Economic spying case over China, chemical grows

By PAUL ELIAS, Associated Press

SAN FRANCISCO (AP) — The Chinese call it "Titanium white." And it does make many things white, from the inside of Oreo cookies to the paint on cars. Paper, toothpaste, plastics, cosmetics and just about any other commonplace item colored white includes titanium dioxide.

It's a $17 billion-a-year industry and no one makes the whitener better than DuPont, which has been in the titanium dioxide business for 70 years and controls 20 percent of the world market.

China can't get enough of the stuff and buys more from the West than it makes domestically. So, U.S. prosecutors say, Chinese Communist leaders decreed that duplicating — or obtaining — DuPont's manufacturing method was a national economic and scientific imperative.

As DuPont was unwilling to sell its method to China, the Chinese government stole it through a company it controlled called Pangang Group Co. Ltd., according to the diplomatically sensitive economic espionage case being laid out in San Francisco federal court.

"Pangang Group employees, in asking me to provide DuPont trade secrets to them, overtly appealed to my Chinese ethnicity and asked me to work for the good of the PRC," longtime DuPont engineer Tze Chao said in a plea agreement signed earlier this month, referring to the People's Republic of China. Chao, 77, is the first of five people charged in the deepening case to plead guilty. He worked at DuPont from 1966 to 2002.

Chao is now cooperating with investigators, who say a California couple Chao worked for are at the center of the case. Another former DuPont scientist, the Pangang company, and one of its executives are also charged in an indictment unsealed recently in San Francisco.

All are accused of economic espionage, and a conviction for the company or the executive could spell hefty fines that the U.S. government can use to freeze or seize assets in the U.S. The executive could also lose the ability to travel to the U.S. and countries that have extradition agreements with the U.S. Lawyers for the Chinese company say they will seek a dismissal.

Prosecutors allege China used purloined technology to build the only factory inside China known to be producing titanium oxide the DuPont way, which uses chlorination rather than the sulfate method. DuPont's patented manufacturing method, while still dangerous, dirty and complicated, is nonetheless still cleaner and quicker than the outdated production method employed by the other Chinese factories.

Federal prosecutors say Walter Liew and his wife Christina Liew launched a small California company in the 1990s aimed at exploiting China's desperate desire to build a DuPont-like factory. The couple recruited former DuPont scientists with the single-minded goal of winning Chinese contracts.