Blurry line that makes hi-tech US trade a dangerous dance for Chinese

PUBLISHED : Tuesday, 01 March, 2011, 12:00am
UPDATED : Tuesday, 01 March, 2011, 12:00am

It was a striking reversal of fortune. Wu Zhenzhou, a Harvard-educated business executive, was in Chicago on his way to a Yale University CEO summit when he was arrested in December 2008. He was shackled, transferred from one detention centre to another, and finally charged with a serious crime: exporting US military technology to Chinese state entities.

Wu was sentenced in late January this year to eight years in a US federal prison. He has said he is innocent and plans to appeal.

While President Hu Jintao's state visit to the US last month celebrated bilateral trade and co-operation, Wu's case and others like it show the limits of the US appetite for trade with China. When it comes to perceived threats to national security, American officials and courts draw a hard line.

The Department of Justice has portrayed Wu's sentence as an important deterrent to others who might be tempted to sell guarded US military technology for money or in the name of ideology. China's espionage efforts depend on willing businesses like the one Wu founded, Shenzhen-based Chitron Electronics Inc, a US Congressional advisory panel has said.

At the same time, the US laws on licensing of hi-tech exports used to convict Wu have come under fire. They are too broad, poorly administered and in need of a thorough overhaul, US Defence Secretary Dr Robert Gates has said.

Is Wu the victim of a cumbersome set of US export restrictions? That is his argument, and Wu has hired a high-profile lawyer and Harvard law professor, Alan Dershowitz, to make his case.

'This law is so unclear you can't understand it even if you study it and study it and study it,' Dershowitz said. 'It's just too vague. It's too general. It serves as a trap for honest people who try to comply with the law and cannot understand it.'

A parade of engineers, businessmen and others have recently come before US courts on charges that they illegally conspired to provide information or technology to China.

On January 24, Honolulu-based engineer Noshir Gowadia was sentenced to 32 years in prison for the crime of communicating national defence information to a foreign nation. He was accused of designing a stealth cruise missile for China, and accepting US$110,000 in return.

On January 21, a Michigan man, Glenn Duffie Shriver, was sentenced to four years in prison for seeking a position in the CIA at the behest of Chinese intelligence officers.

Some have been accused of operating as sleeper agents, most notably Chi Mak, an engineer who was jailed for more than 24 years in 2008.

Many more have been accused of economic crimes, including export violations. Former Boeing engineer Chung Dongfan, for instance, received a 15-year sentence last year for economic espionage. He was accused of using Chi Mak as a conduit to send China information on aerospace and defence technology.

Wu and his ex-wife, Wei Yufeng, sentenced on January 28 to three years in prison on similar charges, thoroughly deserve a place in the same line-up of spies, according to some US analysts.

'Chintron [sic] is the most typical kind of espionage threat the US and other Western countries face from China,' Larry Wortzel, commissioner on a congressional advisory panel on Chinese security matters, wrote in an e-mail before Wu's sentencing.

Wortzel, a former US Army intelligence officer, serves on the US-China Economic and Security Review Commission. The group takes a dark view of China's intentions in the US. In 2009, it produced a lengthy report on China's cyber and human espionage efforts, painting a picture of an increasingly sophisticated and targeted system of information-gathering. 'China is the most aggressive country conducting espionage against the United States,' the report said, 'focusing on obtaining US information and technologies beneficial to China's military modernisation and economic development.'

Chinese officials have fought this characterisation. 'China never engages itself in activities that will harm other countries' national interests and national security,' said Chinese embassy spokesman Wang Baodong, in an e-mailed statement.

'Allegations of China spying against the United States are groundless and unwarranted.'

But US military officials maintain China employs a mix of legal and illegal means in its ramped-up efforts to build a home-grown defence industry. Foreign investments, joint ventures, academic exchanges and returning students are all avenues for hi-tech military information, according to a report released by the Pentagon in August last year.

Far from James Bond - and even from Anna Chapman, one of the hapless Russian spies found embedded in US cities and suburbs last year - the people most likely to be feeding China most of the military information it needs are likely to be businesspeople, officials and academics.

'It's not a Soviet-style espionage ring,' says Dan Blumenthal, another commissioner on the US-China Economic and Security Review Commission, and a former Pentagon official. 'It's leveraging the fact that there are many people who might have sympathy for China, who want to make extra money, and who are in positions with access to technology.'

People like the Chitron executives, Wortzel said.

'The companies look independent, set up foreign branches and hire people who are resident in the host country legally,' Wortzel said.

Sitting behind a soundproof screen during visiting hours at Donald Wyatt Detention Centre in Rhode Island in December, Wu wore a government-issued khaki uniform. There were heavy bags under his eyes. He spoke with a cosmopolitan manner at odds with his condition.

