U.S. Agents Discovered a Nazi Spy Ring in China

When Capt. Frank Farrell and Staff Sgt. M.M. Gray parachuted into the Japanese-occupied city of Canton, China in August 1945, they weren’t quite sure what to expect. Farrell and Gray were from the U.S. Office of Strategic Servicesâ??—â??the precursor to the CIA. Their job was to make arrangements for the Japanese surrender.

The Japanese ultimately agreed to surrender without major incident. But as Farrell and Gray began gathering more intelligence and interrogating prisoners, they found something they hadn’t counted onâ??—â??God-damned Nazi spies, still working in China even after their own country had surrendered.

Farrell, a newspaper editor in civilian life, fell into the world of spies and espionage almost by accident. When war broke out with Japan, the military turned down Farrell, telling him he wasn’t healthy enough.

Luckily for him, he was friends with William Donovan, founder of the OSS. Donovan pulled some strings for Farrell, on the condition that Farrell return the favor some day. Farrel fought in the Pacific campaignâ??—â??until Donovan finally called in that favor.

After World War I, Germany lost all of its territory in China to Japan. But German businessmen, academics and missionaries continued to work in China, particularly in the coastal cities of Shanghai and Canton.

And for a decade, German military men played a huge role in the evolution of Generalissimo Chiang Kai Shek’s Nationalist Army.

From 1928 to 1938, German military advisers helped train nationalist troops. It was a complicated arrangement. The Treaty of Versaille made it illegal for German troops to operate outside their own country.

But the Germans found a loophole. Technically, all the German advisers were retired soldiers, working directly for the Chinese government as contractors —although in reality they still answered to the military brass in Berlin.

The Germans taught Chiang how to organize his army for fighting communist guerrillas and rival warlords. They trained officers and oversaw classes at military academies. Several formed close bonds with their Chinese pupils.

Some Germans even participated directly in the 1937 Battle of Shanghai, which pitted the Chinese against Japanese invaders. At the same time, though, Berlin was also warming up to Tokyo. Japan had, through industrialization and conquest, become a world power. Imperial Japan’s rapid ascendanceâ??—â??as well as its ruthlessly militaristic style of governmentâ??—â??impressed the Nazis, particularly Adolf Hitler and Herman Goering.

When the Japanese army seized the Chinese capital Nanjing, Hitler recalled the advisers. German business interests suffered in China and many coastal German expats still harbored pro-China sentiments. Hitler promptly replaced German diplomats who opposed Berlin’s pro-Japan shift.

Meanwhile, Chiang reestablished the Nationalist government in the Western city of Chongqing. In July 1941, Berlin recognized the Japanese-backed Chinese collaborationist government of Wang Jingwei, formally ending diplomatic ties between Nazi Germany and Nationalist China. Some German businessmen stayed and found ways to work with the Japanese and collaborationist Chinese authorities. The Third Reich also continued to operate a complex intelligence network that Germans had set up over the years in East Asia.

The head of the Nazi intelligence network in China was a former army colonel who went by many names—most commonly Ludwig Ehrhardt or Lothar Eisnetraeger. He worked out of the German embassy in Shanghai, posing as a diplomat. The Nazis had a sophisticated network of communications equipment and listening devices. They even had radios that could connect directly to Berlin from Canton and Shanghai.

In 1942, Germans agents in China intercepted American communications in the Pacific and managed to break U.S. Coast Guard codes. They sent the information back to Berlin, where naval planners plotted German U-boat deployments in order to disrupt U.S. operations in the Atlantic.

But Erhardt and his spies were also snooping on their Japanese allies. When Germany surrendered in May 1945, Ehrhardtâ??—â??fearing the Japanese might learn of their duplicityâ??—â??ordered his men to destroy all of their files on the Japanese military. Soon, orders came from the fatherland to cease hostilities.

But Erhardt had other ideas. He maintained his intelligence network in an effort to disrupt the ongoing Allied war effort. He and his agents actually boosted their cooperation with Japan. They apparently hoped the remnants of the Axis Powers might reverse the Allies’ advances and turn defeat into victory.

Or, at the very least, make the Allies pay the highest price possible for victory. As Farrell and Gray began surveying Canton in 1945, they became suspicious of German diplomats, who had far more sophisticated radio equipment than seemed appropriate. Other OSS agents who had interrogated German diplomat Dr. Erich Kordt in Japan found evidence that Germany’s intelligence network in Asia was far more extensive than the Allies had anticipated. Farrell briefed Chinese commanders on his findings. The Chinese government officially made him part of the Generalissimo’s team investigating war crimes. Though some of the Germans admitted to being spies, they insisted that they had stopped snooping the instant Germany surrendered.

