Chinese students suspects in espionage

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.

TXRE’s promotional literature states that it has developed a substance that U.S. officials say is Terfenol-D.

Terfenol-D is a high-tech material that changes shape in response to magnetic energy, and can be used in both sensors and mechanical devices. Because it has both commercial and military applications, any sale of the technology is strictly controlled and requires an export license.

The Navy uses Terfenol-D in an advanced sonar system designed to track enemy submarines. The material also has applications for advanced aircraft and spacecraft. U.S. officials said it could be used by the Chinese in a multiple warhead missile stage and in “smart” aircraft wings.

The sole U.S. manufacturer of Terfenol-D is Etrema Products Inc., a private company in Ames licensed to produce it. A company spokeswoman declined to comment on the Chinese acquisition of Terfenol-D.

Last week’s report was the U.S. government’s first public admission that the Chinese military had obtained the defense technology. Details of the Chinese acquisition of Terfenol-D were reported by Insight magazine in October.

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