[PRE-LICENSE CHECK: D372172: TIANJIN QIANGYING

S E C R E T SECTION 01 OF 04 BEIJING 005504 SIPDIS SIPDIS COMMERCE FOR 532/BIS/OEA/TANDRUKONIS/LLAUCIUS COMMERCE FOR 532/BIS/OEE/JSONDERMAN COMMERCE FOR 532/BIS/OEA/EROSENKRANTZ COMMERCE FOR 532/BIS/EA/BKRITZER/MRITHMIRE COMMERCE FOR OIA/ADESSARAN/WZARIT DEPT OF HOMELAND SECURITY FOR IMMIGRATION AND CUSTOMS ENFORCEMENT NSC/PROSTRAT SECSTATE FOR EAP/CM SECSTATE FOR EB/ESP E.O. 12958: DECL: 08/20/2017 TAGS: BEXP ETTC ETRD CH SUBJECT: [PRE-LICENSE CHECK: D372172: TIANJIN QIANGYING MACHINE ELECTRON TECHNICAL RESEARCH CO. LTD REF: A: USDOC 3588 (04/18/07 B: ROSENKRANTZ/CHU E-MAIL (06/1/07) Classified By: Jeannette L. Chu, Export Control Attache, for reasons 1. 4 b/h. ¶1. (U) Unauthorised disclosure of the information below is prohibited by Section 12(c) of the Export Administration Act. ¶2. (U) REFTEL A requested a Pre-License Check (PLC) end-use visit to determine the reliability of TIANJIN QIANGYING MACHINE ELECTRON TECHNICAL RESEARCH CO. LTD ("TIANJIN QIANGYING" or "TJQY") to receive controlled United States goods and technology. BIS License Application D372172 lists TIANJIN QIANGYING as the potential ultimate consignee of a MOCVD system valued at $2,030,000, classified as ECCN 3B001 and controlled for national security reasons. ¶3. (U) On April 23, 2007, ECO requested that the Ministry of Commerce, Department of Mechanical, Electrical and High Technology Industries arrange a Pre-License Check to TIANJIN QIANGYING in accordance with the Exchange of Letters on End-Use Visit Understanding. On June 11, 2007, MOFCOM confirmed scheduling this PLC for June 12, 2007. ¶4. (U) On June 12, 2007, ECO, accompanied by MOFCOM official WEI Jie and LI Shenggong, Tianjin Commission of Commerce, conducted a site visit at TIANJIN QIANGYING, Tianjin Economic Development Area (TEDA),Tianjin, China, and met with ZHAO Qiang, SU Junying and JIA Haiqiang. ¶5. (U) Mr. ZHAO stated that beginning in 1980, he worked at the now-defunct TIANJIN CASTING RESEARCH INSTITUTE. In 2000, he started his own company, TIANJIN QIANGYING, specialising in making aluminum and metal alloy products. Mr. ZHAO stated that he holds several patents for aluminum alloys and showed ECO plaques from various governmental authorities granting his patents. TIANJIN QIANGYING began operations as a small factory using rented space in the HeXiQu section of Tianjin and eventually gained ISO 9001 certification. Currently, TIANJIN QIANGYING has three investors, Mr. ZHAO as a primary investor, and TIANJIN BIN FU JIAN SI (a local construction company, and Ms. SU Junying (COMMENT: In a side-bar discussion, Ms. SU stated that her background is as a physical education teacher specialising in tennis and volleyball. When ECO asked how she came to be an investor in TJQY, Ms. SU claimed to have a personal interest in semiconductors. ECO did not find this to be a credible response given Ms. SU's demeanor throughout the site visit and complete lack of interest and knowledge of semiconductor nomenclature in either Chinese or English. END COMMENT). In 2004, Mr. ZHAO purchased 60,000 sq. mtrs. of land in TEDA and began to plan construction of a purpose-built factory. Mr. ZHAO stated that Phase I is two buildings, to be followed by another building that will house a clean room (to be completed by Q3 or Q!4),with final construction to be completed in 2008. ECO observed that the current facility consists of two buildings; one that appears to have small machining centers in the process of installation and the other still under construction and vacant. Mr. ZHAO stated that TIANJIN QIANGYING will continue to manufacture aluminum alloy components at this new location and confirmed that the existing buildings and equipment observed by ECO would be used for this purpose. ¶6. (U) Several years ago, Mr. ZHAO became interested in the semiconductor industry and was introduced to Dr. JIA Haiqiang through a mutual friend affiliated with the Tianjin Industrial University ("Tianjin Gong Ye Da Xue"). Mr. ZHAO introduced Dr. JIA as the person who will be responsible for all product R & D for TIANJIN QIANGYING. "This is a great example of a research spin-off", declared Mr. ZHAO, proudly proclaiming that he is "using private investment to foster R&D in a high technology enterprise". ¶7. (U) Dr. JIA stated that he received his PhD in physics from the Chinese Academy of Sciences (CAS) in 2001, and that BEIJING 00005504 002 OF 004 he also holds numerous patents (COMMENT: Dr. JIA presented a business card for CAS, Institute of Physics, Center for Condensed Matter Physics, State Key Laboratory of Surface Physics. During a