China Seen Using Close U.S. Ties for Espionage : California Activity Includes Theft of Technology and Surpasses That of Soviets, Experts Believe

Espionage agents of the People’s Republic of China, seizing advantage of increasingly close economic and political ties to the United States, have surpassed the Soviets as the most active foreign spies in California, according to top U.S. counterintelligence officials.

U.S. officials say the dramatic change is partly the result of the “friendly nation” status conferred on China by the United States and partly because of setbacks suffered by Soviet intelligence after the high-profile spy cases of the mid-1980s.

Although FBI and top military counterintelligence officials still view the Soviet Union as the most sophisticated and dangerous espionage threat in California, they say they are increasingly alarmed by Chinese spying and technology theft.

Not only are the Chinese perceived as more actively involved than the Soviets in classic human intelligence collection, as opposed to electronic spying, they are now the primary target for U.S. Customs agents in about 50% of all illegal technology transfer cases on the West Coast.

The FBI’s charges of widespread spying and technology theft are denied by Chinese government officials and questioned by some leading Chinese-Americans in Los Angeles. FBI officials themselves say they fear their comments about Chinese spying might be interpreted by some as racist.

Nonetheless, in comments that reflect the prevailing view of U.S. officials, Harry J. Godfrey III, head of FBI counterintelligence in Los Angeles, said Chinese intelligence agents now are using virtually all available resources in their spy activities in California.

“As far as human intelligence collection, the Chinese have now outstripped the Soviets in California,” Godfrey said. “Because of the political climate, they have more opportunities here and appear to be utilizing them.”

Outdoing the Russians

“If we are talking about violations of U.S. law, the Chinese are surpassing the Russians,” Godfrey said. “We know they are running operations here. We have seen cases where they have encouraged people to apply to the CIA, the FBI, Naval Investigative Service and other defense agencies. They have also attempted to recruit people at our (nuclear) research facilities at Los Alamos and at Lawrence Livermore.”

To date, however, the FBI has had little success in prosecuting Chinese espionage cases, Godfrey said.

“When you look at the Chinese, you have many small individual efforts at collection,” Godfrey said. “For prosecutive purposes, you are looking at an individual collecting one small part one time, and you don’t have the quality of case that our country will take to prosecution as far as espionage.

“If you have a Soviet or East Bloc spy case, you have fewer people collecting more information,” Godfrey added. “If you detect it, it’s clear what you have.”

Out of Reach

Another major problem for the FBI, Godfrey said, is that much of Chinese espionage activity takes place in China.

“It’s easier to travel in and out of China than to go to the Soviet Union,” Godfrey said. “If it’s information exchange, they almost always encourage the potential recruit to go to China out of our reach.”

John R. Hensley, assistant West Coast chief of the Customs Service, said the same problems have hindered U.S. efforts to prosecute cases of illegal technology transfer involving the Chinese.

The Chinese, Hensley said, are now the most active foreign power engaged in the illegal acquisition of American technology. They focus primarily on computer technology that can serve a dual use for both Chinese industry and military, he said.

‘So Many People’

“The Chinese now probably represent the biggest dollar amount of illegal export totals. It’s difficult to keep up with the Chinese because they have so many people over here,” Hensley said. “They don’t have the sophistication of the Soviets, but they make up for that in numbers.”

According to the FBI, the Chinese focus their espionage recruitment efforts in California on the state’s large Chinese population, estimated at 400,000. FBI officials say that while other foreign powers, including the Soviet Union, historically concentrate on their own ethnic groups, no country does so to the extent that China does.

Both Godfrey and Hensley stressed that the overwhelming majority of Chinese-Americans in California are viewed as loyal to the United States. In fact, said Godfrey, most U.S. successes against Chinese spying have come because of help from the Chinese-American community.

“When we talk about China, we’re not talking about a threat by any ethnic group,” said Godfrey. “It’s just that certain people in that group are targeted for recruitment.”

