Saturday, July 2, 2011

Conversations With Chinese Intelligence Officials

Before 1979 China's policy generally was to give arms to its friends. But the policy changed in 1979 with the new policies of Deng Xiaping. Now China saw the opportunities for making profits from arms sales to upgrade and modernize its own military forces. The importance of this was made strikingly important by Chinese failures in the Vietnam war and then by budgetary contraints placed on the PLA as it sought to replace materials lost in the war itself. At first the large arms makers and their agents monopolized the arms sales business. But quickly the PLA saw the advantages of the business and by 1981 had moved into the field with it's own agency, which was the early organization of the Poly Technologies Inc., at first merely an office, telephones and desks in a suite in the Beijing hotel, managed by three individuals with good family connections from the PLA.



Although the military wanted to move quickly, this was quick, three years, in China, for movement like this on a large scale. And that is why in order to have a perfect attachment for Poly, it had to be registered under Citic, in order to be approved by the state council. Because basically the military were not supposed to have their own trade companies or enterprises. All trade companies were to be registered under the echelon of the state council. Farms were all right as long as you ate what your grow, but if you sell it that is illegal. But they sold it anyway to generate profits. And that is the time when the military became infolved in smuggling, on Hainan island, the Navy was caught using large transports, LSTs, to transport and ship Japanese cars without paying customs duties. The navy was caught at that time. That was in the late 1980s. They were cxaught red handed, with pants down, using LSTs, the Navy reputation was not good after that.


Shipping silkworm missiles to an American comapny and then using an LST to shipping Japanese cars to the Mainland to make a huge profit. Had it been successful this would have been profitable. they were purchased at a good price, and this was the sort of thing that the National Security minsrty had on its mind when it initiated the Shangrila aircraft deal. They wanted to use the carrier to generate profits for themselves, and that is why they purchase d so many cars. No civilian officials would are to go aboard an aircraft carrier, and then you could get it through customs and you could sell it at millions of dollars of profits. But the navy was caught at that time.


The outbreak of the Middle Eastern war came at a time when the PLA itself was concerned about funding the modernization program that was deemed necessary after the problems of the war in Vietnam. other, using Chinese manufactured weapons. The profits from the sale of arms to these two oil rich nations were enormous and the Chiense place no restrictions on the sales.
Idea espoused by Zhou Enlai in 1975, under the slogan of the "four modernizaitons(industry, agriculture, science and technology and defense).
Deng Xiaoping backin power in July 1977, espoused this also. national defense ranked fourth, something that bothered those in the military. By 1980 concerns because of the Vietnam experience, painful and costly.


Military personnel were not allowed to deal with foreigners because of security problems, because of knowledge of inner workings. Profits poured into the coffers of the arms manufacturing companies and to Norinco, the principle arms dealer. They fought each other with Chinese weapons. The Iranians did particuarly well with Chinese Silk Worm missiles hitting many tankers attempting to make a run through the strait of Hormuz.
Norinco sold MIGS to both sides, but primarily the Iranians and the pilots were trained in China. China also sold two Romeo class submarines, conventional submarines to Egypt, since Egypt at the time was probably the closest ally to China in the middle east. This was all before Poly was founded. Later on, Poly gained a hand in providing materials like these to foreign friends. So With more and more profits being generated into Norinco system, the PLA was getting anxious to have a direct access to this huge revenue.
Exocets were sold by Poly to the Iraqis and Chinese trained the Iraqis at basis in China for use of the weapons. The most famous use of tghe weapon came in May of 1987 when two exocets, one of them French and the other Chinese manufactured, hit the USS Stark in the Persian Gulf, killing 37 American sailors. The Chinese used this incident to advertise to customers the effectiveness of the missiles they had cloned from the original friend design. Technicians trained them in China and they were trained there for the silkworm and for the electronic countermeasures, and the Chinese also trained the naval personnel from both countries to familiarize them to man and operate the missiles and to train them in conventional naval warfare doctrine, and also to train them to use and operate Chinese manufactured frigates and torpedo boats. And China basically selected two training bases for naval personnel from the two countries. The one training base was located in Qing Huang Dao(Qing Huan Island) at Bo Hai Bay on the Bo Hai Sea. The other training facility was on the island called Ma Shie, close to Zhangjiang, which is the site of the headquarters of the Chinese Southern Sea Fleet. The personnel were rotated between the two bases, each side trained in both places. But China made the point of never training the men together at the same place.
Aside from these two, in Shanghai, the Navy PLA, also has a training base for all of the foreign military personnel and technicians. There they are trained in the technical and tactical aspects of naval warfare. The Pakistani friends and men from the Bangledesh Navy and the Royal Thai military personnel were trained in Shanghai. Especially the three frigates the Chinese navy sold to the Thai Royal Navy were manufactured and launched in Shanghai Naval Shipyards and therefore the Royal Thai Naval Personnel, it was handy for them to be trained close to where the ship was manufactured.
Norinco sold MIGS to both sides, but primarily the Iranians and the pilots were trained in China. China also sold two Romeo class submarines, conventional submarines to Egypt, since Egypt at the time was probably the closest ally to China in the middle east. This was all before Poly was founded. Later on, Poly gained a hand in providing materials like these to foreign friends. So With more and more profits being generated into Norinco system, the PLA was getting anxious to have a direct access to this huge revenue.
The Chinese Aerospace and Aeronautic ministry, as it is called now. At that time Chinese Aerospace and Aronatuic were separte sold also in the Middle East through their own trading company.
China was able to clone or reverse engineer or steal the technology from the French exocet and made a copy and then produced their version, calling it the YJ 82, in the west it was called C 801. At that time, in 1984, the ministry really wanted to sell the missiles to Iraq in order to generate profits. But, the PLA intervened. They said the PLA Navy wanted the missiles. So, the ministry had no choice but to sell the missiles to the Navy at the price of 0.97 million renminbe each. And later on, Poly Technologies directly sold these missiles to Iraq at a price of 1.2 million US dollars. That is why the Aerospace related defense industries in China were angry. But they could do nothing. And this is one of the rationales for the establishment of Poly Technologies. Because after all, it is only a trading company. The uniformed military could not do business with foreigners, but a trading company could and then the profits would be channeled directly back into the military through the General STaff. Because Poly basically belongs to the General STaff. In doing the arms tracde befcause of the unique position that Poly held, it was never betaten by any domestic and international rivalries in the arms trade. Until, in the middle of the 1980s, the Shangri La deal. This was a humiliating blow to Poly.