side-bar discussion, he denied any investment interest in TIANJIN QIANGYING. END COMMENT). Dr. JIA stated that TIANJIN QIANGYING will produce red/yellow epiwafers using a MOCVD process on two or three-inch Gallium Arsenide wafers. The epitaxial process will apply AsHe, PM3, H2, N2 to grow AlGaAs and InGaP on the GaAs substrate. Dr. JIA stated that TIANJIN QIANGYING will only produce epiwafers and has no plans to manufacture IC chips or devices of any kind. ¶8. (U) According Dr. JIA and Mr. ZHAO, TIANJIN QIANGYING does not currently have any customers or contracts to produce epiwafers; however they anticipate that customers will include domestic manufacturers of optical chips for consumer lighting products such as traffic lights and lighting displays. Dr. JIA specifically named XIAMEN SANNAN, NANTONG XIN LEI and SHANDONG HUAGUANG as potential customers. Mr. ZHAO and Dr. JIA explained that their business strategy is to develop a market-viable product and then distribute samples of epiwafers to prospective customers in the hopes of generating orders. ¶9. (S/NF) Dr. JIA stated that his area of research expertise is in developing HBLED (high-brightness LED) and further stated that approximately two years ago, he designed an LED chip at 0.23 microns. He denied any affiliation with a design house, additionally, the CAS Institute of Physics does not have a direct affiliation with a design house. Dr. JIA explained that GaAs is used for red/yellow whereas Gallium Nitride is used to produce blue/green and white LED wafers. Dr. JIA stated that his current contract with TIANJIN QIANGYING is for five years, and that over time he will migrate from CAS to spending most of his time at TJQY. Dr. JIA will bring with him a colleague, Dr. CHEN Hong, and several others from CAS. (COMMENT: It appears clear, however, that Dr. JIA will retain his CAS affiliation for the foreseeable future, particularly since Dr. JIA specifically stated that he does not intend to relocate his wife and young daughter to Tianjin. END COMMENT) ¶10. (U) According to Dr. JIA, TIANJIN QIANGYING will begin production with ten employees, operating four production runs/ 24-hour day, 200 wafers/day, 320 days/year. Dr. JIA and Mr. ZHAO hope to purchase five more MOCVD systems from VEECO within the next year. ¶11. (S/NF) REF B requested that ECO develop specific information responsive to interagency concerns: In response to specific questioning from ECO, Dr. JIA stated that the current contract with VEECO only covers one year of free service and that any new equipment or upgrades would require a new contract. Additionally, VEECO will provide training in the operation of the of the MOCVD reactor but not technical data. During a private side-bar discussion, Dr. JIA revealed that he has previously traveled to the U.S. for training at VEECO on MOCVD systems. ¶12. (U) Mr. ZHAO and Dr. JIA stated that the VEECO MOCVD system will be installed at a different location initially, and later moved to this facility when the new building is completed. When ECO asked why not wait for the new building to be completed before acquiring the equipment, Mr. ZHAO stated that he was in a "big rush" to get a product to market because he knew that demand for optical epiwafers was very high right now. Therefore, Mr. ZHAO explained, he leased space from one of his investment partners, TIANJIN BINFU JIAN SI. ECO and entourage paid a site visit to the TIANJIN DONG LI QU, BIN FU YUAN, approximately 15 minutes drive away. ECO was taken to what appeared to be an under-utilized industrial area and shown a vacant two-story building with four fake cacti and rubbish inside. Mr. ZHAO stated that construction and kit-out of this building would take less than two months and that the first floor will house the production line including the MOCVD system with offices occupying the second BEIJING 00005504 003 OF 004 floor. When ECO asked about meeting "clean room standards" Dr. JIA stated that the standards for red/yellow GaAs epiwafers is very low, only "1G". ¶13. (U) ECO asked why the MOCVD system would not be installed at CAS facilities in Beijing, particularly since Dr. JIA and his colleagues were based in Beijing. Dr. JIA and Mr. ZHAO stated that the business model for TIANJIN QIANGYING called for all production to be consolidated in Tianjin where they already have land and a facility under construction, as well as access to the appropriate labour supply required for this business. ¶14. (S/NF) Per REF B, ECO probed Dr. JIA on CAS activities involving the use of VEECO equipment. Dr. JIA stated that the CAS Institute of Physics currently has three MOCVD systems, thus