Difficult to Monitor

Both FBI and Customs officials say it is more difficult to monitor the thousands of mainland Chinese in California than to keep track of the activities of the much smaller Soviet and East European contingents in the state.

Numbers alone account for part of the problem. In the Los Angeles area, for example, there are 3,000 Chinese students contrasted with only four from the Soviet Union, and more than 40 Chinese government-run businesses contrasted to only five East European commercial and trade groups.

The Chinese also use more people in their actual espionage activities than any other intelligence service in the world, according to the FBI.

“We have always compared them to grains of sand,” one FBI official said. “If grains of sand were intelligence targets, the Soviets would surface a submarine in the dead of night and send a small party to the beach to bring back several pails of sand. The Chinese would send 1,000 bathers to the beach in broad daylight and have each bather bring back one grain of sand.”

Easier Targets

Another major problem for the FBI is that China, much further behind the United States technologically than the Soviet Union, directs most of its espionage toward acquiring mid-level American technology and not the cutting-edge technology sought by the Soviets.

In practical terms, that means there are more potential targets for the Chinese in U.S. industry, and the secrets the Chinese seek are not as tightly protected as those coveted by the Soviets.

While the top priorities of Soviet intelligence include acquisition of U.S. war plans and codes as well as secrets about such advanced weapons as the stealth bomber, U.S. officials say the Chinese are more interested in plans for more conventional aircraft and missiles and computer technology needed in manufacturing weapons systems.

U.S. experts say the Chinese, viewed as a potential ally against the Soviet Union, are still far behind the Soviets in military technology. However, with American help, they have engaged in recent years in a complete overhaul of their army, air force and navy.

Arms Merchants

The Chinese have also become the world’s fifth-largest arms merchant, selling more than $2 billion worth of weapons annually, including the recent controversial sale of Silkworm missiles to Iran and intermediate-range ballistic missiles to Saudi Arabia.

While the United States continues to support modernization of the Chinese military, some U.S. officials have grown increasingly concerned at Chinese arms sales--questioning whether the flow of American technology to China may eventually work against U.S. interests in the Middle East.

Much of that technology is centered in California, and China has dramatically increased its official presence here with the goal of acquiring as much as possible.

Besides a commercial base of about 100 Chinese government-owned companies throughout the state, China also has an 80-member consulate in San Francisco and a 30-member Los Angeles consulate that opened last March over the protests of the FBI.

Consulates Watched

Although U.S. counterintelligence officials publicly stop short of saying that the consulates are involved in spy operations, they watch them carefully. They also keep track of the activities of Chinese business people, students and other visitors.

The charges of widespread Chinese espionage activity are denied by Chinese diplomats here and viewed with skepticism by some Chinese-American leaders. But the FBI’s assessment of a rapidly growing Chinese intelligence presence emerges as the most significant development in a review by The Times of the current espionage situation in California.

Because of the John Walker-Jerry Whitworth case and other high-profile espionage prosecutions, 1985 was called the “Year of the Spy” in the United States. In fact, however, that was merely the climax of a decade of major spy scandals that began and ended in California, one of the primary targets in the world for the intelligence-gathering activities of other nations.

The center of the nation’s aerospace industry and birthplace of so much of U.S. high technology, California accounts for roughly 25% of the nation’s defense contracts. No other state has so many classified projects, so many critical military installations and so many thousands of civilian workers in classified jobs.

Soviet Setbacks

In the aftermath of the spy cases of the mid-1980s, the United States responded on several fronts: There was a crackdown on Soviet espionage activities, a bolstering of U.S. counterintelligence resources and a significant reduction in military and civilian security clearances.

In large part, the United States has enjoyed a series of successes in the last three years in its counterintelligence efforts against the Soviets and their East Bloc allies. In the view of the FBI, however, that has not been the case with the People’s Republic of China.