POLY TECHNOLOGIES, INC.


They had pressures from Norinco, from the State Council, which controlled all the Defense industries, and they produced. State Council is civilian, and under it is defnese industries, the Space, CSSC, Norinco group, and the Third Mechanical Ministry, renamed the Chinese Nuclear Energy Ministry, all these are defense oriented, sell goods to foreign countries, but after Poly was founded, military got a hand in this market and generated profits for itself. Poly was the only company authorized or entitled to get direct access to the PLA inventory. Without having to go to the Defense industries for products or items. And not only that, but if the Defense industries had a newly designed product, such as the Exocet, then Poly, could with the help of the General Starff, buya these itsm from the ministries and resell them for a profit.

State Council did not like the idea of a trade company that directly represented the military. The state council is supposed toa be the legitimate organization to handle arms exports, and arms industrial production. But it is still a civilian channel. So the Central Military Cpommission is something else.

So the individuals saw profits generated at that time, outside the reach of the PLA, and they wanted to do something by themselves. They did not want to see the arms in the country flowing out of their control, since they believed that they had the same right, although they should have equal access to the stockpoile of conventional arms. So basically at that time, the PLA, although it was still poor, still had a lot of money to buy things from the West. And so to establish a company that would have things under its own command served two purposes. First, the company directly deals with foreigners. In China, military personannel were not allowed to deal directly with foreigners, at least not in uniform. This was the regulation. And so now they have their own copany, staff their own company, in civilian clothes, and they are equal status with Norinco. The second reason was the most important one, they could have a company under their own control that would perform the function of arms exporting under its own command, so it has nothing to do with the defense ministry. SEcondly, the defense industry, they have several companies, each responsible for selling their own arms out of their own stockpiles, out of their own production, but not out of the army stockpile. The army inventory


Intermarriage in the company. It is kind of a family run business you might say, but that still is not quite accurate. Because it is run by several families. And they are inerchangeable. Almost like the Mafia. You could say that. There are a lot of things in the company, but you cannot understand it. There is a code of silence like in the Media, an agreement of consent, Omerta, I know what you are doing, but I nver ask you. That is what it is. And you know what I am doing, but you never ask me about it. I don't feel comfortable if you ask me too many quyestions. That is what happens inside the company. That is why, when I left the company, nobody seemed to care. You are no longer with us when you go. There are about a half a dozen, no more, that intermarry and run the company. But some of them, although the foreigners tend to think, of Deng Xiaoping and Yang Shankun, that they are the most important leaders. But actually, there are a lot of people from the military families, individuals with careers in the military, whose father's may have been genrals or martials, and they are well entrenched. And they are extremely well informed, and very well informed and influential. Each day, at eight in the morning, they read information that is then forwarded to Deng. They provide a summary to him. What is happening in the world. They get the same information. These are never diplomatic officials, of course. But they are more powerful. These are not the guys you read about in the papers. What they say is extremely business like. That is the bottrom line. They are businessmen. What is the bottom line of business. As to Saudi ARabia. They will write: Saudia Arabia. Critical stage. Need arms. Cannot buy from the US. Fantastic opportunity for us to step in. Then political costs. Financial costs. Yes. Military considerations. Isarel possible response. Appendix one. Israel relationship or ambition for relations with China. How we can make use of that. Conclusion. Israel will remain silent. We can do this. The reports are generated from the head of the state security agency for the army intelligence, they have agfents or spies around the world, of course. Very few people are involved in the final processing of this information. A large number of course are involved in gathering the information. But they read purified information and they purify information, they condense it. They put their ideas, their twist or spin on it. They are then responsible for their anaylsis. The archives for these rports are maintained. On a couple of occsions we saw these reports. They are kept in a small circle of individuals within the families. They then keep it within the families. What are the last names of the families -- six of them. So, they are, this is the perfect background for understanding Poly. If you say it is like the Mafia, then it is. If you use that word, you use it. But I would not use it. This is a small family group with a code of silence, tremendously powe;rful and influential. And the cardianal characteristic of them, of course, heavily comitted.


Poly performs the duties that the General STaff cannot perform. It is not stronger than the General STaff it is the well camouflaged right hand of the general staff, that is why we carry a dagger, too. Cloak and dagger. The iron fist in the velvet glove, that is us.


