9
SEA LAMPREY TACTICS
ECONOMIC WARFARE
Was Huang Lili really the innocent young woman portrayed in the French television broadcasts from her trial at the Versailles criminal court on 20 November 2007? Her defence argued that she was simply a naive young Chinese girl who was spying “against her will and without her knowledge”. Were there not 30,000 Chinese students in France just like her who might have fallen into the same trap? Were some of them really Guoanbu secret operatives, under cover of being students?
By this point in our tale, the reader might feel able to form an opinion for themselves. Huang’s conviction for “breach of trust” a month later changed nothing in terms of the fundamental problem facing counterintelligence detectives investigating Chinese conspiratorial methods. This was the first time since the conviction of Bernard Boursicot a quarter of a century earlier that a case of illicit intelligence-gathering for China had come before the French courts. Even now, Boursicot remained the only individual to have been convicted of treason, since as a French diplomat he was a part of the state apparatus. This did not arise again until 2018, when a number of DGSE agents were charged with committing treason by spying for China.1
We’ve already heard from Paul Moore, a longstanding veteran of the FBI’s fight against Chinese moles, but it’s worth repeating his point: “the people who covertly gather intelligence for China normally don’t look like spies, act like spies or pilfer large amounts of secret information … For most areas of Chinese intelligence collection, the actual work of locating and obtaining desired information, even very sensitive data, is carried out by academics, students, businessmen or journalists.”
On 27 April 2005, 22-year-old Huang Lili was arrested in her office at the Heating and Passenger Compartment (air con) Division of the car parts manufacturer Valeo, in a town called La Verrière in the Yvelines region west of Paris. She had secured the internship at Valeo as part of her studies at the Compiègne University of Technology, working in the Research & Development department for computer-aided design. As she later admitted, she had copied some forty files onto her laptop, including two projects for BMW and Renault, and several others regarding defects of certain parts, as well as the company’s charts regarding its planning and organization in China—all of which were unrelated to her internship. Since she came from Wuhan province, a region that was being developed by the car industry, it is possible that she was being guided remotely from there. The case was extremely sensitive, since BMW’s new SUV model had just been hacked by other networks and the Smart car had been copied by the manufacturer Shuanghuan, which had received certification to sell its models in Europe. Citroën had already experienced this economic nightmare when its CX was counterfeited in 1993 by the Chinese manufacturer Greely, which sold its version for half the price of the original.
“One day, I was working on a Valeo PC, and I didn’t have enough space for my work,” Huang told Libération. “So I erased and copied these two files onto my personal disk. … I took the documents to prepare my report. I loaded lots of files from the intranet, and then went through them. If I saw that the title could be useful for my internship, I copied the file. In total, I must have taken thirty or forty files.” She had given the police the same explanation during her 53-day detention.2
Meanwhile, at the Chinese embassy on Rue Washington in Paris, which houses the offices of several intelligence services, people were getting a little worried. Madame Chen Li, assistant to Police Officer Wang Caizhu of the Gonganbu, was on the prowl. She was studying in her spare time, working on an MPhil about the Chinese mafia at Paris’s Assas law school. Chen was doing everything she could to obtain information on Huang Lili’s case, for back in Beijing certain people were getting very anxious that they were about to witness a wave of arrests in France. Even if Huang were to be acquitted, her case was surely going to complicate industrial espionage in both public and private laboratories in France, since it was bound not only to sensitize laboratory heads but also to alert the French counterintelligence services to Chinese ways of working. Though Huang was only indicted for “breach of trust” and “fraudulent intrusion into an automatic data system” she was still being accused of industrial espionage, in other words of hacking into confidential databases in a sensitive domain concerning future car designs.
“I needed to know generous things [she meant ‘general’] about the company,” she told the hearing on 20 November, apologizing for not having paid attention to the “confidentiality agreement” that she had signed at the beginning of her internship: “I read it quickly, without paying proper attention.” She had similarly ignored the warnings of her co-workers at Valeo, who never saw her without her laptop and its 40-gigabyte hard disk. She also had a mobile phone, but the police investigation found that she had not used it to send any information to China—at least not this mobile phone—nor her email address.
Probably in order to avoid damaging its image, the company, through its CEO Thierry Morin and its lawyer, played down any damage it had suffered. Huang Lili was not the Mata Hari she had initially been painted as. From the point of view of a large company like Valeo, it made no sense to demand a prison sentence for an intern. Valeo had a large presence in China, with a technical centre in Wuhan (the Eldorado of the Chinese automobile industry and the province Huang hailed from), its 5 Axis school for training Chinese personnel, a Shanghai office that had enabled the company to spread across Asia from 2001, and a Beijing office, established in 1994, where it had begun its first three joint ventures in windscreen wipers and air-conditioning. Witnessing the impact of similar incidents, such as the special ops on Danone (see below), was all the persuasion that heads of victim companies needed to exercise caution in their response to such attacks.
Nonetheless, the prosecutor, Marie-Laure Boubas, worried the defence by evoking “active manipulation”, “concealment”, “bad faith and breach of trust”, and by asking for a one-year jail sentence, including a ten-month suspended sentence to cover Huang’s pre-trial detention. Thanks to support for Huang Lili from her student friends and some of her professors, as well as media coverage of the case—which managed to make her come across as the victim—her lawyer Raphael Pacouret hit a nerve when he criticized anti-Chinese hysteria in France: “All interns have the same methods. But they aren’t all called [Lili], and they aren’t all Chinese.” He called Huang’s actions professional malpractice rather than a punishable criminal act, and asked for his client to be acquitted. But the court was not swayed: on 18 December 2005, Huang was sentenced to a year in prison, with ten months suspended and two months to be served, and €7,000 in damages to be paid to Valeo.
She had not been exonerated, as broadcast media claimed, relying on courtroom dispatches summarizing the arguments of the defence. Nor was she was convicted of espionage, which is a different charge in criminal law. But she had been convicted of “breach of trust” for having dishonestly procured information. Moreover, it was clear that she had understood this when she was shown proudly brandishing her Chinese passport and complaining, “There is nothing I can do up against the legal system of another country”, whilst making claims on French television that France had been influenced by the United States in believing that there was such a thing as Chinese spies on their territory. If that had really been the case, she argued, she would not have been allowed to stay on and finish her degree, but would instead have been expelled from the country.
From Huang Lili to a cure for Alzheimer’s
I was curious to talk to experts close to the Valeo investigation, the subject of so much media speculation. An expert in protecting economic property explained to me a few months before the trial: “In this case, I believe that the Chinese already had knowledge of these files, but what interested them was, as is so often the case, the system of validation [confirmation or corroboration]. That is the challenge in this area. Can we really call this espionage? Thousands of post-doctoral students and highly qualified scientists are interviewed by experts upon their return, or while they are still abroad completing their studies. This hardly makes them secret agents. At a pinch one might call them potential ‘honorary correspondents’, who might later be questioned if their research, their experiments or their dissertations catch the attention of the relevant scientific services. All countries do that. The difference between them and us is that they have so many more [informants] than we do.”
