Cracking A Chinese Code

WHEN THE STORY FIRST BROKE last January, it had everything. U.S. intelligence had intercepted secret conversations suggesting that China was running a crisp covert op- eration to funnel money into American politics. The reports raised the campaign fund-raising scandal to a new level of international intrigue: the possible villains now included not just Asian bankers like the Riadys, of Jakarta and Arkansas, but the Chinese government itself. The affair may still explode into a spy scandal that drives a deeper wedge between the United States and China. But far from being a team of crafty covert operators, says one top federal official familiar with the case, the Chinese look rather like ""the gang that couldn't shoot straight.'' NEWSWEEK has learned that the true nature of the plan seems to be a source of some confusion within Chinese ruling councils. After the stories first surfaced last winter, U.S. intelligence intercepted conversations from puzzled Chinese officials asking questions like ""What about this plan? Do we have such a plan?'' The picture so far, described to NEWSWEEK by knowledgeable officials, makes the Chinese intelligence apparatus look as paranoid and bumbling as, say, the CIA.

The Chinese have for many years sent spies abroad to buy or steal economic and technical secrets. But the attempt at political manipulation is new, at least in the United States. It is rooted in envy: Beijing has long wished to match the clout of the Taiwan lobby in Washington but lacked the finesse. Beijing was particularly incensed in the spring of 1995 when the president of Taiwan, Lee Teng-hui, was given a visa to speak at his alma mater, Cornell. No cause is dearer to Beijing than the dream of one day reunifying with Taiwan, which is regarded as a renegade province. So that same spring Chinese intelligence had to come up with a plan to gain influence in Washington.

In late 1995 U.S. intercepts began to pick up signs that Beijing was stepping up its efforts to sway Congress. In January 1996 Jiang Zemin gave a dinner in Beijing for three U.S. senators. The Chinese president played piano for Dianne Feinstein, talked space exploration with John Glenn and discussed geopolitics with Sam Nunn. Then, in the spring of '96, American eavesdroppers learned of a ""Ten Point Plan'' that apparently went far beyond schmoozing. The plan called for a propaganda campaign, including supporting Chinese-American newspapers. It also included $950,000 in what one investigator described as ""seed money'' to gain political influence.

The Feds speculate that the operation was held so closely that some ruling officials were kept in the dark - a not uncommon practice in top-secret intelligence operations. The Chinese equivalent of the CIA, the Ministry for State Security, does not seem to have a part in the plan; rather, an obscure agitprop arm of the Communist Party, the United Front Works Department, is apparently involved. The basic technique of the United Front, says a U.S. intelligence expert, is to ""hand over bags of money'' to Chinese living abroad for propaganda operations. According to federal investigators, the man the Chinese picked to be their ""West Coast representative'' is a little-known Indonesian entrepreneur named Ted Sioeng.

Sioeng, who owns some hotels and a run-down shopping mall, recently bought a small Chinese-language newspaper, which he changed from pro-Taiwan to pro- Beijing. Sioeng may have seen a way to make money while ingratiating himself with China. U.S. intelligence sources say he proposed that China give him a special license to sell export-only Red Pagoda Mountain cigarettes inside China - tax-free. He would then take a slice of the profits and use them to implement the influence campaigns. Sioeng's daughter, Jessica Elnitiarta, gave $250,000 to the Democratic Party -strictly her own money, say Sioeng's lawyers - and his in-laws and business associates kicked in $150,000 more. The FBI is now trying to prove that money from Beijing went to an American bank partly owned by Sioeng and ultimately into the campaign of California state treasurer and Republican Matt Fong. After NEWSWEEK reported this investigation last month, Fong returned Sioeng's $100,000 contribution. Sioeng's lawyer, Mark MacDougall, flatly denies that the money came from the Chinese government. ""Neither Mr. Sioeng nor Ms. Elnitiarta has ever been asked by the Chinese government or any of its representatives to undertake or fund any political activity in the United States.'' And the Feds have not yet conclusively established that Sioeng acted on behalf of the Chinese government.

It is puzzling why the Chinese might seek to use an obscure businessman to promote their agenda. The answer may be that Beijing wanted people it knew it could control. That, and the bureaucratic impetus that makes governments blunder the world over - the need, in a perceived crisis, to ""do something,'' or at least appear to.

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