CHINESE PROVIDE CASE BRIEFINGS AND CRITICIZE U.S.

S E C R E T BEIJING 005361


E.O. 12958: DECL: 08/15/2027
TAGS: PREL PARM MNUC IZ IR IS LE KN CH

SUBJECT: CHINESE PROVIDE CASE BRIEFINGS AND CRITICIZE U.S.
SANCTIONS IN AFTERNOON NONPRO DIALOGUE SESSION

REF: A. BEIJING 2486

B. BEIJING 2485

C. BEIJING 5269

D. 06 BEIJING 14992

E. BEIJING 4643

F. BEIJING 5070

G. BEIJING 5138

H. 06 BEIJING 24237

I. BEIJING 4327

J. 06 BEIJING 6312

K. BEIJING 3603

Classified By: Political Minister Counselor Aubrey Carlson.
Reasons 1.4 (B) and (D).


1. (S) Summary: In an afternoon session of bilateral
nonproliferation talks August 13, MFA Arms Control and
Disarmament Department Director General Zhang Yan touted
China's actions on nonproliferation enforcement and
criticized U.S. sanctions on Chinese firms and our
"wide-scope" interpretation of relevant UN Security Council
resolutions. Zhang responded to ISN PDAS McNerney's call for
increased transparency and feedback on proliferation cases
with briefings on several outstanding cases. End summary.


2. (SBU) Principal Deputy Assistant Secretary for
International Security and Nonproliferation Patricia McNerney
met August 13 with MFA Arms Control and Disarmament
Department Director General Zhang Yan to hold the bilateral
U.S.-China Nonproliferation Dialogue. The morning of the
dialogue focused on regional issues (septel),the afternoon
on bilateral issues (reported here).

CHINA'S "CONCRETE" NONPROLIFERATION MEASURES
--------------


3. (S) "China firmly opposes any kind of proliferation,"
Zhang Yan stated at the outset of the afternoon session of
the dialogue. "We don't support, encourage or help any
country develop weapons of mass destruction (WMDs),and we
don't allow Chinese companies to do so." Supporting
nonproliferation is in China's interest and provides the
international peace, security and stability necessary for
China's continued economic development. Zhang highlighted
four measures China has taken on nonproliferation
enforcement: (1) China has established an "effective export
control legal system," including regulations on dual-use
products related to nuclear, biological and chemical weapons,
in the spirit of Nuclear Suppliers Group, Australia Group and
Chemical Weapons Convention standards. (2) China has
strengthened its interagency law enforcement mechanisms to
"intensify investigation capabilities" on specific cases.
(3) China has stepped up its enforcement of UN Security
Council Resolutions 1718 (North Korea),1737 (Iran) and 1747
(Iran) and has reached out to Chinese firms, educating them
on how to "strictly observe relevant clauses" of the
resolutions. (4) China has increased its international
cooperation on nonproliferation, responding to cases referred
by other countries, pursuing channels like the
Nonproliferation Dialogue, and taking an active role on
nonproliferation in the Security Council.

"OBSTACLES" IN U.S. NONPRO POLICY
--------------


4. (S) DG Zhang addressed U.S. nonproliferation policy,
citing "two aspects now creating some obstacles" for
bilateral cooperation. Unilateral U.S. sanctions are "not
helpful and not constructive," Zhang said, arguing that it is
"inappropriate to invoke U.S. domestic law or sanctions"
against entities in another country. U.S. sanctions have
affected 30 Chinese companies since 2001, hurting China's
industry and undermining China's own enforcement efforts, he
claimed. Zhang insisted it is not in the United States'
political or economic interest to continue to press for
coercive measures. He called for continued talks and
cooperation, saying China hopes to increase information
sharing through Embassy channels and expert-level exchanges
and welcomes Washington's "new track of increased dialogue"
with North Korea. The United States' "wide-scope"
interpretation of UNSC Resolutions on nonproliferation is
also a "major obstacle," Zhang said. All sides must accept
that the resolutions may not be perfect and some times
reflect "the lowest common denominator," but they are "a
consensus, produced through long negotiations" and must be
strictly interpreted to preserve their legitimacy and support
among all countries. Zhang said China shares U.S. concerns
and will not ignore issues we raise with them, but warned
against stretching resolutions' "words and spirit" in order
to fit our message.


