6

OPERATION AUTUMN ORCHID, HONG KONG

“Mr  Xu had a heart attack out of the blue while we were making love. He died in my arms.”

“You are lying to us, Madame Liu! The autopsy has shown that sexual intercourse did not occur!”

This extraordinary exchange took place in the Tokyo police headquarters, between detectives from the crime squad and a 38-year-old Chinese woman, who insisted she was cheating on her Japanese husband and was in an adulterous relationship with her Chinese lover.

Initially, circumstances seemed to confirm her words. But in fact things were not quite what they seemed. In March 1991, detectives discovered the corpse of Xu Yuanhai in a love hotel in Tokyo’s red light district: Kabukicho, a neighbourhood of nightclubs, sex shops, “soaplands” (Japanese bath-house brothels), and the slot machine industry that is fought over, with American punches and the honed blades of sashimi knives, by Japanese Yakuza gangsters and Chinese bandits.

“That’s right! Undercover agents would arrange rendez-vous in the dodgy neighbourhood of Shinjuku, deep in the mysteries of the floating world,” laughed Kodama Michinao. It was 1996, and we were at the small Kabukicho bar where he used to meet CIA agents and Taiwanese spooks during the Cold War.1

With his razor-sharp moustache, Kodama-san was the spitting image of Mitsuhirato in The Blue Lotus, and indeed, before he became president of the Association of Private Detectives, he had been a Japanese secret agent in Shanghai. With the spy and Manchu princess Yoshiko Kawashima, future tutor of the last emperor Pu Yi, he had taken part in the famous Shanghai Incident of 18  January 1932; in a dark, deserted alley, five Japanese monks were attacked. The beating was imputed to Chinese foot soldiers and used to justify the invasion of the city by 70,000 Japanese troops. It was the plot of The Blue Lotus, except that the Operation was codenamed Golden Lily.

During the Cold War, Kodama diligently trailed Chinese communist spies. “They were everywhere!” he told me. Only a few blocks away from the dive bar where we were sitting was the spot where Xu the spy had died in Madame Liu’s arms five years earlier.

While the mama-san, the matriarch who ran the bar, served us another shot of whisky from Kodama’s personal bottle, he told me the tragic saga of a Chinese man who had fallen deeply in love. His tale was embellished with multiple details from reliable sources that I was subsequently able to cross-check, point by point. For 4,000 yen, Xu had rented a small studio in the love hotel for a few hours, to engage in a bout of phoenix and dragon. Given the housing crisis and the small size of Tokyo apartments, it is common for married couples to use love hotels to have some intimate time together, away from the rest of the family.

Naturally, I am summarizing. After the autopsy, the background of 58-year-old Xu Yuanhai, director of the Sino-Japanese Friendship Association, left investigators with some serious reservations about Madame Liu’s version of events—the pillow talk on this particular futon seemed to have been of a particular flavour: the spice of an espionage case. Xu had been an advisor to the Chinese embassy in Tokyo since 1986. According to Japanese experts, his title there, head of general affairs, loosely disguised his actual role as station chief for the Guoanbu, the ministry of state security responsible for foreign espionage, run since 1985 by Jia Chunwang.

Attached in turn to diplomatic missions in Pyongyang, Hanoi and Hong Kong, before being posted to Japan, Xu was one of the operatives who had been deployed by the Guoanbu in concentric circles all over Asia since its creation. In North Korea, these Guoanbu spies both supported and spied on the dying dictator Kim Il-sung, as they drew up plans for a palace coup. In Vietnam, they patched things up with the new generation of leaders while closely studying the capitalist effervescence filling the streets of Ho Chi Minh City. In Hong Kong, they prepared for the handover of the British colony, while maintaining it as a platform for a planned economic conquest.

By 1991, the year of his death, Xu Yuanhai had become an important roving emissary. In this role he was responsible for the student sector, charged with recruiting agents from among Chinese students on his frequent visits to Japan. Some honed their skills as spies by grassing on their comrades; two years after the Tiananmen tragedy, anyone disseminating dissident ideas was kept under close surveillance. In Japan, as in France and the United States, the Chinese embassy’s education department played a key role in this area.

The Guoanbu’s mission in Japan, as in other countries, was to put pressure on the local branch of the Federation for a Democratic China. In Shanghai, Ding Shenglie, head of the local Guoanbu station, arrested a Japanese foreign student called Yoshizaki Masami. Terrified at being threatened with imprisonment, he agreed to spy on Chinese dissidents upon his return to Japan. At the end of 1990, Chinese “diplomats” in Tokyo even managed to force the Japanese government to expel some of the Chinese students. They knew that the Japanese had more of a taste for commercial entente cordiale than for human rights, a Western concept whose appeal was in decline. Yang Zhongmei—one of the most high-profile Tiananmen dissidents in Japan—recalled a young student recruited by Xu who committed suicide under mysterious circumstances in November 1991.

The beautiful Madame Liu’s background was no less murky. The wife of a Japanese travel agent, she had arrived in Japan only a year before Xu’s death. According to the Hong Kong weekly Far Eastern Economic Review, she had previously worked in Beijing for the 3S research group, a specialist branch of the CCP founded in 1984.2 “3S” stood for (Agnes) Smedley, (Edgar) Snow and (Anna-Louise) Strong, the trio of American journalists who had been close to Mao, and who had become heroes of the PRC—despite Stalin’s suspicions that Strong and Snow were CIA agents.3

The 3S research group was set up to combat the negative image of the PRC in some foreign media. Madame Liu joined it after a stint working with the former foreign minister, Huang Hua. As a young man, Huang had been Edgar Snow’s interpreter, and helped him write his bestselling book Red Star Over China. Huang also worked for the Social Affairs Department (Zhongshebu) and the Xinhua News Agency. Later, he succeeded his mentor Zhou Enlai as foreign minister. Even in China, the world of the elite is small: Zhou’s widow, Deng Yingchao (“Abundant Brightness”), was honorary president of the 3S when Huang was president. From January 1992, Hua was also president of the Chinese Association for International Friendly Contact (Zhongguo Guoji Youhao Lianluo Hui), a front for military intelligence. The circle was complete.

Madame Liu was not just any Chinese woman looking for a good catch when she arrived in Japan in 1990. She was ostensibly there to galvanize support for a new organization, the Research Association for International Friendship. But Japanese counterintelligence learned that this was a cover, as was her speedy marriage to a Japanese citizen from the prefecture of Chiba, which usefully gave her Japanese nationality.

What with all the “covers” piled up on him in the Shinjuku love hotel, Xu Huanhai probably needed air. He did not survive the heart attack he had following a hearty lunch at the Japanese Foreign Correspondents’ Club with a Japanese journalist and Madame Liu. When they looked a little closer, investigators were unable to exclude the possibility that the pair of spies had been in the habit of polishing off their lunch meetings with a little post-prandial tangle between the sheets. On this occasion, though, they probably hadn’t had time.

Be that as it may, Zhong Jingeng, Xu’s successor at the embassy, imposed a blackout on the case and hung some of the spy networks out to dry. Unfortunately for Beijing, the case revealed to Japanese counterintelligence several elements of its own strategic intelligence.4 Firstly, Tokyo learned that the Chinese special services had launched a vast offensive of concentric-circle dissemination in Asia, and that Japan was one of the favoured targets. Secondly, this tragedy revealed the growing use of party organizations, such as the United Front Work Department and friendship associations, as fronts for intelligence operations.

The use of these organizations as fronts—at the behest of Qiao Shi, head of the CCP’s security sector—was part of a charm offensive whose purpose was not only to enable China to improve its image in the early 1990s, but also to further advance its position on the world stage by accelerating its economic development. One aspect of Xu’s spy career, analyzed by Japanese counterintelligence, was his work for several years at the Xinhua News Agency. This confirmed that the press agency was being used, in the absence of an embassy in Hong Kong, as a cover for Beijing special agents, who were becoming more numerous and more active in the British colony as the hour of the handover, planned for the summer of 1997, approached.

Deng Xiaoping: take Hong Kong and die

In late 1989, in the wake of the Tiananmen massacre, Deng Xiaoping—undoubtedly shocked by the events of 4  June—organized a meeting with his loyal inner circle: President Yang Shangkun, Qiao Shi, and the new general secretary Jiang Zemin. The student massacre had triggered a deep and concrete animosity towards China across the entire globe, with an embargo on the sale of arms and sensitive technologies to the PRC.  Moreover, the communist countries of Eastern Europe were tumbling, one after the other, like a ship of fools. China, now a forsaken junk, was feeling more and more isolated, beyond its few friends like Burma and North Korea.

