In the end COUNTRY1 was the United States government. They were selling secrets to the FBI and it went about as well as could be expected.

Because they don’t want to say CHINA

It seems unlikely. Reading the court paperwork it seems the FBI knew this was happening because COUNTRY1 told them.

There were many cases during the cold war of Russia turning in Americans who approached them with secrets, and probably vice versa.

There is too much of a risk that it is a counterintelligence operation to pass false information or uncover how they run their assets. A good source of intelligence is someone who is compromised (sex, debt, relatives overseas who can be threatened, etc) and can be blackmailed but smart and competent otherwise. Some idiot who walks into a foreign embassy saying they want to sell secrets will last about a week.