How large was the Central Office of the company. The army took care of all of the connections and associations of the company. The tasks and functions were detailed, and the army smoothed all of the channels. It was a problem of reallocation. It is not a company in the sense of a western company, it was a shift of the working desks and offices from the army to another group. And they opened their bacnk accounts and funds. According to China's laws, any company needed to be registered under another group, and so it was registered under Citic and it is still today. But what is the relationship between the two? The relationship is only to say hello during the Christmas holidays. That is what the relationship is. Reports never go back and forth unless it is on bulding maintenance, use of the elevator and hygiene. And you need your guests to sign their names in the lobby. There are around 70 people in the main office. They have branches, real branches, are important branches of the military. Actually, I was involved in one of the branches. Some of them who worked with us, they wore civilian dress, but they had uniforms in their cabinets and they could put them on when the occasion required. They were in the military when they wished. We supervised the military activity when they were involved in the foreign field. Like when you are involved in technical or official meeting with men froj foreign firms. We must be there to supervise the negoations and do the translations. When the military is not familiar with official jargon or the official line, and I would have to tell someone, all right, you shut your mouth.
What is the structure beneath Poly. At one level is imports and exports. Those are two departments. Who are the heads of thee departments. Other branches, but how are these two branches broken up.
Literally, who handles the money. We have bank accounts in international banks. Sometimes under Citic, and sometimes under Poly. We have our operational money in a bank on the first floor, the Citic bank, that is where the operational money is. When I go to France, I write request, get signature and they provide me with the money. Then there are foreign banks in Hong Kong and in the US, there is BCCI whgere some of our money is. It is spread around. BCCI was heavily involved with Poly but under a different name. We never worry about this kind of thing, we have too many friends to help us. Even if there is a collapse of the communist party in Russia, many eople still have faith in China and still have faith in Communism. They trust, in other words, at last, what we are doing. They are then extremely helpful to the PLA; modernization program. Extremely help. The goal is to be number one in the world, to defeat the USA, to defeat you politicallly, economically. By using Japan. They are not happy with the way that America performs.l They are not happy. The belive you are too arrogant and they want to do something about that. They foresee the gradual decline of the US, that is why they are so confident, the PLA. The top priority of the state leaders, the PLA is the tool to pefrorm that function. Now you see why the PLA was called in at Tiananmen. All else collapsed, the police and the armed police. The PLA is the last resort of the leadership. Sopme believed the PLA should have been sent in earlier. But there was some hesitation. Yet in the end it saved the state, or the leaders. They believe that American will collapse and there will be anew world order. They fear an American dominance of the world, after the collapse of the Soviets. Now China they believe will be the number one enemy of America rather than the friend, now they do not need us. Look at Gates saying that we should aim our activities more toward China. China knows what he is doing. That is why when you look at a Chinese newspaper today, they are talking of preventing China from a peaceful revolution. All of the people in...all of the leaders in the company are in the Party. It is a requirement but it is not always done. Presumably, they are all in the party. Unless you are a returning overseas Chinese. Then you are better than a party member, you are as loyal as party members. A lot of people come to us wanting to help. The party in strengthening the PLA does not need to invest in the US to weaken you. The japanese can do. They can invade you economically, abut China cannot do that. That is not the goal. Plly can make use of its own profits, when it wishes.


What surprised me most at first, when I came to the company, was one day we were talking, and I discovered that eveyrone had a miltary backgroun. And if they didn't they came from miltary familes. Even the women. All were military associated. They were if out of the military, they kept their uniforms in their draers and could put it in. He Ping was also serving in the military. He had been the military attache to WAshington DC. Many people served dual posts, and these were the typical indiviaudls . Once there was a banquet for the National Defense Ministry, on August 1st, the found day of the army, and there was a banquet in the Great Hall of the People and on those days we would wer uniforms and get acquainted with foreign military attaches to BEuijing. Those were the days when we neded to put on our uniforms. Secnd occasion when there was a defense exhibition, an aeronatucai exhibition, and those wer were also in uniform. Mewetings with the general staff or the genera l political division, we also wore uniforms for those also. Costine National defense(Costind) the abbreviation for the China National defense Science and TEhcnology Commission. So, this was the only time when these people were really, let me put it this way, they were able to put on uniforms.
No high ranking people ever came into the office. Every. And officers of the company had access to the highest individuals in the government, through private Channels. itwas very common to see the signatures of Zhao Ziyang, when a report of arms sales to overseas, you must have the names of the president on the document. And people explained it to us that business must be ratified by those from the time. top. But they can tell you that, telling you is one, thing, then you see suddenly the signature of Zhao or Deng and it surpriese you if you've never seen it before. You know that it has passed through their hands and been personally approvaed and signed. Then you feel in a very special way. \It adds a lot of weight to what you are doing. What you are seeing though is not a signature, it is a seal, a chop, of the invididual. But it lools like the signature, and the secretary may have done it for him, and that would save a lot fo time. That is though a requirement.