In this context, counterintelligence experts perhaps don’t judge that they need to be keeping an eye on all Chinese students who, without considering themselves to be spies, are nonetheless part of the huge apparatus set in motion by Beijing to hoover up intelligence: “Influenced by the British and the Americans, one day our bosses had the idea of making a list of all the Chinese students who had come to France to study. Apart from anything else this would be an impossible task, just in terms of the number of people we could allocate to the task. We also tended to agree with our German colleagues that it wouldn’t really achieve anything, unless by chance we actually came across a real Guoanbu agent, some kind of foot-dragging permanent student, working undercover.
“Some high-ranking official must have realized what a useless idea it was. It was dropped. We could intervene only in specific instances where we had already identified intelligence agents operating on our territory, by studying their modus operandi and their contacts. Actually, we realized that we were more likely to spot the presence of the Chinese services by following some high-profile figure in the world of French industry or politics who was genuinely corrupt and eating out of the hands of the Chinese secret services.”
She went on to offer me several examples of politicians and other prominent figures on regional and general councils, or the former top brass in the French foreign office who, immediately after leaving his post, set up a consultancy firm using all his contacts—this was most welcome to the Chinese—as well as a Hong Kong tycoon specializing in arms sales to the Middle East.
Beyond the counterintelligence community’s view of the Chinese espionage problem, there also remains the delicate balance sought by the scientific community, which believes that breakthroughs on one side can benefit the other, and vice versa—only, of course, if they are shared.
On 8 April 2006, a French CNRS researcher based in Strasbourg was stopped by customs at Entzheim airport. He was on his way first to Paris, then to Canton. “Dr X” was Chinese-Cambodian, born in Phnom Penh in 1940. He spoke perfect Mandarin and was a naturalized French citizen. He travelled regularly to conferences in Asia on subjects that testified to the wide range of his knowledge and expertise: the chemistry of natural products, bio-organic chemistry, and neurochemistry. These subjects took in essential oils, insect brain proteins, healing and neurologically active plants, cell therapy, and the induction of neural stem cell differentiation via small synthetic and natural molecules—one of Dr X’s fifteen patents.
Customs discovered that Dr X, an employee at the French Institute of Chemistry, was carrying several samples from his laboratory that he was taking with him to China. This brilliant researcher appeared to have isolated a molecule capable of activating stem cells in the brain with the potential to cure both Alzheimer’s disease and multiple sclerosis. In other words, the stakes were rather high.
“The scientific advisor at the French consulate in Canton, who entirely understood the point of a research partnership, had invited me to visit in order to prepare a Franco-Chinese workshop on this research topic,” Dr X told Le Figaro. “My mistake was to take a few samples with me without having thought to ask permission from the CNRS, in order to be able to show that our work is actually complementary.”3 The CNRS filed a complaint, on the grounds that any discovery resulting from research carried out in its laboratories belongs to it by right—and especially any discovery that might make a colossal fortune for the pharmaceutical company that marketed it. Dr X was automatically and swiftly retired, and the legal case was closed. The scientific research community managed to avoid a scandal.
In terms of counterintelligence, though, the Dr X case raised a rather more general question: would it be better in such instances for the West to intercept the offender, as part of an exercise to “protect intellectual property”, giving a warning shot to the scientific community? Or would it be better in fact to give them free rein and then to keep them in their sights, hoping to coax their handling officer out of the woodwork, and so identify an entire network?
For a long time, Guoanbu officers used to bring their agents back to China to debrief them. But this has begun to change and a growing number of Chinese spies are being noticed in countries other than the one where they were first recruited. This means, for example, that a French agent who meets his Chinese handler in Bangkok—where the Guoanbu has a significant presence—will leave no trace when entering China, having committed no crime in Thailand.
While Chinese economic espionage has spread across the globe since the late 1980s, at home it has continued to exploit the naivety and generally nonchalant approach of Western entrepreneurs with no one but themselves to blame when they are stripped of their patents, prototypes and market in the Eldorado that is twenty-first-century China. That is why counterintelligence services make a point of raising awareness on the security front for all those trading, investing or even simply travelling in China.
The anti-espionage protection manual
The British boast a longstanding tradition of cooperation between the intelligence services and the City. The pragmatism of Her Majesty’s Secret Service has been honed by long experience in Singapore and Hong Kong. In 1990, in response to the flourishing of Chinese intelligence, MI5 produced a protection manual for businesspeople visiting China, called Security Advice for Visitors to China.4 This manual is a timely reminder that:
The motive behind the Chinese Intelligence Service cultivation of Westerners is primarily to make “friends”: once a “friendship” is formed the Chinese will use the relationship to obtain information which is not legally or commercially available to China and to promote China’s interest. The information required may not be classified: it can range from comment and analysis of Western political and economic trends, to Western security and defence matters, commercial practices, negotiation positions and industrial developments. Information on Western scientific and technological progress is a high priority requirement of the Chinese Intelligence Service.
A second objective of a “friendship” can be for “talent spotting”, that is meeting other Westerners through the original contact who may have more political influence and better access to information of interest.
Characteristics of a Chinese Intelligence Approach
The Chinese Intelligence Service approach to Western visitors differs from the more familiar techniques and methods of intelligence services of other communist countries, for example the Soviet KGB. A Western visitor is more likely to be the subject of long term, low key cultivation, aimed at making “friends”. This technique leaves those visitors with an appreciation of China and a love of Chinese culture particularly vulnerable.
Cultivation of a visitor or contact of interest is likely to develop slowly: the Chinese are very patient. An initial business transaction may be followed up by friendly social contact, such as an invitation to a meal or tickets to a cultural or sporting event. The target of the cultivation may be invited to return to China, ostensibly to discuss further business ventures or to speak at learned institutions; businessmen may be offered advantageous commercial opportunities, students may be offered exceptional research facilities. In reality, the return visit will be for the Chinese Intelligence Service to assess the potential of the target.
The aim of these tactics is to create a debt of obligation on the part of the target, who will eventually find it difficult to refuse inevitable requests for favours in return.
As this MI5 document was published in the early 1990s, it states that China does not have the means to pay agents as other countries do. By 2008, this was of course no longer true, thanks to the increased wealth of businesses and the emergence of private-sector research centres, which have substantial funds for recruiting sources.
The considerable financial resources at stake, in the world of espionage as well as in other economic and strategic domains, began to pose real problems for foreign services, which in the past were able to recruit agents in China fairly easily by means of cold, hard cash. Now the opposite began to be true, as was first reported in early autumn 2007 by the Taiwanese counterintelligence services. Red China was buying spies.
“The economic boom in mainland China is the cause of the huge difficulties facing the Taiwanese intelligence services,” according to Shi Hwei-yow, head of the National Security Bureau (Kuo An C’hu), responsible for sending agents to mainland China. This is because sources have been getting more and more greedy, while the budget of the Taiwanese services has not increased at the same pace. Similarly, the Chinese have been able to “turn” Taiwanese agents as easily as flipping pancakes. At the end of September 2007, a Taipei court sentenced two spies working for the PRC, one of whom, Chen Chih-kao, was a former member of another service, the Taiwanese FBI (Tiao Ch’a Pu), and had become a businessman on the mainland.5 He had been “turned” by the Shanghai Guoanbu bureau headed by Wu Zhonghai, who offered him substantial funds to help his floundering business.
