The Next China Battle

It was like darkness at noon on Capitol Hill, suggested one executive. He was taken to a windowless basement office. It was stuffy. There was no water. Seated in a corner, sweating, the man says, he faced a dozen interrogators and veiled threats of subpoenas if he didn't tell them what he knew about his China business. The mood, he says, "was like a criminal investigation. It was not a search for the truth. It was a search for the guilty."

The accused, it should be noted, was not a spy. He was a senior executive at one of the nation's leading computer companies. The questioners were FBI agents and staffers working for Christopher Cox, a respected California Republican. Cox, like many in Congress, takes a dim view of U.S. "engagement" with China, an issue that dogged Secretary of State Madeleine Albright's visit to Beijing last week. Cox heads a special House committee looking into the transfer of sensitive technology to China. After an eight-month probe, he plans to issue a 700-page report by the end of the month that will conclude that China has been systematically stealing U.S. nuclear and military know-how since the 1980s. For U.S. manufacturers of high-performance computers, satellites and other "dual-use" goods--advanced technology with possible weapons applications--the fallout could be dire. "When the lid comes off the Cox report, there's going to be an explosion of [public] outrage," warns Dana Rohrabacher, a conservative Republican from California. A Senate committee is expected to release similar findings soon. And the main victim of this new anxiety over national security may well be America's computer-export market--especially for supercomputers.

Why supercomputers? NEWSWEEK has learned that the main thrust of the Cox report will not be the transfer of satellite and missile capability--the issue that prompted the probe last June--but theft from U.S. nuclear labs. In the mid- to late '80s, Chinese operatives allegedly gained knowledge of the top-secret W-88 nuclear warhead. Supercomputers can help transform such nuclear secrets into state-of-the-art weapons--in the case of the W-88, by miniaturizing the warhead so that several can fit on a single missile. Sources close to Cox say he is also worried that China and other potentially unfriendly nations will use supercomputers or "superclusters" of high-end computers to do "virtual" nuclear testing. That would allow them to evade the Comprehensive Test Ban Treaty.

For Silicon Valley, the timing couldn't be worse. While the Republican Congress may toughen export controls, the industry is about to start a major lobbying effort to loosen them. The newly formed Computer Coalition for Responsible Exports, a group of major companies including IBM, Intel and Sun, argues that controls are already obsolete. Chip power is surging so fast that a juiced-up PC runs as fast as a supercomputer could just a year ago. Example: on March 1, IBM announced a new business PC, Intellistation. Its two Pentium III chips will put it above the threshold (2 billion operations per second) requiring a supercomputer export license to potential military users in "Tier 3" countries--including nuclear powers like China and Russia.

That portends commercial disaster, executives say. An industry report coming out next week says that some 300 new machines a day will need export licenses, overwhelming federal regulators who now handle just over that number in a full year. "The system will collapse," says Dan Hoydysh of Unisys. Adds Richard Lehmann, a spokesman for IBM, "If we end up in a situation where 40,000 licenses are dumped at the Commerce Department, we're going to be out of markets." And now Cox wants to slow exports further by requiring China to permit surprise inspections in addition to "end-user certificates" asserting that computers aren't going for military purposes. On Friday a senior Chinese official angrily called the Cox report's allegations that Beijing stole U.S. tech secrets "an insult."

Computer executives point out that supercomputers are now built worldwide. And most experts say actual nuclear-test data is needed to reliably upgrade arsenals. "I'm afraid my Republican friends want to create a hysteria that vastly exaggerates what the Chinese threat is," says the Cox subcommittee's ranking Democrat, Norm Dicks. Cox himself denies that he's looking for a crackdown on computer exports. "All of the committee members are far more sympathetic to industry concerns than we have been able to express while the report remains classified," he says. Cox says he's mainly for streamlining export controls so that only the most sensitive devices are closely monitored. Maybe so. But while the debate between Congress and the Clinton administration drags on, there will be more interrogations--and far fewer computer sales.

Sales at Risk

The latest high-end computers could run afoul of
controls on exports to China.

U.S. EXPORTS TO CHINA OF COMPUTERS
AND COMPUTER ACCESSORIES,
IN MILLIONS OF DOLLARS


1994 $240
1995 317
1996 264
1997 344
1998 879


SOURCE: BUREAU OF THE CENSUS,
FOREIGN TRADE DIVISION