COMPANY OPERATIONS
How find out about personal vices. Anyone working for the company for a certain period of time, if you are not supitd you know that something is going on. Someone gets a call and you can tell from personal expressinons what is going on. the individual looks very gored and he wants to hang up at anay moment. And later on there would be gossip about that, who has amistress and where she is and who she is. And sometimes his wife would call and ask wehre her husband has been for the past week, when he was coming back from his trip, and of course he hwas been in the office the whole time, but just not going back to his home in the vening. THis was one of the vcovers of the individuals, the higerh ups in the company. It is always soething nice to talk about. They told me, alsok where do you come from. And I told him and he waid, Oh, I thought you were living somehwere else.
I came into contact with all the officials every day. Of curse, we are on the same floor and if I wanted to speak to him directly, I did. He is a nice man. He succeeded He Ping. He succeeded Wang Jing to be general manager. A real gentleman, actually. He speaks perfect English, of course. Very competent man. But he makes no mistakes in his English, with a slight British accent.
The amounts of money didn't surprise me, because I was awre of this from working with the military. What surprised me, was that say when our section chief let alone the people like He Ping, it is always the common procedure for somehwone working for a company in China, if he wants to go on business to a foreign country, he must borrow money from his company, and later on bring back the receipts. But this is never the practice for this coumpany. These people are above that. What struck me, in 1985 when I went to Italy for the first time, this was the first time I went to a foreign country and I felt very excited, indeed very excited. But those peopl,e the other people, my secitn chief, the other day went to west gernamny and in the afternoon we talked about different things and it looks like everything is normal and alal of a sudden he tell s me he is going to Weste Gernamny and he is going alone on business. That was all. I dare not ask other questions. But what surprised me was that his flight left at 8 that night and it was 6:309 and he was still working. And all he took with him was a small suitcase, nothing more, and then he went to West Germany, and this was common life for him. It was part of everyday work for him, like someone going abroad. And people would say one day, Oh I'm tired, I'm going to the Embassy. And then they would say they were just walking over to have their visa approaved. And those people had their conections and they would walk to the Embassy and the next day they would have their visa. See. So simple. Poly didn't need to borrow money. They spent money out of their own pockets. But they did bring back the bills for reimbursement. Then the company paid them cash. And the difference was in someone who has money and someone who hasn't. Different tings. In my case I had to borrow money from the company beause I didn't have the cash, obviously. But for them, bringing up enough foreign notes, with you, is not allowed at the airport in Beijing. and I don't think they brought a lot with them, but they had access to cash and banks in foreign countries. I don't know where they get the money, but I do know that they nver left with a lot of cash. But where abroad do they get their money. The other thing is that they need not borrow money and they still had enough to spend when they arrived in a foreign country.


PERSONAL PERKS OF THE COMPANY People from Poly, according to my observation, and something that strikes me after working for the company was that a lot of people had their own private cars. And others had their own cars but they did not own them. They would have cars driven by a chauffer even, and then they would have their own cars. And all the cars were registered as a military vehicle, and that means that they have a white license plate. And all the cars belonging to the company have a white plate. And that is unique for a company at citic, but still this is what they have there. The car you have can be registered as a military car and once you have a white plate on you are driving a military vehicle, then your kind of plate, is free from police interruptions, for the most part, comparatively speaking, military behicles are relatively safe. And the public security bureau has very strict control about car egistrations and if you do not pay a certain fee you are not allowed to own the car, but once you have an army plate you have no problems. No problem.
There were no privileges in the company that you or other individuals didn't nedcessarily have before they came into the company. But still, you had to meet certain requirements when you came into the compamny. They must have looked into my military background. My personal military background, where i went to school and this convinced them that I was the woman they were looking for.

powers of the company over other companies:

Relationship between Norinco and Poly. What can one do that the other cannot. In certain areas Plly ios the most powerful. Restrictions on Norinco. Who is Norinco. They are separte companies. Norinco does not belong to the army, difference number one. Difference number two is that Norinco belongs to the ordnance department of the State Council, so they are able to have the excess of all the conventional weapons manufactured but not yet provided to the military service. And only if even then, they are, theortically speaking, they are entitled to that access, but they are restricted. Poly often cuts them behind their back. But, Norinco was the original starter in the arms export business. And later on, once the Army found out selling arms could be a very profitable benture, once the army decided to get its hands into the arms trade business, then Norinco was no match for them. For some of the missiles, that were to be sold to Iran, and Poly came up with the idea and they told the General STaff, and the General Staff told Norinco, all right, the Army wants the missiles, and they said, what for and the Army said it is none of your business. So they have to sell the arms to the general staff at an extremely low price and the PLA purchase level. And, later on, these missiles were sold by Poly. China Precision Import and Export Corporation, which sells the M Series Ballistic Missiles. Is this true? There is another understanding that needs to be made here. You cannot simply rely on published facts and figures. You lack a bsic understanding of the entire defense system. Precision Corporation is an affiliate organization of Poly Technologies. For some of the things that Poly does not want to get deeply involved in, either due to the consideration of its reputation or for whatever reason, it redirects to Norinco and to Precision, but not as much as it does to Precision, which is more than Norinco. Machinery is an affiliated arms trade division of Poly and so is Catic. The other day I told you the admirals were caught in selling missiles to the US. But if they did that correctly in getting permission from Poly and the General STaff in the first place, then there is no problem. So who runs China Precision Machinery IMport and Export. Not the same family members as Poly. If you go to Precision. That is in a large building but they occupy only one floor. They are affiliated also to the Aeronautic and Aerospecace ministery. But their primary funciton is to import machinery. The only reason why they got involved in the arms trade businessis because of the name. Machinery, that means a lot of things. It could be basically that. Everyone knows that this is a good place to cover some of the deals in the arms trade. And it is not the only company that does business for Poly or with the approval of Poly. But also other companies. There are sseveral others too that work very closely with Poly. But on the other hand, these companies have a connection with Norinco too. Actually, Norinco and Poly are the two big companies. While under each echelon there are individual affiliated groups or trading companies. Does that make sense(no). Only in arms trading business. If you go to the head of these corporations, you never see anything unusual. theyu are exactly the civilian trade companies, except that there is always what we call Arms Items Office. It is a division, actually, you see the lable. Arms Items Division, that would be the direct translation of Jin Pin Bo. That means that these people are involved in the arms trade. And these people, even in those affiliated companies, enjoy priveleges. That means that they only report direclty to the boss. And.

