PRC Espionage leads to `Terf' war: investigators say China placed students in American universities to gain secret information about an exotic material with valuable industrial and military uses

0 Comments | Insight on the News, Oct 29, 2002 | by Scott L. Wheeler

The U.S. Defense Security Service (DSS) is the agency responsible for tracking industrial espionage against companies with the clearances necessary to work on defense projects. DSS would not discuss the Terfenol-D incidents or subsequent investigation, but a manual it distributes to counterintelligence special agents lists "exploitation of Internet (hacking)" as "one of the most frequently reported foreign collection methods of operation."

In 1999, the U.S. House of Representatives released the Report of the Select Committee on U.S. National Security and Military/Commercial Concerns With the People's Republic Of China. Otherwise known as the "Cox report," it detailed PRC espionage against U.S. military technology. The report lists "rare-earth metals" and "special-function materials" as "exotic materials" that are "the key areas of military concern" about PRC espionage targets. The report also states that "Professional intelligence agents from the MSS [Ministry of State Security] and MID [Military Intelligence Department] account for a relatively small share of the PRC's foreign science and technology collection." Rather, the report explains, "The bulk of such information is gathered by various nonprofessionals, including PRC students, scientists, researchers and other visitors to the West."

A university faculty member who did not wish to be identified has provided INSIGHT with biographical information on a student the faculty member considers unusual because the student had worked in the PRC on China's Terfenol-D program. The student, who we will call Chang, is studying for a doctorate at Penn State University, where there is extensive ongoing research on Terfenol-D for the U.S. Navy. At about the same time the hacking incident was discovered at Etrema Products, Chang applied to attend Penn State.

When INSIGHT contacted Chang to ask about his experience in the PRC working with Terfenol-D, he candidly said: "The main work I did [in China] was collecting materials regarding the properties of Terfenol-D." At the time, Chang's supervisor was "Professor Dechen Chen," according to Chang's resume. He tells INSIGHT that his job in China was to "find out useful information" for Chen, who Chang says "is doing some research on a big project which I cannot release to you. It's confidential, regarding Terfenol-D. It's for the [People's Liberation] Army."

Chang says he currently is not working directly with Terfenol-D but on a related piezoelectric project, which involves ceramic-based active materials that respond to electricity the way Terfenol-D responds to magnets. Both would be targeted as "exotic materials" under the Cox-report definition. Asked if he still communicates with Chen in Beijing, Chang says, "I am keeping in touch with him."

Chang nonetheless tells INSIGHT he is not working on any classified project at Penn State. The university lab where he works did not respond to INSIGHT'S efforts to confirm this.

A graduate student from the PRC who is known to have worked on a secret military project in China should not be doing research at a U.S. university with defense-research projects, say U.S. national-security specialists familiar with the way the PRC conducts espionage. And especially not on a high-tech material related to that on which he focused in Beijing. "The MSS recruits students" as espionage agents, says John Fialka, author and Wall Street Journal reporter, in his 1997 sworn testimony before the Joint Economic Committee hearings on economic espionage, technology transfers and national security. With as many as 50,000 Chinese nationals entering the United States each year, experts say the agencies tasked with being on the lookout for espionage can't handle the workload. "While the FBI makes an effort to watch foreign students and businessmen, China's flood has simply overwhelmed the bureau," Fialka says.