MI5’s anti-espionage manual, showing great familiarity with the psychology of Chinese handling officers (Gongzuo dandang guan), emphasizes a point that businessmen and commercial agents do not always fully recognize: “a relationship built first on a business and then on a social footing can gradually develop into a tacit agent recruitment, making the businessman a controlled source of information for the Chinese Intelligence Service.”
In 2008, the Chinese services were using the most modern means of electronic surveillance, intercepting mobile phones, Blackberry calendars, and so on. But the monitoring of visitors to China has not fundamentally changed from the close surveillance practices of the 1990s, as described in the MI5 manual:
The Chinese have extensive resources at their disposal. They can and do place listening devices in hotels, guest houses and restaurants. They can search luggage and hotel rooms, scrutinize mail, and mount surveillance operations against visitors. Although this type of attack is more likely to be used against targets of particular interest, its possible use against others cannot be ruled out.
Visitors to China should be aware that all private and business papers are at risk if left in offices or hotel rooms (even if locked in a briefcase), and they should assume most hotel, domestic, bar and restaurant staff are subject to the influence and control of the Chinese Intelligence Service.
In conclusion, the British offer the following tips:
Understanding how the Chinese Intelligence Service operates is the best protection a visitor can have. Remember that status, occupation and background afford no immunity from special attention. Be especially alert for flattery and over-generous hospitality. Be careful about personal behaviour and be alert to compromising situations. If arrested or charged with infringing local regulations, or caught in an embarrassing situation, always insist on being allowed immediately to contact either the British embassy in Beijing or the consulate–general in Shanghai. … There are many cases on record where people have been compromised and left to think that their troubles were over, only to find themselves some years later subject to a threatening approach.
These warnings corresponded to the ramping up of economic intelligence in the Deng–Jiang era.
A brief history of economic intelligence
It was under Deng Xiaoping, in the early 1990s, that economic intelligence began to boom. This has led to a popular belief that such Chinese intelligence was born in that period. However, the first intelligence cells of this kind were actually formed as early as the 1930s, at the communist base in Yan’an. It was Chen Yun, one of Kang Sheng’s assistants in the Shanghai Social Affairs Department (SAD), who really unleashed it. Throughout his long life (d. 1995), Chen Yun zigzagged between issues of discipline and security, and economic questions. Those who came after this “Immortal” continued along similar lines: this was how his son Chen Yuan, an expert in financial affairs and in particular the Central Bank, was implicated in the financing of US lobbies not only directly linked to Chinagate, but also to Republican Party representatives.6
Often, the history of intelligence is embellished with stories of spies, double agents and honey traps. But the SAD, and successive intelligence agencies affiliated with the CCP, equally embedded itself deep in major financial and commercial organizations, particularly in Shanghai and Hong Kong. Networks were established, thanks to invisible connections (touming guanxi) within Kuomintang and foreign-based companies that came from the global Chinese diaspora. Similarly, copying the Russian system of rabcors (worker correspondents) within the unions, the CCP had established an important web of networks engaged in economic intelligence in China before 1949.
When Chen Yun launched his first five-year plan, he relied on the research and intelligence sectors linked to the early economic intelligence structures, integrated into SAD and other CCP special services. In the early 1960s, for example, the diplomat Yuan Lulin moved from the “Committee for the Promotion of International Trade” in Austria, to head of the foreign affairs intelligence service, and then, towards the end of the Cultural Revolution, to a position as a banking advisor at the embassy in Switzerland.
The CCP’s Diaochabu (which replaced the SAD) has conducted economic intelligence operations abroad ever since these first networks were set up, despite the fact that it was partially dismantled within China itself after the founding of the Guoanbu. In the 1960s, the French counterintelligence service (the DST) closely monitored visitors to the Leipzig International Fair, an important hub of intelligence in Eastern Europe, where attempts were often made to recruit Western businessmen. The Chinese were very present and engaged in similar attempts at seduction, as well as setting up their own trade fair in Canton. In 1966, the DST demanded the expulsion of three interns who had been showing a suspicious amount of interest in Ohmic’s electronic equipment factory in Le Mans; the same went subsequently for a Xinhua News Agency correspondent, Li Yannian, and Tian Yiching, head of the French embassy press office, accused of industrial espionage, taking advantage of the chaos in some factories around the general strike of May 1968.7
When the Diaochabu was absorbed into the Guoanbu, the new state security service turned an entire section of its economic research unit into an intelligence department. In 1985, its director Ling Yun, a specialist in political counterintelligence, was replaced by an engineer, Jia Chunwang, who had trained at Tsinghua University and would later become Gonganbu minister. The Guoanbu now began to employ other people from the highly reputed university, known for producing top-quality cadres. In Beijing, a school of economic intelligence opened its doors at the Guoanbu’s instigation, followed by a new business school in Shanghai.
In 1987, the principal Guoanbu agents in the Chinese embassy in West Germany were a married couple, the husband undercover as a “commercial advisor”. Twenty years later in 2007, they were still there, and the “commercial advisor” had become such an important part of intelligence operations that he began to be a real thorn in the side of General Zhang Changtai, the defence attaché in Berlin at the time (no relation to the Zhang Changtai posted to Paris in 2006). There was an amusing reason for the two men’s mutual dislike: they had the same name, and embassy workers in Berlin were always bringing them each other’s post.
Back in the 1980s, the great intelligence reform consisted of using traditional methods, inherited from the Japanese espionage campaign of the 1950s, but in far greater number and by way of innovative technical means. “Astonishingly, at this year’s Bordeaux International [1988], the Chinese were photographing everything, and using up-to-date video cameras that allowed them to film explanatory panels in their entirety, even ones that were completely innocuous,” according to Colonel Ferron, regional head of the DPSD, the French military security directorate.8
Another example was the famously comical affair of the neckties, which obviously belongs to the era before digital cameras. In 1985, counterintelligence services noticed that some Chinese visitors to the company Agfa—at the time far more advanced in certain development processes than Kodak—had contrived to “inadvertently” plunge their neckties into special developer baths. Back at their hotel, they cut off the ends of their ties and sent them to China for analysis. “Cleaners” from the French secret services found the remains of the ties in the wastepaper baskets.
In 1983, in parallel with the creation of Guoanbu, the Ministry of Foreign Economic Relations and Trade (MOFERT) was born, headed by Chen Muhua—a respected militant who had nearly died in the 1940s when Kang Sheng had her arrested in Yan’an as a Kuomintang spy. She was rescued just in time by Zhou Enlai, the “revolutionary mandarin” behind the “Four Modernizations” realized in this period by Deng Xiaoping. She was clearly the ideal choice to lead the way in trade modernization.
The establishment of a large foreign trade ministry, coupled with one for scientific and technological research, was much-needed, not least since Comrade Deng launched a major national hi-tech research and development programme between 1982 and 1988. This included Programme 863, launched in March 1986, which had a military as well as civilian component, and the Torch Programme (Huoju), which spawned fifty-three hi-tech industrial development zones whose mission was to siphon off technologies from the West, Korea, Japan, and elsewhere.
