U.S. Investors Find Favor in Chinese Security

Chinese security and surveillance firms incorporating in U.S. to attract American capitalists

Li Runsen, the powerful technology director of the Chinese Ministry of Public Security, is best known for leading Project Golden Shield, China's intensive effort to strengthen police control over the Internet.

But recently, Li took an additional title: director for China Security & Surveillance Technology, a fast-growing company that installs and sometimes operates surveillance systems for Chinese police agencies, jails and banks, among other customers. The company has just been approved for a listing on the New York Stock Exchange.

The company's listing and Li's membership on its board are just the latest signs of ever-closer ties between Wall Street, surveillance companies and the Chinese government's security apparatus.

Wall Street analysts now follow the growth of companies that install surveillance systems providing Chinese police stations with 24-hour live video feeds from nearby Internet cafes. Hedge fund money has paid for the development of not just better video cameras, but face-recognition software and even newer behavior-recognition software. Lehman Brothers bankers have spoken alongside the Ministry of Public Security at lavish banquets in China for security officials flown in from all over the country.

Now, the growing ties between China's surveillance sector and American capital markets are starting to draw Washington's attention.

Tom Lantos, the California Democrat who is chairman of the House Foreign Affairs Committee, said he was disturbed by a recent report in The New York Times about the development of surveillance systems in China by another company, China Public Security Technology, which, like China Security & Surveillance, incorporated itself in the United States to make it easier to sell shares to Western investors.

Lantos called American involvement in the Chinese surveillance industry ''an absolutely incredible phenomenon of extreme corporate irresponsibility.''

He said he planned to broaden an existing investigation into ''the cooperation of American companies in the Chinese police state.''

Chinese executives say they are helping their government reduce street crime, preserve social stability and prevent terrorism. They note that London has a more sophisticated surveillance system, although the Chinese system will soon be far more extensive.

Wall Street executives tend to defend the industry as necessary for preventing street crime and keeping the peace at a time of rapid change in China. They also point out that New York has begun experimenting with surveillance cameras and that corporations make increasingly broad use of surveillance cameras everywhere from convenience stores to automatic teller machines.

''Is New York a police state?'' asked Peter Siris, the managing director of Guerrilla Capital and Hua-Mei 21st Century, two Manhattan hedge funds that were among the earliest investors in China Security & Surveillance.

Lantos and human rights advocates contend that surveillance in China poses different issues from surveillance in the West, because China is a one-party state where government officials can exercise power with few legal restraints.

Lantos is part of a Democratic congressional majority that is increasingly eager to confront China at a time of high Chinese trade surpluses and considerable economic insecurity in the United States. He is also a longtime ally of Nancy Pelosi, the speaker of the House and a fellow Californian, who first made her reputation in Congress as a passionate critic of China on human rights issues.

A White House spokesman, Tony Fratto, said he would not comment on specific companies, adding, ''It's not appropriate to interfere in the private decisions of Americans to invest in legally incorporated firms.''

The New York Stock Exchange said that it had no comment except to confirm that China Security & Surveillance was expected to list its shares on the exchange ''later this year, subject to the usual conditions, including approval by the SEC.''

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