FAMILY INFORMATION:

Don't know. He Ping, and Deng Xiaoping's graddaughter, is too young to marry. She is now in medical school, studhing here in the US. But she is in her early 20s, and perhaps a husband will be chosen for her. What we call the Prince Party, is what we are talking about here(in Chinese....). That means the group of sons and daughters of the late marshalls and the state founders, they are influential people, and they are already important in Chinese society. And they have succeeded in making connections and working relationships among themselvers, so as to extend their influence into other fields of Chinese life. They will, they expect, finally take contyrol of China and succeed their fathers. They are working very hard on that right now. Actually, Chen Yun's son, his name is Chen Yuan, he is the deputy chairman of the People's Bank in China, and Mr. Song Renchung's daughter is also an influential figure in Chinese politics. They came to Los Angeles, about a month ago, and their purpose to come here, was to actually, they had their own houses in Los Angeles, and they telephoned some democracy leaders from China here, and the names were mentioned during the movement and now they are in exile. And the Prince Party members came here to talk to them about the future of China. They want to form an understanding and cooperation with the democratic movement in the US. For what purpose? To gain some solidarity with the people in exile so as to back up their political influence here. Then when they are back in China, they can build on this, going into the power grabbing process, while still enjoying the support of the overseas Chinese. So this is killing two birds with one stone. Not the rabble, like Cai Ling and Wuer Kaishi, they are just bullshitters and nobody trusts them and they are too young. I am talking about people who held important positions before they fled China -- like Chen Yizhi. Those people who are in the middle layer of the democracy movement. They used to be the think tank leaders working for Zhao Ziyang before he was overthrown. These individuals have a profound understanding ofr the Chinese political structure. Every Chinese in the US understands the term, "Prince Party." But the Americans never write about it, I am (Hai Zidang), prince party.