Under the auspices of MOFERT’s international sector—and that of its successor, MOFTEC—various roaming Guoanbu operatives directly involved in espionage operations were offered covers, as per Deng Xiaoping’s ideas. Madame Chen was seconded into this area, thanks to a former Diaochabu technician, Wei Jinfei, who was advisor to the minister of trade until his death in 1983.
Beyond the “black zone” of industrial espionage, there were also several economic intelligence cells playing extremely important roles in the Chinese development race. In 1984, the Sichuan Scientific and Technical Information Centre was founded, which included “a FAX information network, a network for sharing commercial intelligence, and a global network exchange for economic, scientific and technical intelligence”, as well as a service for collecting and providing samples of foreign products. The SSTIC brought together 15 million items of data for an expected 50,000 users and developed a major documentation service by fax, specializing particularly in marketing intelligence.
By 1986, MOFERT, located at 2 Dongchang’an Avenue in central Beijing, was the driving force behind the establishment of an economic and commercial network that brought together regional, local and import-export business institutions, and was equipped with a satellite terminal (VSAT) and an electronic data interchange network. It intended to build 300 terrestrial stations for national and international networks within five years. This was comparable to the Japan External Trade Organization’s system, and capable of transmitting any economic data both to a central database and to the companies involved, in order to facilitate their interventions abroad.9 Headquartered in Beijing, the national branch then included 200 stations that used Asian civilian satellites. The international branch had 100 stations serving South-East Asia via satellite, North America, Japan and Oceania by submarine cable, and Europe, Africa and Asia from satellites in the Indian Ocean.10
It is possible to trace the birth of Chinese economic surveillance back to this birth of MOFERT/MOFTEC. It was supported by services directly linked to the upper echelons of the CCP, such as the United Front Work Department, which, as we have seen, intervened with the Chinese diaspora abroad. The UFWD’s 5th Bureau, responsible for economic intelligence, was headed from the late 1980s by Hu Deping, son of Hu Yaobang, the CCP general secretary ousted during Tiananmen, and director of the Chinese Society for Research into the Private Economy. Hu was later made head of China’s international chamber of commerce, a role that sent him to different European countries to establish links with business groups hoping to invest in China.
Chinese systems of economic surveillance
“My services are not engaged in espionage operations, but rather in overt intelligence, and large-scale economic surveillance,” Professor Liu Xiaoxi told me in 2007. He was then director-general of the Macroeconomic Research Department, part of the State Council’s Research Bureau.11 The occasion was a dinner with leaders of the China Reform Forum, linked to the CCP’s Central School, followed by a wide-ranging discussion on the driving forces behind economic intervention abroad. There had also been a lengthy presentation of the major reforms in this area, covering every detail: the instigating role of Deng Xiaoping; the launch of major information technology programmes under Jiang Zemin; and the “theory of the three harmonies” conceived by President Hu Jintao (2003–13), who wanted to continue China’s evolution into a superpower while avoiding conflict with other large nations.
However strong that desire may have been, the craving for energy deposits could and did trigger strategic and diplomatic conflict, as had happened in 2006 in Darfur, on Sudan’s border with Chad. The French DGSE’s special forces, responsible for the security of the Chadian president Idriss Deby, had found itself surrounded by rebels armed by the Chinese. But the most important thing is to remain “friends”. “The informative research of economic surveillance is organized into three channels,” Liu explained to me, between spoonfuls of spicy soup. “They are officially institutes of economic research: non-governmental organizations and private institutions. Forty or so researchers are centralizing this information, in order to allow the government to plan for the next few years.”
At the turn of the millennium, Liu was working with the CCP’s Investigation Service (Zhongyang diaoyanshi), which had replaced the Diaochabu in 1983. It was headed at the time by Chen Jinyu, a former academic, who emphasized that research, and its centralization, was all done using open sources. A huge data flow was being processed, which was apparently posing a problem in terms of sorting and analysis. “Our managers receive a lot of information, and it is true that a coordinating body is missing. But to tell the truth, I am not sure that this would be possible in a country as vast as China. For at least two reasons: the regionalization of the economy and the undeniable size of the private sector since Deng Xiaoping’s sea-change.” This explains the existence of a myriad of intermediate-level information coordination and regulation commissions, which, according to Liu, are able to circulate information in a much more fluid way than in the past.
The interface between state, party and even military intelligence agencies and large, theoretically private companies, remains constant. “E-information, in other words information gathered on the internet, modelled on American and other systems, has become extremely important,” Liu pointed out. “This is an area in which the Ministry of Information [which controls the internet through the security services] plays a pivotal role.”
He also emphasized that the traditional vectors of information, part of the Chinese intelligence system since 1949, continue to be important: for example, the confidential economic reports produced by the Xinhua News Agency and various ministries now working online. Just a few days before we met, I had managed to get hold of a manual for how to gather intelligence on the internet, published by Tsinghua University’s IT department. It illustrated the huge revolution of cadre training and technological surveillance in the new economy.
What Professor Liu explained to me was fairly comprehensive. All that was lacking was an explanation of how intelligence useful for state affairs and national security was coming out of the private sector in the first place—and the role of the army in a growing number of cases concerning commerce and industry.
Economic “research bureaus”
Following my meeting with Professor Liu, I wanted to find out a little more about the structure of the State Council’s Research Bureau for which he worked, then headed by Wei Liqun.12 This bureau, which had grown significantly under Jiang Zemin, has given up its role as a generalist and political intelligence agency, and is now confined to gathering strategic commercial and economic intelligence.
This reorientation was encouraged by Wei’s predecessor, Gui Shiyong. The Research Bureau, located in the official government residence at Zhongnanhai, answers directly to the prime minister. Its mission is to collect, compile and analyze all intelligence of an economic and societal nature, both internally and abroad, to guide the leadership’s decision-making. It simultaneously helps CCP leaders to document their activities and the government to consider what new reforms should be undertaken. But the Research Bureau is not simply a triage station; it is also a think-tank and a laboratory of ideas. As director, Wei used to accompany Hu Jintao’s prime minister, Wen Jiabao, on his various trips abroad, just as he had accompanied Wen’s predecessor Zhu Rongji while deputy director.
The bureau is made up of six departments; the first secretarial department also oversees the Department of Foreign Affairs. The other five are research departments, for global research; macroeconomics (Professor Liu’s department); trade, transport and industry; rural economics; and social development. Wei further boosted his team by engaging the services of analysts specialized in “globalization”, including Ms Jiang Xiaojuan, former general secretary of the International Investment Research Centre at the Chinese Academy of Social Sciences, which plays an important role in many areas of research and intelligence, including strategy.
The Research Bureau works in harmony with the two main ministries involved in strategic research on economic warfare: MOFCOM, the Ministry of Commerce (Shangwubu), which succeeded MOFTEC in 2003; and MOST, the Ministry of Science and Technology. Both have a powerful information research network that extends over the entire globe. MOFCOM’s economic intelligence organisms are endowed with enormous manpower. The trade minister Bo Xilai (2004–7), son of Mao Zedong’s finance minister Bo Yibo, benefited from a structure that had been refined by his predecessor at MOFTEC, Shi Guangsheng. Shi had a wealth of experience as a commercial attaché in Mali and Belgium, having already led MOFERT/MOFTEC’s import-export division and participated in the delicate 15-year negotiations regarding China’s entry into the World Trade Organization in 2001.
