http://www.popularmechanics.com/science/defense/3319656.html

China's Secret War

http://media.popularmechanics.com/images/PMX0806CHINA001_large.jpg
Iluustration by David M. Brinley.

A spate of recent spying cases opens the lid on China's aggressive
military buildup. What's most troubling: It is based largely on U.S.
technology.

BY SIMON COOPER
Published in the August, 2006 issue.

On a hot Florida day late in 2005, Ko-Suen "Bill" Moo was preparing for
the endgame of a covert operation he'd been orchestrating for nearly two
years. He had arrived in Fort Lauderdale at 5 am on Nov. 7, as the city
was recovering from the onslaught of Hurricane Wilma two weeks earlier.
Moo checked into a $350-a-night room at the plush Harbor Beach Marriott
Resort & Spa, and now, a day after arriving in town, the Korean-born
businessman was ready to sign what promised to be a lucrative contract.
In a few days, he'd head back to Hollywood International Airport to see
off a plane, chartered for $140,000 to carry a special package. Moo
would catch a commercial flight and meet up with his cargo in Shenyang,
a city in northeastern China. The cargo was costing him nearly $4
million, but it was worth it. He would clear $1 million in profit once
he made the delivery to his clients, senior officials in the Chinese
People's Liberation Army.

Moo's package was an F110-GE-129 afterburning turbofan engine, built by
General Electric to power America's latest F-16 fighter jet to speeds
greater than Mach 2 (1500 mph). Over lunch in the Marriott's restaurant,
58-year-old Moo told the arms dealers who had arranged the purchase that
he would soon be looking for additional engines-or even an entire F-16.
But what the Chinese army wanted most of all was an AGM-129A, the U.S.
Air Force's air-launched strategic nuclear-capable cruise missile. The
stealth weapon, which flies at 800 miles per hour, can deliver a
150-kiloton W80 warhead to a target 1800 miles away.

Like everything else Moo was shopping for, the missile is guarded by at
least three laws forbidding its sale or the transfer of its design
details to foreign countries without government permission. Moo knew
this quite well. In addition to working as a covert agent for China, he
had a day job in the U.S. aerospace industry. For more than 10 years Moo
had been an international sales consultant for Lockheed Martin and other
U.S. defense companies in Taiwan. He was arguably the Taiwanese air
force's most critical arms broker.

Scouring the Globe
According to U.S. counterintelligence agents, Bill Moo was one player in
a sprawling, decentralized network. "They are scouring the globe on
behalf of the Chinese government, vacuuming up every shred of technology
information or hardware they can get their hands on," says former FBI
officer Ed Appel.

A press officer at the Chinese embassy in Washington, D.C., calls that
accusation "groundless," saying that "the Chinese government does not
have activities in espionage in the United States." However, Appel and
others say that extensive Chinese spying is indicated by a sampling of
cases that have recently come to light in the United States.

South Korean arms dealer Kwonhwan Park was sentenced in August 2005 for
exporting Black Hawk helicopter engines and night vision equipment to
China. Ting-Ih Hsu, a naturalized U.S. citizen, and Hai Lin Nee, a
Chinese citizen, illegally exported 25 low-noise amplifier chips that
have applications in the Hellfire air-to-ground missiles carried by
Apache and Cobra helicopters. New Jersey firms Manten Electronics and
Universal Technologies sold China millions of dollars' worth of
restricted computer chips. Eugene You-Tsai Hsu, a retiree living in Blue
Springs, Mo., tried to buy a critical encryption device tightly
controlled by the National Security Agency. Additional accused Chinese
operatives have been sent to prison in cases involving Generation III
night vision equipment and computer chips used in advanced radar and
navigation systems.

None of the spies acted in concert, according to U.S.
counterintelligence sources. Like Moo, they were freelancers, operating
at what Appel calls a "deniable distance" from their Beijing bosses.
However, they did share much of their quarry--items on shopping lists
that included some of America's most sophisticated weaponry.

Sights on Taiwan
On Feb. 28, 1991, the United States and its allies called a halt to
combat operations in the Persian Gulf War, just four days after U.S.
tanks started to roll across the desert, and a few weeks after launching
an air campaign. "The Chinese watched with dismay the ease of the U.S.
victory over Iraq," says Toshi Yoshihara, visiting professor at the Air
War College in Montgomery, Ala. In response, he says, modernizing the
country's vast but primitive arsenal became a top priority for Chinese
officials.

