The Case of Wang Feiling

How does mortgage-backed securities work?  You are a big bank and you have a large number of mortgage loans that you want to securitize in order to raise capital for immediate use.  But these loans covers the gamut in terms of quality: some have excellent payment records while others seem likely to default.  If you sell them separately, the buyers will pick the best ones and nobody will touch the bad ones.  So you offer your portfolio in tranches which usually contain a mix of the good and the bad.  You can mumble something about the Markowitz theory of portfolio selection and you can talk about optimal allocations based upon quadratic programming of mean-variance trade-offs.  But ultimately, you are doing this because you want to offload the bad stuff onto the buyers and you cannot do it on a standalone basis.

But this post is not about mortgage-backed securities.

From this Xinhua story, China tightens supervision over online news services:

Online news sites that publish stories containing fabricated information, pornography, gambling or violence are facing severe punishments or even shutdown.  These new measures were part of a new regulation on online news services, jointly introduced yesterday by the State Council Information Office and the Ministry of Information Industry.  "We need to better regulate the online news services with the emergence of so many unhealthy news stories that will easily mislead the public," said a spokesman with the information office at a press conference yesterday. 

Fabricated information?  Pornography?  Gambling?  Violence?  Who amongst us will defend our inalienable right to fabricate information? push pornography onto minors? etc.  No one.  So we must therefore applaud the new regulations from the State Council Information Office?  Hmmm ... wait a minute, I remember what they do in mortgage-backed securities -- they sell you the good along with the bad in a single package.  I wonder what is in the full package of regulations here.  Unfortunately, the Xinhua story does not tell you.  Something is rotten in the state of Denmark.

Thankfully, there are other places in which the regulations are listed in full but it is in Chinese.  The following graphic appeared in Hong Kong's Tai Kung Pao (note: a more complete document can be found at Xici Hutong).

[translation]  The new regulations state that the following contents are banned:

1. Acting opposite to the basic principles in the constitution
2. Endangering national security, leaking state secrets, subverting government authority, destroying national unity
3. Damaging national reputation and interests
4. Stirring up ethnic hatred and discrimination, destroying ethnic unity
5. Damaging national religious policies, promotion evil religions and feudal superstitution
6. Distributing rumors, disrupting social order, destroying social stability
7. Distributing pornography, erotica, gambling, violence, terrorism or inciting others to commit crimes
8. Insulting or slandering others, infringing upon the legal rights of others
9. Inciting illegal assembly, social groups, marches, demonstrations and mass incidents to disrupt social order
10. Acting under the name of illegal civil non-government organizations
11. All other contents prohibited by legal and administrative regulations

That gives you a very different idea of the package deal, doesn't it?  It was sold purely on the basis of items 6 and 7.  If you bought into the hype, you have inadvertently also bought into the rest of the package.

There is a lot to be said about this list, but I want to focus on one part of item 2 -- "leaking state secrets."  What is a state secret?  The correct answer is that NOBODY KNOWS -- it is whatever they say it is.  [Digression:  Do not think that this is limited to the Chinese.  See the Wiki entry for Lee Wen-ho in which the US government retroactively changed the downloaded file from its former designation of PARD (Protect As Restricted Data) to a new designation of Secret in order to have a crime.]

You have read quite a bit by this time.  Do you still remember that the title of the post is "The Case of Wang Feiling"?  And that name has not even been mentioned here.  But it turns out that his case provides an example of a state secret.

(Atlanta Journal-Constitution)  Tech reviews China links after spy flap.  By Shelia M. Poole.  August 11, 2004.

Fei-Ling Wang, an associate professor at the university's Sam Nunn School of International Affairs, was arrested July 25 in Shanghai and released Aug. 8, when he returned to the United States. Wang was in his native China as part of a student exchange program and decided to stay a few days after the program ended to conduct research and to visit family and colleagues.

Wang is barred from returning to China for five years, the Chinese Foreign Ministry said in a written statement. The statement said Wang confessed to "illegally possessing state secrets." But Georgia Tech officials denied that assertion, saying Wang "did not admit to anything."

In the September 2005 issue of Chinese News Monthly (print edition), Wang Feiling wrote about his ordeal, specifically about the state secret at issue.  Below is my summary.

Since 1996, Wang Feiling has been in charge of the summer program at Georgia Tech in cooperation with Renmin University in Beijing and Fudan University in Shanghai.  (note: see advertisement).  As part of that program, Georgia Tech also invites teachers from the two universities to visit the United States.  Usually, the process starts with a letter of invitation from Wang representing Georgia Tech.  In July 2004, Wang Feiling was at Fudan again for the summer program.  One of the Fudan University leaders told Wang that the Chinese government has different procedures for various types of people who wish to go out of the country.  Consequently, it would be easier if Wang could write the letters of invitation in a precise manner according to the background of the invitee.  The leader then handed Wang a piece of paper.  This is just a list of rules and regulations, and there is no indication of the issuing organization and it was not marked as secret.  So Wang put this away with his other papers.

On July 25, Wang was back in Shanghai.  But as soon as he arrived at the train station, he was arrested by plainclothesmen of the Shanghai National Security Bureau.  For days on end, Wang was interrogated repeatedly by teams of nameless officers.  They threatened Wang with ten years in jail, they wanted him to disclose his activities to endanger China and to confess his relationship with American intelligence departments (CIA/FBI/NSA).  But they also demanded and hinted to Wang that he "must" cooperate with them, to help them solve "problems of national security" and "understand certain things about the United States."  In other words, they wanted Wang to become their spy.  The letter from Fudan University was the only "evidence."  Wang had stored his luggage at his hotel on July 14 before leaving town and the security officers had examined the contents and found this piece of "state secret" document. 

Wang refused cooperate with his interrogators and eventually the US government came to inquire.  On August 8, Wang was released and then expelled.  On the release/expulsion notice, he was charged with "illegal possession of state secret documents."  Wang signed the document and appended the following: "I completely disagree with the charge as well as the disposition; I reserve my rights to appeal and to take the complaint to the public."

In mid-August, the Fudan University leader who gave Wang the document arrived for his visit at Georgia Tech.  He had not been jailed for illegally giving away state secrets.

Now we come to the even more interesting part of the story.  Why is a professor at Georgia Tech "a person of interest" to the Chinese National Security Bureau?  Why was it so important to turn him into a spy for China?  In the same issue of Chinese News Monthly, an old article by Wang Feiling was re-published.  This was about his teaching career prior to arriving at Georgia Tech's Sam Nunn School of International Affairs.  Again, I will summarize:

In 1991, Wang Feiling was about to receive his doctorate and began to look for a job.  One day, he got a call to interview for the position of assistant professor in International Relations and East Asia Politics.  No big deal, except the place was the United States Military Academy at West Point, where future army officers are educated and trained.  After the interview, he was offered a job and he accepted.

And then something happened.  It had never occurred to the West Point administrators that Wang was still a citizen of the People's Republic of China.  They were used to hiring people who are American citizens or else come from the NATO and Latin American countries.  Nevertheless, the administrators were willing to state unequivocally that he was the most qualified candidate among the more than 70 applicants and thus Wang became the first Chinese national to teach at West Point.  Wang Feiling was a 'person of interest' because he taught at West Point and his colleagues and students would in fact be the elite in the American military-industrial complex.  

If the Fudan University document was not there, they would have used something else.  And the broad language of the rules and regulations could and would cover everything and anything.  They would have nailed him for having a train schedule in his pocket.

Related reports on the new regulation on the online news services: