Monday, June 27, 2011

Conversations With Chinese Intelligence Officials

Tape 16

The French couple who helped the Chinese arms deals. They had worked for the French Aerospatiale for about five to six years, starting in late 1982. Man and woman worked in the same unit, and they belonged to the Signal Corps of the PLA, an independent organization, but later on the corps was incorporated into the general staff, and now it is a department of the PLA. The man's name is Mr. Wang and his wife name is Mrs. Wang, but her last name is Li. Influential couple, heavily involved in the French deals with the PLA.

The signal corps had some of the first deals with the French. Before he retired, Wang was promoted to the rank of regimental commander. That is the rank of major, two ranks are around the same level. But at that time he wanted to be promoted further, but the chances were not good for him. So, he thought seriously of retiring, but he was not permitted to do so. Later on he became more and more involved in foreign negotiations, not only with the French but with the British also, especially when it came to some of the communication equipment, that was his specialty, so he was constantly involved in technical discussions and evaluations of this sort, including the deal from the air force and the navy. In terms of the communication field, the place that he was working for was high level, technologically speaking. He was very good at communications and signal transmissions. Later on the French, while they were dealing with the Chinese military, the air force or the navy, this guy’s name came kept coming up. And so they knew he was important and they discovered also that he was a well connected guy in the military, he was from a Chinese senior family but not military family. I am not sure what his family was about, but definitely not military. He refused to talk more about it, and so no one really knew. I don’t know for sure how the French recruited him, but all of a sudden he became very interested in the French. He spoke some French, too, and taught himself, and so did his wife. In 1983 the couple decided to really help the French make their deals in Beijing. They were well connected and well informed, and they knew exactly what sort of equipment the military was looking for and what the details of their budget was. Now this was critical information. For foreign businessmen in Beijing. He was able to provide all of this inside information to the French. So the French began to cooperate with him while he was still in the service, initially. He was very intimately involved with the French attempts to make their sales in Beijing. When there was commercial discussion, technical evaluations, discussions based on French firms in the equipment field, this couple constantly showed up. So, that was in 1983, they decided to retire from the military, and then they had to start looking for their own jobs in the civilian field. So the French came forward at that time. The French made a proposal to them. They said, "We want to hire you and to let you stay in Beijing as consultants for us." The guy was reluctant initially, because at that time the reform atmosphere was not very favorable, especially for people who just retired from the military, and if you worked for foreigners, you were in trouble, at least you are very suspicious. So the guy decided to go to France and to tour the facilities of French Aerospatiale and to gain some firsthand experience with the company. The French agreed to this, and the couple obtained their passport and visa, and they flew to Paris, and stayed there for about one year, or a little longer. And during their stay in Paris, their daughter and son were transferred to France and were admitted to French universities. And the children still today are there. So, starting about 1985, when China first held the defense exhibition show, what was we call the Asian Asiandex, and the first was held in the mid 1980s. And that was the time -- but before that show, the couple moved back to Beijing and moved into an apartment. And later on they just stayed. They did not stay in a hotel, they still had their own homes in Beijing, but they were heavily committed now to the French and promoting deals for the French.

The first time I met him was in 1986. I was introduced to him them. And he was unusually cordial. he was well connected with everyone from Poly and it seemed to me that everyone knew him. So in case there was one new individual that he didn't know, that individual would be introduced. Everyone had to know him. And he was always very busy touring all the stands on the French side, the French and the British were always side by side in these shows. It was held at the China Exhibition Center, newly built.(held at the China exhibition center) and so he was very busy traveling around that day, a very pretty day and a lot of foreign guests and he was busy traveling around introducing VIPs to the people, so it was he was pretty successful that time. But whenever the generals came from the air force or the admirals from the Navy came, he was constantly present. I don't know for what. But on a couple of occasions when I was with General Lin and the Admiral, and I traveled with them and interpreted for them ,too, he was around. He was always willing to pay for dinner and this kind of thing. And he was always asking, "Oh, and where is the general going later." It was already 11 pm, and he kept glancing at his watch, and this sort of thing. And the personal assistant to the admiral, his staff officer, said, "Well, they have nowhere to go and they don't know where they will eat." So he invited us out for dinner and took us to the Great Wall Hotel, which was close to the exhibition center, several kilometers away, and we had some very nice dinners, sometimes lunch, there, in the great wall hotel, very luxurious dinners. Of course, it was always his treat. He paid. And he smoked, always very nice Chinese cigarettes, his famous brand was Red Pagoda, Hong Tashan, Red Pagoda Mountain, I noticed that because I think he did it for show purposes. He just sat side by side with the admiral and with the generals of the air force, and he seemed to advertise, "You see, I'm still patriotic. I refuse to smoke foreign imported cigarettes, these are the ones I prefer, despite the fact that I stay in France and I work for the French. I still smoke Chinese cigarettes. Only he smoked them. He wore stylish, grey western business suits and silk ties. Beyond that there was nothing unusual about him. And his wife wore god wire-rimmed glasses, she looked like a technician, very severe. And she was, of course. And he just said, they talked about friendship always first. They knew each other well. "How is your son," he asked. "My son is in France, too." And they know each other, and so on, and then they would toast their children, to the general, to the admiral. And finally, just as the dinner was ending, or at least near the end, then he would bring up business. And he would say, all right, this time the French have this or that, and his presentations were wonderful. He would speak about his children and then in the same breath bring up the French had superb, the thermal imaging system, and so on, and he said, I just spoke with them and they will reduce the price for you, they are making a point of it. This is a good deal. the generals of course were not very well educated, and once they heard something like that, then they were interested. So they are, really, is that the case? Make, sure. Don't help the French put an unfavorable price on us. You are the guy who knows the bottom line. So don't deceive us. And he said, You can count on me. No problem. But of course I knew what he was doing, every time he talked he was advocating business for the French. My God, if he wasn't valuable to the French, they wouldn't pay him the way they did. He lived in an apartment in Beijing in the signal building. A compound. The signal corps, they had their own individual assigned apartments. He knew where the weak points of the French were and where the weak points of the Chinese were too and that is why he was successful. I talked to him and we talked about business. He talked of Poly and asked if I was happy with the work and so on. what could I say on an occasion that is official. I found out more about him when I talked to staff officer of the admiral. He was on very good terms with the guy, and I asked about him. And he said, "Oh, Mr. Li. Very helpful. He travels back and forth all the time. Whenever there is an important occasion he goes from Paris to Beijing. He has a citizenship of France. He is a permanent resident of France and now his children are there. I asked what was so special about him. They said, Don't worry. He has money. He pays for nothing out of his own pocket. The French pay for everything. I saw what he was then. They got between the sides in the negotiations. If he had a lot of money, and I believe that he did, then he made a point not to show it off. The cigarettes were a case in point. Whenever he smoked, he smoked maybe half an inch from the cigarette, just the end, and then put it out. He was a chain smoker, but only smoked the ends of the cigarettes. He was medium sized, not good looking at all, really, dark skinned, tan, not very masculine.

There was a hotel on the way to the Great Wall Hotel, and there is an emergency first aid station on the downstairs, with doctors and nurses on duty, because the aged leaders some there, and they want to make sure they have no heart attack. Standard army procedure for VIPs. Around the clock medical services. A swimming pool, sauna, bowling, pool, massage rooms and private rooms, a night club, disco and so on the way out to the Great Wall, on the right hand side of the road.

The VIPs from the state leaders, they very often spend the night here. It is just for fun. It looks from the outside and inside like a hospital. it is not open to the public. It was, it seems, at one time, a hotel or a hospital for the aged people, a retirement center.

