PRE-LICENSE CHECK D355915 ZHEJIANG HESHENG

UNCLAS SECTION 01 OF 02 BEIJING 020070 SIPDIS SIPDIS USDOC FOR 532/BIS/OEA/TANDRUKONIS/LLAUCIUS USDOC FOR 532/BIS/OEE/JSONDERMAN/MOBRIEN USDOC FOR OIO/ADESSARAN STATE FOR EB/ESP STATE FOR EAP/CM SHANGHAI FOR FCS NSC/PROSTRAT US DEPARTMENT OF HOMELAND SECURITY FOR IMMIGRATION AND CUSTOMS ENFORCEMENT E.O. 12958: N/A TAGS: BEXP CH ETRD ETTC PREL SUBJECT: PRE-LICENSE CHECK D355915 ZHEJIANG HESHENG CHEMICAL CO. LTD REF: USDOC 3976 (07/10/06) BEIJING 00020070 001.2 OF 002 Unauthorised disclosure of the information provided below is prohibited by Section 12(c) of the Export Administration Act. ¶1. REFTEL requested a Pre-License Check end-use visit to determine the reliability of ZHEJIANG HESHENG CHEMICAL CO. LTD (a/k/a HE SHENG CHEMICAL) to receive controlled United States goods and technology. BIS license application D355915 lists ZHEJIANG HE SHENG CHEMICAL CO. LTD as the potential ultimate consignee of four heat exchangers that will be used to strip methyl chloride from a silicone process. These items are valued at $972,500, classified as ECCN 2B350 and controlled for chemical and biological warfare reasons. CARBON OF AMERICA, 540 Branch Drive, Salem, Virginia 24153 (540-389-7535) submitted this export license application. ¶2. On August 8, 2006, ECO requested that the Department of Mechanical-Electrical and High Technology Industries of the Ministry of Commerce (MOFCOM) arrange a pre-license visit to ZHEJIANG HE SHENG CHEMICAL CO. LTD in accordance with the Exchange of Letters on End-Use Visit Understanding. On August 24, 2006, MOFCOM scheduled this visit for August 31, 2006. ¶3. On August 31, 2006, ECO, accompanied by MOFCOM official ZHOU Quan; TAO Fei, Vice Division Chief, Division of mechanical and Electronic Products I/E of the Foreign Trade and Economic Cooperation Bureau of Zhejiang Province; and LU Jian Liang, Vice Division Chief, Foreign Trade and Economic Cooperation Bureau of the Jiaxing Municipal Government, conducted a site visit at the plant premises of ZHEJIANG HE SHENG CHEMICAL CO. LTD, Wai Huan Xi Lu (Outer Ring West Road),Jia Pu Economic Development Zone, Jia Xing Town, Zhejiang Province, China, and met with ZHOU Jun, General Manager; LI Wei, and other employees of the company. BAI Ju, Sales Coordinator, SHANGHAI ANGELINT CHEMICAL TECHNOLOGY CO. LTD also attended this meeting. ¶4. ZHEJIANG HE SHENG CHEMICAL CO. LTD also maintains a business office approximately three kilometres away at the Old Customs Building, 2/F, Ya Shan West Road, Jia Pu Exonomic Development Zone, Jia Xing Town, Zhejiang Province, China. ¶5. According to company literature and information provided by Mr. ZHOU, HE SHENG CHEMICALS was formed in August 2005 through a joint investment between NINGBO CIXI TIAN YI INVESTMENT CO. LTD (70%) and HONG KONG OU BO INVESTMENT COMPANY (30%),and began with registration capital of 135 million RMB. NINGBO CIXI TIAN YI COMPANY is part of the NINGBO HESHENG GROUP, which includes NINGBO HESHENG HATS CO LTD, CIXI ZHENGDE CO LTD, NINGBO SHIMAZU HESHENG CO LTD, NINGBO LUO NING SILICONE MANUFACTURING CO LTD., HANGZHOU XINXIN REAL ESTATE DEVELOPMENT CO LTD, HANGZHOU JIMEI REAL ESTATE DEVELOPMENT CO LTD AND NINGBO HESHENG MAGNETS CO LTD. The NINGBO HESHENG GROUP is headquartered in Chang He Town, Cixi City, Zhejiang Province, and was founded in August 1998. The Chairman of the Board of NINGBO HESHENG GROUP is LUO