(S) CHINA PROVIDES RESPONSE TO U.S.-RAISED

S E C R E T BEIJING 002648

SIPDIS

DEPT FOR ISN AND EAP

E.O. 12958: DECL: 07/07/2033
TAGS: PARM PREL MTCRE ETTC CH IR SY
SUBJECT: (S) CHINA PROVIDES RESPONSE TO U.S.-RAISED
NONPROLIFERATION CASES

REF: A. BEIJING 02550 - LIMMT

B. BEIJING 2302 - NAMCHONGANG

C. 07 BEIJING 1625 AND PREVIOUS - BELLAMAX

D. 06 BEIJING 1429 AND PREVIOUS - BJ HUAYUN INT'L

E. BEIJING 2614 - AUSTRALIA GROUP MEETING

F. 07 BEIJING 5848 AND PREVIOUS - ZIBO CHEMET

G. 07 BEIJING 5361 AND PREVIOUS - CPEI

H. 07 BEIJING 4645 AND PREVIOUS - CEIEC

I. 07 BEIJING 5499 AND PREVIOUS - CTAC

J. 07 BEIJING 6576 AND PREVIOUS - XINSHIDAI

K. 07 BEIJING 6199 AND PREVIOUS - CPMIEC

L. BEIJING 1209 AND PREVIOUS - MOST GROUP CORP.

M. BEIJING 1354 AND PREVIOUS - DALIAN ZHONGBANG

Classified By: Acting Political Minister Counselor Ben Moeling. Reason
s 1.4 (b),(c) and (d).


1. (S) Summary. MFA Arms Control and Disarmament Department
Missile Division Director Zhang Junan briefed Poloffs on June
27 regarding the PRC's response to twelve
proliferation-related cases raised by the United States.
Zhang provided additional information on four cases and
otherwise largely reiterated details previously reported by
Post. Zhang stated that China "always attaches great
importance" to non-proliferation cooperation with the United
States, but complained that much of the information provided
by the United States is either "inaccurate or insufficient,"
making it difficult for China to conduct investigations."
Moreover, many of the cases raised by the United States
involve items which are not controlled under Chinese laws.
Zhang said U.S. threats of sanctions are "not acceptable" and
would "only impede" cooperation between the United States and
China. End Summary.


2. (S) See Ref A for the Chinese response on LIMMT.

NAMCHONGANG
--------------


3. (S) Zhang noted that the United States approached China in
April 2005 regarding suspicions that North Korean firm
Namchongang Trading Corporation (Ref B) was attempting to
import aluminum tubes to North Korea from German company
Optronic via a Chinese intermediary. Zhang said the United
States requested that China investigate Namchongang and "keep

an eye on" North Korean official Yun Ho-chin, the head of
Namchongang. Zhang said investigations revealed that in
October 2002, Namchongang attempted to import aluminum tubes
from Optronic to Dalian, China. However, the relevant
contract was "not valid" at the time and "the goods were held
by the Germans and never entered China." Zhang emphasized
that China would "never allow anyone to conduct proliferation
activities in Chinese territory." He added that Yun is "no
longer in China" and Namchongang is "no longer operating in
China."

BELLAMAX
--------------


4. (S) Zhang noted that beginning in October 2005, the United
States approached China on several occasions regarding the
Chinese company Bellamax. Bellamax was suspected of trying
to export sensitive materials and equipment -- such as
titanium stabilized duplex stainless steel, gyroscopes and
ball bearings -- to Iran for use in Iran's ballistic missile
program. The United States informed China that in December
2005, a delegation of Iranian missile experts visited China
and contacted Bellamax, and that these experts "probably"
returned home with materials for the missile program. The
United States also provided information that Bellamax had a
"relationship" with Hong Kong firm Pyramid, which in turn had
ties to North Korea and conducted business activity through
the Macau branch of the Bank of China. Zhang informed
Poloffs that the PRC "followed the lead" provided by the
United States, but after "intense investigation did not find
any evidence" that Bellamax's export activities violated
Chinese laws. Zhang stated that China "considers the case
closed" but is "more than ready" to take relevant action if
the United States has "further reliable information." (Note:
This information was reported in Ref C in March 2007 and no
new information has been provided since then.)

BEIJING HUAYUN INTERNATIONAL TRADING COMPANY
--------------


5. (S) Zhang stated that beginning in November 2005, the
United States informed China of the shipment of 150 tons of
sodium cyanide to North Korea by Chinese firm Beijing Huayun

International Trading Company. The United States was
concerned that the shipment would be used by North Korea to
produce chemical weapons. Director Zhang noted that
subsequent PRC investigations showed that relevant Chinese
authorities "never received any kind of application" from
Beijing Huayun to export this substance. The results of this
investigation were relayed to the U.S. Embassy in February
2006 (Ref D).

ZIBO CHEMET EQUIPMENT COMPANY LIMITED
--------------


6. (S) Zhang stated that the United States provided
information in July 2006 that Zibo Chemet Equipment Company
Limited shipped glass-lined equipment to Iran from the
Chinese ports of Tianjin and Qingdao using the "cover name"
of "anti-acid distillation units." The Embassy presented
additional information in September 2007 that Zibo Chemet
again shipped glass-lined equipment and condensers to Iran
using a UAE company as an intermediary. Chinese
investigations discovered that Zibo Chemet illegally exported
two batches of glass-lined equipment and condensers to Iran
by using a "fake name" for the controlled substance. Zhang
noted that Zibo Chemet did not apply for the appropriate
export license for these items, and as a result MOFCOM
imposed "administrative punishment" in the form of a monetary
fine. (Note: We separately found out at the Australia Group
outreach meeting to China on June 25 that the fine imposed on
Zibo Chemet was approximately RMB 45,000 or USD 6,596. See
Ref E.) Zhang added that the General Administration of
Customs was contacted to determine if further "punishment"
was warranted. (Note: No new information provided since Ref
F report in 2007.)