The compound for the American friends. I drove out there one time with the admiral, and Mr. Lao Yu, a colonel, and he was from the armaments department of the general staff. First we went to the FAB, Foreign affairs bureau of the National defense ministry, and we talked with the British attaché and made arrangements for the delegations trip to England. But prior to that they need to go to the US. This was in 1985. So, later on, they said, come with us, we need to go some place first to make arrangements. So we drove from the compound to somewhere else in Beijing, in the Northwestern section. A large compound with high walls, very high. Red brick. But painted, brick wall. For a private residence, unusually high. The driver parked, and we knocked on the gate. Parked in an alley outside. and there was a heavy door, when it opened it made a lot of noise, groaning. A group of buildings for one family. We pressed the bell, this was the chief of aviation of the navy, and Mr. Luo the colonel were from the general staff. We rank the bell, and the bell was outside. A guy showed up, asked a few questions and we went in. Very big place. We walked a distance and then went into another section of the compound. Down a long corridor, then several more turns. There were plants and trees along the corridor. Inside the building it was air conditioned, and the furniture was traditional Chinese, but expensive. there were two individual there, in their early fifties, bald, and very handsome. In white shirts, to meet us. They were on good terms with the Colonel, on a first name basis. But Luo was the son of the late national defense minister. Luo Ruiqing, his sons name Luo Yu, a colonel. And they shook hands. Very friendly, I noticed right away. Very familiar. they asked about each other’s families. The guy who opened the gate served tea. There were no women around. Mr. Hu spoke perfect Beijing dialect, standard mandarin and not Beijing dialect. They said, when they sat down, small talk, and they said all was well. they asked about the trip. Hu said he would make all the arrangements in the US. He was coming to the US to visit Sikorsky and later on they bought Sikorsky gunships from them. I don't know where they are. China bought a couple of Blackhawks from them, gunships. They asked about the trip and all the arrangements were made. They asked who they wanted to meet, they named senior officials from the company, and asked about any other companies. Very straightforward. They mentioned. Magnavox in Los Angeles, said they wanted to meet officials, they produced (unclear) and (unclear) and ITT and (unclear), located also in Los Angeles. That is where we bought our radar from. they initiated the meeting obviously. Six or seven were on the trip and the Admiral was the assistant, but this colonel was more senior than the admiral for a peculiar reason. They introduced the admiral who would be on the trip. they wanted to know the details, numbers of people and so on. Later on, we knew the Shangri La deal was made through these individuals. American friends as well as go betweens. Another, third individual came in later, and he was asked about the states, and this individual acted very casual. We didn't stay very long and they asked if there was any change of schedule for us to get into touch with them. We talked about them later in the car, we were told that they were "our most trusted friends" in the US. And the Admiral said, "I thought they were Chinese." And Mr. Lao said, of course they are Chinese, but they are also American citizens. and they are loyal. And he asked, "Why are you telling the purpose of our trip to these guys. "They are our friends. He said. They are our best friends.

I learned that they were not party members. And they were not need for that. They were more loyal than party members, more communist than the communist party. They believed in the cause, in the country. When they were talking, I looked into their eyes. I was curious, I kept watching his eyes. Everything was businesslike. He was cold. They all were cold. And confident. And affluent. They were in a position to help and they were eager to help. They asked cold and dispassionate questions.

This is the point where I had to trust my instinct. I could tell who was a go between and who was behind the scenes. These guys were behind the scenes. Very influential. they could arrange meetings with anyone. later on, think about the Shangri La deal. It was made with the assistance of these people. They had access to power and money in America. Mr. Lao is still powerful today, because of his connections. Still at the top. His father was the first defense minister of China. Suffered a lot during the cultural revolution. Later died in West Germany. After he was rehabilitated, his leg was broken during his incarceration, he was ill and he stayed in the general PLA hospital in Beijing, doctors and nurses personally attacked him, females kicked him the private parts, the nurses, they were more cruel than anyone else. They kicked him, do you apologize, and they would kick him. this was on the third floor where he stayed. at the end of the corridor was a window. This general could no longer endure this pain and humiliation, he climbed out the window and jumped, breaking his leg, but surviving. he went to west Germany for treatment and he died there. His remains were shipped back to China and the funeral was held there for him. Sad story. That is why his son is so powerful. Now very powerful. More and more powerful.

Individuals were constantly arrested for making illegal copies, and being arrested on the spot. This was for foreign tourists. these were for foreign tourists, but we didn't know. this happened sometimes and we were told of it. But it was no big deal. To secret documents were everywhere. But none of this involved individuals from Poly. So these are the facts that I provided for you. Now use your imagination to back it up.

Conversations with Chinese Intelligence Officials

So Syria came calling, sending a delegation to China, saying that Syria was interested in Chinese arms too since they had observed the successful Chinese missiles in Saudi Arabia and Chinese arms in Iran and Iraq and in Egypt. And China said, all right, anything but ballistic missiles. And Syria said it was exactly the ballistic missile that they were interested in. Because this was exactly what they could not buy from the outside world. Both the USA and the Soviet Union were forbidden to sell these arms to Assad. China was the only country to sell missiles of this kind to any foreign country in history. The East Wind. So the Syrians said, OK, let's make an agreement. We are not going to sell you intermediate range missiles, but we can sell you short range ballistic missiles. Which is the M9 series and which is really all they need. China was shrewd on this. China told them, but so far we do not have the missiles, and that is because we are still in the design and developmental stage for these missiles. We are unfortunately short of funds at the moment. So if you’re interested in the missiles really you can participate in their development by providing financial contributions at the moment, which is what we need. To the research projects. This meant an immediate infusion of foreign currency to China, which is exactly what we needed. And once the missiles come out, in three or four years time, this will be an advance payment and you can then be provided with them. So the Syrians, of course, they were interested. They wanted anything ballistic, no matter what the price. They were very interested in hitting Israel and this was the weapon that they could do it with. Whatever the price. The only thing that could safely hit Israel was a ballistic missile, because Israel's air defense capability was extremely good, especially the air force. So now the Israelis were worried. Especially about the Bekka Valley. When Israel planes wiped out all of the SAM missiles provided to them by the Soviet Union. They were infuriated by this by the poor quality and perofm4ance of the missiles provided by the Soviet Union. So they wanted to buy ballistic ones, and by ballistic ones I mean that once they are launched against a target, unless there is an SDI program, they cannot be countered. By ballistic I mean once they are launched against a target, once they go into the atmosphere and then they come down, that means you cannot see them. Unlike a Scud missile, which you can see. A cruise missile is a ground skimming missile, But these you cannot see them until they reemerge into the atmosphere of the earth, and that is only moments before the explosion. So they are impossible to put a ground or air defense against them. That is why the USA is developing an SDI program. So the Syrians loaned the money to the Aviation and Aeronautic Industry. They have a lot of research institutes. The function of these is the developments of intermediate or short range ballistic missiles. So, the Syrians did that. Provided the money. And later on China provided the Missile launchers. And quite high ranking officials from the Aviation Industry, they personally supervised the shipping of the launchers and the first missiles to Syria. That means they were on the ship. That means they flew on the planes and they were there in advance of the landing of the launchers and the ships. They supervised the safe delivery, camouflage, transportation and everything. How much money did they provide? Millions or billions(Something that we talk about later on)

So now the Syrians have launchers. The western intelligence experts have spotted launchers. The launchers were installed by Chinese technicians. But I seriously doubt that Syria has obtained at least a couple of missiles already. They have, I think. Due to the financial contributions to the program.. It is impossible for China to stop this deal now. The only thing that can actually stop this or make China refrain from this is that all of a sudden it was exposed in the world. So it is not longer a secret, so China will be more careful. She will postpone her deployment for a time. But just for a time. By short range missiles I mean about 375 miles. An IRBM is more than 1,000 miles. The accuracy of these is, what do you call it, the smallest error circle, for this missile, is very insignificant. If it carries nuclear war heads, you can forget it, since you do not have to be that accurate. This is the last card, of course, that China holds in its hand. Now that you guys all have these missiles capable of delivering a nuclear warhead, now I know that you cannot develop a warhead by yourself. The only country capable of developing that warhead and placing it on the missile is China itself. See, so in order for your guys to acquire delivery of a nuclear warhead, then you must maintain good relations with China and, in time, you might get what you want. Later on. But it depends on the bilateral relationship. And now, all the Arab world, has diplomatic relations with China.

