Communist Chinese Procurement Activities in the United States

Testimony by Kenneth R. Timmerman
before the U.S. -China Commission

Oct. 12, 2001
U.S. Senate Dirkson Building

I thank you for this opportunity to present testimony on an htmect of the proliferation and national security threat posed by Communist China that you may not hear from other witnesses.

I'm referring to China's ability, proven over the past decade, to acquire advanced military technologies for its weapons programs here in the United States through espionage, sleeper intelligence networks, and legal purchases condoned and even encouraged by a failed U.S. export control system.

I have been investigating Chinese high-technology procurement efforts in the United States since I was a Congressional staffer for Rep. Tom Lantos (D, CA) in 1993. Shortly after leaving the Hill, in July 1994, I reported that U.S. Customs officials were investigating Chinese government companies that were attempting to purchase defense production equipment being sold at auction from U.S. plants shut down at the end of the Cold War. My investigations were widely criticized by Clinton administration officials at the time, who called them alarmist and factually incorrect. But the facts I reported were borne out in great detail by the United States Department of Justice, when the U.S. Attorney for the District of Columbia issued a 16-count indictment against McDonnell Douglas and CATIC on charges related to these sales on October 19, 1999 . My reporting was borne out again in May 2001 when TAL Industries, Inc., a PRC government owned corporation whose very existence was unknown to the public until my initial investigation, entered a plea of nolo contendere to a felony charge for its involvement in these transfers. The equipment sold to Communist China in these deals came from the B-1 bomber plant in Columbus, Ohio and appears to have been destined to produce combat aircraft for the PLA Air Force.

I have been investigating illicit high-technology transfers and arms sales since 1984. I published a book in French on Soviet high-tech espionage and COCOM in 1989. Two years later, I published a book with Houghton Mifflin on Saddam Hussein's arms industries called The Death Lobby: How the West Armed Iraq. It was based on extensive interviews with the masterminds of Iraq's chemical, biological, and missile programs, individuals now well known in the West, and was called the "Bible" for United Nations arms inspectors by the head of that effort after the Gulf War, former Swedish diplomat Ambassador Rolf Ekeus. My investigation began with dozens of factory visits in the Middle East and Europe, where I learned about machine-tools, controllers and manufacturing processes, and got a layman's appreciation of the tools needed to build a rudimentary arms industry in the Third World. Some of the machine-tools I photographed on factory floors in Germany I later saw in person in Iraq.

My message to you this morning is simple: we must never underestimate our adversaries. We often make mistakes - at times innocently, at times not - by assuming that the engineers and planners in countries such as Iraq, Iran, or Communist China are not as smart as we are. Again and again, I heard administration officials argue that the technologies the Chinese were seeking to acquire from our decommissioned weapons plants were old technologies and therefore didn't pose a threat. These officials apparently believed that the Chinese and other proliferators of the world will design their missiles and bombs to American standards, and will turn up their noses at anything but state-of-the art technology. But remember: the first U.S. nuclear weapons were designed using rudimentary punch-card computers and built using 60-year old machine-tools. Even "old" technologies are good enough in the hands of a determined proliferator to create deadly weapons.

Clearly, the way we control technologies in the West is flawed. The Clinton administration made a fundamental error in my view by deciding to eliminate COCOM. European COCOM officials I had worked with for four years before the decision was announced in the spring of 1993 called me in Congress to ask me what virus had swept Washington to propagate such folly. The administration claimed they were abandoning COCOM because the Europeans were in the process of sabotaging it. Nothing can be further from the truth. The record should now be clear that the Clinton administration abolished COCOM to pave the way for billions of dollars of supercomputer, satellite, rocket technology, and telecommunications sales to commercial companies operated by the Chinese military or the Chinese State Council. This is not a political statement, but a statement of fact.

Let me share with you a few anecdotes to illustrate the gravity of the problem I believe we are facing, and how difficult your task will be to prescribe remedies.

1) GPS

In 1998, I came across documents from Tal Industries in El Monte, California, showing that this Chinese-government controlled front company had just exported a military-grade GPS system by air freight to CATIC in China.

As a patriot, I shared that information with the appropriate U.S. authorities, before I made use of these documents as a journalist. I was told by the Department of Commerce that they were no longer able to control GPS exports because of changes in U.S. regulations. My contacts knew full well that the supplier of this particular system developed state-of-the art GPS systems for the U.S. military. But because GPS had been decontrolled, the U.S. agencies they worked for could do nothing. Similar systems are now being used by the PRC to enhance the accuracy of their ballistic and cruise missiles.