There are, in effect, two U.S. policies toward China today. On one hand, the United States is committed to expanding trade and promoting political relations with the Chinese. On the other, U.S. counterintelligence agencies are increasingly involved in investigating Chinese espionage activity.

FBI agents privately complain that there is no way to effectively monitor all Chinese activity in California. They also say bluntly that there seems to be little interest at top levels of the U.S. government in mounting a full-scale effort to stop both Chinese spying and technology theft.

Washington Scolded

“In the scheme of things these days, it seems to make very little difference to Washington whether the Chinese are spying or not,” said one high-ranking U.S. counterintelligence agent who asked not to be identified. “It’s almost an annoyance when an actual violation of law surfaces.”

One major setback for the FBI in California was the decision by the Reagan Administration to permit China to open a second California consulate earlier this year in Los Angeles.

Under a treaty with the State Department, the consulate was originally planned for Honolulu, but the Chinese argued successfully that their commercial interests would be better served in Los Angeles.

Senior counterintelligence officials say opening of the Los Angeles consulate came despite a “major battle” between the Justice Department and the State Department, with the latter supporting the Chinese move as beneficial to broad U.S. economic and strategic interests.

Tough on the FBI

At top levels of the FBI, the fight over opening of the consulate is more diplomatically described as a “difference in philosophy.” But officials admit that the realities of Chinese-U.S. relations make it difficult for the FBI to do its job.

“The friendly nation status of China complicates it somewhat in carrying out our mission,” said FBI Assistant Director James H. Geer, head of the intelligence division in Washington.

“The opening of the consulate in Los Angeles gives them one more platform. One of the things we know about the Chinese is that they will use every means at their disposal in intelligence gathering.”

The new consulate in Los Angeles occupies the third floor of a five-story office building at 501 Shatto Place in the Mid-Wilshire area. The Chinese took a five-year lease in March and have moved their consul general and about 20 consular officials into a nearby residence and apartment complex.

No Overt Signs

Unlike the Soviet Consulate in San Francisco, which bristles with electronic spy gear, there are no signs at the Chinese Consulate to indicate that it is anything other than a visa-processing center and diplomatic outpost for the Chinese government.

In fact, the Chinese Consulate, housed in a building owned by the Plumbers and Pipefitters Pension Fund, is open to visitors, a dramatic contrast to the tightly guarded Soviet Consulate in San Francisco. The Chinese even use the same American janitors who clean the rest of the building.

The Los Angeles consulate is the hub of Chinese commercial activities in Southern California. In the last year, about $2 billion of $8 billion in Chinese trade with the United States involved Southern California companies.

According to a variety of U.S. sources, there are about 200 commercial representatives and 100 Chinese businesses in California, most of them opened in the last three years after a decision by the Chinese government to peg its economic future on more open commercial and cultural relations with the United States.

Steady Flow of Visitors

Roughly 10,000 immigrants from the People’s Republic of China have arrived in California every year in recent years, and there is a constant flow of official visitors. In the Los Angeles area alone, there were about 1,000 visiting Chinese delegations, of up to 200 people each, in the last year.

Besides the vast Chinese commercial and political presence, which the FBI attempts to monitor, there is an enormous Chinese interest in academic research in California. There are about 5,000 Chinese students attending California universities, most of them in postgraduate studies subsidized by the Chinese government.

Further complicating the FBI’s counterintelligence problems in coping with the increased Chinese presence is the steady stream of Chinese merchant ships now calling at California ports. In 1987, a total of 190 Chinese ships arrived in California, compared to 30 Soviet vessels. Both the FBI and the Coast Guard regard the merchant fleets of foreign powers as yet one more potential cover for intelligence activity.

The FBI stresses that while the vast majority of visiting Chinese are here for legitimate purposes, it is the job of counterintelligence agents to try to determine which officials or students, if any, might be involved in spying.

