By John Shiffman and Duff Wilson

OAKLAND, California (Reuters) – Agents from Homeland Security sneaked into a tiny office in Oakland’s Chinatown before sunrise on December 4, 2011. They tread carefully, quickly snapping digital pictures so they could put everything back in place. They didn’t want Philip Chaohui He, the businessman who rented the space, to learn they had been there.

Seven months had passed since they’d launched an undercover operation against a suspected Chinese arms-trafficking network – one of scores operating in support of Beijing’s ambitious military expansion into outer space.

The agents had allowed a Colorado manufacturer to ship He a type of technology that China covets but cannot replicate: radiation-hardened microchips. Known as rad-chips, the dime-sized devices are critical for operating satellites, for guiding ballistic missiles, and for protecting military hardware from nuclear and solar radiation.

It was a gamble. This was a chance to take down an entire Chinese smuggling ring. But if He succeeded in trafficking the rad-chips to China, the devices might someday be turned against U.S. sailors, soldiers or pilots, deployed on satellites providing the battlefield eyes and ears for the People’s Liberation Army.

Entering He’s office at 2:30 that December morning, the agents looked inside the FedEx boxes. The microchips were gone. The supervisor on the case, Greg Slavens, recoiled.

“There are a bunch of rad-chips headed to China,” Slavens recalls thinking, “and I’m responsible.'”

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