POLYTECHNOLOGIES. Rainbow Development Corp. Kaili Corp. (a/k/a Carrie Enterprises.) The Lantian Corp. The China Great Wall Industry Corp. NORINCO. Nondescript, yet slightly romantic-sounding, the names are familiar in the global arms bazaar, where billions of dollars of weapons and lethal technology are bought, sold and transported each year in a booming trade that shows little sign of diminishing despite the end of the Cold War.

Seemingly nondescript corporations engage in everything from export of space launch services (Great Wall), to building armored cars (NORINCO), to advising on nuclear power development (Rainbow). All are key export-import components of China's aggressive and highly profitable defense industry. This network of front companies and secretive international trading firms have one other thing in common: They are run for profit by China's ruling clans, the dynastic families that were disgraced in the Cultural Revolution but survived and thrive today.

In the 1980s, China emerged as a leading arms supplier to the Third World, signing agreements between 1983 and 1990 worth more than $16 billion. Much of China's business was with Iran; Beijing became Tehran's biggest weapons supplier during the 1981-88 Iran-Iraq War, selling $4.8 billion in weapons and munitions to Iran in 1983-90. With that war over and Iran's economy in deep trouble, China must look elsewhere for major sales. But the clan-affiliated firms have shown a willingness to sell advanced weapons to some of the world's most ruthless rulers.

For example, according to the Far Eastern Economic Review, the Chinese have recently delivered to Syria the Transporter/Erector/Launcher (TELs) equipment associated with the M-9 series ballistic missile system. The M-9 is a modern, nuclear-capable, fully mobile missile with a range of 350 miles and comparable to the Soviet SS-23. Despite heavy U.S. diplomatic pressure, Syria and China agreed on the missile deal at a secret meeting in Beijing in May. Many here believe the missiles will be delivered after Congress recesses this fall to avoid exacerbating debate on Capiol Hill over most-favored-nation (MFN) trade status for China.

The Chinese also have admitted that this year they transferred M-11 ballistic missiles to Pakistan; the number is unknown. The M-11 is a modern, mobile, nuclear-capable missile with a shorter range but heavier payload than the M-9. The Arab press claims that China will make M-9 and M-11 missiles in Iran, perhaps as part of a 10-year military technology-transfer agreement Beijing and Tehran signed in January 1990.

U.S. experts have found the Chinese contributed significant nuclear technology to at least one of Saddam Hussein's clandestine nuclear weapons programs. Earlier this year it was revealed that the Chinese are constructing a nuclear facility in Algeria. Brit- ish experts rate the facility at an estimated 40 megawatts, enough to produce five atomic bombs per year when it begins operation. In light of these and other sales in the Middle East, Washington proliferation specialists are stepping up analysis of the Chinese arms export system. The Defense Intelligence Agency (DIA) has identified 23 Chinese government-owned or -controlled firms through which nearly all arms sales are made. Congressional investigators say that with one exception, the organizations were set up in the 1980s as export companies for the various armaments ministries and the Equipment (Armament) Department of the Chinese People's Liberation Army (PLA). As DIA noted in a recent compilation of Chinese defense efforts:

"The companies . . . are established and chartered to conduct business in the international market. Many have offices overseas. While they are profit-oriented and are the key means for defense complex foreign-exchange earnings, they are also the primary conduits for acquisition of new and advanced technologies."

According to the DIA account, the import-export complex is divided into "two main hierarchies . . . the uniformed services of the People's Liberation Army (PLA) and the defense-related ministries under direction of the State Council." There are 10 PLA-run companies and 12 affiliated with the ruling State Council. Coordinating both hierarchies is the Commission on Science, Technology and Industry for National Defense (COSTIND), which also operates its own advanced technology firm, the China New Era Corp., which engages in scientific exchanges and exhibitions and scouts for advanced technology. Analysts have identified relatives of numerous senior Chinese leaders among the officials of several of the most active firms. {See related story below.}

It is not entirely clear how each firm operates or relates to the other firms. Some, such as Polytechnologies Corp. and COSTIND, are pure middle-men, producing nothing themselves. Others, such as NORINCO, China Precision Machinery Import-Export Corp. and China Great Wall Industry Corp. either make hardware or provide services through middle-men, or directly to purchasers. Rainbow Development is active in the nuclear technology field, but it is unclear whether it is a middle man or has something of its own to transfer.