Major Catch

Godfrey, the FBI official in charge of counterintelligence in the Los Angeles area, is particularly well versed on Chinese espionage. While stationed in Washington, he helped run the FBI investigation that led to the 1985 arrest and conviction of Larry Wu-tai Chin, a Chinese “mole” inside the CIA for 33 years.

Until the Chin case, the FBI had no visible proof to support its charges of Chinese spying. Chin, who committed suicide after he was sentenced to life in prison, remains the only major U.S. spy directly linked to China.

More recently, a Chinese national, Zhu Entao, believed to have been Chin’s case officer, was barred by the State Department from traveling to Washington to attend a meeting of the executive committee of Interpol, the international police organization.

U.S. officials said the incident involving Zhu is an example of the boldness of Chinese intelligence activity in the United States. The FBI says that no other major intelligence service would have seriously considered trying to send someone publicly identified as a spy into the United States under any pretext.

Apart from the Chin case and related incidents, however, the FBI has no specific examples of Chinese spying that are ever publicly discussed. Most officials describe the overall problem only in general terms.

Lured With Promises

Godfrey and other FBI officials say China primarily targets Chinese-Americans in its efforts to infiltrate U.S. defense and intelligence agencies. They say attempts to recruit Chinese-Americans often involve promises of financial reward and suggestions that relatives still living in China might also benefit economically.

“China historically has gone after the ethnic Chinese group,” Godfrey said. “We haven’t seen much interest by them in anything other than ethnic Chinese. I think that’s their real threat: their networking and penetration. The Chinese have one favorite question for every U.S. company: Are there any Chinese who work there?

“When they do make an approach, it’s usually a subtle pressure, with references to relatives in China and possible business opportunities,” Godfrey added. “They tend to allow people to draw their own line. It’s like fishing. They hit everybody, and some people bite.”

In discussing the FBI’s problems in prosecuting Chinese spies, Godfrey said that Chinese agents operating in California tend to collect fewer documents than Soviet agents and generally leave less evidence of their activities.

The Chinese Way

“We haven’t seen the classic ‘dead drops’ (information and payment exchange points) that you have with the Soviets,” Godfrey said. “The Chinese are more apt to have a person come into a business or diplomatic establishment.

“The Chinese form of payment is a lot more subtle too,” he added. “Instead of a lump sum cleared through a dead drop, they will offer legitimate business opportunities. All those things make Chinese cases harder to prosecute.”

Although some U.S. intelligence experts say they assume Chinese intelligence agents are on the consular staff in Los Angeles, the FBI is officially quiet on the subject.

“The Chinese prefer to do their actual recruiting in China for obvious security reasons,” said one official. “Let’s put it this way: The consulate would be doing its job here just by getting the right people back to China.”

Technology Thefts

Just as the FBI now considers the Chinese to be the most active foreign intelligence-gatherers in California, U.S. Customs officials rate the Chinese as the leading foreign power involved in stealing U.S. technology.

The Customs Service estimates that about 50% of almost 900 technology transfer investigations conducted annually on the West Coast now involve the Chinese. Hensley, who heads Customs enforcement on the West Coast, contrasts that with 20% for the Soviet Union and a similar percentage for Iranian agents illegally procuring military equipment.

“The first time I became aware of any serious Chinese effort was in 1982. Since then it has increased steadily,” Hensley said. “Let’s say they are spending $50 million a year here and probably taking out more stuff than any other country.

Different Targets

“There remains a major difference between the Chinese and the Soviets in terms of what they are targeting, however,” Hensley added. “The Chinese aren’t going for the cutting-edge stuff--laser killer-satellite technology and so forth. They are primarily after mid-range and dual-use technology that has both civilian and military applications--a computer that drives an auto production plant, for example.”

One typical Chinese export case recently involved two former officials of a Berkeley computer firm, Dual Systems Control Corp., who were accused of arranging shipments of 70 microcomputers to China via Hong Kong in 1983 and 1984.

