China Asks U.S. to Lift Sanctions on Arms Proliferators, Iran Traders

Also asks for loosening of controls on civilian-military space and defense technology, hardware

October 4, 2013

China is asking the Obama administration to lift sanctions on five Chinese state-run companies that were hit with U.S. sanctions in the past for arms sales and other illicit transfers to rogue states.

According to Obama administration officials, the request to lift sanctions on the five companies was made within the past two months by the Chinese Ministry of Commerce as part of preparations for an upcoming meeting of the U.S.-China Joint Commission of Commerce and Trade. The next commission meeting will be held in November or December.

Other Chinese demands outlined in a wish list from China included loosening controls on U.S. exports of dual-use, civilian-military space and defense technology and hardware.

China also wants the lifting of sanctions imposed by Congress following the deadly 1989 military crackdown on protesters in Beijing’s Tiananmen Square and the transfer of U.S. helicopters engines.

China also wants a loosening of controls on satellite exports and launches that were tightened in the 1990s after two U.S. companies provided space know-how that was used by China to improve the reliability of its ballistic missiles

The Chinese companies Beijing wants off the U.S. sanctions list include Polytechnologies, Inc., China Precision Machinery Import/Export Corporation, the China North Industries Corp., known as Norinco, Kunlun Bank, and Zhuhai Zhenrong Co.

Classified State Department cables made public several years ago provide new details on the illicit activities of the Chinese companies.

Polytechnologies was sanctioned in 2013 for selling arms to Iran.

However, Polytechnologies was identified by the U.S. government in 2008 as a company engaged in illicit diversion of U.S. bomb technology to China, specifically, cooperation between China and Pakistan to upgrade the Pakistan military’s U.S.-made MK-82 and M-83 precision guided bombs.

The company was also linked to a plot in 1996 to smuggle Chinese-made AK-47 assault rifles to Los Angeles street gangs.

A June 2008 cable said Washington had obtained details of the deal between Pakistan, China, and Ukraine that may violate U.S. arms sales laws.

"A change in end use of U.S.-provided technology, such as incorporating U.S.-provided technology in the domestic manufacture of MK-80 series iron bombs for the purpose of export, may require authorization under the [Foreign Assistance Act] or [Arms Export Control Act]," the cable said.

"If you proceed with the transfers, the USG might consider this a violation of Pakistan's retransfer obligations. … We urge you to investigate these transactions and halt any transfers from taking place and refrain from changing the end-use of U.S.-furnished technology without appropriate U.S. authorization."

The company in 2008 was the subject of U.S.-China discussions regarding Polytechnologies’ role in falsifying end-user documents in exporting missile goods to Pakistan, specifically a coil winding machine and integrated optical chips. The goods were sold to a procurement agent for Pakistan’s Air Weapons Complex that developed nuclear weapons delivery systems, cruise missiles, and unmanned aerial vehicles.

"We believe this equipment will likely be used by AERO to support missile-related projects in Pakistan," said a 2009 cable.

Polytechnologies also sold Pakistan fiber optic gyroscopes used in missile guidance, and supplied telecommunications gear used in missile systems, the documents reveal.

France also linked Polytechnologies to plans to sell Pakistan a production plant to produce chemical weapons, including nerve agents Sarin, Soman, and VX Chemical Weapons.

The company CPMIEC has been linked by the U.S. government to sales of high-technology weapons to Iran and Pakistan and chemical arms to Syria.

According to a classified 2006 cable, the U.S. government told China that CPMIEC was working with Syria to sell chemicals used in chemical weapons.

The companies involved included CPMIEC, Shanghai Abochem Chemical Company, and Chembay. A Chinese official said Beijing was investigating the chemical weapons-related transfers.

The company was sanctioned in the past for boosting Iran’s missile program. CPMIEC covertly sold goods to Iran’s Aerospace Industries Organization through a Malaysian bank during the mid 2000s.

It also provided a wind tunnel to Pakistan used in missile development. "We believe Pakistan may intend to use this wind tunnel, which is controlled by the [Missile Technology Control Regime], to support missile-related research and development in Pakistan," one cable said.

CPMIEC in 2007 also sold specialty steel for rockets to Syria that could be used to build rockets for the Lebanese terrorist group Hezbollah, another cable said. It sold surface-to-air missiles to Iran in 2007.

Additionally, CPMIEC, along with several other Chinese firms, sold weapons of mass destruction goods and missile items to Iran.

CPMIEC sold Iran’s Mehr Engineering equipment used in solid-fuel Fateh-110 short-range Shahab medium-range missiles in 2006.

Norinco, China’s largest arms exporter, was sanctioned by the U.S. government during the early 2000s. The sanctions lapse in 2007. It has been linked to arms smuggling by China into Burma, and missile sales to Iran, according to the cables. The company also sold explosives to Syria.

The Kunlun Bank was sanctioned for conducting financial transactions with sanctioned Iranian banks. The sanctions were imposed under the 2010  Comprehensive Iran Sanctions, Accountability, and Divestment Act .

The Zhuhai Zhenrong Corp. was hit with sanctions in 2012 for its oil trade with Iran. The company has been identified as the largest supplier of refined petroleum products to Iran.

It was sanctioned for selling $500 million in gasoline to Iran in 2010 and 2011. The sanctions prohibit the company from obtaining export licenses.

Zhuhai Zhenrong is a state-owned entity under the Central military Commission of the Chinese military, according to the congressional research service.

The Chinese told U.S. officials that the sanctions on the five companies should be lifted as part of "requirements" from the fifth round of the U.S.-China Strategic and Economic Dialogue held in July in Washington.

Chinese officials asserted that the United States agreed to provide fair treatment to Chinese companies operating in the Untied States.

--Assistant Editor Adam Kennedy contributed to this report.

Published under: China , Iran