How Many Chinese Front Companies?

Too many articles about Chinese espionage are about as sophisticated as the plot of a Hong Kong action flick. At least John Woo made stuff blow up.

Somebody at the Wall Street Journal saw
Hard Boiled one too many times.

The Wall Street Journal—in passing—refers to the “more than 3,000 Chinese ‘front companies” the FBI alleges have been set up in the U.S. specifically to acquire military or industrial technologies illegally.”

Um, that’s not true. Or, at least, it didn’t used to be.

The existence of “3,000 Chinese front companies” is one the most persistent claims about China floating around. The number is often attributed to the FBI, but as far as I can tell that’s wrong too. Or it used to be.

The allegation that China has 3,000 front companies first turned up in press reports about the 1999 Cox Report, which noted a wide variety of estimates:

[I]n Senate testimony on the same day in 1997, the [Defense] Department said it could identify only two PLA companies that were doing business in the United States, while the AFL-CIO identified at least 12, and a Washington-based think-tank identified 20 to 30 such companies. The Select Committee has determined that all three figures are far below the true figure.

The Select Committee has concluded that there are more than 3,000 PRC corporations in the United States, some with links to the PLA, a State intelligence service, or with technology targeting and acquisition roles.

Michael Hiltzik and Lee Romney at the Los Angeles Times did some great reporting on this number, finding that 3,000 front companies “could only be reached by lumping together civilian, military and defense-industrial companies incorporated in the U.S.—and that there is little chance that all could be equally under the thumb of Chinese military or espionage agencies.”

In response, Cox argued the Report said only “some” of the 3,000 companies were fronts:

“We didn’t state that,” he said. “What we stated is that there are more than 3,000 {Chinese} corporations in the United States … {and} there are significantly more front companies than was previously disclosed in public.”

[snip]

Cox said he could not offer an estimate of the number of Chinese front companies in the United States because the government’s estimates are secret. But, he said, the committee had offered the number of “more than 3,000 {Chinese} corporations in the United States” to suggest the possible scope of the problem.

So—according to Cox—the number is classified but some smaller part of the 3,000 total firms.

***

That ought to have ended the matter. But, no.

In 2003, FBI Director Robert Mueller testified about the ongoing reorganization of the FBI. This is how Curt Anderson of AP depicted Mueller’s testimony:

“Left unchecked, such a situation could greatly undermine U.S. national security and U.S. military and economic advantage,” FBI Director Robert Mueller told Congress recently.

For instance, the FBI believes China has more than 3,000 “front” companies in the United States whose real purpose is to direct espionage efforts.

Kind of gives the impression Mueller said 3,000, huh?

He didn’t. Mueller didn’t mention China at all in his prepared statement. Anderson’s frame is total fiction.

When specifically asked about Chinese espionage by Representative Frank Wolfe (R-VA), Mueller deferred to closed session, stating only that “It is a challenge and it is a priority for us.”

That’s all. Mueller certainly did not provide the number Chinese front companies, which is presumably still classified.

***

So, if the facts don’t fit the perception, guess what gets changed?

Yup, the definition of “front company.”

In 2005, two officials—one from the FBI and another from DOD—both referenced to the 3,000 figure.

• In February 2005, CNN reported that FBI Assistant Director for Counterintelligence David Szady told the National Intelligence Conference and Exposition in Arlington, VA that “that about 3,000 false-front Chinese companies operate in the United States”

• In March 2005, Bill Gertz reported that DUSD Lisa Bronson told the Counterintelligence for the 21st Century Conference at Texas A&M that “China has somewhere between 2,000 and 3,000 front companies in the US, their sole reason for existing is to steal, exploit US techonology.”

I suspect this means the FBI and Defense Department have decided to characterize—at least for public consumption—all Chinese companies operating in the US as “front companies,” their “sole reason for existing is to steal, exploit US techonology.”

That is certainly the feeling I get from the 2005 National Defense Authorization Act, which expanded the definition of “Communist Chinese Military Company” to include any “affiliated with the PRC’s defense industrial base”:

Expansion of Firms Defined as a “Communist Chinese Military Company”. The Department of Defense and other agencies are required to maintain a list of companies owned or controlled by the Chinese military operating directly or indirectly in the U.S. These entities are monitored and subject to the provisions of the International Emergency Powers Act, which grants the President authority to regulate foreign commercial and financial transactions in order to deal with a threat to U.S. national security, foreign policy or economic interests, if the President declares a national emergency.

Currently, these companies are defined as being owned or controlled by the People’s Liberation Army, which has formally divested itself of all commercial interests. HR 4200 would include Chinese firms owned or operated by a government ministry of the People’s Republic of China (PRC) or an entity affiliated with the PRC’s defense industrial base, such as the China State Shipbuilding Corporation or the China Overseas Shipping Corporation. This change recognizes a broader and different universe of government and commercial interests now engaged in China’s military modernization.

We’ve come a long way from 1997 when Kurt Campbell—no panda hugger—testified that his colleagues at the Department of Defense “have identified only two [PLA] firms which conduct business in the United States.”

Correction: For some inexplicable reason I attributed the AP story to a “Craig Crawford” instead of Curt Anderson. No idea why.