According to U.S. deputy undersecretary of defense Richard Lawless,
China's sense of urgency stems partly from concern over the future of
Taiwan. In testimony before the Senate Foreign Relations Committee,
Lawless said that China wants "a variety of credible military options to
deter moves by Taiwan toward permanent separation or, if required, to
compel by force the integration of Taiwan" with the mainland.

Since the United States has pledged to defend Taiwan, that means China
is seeking the ability to go toe-to-toe against America's best weaponry.
Some U.S. officials argue that China's ambitions go beyond Taiwan to
encompass the global stage.

Rather than trying to address all its military shortcomings at once,
Yoshihara says, the Chinese government focused on obtaining "leap ahead"
technologies already in use by the United States. Former Chinese leader
Jiang Zemin called these technologies "shashoujian," translated
variously as "assassin's mace" or "silver bullet." They ranged from
advanced communications equipment to long-range missile systems.

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Black Hawks are workhorses, able to fight from the air, transport an
11-member infantry squad or airlift the wounded. PHOTOGRAPH BY
REUTERS/LANDOV.

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Kwonhwan Park smuggled Black Hawk engines to China.

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Low-noise amplification chips are used with the Hellfire air-to-ground
missiles that arm Apache helicopters (top). The chips also have
nonmilitary applications. PHOTOGRAPHY BY CORBIS (APACHE).

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Ting-Ih Hsu and Hai Lin Nee listed the chips as inexpensive
"transistors" on U.S. shipping documents.

A Credible Threat
The result of China's 15-year effort has been "the largest military
buildup the world has witnessed since the end of the Cold War," says
Richard Fisher, a China specialist for the International Assessment and
Strategy Center (IASC), a Virginia-based think tank. China is now termed
a "credible threat to other modern militaries operating in the region"
by the Department of Defense, despite languishing perhaps 25 years
behind the States in a number of areas. By next year, Chinese nuclear
missiles could have the capability to hit any target in the United
States from launch sites on mainland China. By 2008, the country is
expected to possess submarine-launched nuclear missiles, giving it
global strike capabilities.

The nuclear arsenal is backed by an increasingly sophisticated navy and
air force. Currently on Chinese military drawing boards are plans for
combat aircraft, the Chengdu J-10 and Xian JH-7A fighter jets; a combat
helicopter, the Z-10; advanced warships; and even space-based weapons
designed to knock out communications satellites. U.S. observers fear
that much of this will be made possible by espionage.

In June 2005, China began sea trials of its new Luyang II guided-missile
destroyers. When the armaments were unveiled, jaws clenched in the
Pentagon. The ships were equipped with a knockoff of the latest version
of the U.S. Navy's Aegis battle management system, a critical
command-and-control technology. The technology enables U.S.--and now
Chinese--forces to simultaneously attack land targets, submarines and
surface ships. It also runs fleet defense tactics to protect against
hostile planes and missiles. Federal sources insist that the only way
the relatively backward Chinese military could have developed such a
system was by copying it.

Into the Arms Bazaar
Anthony Mangione is a quiet-spoken man in his mid-40s whose office in
Fort Lauderdale's federal courthouse is decorated with old newspaper
cuttings celebrating the D-Day landings, two fish tanks (one full, one
empty) and a door covered with dozens of curling Post-it notes.

As the assistant special agent in charge of the Fort Lauderdale
department of Immigration and Customs Enforcement (ICE), Mangione heads
a team of undercover agents who have spent years infiltrating what he
terms a global "arms bazaar." The agents are assigned to ICE's Arms and
Strategic Technology Investigations (ASTI) unit, which has operations in
43 countries as well as in the United States. Last year, ASTI agents
conducted more than 2500 investigations worldwide, many of them
involving China.