extras and repeats:
The manpower losses were considered great but not significant, ironic. Both in terms of personnel and in supplies. The biggest loss, naturally, was the loss of prestige, the weaknesses of the PLA was exposed, in terms of discipline and disobedience.
Exocets were sold by Poly to the Iraqis and Chinese technicicnas trained them in China and they were trained there for the silkworm and for the electronic countermeasures, and the Chinese also trained the naval personnel from both countries to familiarize them to man and operate the missiles and to train them in conventional naval warfare doctrine, and also to train them to use and operate Chinese manufactured frigates and torpedo boats. And China basically selected two training bases for naval personnel from the two countries. The one training base was located in Qing Huang Dao(Qing Huan Island) at Bo Hai Bay on the Bo Hai Sea. The other training facility was on the island called Ma Shie, close to Zhangjiang, which is the site of the headquarters of the Chinese Southern Sea Fleet. The personnel were rotated between the two bases, each side trained in both places. But China made the point of never training the men together at the same place.
Aside from these two, in Shanghai, the Navy PLA, also has a training base for all of the foreign military personnel and technicians. There they are trained in the technical and tactical aspects of naval warfare. The Pakistani friends and men from the Bangledesh Navy and the Royal Thai military personnel were trained in Shanghai. Especially the three frigates the Chinese navy sold to the Thai Royal Navy were manufactured and launched in Shanghai Naval Shipyards and therefore the Royal Thai Naval Personnel, it was handy for them to be trained close to where the ship was manufactured.
Norinco sold MIGS to both disde, but primarily the Iranians and the pilots were trained in China. China also sold two Romeo class submarines, conventional submarines to Egypt, since Egypt at the time was probably the closest ally to China in the middle east. This was all before Poly was founded. Later on, Poly gained a hand in providing materials like these to foreign friends. So With more and more profits being generated into Norinco system, the PLA was getting anxious to have a direct access to this huge revenue.
The Chinese Aerospace and Aeurnautic ministry, as it is called now(then it was called YJ-82). At that time Chinese Aerospace and Aronatuic were separte?)
China was able to clone or reverse engineer or steal the technology from the Frenchy exocet and made a copy and then produced their version, calling it the YJ 82, in the west it was called C 801. At that time, in 1984, the ministry really wanted to sell the missiles to Iraq in order to generate profits. But, the PLA intervened. They said the PLA Navy wanted the missiles. So, the ministry had no choice but to sell the missiles to the Navy at the price of 0.97 million renminbe each. And later on, Poly Technologies directly sold these missiles to Iraq at a price of 1.2 million US dollars. That is why the Aerospace related defense industries in China were angry. But they could do nothing. And this is one of the rationales for the establishment of Poly Technologies. Because after all, it is only a trading company. The uniformed military could not do business with foreigners, but a trading company could and then the profits would be channeled directly back into the military through the General STaff. Because Poly basically belongs to the General STaff. In doing the arms tracde befcause of the unique position that Poly held, it was never betaten by any domestic and international rivalries in the arms trade. Until, in the middle of the 1980s, the Shangri La deal. This was a humiliating blow to Poly.
No high ranking people ever came into the office. Every. And officers of the company had access to the highest individuals in the government, through private Channels. itwas very common to see the signatures of Zhao Ziyang, when a report of arms sales to overseas, you must have the names of the president on the document. And people explained it to us that business must be ratified by those from the time. top. But they can tell you that, telling you is one, thing, then you see suddenly the signature of Zhao or Deng and it surpriese you if you've never seen it before. You know that it has passed through their hands and been personally approvaed and signed. Then you feel in a very special way. \It adds a lot of weight to what you are doing. What you are seeing though is not a signature, it is a seal, a chop, of the invididual. But it lools like the signature, and the secretary may have done it for him, and that would save a lot fo time. That is though a requirement.
How find out about personal vices. Anyone working for the company for a certain period of time, if you are not supitd you know that something is going on. Someone gets a call and you can tell from personal expressinons what is going on. the individual looks very gored and he wants to hang up at anay moment. And later on there would be gossip about that, who has amistress and where she is and who she is. And sometimes his wife would call and ask wehre her husband has been for the past week, when he was coming back from his trip, and of course he hwas been in the office the whole time, but just not going back to his home in the vening. THis was one of the vcovers of the individuals, the higerh ups in the company. It is always soething nice to talk about. They told me, alsok where do you come from. And I told him and he waid, Oh, I thought you were living somehwere else.
I came into contact with all the officials every day. Of curse, we are on the same floor and if I wanted to speak to him directly, I did. He is a nice man. He succeeded He Ping. He succeeded Wang Jing to be general manager. A real gentleman, actually. He speaks perfect English, of course. Very competent man. But he makes no mistakes in his English, with a slight British accent.
The amounts of money didn't surprise me, because I was awre of this from working with the military. What surprised me, was that say when our section chief let alone the people like He Ping, it is always the common procedure for somehwone working for a company in China, if he wants to go on business to a foreign country, he must borrow money from his company, and later on bring back the receipts. But this is never the practice for this coumpany. These people are above that. What struck me, in 1985 when I went to Italy for the first time, this was the first time I went to a foreign country and I felt very excited, indeed very excited. But those peopl,e the other people, my secitn chief, the other day went to west gernamny and in the afternoon we talked about different things and it looks like everything is normal and alal of a sudden he tell s me he is going to Weste Gernamny and he is going alone on business. That was all. I dare not ask other questions. But what surprised me was that his flight left at 8 that night and it was 6:309 and he was still working. And all he took with him was a small suitcase, nothing more, and then he went to West Germany, and this was common life for him. It was part of everyday work for him, like someone going abroad. And people would say one day, Oh I'm tired, I'm going to the Embassy. And then they would say they were just walking over to have their visa approaved. And those people had their conections and they would walk to the Embassy and the next day they would have their visa. See. So simple. Poly didn't need to borrow money. They spent money out of their own pockets. But they did bring back the bills for reimbursement. Then the company paid them cash. And the difference was in someone who has money and someone who hasn't. Different tings. In my case I had to borrow money from the company beause I didn't have the cash, obviously. But for them, bringing up enough foreign notes, with you, is not allowed at the airport in Beijing. and I don't think they brought a lot with them, but they had access to cash and banks in foreign countries. I don't know where they get the money, but I do know that they nver left with a lot of cash. But where abroad do they get their money. The other thing is that they need not borrow money and they still had enough to spend when they arrived in a foreign country.
Competition in selling Arms? Since that was the case, a lot of companies want to proceed. And they said, OK, from now on only Poly will deal with this area. When Poly saw the possibilities of profits from arms sales to the MIddle East or the third world, they want to have a hand in that, and take care of extremely sensitive items. Not the ordinary, conventional arms, like the AK47, that isn't a problem. Poly does not want to intervene in those areas. But when it comes to selling things from the PLA inventory or from the PLA equipment itself, in order the General Staff wanted to make a point for that.
Poly performs the duties that the General STaff cannot perform. It is not stronger than the General STaff it is the well camouflaged right hand of the general staff, that is why we carry a dagger, too. Cloak and dagger. The iron fist in the velvet glove, that is us.
The founders were He Peng fei, Wang Jun, He Ping. Who was the fourth individual? Where is a fourth individual founder. But who is he.

The Chief of STaff of the Army at that time was the fourth founder. They always have the support of the chief of staff. These are individuals who are sent there to form a company. It is easy to do. They buy an office in the Beijing Hotel and one year later it shifted to Citic. The original money for the founding came from the PLA. As soon as the company enlarged, after they hired more and more individuals, the military individuals retreated and they wanted to make it a purely civilian oganization, because that made it easier to do business. There is a secret charter that founded the organization. It never involved the name of the personel. It never described them, but only their functions. So in the iniitial development statge, the number one people in the company changes often, depending who is busy and who is not, and a small circle. outside. Then the children of the important people, the founders were already those individuals. Then Poly was an organization that chooses people on a strict selective basis according to their background as well as their qualifications.