2) Chinese front companies

During one of my investigations in California, I personally visited around 150 Chinese front companies, many of them no more than placards on closet offices that came alive to support a particular clandestine deal. I have appended to my written testimony a print-out of just one such network, which includes freight forwarders, bankers, import-export agencies and insurance brokers used to support Chinese military procurement activities in this country.

Because the Chinese mastered the whole process, using companies and agents they controlled and communicating almost exclusively in Mandarin, neither the FBI, Customs, or OEE had much success in penetrating these networks. One of these companies operated undetected for more than two years directly above a CIA liaison office in the Los Angeles area. Clearly, we need more Mandarin-speaking agents, and a much active Customs operation to infiltrate and disrupt these procurement networks.

3) Missiles

China's latest ICBM, the DF-31, has been greatly enhanced and its timetable accelerated by an influx of U.S. technology. China never could have acquired this technology without the progressive decontrol of strategic technology under the previous administration.

As I investigated this particular story for Reader's Digest in 1998-1999, I found a clear pattern of U.S. high-tech exports to Communist China that had not occurred under previous administrations. In key areas, these sales had improved China's strategic weapons programs. Since 1994, the administration had approved the sale of:

• gas turbine engines which the Chinese sought to improve their cruise missiles,
• Global Positioning System (GPS) production gear, which they need to improve cruise missile and ballistic missile guidance systems,
• "hot section" technology to manufacture advanced military jet engines,
• supercomputers needed to miniaturize nuclear warheads and improve ballistic missile guidance;
• fiber optics production equipment and cryptography software, which have given the PLA a secure communications system, and
• advanced military machine tools.

Acquiring so much advanced production gear from the United States amounted to a stunning success for the PLA and their intelligence services and directly aided PLA weapons systems.

Sometimes, seemingly innocuous contracts can lead to extraordinary losses to U.S. security. For example, on April 28, 1993, Motorola signed a contract with China Great Wall Industries Corp., to launch twelve of its Iridium global communication satellites. As part of the contract the Chinese agreed to develop a ".smart dispenser;" allowing them to launch several satellites from a single rocket. Earlier Chinese attempts to develop such a dispenser had failed.

According to a Chinese defector I interviewed, help from U.S. engineers changed all that by providing the specifications and technical assistance needed to produce the dispenser. Ultimately it was Lockheed which produced the dispenser, which now sits squarely atop the DF-31 carrying multiple nuclear warheads. Although these transfers were approved by the Department of Commerce, the U.S. government fined Lockheed $13 million for the transfers in June 2000 . (I have amended my testimony to include the original wire reports on these fines, after Commissioner Bill Reinsch, the former Commerce Department Undersecretary with ultimate authority over many of these sales, objected to the accuracy of my statements. As I would hope these footnotes illustrate, his objections are baseless). As a footnote to illustrate just how bad things became during the Clinton years, this defector who worked at the premier solid rocket fuel development facility in Communist China was never interviewed by any U.S. intelligence service, despite several offers to share his information. Any mention of a "China threat" was considered taboo.

Remedies

In 1992, I proposed to the incoming Clinton administration a series of steps to reform the export control system, by making it more attuned to the threats facing America from proliferators in the Third World who took advantage of our liberal, free-market policies.

Among other things, I suggested that the control system be taken away from the Commerce Department, which exhibited an inherent conflict of interest during the first Bush administration between its role as export promoter and export inhibitor. I suggested - and others agreed - that it made more sense to put export controls under DoD control, since the main reason we controlled technology to begin with was to protect our national security.

With the veritable flood of advanced military goods that have gone out the door since 1994, I am no longer sure the system can be reformed at all. Irreparable damage to our national security has been done by giving the PRC access to technologies it would have taken them years to obtain elsewhere, if at all. And through China, these technologies have spread to Iraq, Iran, and a variety of rogue states and non-state groups. You may recall not too long ago that the Pentagon waited before bombing one particular Iraqi communications site until the weekend, so the Chinese technicians installing U.S. fiber optics repeaters would not get killed by U.S. bombs. This is unfortunately symptomatic of the type of deadly threats we have created through mistaken policies.

One suggestion I proposed while still in Congress, which I believe has been partially implemented, was to require all shippers to electronically file Shipper's Export Declarations (SEDs), even for non-controlled goods. At the very least, and even in the absence of effective export control regulations or enforcement, this allows our intelligence agencies to make a preliminary assessment of the damage done to our security by pinpointing which technologies were shipped to particular foreign entities of concern. I urge you to follow up on this program to ensure it is being fully implemented.

Ultimately, there are only two ways to ensure that our technology does not come back to bite us: either refrain from selling it, or make sure we sell it only to our friends. Over the past eight years we have done neither.