China, in the nuclear non-proliferation agreements, says only that it is willing to consider signing the treaty. But it still needs to have ratification of the people's Congress, which is not going to be held until this year later. And even if the Congress approves, and if China signs this treaty, I seriously doubt, who signs this treaty. The Foreign Ministry. And what in the world is this foreign ministry? It is nothing. Nothing in the arms export circles. It has no power. But China needs a foreign ministry for communication with the West. So they are caught x somewhere in the middle.

So the defense system is a state unto itself, and Poly Technologies is the head of the family.

Poly Technologies. Why am I providing you with all of this background information. Few people know about this, the inside history of Poly Technologies. Few people know about this. Few people know this story. One of the reasons why the US did not protest Chinese arms sales in the past was because the Soviet Union was still there. Gorbachev came to power in 1985. Before 1985 China and the US military relationship was very close. I personally saw, was in the crowd watching a parade for, a Naval parade for the Secretary of the Navy and for Caspar Weinberger, and Lehmann, they were in Beijing. Lehmann I saw him twice and each time he was in the Naval compound. The Navy held a military parade for his arrival, in their headquarters in Beijing. This was not widely known. In China, this was not publicized, they just said he was in Beijing, Lehmann. The discussions that they carried on, there was an official and unofficial agenda. They spoke of cooperation in the Naval field. The trainer warship that went to Hawaii the year before, and the US warships visiting Shanghai. These were the results of agreements that we never knew about. Cooperation of the two countries in -- we can talk about that later. A lot of things. The US contributed, prior to 1987, significantly, to the Chinese. In 1987, the US began to change its attitude and then more dramatically in its attitude toward China. 1989 to be exact. But 1989 was a turning point, because of Tiananmen Square. Gorbachev came to power, and your government knew the Soviet Union was going to be significantly weakened, and it would be liberalized. Any communist country that is liberalized, to a certain degree, that means that its defense capability is more exposed to western ideas. And that means the more democratic a country is, the less strong it is militarily. Or, if you want to keep a strong military force in a democracy, you are going to have to pay a high price. We know that. Much higher than the same amount of force required in a communist country. That is why your country and Japan pay huge amounts in defense expenditures. While the Soviet Union and China are somewhat more comfortable with their defense expenditures. Because the defense structure is quite different. The pay for logistical supplies and for ground forces is lower in communist countries. And a lot of other things. In the communist society, defense oriented industries have the biggest priorities, see what I mean. That means the people are put in a less favorable position in getting a fair share of the GNP. See. So, that means or that translates into this. The people in the communist world are willing to suffer themselves, in order to pave the way for having a strong military force. That means, deliberately or unintentionally, the people are willing to cooperate with the government to provide a strong military. And that means that once the Soviet Union is shattered, the whole weak economy is exposed. Now the people don't even know how to get through the winter. That shows how fragile and vulnerable the whole civilian economic structure in a communist society is. But look at the defense industries. Look how advanced they are. Look at the Soviet and the Chinese defense industries and then look at their domestic economies. They are as advanced in some aspects of defense technology as the US is. Because people are willing to suffer and to sacrifice. The whole system as designed that way. The system is designed that way. The military gets the top priority. Deliberately or intentionally the people are willing to accept that fact as part of their lives. The product of the Chinese society is the People's Liberation Army and the Red Army of the Soviet Union. They enjoyed an extremely high social status, and that is why in China the children of families with high social status want to join the PLA or be affiliated with the PLA in China. You know. Especially now days, joining the PLA is never for money purposes.

The army is like a state to itself. The army has now its own plantations, the army even grows poppies. For profit, of course. And they sell it throughout the world. But officially. We can talk about that later on. Believe me, some of the drugs sold on the streets of Washington, D. C., near the White House, is no doubt from China. If it is good, then it is. China successfully uses family ties and influences of the people in the Golden Triangle, to influence and infiltrate the structure of the world drug trafficking. China played that card, capitalizing on the Chinese who worked and controlled the Golden Triangle but who left their families behind in China, in the mainland. The people in the Golden Triangle, they realized that they still need to rely on China. And the people there, a lot of them Chinese, they provide them with advanced processing techniques, with laboratories, they provided them with equipment. China served as their logistical supply base before that time. All the Chinese knew that, but in the West they don't seem to know this. Few people know this in China, and there has never been wide exposure of this in China, of course.

It is one of those issues that never comes before the public. And even it is, it was decided already politically and so there is no room for debate on this. This is serious, and it generates profit. When something is not that serious, not that central, then the Party throws it out for individuals to debate in a silly way. But the issue is not serious, like abortion or something. Zhao Ziyang and Deng Xiaoping of course were informed of this, had access to this information, but they never bother themselves with the details. Never. As long as the profits are generated, and as long as you guys take care of yourselves, then you guys are all right no matter what you do. Whatever means are required, you do it yourselves. Your defense is short, we are going to cut you, so whatever means you use to make money is all right. You just figure it out yourselves. They provided logistics, processing techniques, in order to be more competitive in the international markets. That is why a lot of things were shipped through Chinese continent. Thailand and Indochina, that is a very nice route. And now China maintains a very good relationship with Burma(Myanmar) the military regime. I still have the article in my suitcase, very fantastic. Now they are building a road, building another one. From Kunming down into the Golden Triangle, just like the one that we built linking Lhasa and Szechwan. The PLA lost thousands of soldiers lives during the building of that road. Due to the extremely severe weather. And actually on the way the PLA advanced into Tibet, it was built bit by bit. That is a road out of no road, out of no natural route, and the road conditions on that road are very tough.

The plantations in the South that grow poppies. That explains why much of the heroin of the world is trafficked through China. But China is now under more and more pressure to stop this. They say that they have arrested hundreds of people and executed those traffickers. Who were these individuals. There are always civilian drug dealers, but they were nothing in the international traffic. And among the hundreds of people arrested in China and shot dead, the business goes on. And it is run by the PLA. I doubt that many individuals within the government know about it. The PLA is run by people at the top and they know, but many people in the middle don't know. Zhao Ziyang and Deng Xiaoping of course should know. But the question is do they really care, does it really make any difference to them. The problem was that they had no money for the PLA and so they had asked these individuals to make their own money, we know longer have enough money to give you. And that is why the PLA had its own plantations and its own factories. This is why they would have an aircraft factory also turning out motorcycles. domestic CIVILIAN production comes out of military production, and radar production facilities produce color televisions. They are capable of doing that. The submarine plants turn out motorcycles, too. Which turn out to be very successful, actually. The PLA was forced into that by the need for money and particularly for foreign currency. But the people at the top, they never really want to know much about that. They simply look at printouts of production and they want to know what the profits are. You know they don't care about where the money comes from. And if the Yunnan district comes up with millions in profits, that is good. But do you think they really care where the profit comes from. They know that the PLA generates enough revenue for the defense modernization. And so the conclusion drawn is that the PLA is capable of taking care of itself. The leaders, Deng and Zhao, they were really pleased with what the army had accomplished. That was a big reduction of the burden on their shoulders. Now they no longer have to worry about generating money for the army.

When they get their annual report, they get a report that says, in Kunming military region, for example, we have generated how many US dollars in revenue due to front line production, which we are always encouraged to do. That is hugely profitable. They never question that business. Unlike the arms sales in the Middle East, which also generate profits, unlike when it comes to ballistic missile sales or nuclear materials technology, then the Generals in the PLA know that they can no longer be responsible for this and they must include it in their reports.

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 general 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 offend 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 going 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 marshal and daughter of the marshal, they were then extremely powerful, even though these guys are no longer 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 exactly 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 scenes. 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 missiles to certain countries. One of them is Saudi 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 out phasing 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 power is distributed 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 real 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 commercial 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.

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 equipment 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 General 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 cherish 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. Unofficially, behind the lines, it is the supply department of the PLA. Everyone knew that you guys on the elevator going to the seventeenth 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 whenever 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.

