Even Spies Embrace China's Free Market

While dozens have been caught in recent years illegally sending high-tech wares to other countries and are serving sentences for violating export laws or stealing trade secrets, only three people have been convicted of doing so to help a foreign government under the Economic Espionage Act of 1996. All were from Silicon Valley and all involved China.

In December 2006, Ye Fei, a U.S. citizen from China, and Ming Zhong, a permanent U.S. resident from China, pleaded guilty to stealing designs for a microchip from their employer and attempting to take them to China to start a competing company.

In August 2007, Xiaodong Sheldon Meng was convicted of stealing computer code from Quantum3D for a military flight-simulation program and trying to sell it to China's navy. Meng is scheduled to be sentenced this month.

China's efforts to become a technology power began with a government initiative known as the 863 program. Launched under Deng Xiaoping in 1986, the program paid for $1.3 billion worth of research and development throughout the country. Its goal was to narrow the gap between China and the West in a dozen sectors, including space tracking, nuclear energy and information technology.

In the beginning, the program boasted of its transparency, issuing annual reports detailing where the money went and its major achievements. But in 2002, the government abruptly stopped issuing updates, and today it won't even reveal how much money it is giving out.

Larry M. Wortzel, a former military intelligence officer who recently retired from the Heritage Foundation, a conservative research organization in Washington, said the program is part of the climate in China that rewards stealing secrets. "The 863 program is related to state-directed traditional and economic espionage, but it is only one of the actors," Wortzel said.

Wortzel said the connections between government and so-called private enterprises seeking to purchase or steal U.S. technology were evident in the visa applications he investigated when he worked at the U.S. Embassy in China. He said that in a number of cases, he found that the license applicants in China had listed no government or military affiliations, but when he went to their addresses, he found they belonged to a military institute or defense industry research office.

"This implies that organizations or people in China are deliberately concealing their defense, military or government affiliation in order to get access to technologies that would otherwise be restricted to them in licenses by the U.S. government," Wortzel said.

U.S. officials and analysts say that in addition to promoting lawful research, the Chinese government is also directly or indirectly encouraging economic espionage.

Lee and Ge, for example, pinned their hopes for their new company on getting funding from the 863 program, according to the U.S. attorney's office.

Ye and Zhong, who were former employees of Transmeta in Santa Clara, Calif., also hoped to develop their stolen technology through the 863 program, according to court records.

Arrested in 2001 at San Francisco International Airport as they were about to board a plane for China, Ye and Zhong carried in their luggage plans for some of the top integrated-circuit technology in the world, stolen from Transmeta as well as Sun Microsystems, NEC Electronics and Trident Microsystems.