Chinese students suspects in espionage

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Two Chinese students studying in the United States supplied China's military with American defense technology that allowed Beijing to produce a special metal used in sensors and weapons, according to a Pentagon report.

"This is a classic example of how the Chinese collect dual-use military technology," an FBI official said. "Students come here; they get jobs; they form companies."

The espionage, subject of an ongoing investigation, allowed China's military to develop a version of the substance known as Terfenol-D, which cost the Navy millions of dollars in research to create.

One of the Chinese students attended Iowa State University, where he worked closely with the Department of Energy's Ames Laboratory on the school's campus. The lab developed the material invented by the Navy in the 1970s.

The other student attended Pennsylvania State University.

The Terfenol-D data were stolen within the past three years in a computer hacking incident, the FBI official said.

In its annual report on Chinese military power made public last week, the Pentagon stated that "one of the Chinese students admitted sending this information [on Terfenol-D] to the [Peoples Liberation Army]."

The Pentagon noted that "usually the connections between [Chinese] academic, commercial, and military organizations are not so clear cut."

The FBI official said a Chinese company linked to the theft of the Terfenol-D data, Gansu Tianxing Rare Earth Functional Materials Co. Ltd., known as TXRE, is directly connected to the Chinese military. TXRE was set up by a Chinese official who studied with one of the two Chinese students.