According to a Hong Kong source with detailed knowledge of China's weapons sales policies, until recently, the Bank of Credit and Commerce International (BCCI) was the bank of choice for the arms exporters. With its extensive Mideast operations and reputed money-laundering proclivities, BCCI would have been a natural fit for the Chinese. BCCI also operated in Beijing, the Shenzhen Special Economic Zone outside Hong Kong and in 27 branches in Hong Kong itself through what BCCI called the Bank of Credit and Commerce Hong Kong (BCCHK). Of a reported $400 million of Chinese government money in BCCHK accounts, several million dollars reportedly belonged to the Ministry of Aerospace Industry, the parent of the Chinese ballistic missile producers, the Chinese Precision Machinery Import-Export Corp. It is unclear what effect the BCCI scandal and the multiple investigations of the bank and its affiliates may have on Beijing's ability to smoothly arrange financing for insuring, storing and shipping weapons, or diverting money to bank accounts abroad.

What is clear is that China reaps huge profits from its foreign sales. According to three experts on China's defense establishment who wrote recently in International Security magazine, Polytechnologies alone made a net profit of $2 billion selling nuclear-capable CSS-2 ballistic missiles to Saudi Arabia. Even if the firm kept only 5 percent of the profit for itself and returned 95 percent to the PLA to develop the next generation of missiles, the company still would have garnered $100 million. Presumably, much of this would be available for the ruling clans.

But beyond an apparent agreement among the ruling factions about control of the export firms, mystery surrounds how profits are divided or deposited.

According to sources in Hong Kong and elsewhere, clan members put their arms profits to a variety of uses. First seems to be foreign travel. Since Chinese money is not convertible into hard currency, foreign currency, called "waihua," is very valuable, more so because few citizens inside the country have legal access to foreign money. Second, the profits may finance university education abroad for the children of the elite. Third, it may be used to import luxury goods, air conditioners and Toyotas for the clans. Finally, analysts say they believe the families have sent substantial sums of cash overseas. As the revelations in East Europe have shown since the collapse of party control there, such plunder is common in communist regimes. For the Chinese ruling cadres, there is yet another reason for secret stashes: As one experienced Hong Kong observer put it in 1988, "All the families suffered during the Cultural Revolution. They know they are unpopular and they are Chinese."

All of this makes a difficult dilemma for American policy makers. Most of the Middle Eastern recipients of Chinese arms sales are anti-democratic regimes that rose to power through force and violence and maintain themselves in the same manner. A number of these regimes have a history of assassination of American government officials and sponsorship of terrorism aimed at Americans abroad. As the case of Iraq shows, some regimes are reaching the point of technological breakthrough for building weapons of mass destruction and the means to deliver them.

Realistic control of Chinese sales of weapons of mass destruction and their delivery systems to the Middle East is already very difficult and likely to grow worse. Indeed, Secretary of State James A. Baker III reportedly may soon go to Beijing to take up the issue.

But with the Chinese leadership's personal rice bowls at stake, continuing duplicity and evasion of international responsibility seems likely. U.S. efforts to persuade the Chinese leadership to exercise restraint in arms sales to the Middle East has sometimes led to ludicrous scenes in which American officials appeal to high-ranking Chinese for restraint only to learn later that the Chinese official has offspring among DIA's list of arms exporters.

The situation is very likely to grow worse in the short to medium term. As the end approaches for the octogenarians who guide China today, those who derive position and authority from the elder leaders will be tempted to make quick bucks while they can.

The Chinese are talking about possibly signing the Nuclear Non-Proliferation Treaty (NPT) and joining the Missile Technology Control Regime (MTCR), but they have a dubious record in living up to international arms control agreements they have already signed. And, as Saddam has demonstrated to the world, it is possible to be a signatory to the NPT, have inspections by the International Atomic Energy Agency and still pursue several secret nuclear weapons programs.

In a report last summer, defense specialist Richard F. Grimmett of the Congressional Research Service wrote that "it is not clear whether China will be able to sustain its level of arms sales in the Near East region now that the Iran-Iraq war has ended and it is a party to discussions aimed at regulating arms transfers to this region." But Grimmett cautioned, "Given China's need and desire to obtain hard currency, it seems prepared to pursue arms-sales opportunities it deems appropriate whenever they present themselves."

As a practical matter, if the United States and its allies wish to have any serious influence on Chinese arms sales, they will have to find ways to severely increase the downside risk of such sales. Turning up the heat could include economic sanctions, as are now under consideration by the Congress, or a decision by the Western industrial powers, including Japan, to sharply restrict high technology flows to China. Finally, the West could very quietly inform the clans that, come the democratic revolution in China, they will not find refuge in the West if they have contributed to the nuclear arming of Middle Eastern dictators.

William Triplett II is a senior staff member of the Senate Foreign Relations Committee. The views expressed here are his own.