The mission of MOFTEC/MOFCOM’s intelligence apparatus, expanded after 2003, was to replicate China’s internal economic transformation in the global economy, making it a major player. Its positioning within the WTO, the negotiation of intellectual property treaties, the definition of commercial strategies, the acquisition of new technologies, the creation of joint ventures—all these activities and many others demanded the deployment of economic intelligence techniques and expertise at a national level. On the international stage, this apparatus was augmented by parallel structures in megacities like Shanghai, Chongqing and Canton, as well as in provinces such as Shandong, where “siphoning” systems particularly effective for economic intelligence had been implemented. Committees for twinning cities and other forms of exchange were also exploited by regional structures.
At the State Council, MOFCOM was overseen by Deputy Prime Minister Wu Yi, described in 2004 by Forbes magazine as the second most powerful woman in the world, after then US National Security Advisor Condoleezza Rice. This was a logical appointment, given that Wu had run the ministry in the 1990s and overseen the birth of its economic intelligence unit.
MOFCOM relies on specialized internal departments, such as the Department of Economic Affairs and International Trade, as well as a myriad of think-tanks and institutes that have emerged since the 1990s.13 The Research Institute of International Trade, set up in 1994 by Shi Honghai, can be considered the original Chinese economic intelligence structure, in the sense that it is understood in the West. This clearly echoes the use of scientific research centres and think-tanks seen in the previous chapter.
The establishment of data banks, regional structures for economic research, and the provision of foreign intelligence to Chinese companies via the internal magazine Foreign Trade Survey all naturally exploit the diversified structures of government agencies with “research sections”, such as the finance ministry and the Bank of China. However, MOFCOM’s intelligence specialists also work in conjunction with the offensive counterintelligence of the Guoanbu, in particular its 17th Bureau, headed by Tian Gengren, and its “business” bureau, founded in 2000 by Chen Quansheng (later director-general of the State Research Council). Among the tens of thousands of Guoanbu “deep-water fish”, vast numbers of intelligence agents are embedded within the economic networks of the Chinese diaspora around the world.
The Guoanbu’s 10th Bureau, headed by an expert named Liu Zhisheng, covers the scientific and technological field and thus acts as the interface with the Ministry of Science and Technology, led in the early 2000s by an automobile industry expert who is not a member of the CCP, Wan Gang. The 10th Bureau has many highly aggressive structures responsible for collecting information, patents and reports, as well as for other active measures including the recruitment of scientists, of both Chinese and non-Chinese origin.
Subsidiary to the Executive Bureau headed by Li Chaocheng, MOFCOM’s Research and Investigation Departments 1 and 2 are responsible for internet research carried out by the e-documentation division—online intelligence-gathering done via artificial intelligence.
Led by Jin Xiaoming, the International Cooperation Division is, of course, the most active abroad, establishing scientific research agreements between institutions and laboratories at global, inter-state and sub-state levels. It is split into seven departments: (1) Planning/general affairs; (2) Conference organization; (3) America/Oceania affairs; (4) Africa/Asia; (5) Europe; (6) Research policy; (7) Eastern and Central Europe. It guides research from the diplomatic posts where it is represented, in liaison with the Guoanbu and COSTIND, which manages military technological research. In Paris, its coordination post is located in the Rue Washington embassy annexe, on the fourth floor.
At the beginning of 2006, the OECD estimated that China was about to become the second-largest research and development (R&D) investor after the United States, spending $136 billion in the field and surpassing Japan’s spending of $130 billion. This means that China’s R&D development was more intense over the decade than its economic expansion, which was then fixed at a steady rate of between 9 and 10 per cent a year. However, the science and technology ministry in Beijing has denied these figures, claiming that it spends only a quarter of this amount, and spent only $30 billion in 2005.
This suggests that, in the field of civil and economic technology, the Beijing authorities are downplaying the real figures, just as the PLA does for the annual military budget, veiling the boon represented by intelligence funding. It is important to avoid giving the impression that the Chinese state apparatus has a determining role in the private sector’s R&D, if one wants to maintain the fiction that China is governed by the market economy. In reality, 55 per cent of the R&D budget is state-owned.14 Within each of the structures mentioned above, a government steering committee determines its objectives and targets for technology research overseas, as part of a global policy.
Sea lamprey tactics
In 2006, at a conference in Paris, General Daniel Schaeffer, former defence attaché at the French embassy in Beijing, described in detail the “practices of Chinese economic intelligence in the acquisition of high technology”.15 After defining the main players in economic intelligence, he went through the “Chinese operating methods”, much as this book has given multiple illustrations of secret service methods using both clandestine and open sources to capture the key intelligence information that feeds the Chinese economy. There were nine of these MOs in total, which might provide a useful summary at this point.
The first is the acquisition of open intelligence, particularly easy in the West and in democratic countries because of the profusion of sources and access to information (especially using the internet, as the Chinese services are increasingly doing). This can also be acquired during highly instructive visits to facilities and companies. The second is the exploitation of political relationships, particularly the kind that will lead to scandal. Chinagate in the United States is one example, as is the Taiwanese frigate scandal (see below).
The third method is international cooperation in the economic field, essentially meaning foreign investment. As Schaeffer put it, “The rush to China has opened up a veritable mine of technology, and has enabled it to make up in record time for the backwardness of the Maoist regime.” By 2004, the CIA was warning that China was on its way to becoming the world’s sixth economic power, even though its GDP (10,561 yuan, or €1106) would put it at the level of extremely weak economies, such as Honduras and Sri Lanka. Foreign investment was initially the engine of Chinese growth, worth $660 billion and involving half a million businesses. After a while, though, the opposite dynamic was brought into play: China began using its accumulated assets to purchase energy resources abroad. Depending on the mood of the forecasters, it would be either all good or all bad: some thought that, by 2010, because of massive income disparity, the bubble would burst or at least the country would experience considerable social unrest, while by 2035, it would have overtaken the United States as the biggest economy in the world. world. The CIA confirmed its own prediction in its 2018 “factbook”, and the World Bank, the London School of Economics and the US Treasury are all agreed on this today. This is in spite of the slowdown in China’s growth, the trade war with Donald Trump, and the growing sanctions and regulatory buffers around emerging technologies (as with Huawei’s 5G networks in 2019).
The fourth method for economic intelligence is direct commercial acquisition. This is where China buys a few copies of a product for the purpose of dissecting it and then manufacturing its own version. The best-known example of this was the magnetic levitation train developed by the Germans, the Maglev. Berlin hoped to sell the entire Beijing–Shanghai route to the Chinese. Instead, the Chinese bought just the Shanghai stretch, from the airport to the city centre. In the meantime, in 2006, engineers at Chengdu’s Southwest Jiaotong University Industrial School of Engineering had fabricated their own Chinese Maglev train. In aeronautics circles, it was feared that the same process would happen with Airbus. Another way to gather economic intelligence through purchases is by buying “apartments”, rather than the entire building, as was done in the mid-1980s. Aircraft manufacturers would order more engines than actual aircraft, for quite obvious reasons: the engine was the only element that the Chinese had not yet succeeded in copying.16
The reader has already encountered examples of the fifth method, scientific cooperation, as in the case of the anonymous CNRS researcher. Schaeffer was right to warn against paranoia and seeing all research cooperation as no more than a vast organized looting of knowledge. He pointed out that “the whole problem is knowing, when it comes to cooperation, where to set the bar for sharing knowledge, acknowledging that some might compromise our economic, technological and strategic interests, and to what extent our researchers ought to be alert to where the limits lie when it comes to the exchange of knowledge”. His remarks were based on a particularly French issue: unlike in Britain or Germany, French counterintelligence has struggled to reach a consensus with the scientific community on how to define what constitutes the protection of intellectual property.