What was surprising to you on the inside of the company. When I was trying to get a job with the company, I did know something about it but not in much detail. But during the first couple of days, when I worked for the company, everything sedemed to me so naormal. It seemed just like other business companies. It was a s though we were sometimes signing contacts, making documents, everything was typerwriters and papers and computers and contracts. But t hen day after day as things started to become more familiar to me, I started to discover that it was not like other companies. There was something very unuusal in this company. Because all of a sudden some sort of document would show up and it would be signed by the very top individuals in the country. And ;it was just sitting setting ther eon the tgable and aouwould be passed around for everybody tgo see. These were contracts, in the final stages. But there would be letters of intention, memorandum of understanding. There would be a letter from our own government.
Somehow this would be so stunning. And I went, Oh, gee. And I didn't show my surprise of course. Because if you show your surprise, you would never work for the company. If you get really excited, you shout or you become demonstrative and you stand up, people would say you are stupid. And you would not last long. To stay there, working, you really have to be cynical.
Files. The files were destroyed on a regular basis. They were supposed to be kept for a certain short period of time. But after that, you just threw them away. There was no permanent record of what was going on. The memorandum, the original would be kedpt. Somewhere in China there is an archive, with these individuals names on things, on documents. With all the deals you've made with foreign firms, there are records of these. A lot of people have had their hands in these things.
The business of the company, very simply, is the import and export of weapons for the army.
The airforce wants a plane, and we , the general equipment department asks us how much it will cost, we look into the yarbooks, like Janes publications, to see roughtly how much the plane would cost, finding general what the maximum amount would be. We usually ask the maximum amount of money. For example, if the plane was to cost one million, then we would tell them it is $1.2 nmillion. Or sometimes $1.3 million. We knew because of our strange system, for example, if you have this amount of money in 1980, you have to spend this amount of money before the end of the year, otherwise it just experies. You have to return the money at the end of the year from where it came originally, and it came from the army of course. From the state planning committee to the army. That was where the general fund came from. The Army wants a system that costs a million and we charge them more. The army does not spend the money, we are the ones spending the money for them. All of this is in terms of hard currency, it has nothing to do with the military budget. The company budget is based on the states hard currency reserve. /The company's activities are based on the state currency reserve and hard currency budget. Example, this year we have this amount of hard currency for arms procurement. And you guys are going to decide how much is going to the navy and the airforce or to the army. The army has the smallest budget, since the army does not require any great amount of high tech eqipment. Not so obvious. Like the navy and the air force. That is why we purchase so much material for the navy. Because that is in the development stage. So there are shortages of currency, and that is why each year we cannot purchase a lot of things. We purchase whatever our superiors figure out they need the most.

