FEDERAL STING NETS 8 ARRESTS IN CHINESE ARMS SMUGGLING CASE.

Byline: David E. Sanger The New York Times

Federal agents Wednesday began searching out and arresting representatives of two of China's state-owned arms companies on charges of smuggling 2,000 AK-47 fully automatic rifles into the United States, ending a 16-month-long sting operation that is likely to further complicate Washington's quickly deteriorating relations with Beijing.

As more than 90 federal agents fanned out across the San Francisco Bay Area late Wednesday to seize the $4 million in weaponry and to arrest at least eight suspects - American citizens and Chinese visiting or living in the United States - federal officials in Washington said the case marked the largest seizure of smuggled automatic weapons in American history.

But they conceded that they had moved in on the two Chinese companies, China Northern Industrial Corp., also known as Norinco, and Polytech, a related company that manufactures weapons for the Chinese military, earlier than they had hoped. As a result, they said they were not able to lure at least one important Chinese official to American shores.

A senior federal official said Wednesday night that ``some arrests have been completed,'' but he declined to say how many. ``It is a very fluid situation,'' he said.

For months agents of the Bureau of Alcohol, Tobacco and Firearms have been posing as arms traffickers, nurturing along a deal with the Chinese that centered on the AK-47s, but also involved discussions of far more powerful weaponry, the export of which has become a big business for the Chinese government, and in some cases, corrupt officials.

``There were discussions of some very sophisticated systems that the Chinese said they could provide,'' one official familiar with the investigation said Wednesday night. ``They ran from hand-held anti-aircraft missiles, to explosives, to lots of other devices.''

But the arrests took place before the agents had time to negotiate over larger systems, and it is unclear whether the suspects could have delivered them.

The seizures and arrests are being carried out by the Treasury Department's Bureau of Alcohol, Tobacco and Firearms and the U.S. Customs Service. But federal officials gave only scant details of their investigation Wednesday night, saying that they did not want to interfere with the arrests.

A lengthy court complaint detailing the sting operation, which may have also involved discussions of imports of heavy weapons to the United States, is likely to be unsealed in federal court in San Francisco today.

Officials said they focused on the companies because they have evidence that they had previously smuggled other weapons into the United States.

The arrests come at an enormously sensitive time in dealings with the Chinese government, and could add another complication to President Clinton's effort to persuade Congress to renew China's preferential trading status with the United States.

Just Wednesday, Defense Secretary William Perry said that the United States had uncovered evidence that China was attempting to buy SS-18 nuclear missile technology from Russia, and that Washington was intervening in an effort to discourage the sale.