his strong preference for purchasing VEECO equipment for TIANJIN QIANGYING. In response to specific questioning from ECO, Dr. JIA stated that CAS has not been successful in growing wafers on silicon or sapphire substrates. Dr. JIA also revealed that while CAS has been working on developing various devices including light-emitting diodes, CAS has thus far been unsuccessful. Dr. JIA stated that his personal background is in epitaxial research and that he has not worked on developing laser diodes. Dr. JIA stated that he is familiar with monolithic microwave integrated circuits (MMIC) through his doctoral studies and related limited research efforts ("I have studied this") but added that the VEECO MOCVD system sought under this export license would not be capable of producing such devices because they could only be produced on a silicon substrate; further MMIC devices require at least a four or six-inch wafer rather than the two or three-inch wafers that will be used in this system. (COMMENT: ECO noted hesitation in Dr. JIA's response on this specific issue and observed that Dr. JIA appeared reluctant to discuss his personal involvement in research efforts. END COMMENT) Dr. JIA denied any research efforts in solar cell development. Dr. JIA stated that he has published his research findings extensively, including in the Letter of Applied Physics, and further stated that he has co-authored several articles with Dr. CHEN Hong. Dr. JIA later sent ECO a list of his publications in Chinese. ¶15. (S/NF) In a private side-bar discussion, Dr. JIA revealed that he was previously involved with "SHANGHAI LAN BAO", a/k/a "SHANGHAI RAINBOW", which he identified as another CAS spin-off. (COMMENT: ECO believes that SHANGHAI LAN BAO was previously listed as a prospective end-user of a BIS export license that was ultimately denied. END COMMENT) ¶16. (S/NF) ECO conducted a "Google" search for TIANJIN QIANGYING and found two direct references. TJQY is described on the website of the TIANJIN CHINA-SCHOLARS TECHNOLOGY DEVELOPMENT CO. LTD ("Tianjin Shenzhou Xue Ren Ke Ji Kai Fa You Shang Gong Si") as a "nongovernmental scientific and technological enterprise" specialising in "metallic and low-pressure founding of series high intensity aluminum alloy materials" (see http://www.wonderriver.com/shenzhou/copartner .htm accessed on June 12, 2007),The TIANJIN CHINA-SCHOLARS TECHNOLOGY DEVELOPMENT CO. LTD claims affiliation with an "OXFORD-CAMBRIDGE INTERNATIONAL GROUP", and further states that it is involved in the design and production of molds, aluminum and "magnalumium" parts for use in the automobile, telecommunications, machining and electronics industries. ECO also found a link to "TIANJIN SHI GUANG CHENG INTERNATIONAL TRADE CO.", (see http://www.northcasting.com/index english.htm accessed on June 12, 2007),where TIANJIN QIANGYING is listed as under a "company index" of "NORTH CASTING GROUP". ECO notes that some subsidiaries of NORTH CHINA INDUSTRIES GROUP a/k/a "NORINCO", an entity that has repeatedly been sanctioned by the U.S. State Department for proliferation activity, follow a naming convention of "North (fill in the blank) Industry". Other companies that appear on this "company index" include "TIANJIN LOCOMOTIVE" and "HEBEI XUANHUA". ECO respectfully requests that Washington agencies research possible links BEIJING 00005504 004.2 OF 004 between TIANJIN QIANGYING and NORINCO. ¶17. (S/NF) RECOMMENDATION: Inconclusive. While ECO found Mr. ZHAO to be forthcoming and cooperative during the site visit, and was particularly impressed with Dr.JIA's detailed explanations of the product to be manufactured by TIANJIN QIANGYING, ECO remains concerned about possible links to entities of proliferation concern and strongly recommends resolution of this issue prior to any export licensing decision. ECO further notes that the VEECO MOCVD system will be installed in one location and then re-located at a later time; accordingly, should this license be approved, ECO recommends that a Post-Shipment Verification end-use visit be requested. Please note, however, that MOFCOM will only permit a PSV to be conducted at one location. Despite strong reservations regarding this proposed end-user, ECO further believes that if this export license is approved, Dr. JIA may prove to be a valuable source of information and insight into the current state of CAS research activities in areas of particular interest to Washington agencies Additionally, tracking the progress of TJQY's foray into the compound semiconductor industry would also provide useful information regarding the realities of CAS "spin-off" efforts. Piccuta