China's Spying Efforts in U.S. Dwarf All Others'
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    And They Could Prove Costly to American Firms
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The Wall Street Journal,  Monday, April 4, 1994  (A14)

By John J. Fialka, Staff Reporter of the WSJ



    Shortly after U. S. Customs Service agents arrested Bin Wu
for illegally sending U.S. high technology back to his native
China, a nervous man appeared outside the customs office in Norfolk,
Va., desperately seeking to interview Mr. Wu.

    The man turned out to be Blake Lewis, an FBI undercover
counterintelligence agent who for the previous 20 months thought Mr. Wu
was working for him as a double agent, passing him secrets about China's
vast espionage network in the U.S.

    "It was like, well, what are you doing here?" recalls Tom
Rademacher, the customs agent who made the arrest.  "And he [Mr. Lewis]
said, 'What are you doing here?'  It was not a great way to start your
day."

    In fact, until he was stopped by customs in October 1992, Mr. Wu was
working surreptitiously for the Chinese government while making a small
fortune through his business dealings in the U.S.  He was convicted and
sent to prison last summer for conspiracy and violating U.S. export
laws.

    Measured against the screams of outrage and shock over the arrest of
Aldrich Ames, the Central Intelligence Agency employee accused of
selling vital secrets to the Russians for more than $2.5 million, the
flap over Mr. Wu made hardly a whisper.

    But current and former U.S. counterintelligence experts say that, in
terms of numbers of contacts, Chinese espionage efforts now vastly
overshadow Russia's or those of any other nation operating in the U.S. 
For every Aldrich Ames, there may be 10 to 100 Bin Wus quietly working
within the cover of the huge U.S. Asian community to send U.S.
technology and business secrets back to China.  Unlike Mr. Ames, who is
accused of collecting and exposing the names of U.S. agents, China's
spies a[[ear to be gathering secrets in the economic and technology
arena, where the damage they cause could be expensive to U.S. companies.

'Shotgun Effect'

    The Chinese effort is "more like a shotgun effect," explains Mr.
Rademacher.  "They spread a whole crew out."  One of the forces that
appears to be driving China's agents, according to Mr. Rademacher and
others who are trying to puzzle out their methods, is a profit incentive
that appears to be built into their operations. 

    Mr. Wu, a slender former philosophy teacher who arrived in the U.S.
in November 1990, soon volunteered his services as a double agent,
saying he was disaffected with the Beijing regime.  He was paid a total
of $22,000 by the FBI for information about Chinese activities in the
U.S.  But on the side, he was shipping image-intensifier tubes, the
essential ingredient for night-vision devices, to China.  He bought the
tubes for $1,600, and billed his spymasters in Beijing for $2,100. 
According to testimony at his trial, the deal that customs interrupted
would have netted Mr. Wu $500,000.  Mr. Rademacher said Mr. Wu admitted
that his employers at China's Ministry for State Security approved the
$500 markup.

    One of their purposes was to make him a very influential person
over here,  That would make him more influential person over here.  That
would make him more valuable as an intelligence agent," asserts the
customs agent.

    Nicholas Eftimiades, a counterintelligence analyst for the Defense
Intelligence Agency, has just published a book about Chinese espionage. 
He says Mr. Wu's venture also bears another trademark of a typical
Chinese operation -- it was fairly sloppy.  Mr. Wu operated more or less
in the open, chatting casually on unsecured telephone lines, even
telling his FBI handler some aspects of the image-intensifier scheme.

    "In many of the cases, you see poor tradecraft, loosely organized
operations, people floating in and out of deals," he says.  Mr. Wu had
two accomplices.  At one point, one of them, professing to be an English
student at Norfolk's Old Dominion University, casually signed a purchase
order for $700,000 of equipment.

'No Coordinated Effort'

    But behind the apparent sloppiness, there is a highly sophisticated
operation, one that is extremely hard for U.S. counterintelligence
agents to stop or even identify, says Mr. Eftimiades.  Moreover, he
adds, U.S. intelligence officials have only recently become aware of the
magnitude and the depth of CHina's spy efforts.  "THere is no
coordinated effort against them, and things like the Bin Wu case bear
this out," he says.

    Mr. Eftimiades says China's drive to gather intelligence in the U.S.
appears to have accelerated in the late 1980s.  The Ministry for State
Security, China's version of the former Soviet Union's KGB, used two
assets the Russians could not match.  They recruited spies from some
15,000 Chinese students and 11,500 Chinese diplomats, trade
representatives and others visiting the U.S. every year.

    To back up their spies, Chinese agents have formed some 795 U.S.
companies, the says.  Many of them are one-person or two-person
businesses in heavily Asian neighborhoods that are used to smuggle out
technology or to bring in money or information to agents.  According to
a Defense Department official, who asked not to be identified, one
loophole being exploited by the Chinese is to ship U.S. technology from
California to front companies in Vancouver, British Columbia, where they
are re-exported to China under Canada's more lax export controls.  A
similar pattern, according to the official, is likely to 
develop in Mexico.

    One of the devices used to recruit spies is the threat of 
pressure on the potential spy's family in China. Another is the 
possibility of earning profits through the U.S. companies, which, 
in turn, provide a ready cover for suspicious amount of money. 
While Mr. Ames, the alleged Russian spy, was eventually fingered 
at the CIA for living well beyond his $69,000-a-year salary, a 
Chinese spy operating a U.S. business might avoid suspicion, 
according to Mr. Eftimiades.

   "It's a good way to conceal payment if instead of money you offer 
business opportunities," he explains. "Ames couldn't hide this, 
but if you have business opportunities, there are certainly ways 
to lose that money."

    Mr. Wu, in Mr. Eftimiades's view, was among the category of 
agents that are known as "fish at the bottom of the ocean" in the 
lingo of the Chinese security ministry. These are agents trained 
to remain largely inactive for 10 years or more until they have 
sunk deep roots within a community and have risen within the 
hierarchy of a U.S. corporation or government agency.

    "In intelligence terms, these are going to be the most 
devastating people," he says.

    "A lot of people are using their intelligence agents to collect 
[information] in the economic area, but this is something the 
Chinese do to a fare-thee-well," says Henry Brandon, who recently 
retired as deputy chief of the FBI's counterintelligence 
division. "They acquiring U.S. technology before it comes on the 
market."

Sitting Duck Corporation

    Most U.S. corporations, he says, are sitting ducks for Chinese 
penetrations-"they are not prepared to deal with it." One FBI 
program under way, the "Development of Espionage Awareness," is 
designed to brief corporate executives on their potential 
exposure in this area.

    A spokesman for China's embassy in Washington declined an 
opportunity to comment on allegations of Chinese spy operations. 
As for Mr. Wu, currently serving a 10-year sentence in a federal 
prison, his lawyer, James O. Broccoletti, says he was only 
following FBI's orders, an assertion that FBI denies, "It's 
bizarre that he got convicted," says Mr. Broccoletti.

    Asked if Mr. Wu, as some customs agents suspect, might have been 
a kind of triple agent-a man sent to the U.S. to seek technology, 
to feed false information to the FBI and then to burrow into deep 
cover for later operations- the lawyer insisted on his client's 
total innocence. However, he demurred on some of the finer points 
raised by the case.

    "We'll never know the truth of some of these things or be able to 
read into everything that was there," he says.