Bush needles China as three are held in US on spy charges

The arrests will prove embarrassing for the Chinese government as President George Bush prepares to visit the country later this week on his tour of Asia.

Counter-espionage experts believe the leak of sensitive information over a 15-year period, including hundreds of thousands of documents relating to attack submarines, electromagnetic artillery and early-warning nuclear technology, is one of the most damaging breaches of national security ever to hit the United States.

A grand jury on Tuesday charged Chi Mak, 65, his wife and brother with acting as agents of a foreign government without prior notification to the US attorney-general, after a year-long FBI surveillance operation against the senior naval engineer.

The three had been arrested on 28 October on suspicion they were to board a midnight flight to the Chinese province of Guangzhou, Mak's birthplace, carrying electronically-encrypted data held on computer discs. Charges against Mak's brother's wife, also arrested, have been dropped.

Although charges of theft of government property, conspiracy and transporting stolen goods against the three were also dropped, US authorities said they seized sensitive documents on the DDX Destroyer project - known as the "destroyer of the future" - produced by the Naval Surface Warfare Centre. Documents relating to the Aegis battle management systems - the core of US navy destroyers and cruisers - were also seized.

China covertly obtained the Aegis technology and earlier this year deployed its first Aegis warship, code-named Magic Shield, intelligence officials have said.

US intelligence also believe that China can now track the movements of American submarines. They also charge that Beijing urged Mak to become a member of organisations where military information was exchanged.

Mak, who lives in the Los Angeles suburb of Downey, was the lead project engineer for Power Paragon, a subsidiary of L-3 Communications, a corporation which provides defence electronics to the US military. Mak's team developed covert quiet-propulsion systems for navy warships, and he had been granted clearance to access classified navy technology.

Defence lawyer Ronald Kaye, who represents Mak, said his client was innocent of all the charges.

The incident is bound to reverberate when George Bush, the US president, arrives in China on Saturday. Yesterday, while visiting Japan at the start of his tour, accompanied by his wife, Laura, he aimed to provoke China by holding up the self-governing island of Taiwan that Beijing claims as its own as a model of freedom "at all levels" that the communist giant should emulate.

"By embracing freedom at all levels, Taiwan has delivered prosperity to its people and created a free and democratic Chinese society," Mr Bush said.

Mr Bush also prodded the communist nation to grant basic freedoms to its 1.3 billion people and open its economy. "By meeting the legitimate demands of its citizens for freedom and openness, China's leaders can help their country grow into a modern, prosperous, and confident nation, " he said.

Mr Bush counts Junichiro Koizumi, Japan's prime minister, as his closest ally in the region and Japan is seen by the United States as a counterbalance to an emerging China. The president commented: "Prime Minister Koizumi is one of my best friends in the international community. I trust his judgment. I admire his leadership."

Commenting on the intelligence leak, Arthur Waldron, an expert on Chinese and naval affairs and a professor at the University of Pennsylvania, told The Scotsman: "It would be a great mistake to underestimate just how serious this is. The US has adopted a very benign view of Chinese activities in our country, and we are not equipped to deal with espionage. The number of Chinese in America is well over 100,000; if you figure that 98 per cent are who they say they are, that leaves a substantial number of people who could be involved with espionage.

"We know that the Chinese obtained [from the US] designs for nuclear warheads, also the Aegis project; and the propulsion issue is extremely serious.

"We're now starting to take notice; it will take a while to become more effective, but in the short run, this is going to become a serious issue between Washington and Beijing - we're not clear about their future military purposes, we know that they are involved in arming other states such as Burma, Korea, Pakistan, Saudi Arabia, Sudan and Cuba. With all sorts of connections both above the board and clandestine, this is potentially very serious indeed."