The sixth method is student cooperation. The Valeo affair was just the tip of the iceberg—the French security services’ statistical analysis concluded that the Chinese did not consider French universities to be the best places to send their future elites to study, apart from the training of top state administrators and other territorial officials (managed in China by the CCP Central School). This must mean that there are many more Huang Lilis in other parts of the world.
The seventh method will take us right back to the beginning of our story, and the interwar era when Zhou Enlai and Deng Xiaoping had been student–workers in France: “returning from the West”. Chinese researchers in the West, particularly those in private laboratories, were expected to put their acquired knowledge to good use when they returned to China. The network of Confucius Institutes established in 2004, in partnership with major Chinese technology companies and twinned with leading universities, required more refined analysis—especially since many foreign students now come to study and undertake internships in China. Beijing’s hope is that these students will be won over to the cause of the Chinese economy.
The eighth method is exploitation of national pride. This primarily concerns the vast community of overseas Chinese, the Huaqiao, whose relationships with their country of origin remain strong. It can also be used to refer to the traditional web of regional relationships, or guanxi. These connections have a part to play in organized crime, as can be seen in some pockets of the Teochew or Wenzhou ethnic groups, though clearly not the majority of them. Such relationships have sometimes been exploited for the purposes of first-grade espionage, as we saw in the cases of the Guoanbu’s CIA moles, Larry Wu Tai Chin (1986) and Jerry Chun Shing Lee (2018).
Finally, the services employ an infinite number of negotiating strategies, including lobbying, stand-offs with negotiating partners, using blackmail to gain access to the Chinese market, competitive pitching—in the course of which the Chinese get hold of technical files containing the knowledge they are after, without even needing to conclude negotiations—and partnerships that turn against Westerners participating in joint ventures, as in the Danone affair (see below).
So what does all this tell us? It is simple: large Chinese companies now have operating procedures and considerable financial resources that allow them easily to set up shell companies for siphoning off Western technology. They are now responsible for an extremely high volume of espionage, unmatched by any country since the implosion of the Eastern Bloc.17
Many of these techniques bring to mind the sea lamprey—a legendary snake-like fish known in China as the “eel with eight eyes” (ba mu man). Scientists can date its evolution into its current form to around 530 million years ago. Like twenty-first-century China, it has time on its side. The notion of the “sea lamprey strategy” (ba mu man ji) comes from the fact that this slippery, greenish fish blends in with the seascape, clinging to the rocks, and then, having waited patiently to select its prey, closes in and latches on, siphoning off its blood through its multiple orifices. It is the perfect metaphor for Chinese espionage techniques.
Huawei’s business intelligence
The telecommunications empire Huawei Technologies was founded in 1987 by a former PLA officer, Ren Zhengfei, in the Shenzhen Special Economic Zone. It is an excellent example of a company that has mastered the “sea lamprey strategy”, and the perfect symbol of China profiting from and buying up the rest of the world. One could write an entire book about the company, which has in fact published several books itself, celebrating its multiple successes; these can be found in any Chinese bookstore. Huawei has become a major player, as the laid-off employees of Alcatel-Lucent in Rennes, Brittany discovered when the company was forced to relocate following Huawei’s decision to set up a factory in Lannion, also in Brittany.
By the early 2000s, Huawei counted thirty-one of the top fifty telecoms operators among its customers, including British Telecom, Telefónica, Orange, China Mobile and Vodafone. It had around 30,000 researchers worldwide, one of its largest teams, which commanded 10 per cent of its overall budget. 62,000 of its employees, half of its entire workforce, worked in research and development. By 2018, its manpower had tripled in size, to 180,000 employees worldwide, with 79,000 working in R&D. Not a week goes by without an announcement that it is opening up in yet another location. Its competitors are convinced that it exploits every kind of technological intelligence strategy, pointing out that it has shown little concern for geopolitical ethics since it signed lucrative contracts with Saddam Hussein’s Iraq and the Taliban in Afghanistan in 2001 to set up both civilian and military communications networks. As Deng Xiaoping liked to say, it doesn’t matter if a cat is black or grey—so long as it catches mice.
Huawei is visibly growing and expanding its offering. One of its triumphs was the $700 million contract it signed with China Mobile Communications Corporation, whose networks cover thirty Chinese provinces including Canton, Zhejiang, Fujian, Jiangsu and Shandong. Given these circumstances, it comes as no surprise to learn that Huawei has developed a gigantic business intelligence apparatus to unearth everything about its competitors, its potential markets and the research and development of other companies it is interested in acquiring. According to my information, this apparatus also works to the benefit of the state apparatus, including the PLA—in which Ren still serves as an officer in the reserves—and of course, unavoidably in China, the CCP.
According to its own documents, this business intelligence system—Huawei TopEng-BI—depends on the internal and external flow of information and information in liaison with all its subsidiaries and the following networks: a real-time data warehouse, an online analysis process, data-mining, an AI system, and a geographical information system. The complex interface of these sectors gives access from Huawei’s massive headquarters in Shenzhen to analyses, information and market projections, an effective sales support, and detailed analyses of the company’s clientele, which presumably also enables access to vast amounts of personal data. It is difficult to know what to make of this last point—especially if one thinks of the potential overlap with ministries like the Guoanbu and the PLA’s 3rd Department, in charge of communications warfare.
Unlike the countries out of which other operators work, in China there is no control over data protection. It has unprecedented systems in place for analyzing millions of calls, clients, VIP customers, competitors, monitoring systems, automated reports on device use, customer profiles, and data to be exploited. Officially, all of this is used for marketing purposes, including breaking into new markets. But the reality is that Huawei’s business intelligence systems, a programme like no other—except for the American NSA—represent one of the world’s largest organizations dealing in technological intelligence.
Britain, thanks to research undertaken at the Government Communications Headquarters (GCHQ), has best understood the threat posed by Huawei due to its technological penetration of Western telephone manufacturers including British Telecom and Orange. Moreover, in 2013, the Joint Intelligence Committee, which runs British intelligence operations, warned that in case of cyber-attack, “it would be very difficult to detect or prevent and could enable the Chinese to intercept covertly or disrupt traffic passing through Huawei-supplied networks.”18
In the following years, claims about Huawei’s involvement in shady activities became part of the economic rivalry between Donald Trump’s America and Xi Jinping’s China. In January 2019, Huawei’s chief financial officer, Meng Wanzhou—founder Ren Zhengfei’s daughter—was indicted by the US Ministry of Justice, together with Huawei Device US Inc. and SkyCom Tech., a Huawei subsidiary, on charges of money laundering and financial fraud. As she had been arrested earlier in Canada, and with the US exerting pressure for her extradition, Beijing authorities retaliated by arresting Canadian citizens in China.