With a hesitant brush, the father of the revolution laid down on a piece of rice paper a sort of last will and testament, in the form of six fundamental precepts. These twenty-four Chinese characters would allow communist China to bounce back:

– Observe calmly and analyze coolly. Leng jing guan cha 冷静观察

– Confirm (our own) positions. Wenzhu zhen jiao 稳住阵脚

– Deal with changes with confidence. Chen zhe ying fu 沉着应付

– Conceal our real abilities. Tao guang yang hui 韬光养晦

– Make contributions. You suo zuo wei 有所作为

– Never become the leader. Jue bu dang tou 决不当头

These precepts were addressed to the CCP and its individual bodies, as well as to state-owned enterprises (and the growing private sector that relied on them), strategic institutes, research and development centres, and civil and military intelligence services.

They were the precise opposite of the exuberant principles of Marxism-Leninism that had led to disastrous famines and massacres under Mao, but which had also managed to preserve the supremacy of the party in all decision-making, even when it came to economic choices. Deng’s six precepts made implicit reference to the great classics of concealment and manipulation found in Chapter 13 of Sun Tzu’s The Art of War and in The 36 Stratagems, another ancient text that had influenced the art of clandestine warfare and secret diplomacy through the centuries, given a new lease of life by the modern secret services of the PRC.

One of Deng’s main objectives in setting forth these principles was to ensure that the handover of Hong Kong took place in the best possible conditions, by obscuring the memory of the Tiananmen crackdown and taking the opportunity to try and seduce Taiwanese public opinion. By 1989, Hong Kong was almost halfway to the handover deadline, the agreement with the British having been signed five years earlier.

There had been a tremendous sense of justice and relief on that occasion. On 26  September 1984 in Beijing, Ambassador Sir Richard Evans and China’s deputy foreign minister Zhou Nan had signed a three-page text putting an end to the humiliation of the 1842 Nanking Treaty that had ceded the Perfumed Harbour to the British. “It is my dearest wish to live until the handing back of Hong Kong. After that I will be able to take a well-deserved retirement,” Deng once said to the British foreign minister Sir Geoffrey Howe.

Not only had Deng insisted on the principle of supporting reunification with Hong Kong—“one country, two systems”—but he had also emphasized the reassuring signs of openness at that time: “We must allow a small dose of capitalism in China to help socialist development,” he had said. Throughout 1984 and beyond, he had lavished a pampering welcome on visitors from Hong Kong.

The most notable example was that of the wealthy ship-owner, Sir Yue-Kong Pao, who had fled the communists in 1949. He was invited to Beijing and received as a brother by Deng, who sent his disabled son, Deng Pufang, to reassure the people of Hong Kong of his good intentions. The young Pufang, such a visible victim of the Cultural Revolution, was the living symbol of what the Chinese and the Hong Kong population shared: a longing to forget the lethal follies of the political maelstrom triggered by Mao twenty years earlier.

Was Deng being sincere, or was he simply a good tactician? This was, after all, the same man who had once said, “It doesn’t matter if a cat is grey or black, as long as it catches mice.” He was also the man who sent in the savage infantrymen of the 27th Corps to attack the students in Tiananmen Square. We can get closer to the bottom of Deng Xiaoping’s rule (1989–97) if we look at this era’s formidable mechanisms of clandestine activity, particularly in the region of Hong Kong, whose triumphant reclaim by the PRC in 1997, just months after Deng’s death, marked the opening of a new, ambitious era in Chinese global espionage.

Hong Kong: nest of spies

The principles of “keeping a low profile” and “concealing your true abilities” had first been set in motion by the communist and other secret services half a century earlier, in the wake of the communist victory. British Special Branch was first set up in 1933 as an anti-communist squad within the Criminal Investigation Department of the then Hong Kong police, in charge of the anti-communist struggle. In 1949, alongside MI5 and under the direction of Peter Erwin, it developed into a political police force, charged with fighting Chinese communists.5 London realized that Mao, now in Beijing, had given up the idea of sending the PLA to invade Hong Kong when Marshal Lin Biao and his troops stopped 20 kilometres short of the Perfumed Harbour, red flag flying proudly in the breeze, weapons in hand. The British colony would be useful as an interface with the capitalist world, the CCP had decided. Similarly, Macao was allowed to remain a Portuguese colony, a gambling empire and huge den of money laundering, with integrated banking circuits for the benefit of special operations.

Thus the return of Hong Kong to the mother country was postponed. This did not mean that the Chinese stopped trying to provoke incidents to weaken the colonizers’ hold on the region and their “imperialist subversion”. This was a typical Cold War tactic: on both sides of the Bamboo Curtain, the subversive element was always the “Other”.

The British did not take their eyes off the people they believed might be fomenting revolution in Hong Kong. In 1950, according to a Special Branch document that I was able to consult, the CCP established intelligence posts in Canton to work in Hong Kong and Macao, in liaison with the Xinhua News Agency headed by Hu Qiaomu. This operation served both as the regional department of the Gonganbu service created by Li Ru, an intelligence expert trained in the USSR, and as an international intelligence office linked to Shing Sheung Tat’s Social Affairs Department (SAD).6

Before the communist victory, it had been the other way around: intelligence surveillance of Canton was organized out of Hong Kong, by Zhou Enlai’s friends, Gong Peng and her husband Qiao Guangua, again under cover of working for Xinhua. Their leader, and the founder of the news agency, Liao Chengzhi—“Liao the sailor man”—played an important role in the secret battle for Hong Kong during this period.

In the 1950s, the situation was tense. Special Branch investigators reported that the Chinese communist police officer Lo Au Fung was planning the assassination of police officers in the New Territories—Hong Kong’s largest region, alongside the smaller regions of Kowloon Peninsula and Hong Kong Island. Border incidents were also being triggered. Investigators seized confidential documents from the CCP.  These were “secret guidelines for local CCP members” with instructions on “what actions to follow in the event of deteriorating relations between Hong Kong and Beijing”. The main points were:

a) The organization of party cells must be tightened. Party members working in British government departments must prevent the destruction of archives and equipment in the event of war.

b) All party contacts must be changed and cadres must go underground.

c) Efforts must be made to provoke anti-American feelings.

d) A campaign is to be launched to encourage young men to return to China and join the armed forces. Chinese people living overseas with university degrees should be encouraged to return to the homeland.

e) Families of party members must be sent home to China.

f) Party members must refrain from visiting bookstores, reading newspapers or party literature in public, and attending open meetings.

The directives also dictated the course of action for awakening dormant networks, which were to be renewed continually up to the 1997 handover and beyond.

Similar instructions were given to underground militants when riots erupted in the colony in 1967. In April that year, the Cultural Revolution spread to Hong Kong; unions organized strikes to protest the conditions of workers in the Kowloon Chinese quarter on the peninsula. It began on 28  April with strikes at two artificial flower factories. The crackdown was brutal. Hundreds of workers were arrested by the police, triggering riots. In Beijing, the British embassy was set on fire. The head of Special Branch, Sir John Prendergast, who had worked for British intelligence in Kenya, Cyprus and Yemen, reported back to London that the two epicentres of the rioters were the import-export company China Resources (Huaren Jituan), which hosted Chinese intelligence spies, and the Xinhua News Agency in Sharp Street, which seemed to be the hub of underground diplomacy in Hong Kong, a kind of alternative Chinese embassy. Meanwhile, one of the journalists, Xue Bing, was arrested on 11  July, and in the words of the magazine Beijing Information, “not even taking into account the Chinese protests, the fascist British authorities in Hong Kong sentenced Xue Bing the following day”. Zeng Zhaoke, who taught at the police academy in Hong Kong, was expelled for spying. Based in Canton, for the next twenty years he continued his surveillance work and advised Deng Xiaoping.

To complicate matters further, all over Hong Kong, conflicts were breaking out between different communist factions in the region, which thousands of Chinese people fleeing the Cultural Revolution had reached by swimming across the Pearl River Delta. These refugees were an important source of intelligence for the CIA, for Australian China-watchers, for the extraordinary Jesuits who produced the newsletter China News Analysis (CNA), founded by Hungarian priest Father László Ladány, and for British China experts, including Professor Ride, who was married to the cousin of Alexandre de Marenches, head of the French secret services, the SDECE.  The French had two legendary officers in Hong Kong, vice-consul Roger Aimé and his wife Suzy, who ran the SDECE station in Beijing.7

“The biggest obstacle, though, in intelligence gathering remained the restrictions that the British Special Branch had placed on CIA activities in the 1950s, including the prohibition on recruiting agents inside communist organizations in Hong Kong,” recalled James Lilley, who worked in Hong Kong before becoming the CIA’s first station chief in Beijing.

