Outraged U.S. technology experts and documents obtained by INSIGHT indicate that the acquisition and subsequent transfer of high-tech rare-earth-magnet equipment and technology to the People's Republic of China (PRC) is the result of a long-range espionage plan by the late "Paramount Leader" Deng Xiaoping directly involving two of Deng's sons-in-law.
The revelations come as Magnequench Inc., a company partially owned by the San Huan New Materials and HiTech Co.--itself at least partially owned by the PRC government--prepares to shut down a factory in Valparaiso, Ind., that produces critical parts for U.S. precision-guided weapons. The company then plans to ship the machine tools to China. INSIGHT has learned from technology experts, plant insiders, internal PRC documents and historical records that the PRC had targeted the U.S. technological advantage in exotic materials and manufacturing and developed a long-term plan to acquire it in the United States and export a crucial U.S. military advantage to the communist-controlled mainland.
In 1995, San Huan New Materials and China Nonferrous Metals Industrial Corp. partnered with a U.S. investment firm to buy Indiana-based Magnequench from General Motors Corp. INSIGHT has learned that the president of China Nonferrous Metals Industrial, Wu Jianchang, is married to Deng Lin, the eldest daughter of the late Deng Xiaoping. The chairman of San Huan New Materials, Zhang Hong, now chairman of Magnequench, is the husband of Deng Nan, second daughter of Deng Xiaoping. Deng Nan also is vice minister of state on science and technology for the PRC.
Though blocked by secrecy rules from going public, government officials expressed alarm about allowing the Chinese government access to strategic technology now being used to produce critical neodymium-iron-boron magnets for servos used in U.S. guided missiles and smart bombs. An even more critical technology, according to experts, was exported to the PRC in 1999 by Magnequench. That transfer included high-tech equipment used to enrich uranium for nuclear weapons, raising additional concern because of China's record of proliferating nuclear technology to rogue nations.
As noted, the PRC acquisition of the rare-earth-magnet technology was part of a long-term campaign initiated by Deng Xiaoping, who ruled the PRC from 1978 until his death in 1997. In 1992, Deng acknowledged the value of the PRC rare-earth reserves in the Baotou region, saying, "There is oil in the Middle East; there is rare earth in China." Documents from the Baotou National Rare Earth Hi-Tech Mine, obtained by INSIGHT, reveal the importance to the PRC of the exotic materials, noting: "The reason why rare earth, a small industry with annual consumption of only 75,000 tons REO [rare-earth oxides] and a market value below U.S. $100 million, has been given attention by Chinese leaders at all levels is due to its uses in modern hightech industries because of its special chemical and physical properties. As a matter of fact, rare earth has been listed in the category of strategic elements in many countries, such as the U.S.A. and Japan."
A 1999 congressional report on PRC espionage directed at commercial and military technology from the United States says that the Chinese "State Science and Technology Commission," the agency where Deng Nan, wife of Magnequench Chairman Zhang Hong, serves as vice minister, is responsible for "importing technologies for military use." The report, known as the "Cox Committee Report" for the select committee's chairman, Rep. Chris Cox (R-Calif.), states: "In 1986, `Paramount Leader' Deng Xiaoping adopted a major initiative, the so-called 863 Program, to accelerate the acquisition and development of science and technology." According to the congressional report, "The PRC claims that the 863 Program produced nearly 1,500 research achievements by 1996 and was supported by nearly 30,000 scientific and technical personnel who worked to advance the PRC's economy and . …