One of the former officials of the company, Berkeley City Councilman Frederick Weekes, testified during trial that he had never intentionally violated export license laws. Weekes was acquitted in June, but his former business partner, Piedmont attorney Bernardus J. Smit, was convicted and sentenced to six months in prison. He was also fined $60,000 and ordered to perform 1,000 hours of community service.

“It’s generally more difficult to prosecute (Chinese) illegal export cases because the items they want aren’t usually as tightly regulated as the state-of-the-art technology that the Soviets are after,” Hensley said.

Called ‘Ignorance’

The accusations by FBI and Customs officials of wholesale Chinese technology theft and espionage intrigue not only are denied by Chinese officials in California, but dismissed as “ignorance” on the part of U.S. counterintelligence agencies.

“We don’t have intelligence ties,” said Zhang Pengxiang, China’s political consul in Los Angeles. “It’s really imagination. Not only that, it’s ignorance. They really don’t know China. We are open here. Quite open.”

China’s consul general in Los Angeles, Ma Yuzhen, also denied any espionage links during an interview in which he stressed the growing trade relations between China and such major American firms as McDonnell Douglas, Occidental Petroleum and Arco.

“I think that is the most inaccurate view of Chinese activity here. None of us here are involved in intelligence gathering,” Ma said. “No Chinese consular officer is ever doing such things.”

Problem Played Down

Los Angeles City Councilman Michael Woo is one of several Chinese-American leaders who expressed the view that reports of spying by China in California might be exaggerated.

“I’ve heard some gossip and rumor, but my guess is that stories of widespread spying by Chinese are a distortion of reality,” Woo said. “You must show Chinese intelligence activity within thecontext of the whole range of espionage going on here.

“There may be a small group of Chinese so fanatical that they could compromise their citizenship, but I feel very strongly there is no difference between the Chinese community and the general population in that respect,” Woo added.

Irwin Lai, a Los Angeles businessman and national president of the Chinese-American Citizens Alliance, said he questions the need for the mainland Chinese to engage in major espionage activity in the present era of cordial diplomatic relations with the United States.

“The information they can get is fairly readily available in magazines and from our own government,” Lai said. “There’s a lot of information available. Before the FBI can point the finger, they should have definite proof.”

China vs. Taiwan

Besides espionage activity directed toward the United States, the FBI says that one of the major tasks for mainland Chinese intelligence agents in California is monitoring the activities of Taiwanese intelligence agents who are also active in the state. Both political factions operate within the state’s ethnic Chinese community.

And just as the FBI’s Asian counterintelligence squads keep track of China’s activities in California, they closely watch known Taiwanese intelligence operatives, who have also been linked to classic military espionage as well as illegal technology transfer.

“This is almost like a battleground for Taiwan and China to play out their game in some respects,” said a top FBI official in San Francisco.

The most sensational operation mounted by the Taiwanese in California was the 1984 assassination of Chinese writer Henry Liu, a critic of the Taiwan government, who was shot to death at his home in a suburb of San Francisco. The killers were subsequently linked to the former chief of Taiwan’s military intelligence agency.

Chinese Denial

Ma, 54, a polished diplomat who previously served as director of information for the Chinese Foreign Ministry, denied that China has any antagonism toward pro-Taiwan elements in California.

“Instead of getting into a quarrel, we want to meet them,” he said. “We are not going to make use of the Chinese community in this country for political purposes.”

Despite such statements, some Chinese-American leaders in Los Angeles say the opening of the Chinese Consulate has caused some friction within the Chinese community, whose leadership has traditionally been more loyal to Taiwan than to mainland China.

“There is starting to be increased visibility on the part of the . . . consulate,” Woo said. “I think it disturbs the traditional leaders of the Chinese community, who in the past have only invited Taiwan leaders to official events.”

Times staff writer Dan Morain in San Francisco and Times research librarian Tom Lutgen contributed to this story.