'This is the perspective that offends me the most,' said Wu, of the allegations that he is a tool for Chinese espionage. The congressional panel report linking him to spying efforts was written before his conviction, he said, and took into account only the headline version of events.

'I am not a spy,' said Wu in an interview in jail before his sentencing. 'Nor am I a criminal.' If anything, Wu said, he sought to avoid politics, as he built a business that made money exporting from the US the electronic components that China does not manufacture. He made a good-faith effort to abide by the law, he said.

After witnessing the bloodshed of June 4, 1989, in Beijing, he thought of political work as a bloody game. 'I wanted to make a profit,' he said.

As a civil servant working in Beijing that spring, Wu befriended Ross Terrill, a Mao biographer and a research associate at Harvard's Fairbanks Centre for Chinese Studies. It was Terrill who arranged for him to enter a graduate programme in East Asian studies at Harvard.

'He's a very talented person, a literary person,' Terrill said in autumn.

But Wu was not long for the academic world. He surprised his professors when he dropped out of a PhD programme to go into business.

In 1996, Wu founded Chitron in Shenzhen. Wu and Wei had two children, one born in China and the other in the US, before divorcing. Wu lived in Shenzhen, while Wei supervised the daily work of Chitron-US in Massachusetts, where she also raised their two daughters. The US office acted as a broker between US electronics manufacturers and distributors and Chinese clients, through freight forwarders in Hong Kong.

The company grew to employ more then 200 people. But it straddled a dangerous line. Bringing electronics components from the US translated into consistent profits, but it also meant complying with an export licensing regime that Wu says he did not understand.

Prosecutors told a different story. Over the course of a decade, until 2007, they said, Wu sought out customers in the defence and aerospace industries in China. Chitron's major clients included the research arms of the China Electronics Technology Group Corporation, which develops and manufactures electronics for the People's Liberation Army.

In court, Chitron-US employees described their growing concerns by 2005 that the company was not keeping up with complex export licensing requirements.

In the autumn of 2007, according to court documents, an employee confronted Wu about Chitron's apparent failure to comply with the law. Wasn't he worried about going to jail?, the employee asked.

If modernising China was a crime, Wu told the employee, then he would go to jail.

In May last year, Wu was convicted of conspiracy, falsifying documents and illegally exporting electronic parts that are used in military phased array radar, fire control, satellite and missile systems. Some were defence articles protected under the US Munitions List. Others were electronics components that required licensing by the Commerce Department. Along with the eight-year prison term, he was made to pay more than US$80,000.

The US export laws themselves have few defenders; Chinese officials have called for their reform, and Obama administration officials, too, have indicated the laws may stand in the way of legitimate trade.

Gates has called for an overhaul of the laws, criticising the 'Byzantine amalgam' of agencies and authorities overseeing them. The departments of Commerce, State and Defence each administer different parts of the licensing regime, and sometimes disagree about which equipment should be controlled.

The restrictions, Gates added, were overly broad.

'The current arrangement fails at the critical task of preventing harmful exports while facilitating useful ones,' Gates said in April last year.

But so far, calls for a single licensing regime and an updated protocol have not panned out.

And individuals receive little sympathy in the US for violating the confusing set of restrictions.

That is what lawyers are for, says Dean Cheng, research fellow at Washington-based think tank the Heritage Foundation and a critic of the present export control regime.

As the head of a corporation, Cheng said, 'you are supposed to be checking what is on the Munitions List, what's on the Control List. You are not necessarily versed in this. But your lawyer should be.'

But Wu's appeal lawyer, Dershowitz, argues that criticism of the law cannot be separated from its use in criminal cases. 'If the laws are vague, they can't be fairly applied to anybody,' Dershowitz said.

Wu puts it another way.

'You can't hide your laws, and then take them out of a drawer,' he said. 'China does that. America doesn't do that.'

Chitron chugs along in China, though dozens of employees left after the arrests. In Shenzhen, employee Rita Zhou has taken on the role of Wu's defender.

Cases like these scared off other businesses that might be interested in trading with the US, Zhou said. 'In China, most companies are not aware of the export regulations,' she said. 'We are the victims.'

Wu's mentor Terrill was swept into the government's investigation of Chitron. Without his knowledge, his name had been added to documents that the company had filed with the state of Massachusetts. The academic was questioned about his role in the company, but was never accused of any impropriety.

Terrill said he had accepted Wu's explanation that this was a miscommunication. He was aware of an alternate explanation: that Wu added his name to deflect scrutiny.

Now, Wu's former mentor defends him, to a point.

'I think he cut corners,' Terrill said. 'But the notion that he conspired to undermine American security is implausible to me.'