“Contact with employees of Chinese communist-front organizations based in Hong Kong, such as the Bank of China, China Travel Services, China Resources Company, and the New China News Agency—the organizations that outwardly handled the mainland’s investment, tourism, trade, and propaganda, respectively, but that were also intelligence fronts—were off-limits.

“So, while China was reeling from the early stages of the Cultural Revolution, the CIA contingent in Hong Kong’s downtown Central district had to content itself mainly with refugees fleeing domestic battles in China’s major cities.”8

Lilley remains discreet about the special operations conducted by the British, Americans and Taiwanese to deepen the divisions and settling of scores between rival factions of the Red Guards and CCP leaders. This was particularly an issue in southern regions such as Canton, where foreign special services sent out weather balloons packed with anti-Maoist leaflets. They also set up fake trade unions and political organizations to intensify the discord. Psychological warfare reached its height when the black radio stations—fake radio stations that people believed to be broadcasting from inside China—began to spread damaging rumours about PRC leaders.

The cherry on the cake was the production of a fake little red book, entitled Thoughts of President Liu Shaoqi, published in Hong Kong and circulated on the other side of the Bamboo Curtain to counter the influence of Mao’s original Little Red Book, which had been produced by the spymaster Kang Sheng and Mao’s private secretary, Chen Boda.9

This fictitious book by the so-called Chinese Khrushchev had a double purpose: to widen the gulf between the pro-Liu faction and the pro-Mao faction, and—in the event that Chinese security discovered the document had been printed and distributed at the instigation of the CIA and MI6—to hint at evidence of a conspiracy by the “imperialist secret services” in support of the deposed president Liu, and thus cultivate an atmosphere of paranoia. It is unclear whether this misinformation really did have the effect of intensifying the massacres desired by Mao and Kang Sheng. But one thing was clear: the Americans had a tendency to be influenced by their own propaganda. The CIA’s China archives, declassified in 2007, show that some analysts were absolutely convinced that Wang Guangmei, Liu’s wife, was an American spy, as per Kang Sheng’s accusation.

The British SCOPG versus the democrats

In the 1970s, after the mysterious death of Marshal Lin Biao, tensions relaxed somewhat. The British reinforced their security apparatus, but also developed a new approach towards the Chinese in tune with Richard Nixon’s thaw. Beijing and London renewed diplomatic relations. In 1971, John Addis was the first British ambassador appointed to China since the Cultural Revolution. He was later replaced by Edward Youde, a former Beijing-based MI6 secret agent and case officer of the French journalist and British agent Jean Pasqualini—the British were just as happy as the Chinese to appoint former spies as ambassadors. Youde had not even really cut his ties with the espionage world: in 1980 he was named Margaret Thatcher’s intelligence coordinator. She also appointed him the last governor of Hong Kong, but he died before he could take up the post.

Meanwhile, in 1974, Maurice Oldfield, director-general of MI6, who had once led anti-communist operations in Singapore, sent a new representative, John Longrigg, to establish links with the head of the Diaochabu’s Hong Kong office. This was the deputy director of the Xinhua News Agency, Li Jusheng. Longrigg’s renewed MI6 station was then under cover of the anodyne-sounding British Forces Headquarters Study Group.

The strengthening of intelligence operations in Hong Kong in this period was no longer aimed at combatting the CCP, but rather at establishing a massive surveillance operation of the Hong Kong population, especially those who were considered a potential risk to the now good relationship between London and Beijing. This included the criminal Triad organizations—including the most famous, the Sun Yee On, which was sometimes manipulated by Beijing—and political opponents of the future handover. If this surveillance of the masses is surprising to readers, it is important to remember that the British system of administration in Hong Kong bore no relation to the democratic system of government in the United Kingdom itself. Along with Northern Ireland, Hong Kong was one of Britain’s last foreign settlements, and the British Empire had never disseminated civil liberties in these spheres of influence—although it did leave behind a legal and constitutional system that would obstruct Beijing after the handover in 1997.

In the 1970s and 1980s, a network for monitoring and spying on the civilian population had been set up called the Local Intelligence Committee. It included the Hong Kong governor’s political advisor, a Foreign Office official; the head of Special Branch (John Thorpe, who helped save Tiananmen dissidents, as seen in Chapter 5); Longrigg, the MI6 station head; a representative from MI5; the local director of the British communications interception service (GCHQ) and its antenna, the Composite Signals Organisation Station (run from Little Sai Wan with the Australians); and the head of the Joint Services Intelligence Staff.10

This system, just as Orwellian as the PRC’s surveillance machine, also had a body specialized in the surveillance of citizens who wanted to democratize Hong Kong, called the Standing Committee on Pressure Groups, or the SCOPG—an innocent acronym that, as in all oppressive systems, hides a nastier reality. Its head, Barrie Wiggham, was assisted by another psy-ops specialist, Lieutenant-Colonel Johnny Johnstone, who had formerly been in charge of psychological warfare in Northern Ireland—that other large British testing ground for population control.11

In theory, the SCOPG could have monitored groups like the Triads, who were very powerful in the colony. In fact it was the unions, environmental groups and political organizations advocating independence for Hong Kong who were in the sights of this secret committee: the Christian industrial committee, the professional teachers’ union, the environmental protection committee, newly formed political parties, and so on. Their mail was opened, their phone lines tapped, undercover agents infiltrated their organizations, and moles were recruited from within. Both British and Chinese-born individuals were targeted.

Take, for example, the activists of the Revolutionary Marxist League, a small group linked to Trotsky’s Fourth International, founded in 1975 in Kowloon. Its young Chinese members were Marxists, but in the tradition of CCP founder Chen Duxiu, who was loathed in Beijing because he had gone over to Trotsky’s camp in the 1920s. To the British government they were subversive communists, and to Beijing they were dangerous agitators—they were, in other words, dissidents against both regimes. On 22  April 1976, they occupied the premises of the Xinhua News Agency to show their support for demonstrators in Tiananmen Square, and their solidarity with jailed dissidents. The British authorities accused them of unlawful assembly and sentenced them to three months in prison. For the same offence in the PRC, they could well have been executed, but this form of British democracy certainly left something to be desired. One could even say that it foreshadowed the authoritarianism of the Tiananmen crackdown to come, in eleven years’ time.

Britain’s harshest critics say that it betrayed Hong Kong twice. Firstly, by failing to institute democracy as the people of Hong Kong might have hoped for, and secondly by offering the whole colony to Beijing on a silver platter in 1997, despite the fact that, according to international treaties, the PRC should only have been able to obtain the mainland “New Territories”, not Hong Kong Island itself or even the Kowloon Peninsula. London did not seem too concerned with respect to the rights of the Hong Kong population after the handover.

In November 1996, I went to see for myself how preparations for the handover were advancing.12 It was enough just to see the huge Bank of China tower, built by Ieoh Ming Pei, architect of the Louvre Pyramid. Its majesty crushes the small parliament building below, the Victorian-era Legislative Council on which democratically elected MPs had only been sitting for the last few years. Democracy had been brought to Hong Kong only at the last moment, thanks to the last governor, Christopher Patten—it came too late, though Patten had done what he could in the face of the Chinese secret services’ campaigns against him.

I went to visit Emily Lau in the parliament building, the Hong Kong democrat boasting the strongest mandate, who, during those last months of freedom in the lead up to 20  June 1997, would travel around the world to persuade both influential political figures and the general public of what was at stake: “This is a matter of life or death for Hong Kong,” she would say. “We cannot separate economic interests from fundamental freedoms.”

Operation Autumn Orchid

The next day, I found myself in the elevator of the Central Plaza Tower, one of Hong Kong’s tallest buildings (after the Bank of China), going up to the sixty-ninth floor. The place was full of people visiting the offices of various Chinese, European and Japanese companies. To get to the floor I wanted, or any floor higher than the sixty-ninth, I had to find another elevator on this floor.

When the elevator doors opened, it looked as though the tower was only half built. Up here there were no plaques engraved with the names of companies. There were cardboard boxes and miles of brown paper everywhere. The paint on the walls was not dry. I saw a guard in a sand-coloured uniform fast asleep on one side of the hallway. I tiptoed past in the opposite direction to avoid being caught on CCTV, though there must have been many other cameras that I didn’t spot. I hurried on, trying to memorize as many details as possible—the clatter of telexes, computer screens. But I did not have time to see much. A guard shouted out to me in a mixture of broken English, Cantonese and Mandarin:

“Forbidden to be here. Just here offices!”

“Indeed,” I answered. “It is these offices I have come to see.” I asked if it was possible to see a manager.

“Impossible, there is nobody. Offices empty.”

The angry guard was sweating under his black cap. He grabbed his walkie-talkie and yelled something into it; I realized that he was calling for back-up. The doors of the elevator were closing. I hurried back down while the security men were making their way up.

An informant had tipped me off: on these floors of the Central Plaza, a central eavesdropping apparatus had been installed by the Chinese special services and the PLA, where they were using scanners to intercept cell phones and emails—exciting new technologies back in late 1996!—as well as telexes and faxes. In every building on Hong Kong Island, companies were serving as fronts for fallow secret service organizations. Six months before the handover to China, the structures that were being set up to take over the controls were right there in front of my eyes.

The CCP in Hong Kong, which was of course underground, oversaw a whole web of organizations: the familiar United Front Work Department, tasked with rallying undecided or hostile Chinese to the motherland’s objectives; the Hong Kong and Macao Affairs Office of the PRC’s State Council; the Xinhua News Agency and its Hong Kong Macao Working Group, which rivalled that Office; the military intelligence service, the PLA2 or later the PLA3 (I had seen one of their devices in Central Plaza for intercepting communications from businesses and the British Army); the Gonganbu, which had infiltrated the former Royal Hong Kong Police Force; the CCP’s ghostly investigations department, the Diaochabu; and, last but not least, the Guoanbu. No less than three Guoanbu Central Offices, the First, Second and Third—led respectively by He Liang, Zhan Yongjie and Guo Dakai—were running various intelligence operations in Hong Kong and Macao, assisted by some sixty officials based in Beijing and Guangzhou. The Guoanbu’s regional office (guoanju) in Guangzhou was headed by a prominent executive, Shen Hongying, who had organized a large exhibition in Shenzhen at the end of 1995 to which foreigners were invited, showcasing the Chinese technologies used by the PRC’s security services.13

In December 1994, a rather more discreet ceremony had been held, typical of Chinese intelligence: a presentation of awards, and both collective and individual recognition for services rendered in the secret war. Overseen by Qiao Shi, the ceremony decorated leaders of Operation Autumn Orchid (Qiu Lanhua), whose given mission over the course of the previous decade had been to oversee the recovery of the two colonies: Hong Kong in 1997, and Macao in 1999. Autumn Orchid’s agents had infiltrated all levels of Hong Kong society with various goals, which were all deemed to have been achieved.

The substance of the mission had been to establish files on all the colony’s officials, covering the extent of their allegiance, neutrality or hostility towards Beijing; to spy on foreign political and economic organizations based in Hong Kong; to identify journalists’ sources around sensitive subjects; and to infiltrate the media, in order to disseminate information favourable to the CCP.

To this end, popular Chinese enterprises in Hong Kong, such as China Resources (Huaren Jituan), the Bank of China and the Steam Navigation Company, were brought in, and social organizations were also used. For example, Yeung Kwong, the general secretary of the HKFTU union, with 170,000 members, was both a delegate to the National People’s Congress and a member of the Hong Kong Macao Working Committee (HMWC), run by the Xinhua News Agency.

Unfortunately for Qiao Shi, all these intertwined relationships and covers had ended up being revealed in April 1991, when Xu Jiatun, the head of Xinhua, defected. Unable to accept the Tiananmen crackdown in 1989—and the fact that his friend, the CCP general secretary Zhao Ziyang, had been placed under house arrest—Xu had been contemplating this decision for a long time.

As the deadline for the June 1997 handover approached, it was becoming increasingly obvious that many of Xinhua’s deputy directors were also high-ranking intelligence officers working for State Security—the Guoanbu. An integral part of Operation Autumn Orchid, they were codenamed the Chrysanthemum Group (Luhua Xiaozu).

A few months after the handover, various Guoanbu services had expanded their presence within the Xinhua agency, under the supervision of its deputy director. There was the coordination department, headed by Zou Zhekai; the research bureau, headed by Yang Huaji; the sports and culture service; and of course the Social Affairs Department, whose name recalled the communist secret service in the era of Kang Sheng. The Chrysanthemum Group was overseen by the Xinhua security section, which was based near a Happy Valley racecourse where the head of the Guoanbu worked.

Other Xinhua functionaries were engaged in outright political espionage. For example, Shen Zaiwang, head of Xinhua’s International Affairs Division, was an expert in intelligence regarding the Japanese community in Hong Kong. He had studied Japanese at Beida (Beijing University) and had lived for a period in Japan, as confirmed to me by a Japanese journalist, who had him constantly on his tail.

Rebound base for economic espionage

The extensive work of compiling digital files, coordinated by the deputy directors of Xinhua, had major implications for the world of finance and commerce. The Guoanbu used genuine Hong Kong companies to send industrial spies overseas to gather intelligence on the West; several of these have been identified by counterintelligence services in France, the United Kingdom and the United States. These Western services complained that economic decision-makers in the West had been insufficiently on guard against the trainees they were taking on from Hong Kong, even going so far as to suggest that they were hoping, through them, to gain a foothold in the Greater China market. One major advantage for the operation was that, after 1997, these very special trainees would be able to return from the West, Japan, or South-East Asia to settle in Hong Kong, with the perfect cover of seeming democrats who had worked for capitalist enterprises.

Many long-established private companies also represented the interests of the various political factions of the CCP, as well as covering sector-specific intelligence missions. Nicholas Eftimiades, a former US officer in the Defense Intelligence Agency, cites a specific example in his book Chinese Intelligence Operations: China Resources, which provided a cover for military intelligence operations in Hong Kong although it was theoretically part of the Ministry of Economy.14 I have visited the company, which is based in Wanchai. It had so many different businesses under its umbrella that it was exceedingly difficult to disentangle the wheat from the chaff. At the time, Western and Japanese security services were particularly interested in the Investigations Department, headed by Xin Changjiang, and its many subsidiaries dealing with the growing role of communications in the new globalized context, intensified by a tremendous surge in information technology.

Apart from the Guoanbu, the other major intelligence structure—with which it sometimes collaborated—was the military intelligence wing, the PLA2. As part of the preparations for taking over Hong Kong, the PLA’s special services set up ad hoc departments ten years before the transfer of sovereignty. Significantly, the head of this military intelligence department, General Ji Shengde, was none other than the son of Ji Pengfei, a former foreign minister who had been appointed in 1983 to head the Hong Kong and Macau Affairs Office of the State Council. Family dynasties were a major element of the Chinese strategy for taking over Hong Kong.

The local PLA2 leader at the time of the transition, General Zhou Borong, had had solid Western training. Formerly a British naval attaché, he was named deputy chief of staff—in other words, head of military intelligence—as soon as the 42nd Corps of the PLA marched into Hong Kong.

The Guangzhou division of the 42nd Corps centralized the information coming in from businesses such as China Resources, which would systematically have at least one deputy director from military intelligence. One of this deputy director’s duties was to ensure that no remnants of the British Army remained undercover in the former colony after the handover. Former Gurkhas were particularly targeted. Originally from Nepal, these ex-soldiers often served as bodyguards to Hong Kong tycoons. Arms deals were also monitored.

Some of the PLA2 underground units also served to protect the garrison that housed the 6,000 men of the 42nd Corps, and ensured that its soldiers did not engage in black market or criminal activity with the Triads. Military security went over the entire Prince of Wales barracks with a fine tooth comb to verify that the British, who had been headquartered there before the transfer to the PLA—had not bugged it before leaving. (This was an entirely justified suspicion.) Finally, the PLA was also using its Liaison Office, part of the Political Department, to duplicate the PLA2’s clandestine operations in Hong Kong.

In addition to the different CCP and State Council (undercover military intelligence) structures, the colony also hosted certain key people whose intelligence experience now served them as political strategists. The most important was a close friend of Qiao Shi, the godfather of the Beijing secret service. His name was Li Chuwen, and he was going to carry out the most important operation of all: lifting up the new, Chinese head of the Hong Kong executive, after the departure of the British.

“Mister Li” and the Hong Kong tycoon

On 20  December 1984, the British prime minister Margaret Thatcher, accompanied by her foreign secretary, Sir Geoffrey Howe, landed in Hong Kong. This was a visit of huge significance, for immediately after their visit to Hong Kong they were going to Beijing to sign the accord agreeing to hand over the colony to the PRC.  Upon their arrival in Hong Kong, they were welcomed by the British governor and a Chinese man with a triumphant smile on his lips who spoke excellent English. Unlike the other Chinese officials present, dressed in their Mao-collared tunics, this man wore a tweed suit and a tie. He was the deputy director of the Xinhua news agency, Li Chuwen.