The Moo case got under way after two arms dealers, who also work as paid
informants, introduced some of Mangione's undercover agents to a French
middleman, Maurice Serge Voros. During a phone call on Feb. 26, 2004,
Voros asked the agents, who were posing as arms dealers, for help
obtaining engines used in the U.S. Black Hawk combat helicopter. The
engines, manufactured by General Electric, are on the U.S. Munitions
List, a catalog of restricted arms and technology administered by the
State Department's Bureau of Political-Military Affairs. It is illegal
to export Munitions List items without a special government license.

Over the following year, ASTI learned that Voros represented Moo, and
that Moo in turn was working for the People's Liberation Army. In a Dec.
4, 2004, e-mail, Moo wrote that China did not want its name on any of
the contracts.

"These cases take a long time," says Mangione. "It can be frustrating.
But you have to let the game play." In March 2005, Voros told the
undercover agents that Moo had now shifted priorities. His new top goal
was to buy an F-16 engine-and, said Voros, Moo had been given "the green
light" to make a deal.

Lethal Shopping Lists
Moo's destination last November was Shenyang Aircraft Corp., which lies
a few miles from Taoxian International Airport. It's the site where, in
cooperation with Russia, China developed its first homegrown fighter
engine, the Lyulka AL-31 turbofan engine. But the Lyulka provides a
Pontiac Firebird level of performance compared to the Formula One-worthy
engine that Moo was set to deliver. U.S. officials believe that China
planned to copy the F-16 engine for its own prototype fighter.

China has managed to "reverse-engineer some of [America's] most modern
rifles, cannons and guns and produce them domestically," says Larry
Wortzel, chairman of the U.S.-China Economic and Security Review
Commission, which reports to Congress. However, Chinese expertise in
engine manufacturing has lagged, according to Wortzel, who spent 25
years working in military intelligence. "This is one of their biggest
espionage targets," he says.

"There are characters out there with laundry lists of stuff like this,"
says Mangione. Moo's list included nuclear missiles and jet engines, and
also called for the "urgent procurement" of "2 to 4 sets" of a "Nuclear
Submarine (nuclear reactor should be one unit, no noise) including ALL
nuclear weapon systems." Acquiring an entire submarine might be a long
shot, Mangione says, but "any specs, any photos, any anything they can
get is more than they had before."

China's efforts amount to a worldwide "market intelligence program,"
says former FBI analyst Paul D. Moore. "The reality is that China does
not practice intelligence the way God intended," he jokes. America's
intelligence structure arose during the Cold War to contain the Soviet
Union. "In our model, professional intelligence officers go out and do
the job," Moore says. "In China's model, anyone and everyone is a
potential intelligence asset."

The system is chaotic and inefficient but also highly effective.
According to Moore and others, it relies on "guanxi," a system of social
networking with deep cultural significance. "The process for finding the
best restaurant in Seattle is exactly the same as finding out what
nuclear technology America has," Moore says. "You ask your friends.
Eventually, you're introduced to someone who can help."

Guanxi could explain why Chi Mak, a naturalized American citizen who
spent years as a naval engineer for U.S. defense contractors, finds
himself in jail, accused of secretly working for the Chinese government.
"When someone reaches out to you," Moore says, "it can be very hard to
say no."

According to a 42-page FBI affidavit, Mak was the lead engineer on a
highly sensitive U.S. naval project: the Quiet Electric Drive. The FBI
says it recorded Mak copying Navy secrets, and later found
Chinese-language wish lists in his home that included propulsion and
command-and-control technology.

According to his lawyer, Ronald Kaye, Mak acknowledges "engaging in a
technology exchange" with China. But, Kaye says, none of the material
was classified. "It's unfortunate that so quickly people came to
perceive something criminal." A trial is set for this November.

The Endgame
After a series of meetings in London and Orlando, Fla., Bill Moo, Voros
and the ASTI agents agreed on a price of $3.9 million for one F-16
engine. On Oct. 5, 2005, Moo transferred the money into a Swiss bank
account he controlled. One month later, he flew from Taipei to San
Francisco and then to Miami. By now, he was being shadowed by ASTI
investigators.

On Nov. 8, Moo was driven to a quiet hangar in Homestead and shown his
prize, an F-16 engine. He had already wired $140,000 from a bank account
in Singapore to an account run by an ASTI front company to cover
shipping costs to China. Moo asked to photograph the engine but was
rebuffed. Nevertheless, he now authorized payment of the $3.9 million.
According to an ICE official, Moo told the undercover agents that after
he returned to China he would want to buy an entire aircraft. "Then
[the] customer [will] have a confidence on you, okay? So they will be
planning [to buy] the two-seat F-16." Moo also said he would want to
purchase cruise missiles.

