In a first official comment on the case, which is said to involve two state-owned Chinese arms manufacturers, the assistant Attorney General, Jamie Gorelick, said that it was "a very serious matter" which the government would be following "very closely".
That, if anything, is an understatement. The seven individuals, American citizens as well as Chinese living in the US, are accused of illegally seeking to sell 2,000 Chinese-made fully automatic AK-47 rifles and other arms, worth $4m. Some of them are understood to be representatives of Norinco and Polytech, two Chinese arms-making companies with connections to the family of Deng Xiaoping, China's veteran senior ruler.
The ring was broken by a classic sting operation, in which agents of the Bureau for Alcohol, Tobacco and Firearms (ATF) posed as arms dealers interested in purchasing the weapons, and made a $400,000 down payment for a first shipment. Federal officials admit that the money is now irrecoverable, but they hope to more than make up for it by confiscating assets in the US owned by the two Chinese companies.
According to reports here, AK-47s and machine guns were by no means the end of the story, and the ATF would have preferred to let the sting operation run for several more weeks in the hope of drawing even bigger fish into their net. But word of the smuggling scheme had leaked to both the New York Times and Los Angeles Times newspapers, and the authorities felt that they had no choice but to move quickly, while their targets were in the US.
The New York Times said yesterday that the smugglers and the undercover ATF agents had held discussions involving more sophisticated equipment, including plastic explosives and hand-held anti-aircraft missiles. But it was unclear, the newspaper, said, whether the Chinese representatives could actually have delivered them.
Whatever the extent of the scheme, however, its discovery could not have come at a worse time, as ties between the US and China are under almost unprecedented strain on a host of different fronts - from human rights and trade to Taiwan and the alleged supply by Peking of nuclear weapons equipment to Pakistan and other countries.
Earlier this month, Warren Christopher, the US Secretary of State, decided not to impose punitive sanctions on China for exporting ring magnets - which can be used to build nuclear weapons - to Pakistan on the grounds that senior Chinese officials did not know about the sale.
That may not be the case on this occasion. According to court papers released as three of the seven accused were remanded in custody by a San Francisco judge last night, federal undercover agents were told three times by the smugglers that the Chinese government knew what was going on.
At the very least, the arrests can only set back hopes of resolving other disputes between the two countries, reducing the chances of establishing regular Sino-American summits and possibly reopening the annual argument here over extending China's most favoured trading nation (MFN) status.
Despite a growing trade row over copyright infringement which could see Washington impose punitive tariffs on $2bn worth of imports of Chinese textiles and electronic equipment by the middle of June, both President Bill Clinton and Bob Dole, his likely Republican opponent in November's presidential election, have been supporting renewal of MFN when it comes up for extension in 10 days' time.Reuse content