At the same time there were numerous claims by counterintelligence agencies around the world that Huawei’s operations increasingly presented a security threat. As Ms Sun Yafang retired as Huawei chairwoman in 2018, it was recalled that, before joining Huawei in 1989, she had been a leading technician in the Guoanbu telecoms department.
In Europe, Taiwan and Japan, national administrations opposed the use of Huawei mobile phones equipped with special devices that allowed automatic interception of communications and data, especially as the firm attempted to become dominant in the worldwide deployment of the fifth generation of cellular communications, 5G.
In the UK, MI6 director-general Alex Younger expressed concerns about the Huawei 5G system in December 2018. In France, Huawei was not allowed to erect 5G antennae close to the Paris headquarters of the Ministry of Defence, while the prime minister’s SGDSN (General Secretariat for Defence and National Security) suspected Huawei of being a Trojan horse that provided Beijing with the ability to freeze 5G networks in case of conflict, which would thereby debilitate connected devices and internet-controlled autonomous vehicles.19 French intelligence (DGSE) uncovered an attempt by Huawei agents to build up a private biographical data system on leaders of the French competitor company Orange, which ironically favoured a strategic alliance with the Chinese firm.20
Together with the Australians, German and other European security services agree that, despite disclaimers by its leaders, Huawei was intimately linked to the PLA interception and cyberwar effort (see chapter 11).
This brings us back to our question, which we can now answer: it is perfectly clear how the CCP—and so the PRC—benefits from economic intelligence. Not to mention the purely material gain generated by the corruption that is endemic at the highest state levels.
The Taiwan frigate scandal
It’s time to talk about corruption. Scandals regularly break out in China, and the CCP’s Discipline Inspection Commission, supported by the Guoanbu, leads investigations that often culminate in the execution of senior cadres who serve as fall guys. But not always. The front-page scandals of the Taiwanese frigates and the Clearstream affair simply would never have taken place were it not for the corruption of the CCP leadership during the time of Jiang Zemin and his Shanghai clique (1989–2002). This could also be said, though to a lesser extent, of the politicians and knights of industry in the entourage of French president François Mitterrand (1981–95). Above all, it was those in Beijing and the Taiwanese navy who averted their eyes while pocketing lavish bribes who were responsible for the sale of six La Fayette frigates to Taiwan for 6 billion francs by the defence contractor Thomson-CSF (now Thales).
In December 1991, once the contract for the frigates’ sale had been signed, a Swiss front company sheltering two intermediaries in the pay of the oil company ELF, Alfred Sirven and Christine Deviers-Joncour, was demanding 160 million francs from Thomson-CSF for its participation in the negotiations. But Alain Gomez, CEO of Thomson-CSF, resisted. The “ELF network” argued that it had played a pivotal role not only in persuading the Taiwanese navy to accept the tender, but also in convincing the French state that it was worth the risk to its relationship with the PRC, and ensuring that the CCP did not consider it an act of hostility.
By August 1991, these three goals had been met, though less thanks to the ELF network than to another, set up by Alain Gomez with the help of his Chinese friend Lily Liu, and a third set up by an expert in arms trading, Andrew Wang. This victory paved the way for further arms sales. To arrive at this result, President Mitterrand had been persuaded to change some minds, convincing his foreign affairs minister Roland Dumas, who—sensitive to his ministry’s arguments on the need to maintain mutual trust with Beijing—was not very supportive of the tender. Eventually, the Taiwanese admirals conceded that French vessels were better than Korean ones, even if they cost rather more. And the Chinese were satisfied with making a purely formal protest against the sale of military equipment to Taiwan.
The investigation of Thomson-CSF’s complaint against the small ELF network later showed that these shifts of opinion had not been due to the strength of conviction among Thomson-CSF sales executives. After being heard by the judge, Renaud Van Ruymbeke, Foreign Minister Roland Dumas went on the record to claim that Mitterrand had authorized the payment of a “commission” of $400 million to the Taiwanese decision-makers, and $100 million to Chinese officials who were later revealed to be part of President Jiang Zemin’s inner circle—the prime minister, Zhu Rongji (who visited Paris on 16 April 1991), Jia Chunwang, then head of the Guoanbu, and Wang Baosen, the former mayor of Beijing, who would commit suicide in 1995.21 Bribes had also reportedly been paid to former Shanghai mayor Huang Jun, Admiral Liu Huaqing, head of the PLA, who would later be implicated in the US Chinagate; Foreign Minister Qian Qichen, and even Deng Pufang, the son of former president Deng Xiaoping and head of the China Disabled Persons’ Federation.
Kickbacks were also paid to various French politicians on the left and right and to several Taiwanese officials. Just as the affair reached the French courts, with international arrest warrants issued and a Taiwanese commission of inquiry also seeking certain individuals, several of those involved seemed to vanish completely. Among them was Wang Chang Poo—otherwise known as Andrew Wang, the professional arms trading intermediary. According to Christine Deviers-Joncour, who claimed that the ELF network had been key to the success of the negotiations, Wang was no more than a figurehead, whereas Thales claimed that it was he who had opened the door to the negotiations. Whatever the truth of the matter, Wang, who held a flotilla of bank accounts in Asia and Europe through which at least 5 billion francs transited, was now nowhere to be found. The mysterious Lily Liu was similarly absent. Some claimed it was she who had pulled the strings in China, but Deviers-Joncour called her no more than a decoy persona, an amalgamation of three not very high-ranking Chinese women.
By cross-checking all the different leads and statements, in Beijing, Taipei and Paris, it is possible to work out who all these shadowy characters really were. First there was Li Tingting. Owner of a US-based business, she was quickly sidelined in the frigate affair, but she deserves mention, if only because she is the daughter of Liu Shaoqi, Chinese chairman during the Cultural Revolution—and she had proposed taking on a mediating role with Zhongnanhai in the affair.
Admiral Liu Huaqing’s entourage was then—mistakenly—implicated. As we know, Liu’s daughter, Colonel Liu Chaoying—deputy director of the PLA2’s 5th Bureau—would play a pivotal role for military intelligence in Chinagate. That affair would later see her imprisoned along with her boss, General Ji Shengde, not helped by Jiang Zemin’s outright hostility towards her father. The reason the admiral was named in the frigate affair was that he was a protector of the woman who had actually run the Beijing network for Thomson: Lily Liu (no relation). The latter was from Taiwan, the daughter of a nationalist air force officer, and apparently a former flight attendant.
Her sister, Liu Chuan, had set up a school for models in Shanghai, and then became a supermodel in Hong Kong, where she invited Lily to join her. Lily was a familiar face in Hong Kong circles, and became the girlfriend of one of the diplomats at the French consulate who had played a central role in the 1989 Hong Kong network helping Tiananmen dissidents to flee abroad. She also had close links to the Xinhua News Agency, China’s main secret service cover in Hong Kong. For French counterintelligence, there was no doubt that Lily Liu was, at the very least, an “honourable correspondent” for the Guoanbu, under the protection of Jia Chunwang as well as Deng Xiaoping’s son and Admiral Liu Huaqing, to whom she was particularly close. She was paid between 60 and 70 million francs to smooth out any difficulties between Paris and Beijing over the frigate deal. She used to travel frequently, but after the scandal broke in 1997, she restricted her movements to Shanghai, Beijing and Hong Kong, where she ran a company in liaison with the military commission COSTIND.
In her book about the affair, Christine Deviers-Joncour was not wrong to say that it was “thanks to Lily Liu [that] military equipment sold by Thomson [to the Taiwanese] contained nothing that Beijing didn’t know about already. As for French corruption, Liu almost certainly knew all about the payment of bribes—which would be a very handy card to play in the event of regaining sovereignty over Taiwan. How could Paris object [when it had been so compromised itself]?
“So Lily Liu was kept under close surveillance after the story broke, primarily to ensure that she didn’t try and disappear, and also so that there was no chance for anyone to “disappear” her permanently. Much like Sirven from the ELF network, she was in possession of perhaps not enough explosive information to blow the French Republic to smithereens, but at least enough detergent to air a great deal of dirty laundry in public.”22 What was to stop the Chinese services from applying indefinite pressure to the French politicians from across the spectrum who had been involved?
Lily Liu’s role in the affair raises another question, one that has never really been examined: had all the frigates’ technological secrets been offered up to the Chinese leadership at the same time as they were sold to its Taiwanese opponents? This makes sense when one recalls that Thomson-CSF had already played this double game earlier in the Mitterrand presidency, during the Falklands War: it had handed MI6 the secrets of the Exocet after having sold the same missiles to the Argentinians.
In these circumstances, it is perhaps not surprising to learn that several witnesses died before the presiding judge, Renaud van Ruymbeke, was able to hear their depositions. The first suspicious death connected to the case was that of Thierry Imbot, son of General René Imbot, former head of the DGSE (1985–7). According to his father, Thierry, who was stationed first in Beijing and later in Taiwan, had been intending to go to the press when he was found dead in October 2000 at the foot of his Parisian apartment building. According to the police, he had fallen while trying to close the shutters of his studio flat.
Then Jacques Morisson, the former Thomson-CSF executive who had negotiated the contract, “committed suicide” in May 2001 by throwing himself from the fifth floor of his apartment building in Neuilly-sur-Seine—his apartment was on the second floor. After him came Jean-Claude Albessart, representative of Thomson’s international office in Taiwan, whose death in 2002 was attributed to an aggressive cancer; not to mention the unfortunate Captain Ying, found beaten and drowned off the coast of Taiwan, who had been about to publicly denounce corruption in his country’s navy. Despite the case being classified military top secret, information continued to leak out.
In 2005, two investigating judges raided the offices of French Finance Minister Thierry Breton. The investigative weekly Le Canard enchaîné revealed that several sensitive files were found in the office of his principal private secretary, Gilles Grapinet. One concerned the Taiwan frigates, and listed the names of those who had received one of the famous kickbacks. Among the twenty beneficiaries “were several Chinese from Taiwan, as well as half of the Politburo of the Chinese Communist Party.”23 In France and the PRC alike, the cloak of secrecy enjoyed by the intelligence and security services also served to conceal corruption among the powerful.
The other form of corruption to emerge around the turn of the millennium, in which the Chinese secret services did intervene, was also at the heart of the economic war. It concerned state support for companies that were private but considered “patriotic”, in the face of competition from Western businesses. At the beginning of summer 2007, a French company experienced a particularly far-reaching and devastating example of this kind of manipulation.
Special operations against Danone
The China story of the Danone Group is not merely a case of unfair competition suffered by the French company, similar to the experience of other foreign companies like the US giant Procter & Gamble. Rather, the standoff between Danone and its Chinese partner Wahaha involved mounting an operation, with the approval of the Chinese authorities, to exclude a foreign company from the market once it had done its work helping to develop a local version of itself. At least, that is what was suspected.
The case of Zong Qinghou, head of the Chinese company Wahaha, was clearly a remarkable use of guanxi—circles of Chinese influence—and also of the secret services, which allowed the multimillionaire businessman to turn against Danone—Wahaha’s majority shareholder, with a 51 per cent stake. It all began in 1996, when Zong became a partner in the Danone Group, which develops energy and yoghurt drinks and bottled water, generally sold to hotels and foreigners. The company that Danone set up with Zong, Wahaha, benefited from the technical expertise of the French, particularly when it came to developing production lines. However, ten years later, without telling Danone, Zong set up several parallel companies in the same sector. Once Danone found out, it demanded that all the companies be legally brought into the shared parent company.
The situation deteriorated, all in the name of Zong’s “Chinese patriotism”. When Franck Riboud, Danone’s CEO, decided to take the case to court, on 9 May 2007, Chinese customs conveniently discovered “bacteria” in samples taken from seized bottles of Danone-owned Evian water. For the many business leaders who were already complaining of harassment by the State Administration for Industry and Commerce, there was no doubt that this was an operation intended to destabilize the company. But it would be very difficult to prove.
It was certainly true that Zong enjoyed support at the highest levels of state. At the very top was Wu Yi, the former head of MOFCOM and all-powerful deputy prime minister, who was overseeing the trade sector for another few months. In addition to running economic intelligence organizations that aided “patriotic businesses” like Zong’s, Wu also had access to those bodies charged with investigating and clamping down on certain companies, since in 2003 she had taken over responsibility for the Leading Group, in charge of rectifying and regulating the market, which worked closely with the security services.24
During a 2001 visit to Zong’s business in Hangzhou, Wu Yi had been highly positive about the expansion of the Chinese group Wahaha. This was accompanied by unwavering support for its activities from the governor of Zhejiang, the regional secretary of the CCP and the party’s secretary in Hangzhou. This already impressive show of support was strengthened even further after Zong was elected to the National People’s Congress in the province of Zhejiang.
If any doubt remains about Zong’s links to the most deeply concealed networks within the Chinese state, we need only follow the Paris newsletter Intelligence Online, and look at the man behind the subsidiary responsible for Wahaha’s foreign exports, particularly to the United States. Among the products developed by Wahaha was a new kind of cola drink to compete with Pepsi and Coca-Cola in China, called “Future Cola” (Feichang Kele). The soft drink tycoon was not aiming to compete with the American giants in their mainstream home market, but to sell its products in Chinatowns across America. Zong commissioned the import-export company Manpolo International Trading to set up this positioning. But its main shareholder, Guan Liang, was—and remains—head of the “United Chinese Association Eastern US”.
Very present on the business scene, Guan is on excellent terms with the Chinese consulate in New York, so much so that it recruited him in the war against the Falun Gong spiritual movement, long considered by the CCP to be an “anti-Chinese sect”. Falun Gong even took Guan to court for assaulting some of its members at a meeting in 2003. In this ongoing case, Guan Liang, whose anti-Falun Gong speeches are in the public domain, denied having acted in concert with the Chinese consul in New York, Zhang Hongxi, who has since had to leave the country. He also denies having any links with the 610 Office, another secret service—it was founded in 1999 specifically to combat the dissidents and members of the vast Falun Gong organization, whose leadership is based in the United States, and which supports the overthrow of the CCP.