Poly was founded in 1983. What brought the formation of the company about was basically because the PLA wanted very much to establish its own echelons of channels to export its arms and to make a huge profit. To understand this questions you must understand the back ground information.
Normally the Chinese defense establishment was funded in this way. Before that, it actually the PLA just as much roll to play as the defense industries. There are always like against each other. Because the defense industries, have some powerful export oriented cooperations, like Norinco, it stands for North Industrial Cooperation, a very powerful one.(Beifung gungye gunsa) every since it was formed in 1980 dealt in conventional arms. exports, oriented. And it shipp a lot of conventional arms to both Iran and Iraq. Conventional ones. So later one, as son as the PLA found out that much of the generated revenue from these arms sales to the middle east were not being used to benefit the PLA, they were returned, in fact, to the defense industry, for rd systems. So the PLA was not happy. Also, in 1983, Mr. Deng proclaimed that the PLA would be the last to benefit from the overall modernization from China. He realized that the military modernization program would be very much dependent upon the economic status of the country. So his line, was that, since we are still poor, the military will have to wait patiently, and we will eventually accumulate enough capital for you guys to get enough money to purchase things from foreign countries.
I know personally the reporting echelon from Poly to the Politburo, or to the CCMC, they report that directly. When I was working in Poly, almost daily I saw the signatures from Li Peng and Zhao Ziyang, they just signed off on our business. That is the funny part about the business. The funny part about the Chinese arms sales business to international market is that those people who are in the position, like if you are the premier or the genral secretary of the party, you must sign the documents. Because tomorrow, at 8 in the morning, the first thing you see on your desk is a report from Poly or from the General Staff, saying that we want to buy or to sell something from the Middle EAst or from the West, and now we need your signature. These people What they are concerned about at that time, is that they want to stay at their post for as long as they can. They do not want ever to offnd the military, they know that the military is always powerful in China.
When it comes to official reports, nobody is going to stop them. If you are Zhao Ziyang you have to sign. Even though you might not be entirely sure as to what is going on. Although you know so little about what is going on. The people who really know the business, who come up with the ideas of what to do, they were always behind the scenes and there is no way you can stop them. When it comes to the official report, no one is going to stop them. You sign, even though you know so little about what is going on. Behind the scenes are the people who really formulate policy, and there is no way -- believe me -- that you can stop them.
1983, the reason for the founding of the company and the environment under which it is created. There were 100 missiles that Norinco wanted to sell to Iran. And we stepped in. We are the same as the equpment department of the General STaff. We do things for them and they do things for us. Poly does not have to do that, we are the same as the equipment department of the general staff. Once you have to deal with foreigners, then it is Poly Technologies that does the business. Once some domestic issue is involved, the Genral Staff is going to step in. Say, they want to sell missiles to Iran, and the General STaff steps in, and they say, the PLA needs these missiles, then you cannot sell them. Then the PLS buys these missiles from Norinco at an extremely low price, and then we sell them at a high price and make a profit for the PLS. That is why the other companies involved in the business -- that is exactly what happened -- that is why the other companies -- involved in the business, always cherich strong grievances against Poly because we have the advantage. In truth, in formally, Poly is really a branch of the PLA supply department, but officially it is registered under the Citic Group. Unofficailly, behind the lines, it is the supply department of the PLA. Everyone knew that you guys on the elevator going to the seventheenth floor, to our company, you cannot do so without permission. It is not something you do without permission. You just don't knock on our door and open it. Even if you are senior people or ordinary people, they don't know what is going on.
The telephone line between the General STaff and Poly? We don't need that. They have their secret telephone numbers. and we have them. SEcondly, they have direct access to those people's compounds, which is extremely heavily guarded. But some of the individuals that I work with, th9is evening I am going to speak to Yang Shankun, and at first he was just trying to impress me, I thought. I didn't believe him. And then he did it. And he told me, I just drove my car into the compound. And I thought, "My God, you just drove into the compound!" And in fact, he just drove in. The guard saw the plate number, and he didn't look at the face. He just looked at the plate. If you are in the car you are safe. Some of these guys can drive into see Deng Xiaoping whenver they want to. But the foreign minister, if he wants to see Deng, they tell him wait a minute, you have to find out if he is busy or not. Access at any time, and if Mr. Deng is taking a shower he will still interrupt it to see us.
Fourth founder of Poly Technologies. The fourth Founder, is...original were Wang Jun, He Pengfei and He Ping, and the fourth He Datong. They were all drawn from the military. They There was no criteria for selecting the leaders. They had their own criteria of selecting the individuals to found the company. They grew up in the same compound, the families knew each other pretty well, right. And I know you and you know me, and I know you are trustworthy and you know I am. And this is the substantive part of their relationship and unity.l They have similar family backgrounds, so they believe they can trust each other. And each regard the other one as influential, so each is indispensable in building up the company. And that is why the company has been so successful, in achieving the support of the military.
Structure of the Company.The familes in control, He Ping, son in law of Deng, and he married Deng's daughter, Deng Rong, He Pengfei, is son of the late marshall, He Long. And He Datong came also from a very influential army family, but it was always uncertain what the family roots were there. But both his parents were influential people. Like Li Peng, although his father died in the 1930s, still he was adopted by Zhou Enlai, and that is how he beame premier in China. Wang Jun, son of Wang Jun, also very powerful in China. The fathers were founders of the PLA and the PRC. They were marshalls and there were only ten marshalls in Chinese history.
Their children intermarried? Don't know. He Ping, and Deng Xiaoping's graddaughter, is too young to marry. She is now in medical school, studhing here in the US. But she is in her early 20s, and perhaps a husband will be chosen for her. What we call the Prince Party, is what we are talking about here(in Chinese....). That means the group of sons and daughters of the late marshalls and the state founders, they are influential people, and they are already important in Chinese society. And they have succeeded in making connections and working relationships among themselvers, so as to extend their influence into other fields of Chinese life. They will, they expect, finally take contyrol of China and succeed their fathers. They are working very hard on that right now. Actually, Chen Yun's son, his name is Chen Yuan, he is the deputy chairman of the People's Bank in China, and Mr. Song Renchung's daughter is also an influential figure in Chinese politics. They came to Los Angeles, about a month ago, and their purpose to come here, was to actually, they had their own houses in Los Angeles, and they telephoned some democracy leaders from China here, and the names were mentioned during the movement and now they are in exile. And the Prince Party members came here to talk to them about the future of China. They want to form an understanding and cooperation with the democratic movement in the US. For what purpose? To gain some solidarity with the people in exile so as to back up their political influence here. Then when they are back in China, they can build on this, going into the power grabbing process, while still enjoying the support of the overseas Chinese. So this is killing two birds with one stone. Not the rabble, like Cai Ling and Wuer Kaishi, they are just bullshitters and nobody trusts them and they are too young. I am talking about people who held important positions before they fled China -- like Chen Yizhi. Those people who are in the middle layer of the democracy movement. They used to be the think tank leaders working for Zhao Ziyang before he was overthrown. These individuals have a profound understanding ofr the Chinese political structure. Every Chinese in the US understands the term, "Prince Party." But the Americans never write about it, I am (Hai Zidang), prince party.

Note on the Four Modernizations
The military formed a gorup that made a visit to Shenzhen and aGuangdon, and one of them having gone there and seeing the reforms there in the new economic zone, some were moved to tears and some even cried, Long Live Deng Xiaoping. Locked into the course of economic reform without changes in 100 years. Laterst Politburo meeting, the only criteria to determine whether methods used are capitalist or socilaist is to see if they suit the fundamental interesxts of the whole country. the only way to make progresss in socialism is through economic reform. Relative to Yunbnan, military had adapted practical method, paid little attention to whether a socialist or capitalist doctrine, this is exactly what Deng had inn mmind when he first proposed what the army had in mind when he proposed that the Army adapt this method, and won against the hard liners, he has firm support in the military which has been his suporters since 1984

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