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 interchangeable. 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 never 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 questions. 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 generals or marshals, 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 bottom line. They are businessmen. What is the bottom line of business. As to Saudi Arabia. They will write: Saudi 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. Israel 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 agents 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 analysis. The archives for these reports are maintained. On a couple of occasions 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 powerful and influential. And the cardinal characteristic of them, of course, heavily committed.

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. Israel 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 people will be involved 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 else. And American academics and policy makers they read that material and we know that, and they interpret it and they draw the wrong conclusions, they are good at that. They study our bullshit and they draw conclusions from it, every conclusion but that it is bullshit. They think they understand Poly or they understand the army and they understand not one goddamned thing. They listen to the most stupid information imaginable. They have your number. You know, living here in China, I never realized how really unique we are. Then I spoke with visiting American academics and dignitaries, and I realized how stupid they were. I visited Washington and it was the same story. Ignorance. They study bullshit. This is almost funny if it were not pathetic. They hear this or that and they listen to the radio. They were experts on the most stupid things I could imagine. I could not believe my ears when I heard them. They were teachers and policymakers and they knew nothing about how China really works. I knew what I was doing on my job. I never stopped to think about how unique we are. I just knew what I was doing. But after I visited the United States did I realize the implications of the piles of bullshit we had been shoveling into the press. Then I read the papers in the US and listened to individuals at an official reception. And I realized it was nuts. You are nuts.

Perhaps some of this information will enlighten. I think it is about time for somebody to make the American people to realize what in the hell the reality is of China, what you are dealing with. This is not "The Good Earth" or "The Last Emperor," for God's sake. It is the whole world that they want to control, in fact. And you refuse to believe that, absolutely refuse. This is exactly the forbidden city in international politics and in international business. This is what they want to have and what they do not have. But maybe someday they will. What makes things work. Lots of people, by the way, think that they do have access, at least they have knowledge to know what is going on it China. But they cannot get inside the walls of that Forbidden City that the inner circles have built. As soon as your government asks your think tanks to find out how business is carried out in China, a lot of people who are supposed to know the way that we think, from Rand and Stanford and from Michigan, where people are very good at pretending that they know China, so whenever the government expresses an interest, a lot of people without doing much research come to a ready-made quick conclusion. They say, ok, we know enough about China and about this company and here are the answers. This is worse than crazy. This is dangerous. They say, OK, the company was founded at this time, and it is headed by top families and these are the people in it and so on, and it, well they use a lot of information. And believe a lot of the reports generated for the White House and people believe those reports because they are put together by "the China experts" in the United States. But tell me, this, "How in the fuck do they know what is going on in China, especially in the forbidden city. They don't even know it exists, let alone understand it, for God's sake. Let me put it this way. Nothing of substantial value has ever been released or published by an American think tank. Poly might have placed agents within American think tanks or universities, but that is not necessary. Because they Americans obviously know nothing.

Now there are agents -- our "friends" -- in organizations. And when we need information we get it. Let me give you an example. On American aircraft carriers. Let me put it broadly first. We get whatever information we need. Whatever information. It would shock you. It would shock you!

Let me tell you something about your security. I saw books from your warships, time and again, which we translated into Chinese for our own use. The manuals for aircraft carriers and from submarines. That was for our business.

The Public Security System is for the people, but not for Poly. We are above that. I remember on a couple of occasions when I was involved in business, and there was this intersection with foreigners, and I was followed by public security agents. They didn't seem to know who I was. So Poly called them off. They came up on the elevator with me, saw the floor I went to, and they then asked who I was and I never saw them again. I had to go to the American Embassy, for example, and they wanted to follow me.

The people who purchased the cars in Seattle, they were State Security Ministry people. That is equivalent to your CIA. These individuals of course are stationed everywhere. Besides, they have a lot of loyal support, from influential people in America. Now those people, some of them, I know personally. In China I met them first. They have both houses in the US and then also in Beijing. In China they live in luxurious compound, funded by the government. These are all American born Chinese. But these Chinese are well connected with Americans in your country, to be sure. And some of them themselves are well connected and well to do in your country. Of course they do not do what they do for money. They do it out of what they believe is patriotism -- to China. It is a funny world, I tell you. If you include that in your story, few people in America will believe this, I know. And it is a hell of a story. How can you make people in America believe this. When I first met them, I looked into their eyes, and I knew what they were about. I knew what was driving them, why they were taking the risks they were taking.

If we were -- well, the Shangri-La would be the best example of how they work. This was in 1987 and in 1988. Well, in China, I saw a videotape of the ship with our people on board examining the ship, accompanied by blonde-haired, blue-eyed Americans. I saw that video, shown around by people from your government. It was sale for scrap. The video, we did that ourselves. And when the delegation returned hone they showed the videos to our leaders and they showed it to us.

The people who were examining the ship, of course, represented a scrap company, in China. They were really representing us, and a company from \Hong Kong was also involved in that they would tow the ship first to Seattle and then to China. When I looked into these people's eyes, based upon my knowledge of this deal itself, I knew, of coursed based upon my knowledge, these people were not in it for the money, I knew. They did it purely from political conviction. They think your country is rotten. They see it for what it is. Now these people are not communists, they are not members of the Communist Party in our country. The party members think of them, well, the words they use are, "they are extremely helpful." There is little reluctance to trust them. There is an extremely powerful organization within the PLA, whose job is solely to take care of these individuals. I know what that organization is. Their goal is to make use, as much as they can, of the social position of our friends in other countries, including America. And Singapore and everywhere. They have different offices around the world. One office overlooks both the US and Canada and is called Meida, Canada and America. That office. This one over Hong Kong, that one over Taiwan and that one over Singapore. These people, when they go to the office may go in uniform, if they so wish. But if they do not wish, or when they travel, they immediately get a visa from a foreign embassy. The name of the organization, I will tell you, depends on how far we go. Very few individuals know about this organization.

Conversations with Chinese Intelligence Officials

Although the Chinese effort in Vietnam in 1979 might appear, at first, to outsiders, and particularly to Americans, who lost the Vietnam war, to be strikingly successful. And in some respects it was. But to us, in analyzing what happened, in our so-called after action reports, we were upset by the huge costs of the victory. Basically, the PLA was not well prepared for the war. They did not have much time, first. And so many units after getting up at 6:00 am were simply told to pack everything and the following day they were in battle. They were poorly trained and ill prepared for the conflict. And just look at some of the portion of the ammunition they were asked to use against the Vietnamese, it was long-ago expired. As a consequence, a lot of shells, even though they hit the targets, didn't explode(this is illustrated in the popular Chinese film "Garlands at the Base of the Mountain," in which Chinese troops sacrifice much because of bad ammunition, finding in overrun Vietnamese positions, the very latest equipment supplied by the PLA) The logistical support was always a problem. One guy who came out of the Vietnam war as a national hero, his name is Xu Yenbing, he was the father of Xu Guangda, who was the father of the Chinese armored corps. Like Mr. Xiao, they were all handpicked by Mao. Mr. Xu had been the general commander of the Chinese armored corps in what we call the Drung Jabing, for maybe more than ten years. And his son at that time was a regimental tank commander. But one of the things they failed to realize was that the terrain, in north Vietnam, was not suitable for the use of tanks. I mean Americans learned that in Vietnam, but the Chinese simply refused to learn anything from the American experience in Vietnam. Stupid. And so they did commit the tanks to battle, battalions and regiments, to the battle, early, and they were not a big help. A single Vietnamese female sniper, in one well-documented case, took out seven tanks, one by one. I mean that is one of the silly and tragic things that happened to the tank regiments. Because, sometimes they were ordered, for example, to cross over a bridge. They didn't calculate, they didn't wait. They were in a hurry. The never calculated the loading of the bridge, the capacity. They simply assumed, stupidly, that a bridge would support the weight of a tank. And so when the tanks were crossing the bridge, it collapsed, and the tanks fell into a river, and several of them fell together. The Vietnamese knew that if there is a heavy weight vehicle that will try to cross the bridge, there is a requirement that only a single vehicle be on the bridge at the same time. Apparently the Chinese thought the Vietnamese were great engineers, but actually the bridge collapsed and the tanks fell into the river. And sometimes, there was a hill that was steep, but still the tank commanders ordered the tanks to climb up the hills, yet it was too steep, and the tanks turned over and tumbled backward on their top. And yet still the commanders ordered the tanks up, assuming it was the problem of the driver of the first tank, not a problem of the commander. And the same thing happened to a half dozen other tanks. The commander of that unit was arrested and tried later on. There were many court marshals because of the Vietnam war, even right in the field. Later on news from these courts martial was circulated but only within the military. And a lot of problems became apparent. It was never circulated in the public.

