STRATFOR.COM's Global Intelligence Update - 31 March 2000

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Today, Stratfor.com examines an unusual episode: the seizure of
Soviet-era armored personnel carriers in the port of Hong Kong. If
you have any light to shed on this incident, Stratfor.com invites
you to talk with us, merely by clicking on this link.
http://www.stratfor.com/feedback.asp
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STRATFOR.COM Global Intelligence Update
31 March 2000

Hong Kong Seizes Armored Vehicles Bound for China

SUMMARY

Hong Kong customs officials announced on March 30 the seizure of
five Soviet-era BTR-70 armored personnel carriers (APC) being
smuggled onto the mainland. The armored vehicles were discovered on
board a ship sailing from Naples, Italy to Tianjin, with stops in
Haifa, Israel and Singapore. There are several intriguing aspects
to the attempted smuggling and seizure of the vehicles. Though the
exact purpose remains unclear, Stratfor.com found that the ship's
operator is in fact a Beijing shipping company with close links to
the People's Liberation Army.

ANALYSIS

Hong Kong customs officials announced on March 30 the seizure of
five Soviet-era BTR-70 armored personnel carriers, allegedly bound
for Tianjin municipality, which borders the municipality of
Beijing. The armored vehicles were impounded, as they did not have
the proper import license for strategic commodities, according to
news reports. While on the surface it appears to be a simple case
of Hong Kong blocking the illegal transshipment of military
hardware, several aspects of the incident present intriguing
possibilities.

While the details remain unclear, the seizure is obviously
significant. At the extreme, it could signal preparations for an
attempted rebellion against Beijing, or a move by Hong Kong to
assert its autonomy from Beijing. It could also represent a failedattempt at secret arms transfers through Italy to North Korea, a
simple crackdown on an already controversial shipping company or a
move by local Tianjin or Shanghai businesses to create their own
private security forces.

According to Hong Kong reports, the BTR-70s arrived in Hong Kong at
8 p.m. local time March 29 on board the Xibohe, a Panamanian-
registered container vessel. The armored vehicles, reportedly sold
by a Ukranian company to a mainland Chinese firm, sailed on board
the Xibohe from Naples, Italy on March 10. The ship stopped in
Haifa, Israel and Singapore before arriving in Hong Kong. The ship
was apparently to travel from Hong Kong to Xingang, Tianjin and
then to Shanghai.

Customs agents found the BTR-70s when one was discovered already
unloaded from the ship at 2 a.m. on March 30; the other four
remained in plain sight on the deck. None of the armored vehicles
were equipped with weapons, and no other military equipment was
found on board the Xibohe, according to reports.

This is not the first case of Hong Kong seizing an armored
personnel carrier being shipped through its port facilities. In
August 1997, just a month after Hong Kong was reunited with
mainland China, Hong Kong authorities impounded a Chinese-made
WZ551 armored personnel carrier that had been on display in
Thailand. The manufacturer, North China Industries (Norinco), had
attempted to ship it through Hong Kong to its factory in China's
southern Guangdong Province without the proper papers. In February
1999, Hong Kong Chief Executive Tung Chee-Hwa denied the company's
requests for the return of the APC.

The most recent incident comes less than a month after U.S.
Undersecretary of State for East Asian Affairs Stanley Roth met
with Tung in part to discuss efforts to end arms smuggling through
Hong Kong. Following the announcement of the seizure of the five
armored personnel carriers, a spokesman for the Hong Kong Customs
and Excise Department told reporters, "The discovery...proves that
Hong Kong is totally committed to the implementation of an
effective and comprehensive strategic controls."

While Hong Kong is portraying the seizure of the BTR-70s as a
demonstration that it will not allow any form of smuggling,
particularly arms shipments, there remain two important questions:
who was importing the BTR-70s, and why? Ronald Au Yee-Leung, head
of Hong Kong Customs Ship Search and Cargo Command, refused to
identify to the press the operator of the Xibohe, telling the HongKong Standard only that it was "a well-established company ... not
known to be involved in military transportation." In an interview
with Reuters, he again refused to name the shipping company.

Upon investigation by Stratfor.com, however, the ship's operator
was found to be COSCO Container Line Agencies Limited, a Hong Kong
branch of China Ocean Shipping (COSCO). COSCO is in fact a Beijing
shipping company with close links to the People's Liberation Army
(PLA). While Au refused to name the operator of the Xibohe, he did
nothing to hide the name of the ship, making it easy to discover
who was behind the shipment. Further, speaking to Reuters, Au said
the seizure of the armored vehicles followed "a long period of
collecting intelligence and analysis," but added the attempted
import of the vehicles was not likely related to arms smuggling
syndicates.

With the PLA linked to the incident, the second question arises.
Why? China's military does not operate BTR-70s, nor any other
eight-wheeled armored personnel carriers.

However, a Russian State company, Promexport, signed deals in 1999
worth tens of millions of dollars with several nations, including
China, to export Russian army surplus equipment. Among the products
Promexport marketed were BTR-70s - though there is no verification
these were directed toward China.

Further, if these APCs were part of an arms shipment from Russia,
why send them through Ukraine and Italy - only to finally bring
them into Hong Kong without the proper papers? It is possible,
though unlikely, that the shipment was to a specific rogue PLA unit
that was potentially disloyal to the government, but the equipment
seems woefully inadequate for such a move. Further, amassing
sufficient firepower to stage a successful assault on Beijing is
hard to keep a secret.

Another possibility is that the shipment was meant to stop only
briefly in China and was part of an illegal arms transfer to North
Korea, or another country. North Korea already operates the
predecessor to the BTR-70, the BTR-60. If this is the case, the
plan merely went afoul amidst Hong Kong's increased crackdown on
smuggling.

The seizure of the BTR-70s may also have been a move against Cosco
itself, part of the struggle being waged within the government.
Cosco's Chairman, Chen Zhongbiao, was reportedly briefly arrested
in Beijing in 1999, shortly after the Chinese State Council, headedby Prime Minister Zhu Rongji, launched an investigation into
Cosco's business dealings.

The stop in Haifa, the center of Israel's arms industry, suggests
another possibility - that the vehicles were just a decoy for more
important military weaponry smuggled in from Israel. China and
Israel have a long-standing relationship of arms deals, many
protested by the United States.

A final option is that the discovery of the vehicles was
intentional, meant to placate Washington. It could have been a
planned operation meant to signal that Hong Kong is indeed
successful at stopping the transshipment of military supplies. This
option, however, raises its own questions. Was it a joint Beijing-
Hong Kong operation or was Hong Kong operating on its own?

Can you shed light on this incident? If so, please contact us by
clicking on this link. http://www.stratfor.com/feedback.asp

(c) 2000, Stratfor, Inc. http://www.stratfor.com/

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