By Ariana Eunjung Cha
Washington Post Foreign Service
February 15, 2008
MOUNTAIN VIEW, Calif. -- Engineers Lan Lee and Yuefei Ge had drafted a
business plan that they promised would roil the U.S. microchip industry.
Using blueprints they allegedly stole from their Silicon Valley
employer, the men proposed to reproduce a super-fast chip in China at a
much lower cost.
The documents, recovered by FBI agents, included a contract with a
venture-capital firm in Beijing that would bankroll part of the
estimated $3.6 million the would-be entrepreneurs needed and seek
additional funding from the Chinese government.
The case of Lee and Ge, who pleaded not guilty in October to charges of
theft of trade secrets and the more serious charge of economic espionage
to benefit a foreign government, is one of more than a dozen involving
the alleged sale or attempted sale of purloined technology to China that
are making their way through U.S. courts this year.
Stolen from laptop computers and luggage of engineers working for U.S.
companies en route to China are designs for some of the country's most
sophisticated technology -- flight-simulation programs, microwave
devices, electronic propulsion systems for submarines and night-vision
On Monday, U.S. officials announced arrests in Alexandria and California
in connection with alleged plots to steal high-tech military secrets for
the Chinese government. In Alexandria, Assistant Attorney General
Kenneth L. Wainstein said "there are a number of countries that have
proven themselves particularly determined and methodical in their
espionage efforts." China, he said, is one of those.
The plots that prosecutors described on Monday allegedly involved direct
contacts between the defendants and the Chinese government. But in many
cases on the books, the question of involvement by the Chinese state is
tricky to pin down because the line between where the government starts
and ends is constantly shifting. U.S. officials say there is an
underground bazaar of people trying to sell information to the Chinese
government and military but that no one knows how many deals are made or
whether the government is soliciting such business. Nonetheless, U.S.
authorities fear the potential consequences.
The Chinese government has repeatedly denied being involved in any
high-tech theft in the United States. Foreign Ministry spokesman Liu
Jianchao has called the allegations "insulting" and "misleading."
"The so-called accusation against China on the issue of espionage is
totally groundless and has ulterior motives," Liu said at a press
The U.S. government's reports note that many of the thieves caught were
not Chinese agents in the traditional sense. The Office of the Director
of National Intelligence says the perpetrators did not come to the
United States at the direction of the Chinese government to steal
technology; they were entrepreneurs who figured out that they could make
quick cash by selling it to China.
There is a "seismic shift toward increasing reliance on the private
sector in the intelligence world," for information about technology,
Joel F. Brenner, national counterintelligence executive in the Office of
the Director of National Intelligence, said in a recent speech.
In the United States, some Chinese Americans have expressed worry about
racial hysteria, that Chinese Americans and Chinese nationals are being
targeted in the way Russian emigres were accused of spying for the
Soviet Union in the 1950s. They say U.S. law enforcement officials have
unfairly turned what would otherwise be run-of-the-mill charges of
stealing trade secrets into international espionage cases simply because
defendants are ethnic Chinese.
"There is a mentality that pervades all of Washington, which is that
China is our big adversary and enemy -- if not today, then tomorrow --
so we need to deal with them on that basis. So there are a lot of heavy
biases," said George Koo, a business consultant in Silicon Valley who is
a member of the Committee of 100, a group of influential Chinese
Americans that was founded by the cellist Yo-Yo Ma and the architect
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
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
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
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
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.
"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.
Copyright 2008 The Washington Post Company
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