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. Disobedience was made most apparent at a junction road running into Lang Son, where there was an intersection of mountain roads. Because roads at the time were critical to the movement of the troops, while this army and that army came to the intersection at the same time, nobody listened to anybody else, and they ;literally started to fight for the damned road. But at that time, the Chinese army did not have ranks and didn't have insignia on their uniforms. So we had problems with that right away. On one occasion, the army commander, of the 41st corps, of the PLA army, he himself was on the spot, standing at the middle of a road junction, just like General Patton did, directing all his forces. He thought he could do that, but there were immediately young officers from another army fighting him for the right of way in the road. And they shouted, "What the fucking are you doing? Who are you to think you can direct all the forces here." And he said, "I am the corps commander." This was later on published. And the officer replied, "How can we know that you are the corps commander. " They couldn't believe that the corps commander was standing there in person directing the forces. And he shouted back, "If you are the army commander, then I am the general commander in chief." So later on, his bodyguards were in the rear and they came running up and a fight broke out, with fists, fighting severely. It was raining and it was muddy, and everyone was lying in the road, fighting. Until, finally, another senior officer from the army recognized this guy and said that indeed he was the Army commander. This is a true story. And then the fighting stopped. And of course he had the authority to command the movement of the forces. And it turned out to be a success. But this story was immediately repeated to Mr. Deng, and this was one of the things that finally made up his mind that the Chinese army needed to adopt the rank system again. So within two years we had ranks again and insignia. They realized besides, some of the artillery personnel, because they could never identify themselves. They could not follow the mainstream of their troops. Some of them realized besides, when the artillery personnel, they could never identify themselves, for reasons they could not follow the mainstream of the troops, they were left behind because they slept overtime, and when they got up they found that the troops were gone. And so they had to catch up with them, but all the artillery corps was heavily guarded because security was high. If you did not belong to the unit, you could never get in. So these guys, perhaps two days later caught up with their troops but they were not allowed to get into it. They said they belonged to our troops, but they had a problem with identification, in the Chinese army we didn't have that sort of identification. All you could do was say the units you belonged to. In Korea they had no ranks, they only had a badge, with China People's Volunteer on it. And it was a problem there, you could usually identify a commander by his looks, by the way he was accompanied, by the way he dressed.

Problems with friendly fire. A lot of artillery shells rained on our own forces in Vietnam. Because we always had a ranging problem. The men in the field, to tell the location of the targets was either not accurate or there was no forward observer at all. So sometimes the artillery fired randomly, actually. And that was a problem. Another was the logistical support supply. Because the Chinese always though they were in the rear. But, any real disasters from friendly fire? Occasionally the Chinese would have a few companies come under friendly fire, and they called on their radios for it to stop, and finally it stopped. But this never constituted a really serious problem. What was the real problem was ill or the lack of coordination among the field commanders. Because sometimes, well, in the first place, China may have committed just too many troops. We didn't need that many in fighting against the Vietnamese. I don't know what American military commanders learned in fighting against the Vietnamese, but fighting against the Vietnamese really requires more expertise than the number of personnel committed to combat on the ground. And another thing we learned is that the Vietnamese, one of the things fantastic about this war was that the Chinese air force never ever committed itself to battle. Yes, they sometimes were afraid of the very strong Sam Missiles on the Vietnamese side, and a lot of those were acquired from the Russians and they were pretty accurate. They could actually hit and kill B52s. And so there was a great concern for this. So the air force was not committed. And secondly, we thought we could do it without air power. So when the war came, because of the lack of communication and coordination among local forces, sometimes they were finding that there were, for example, tow entire divisions fighting for a small town at the same time. There was not even enough space to commit one regiment, and yet they crowded in two divisions. And many troops were lined up with nothing to do because there was nothing for them to do at that time. There were no helicopters for the commanders to stay in touch with the various units. And so nobody was sure how large the enemy forces were. And sometimes when there were no Vietnamese, as in Liang San(Lang San), virtually there was no Vietnamese resistance, but Chinese thought, because of ill intelligence work, China thought there was a strong post of Vietnamese defenders thee in the town, so they committed hundreds of thousands of shells overnight. It rained artillery on Lang San for 18 hours. And then they invaded. They eliminated everything on the ground, and later on they bombed the underground.

There were some counterattacks. There are stories of these, of course, like the Chinese battalion holding some of the mountain tops. Strategically important, though, to the Vietnamese too. And so they reorganized their troops and tried to retake the hills. Like what happened Shangan Ling, what you called Porkchop Hill in Korea. There was this fierce battle, this jigsaw struggle for a time. And so there was severe fighting, but the Vietnamese were basically on the defense, and they were retreating. What fought more fiercely were the local forces, the paramilitary forces. So the Chinese had a lot of problems with these individuals. Sometimes we had a lot of problems in getting the Vietnamese out of underground tunnels and caves. and later on they learned from the American experience, and simply through whatever they had into the tunnels and killed everyone there -- flamethrowers and grenades fired directly into the tunnels. And sometimes, the Chinese became very angry, when they became enraged, believe me, they did everything. They did everything. It is stupid to speak of any military doctrine or military rules in combat like this. They were totally ignoring any so-called rules of war. For example, they had with them, anti-air very powerful large caliber guns, sometimes 37 mm guns, very q1uickly firing guns, and they used these against the Vietnamese on the ground, because they thought that in fighting against the Vietnamese they had to commit everything. While the military doctrine tells them that this is purely for anti-air purposes and nothing else, still, they just leveled the barrel and shot at targets on the ground. And of course this was very powerful, too powerful. Migs never took over during the war, took off. They didn't dare. The circulated in the air, but only on the Chinese side, a little bit over Vietnam and over Hanoi, but not too much. They wanted to impress the Vietnamese that they had air superiority. So the Mig 21s were constantly flying around the clock, but there was no bombing. This was just to scare off Vietnamese fighters. And this worked. No Vietnamese helicopters or fighters took off during the war. But the Vietnamese were concentrating their forces to defend Hanoi. Because they knew that the Chinese could take Hanoi. They knew that from their military instincts. Hanoi was, my God, was in terror. If the Chinese wanted to, they could have, in a matter of hours. It was like the war against India in 1962, while having total military victory, the Chinese withdrew unilaterally. China did that. Unprecedented. And that is why the Americans and the western world came to the conclusion that the Chinese nationality was the most non-economical people in the world. How so? You've heard of Jin He, the famous expeditions into the South Indian Ocean, a maritime hero of China, who was born in 15th century, before Columbus. He commanded a large fleet and for seven times he sailed toward Sri Lanka and toward Africa and India and all the Southeast Countries. And the Indian Ocean nations. He sailed all over. All he wanted to do, since China looked down on the people of those regions, and thought they were the center of the Earth, and so all they did was want to impress these people. they never used force to open trade, all they did was to ask the local men and warlords to pay tribute, Zheng Ho, is the famous Admiral, the man who captured Taiwan. And now in Fujian province, there is a huge memorial hall for his deeds, today. But Western historians concluded that if China were able to use those seven trips for economic expansion purposes, China would be much stronger today. And could have exerted its influence much further than it does today. And second in the war against India, for political purposes, China captured all the lands south of Tibet, and they were fertile and all cultivatable and China just gave them up, and all we wanted was to exert political influence on the outside world. We wanted nothing more than that. At that time Nehru of India was very frightened and believed China would penetrate deeply. The 4th Corps and the 33rd Corps, the army group, the bulk of the force, defending the southeast of India, just wiped them out in a couple of days and achieved complete military victory in a few days. And still China, all of a sudden, overnight, withdrew. The Indians could not believe that. And look at the Korean war. It was fought solely for political purposes. No economic gains. And indeed China suffered a lot from that war. We were so in debt to the Soviets and China suffered a lot from that war. China was heavily in debt to the Soviets after that time. China had to pay the Soviets, and so China suffered, the whole country fastened their belts for three years.

