Tuesday, February 12, 2008

On Jan. 29, the House Judiciary Subcommittee on Crime, Terrorism and Homeland Security held a hearing on Chinese espionage.

One of the witnesses was Larry Wortzel, chairman of the congressionally chartered U.S.-China Economic and Security Review Commission. Mr. Wortzel spent 25 of his 32 years in the U.S. Army working in military intelligence, then ran the Heritage Foundation’s Asian Studies Center. He told the subcommittee that “The commission concluded in 2007 that China’s defense industry is producing new generations of weapon platforms with impressive speed and quality. We believe that some of these advancements are due to the highly effective manner in which Chinese defense companies are integrating commercial technologies into military systems. … There is a long record in China going back over two centuries of sending government-directed missions overseas to buy or shamelessly steal the best civil and military technology available, reverse engineer it, and build an industrial complex that supports the growth of China as a commercial and military power.”

His testimony raises the questions of whether any real line can be drawn between military and civilian sectors in a Chinese economy dominated by state-owned and state-controlled firms under a communist regime that still draws up five-year plans and tightly manages all interaction between Chinese and foreign enterprises.

The question is not academic. The Commerce Department recently designated five Chinese corporations as “vetted end-users” who can now buy restricted technology with military applications without obtaining export licenses from the U.S. government.

The notion is that these firms are civilian enterprises that can be trusted not to pass along information to other Chinese firms or agencies in the military sector. This notion is insane. It is the result of heavy lobbying by American firms who want to sell Beijing whatever it wants, wishing only to make a profit as China expands.

The highly regarded Wisconsin Project on Nuclear Arms Control has reported on the ties two of the vetted Chinese firms have with the Beijing regime and military. Shanghai Hua Hong NEC Electronics Co. is majority owned through a corporate chain by state-owned China Electronics Corporation, which produces military equipment as well as consumer electronics. BHA Aerocomposite Parts Co. is partly owned by AVIC I, a state-owned aerospace conglomerate that produces fighters, nuclear-capable bombers, and many other weapon systems used by the People’s Liberation Army. Anyone concerned about U.S. security in a turbulent world should go to the Wisconsin Project Web site and read the full report.

Commerce claims it will monitor the vetted firms, but reports by the Government Accountability Office (GAO) have questioned the department’s ability to do so, especially in the face of uncooperative Chinese.

A 2006 GAO report designated “identification and protection of critical technologies as a government-wide high-risk area” and concluded, “Given its lack of systematic evaluations, Commerce cannot readily identify weaknesses in the dual-use export control system or implement needed corrective measures.” GAO earlier reported that Commerce lacks the personnel to police end-users in China.

The illusion of separation between military and civilian in China has also come up in the ongoing security review of Huawei Technologies bid for a 16.5 percent share of 3Comm, an American firm that produces network security software for the Pentagon. Bain Capital is buying 3Comm with Chinese minority participation. The fear is that Huawei will not only be able to get access to the firm’s technology, but may expand its control over time, since Bain only buys firms to sell them later for a profit.

Bain has argued that Huawei is a civilian firm. However, when the prestigious Rand Corp. published a report on the Chinese defense industry at the end of 2005, it described Huawei as representing “the new digital-triangle model, whereby the military, other state actors, and their numbered research institutes help fund and staff commercially oriented firms that are designated ‘national champions,’ receive lines of credit from state banks, supplement their R&D funding with directed money, and actively seek to build global market share. The military, for its part, benefits as a favored customer and research partner.” Anything Huawei gets from 3Comm will go straight to the PLA for use against American targets.

Yet, 3Comm seems confident the deal will go through. It has called a Feb. 29 shareholder meeting to approve the buyout by Bain and Huawei. The Committee on Foreign Investment in the United States (CFIUS), which is conducting the review, is chaired by the Treasury Department, whose naive view of China rivals that of the Commerce Department.

Republicans pride themselves on being strong on national security, and believe this is their trump suit against the Democrats. Certainly, Sen. John McCain hopes so, as he bids to carry the party’s banner into the fall elections.

Unfortunately, Republicans also think of themselves as the “party of business,” making them vulnerable to the “anything for a buck” pleadings of foreign traders and lobbyists. China is the test case as to which trait will prevail in the waning days of the Bush administration.

William Hawkins is senior fellow for national security studies at the U.S. Business and Industry Council.

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