But Farrell didn’t buy it. And if they’d disobeyed Berlin’s orders, as the Marine officer suspected, that made them rogue agentsâ??—â??and war criminals. During the course of their investigation, Farrell and Gray met Prof. Ernest Baron von Reichenau, a German scientist living in China. Things were about to get surreal. Reichenau was the brother of German Marshall Walther von Reichenau, a war criminal renown for his ruthlessness on the Eastern Front during World War II. He was responsible for the infamous “Severity Order” which called on regular army troops, not just the S.S., to exterminate Jews. The Reichenaus were a powerful family in Germany, making the professor privy to the inner workings of the Third Reich.

Despite his apparent status as an insider, Reichenau told Farrell and Gray that he left Germany in 1929 for China to distance himself from his fatherland’s toxic politics. But he continued working on behalf of German interests for much of his time in the Far East, as he recounted in a sworn statement to the two agents. The professor told the Americans that from 1930 to 1935, his brother was the German Ministry of War’s handler in Berlin for advisers in China. “My brother told me interesting items of his work that fascinated him,” Reichenau told the Americans. “When I was in China, we were in continuous correspondence.”

The professor had frequent dealings with the advisers. His appraisal of the mission was overwhelmingly critical. He claimed that Germany actively worked against the Chinese. According to him, German officials fed secrets to Japanâ??—â??whether the military advisers on the ground actually knew it. “Speaking of the men China trusts so much, I think that some were good men, but without exception drawn into the vortex of the German spy system,” Reichenau told the Americans.

He claimed that while Chinese forces fought Japanese troops during the 1932 Shanghai War, Germany’s then-chief adviser Gen. Georg Wetzell drank champagne with the Japanese defense attache in Beijing.

“By talking it out with the Japanese, I gave the Chinese time to run away,” Wetzell supposedly told Reichenau.

The professor explained that another adviser named Gripenkerl had told him over drinks that it would be great to pit Chinese northerners against southerners and attach German advisers and sell arms to both sides. Many of the advisers doubled as arms dealers, recommending the purchase of German arms to Chinese commanders. “Most of them had them had secret agreements with factories,” Reichenau said. “They did not instruct about subjects of military importance, what they could have done if truly independent as they claimed.” The professor said he reported some of the graft to Chinese generals, earning the ire of his fellow Germans, who reported him to Goering in Berlin.

Reichenau also told the Americans that the advisers’ reports ultimately went to Japan. All advisers were supposed to keep regular logs and records and send them up the chain of commandâ??—â??and then to Germany.

“These reports went condensed to my brother, who, in turn, handed them over to the Japanese military attache [in Berlin],” Reichenau said.

He recalled a visit from his brother, during which they met with Chiang and signed a pact with the generalissimo. Then, immediately afterward, they went to meet Emperor Hirohito to make a separate agreement with the Japanese. Reichenau claimed that by this time there were thousands of German advisers in Japan in addition to those in China.

“I decided that my honor did not allow for me to follow these ways of Germany,” the professor said. “I separated from my brother and left Germany for good.” The professor said he began secretly feeding information to American correspondents covering the Second Sino-Japanese War. He also became an informant for British intelligence. In 1938, he told British agents about a top secret German program to field a jet-propelled fighter plane that could fly faster than any other aircraft of the day. British intelligence deemed the report outrageous and ignored it. The first German jet fighters began flying combat missions against the Allies in 1944.

Farrell and Gray contacted their British counterparts in Hong Kong to confirm Reichenau’s story. The Brits told the Americans the German was legitimate. The two credit Reichenau extensively in their reports for the information he provided them with, as well as his role gathering intelligence for them.“He has given us reliable, and often almost sensational, information which would only be accessible to a man of his position,” Gray wrote in a report to their superiors. “He is at present continuing his work with us without regard to his personal safety of comfort.”

Reichenau wasn’t the only one. The Americans also occasionally mentioned in their reports a German informant by the name of Edgar Welsing, but said nothing of his background, position or actions … except that he helped. Ultimately, bringing down the network was a huge endeavor involving the work of several Americans, Chinese, Germans and Japanese. It proved to be a complicatedâ??—â??and dangerousâ??—â??task.

With the help of Chinese policeâ??—â??and secretly Reichenauâ??—â??the agents began investigating German diplomats and businessmen they suspected of being part of the network. But the investigators had to gather actual evidence of espionage before they could start rounding up German diplomatic staff.

Their first target was the Heise Bureau in Canton. The leader of the outfit was Erich Heise, Germany’s chief of intelligence for South China. He had formerly been one of the advisers to the Nationalist Army, in particular to generals affiliated with the New Gaungxi Clique.The Heise Bureau worked closely with Japanese intelligence, even at times sharing equipment and facilities. The Germans even used their equipment to intercept and analyze American communications during the Battle of Okinawaâ??—â??of which Farrell was a veteran.