China was defending its borders and that was strategic purposes. But the west believed that the Chinese could be the least economically conscious people on earth. After Vietnam there was no disillusionment with the PLA. What is interesting is that is exactly what Mr. Deng wanted, by having his war in the firs place. He knew that the Chinese military for many years had no chance to fight a battle and they needed one. Fighting against the Viets and committing our forces to battle really suited Chinese purposes at that time. You know why, making it a war, because after the war, a lot of problems were exposed, and China never elaborated on the military victory or success, Success is always something westerners and Vietnamese talk about. Not the Chinese. What we came home to study was the problems we had during the war. When the war was over, many of the reconnaissance men were sent to the military schools to study and we spoke to them. I was there and spoke with them, and they were on the battlefield, and they were encouraged to report all that they witnessed, thee weak points of the military. The Chinese military was very smart on that. Everyone was talking about the lessons we learned. In what way we need to improve ourselves. So Mr. Deng gained a victory more than the battle against the Vietnamese themselves. It was sort of one stone and killing two birds. The second bird was bigger. That was the one that Deng was looking for. He could just go to the Central Military Commission and say, Look, this is what the war taught us. The Chinese military is not prepared for fighting a major war. Still, this war is against just the Vietnamese. What in the world will happen if the Soviets invade us from the North. That will be a war much larger in scale and significance. And then he said, "Do you think now that we are prepared for that. " And he went on to say that what we need to do is to beef up the national defense by spending more and by all measures, including the spending of foreign currency and getting it from the Western world. So 1979 was a turning point for the national defense of China. And priority was given to the air force and the navy and the second artillery corps. The second artillery corps is the Chinese strategic arm. It looks after the strategic missiles aimed at the Soviet Union. This is an independent force parallel to the air force and the navy. Modernization of the military(Gun ban shin din hua) modernization of the national defense. These people are talking about the four modernizations in China, right. But while the modernization for national defense always ranked fourth. Industry was one, then agriculture, and then science and technology and the fourth was always National Defense. That was 1978 when China started its economic reform. Mr. Deng kept repeatedly telling the military men that they needed to wait patiently, and this was the term that we heard constantly, "wait patiently." And so what he implied was that the entire country was not in good condition and could not give them all the money they needed. And so he said, "Support yourself, and do not expect too much from the government, since we have huge deficits." So the military was forced to find other sources of revenue, including the selling of arms. The war against the Vietnamese prompted the Kunming military region to open its trade with people from the Golden Triangle, because the Kunming military region was the principle one in fighting against the Vietnamese during the war. In other words, they committed more personnel, they committed and provided more logistical supplies than anyone else, even though there was supposed to be a centralized command, but still centralized command, depending on where you are, has a different emphasis. Right. it was singled out to manage all the logistical supplies. And what is funny is that later on the general logistical department of the PLA refused to refund them. You know, because they couldn't, in the first place. And in the second place, they said, well, the war was fought in your military region, and of course, it is your responsibility to look after all the military supplies, including even cigarettes. And so the Kunming military region in comparison with the other major military regions, like the Beijing military region and Shenyang military region, they were always having a priority in national defense because they wren defending Beijing against the Russians from the North. Lanzhou military region was also organized against the Russians. There are eight military regions, like the Fuzhou military region takes after the defense against Taiwan. So each region has its priorities. Except, Kunming. Because in the past, Vietnam was not regarded as an enemy, until 1979. So, they were not happy. So they were forced, and secondly, they did not have a coast. And that means they were limited in their trade or access. They had begun befriending the KMT in the Golden Triangle. And they had to cooperate and coordinate with other military regions in sending their products overseas.

So, this is the background for the Kunming Military Region getting contact with the local KMT generals, and also...at that time, the Kunming military region took a long time before they made up their mind, because the local KMT general in the Golden Triangle, they had the support of the CIA and they had the support of the intelligence services of Taiwan also. But the efforts of the CIA to get the KMT to invade China, that was not significant and China just felled them with one blow and then it was finished. After that, they never cherished the ambition of conquering the mainland, like those guys on Taiwan Island, although it was still one of their slogans, everyone knows that it is unrealistic, right. So, but what is so funny is that I knew that when the Kunming military region began building their contact with the KMT and the Nationalist Forces in the Golden Triangle, what they discovered was that a lot of officers were unhappy with the CIA, with the intelligence and support from the KMT on the island. Why? Because the only reason why the CIA supported the KMT in the Golden Triangle was for anti-communist purposes only. And that means that they were used, they were pawns. And they objected to that. And the national forces, in the Golden Triangle, were not the only forces in the Golden Triangle operating by producing opium.

The Karens were actually the Communist force there, supported either by the Vietnamese government and by the Burmese government and in the earlier stage they were supported by the Chinese, because they thought that China at that time was still supplying arms to the local resistance groups against the Burma government, which is no longer the story today.

1978 was the shifting point of Chinese foreign policy. Chinese suspended its military support at that time, to all the resistance groups in Indochina and the Southeast nations. They began then building their relations with the official governments. They were pretty successful in that. Look at Burma today. The military regime was solely backed up by China. So once the CIA started supporting other groups in the Golden Triangle, like Kun Sa, they had the support of the CIA too and the Generals felt unhappy. They thought they had been sold out.

All I knew was that the CIA never supported them any more in full strength. In other words, KMT officers in the area were not the only target for the CIA support. So they felt they were not getting enough support from outside. Still, they bore all the burden of fighting for their own survival. They needed ammunition, medical supplies, communication equipment. And all of these could not be provided by the KMT from Taiwan, they were too far away. And there were not airfields in the region and it was impossible for them to rely too heavily on outside support. And so at this critical stage the Kunming military region opened contact with those guys. They negotiated, they provided very nice social welfare and housing facilities to the relatives left over by these officers on the mainland, and some officers were encouraged so much to pay a visit, to their homeland, and they did this, finally, and found that there were no consequences and no dangers. Nothing happened to them. They were virtually welcome home again. Whatever they asked for was given to them, and they were satisfied at every turn. Of course, the Yunnan commander had business in mind. That is why China established a lot of opium refineries and laboratories and facilities.

I know of one General, Mr. Liu, he was the general, the Bao Shan military district, and he was involved. But I guess he was not the only Liu. Actually, his son was in the battle against the Vietnamese in 1979, and his son was cited for the battle, decorated, because there was minefield they had to cross, and because all of the troops were in a hurry to cross the field, they didn't have the kind of mine detection facility with them, so this guy just rolled himself over the field, over all the mines, making them explode after him, because he rolled quickly. And he did this across the field until he got to the last mine, which virtually blew off his two legs. My God, he was a hero. His name was Liu, a very junior officers, but he was in the reconnaissance corps, and he was in charge of paving the way for the advance of his troops, and he sacrificed his legs and his troops then marched on and advanced. He is still alive today. But he lost the two legs. Actually, my brother in law interviewed him after the war, when I was in Nanjing, my brother in law in 1981 was on the spot with the filming team from the army studio, and he still there today. Actually a lot of stories he told me personally.