Li had long been known as the Zhou Enlai of Hong Kong, in reference to his previous diplomatic work. He could simply, like his predecessor Li Jusheng, have coordinated the intelligence services at the heart of Xinhua. But he had higher ambitions, whose origins can be traced in his unusual background.

“He started off life as a clergyman in Shanghai. He abandoned the religious life and became a communist power behind the throne,” I was told in 1986, by an analyst working for British intelligence in Hong Kong. Flicking through file cards filled with information scrawled in a myriad of Chinese characters, my source removed his glasses and paused for a moment before saying, with a sly little smile: “Unless, of course, he started out as a secret communist, charged with infiltrating the Shanghai church. It was one of the functions of the CCP’s United Front Work Department to send undercover agents into churches, to turn priests and recruit religious agents, who would be sent away from China to gather intelligence for Beijing, while claiming that they were being persecuted by the Reds. Whatever the case was here, Li Chuwen played a major role in Hong Kong.”

Li, like Qiao Shi, was born in Zhejiang province, and like him he had studied at St John’s University in Shanghai. It is quite possible that they knew each other there. It was Qiao Shi who had recruited the young Jiang Zemin into the underground CCP.  In the 1990s, Li became one of Jiang’s closest Shanghai-based advisors; but forty years earlier, he had studied in the United States, graduating with a degree from Yale.

After university, he became secretary of the Chinese section of the YMCA, which had been set up in Shanghai in 1904 by businessman Charlie Soong. Its premises hosted meetings of Sun Yat-sen’s revolutionary party, and thirty years later one of Soong’s daughters, Chiang Kai-shek’s wife Soong May-ling, drew the movement into the Kuomintang’s orbit after founding the “Movement for a New Life”, an outgrowth of the fascist blue-shirt movement. Madame Chiang’s movement rallied its members from youth groups and Christian circles, including the YMCA, to support Kuomintang nationalism.

A few months prior to the communist victory in 1949, Wu Yao-tsung, the YMCA propaganda officer in Shanghai, expressed his support for communism in the press. In fact Wu was a long-time Marxist, only pretending to have recently discovered the benefits of communism. He called for the YMCA and its sister organization the YWCA to “join the struggle of the new China under the banner of the New Democracy”. While various religious denominations, both Christian and Muslim, were persecuted by General Luo Ruiqing’s Gonganbu, Wu Yao-tsung encouraged Protestant circles to back the new Mao regime as part of the “Patriotic Church” movement. This was another example of a successful “united work front”, like so many in the history of Chinese communism.

Needless to say, the communist special services recognized the advantages in a structure with Western origins, like the YMCA, claiming both independence from the “imperialist system” and autonomy from the CCP.  When the Korean War broke out in 1950, Wu Yao-tsung, representing the “Protestant Patriots”, coined the slogan “Support for Korea, Resistance against America”. Later he went to Europe to participate in a World Congress for Peace, organized by the USSR and the PRC.  In 1954, under the auspices of the CCP’s Office of Religious Affairs, he was named president of the National Committee of the Three-Self Patriotic Movement of the Protestant Churches. Li Chuwen was moving in the same circles during this period. In those years, the Protestant pastor was sitting on the YMCA world committee in Geneva, and later, in the 1960s, he became vice-president of the Chinese Peace Committee.

Over the next decade, Li reinforced his position as a shadow diplomat, or, more accurately, as a strategic guardian of Shanghai’s foreign policy. He was responsible for foreign relations on the municipal revolutionary committee and represented the Huangpu metropolis in the National People’s Congress. He then went to Hong Kong, where he became deputy director of the Xinhua News Agency, a post that served as cover for his secret job as a political intelligence coordinator. This is a good example, often overlooked by observers, of activities of a regional intelligence service abroad, in this case in Shanghai, being transferred to Hong Kong, a sister city and economic rival.

With his English gentleman’s suits, his well-travelled open-mindedness and his language skills, Li Chuwen always stood out alongside the usual glum-looking party officials. He was fluent in English and French, but his Cantonese was poor, because of his Shanghai origins. Emily Lau, the future democratic deputy, told me that when she was still a reporter for the Far Eastern Economic Review, Li had given her lessons in Mandarin Chinese, the Beijing lingua franca. Other sources report his good relationship with the US consul, John Gilhooley, who was head of the CIA in Hong Kong in the 1980s.

As the great turning point of the handover dawned, Li had built up many powerful positions as an éminence grise: he was foreign affairs advisor for the Shanghai Municipal Government and honorary president of the Shanghai Institutes for International Studies (SIIS). The latter, founded in 1960, was officially connected to the Ministry of Foreign Affairs in Beijing, but in reality forged Shanghai’s international policies independently, from its base in an old, elegant house in the former French Concession.

Li had more than one trick up his sleeve. He was also interested in economic affairs, as was obvious during the Shanghai Top Management Forum, which took place in November 1995 in conjunction with the American Chamber of Commerce, and to which former US secretary of state Henry Kissinger was invited, along with other world leaders.

Li reached the very top of the Hong Kong echelons of power. In 1992 he became senior advisor at both Xinhua in Hong Kong and at the PRC State Council’s Hong Kong and Macao Affairs Office. It suited him to wear these two hats, because both organizations were competing to manage the handover, and were having difficulty agreeing on a trustworthy candidate to lead the postcolonial executive after the handover. It was Li himself who eventually settled the matter, mentioning to Jiang Zemin, both a friend and a member of Deng Xiaoping’s inner circle, the name of the Shanghai tycoon Tung Chee-hwa.

C.H.  Tung, as he was called in English, had an impressive background. His father, Tung Chao-yung (C.Y.  Tung), was born in 1911 in the city of Dinghai, Zhejiang province, where Qiao Shi was also born. Tung Senior, a small boat-owner in Tianjin, was interested in shipping and shipbuilding. He settled in Shanghai and set up his first company, the Chinese Maritime Co. He married the beautiful Koo Lee-ching, who gave him two sons and three daughters; Tung Chee-hwa, the future governor of Hong Kong, was born in Shanghai in 1937. He was still in the cradle when the Japanese invasion left the family destitute. They fled with the troops of Chiang Kai-shek, who was a friend of Tung Senior.

In 1945, with Japan suffering the after-effects of Nagasaki and Hiroshima, the Tungs decided they wanted to profit from Shanghai’s economic revival. The new expansion of trade justified the development of maritime communications. Tung Senior began to build up his fleet. He bought an old boat, The Heavenly Dragon, which would become his flagship and the first Chinese boat to drop anchor in European ports.

Tung Senior built a maritime empire on the Chinese mainland and at the same time set himself up in business in Hong Kong. This was an excellent strategy. In 1949, he followed the Kuomintang to Taiwan, where he installed his companies, while at the same time diversifying his affairs in Hong Kong: Maritime Transport Ltd, the Orient Overseas Container Line, and the Island Navigation Corporation. His friendship with Chiang Kai-shek played an important role, not least because the Tung Group was considered Taiwan’s national merchant shipping company.

Ten years later, by then the owner of a fleet of ships, Tung built the largest tanker in the world—the 70,000-tonne Oriental Giant—followed by his first new boat in France. He also purchased the Queen Elizabeth, which he wanted to make into a floating university for the United Nations to train maritime specialists.

Meanwhile, the young Chee-hwa was learning to read at St Stephen’s School in Hong Kong. He was sent to secondary school in Portsmouth and gained a degree as a marine engineering technician in Liverpool while the Beatles were still playing the Cavern Club. He met and married a Chinese nurse called Chiu Hung-ping, with whom he had three children. I have never heard any rumours of him taking concubines or mistresses, unlike many Hong Kong tycoons, for whom such women were a sign of opulence and power, social as well as sexual. C.H.  Tung was a reserved man who hated being in the public eye.

For ten years, he worked in the USA for an electronic equipment manufacturer, before returning to Hong Kong in 1969. His leadership qualities came not so much from his lineage but from his capacity to adapt to any role that economic circumstances might force on him. His father gave him a decade to learn how to manage the Orient Overseas Container Line, based in Taiwan and Hong Kong since 1979. When Tung Senior died in 1982, C.H.  Tung and his brother, C.C.  Tung, by now living in New York, succeeded their father at the head of an apparently thriving empire, the Orient Overseas Holdings (OOH). The company had overtaken its two great rivals, the Worldwide Group, owned by Yue-Kong Pao, and Wah Kwong Shipping, owned by the Chao family.