5. (S) PDAS McNerney acknowledged our good bilateral
nonproliferation cooperation, but called for continued
progress toward a level of cooperation similar to that, for


example, between the United States and Canada, where a recent
proliferation case referred by the United States was
investigated, stopped and reported back within one month.
When PDAS McNerney reminded Zhang that continually expanding
export control lists is not enough to stay ahead of
proliferators, citing the catch-all provisions in UNSCR 1540
and in China's domestic law, Zhang replied that China's
domestic catch-alls are not as "clear cut" as the United
States claims. PDAS McNerney also called for increased
transparency and feedback on cases referred by the United
States, adding that better information on punitive actions
taken by PRC authorities might help avoid U.S. sanctions
against Chinese firms.

BRIEFINGS ON OUTSTANDING CASES
--------------


6. (S) AMBASSADOR'S APRIL IRAN REFERRALS: DG Zhang began his
discussion of open proliferation cases by referring to three
cases he said Ambassador Randt initially raised with
Assistant Foreign Minister He Yafei in April. Fuzhou Yihua
Chemical was seeking to export 900 tons of sodium perchlorate
to Iran's Parchin Chemical Industries (PCI) and had
previously exported 211 tons of similar chemicals to PCI in
October 2006 (ref A). The Ambassador also raised China North
Wanxing International Corporation, saying that the company
planned to export 200 tons of sodium perchlorate to Iran.
Zhang stated that China investigated the allegations and
found that both companies had entered into negotiations to
export these items, but no exports had taken place. Although
the export of this chemical is not prohibited, in light of
U.S. concerns, China persuaded the companies to stop the
exports, Zhang stated. Finally, the Ambassador raised the
case of Tianjin Honghua Trading Company selling three tons of
copper wire to Iran. China found that Tianjin Honghua is
actually an Iranian-owned company, not a Chinese one, and "we
are continuing our investigation," DG Zhang stated (ref B).


7. (S) LIMMT/Sunny Dalian: DG Zhang called LIMMT "an old
case" that the UK and Israel have also raised with China.
The company's owner is a former government official who later
entered into private business and has been using his old
government connections, Zhang noted. China found that LIMMT
has conducted activities in violation of export regulations.
Since 2003, China has detained four LIMMT consignments of
graphite being shipped to Iran and stopped "several attempts"
of illegal exports. In 2006, China "canceled LIMMT's
business license. Now the company cannot export graphite,"
Zhang said. The company had found loopholes, for example
sending small consignments below the licensing requirement,
but China responded by "stopping all of LIMMT's exports of
graphite" and introducing interim export controls on graphite
in September 2006. This brought about complaints from other
graphite exporters, Zhang said. In January 2007, China's
Ministry of Commerce (MOFCOM) decided to take punitive
measures against LIMMT. The company has appealed these
measures, and the case is now being reviewed. PDAS McNerney
noted that just the previous Friday, August 10, we raised
with the MFA further attempts by LIMMT to export potentially
controlled items (ref C). DG Zhang said the MFA is looking
into these allegations.


8. (S) ZIBO CHEMET: DG Zhang addressed Zibo Chemet (ref D),
which the United States raised with China in connection with
the export of glass-lined vessels to Iran in 2005. China
investigated the case and found that Zibo's activities were
in violation of Chinese export regulations. China is
"working on punitive measures" against Zibo and will inform
the USG when the measures have been implemented.


9. (S) HEBEI SMART: Zhang discussed the case of Hebei Smart,
which sought to export several tons of potassium bifluoride
to Iran. In March 2006, Chinese Customs authorities detained
a quantity of a chemical compound being shipped from the
company to Iran, Zhang said. After testing, Customs
determined that, despite being labeled as another substance,
the chemical was in fact potassium bifluoride. As the
company was attempting to export a substance controlled by
China without a license and under a false label, Chinese
authorities concluded the actions constituted a case of
smuggling. The chemicals were confiscated and Hebei Smart
was fined RMB 10,000 (approx USD 1,250),Zhang explained.
The case is published on MOFCOM's website.


