang), prince party.



Note on the Four Modernizations
The military formed a gorup that made a visit to Shenzhen and aGuangdon, and one of them having gone there and seeing the reforms there in the new economic zone, some were moved to tears and some even cried, Long Live Deng Xiaoping. Locked into the course of economic reform without changes in 100 years. Laterst Politburo meeting, the only criteria to determine whether methods used are capitalist or socilaist is to see if they suit the fundamental interesxts of the whole country. the only way to make progresss in socialism is through economic reform. Relative to Yunbnan, military had adapted practical method, paid little attention to whether a socialist or capitalist doctrine, this is exactly what Deng had inn mmind when he first proposed what the army had in mind when he proposed that the Army adapt this method, and won against the hard liners, he has firm support in the military which has been his suporters since 1984