In fact OOH was going through a stormy period. Its new supertanker, the 560,000-tonne Seawise-Giant, was too big for the needs of the global market, which was suffering in the aftermath of the oil crisis. As for the Queen Elizabeth, the emblem of an era, it had caught fire and sunk in 1971. An investigation revealed it to be a case of arson. On top of this, C.H.  Tung was experiencing the full-blown repercussions of the recession. He first tried to raise funds in Taiwan but, unsuccessful, he turned to his friend Henry Fok Ying-tung. Was communist China ready to bail out the Tung empire? Henry Fok was definitely the right person to talk to.

The billionaire’s ties with mainland China dated back to the Korean War, and he now chaired the pro-Beijing Chinese Chamber of Commerce. As vice-chair of the Preparatory Committee for the Hong Kong Special Administrative Region, he was well placed to sponsor Tung. He had built his colossal fortune on casinos, in association with another famous tycoon, Stanley Ho, who was based in Macao and had links to the Triads. The Fok family’s close ties with the PRC were such that Henry Fok’s own son, Thomas, was arrested in the US for illegally selling missile-making electronic technology to a China-based firm, which earned him several months in jail.

Thanks to Henry Fok’s intervention, in 1986 the PRC agreed to loan C.H.  Tung $120 million. It was the Bank of China that came to Tung’s rescue, though his parent company OOH was still located in Taipei. In practice, it was Henry Fok who headed the “investment syndicate”. Li Chuwen and Xu Jiatun, the head of Xinhua in Hong Kong, naturally played a hidden role, too. After he defected to the US, Xu hinted in his gossip-ridden memoirs at the help the Hong Kong billionaire had received, without naming him.15

From then on, according to the communist expression, Tung was “shackled”, particularly since the investment had helped him to diversify, enabling him to set up Orient Overseas (International) Ltd, a branch that was trying to develop a fleet of container carriers. At the time, Tung simply said, “I would like to thank Mr  Fok and the foreign banks who helped me out.” He did not name the Bank of China, but financial analysts noted that, soon after, the shipping tycoon began to invest in the PRC.

In 1989, for the first time, Tung returned to his family’s hometown of Shanghai, for a meeting with Jiang Zemin. Jiang had been promoted to the leadership of the party on 4  June, immediately after the Tiananmen massacre. “Let historians judge these events,” Tung said cautiously of Tiananmen. He could not challenge his new friends. He had chosen his camp, while back in Hong Kong there was a huge movement of solidarity with the students and dissidents.

Jiang Zemin and Qiao Shi followed Li Chuwen’s advice and made a choice of their own: C.H.  Tung was going to be the next leader of Hong Kong. Under a glass bell, of course. But they recognized the need to proceed diplomatically. The trick was not to give a clear indication of the government’s preferred candidate. In autumn 1995, a rumour was published in several gazettes that former Gonganbu chief Ruan Chongwu was to be appointed chief executive. Naturally, it was the special services themselves that circulated this lie. The idea was to frighten the people of Hong Kong with the prospect of being ruled by the former head of the terrifying public security ministry. Now governor of the island of Hainan, Ruan had been dismissed as minister at the same time as the reformist leader Hu Yaobang. People were quick to imagine a bloodbath in Hong Kong, and the leadership exploited this: it was an old trick, using fear to make another option appear more attractive in comparison. The media began to focus their spotlight on other potential candidates.16

At a reception in January 1996, Jiang Zemin publicly shook C.H.  Tung’s hand—the white knight had been anointed by the leadership. Three tycoons—Henry Fok, Li Ka-shing and Walter Kwok—believed he was the ideal candidate. Even his great business rival George Chao Sze-kwong, president of the Hong Kong Shipowners Association, thought it not such a bad idea: “In the long run, I am optimistic for the arms market but now we all have to be patient,” he was quoted as saying in the South China Morning Post.

Modesty incarnate, C.H.  Tung assured him that he would like a better idea of the challenges facing Hong Kong in the year 2000. In June 1996, he resigned from his position as advisor to the last British governor, Chris Patten. In the press, at cocktail parties, in ministries all over the world, people listed all the international connections that made this reserved man the perfect candidate to guarantee, in short, that Hong Kong would remain Hong Kong. Qiao Shi and Li Chuwen’s special services were doing all they could to make this plain. Tung counted among his foreign friends Prince Rainier, who had appointed him honorary consul of Monaco. In the US, he had close ties with former president George H.W.  Bush (1989–93), who had been head of the US Liaison Office in Beijing in the 1970s and director of the CIA before his election to the White House.

The British, meanwhile, appreciated Tung’s role in the successful handover, in tandem with Anson Chan, the chief secretary in the British colonial government at the time. Tung was also said to be liked by the Queen, who received him from time to time. His ties with Taiwan were obviously important to Chinese leaders, especially when it came to a potential future rapprochement with the PRC, in which the Tung clan might play a useful role; his father had, after all, been close to Chiang Kai-shek. John Y.K.  Peng, Tung’s brother-in-law, was president of Taiwan’s Chinese Maritime Transport Ltd and of Associated Industries China Incorporated. He would guarantee a direct line of communication with the government in Taipei.

Though C.H.  Tung was said to have no political leanings, this was not really the case. He dreamed of a system modelled on that of Singapore, whose former prime minister Lee Kuan Yew (1959–90) was an example to him. Might Deng Xiaoping’s “One country, two systems” become “a police state with two different economies”, C.H.  Tung-style?

To guarantee the continuation of a British-style administration, Tung asked Anson Chan to remain as chief secretary in the new government of the Hong Kong Special Administrative Region. That would reassure the British, apart from Chris Patten. To show that he was not planning to mess with the Chinese system, he chose as his justice secretary Elsie Leung, a lawyer, member of the National People’s Congress (NPC) and founding member of the pro-communist Democratic Alliance for the Betterment and Progress of Hong Kong. She was quick to say that the media would not let her get away with anything untoward.

On 15  November 1996, I made my way to the Hong Kong Convention Centre, where some high-profile electors, selected by Beijing, were meeting. Outside, fewer than 100 democrats and dissidents were protesting against what they believed to be a farcical, rigged election of the chief executive. A large police deployment prevented them from getting anywhere near the tall building, while they were filmed by the Security Wing—the new Hong Kong political police—and photographed from every angle by Guoanbu secret agents. Journalists were being herded by Zhou Shanshan, the high priestess of the Xinhua News Agency. Dissidents and supporters of Martin Lee and Emily Lau’s Democratic Party booed the Chinese foreign minister, Qian Qichen, who had come to guarantee the legality of the election. It was like witnessing a fight between a mouse and an elephant.

In a room hung with large purple banners, like a CCP congress, 202 of the 400 selected electors gave their vote to Tung. Judge Yang Ti Liang received eighty-two votes. He was thought of as an honest candidate, but far too “British” to be in with a real chance. He remained in the running for the second round, as did Peter Woo Kwong-ching (fifty-four votes), who was in favour of a good deal with Beijing. Simon Li Fook-sean (forty-three votes) had received support from the Chinese community in Fujian Province, but was out of the race. His overly pro-Western stance was a turnoff.

Jean-Philippe Béja is a China expert and was then head of the French Centre for Research on Contemporary China, based near Hong Kong’s Lyndhurst Terrace. The day after the election, he told me, “Tung Chee-hwa received too many votes the first time for the smooth operation to be convincing. Everyone knew that the vote was manipulated.”

This was so true that, the day following the vote, Jiang Zemin discreetly sent his éminence grise Li Chuwen to Hong Kong, to ensure that criticisms about the election did not risk sullying the image of their candidate. Presumably they judged that this was not the case. In order to test public opinion, a few days later C.H.  Tung let it be known that, after 1997, the CCP would be legalized in Hong Kong. Observers became tangled up in speculation: was this merely a way of saying that the other parties would disappear? Or was it, on the contrary, a way of indicating that democracy was going to function effectively, and that the CCP would have to take its place among all the others?

A period of strategic manoeuvring began, until, on 11  December 1996, C.H.  Tung was elected the first chief of Hong Kong’s postcolonial executive, by 320 of 400 council members. It was hardly a shock result.

Immediately after his election at the Convention Centre, the electors wanted one thing only: to quit the building, as if they had a bad conscience, leaving the new master of Hong Kong alone with his thoughts. The previous day, at a small gathering at his home on The Peak, Tung had remarked astutely, “I may well find myself very much alone as chief executive.” But that would be to ignore his new friends: Li Chuwen, Jiang Zemin and Qiao Shi, the men who had helped him become the elected leader of Hong Kong, independent of Beijing.

