Is China Diverting High Technology to US Foes?

When Sun Microsystems Inc. sold one of its supercomputers to a Hong Kong firm, they were told that it was going to a scientific institute near Beijing.

When United States officials finally traced it, the computer was at a military research facility 800 miles from the Chinese capital.

The case, reported by the Commerce Department last week, is only the latest in a string of alleged improper diversions of US high-technology to Chinese and Russian defense facilities. It underscores a growing concern among some US officials and defense experts that since President Clinton began easing export controls in his first term, China and Russia have begun covertly using US technologies to develop military hardware - including nuclear weapons - that could threaten US security.

Privately, some US officials say they believe American technology sold for civilian purposes, but has military applications, is being resold to US foes, including Iran.

"China has become the single most important source of technology that rogue countries cannot obtain from the West," asserts one US official, speaking on condition of anonymity. "Russia is fast becoming the second."

China and Russia deny such contentions, and the Clinton administration insists these incidents are isolated, adding that the most sensitive US know-how is not falling into the hands of potential military rivals.

Still, the administration has raised the cases with China and Russia, and a federal grand jury is now probing the 1995 diversion of US-made aircraft machining equipment to a Chinese defense plant.

Although the issue is being overshadowed on Capitol Hill by the Senate hearings on alleged Chinese political influence-buying, it is adding to the friction between the GOP-run Congress and Mr. Clinton over Sino-US relations. And it's fueling doubts about US policy toward Russia.

Ignoring the vociferous protests of the electronics industry, the House last month passed a 1998 defense budget that would reimpose the export controls on US-made supercomputers that Clinton loosened in 1995. The Senate was expected to consider a similar measure yesterday, raising the possibility of a presidential veto.

Losing market share?

At the heart of the issue lies the ever-intensifying competition for lucrative markets. In the post-cold-war era, American companies successfully lobbied to lift export controls on computer hardware and software, arguing they were losing sales to foreign firms. The Clinton administration supports the shift, insisting that it can safeguard American technological dominance and national security. The most advanced know-how is withheld from export and the administration is working to prevent Iran and other US foes from obtaining sensitive technologies.

"We are generally confident of two things," says William Reinsch, undersecretary of Commerce for Export Administration. "One is that the facilities to which [technologies] go are not military facilities. And secondly, that we are reasonably confident that the stuff we have approved is a generation or two behind the state of the art."

He argues that the detection of the improper Chinese and Russian diversions shows that safeguards are working. The US is taking other steps as well, including alerting American companies about foreign firms believed involved in illicit nuclear weapons programs, he says. The latest list comprises about 20 firms, including three Chinese, three Russian, and one Israeli.

But critics charge that serious loopholes exist in export regulations.

Where there's a will...

"Controls have to do with people, and people who do not want to cooperate with you can defeat your effort," says Henry Sokolski, head of the Washington-based Non-Proliferation Policy Center. "What the Commerce Department claims it can do has yet to be demonstrated. Instead, we get story after story of how they fail."

Especially sharp is criticism of Clinton's 1995 revision of supercomputer export controls. They now allow civilian buyers in China and Russia without export licenses to purchase US-made machines with speeds of up to 7,000 million theoretical operations per second (MTOPS). Military users, however, require licenses to buy machines of anything over 2,000 MTOPS.

Also, the rules leave it to the US sellers - not the government - to enforce the regulations, a task many companies find burdensome. Furthermore, critics say, China bars the US from making post-delivery inspections to verify that the machines arrive at the proper destinations.

In the Sun Microsystems diversion, for example, the Hong Kong firm that bought the computer did not require a US export license. Mr. Reinsch says the firm resold it to the scientific institute near Beijing. The US, however, determined last month that the machine actually ended up at the Changsha military research institute, which does require a US export license.

The concerns extend beyond supercomputer export regulations. In 1996, US companies sold China $545.7 million in "dual use" technology. The Government Accounting Office, a congressional watchdog agency, said in January that it found "uncertainty" in the enforcement of export rules for aircraft engine and communications satellite technologies with potential military applications.

Given the quantity of sales and the huge numbers of civilian companies that China's military secretly controls, critics say it is impossible to know how much US technology is diverted to the Peoples Liberation Army.