They, the Kunming military region established very solid contacts and cooperation with the KMT in the region, and they told them, frankly, "We no longer regard ideological differences as a line dividing friends and enemies. All we would like to do is to generate some profits. We are all Chinese, after all." And the KMT there bought that. And they, because they, although they had their own refinery facilities, but that was all in the mountains and in the jungles. All very primitive. And they did not have a lot of things. But still they managed to refine. But what you refine could not be very pure, if you really want to make the opium that is inject able, which evaporates very quickly, then you must make it very pure. And the Chinese could be able to do that. And actually, some medical personnel were called from the Kunming People's General Hospital in Kunming Province, and they were called upon to facilitate this processing, since they knew this technique. And besides, once you have the equipment, refining opium is a simple business. It is not something very complicated, but still you need all the things for it. But once you have all the things needed, it is only then a question of time, and it is then a question of how many pounds of opium you can acquire. Opium was one of the things that the PLA grew on its plantations at that time. But still the army figured out that the opium that output was not so great as that in the Golden Triangle, certainly, the quality was not as excellent as that from the Golden Triangle, and so in order to get a huge profit they needed to coordinate with the KMT officers. They used the Mekong River. They said, all right, we are going to provide you with whatever you need from the military region. We can provide medical supplies. Hospital facilities, emergency aid and logistical supplies, such as Chinese military rations, in cans, these just poured into the local KMT storehouses.

Thee were not objections to what was going on because not many people knew that. All that they viewed from the public said that these are the medical research facilities either for medical purposes or for tobacco production. No one knew the nature of the business Nobody bothered. Once it belongs to the army and is classified under the PLA, not many people bother to know what they are doing. It is nobody's business. Because they belong to the military and whatever belongs to the military is good in nature. So the once the Chinese are able.

The local army officers, they invited the KMT general or officers, from the 3rd or 5th army, that was the army operating in the Golden Triangle. And they asked them to come up and see for themselves the facilities that we have. And, my God, those officers were stunned by what they saw. They never dreamed that communist china could have these facilities. They never imagined this before. These things, they thought the communists were kind of silly, peasant, army. They never knew that the communists were never possible to process and put together the facilities and grow and then to process opium. Heroin. So the Chinese showed what they had learned and how they processed it. One hundred percent pure. They became convinced that the Chinese could do an excellent job. And so they came to an agreement. They said, We will supply you and you process for us. And then the process product you ship back to us, and we pay you for it, right. And you keep the rest for your own purposes. They never questioned where the opium was to go. And it was from this point on that the Kunming military region started making a profit. Once they accumulated enough they started contacting people from Hong Kong and Macau and Taiwan. Once you have this product, you do not have to worry about finding demand. Demand is already there, everywhere. It is only a problem of getting the supply to the demand.

My brother was involved on different occasions just in driving a truck He told me, he was there.

The Italian deal. The end result of the story. The torpedo business, the Chinese navy spent a lot of time trying to acquire foreign advanced technology, like the Mark 46 torpedo of the US Navy. Now you have Mark 50, a thermal powered which is really advanced.

Torpedoes are divided into different kinds. The most primitive kind is the type the British used in the Falklands war against the Argentineans. The cruiser that belonged to the Argentina was the General Belgrano, or something, that was sunk by two torpedoes, what we call gas torpedoes. That means that they were really primitive. That means that they were run on steam. Steam was the power. Once you have the generator running to generate steam, steam drives the propeller. This kind of torpedo does not explode unless it hits metal. And so it is regarded as primitive.

Then we have the closed loop torpedo. That means that like once you generate the steam and you exhaust a lot of things on the old torpedo. And once you exhaust materials. It is like a submarine that surfaces to run the diesel engines and to charge the batteries. Once its batteries are charges it is able to submerge. Otherwise it cannot. In the process of doing so it generates a lot of steam. And it is as if you throw a match into the water, you see the smoke. The closed loop torpedo means that once you are in the water and turn the motor on, it only generates steam, and all the steam generated circulates internally to reproduce energy. It is high advanced technology. That means it leaves no trace in the water. You see torpedoes propel itself under water and it leaves a huge trace underwater, and that was once a way to identify an incoming torpedo coming in and to shoot it, if you could. But once it is a closed loop torpedo, like the Mark 46 you cannot see traces, and secondly, it runs pretty fast Like 40 knots per hour. Thirdly, it is quiet and does not generate a lot of noise.

So China had been looking for many years to advance its own technology. Actually, the Chinese were able to advance their own -- it was probably due to the 1979 war against the Vietnamese -- the US task force approached the Paracel Islands, and for some reason, one of the submarines in that task force fired two torpedoes. An American submarines. By mistake perhaps. But they were torpedoes. And they were fired and they beached themselves on the Paracels. And the people on the Paracels were able to pick them up several days later. They didn't know where the torpedoes came from, they said. But quite obviously they were fired from a US warship, a submarine or a surface vessel. They were armed, everything. Everything was intact. But the US Navy, I guess, didn't know they were found, maybe. And maybe never reported also that they were missing. So we were able to pick up the torpedoes and closely examine them, and later on we were able to reproduce a copy of them, which was very close to the performance of the Mark 46. But still mass production was a problem, reverse engineering. Now later on the US Navy sold China Mark 46 torpedoes, that would be about 1987. They sold us two at that time. But still it was not enough. What the Chinese submarine fleet was looking for was a wire-guided heavy torpedo to be used against surface vessels. A heavy weight torpedo means that it is like eight meters long, and large in diameter and it is heavy weight. Looks more gigantic, and with a larger payload to sink ships. And longer and larger. The ideal selections would be the A184, wire guided heavyweight torpedo, produced by the Whitehead Company situated in Livorno of Italy. And I've been there, so that's it.

A girl from Thailand served as a very successful middleman in these negotiations. She has very nice Chinese name. We call her is Ma Ling, but I do not know here Thai name. She spends most of her time in Beijing at the Xiyuan Hotel. She is very beautiful, very. And very nice and charming, too. And she is well educated, speaks beautiful Thai, Italian, English and perfect standard Mandarin Chinese. She came from a very wealthy and well situated Chinese family in Bangkok. Her mother and father are very influential people in Thai politics. And actually she took up the arms trade business for fun, because she married an Italian millionaire who used to serve in the Italian Army, and later on he retired. And he joined then the Selenia Elsatue group. I constantly dealt with this group. It is the most powerful defense related industrial group in Italy. I cannot recall his name. Her husband died and then she had close contacts in the trade, and she began working with it. She was very good terms with the general manager of the Whitehead Company, Pittossi, Mr. Pittossi, he was the general manager of the White Head Company. And probably Ma Ling was his mistress. Although Ma Ling was over 36 years old, she looks incredibly young and beautiful and she carries herself well, she looks well educated. And she is always attired in the very latest Italian fashions. Everyone was impressed by her. In wearing jewelry she was very modest, but always in a fashionable way. She had long uncurled black hair, sometimes, covering half of her face, just shoulder length, and sometimes she put both hands in her jacket and stood like a model.

In Beijing she was also well connected and had a lot of friends in the national defense ministry of Beijing.