In case he was entertaining any doubts, in March 1997 a close acquaintance of Li Chuwen was suddenly named “special advisor” to Tung. Paul Yip (also known as Yip Kwok-wah) had taken part in the riots of 1967 and had been a member of Hong Kong’s underground CCP branch. A former teacher, Yip was now the wealthy owner of various companies including the Renful Security Company, which employed ex-police officers to provide protection for senior Chinese officials in Hong Kong. He reported, of course, directly to the Guoanbu.

Tung’s career had been exemplary. It was an excellent illustration of the path of a number of Hong Kong businessmen, who were prepared to invest in Beijing so long as nothing stood in the way of them increasing their wealth as they always had. Friends of Hong Kong’s new chief executive liked to remind him that his father, the patriotic Tung Chao-yung, had given him a name that summed it all up: Chee-hwa (Jian Hua in Mandarin) means “build China”. For C.H.  Tung, this came to mean “unify China”.

Hong Kong, hub of the Red Princes

Among Tung’s friends were several of the so-called “Red Princes”, children of the Beijing elite, who were the owners of some very unusual businesses. These company heads were family members of eminent CCP members and other Chinese leaders, who had chosen the colonies of Hong Kong and Macao as the main bases of their operations, their import-export businesses and prospecting companies.

By the mid-1990s, the ageing offspring of the communist revolution, the children of Mao Zedong’s comrades and veterans of the Long March, were middle-aged. In some cases Mao had turned against his former comrades and banished their families during the Cultural Revolution. The Red Princes had then seen their influence rise during Deng Xiaoping’s economic revolution in the early 1980s, and realized that Hong Kong would be the ideal base for lucrative financial operations. They had a direct line to the Beijing administration to facilitate Hong Kong investments in China.

They drove Mercedes and lived on The Peak or in other exclusive residential neighbourhoods. The princes had mistresses and concubines on both sides of the former Bamboo Curtain. If we are to believe the gossip, these “Red Princesses” also had complicated and expensive love lives. They and their children haunted the hottest spots in Hong Kong: cabarets, casinos and restaurants like the Royal Jockey Club, the Volvo Club and David Tang’s China Club. They rejoiced that Hong Kong had been returned to the motherland, while very much hoping that the CCP was not going to kill the goose that laid the golden eggs.

“Preserving the Hong Kong economy will be a matter of survival for the Beijing regime. And not just because so many Red Princes—the sons of senior communist cadres—are running private companies here,” Professor Lau Siu Kai, director of the Department of Sociology at the Chinese University of Hong Kong and member of the Preparatory Committee for the HKSAR, told me at the time. This preservation was possible up to a point, partly thanks to the very presence of these elite sons and daughters, playing capitalists while growing rich off the back of socialism. However, the risk was that they would introduce there the corruption already widespread on the Chinese mainland. Hong Kong, with the exception of areas controlled by the Triads, had been relatively free of such problems under the British.

Meanwhile, there was a great deal of rivalry between the Red Princes. They represented various and differing political views, largely dependent on their parents’ positions in the struggle between opposing factions within the CCP and the guanxi, the complex web of social relations that characterizes Chinese society. But from the signing of the treaty with the British to the final handover, they had prospered in relative harmony. They were all in the same junk, as it were, even if they did not always agree on which direction to take.

By the late 1980s, Chinese investment in Hong Kong had grown significantly. This was primarily due to the huge conglomerate, the China International Trust & Investment Corporation (CITIC), founded in Beijing in 1979 by the Shanghai-born “red capitalist” Rong Yiren, also vice-president of the PRC.  It was Deng Xiaoping himself who had given Rong the responsibility of setting up the CITIC, a capitalist business group in communist China, directly answerable to the State Council.

The CITIC came to Hong Kong in 1987 with Larry Yung—Rong’s son—at the helm. Like a greedy dragon, the CITIC began to devour strategic Hong Kong companies. It bought a local listed company, Tyfull, which in turn bought 20  per  cent of Hong Kong Telecommunications in 1990. Then the CITIC bought 46.2  per  cent of Dragonair, the Hong Kong airline. It was also one of three shareholders of Asia Satellite Telecommunications Ltd, which managed communication satellites in the region. Among the CITIC’s senior executives were several Red Princes, including Deng Zhifang, Deng Xiaoping’s second son, who also owned several real estate companies, a growing sector in both Hong Kong and the PRC.

Wang Jun, president of the CITIC, was also head of Poly Technologies, one of the principal companies owned by the PLA, which under Deng Xiaoping had also became involved in the private sector. His father, Wang Zhen, was a former vice-president of the PRC, a close friend of Deng Xiaoping, and one of the most hard-line of those within the conservative faction of the CCP.  This dogmatist, head of the Central Party School since 1980, was one of the most fervent supporters of the harsh crackdown on the Tiananmen protesters. But the CITIC, one of the most powerful state-owned enterprises in China, was swarming with secret agents.

A few years later, Agnès Andrésy, the Hong Kong-based publisher of the Arcanes de Chine newsletter, wrote a detailed account of the Red Princes: “The commercial status granted to these shadowy figures allows them to act and move freely without attracting attention. Similarly, the leadership of the CITIC is known to harbour within its ranks a large number of Chinese secret agents from the 2nd Department of the General Staff, one of the many general intelligence cells in China. It was Deng Xiaoping himself who demanded this particular function back when he was the PLA’s chief of staff in 1978; even though Rong Yiren was [CITIC’s] CEO, most of those close to him had been carefully selected by Deng, now an old man. In 1979, CITIC’s vice-president, Xiong Xianghui, was the number one in the Chinese intelligence services, while the director-general, Mi Guojun, was both a member of the 2nd Bureau and in charge of a cell of the Chinese general intelligence bureau within the Ministry of Foreign Affairs.

“The CITIC was the cover of choice for intelligence activities. It made contact with people, established partnerships and furnished logistical assistance to the PLA and to the companies involved in the military-industrial complex. After Poly Technologies, it became the umbrella group for the arms-dealing China Poly Group, officially its subsidiary. The current CEO of the CITIC, Wang Jun, was recruited from within the Chinese secret services.”17

Poly Technologies was involved in arms sales in association with Saul Eisenberg, a businessman who worked on joint ventures between China and Israel. It was a haven for the Red Princes. In 1988, the top ranks of the company included Wang Xiaochao, son-in-law of President Yang Shangkun, who would coordinate the Tiananmen crackdown the following year; Wang Zihua, son-in-law of Zhao Ziyang, general secretary of the CCP, who would be deposed during those events; and General He Ping, son-in-law of Deng Xiaoping. The scions of these theoretically rival dynasties were perfectly able to live and let live when it came to hard cash. The lure of profit and the instinct to stay onside easily outweighed differences of opinion on policy.

***

Yet another Red Prince was the CEO of Hong Kong’s Everbright Company Ltd: Wang Guangying, brother-in-law of the former chairman Liu Shaoqi, who had been overthrown during the Cultural Revolution and horrifically abused by the Red Guards. Liu’s wife had been attacked by the Red Guards for being an “imperialist spy”; yet now her brother was leading an important Hong Kong enterprise. How the world was changing under Deng Xiaoping, as China set forth on the path of capitalism.

The military-industrial lobby was one of the most powerful in Hong Kong. The Poly Group (including Poly Technologies) was at the top of the pyramid, run by the “spy” Wang Jun and He Ping, former deputy military attaché in the United States. Reporting to the PLA, Poly’s import-export turnover at that time was around $500 million a year. He Ping was married to Deng Xiaoping’s favourite daughter, Deng Rong. The couple were both attachés at the Chinese embassy in Washington in the 1980s, charged with cultivating valuable arms trading relationships and with establishing a pro-China lobby populated by well-known American figures.

But in 1996, US police arrested seven people in San Francisco suspected of having brought approximately 2,000 Kalashnikov AK-47 assault rifles and 800 handguns into the United States. The cargo was seized in the port of Oakland, California, thanks to a patient FBI intelligence operation that brought to light the leading role of two Chinese state-owned firms in the affair: Norinco (North Industries Corporation) and Poly Technologies. Norinco had ten offices around the world, including in Hong Kong. Two of those who worked in the San Francisco office, Zhang Yi and Lu Yilun, ended up in jail. Even more seriously, the investigation led directly back to the two companies’ directors, He Ping and Wang Jun. This was one of several episodes in the Jiang Zemin era that tarnished relations between Beijing and Washington, as we will see in the following chapters.

