Even Spies Embrace China's Free Market

Ye and Zhong sought to develop the technology through a company called Supervision, based in the eastern Chinese city of Hangzhou, according to the indictment. It also alleged that the men were working with an unidentified university professor "who was assisting in obtaining funds from the 863 program."

Contacted by telephone, Yan Xiaolang, who is listed as an investor in Supervision in registration papers and is a director of the electrical engineering department at Hangzhou University, confirmed that worked with Ye and Zhong. But, said Yan, who is head of an integrated-circuit expert group within the 863 program, neither the company nor the government knew that the plans were stolen. "I did not know them for a long time and had little contact with them. I have no idea about their activities," Yan said.

In the other case, Lee, a U.S. citizen, and Ge, a Chinese national, became targets of law enforcement under circumstances that remain unclear, as many of the documents related to the case remain under seal. Lawyers for Lee and Ge declined to comment as did officials at their former employer, NetLogics Microsystems. Lee and Ge are free on $300,000 bonds and still reside in Silicon Valley. They are scheduled to appear in U.S. District Court in San Jose on Feb. 25, at which time a trial date may be set.

Lee and Ge allegedly created a front company, SICO Microsystems, registered in Delaware, that would develop and sell microprocessors made from the stolen blueprints.

The stolen documents included design plans for a chip that could make rapid decisions about information moving through the network and that could significantly improve everyday tasks such as searching the Internet or securing financial transactions.

SICO in 2003 signed a partnership deal with a company in China run by venture capitalist Liu Baisen. Liu's firm agreed to secure funding from 863 and the General Armaments Department, which is a branch of the military, according to the indictment.

On Lee's home computer were documents regarding negotiations with the Chinese military, according to the indictment. In one e-mail, an unidentified associate assured Lee that the Chinese government and army are "not that scary" and that they "are only help and support, and satisfy our various needs," the indictment said.

In an interview at his office in Beijing, Liu said he was introduced to Lee and Ge through a family friend. He said he had no idea the technology was stolen. Liu said the friend told him that he knew some smart engineers in the United States who had designed a very powerful chip and "if we can make this chip we can make 500 million U.S. dollars."

"I was intrigued. Wouldn't anyone be?" he said. "I didn't understand the technology well. All that I understood was that it would make money."

Asked about any ties he has with the Chinese government and military, Liu answered with a question: If the government had been involved with Lee and Ge's plans, wouldn't they already be making the chips?

One of the four addresses listed in Liu's former company's official registration papers is a room in the basement of a heavily guarded, unmarked government security complex in Beijing's Zhongguancun neighborhood, which is known as China's Silicon Valley. Liu said he previously worked there and still had friends who gave him, rent-free, an office from which to run his business.

Researcher Richard Drezen in New York contributed to this report.