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A boy looks up as he walks past the closed coffee shop owned by Canadian couple Kevin Garratt and Julia Dawn Garratt in Dandong, Liaoning province, August 5, 2014.Ben Blanchard/Reuters

China has placed a Canadian couple it has accused of stealing state secrets under "residential surveillance," as Ottawa and Beijing trade espionage accusations that threaten to unsettle a critical trading relationship.

Kevin and Julia Garratt, who own a coffee shop near the Chinese border with North Korea, "are being well looked after" but are under "constant guard," a Canadian consular officer who visited them Wednesday morning told their son, Peter. The Garratts are under residential surveillance in Dandong, he was told, a term that typically refers to detention in a government-run hotel.

The meeting was the first contact made with the family amid a quiet but intense effort by Canada's diplomats in China to seek the couple's release. Wary of further inflaming the situation, Ottawa has said little about what it is doing, although Jason Kenney, Minister of Employment and a powerful member of the Conservative cabinet, said Wednesday that "Canada will vigorously defend and represent the interests of Canadians abroad, particularly if we conclude that Canadians have been unjustly detained."

The Chinese government has accused the couple of collecting and stealing intelligence "about Chinese military targets and important national defence research projects." It has said little else, leaving unanswered questions about what might have drawn the Garratts afoul of China's notoriously vague state secrecy law, which bans publication of information as seemingly innocuous as the birthdays of leaders.

But Chinese state media connected the couple's detention to displeasure over Canadian allegations that Chinese hackers broke in to computer systems run by the National Research Council.

"Canadian Prime Minister Stephen Harper publicly blamed Beijing this July for getting involved in hacker attacks. Such groundless accusations made him look like a noisemaker on Chinese Internet," the Global Times, a mouthpiece for the Communist Party, wrote in an unsigned opinion piece Wednesday.

"China has sufficient evidence to prove that foreign intelligence agencies engage in a large amount of espionage activities in China," Global Times said.

Observers pointed to the brief time lapse between Canada's spying allegations and the couple's detention – which came just a week later – and expressed doubt that is a coincidence.

"It's retaliation. The Chinese government can be like the Mafia in that it will try to coerce and intimidate," said James Lewis, the director of the Strategic Technologies Program at the Center for Strategic and International Studies in Washington who has spent years studying cybersecurity issues with China.

"China's still scarred by the Cultural Revolution," he said. "Absurd charges, fake confessions, show trials – it's how the [Communist] Party does business."

The allegations against the couple, who first moved to China in 1984 and have in recent years provided humanitarian aid to North Korea, have created an urgent diplomatic situation that, observers warn, threatens to worsen relations between Canada and China.

That may portend difficult times for Canada's ties with China. Though the relationship is broad and complex enough to operate independent of a diplomatic irritant, it is also vulnerable to political unhappiness.

The recent past has already brought a deepening Canadian skepticism of China, reflected in worsening public-opinion polls at home and a series of what Yuen Pau Woo, chief executive of the Asia Pacific Foundation of Canada, called "political setbacks." Those include the delayed ratification of an already signed foreign investment promotion and protection agreement and changes to foreign investment provisions that have been seen as singling out Chinese companies.

"China, in many ways, is being singled out for special scrutiny and treatment," Mr. Woo said.

While he praised the quiet diplomacy so far shown by Canada in the Garratts' case, Mr. Woo said a lengthy detention may undermine that careful stance.

"The longer they are detained, the more likely this issue will morph from a consular incident to a political rift that will be fuelled by anti-Canada sentiment in China and anti-China sentiment in Canada," he said.

The most recent example of a foreigner charged for violating Chinese state secrecy provisions saw Xue Feng, an American geologist, sentenced to eight years in prison, after spending years in detention. His crime: purchasing a database with information on oil wells in China. Intense lobbying by U.S. diplomats was unable to secure his release.

"I worry for the Garratts. The track record of detentions in China is not good," Mr. Woo said.

Because of the nature of the state secrecy allegations against them, family members have been barred from seeing their detained parents.

One of the couple's four children, Peter Garratt, was on Tuesday night summoned to an hour-long meeting with a Dandong representative of the State Security Bureau.

He was asked to bring goods for his parents, including Tylenol for his father, whom he believes is suffering the joint anxieties of coffee deprivation and stress over his situation. Peter emerged from the State Security Bureau feeling "more worried, just because I realized I won't be able to see my parents, at least for a little bit."

In addition to selling cheesecake, lattes and A&W root beer at their shop, the Garratts worked to bring food and equipment to North Korean orphanages and homes for the elderly. The couple, both Christians, also used their café to create community bonds that would enable them to share their faith, and hosted small Sunday morning services at their home.

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