Liguo and the General Manager is LUO Liwei. ¶6. According to Mr. ZHOU, NINGBO LUO NING SILICONE MANUFACTURING CO LTD uses silicone to make silicone rubber for applications in consumer electronics and other products including wristbands as popularised by major sports and entertainment figures, e.g., Lance Armstrong's yellow "Live Strong" wristbands. (NOTE: The website for NINGBO LUO NING SILICONE MANUFACTURING CO LTD is www.in-silicons.com) NINGBO LUO NING SILICONE MANUFACTURING CO LTD needed a reliable supplier BEIJING 00020070 002.2 OF 002 of raw materials so the parent company, TIANYI INVESTMENT CO, formed HE SHENG CHEMICAL. HE SHENG CHEMICAL's only other prospective customer is GENERAL ELECTRIC, specifically GE-TOSHIBA JIANGSU NANTONG SILICONE MANUFACTURING FACTORY; however, a firm contract has not een signed nor has an order for product actualy been placed. Other possible customers include: ZHEJIANG JIANGSHAN FUSHITE CHEMICAL CO LTD, HANGZHOU JICHIDA ORGANIC SILICON CO LTD, SHENZHEN TIAN DING FINE CHEMICAL CO LTD, DONG GUANG NAN TAI INSULATION MATERIAL CO LTD, WUJIN HUA YU, HANGZHOU DALU CO LTD FINE CHEMICAL FACTORY, PINGHU UNITED CHEMICAL CO LTD, SHAOXING ZHEN TIAN CHEMICAL CO LTD, and HANGZHOU TRANSFER CHEMICAL CO LTD. ¶7. Mr. ZHOU stated that HE SHENG CHEMICAL will specialise in the following product areas: silicone oil, silicone resin, and silicone rubber. The factory is currently under construction and he is awaiting equipment, including the heat exchangers sought in this export license application, in order to complete construction. Mr. ZHOU expects to start operations in November 2006 with actual production commencing in January 2007. Mr. ZHOU anticipates annual output of approximately 4000 tons of room temperature and high temperature silicone rubber. HE SHENG CHEMICAL currently has 200 employees and Mr. ZHOU plans to hire up to 600 employees. Mr. ZHOU stated that all of the managerial staff have backgrounds in chemical engineering. ¶8. ECO toured the construction site with Mr. ZHOU and observed the area where the heat exchangers will be installed. The actual factory is being constructed by the THIRD CHEMICAL CONSTRUCTION COMPANY, which was selected through an open bidding process. HE SHENG CHEMICAL occupies a 400 "mu" lot and is building in two phases, with Phase 1 on 160 "mu". Additional construction will be considered after the completion of Phase I, and a construction company selected through another open bid. ¶9. RECOMMENDATION - FAVOURABLE. ECO notes that para. 13 of REFTEL (USDOC 3976) states "Interagency PLC request on commodities controlled for CBW reasons... There are also issues regarding the purchaser that should be resolved." It is unclear what issues require further resolution, and efforts to clarify this and interagency concerns were unsuccessful. Research by ECO did not uncover any ties to parties of proliferation or law enforcement concern. ECO found Mr. ZHOU and other company officials to be cooperative and forthcoming during the site visit, Mr. ZHOU also provided ECO with photographs of the HE SHENG CHEMICAL facility under construction, which can be made available to interested parties through direct request to ECO. Based upon the limited information provided in REFTEL and the information developed during the PLC, ECO recommends this company as a likely to be a responsible recipient of U.S. controlled items and technology. RANDT RANDT