They also kept tabs on Allied planes flying missions between China and India. Their network went far inland, even as far as Chongqing. Gottfried von Steinâ??—â??another former adviser to the Nationalistsâ??—â??was Germany’s man in Nationalist China’s wartime capital. Stein was a close friend of Heise and even married his ex-wife. Stein had his own team, including an agent with the code name “Stutner,” who held a job as college professor at a Chinese engineering college in Chongqing.

“[Stutner is] also a military adviser who, as late as 1943, had a special pass from the generalissimo,” Farrell wrote in a report.

Keeping tabs on air traffic in Chongqing wasn’t the only thing on the Heise Bureau’s agenda out west. They apparently had some far more elaborate schemes for operations inside China. “[Heise] was to effect a separate peace in Kwangsi [Guangxi] province and use it as a future base for underground activity, so that Germany could once again sail into the open sea under the cloak of Japan” Gray wrote.

But the Americans’ greatest adversary in their hunt for Nazis in Canton wasn’t any of the German ex-soldiersâ??—â??it was a seemingly harmless physician. Dr. Johannes Otto was the head of the Nazi Party in China. He’d lived in China for more than 20 years and had built a sizable network of powerful friends.“An influential figure in China, [Otto] has entrenched himself with the Chinese by becoming the adopted son of many families, adopting many sons himself, one of whom is a high-ranking officer in the Nationalist Army,” Farrell wrote.

Otto spoke fluent Chinese and was a practicing Buddhist. He was a hospital administrator and used his status to help get Nazi professors appointed to universities around China. The doctor also took advantage of his considerable wealth to fund Anti-American propaganda efforts. As Farrell and Gray closed in on Otto, they realized he was far more wily than they’d expectedâ??—â??“ruthless” and “fanatical” is how they described him. The Americans claimed in reports that men working on Otto’s behalf made no fewer than three attempts on their lives.

Farrell mentioned in his reports that there were also several burglaries at his apartment, as well as at the homes of their Chinese comrades and informants. The American agent said he suspected the break-ins may have been the work of assassins. “The influence of this man cannot be minimized,” Gray wrote. “He is the root and the others are the branches.”

Even after the Americans finally apprehended Otto, the intimidation continued. On Oct. 7, 1945, three Chinese men in Nationalist Army officer uniforms visited Farrell’s apartment while he and Gray were away in Hong Kong.

“[They] claimed that they objected to the arrest of Dr. Otto and that they were going to arrest and hold the people responsible for Dr. Otto’s internment,” Farrell wrote in a letter to U.S. Army brigadier general Harwood Bowman and Nationalist Army Marshall Chang Fa Kwei. In the same letter Farrell, mentioned that armed Chinese men had raided the home of an unspecified German national “suspected of providing us with information leading to the internment of Dr. Otto.”

The “bandits” tied up and gagged the German’s wife and houseboy and stripped the home of valuables. They also raided the German man’s papers and took all correspondence from the German consulateâ??—â??but conspicuously left all other documents. It’s unclear whether this was an attack on Reichenau, Welsing or some other unfortunate German national.

“I mention the above to stress how serious is this situation and how dangerous these people are,” Farrell added. “They have never stopped at anything before, and they are determined not to be hindered now.”

During the Americans’ trip to Hong Kong, Otto also tried to leverage his Chinese contacts to secure his release from custody. He might have succeeded had Farrell and Gray not learned of his plot upon their return to Canton.

As the Americans seized more documents and interrogated more prisoners, the scale of the Nazi spy network became apparent. The German prisoners were good at covering their tracks. But Farrell and Gray soon figured out that Japanese intelligence officersâ??—â??hoping to return home to their families across the South China Seaâ??—â??were more than happy to squeal on their allies’ activities.

The OSS men uncovered another spy bureau in Beijing plus evidence of German agents working in Macao. As they obtained more documents and arrested additional agents, the Americans relocated their headquarters to Shanghai. They had enough evidence to begin going after the Erhardt Bureau.

Eventually the U.S. agents, backed by Chinese troops, raided the German embassy and finally grabbed Erhardt. Unlike Otto, the master spy surrendered without a fight. In all, Farrell’s team arrested more than 20 German spies in Shanghai. Reichenau was among them. His arrest served to deflect suspicion, as well as allow him to continue gathering intelligence from prisoners. Gray and Farrell recommended to the OSS that Reichenau be brought in as an intelligence asset to be used in Germany.

But he wasn’t the only German the Allies deemed useful. Several of the German agents told Farrell and Gray that they intended to work with the Chinese Nationalists now that the Axis powers were no more.

It seemed many nationalist officersâ??—â??now preparing to resume their fight against the communists in the countrysideâ??—â??would have been more than happy to have their old advisers back.

Gray wrote in one report that a Chinese military officer visiting one of the prisoners in Canton apparently told the German that “we have no grudge against the Germans. When the Americans leave China, we shall release them all.”

Originally published in War is Boring.