10. (S) SHANGHAI TECHNICAL BY-PRODUCTS: Regarding U.S.
information that Shanghai Technical By-Products (STBP) is
working to transfer items such as magnesium powder, aluminum
powder, a hot isostatic press (HIP),vacuum hot presses and
stainless steel pipes to Iran, Zhang stated that the company
has never exported an HIP or aluminum powder to Iran (ref E).
He acknowledged, however, that STBP has exported one vacuum
hot press and four tons of magnesium powder to Iran, but he
claimed that these exports were "normal trade."



11. (S) On the interdiction of two consignments of
STBP-supplied electronic parts interdicted by the United Arab
Emirates (UAE),DG Zhang stated that the items were ordinary
cables not prohibited by the UN Security Council resolutions
and not controlled by China (ref F). China was not happy
with how the UAE or the United States handled the case; the
United States should have come to China about its concerns
first. Nevertheless, China was "thinking loudly" about a
resolution and still considering taking back the two
consignments, he said. (Note: In an August 6 meeting with
Staffdel Fite, ref G, Zhang stated that these two shipments
"clearly can not be permitted to go to Iran.")


12. DG Zhang noted the case of an Iranian company seeking to
purchase items from Chinese firm CPEI (ref H). After
investigating the case at U.S. request, China found an
agreement signed for a transfer of aluminum. China
determined that this was a widely available product used for
"housing and machines," but in view of U.S. concerns China
asked the firm to cancel the agreement.


13. (S) PAKISTAN TRANSFERS: DG Zhang noted that China had
investigated recent allegations by the United States of
transfers to an unsafeguarded nuclear program (ref I),which
he identified as Pakistan's, but found nothing to
substantiate them.


14. (S) UNSAFEGUARDED TRANSFERS: PDAS McNerney reminded
Zhang that the United States has now been waiting two years
for Beijing to approve the mutual legal assistance request we
provided to Hong Kong in 2005 on the transfer of U.S.-origin
Tektronix oscilloscopes to an unsafeguarded nuclear program
through Hong Kong and mainland Chinese entities. Zhang
replied that the Hong Kong Special Administrative Region's
processes were distinct from Beijing's and that it was his
understanding that Hong Kong authorities were still working
on "the format for cooperation." (Note: This response is
inconsistent with earlier dialogues we have had with Hong
Kong and the MFA on this matter. The United States was
previously informed by Hong Kong authorities that approval
from central authorities in Beijing is required before Hong
Kong can respond to the U.S. request. In December 2005, the
MFA indicated that the MFA Legal Department was reviewing the
request and would inform Embassy Beijing when a decision was
reached.)


15. (S) PDAS McNerney provided new information indicating
that the shipment of an aluminum production line to an
unsafeguarded nuclear program, which we first asked China to
prevent in January 2006 (ref J),was completed around March

2007. She expressed serious concern that this transfer is
inconsistent with China's obligation not to assist
unsafeguarded nuclear programs, highlighting that Chinese
citizen Gao Yiming would possibly travel to the unsafeguarded
nuclear program this month to provide on-site support and is
currently working to supply hydraulic fuel for operation of
the production line's extrusion press. Zhang claimed that
U.S. allegations regarding Gao were not substantiated by
Chinese investigations and that Gao had not engaged in
smuggling sensitive items to Pakistan. He pledged, however,
to look into the new information.


16. (S) DPRK-IRAN TRANSFERS THROUGH CHINA: PDAS McNerney
urged China to adopt more stringent checks on air shipments
between Iran and North Korea. She informed Zhang of U.S.
information indicating at least 10 shipments of jet vanes
transiting Beijing from the DPRK to Iran, and U.S.
expectation that these shipments would continue. In the
past, these sensitive technologies have been transferred in
Beijing from Air Koryo to Iran Air flights, she said (ref K).
She encouraged China to make more random spot inspections of
cargo on these flights and pledged to provide information,
when available, on specific shipments. She emphasized,
though, that random inspections of Iran Air cargos would be
useful to ensuring these shipments are detected. She
reminded Zhang of the transit of Iranian and DPRK
missile-related delegations through Beijing en route to
Tehran or Pyongyang, and encouraged Chinese efforts to
prevent such transit in keeping with UN Security Council
obligations. DG Zhang took the information on board and
promised to look into it, but made no commitments.


17. (U) PDAS McNerney cleared this cable.
RANDT


NNNN




End Cable Text