Government documents, including a federal indictment, arrest warrant and
criminal complaint (below), allege that Taiwan-based arms broker Bill
Moo secretly attempted to buy an F-16 engine for Chinese officials, and
planned to follow up with further purchases of airplane and missile
technology. Moo pleaded guilty to multiple offenses in May of this year.

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F-16 engine: U.S. agents say Chinese officials wanted to
reverse-engineer this engine. PHOTOGRAPH BY TIME LIFE PICTURES/GETTY IMAGES.

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AGM-129A: The air-launched stealth missile Moo sought can carry nuclear
warheads. PHOTOGRAPH BY U.S. AIR FORCE.

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Ko-Suen "Bill" Moo, aka Mike Hwang, was a top arms broker in Taiwan.

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http://media.popularmechanics.com/images/PMX0806ChinaShoppingSmall.jpg

On China's Shopping List: Armaments recently sought by Chinese
intelligence, according to U.S. investigators, include (from left):
parts for the F-14, Generation III night vision gear that can intensify
light by a factor of 30,000, and AIM-120 air-to-air missiles.
PHOTOGRAPHS BY CORBIS (F-14), MOROVISION NIGHTVISION, INC. (NIGHT VISION
GEAR), GETTY IMAGES (AIM-120).

Mangione decided it was time to bring the operation to an end. "People
like Moo don't have their lists out to one person," he says. "If he's
dealing with us he's dealing with 10 other people. We couldn't take the
risk that one of these other sellers might give him what he was after."

Agents moved in and arrested Moo in his hotel room on Nov. 9. After six
months in jail--during which he tried to bribe both an assistant U.S.
attorney and a federal judge to let him go--he pleaded guilty to
multiple offenses; a sentencing hearing was set for this summer. Voros
is still at large, the subject of an international arrest warrant.

Modern Smuggling
Technology espionage can be difficult to prevent. As Lockheed Martin's
representative in Taiwan, Moo had successfully passed a "rigorous"
vetting procedure dictated by U.S. government rules, according to
company spokesman Jeff Adams. Yet, U.S. officials say he may have
transferred restricted technology to China before the investigation began.

More typical cases are even harder to detect. ASTI agents often navigate
the murky area of dual-use technologies, where pressure sensors could be
used either for bombs or for washing machines, where computer chips with
missile applications might actually be destined for in-car navigation
systems. Furthermore, thousands of items prohibited for export can be
bought over the Internet, shipped to a U.S. address, then simply mailed
to China in a padded envelope. Such materials supply the building blocks
needed for complex armaments.

In other cases, technology is smuggled out to an approved country using
fake end-user certificates. For instance, Kwonhwan Park shipped his
Black Hawk engines to Malaysia before sending them on to China. And,
advanced technology such as the F-16 fighter has been sold to countries
from Bahrain to Venezuela where controls may be less stringent than in
the United States.

The situation outrages U.S. Rep. Frank Wolf (R-Va.), who successfully
fought recent plans by the State Department to use Chinese-built
computers for classified material. He says too little attention is paid
to China's "aggressive spying program against the U.S." The legal
deterrents to espionage are weak, says Wolf, who chairs a subcommittee
overseeing security and technology. "In the Cold War people went to jail
for a long time" for spying, he says, but today's "negligible penalties"
are more appropriate to low-level embezzlement than military spying.
Park was unusual in receiving a 32-month prison term and a deportation
order; in contrast, Ting-Ih Hsu and Hai Lin Nee were each sentenced to
three years of probation.

Meanwhile, says the IASC's Richard Fisher, a "battle is being waged. The
Chinese have established a vast collection system that by the end of the
decade will have helped them to become a global military power." While
concern grows among policy-makers and wonks, Mangione and his team still
labor in the shadows of the worldwide arms bazaar. They hope to prevent
the day when U.S. troops could find themselves staring down the barrel
of a high-tech weapon marked "Made in America."

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