***

Family loyalty was very strong in the Deng Xiaoping clan. Even He Ping’s brother, He Zheng, worked for the China Poly Group (Baoli). Some of its activities were chilling: in January 1990, He Ping made a secret visit to Bangkok to sell weapons that would be used to strengthen the Khmer Rouge’s military capacity in Cambodia. Fifteen years after the Cambodian genocide, the Chinese were still supporting the Khmer Rouge, by now global pariahs. Closely linked to Poly Technologies was a company called Hing Lung Hong, headed by a Macao national, Ieong Chong-pio, and a Hong Konger, Mickey Lai. The company also sold weapons to the PLA and in 1989 it began selling arms to Iraq, including the famous Silkworm missiles.

At the heart of these technology transfer operations was COSTIND, the Commission for Science, Technology and Industry for National Defence, headed until January 1997 by Ding Hengao, whose wife Nie Li was its deputy director. Nie, who was responsible for the espionage ship development programme, was the daughter of Nie Rongzhen, Deng Xiaoping’s comrade in Paris in the 1920s and the founder of the Hong Kong communist secret service in the early 1930s. Alongside Ding and Nie were other prominent directors: Zhang Pin, son of former defence minister Zhang Aiping, and Deng Nan, the youngest daughter of Deng Xiaoping.

Clearly, the most successful Red Princes were those linked to the military-industrial lobby, which played an important role in weapons and technology proliferation. They were also supported by the secret services, which made money out of their operations, with sizeable commissions. All this was exposed in 1997, in a scandal that tarnished the White House, the Clintons and US Vice-President Al Gore: Chinagate.

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Chinagate was a shady affair in which it was revealed that John Huang, former US under-secretary of commerce and one of those responsible for Democratic Party finances, was involved in a corruption scandal at the heart of the party, whose re-election committee was said to have received some $4.5 million from the Sino-Indonesian group Lippo, the Sino-Thai group Charoeun Popkhand, and San Kin, a Chinese group based in Macao. The intermediary was a Chinese-American called Charles Yan Lin Trie. The scandal, which resurfaced in 2008 during the US presidential campaign, exposed links with COSTIND and more specifically with Poly Technologies. Charles Yan Lin Trie, who owned a Chinese restaurant in Arkansas and knew the Clintons, managed with Hillary Clinton’s help to engineer a meeting at the White House between Bill Clinton and Wang Jun, head of the CITIC and the Poly Group, who was subsequently identified as a Chinese intelligence operative.

In such a context, donations made to the Democratic Party for its election campaign were considered bribes to obtain new arms sales—as was the fact that the US had turned a blind eye to the sale of Chinese arms and other sensitive technologies to countries like Pakistan, North Korea and Iraq. Here again, the Chinese were also using their arms trading networks as conduits for political-military intelligence. This affair, which is explored in detail below, reflected a new phenomenon: with the collapse of the Soviet empire, and the evisceration of the KGB, now limited to regional activities, the Chinese intelligence community, with the Guoanbu at its head, was beginning to develop global ambitions.

The case of the Varyag aircraft carrier

Without a doubt, one of the most picturesque examples of the Chinese special services using Hong Kong- and Macao-based businesses as a front was the purchase of the aircraft carrier Varyag. This was a Ukrainian ship destined for the scrapheap, until Beijing decided to buy it, with the idea—always considered and always rejected—of owning, like the Indians, a “seafaring giant” that could extend the reach of the PRC’s air force far beyond Chinese seas.

This episode took place in 1998—one year after the handover of Hong Kong, the death of Deng Xiaoping, and the retirement of Admiral Liu Huaqing, vice-chair of the Central Military Commission, who had long cherished the dream of building a combat fleet worthy of the PRC’s global ambitions. Persistent rumours and naval intelligence analyses from several countries suggested that the Chinese were hoping to launch a 44,000-tonne aircraft carrier by 2010.

This was not the first time that the Chinese had bought an aircraft carrier in order to study it in detail, from every angle. In 1985, China had purchased the Melbourne from the Australians; they then stripped it for parts in the port of Dalian. Later, Beijing bought two ships from the former USSR, the Minsk and the Kiev, which were turned into “tourist attractions”.

The Varyag was a magnificent ship: 55,000 tonnes (displacement), with a span of 307 metres, large enough to carry 2,500 sailors and thirty-five planes. It had just one defect: because of the collapse of the USSR, it had never actually been completed. A Macao company, the Agência Turística e Diversões Chong Lot (the Chong Lot Travel Agency Limited), bought it for $20 million, but without its nuclear-powered engines. Officially the plan was to turn it into a floating casino, like the smaller ones owned by the gambling mogul Stanley Ho. Offshore gaming was not just about money laundering; it was a hub for all kinds of trafficking, including by North Koreans. Portugal surrendered its former colony to China in late 1999, so the field was wide open. The only problem was that the Turks, undoubtedly encouraged by the Americans, did not want to allow a military ship to enter its territory. This led to fifteen months of disagreement between Ankara and Beijing, before the Varyag at last set sail for the PRC in November 2001.

I tried to arrange a meeting with representatives from Chong Lot, based—according to the register—on Avenue Mario Soares in Macao, at the premises of the Bank of China. I came across a PO box and the address of the parent company in Hong Kong. Going through the register at the Chamber of Commerce, I discovered that Chong Lot is a subsidiary of another firm based in Hong Kong, called the Chinluck (Holding), as well as being connected to a third Hong Kong company, Goldspot Investments Ltd. Many of the shareholders of these companies were PLA officers with addresses in Beijing.18 Within the parent company Chinluck (Holding), the connection was even plainer: three of the five directors were Chinese resident in Shandong, where the high command of the North Sea fleet is located.

In 2005, Chong Lot’s chairman, Zheng Zhenshu, gave an interview to the Xinhua News Agency, in which he welcomed the passing of a new law prohibiting Taiwan from seceding from China. This was a strange political intervention from a business leader interested in developing tourism in Macao and Hong Kong—unless, of course, he was driven by a patriotic commitment to a not-too-distant future “reconquest” of Taiwan, aided by his helping the PLA equip itself with an aircraft carrier.

Ultimately, though, the Varyag did not sail all the way to Macao. It made it to Dalian, where it remains in dry dock under close surveillance, as can be seen in satellite photos. The Chinese have arranged their ports in such a way as to allow an aircraft carrier to anchor. They have purchased adaptable equipment for naval aviation, starting with the Russian Sukhoi Su-33, and others. In the first ten years after it docked, the Varyag sailed under a new flag as “001” Liaoning. Redesigned and modernized, it became the first aircraft carrier manned by the PLA Navy. By 2012, its first training operations began, with the brand-new Shenyang J-15 fighters. Then, six years later, China’s first domestically built air carrier (“002”) engaged in sea trials, pending a commission in 2019.

Greetings to our tens of thousands of spies!

The strategic expansion of the PRC and its secret services now had a new ruler: President Jiang Zemin (1993–2003). Deng Xiaoping died on 19  February 1997; he had revolutionized his country, largely succeeding in carrying out the “Four Modernizations”, but he did not live to see Hong Kong back in the hands of the Chinese as he had long dreamed.

For the last decade of the twentieth century, he promoted Jiang, his successor as the “third-generation” leader of the People’s Republic of China—though subsequently he regretted that Jiang had effectively brought the “Shanghai mafia” into government at Zhongnanhai. Deng also promoted Hu Jintao as the future leader of the “fourth generation”. With these two men at the helm, China would modernize even further, expanding its secret services like never before.

At the beginning of 1997, multiple initiatives were set up. Deputy Prime Minister Zou Jiahua went to Paris to help plan the first French presidential visit to the PRC in fifteen years; Jacques Chirac was passionate about Far Eastern civilizations. Though it was not his first trip to China, it was his first as president. But Zou had multiple strings to his bow. A relative of Marshal Ye Jianying, he was deputy minister of COSTIND and highly knowledgeable in strategic affairs. A friend of former prime minister Li Peng, the “Beijing hangman”, he was also chief of the group managing intelligence.

Though 1997 would bring multiple unexpected developments, Zou was doing well at the beginning of the year. Hong Kong newspapers covered the report he presented at a conference organized by the Guoanbu, the PLA2 and the United Front Work Department to “strengthen intelligence work”. Under the title “Greetings to comrades from the special task front”, Zou explained that these special working bodies had now established intelligence agencies in more than 170 cities across fifty countries worldwide. Subsidiaries of Beijing intelligence services were listed as general bases, stations and substations.

The deputy prime minister also gave us a clue as to the sheer number of secret agents running these intelligence and counterintelligence posts by the early Jiang years of the late 1990s: “Tens of thousands of nameless heroes who cherish and loyally serve their homeland are fighting quietly in their special posts abroad, in a complicated environment.”19