Actually, a young guy, very handsome, Yu Yung, from my office, very handsome, he was with my group to visit Italy for the first time in December, 9185, and both Ma Ling and I and Mr. Yung were on the trip. Yung was handsome young guy, according to Chinese standards, tall and spoke Excellent English. He fell in love with this woman, but she still kept her distance from him. So, she served as a strong connection between the Chinese defense circles with the Italian defense circles, and she was very influential riddle. Incredibly beautiful and always attracted a lot of attention. People thought she was a film star. Whenever there was a lag banquet, she was always closely surrounded by men from foreign countries or from the Chinese government, because she was well connected, and she served as the facilitator and the go-between. Every time the Italian company, Silaneio Elsat group came to Beijing, then it was required absolutely that she be present, that was an absolutely requirement, because she checked all the mistakes in the translations. She did not personally translate, but she checked for errors, and she was not familiar with technical terms, but in standard translation she was a superb translator. Very beautiful woman. Actually, Mr. Pittossi has been after her for many years, he was single too. I don't know what the actually relationship between those two was, but they were constantly hand and hand, came out of hotels and were constantly with each other. Yet she told us that they were not intimately involved, that she did not sleep with him. But they were on very good friendship terms. It seemed very complicated to us, but this woman served an important bridge between the \Italian defense circles and my company. And Poly would then initially contact her if there was a need and there usually was such a need. So she personally generated huge profits for the Italian defense firm. Because she paid a lot of contributions for the connections for the two countries and a lot of contracts were signed. And because of her contributions, we the Chinese navy signed big contracts with the Whitehead organization. We still signed contacts with the air launch torpedoes, A244, lighter in weight, smaller in scale, and is suitable for air launch purposes, and that means it is suitable for fixed wing anti-submarine aircraft or for helicopters to launch the torpedoes into the water against submarines. Against submarines, air launched. So now, A244 torpedoes were equipped in the Chinese Navy. I mean in doing so I am telling you a top secret. So, the Chinese Navy, widely equipped with this sort of thing, this is advanced technology too, closed loop torpedoes. This is closed loop and now the Chinese fixed wing aircraft in the Navy and the helicopters are all equipped with these. The contract was signed in 1988 and it was delivered in 1989 and was deployed ever since. They did get the contract, but the Italians really pushed hard on the A 184 torpedoes. Actually, at that time, in 1986, the Chinese Navy almost made up its mind to buy A184 wire guided torpedoes. Wire guided torpedoes, normally those that are not wire guided, they have problems. They must run on their own batteries and that means they cannot run for a long time. Besides, once the torpedo is launched you cannot change its course since everything is preset,., The target information is all preset, you cannot change the course after launch. Then they have an automatic homing head, which they can turn on automatically once they are within range of the target, as in Hunt for the Red October. but you have to get it within range to turn on the automatic homing head otherwise it won't work. But with wire guided torpedo you can constantly transmit signals through the wire to the torpedo, even when it is running pretty fast. Once you have line connecting you to the home base, everything is changeable. And the home base could be a ship, or a submarine. So this is a heavyweight torpedo, very useful against surface targets, and to kill a surface target you need heavy torpedo, so this is one of the things ideal for the Chinese navy. In the end, each of these cost $90 million package deal for 10 torpedoes.

Ships can maneuver fast, but you can launch the torpedo when you are not totally prepared, and then you can control it in the water without presetting everything. You launch it into the water and then you set it. The range of the torpedo is pretty far since they are wire guided, the range is around 30 miles. The wire from the ship to the torpedo. The glue used to connect the wire is a special processed silicon, and this is a technique couldn't duplicate, because you cannot glue the wire too strongly, nor too loosely. If it is too strongly, once the wire is in the water, going with the torpedo, then the dispensing system is a problem because if it is too strong the wire breaks. But if it is too loose that is a problem, then there are other problems that occur. And so this is a silicon binder that holds the wire to the torpedo, what you see in the launching unit is very big. Some technicians spend an entire month wiring up a torpedo. Each day winding only two circles, eight hours per day. I mean can you imagine that. Days just wiring that up. Doing nothing else. That is why it is expensive to buy. The wire is on a coil, a huge coil like a fishing reel, round. So because it costs 90 million, at the end of 1986, the only budget left for the Chinese navy was around $100 million US. But because the admiral in the Chinese navy, because of their good relationship with Aerospatiale, and this time with Thompson CSF, so at that time the Navy needed two things. One is the ship born anti-air system and the French tried to push us to buy the Sea Crotale system(a sidewinder), a ship borne anti air system. It is six missiles on it on the launcher. Effective against air targets, incoming aircraft. This cost 90 million too, but because of the good connections of the Chinese admiral with the French, there was a hot debate going on, for if it is the navy priority to spend 90 million either on the torpedo or on the ship born anti-air system, there is a sharp disagreement among the admirals themselves. The admirals who were bribed, they strongly favored the French. They said, all right, we are not in a hurry to import torpedoes. While, he forgot the fact that the well known fact that most of the Chinese submarines, their big launching tubes were virtually empty. Because at that time the Chinese navy was phasing out the old torpedoes, while the advanced torpedoes were already in the production phase, the Mark 46, but they were not available yet. So at this time, if the Chinese navy spent this money to import A184 torpedoes they could put them on Chinese submarines and that would be the solution. But because the admiral made a mistake --no not a mistake, but rather for personal consideration and reasons, they favored the French. For obvious reason. As for what reasons. I don't know. They made a decision. Some of the admirals which favored the A184 torpedo from Italian friends, they said, what a pity for the navy. The submarine fleet is finished. They said that, in so many words. They said that to us. So the French got the deal. And we spend $90 million with the French in 1987 to buy the Sea Crotale system. Why were they phasing out the old torpedoes and sending out subs with empty tubes. Why not leave in the outdated ones. Because this was standard procedure for the navy, once you decide to phase out something, you take out everything immediately, and standby and wait for the new ones to come. You can add new stories to the bulk of this story. this is the basic fact, this is what happened because the admirals were bribed and they favored the French. And so at that time, the US navy was looking for A184 torpedoes too because it cost lost than torpedoes produced in the US, and besides the US didn't have the equivalent of heavyweight torpedoes, wire guided. So the US Navy put in the bid saying that they were looking for heavyweight torpedoes, for mass production purposes. So A184 got the deal. And A184 torpedoes, actually, the Whitehead supplied the Navy of the US with 8 torpedoes in 1988, and the US Navy had the torpedoes tested in one of your testing grounds in the Pacific near Hawaii and they produced the testing results saying that we are very satisfied by the torpedoes. This was relayed back to the Whitehead Company, and General Pittossi Himself said to me, personally, the general manager of Whitehead, said, See this is the testing report of the US Navy, and he wanted to convince us absolutely that this is really an advanced torpedo and you need to buy this. And we said, "Of course we need to buy that. We know that. But we don't have the money and the authority to buy it now." So once Mr. Pittossi heard the news that the Navy had signed a $90 million contract with the French to buy the Seat Crotales, he was heartbroken, really. He had spent a lot of time in China in Beijing, and actually our company on a couple of occasions, took him to visit the Great Wall and the Summer Palace, and we tried to be very nice to him and comfort him however we could. But finally he just left heartbroken. And so was Miss Ma Ling, of course. She said, "My God, we put in such efforts, including the expensive trip to Italy, and they showed us everything including the processing technique. they even showed us the chips in the torpedoes, they never show those to foreigners, but they showed them to us, the raw chip, taken from the body of the torpedo, which is obviously not standard procedure for a buyer. They manufactured the torpedo in different places, there is a factory, was responsible for the fire control system, the target designation and firing routes, the firing system was designed in Sepa Company, located in Torino in Northern Italy, close to Milano. And the general manager was Mr. Baroccerni, and was nice to us and showed us many things. Because I was with the fire control group. The next year the report didn't come through, it was stagnated. And the next year, Chinese were producing for themselves, but still like the Mark 46 they are not very advanced, they are not genuine copies, they are copies, but not so advanced. So it remained a big headache for the Chinese Navy not to get that torpedo. The story itself, why it is significant, and first it is top secret, and another thing, if this really happened, you can imagine how they do business, and thirdly it showed how the Chinese procurement system really worked. This is the best example. And everything was correlated, like the editor to the admiral and what happened later on to his son, and what.

China has more than 100 submarines. Six nuclear submarines. The Chinese, young officers, they dared to voice their opinions, but everyone else stayed put because they knew they could not change the system. They used just what they were given. And they knew of course what was advanced and what wasn't because some of the submarine commanders themselves were involved in the foreign negotiations, and they were shown the slides of A184 torpedoes and they were introduced to the performances of the torpedo and they concluded that this was the best and we wanted to buy it.

The Soviet Union and Taiwan were the enemy at the time and the situation in the South China Sea at the Spratly Islands was critical at the time. This is the area that the PLA navy was concerned with, and Japan, of course, was a potential enemy. And all the plotting tables of the PLA navy, they had foreign discussions about tactics against foreign submarines and from the British and the Americans and Japan was always marked as a target. The Chinese they will never regard Japanese as friends. We know perfectly that although China and Japan meet together it is only for economic reasons.