China Precision Engineering Company (CPEI)
--------------


7. (S) In 2006, said Zhang, the United States approached
China concerning the export activities of China Precision
Engineering Company (CPEI). The United States claimed CPEI
was attempting to export "sensitive goods including aluminum
sheets, tubes and rods" to the Iran-based ECXIR Trading
Company in November 2006. In October 2007, the United States
alleged that CPEI was attempting to export Swiss-made 3-Axis
motion stimulators to Iranian companies Samen Al-Aemmeh
Industrial Group and sister company Saman Industry Group.
Zhang stated that PRC investigations revealed CPEI signed a
contract to export aluminum products to ECXIR, but that the
materials are all "civilian" in nature and "widely used in
construction and machinery," and therefore not subject to
Chinese export controls. However, in consideration of U.S.
concerns, the Chinese Government asked CPEI to terminate
implementation of the contract. Concerning 3-Axis motion
stimulators, Zhang said Chinese investigators "did not find
that CPEI had any kind of contact" with Saman and that there
is "no evidence" that they conducted any negotiations to
export 3-Axis motion stimulators. Zhang stated that U.S.
information on this case was "incorrect." (Note: No new
information provided since Ref G telegram in 2007.)

CEIEC
--------------


8. (S) Zhang noted that in July 2007 the United States
provided China with information regarding a Syrian attempt to
purchase multi-spectrum camouflage netting from China
National Electronic Import Export Corporation (CEIEC). The
United States maintained that this netting is controlled by
the Wassenaar Arrangement, could increase the capabilities of
the Syrian military and be used to hide WMD and related
equipment (Ref H). The United States "threatened" to impose
sanctions on CEIEC, said Zhang. According to PRC
investigators, Zhang said, CEIEC received a "request for a
quotation" from Syria but did not follow up with the Syrian
side. Zhang then emphasized that since the PRC is not a
member of Wassenaar and thus is "not under any obligation or
position to accept U.S. threats of sanctions," China "will
not accept this threat." (Note: This is the first time the
PRC reported details of its investigation of CEIEC.)

China Taly Aviation Corporation (CTAC)
--------------


9. (S) Zhang said that in August 2007, the United States
approached China regarding the May 2007 negotiations by China
Taly Aviation Corporation (CTAC) to supply the Army Supply
Bureau (ASB) of Syria with computer numerically controlled
lathes, machinery centers, plasma cutting machines and laser

punching devices (Ref I). The United States expressed
concern because these items are covered under the Nuclear
Supplier's Group and Wassenaar Arrangement and could be used
in making missile parts. Zhang stated that investigations
confirmed Syria approached CTAC to purchase this machinery.
However, while CTAC received the request, Zhang said CTAC
never replied to Syria's machinery request. Zhang added that
these items are "not subject to export control by the PRC."
(Note: This is the first time that China reported results of
its investigation of CTAC.)

Xinshidai
--------------


10. (S) The United States contacted China in August 2007
regarding Chinese company Xinshidai's sale of 250,000 auto
injectors and 20 chemical agent detectors to the ASB of Syria
(Ref J). Zhang reported that China's investigation "did not
find any kind of evidence or clues" and concluded that the
information provided by the United States was incorrect.
(Note: This is the first time that China reported details of
its investigation of Xinshidai.)

CPMIEC
--------------


11. (S) Zhang stated that South Korea informed China in June
2007 that it would temporarily hold a shipment of specialty
steel (Type 30CRMOV9) scheduled to be shipped to Syria in its
port in Busan. The Israeli Embassy later contacted China and
explained that the shipment could be used in the production
of missiles and rockets by Syria to be transferred to
Hezbollah. The Israeli Embassy requested that the shipment
be turned back. Zhang said the subsequent Chinese
investigation found that the shipment by China Precision
Machinery Import Export Corporation (CPMIEC) was "for use in
oxygen tanks for high-pressure tanks." Zhang said that the
ASB of Syria provided "valid end-user certificates" and
"agreed not to transfer the material to a third party without
PRC consent." Zhang noted this information was provided to
Israel and South Korea and the shipment was eventually
released by South Korea for shipment to Syria. (Note: Post
raised this case using Ref K points in September 2007. This
is the first time China has passed on information regarding
the results of its investigation.)

MOST GROUP CORPORATION LIMITED
--------------


12. (S) In March 2008, Zhang stated that the Embassy provided
China with information that Hong Kong's Most Group
Corporation Limited planned to export aluminum plates (Type
707-5/T651) to the Iranian company Aluminat. Specifically,
Most Group purchased these materials from the Chinese company
Northeast Light Alloy Corporation Limited to ship to Aluminat
for use in Iran's cruise missile program. The United States
believed that Most Group was aware that the end-use was for
military purposes. The U.S. Consulate in Hong Kong informed
the Hong Kong Trade and Industry Development Bureau about the
case and Hong Kong authorities agreed to conduct an
investigation. Zhang said that on March 31, China requested
additional information from the United States regarding its
investigation into the Hong Kong firm but that it has not yet
received any feedback (Ref L).

DALIAN ZHONGBANG CHEMICAL INDUSTRIES
--------------


13. (S) Zhang said the Embassy informed China on January 18,
2008 that Chinese company Dalian Zhongbang Chemical
Industries was planning to ship aluminum powder, potassium
perchlorate, toluene diisocyanate and anti-oxidant A02246
from the port of Dalian for loading onto M/V Iran Teyfouri,
which is operated by IRISC, an Iranian shipping company.
U.S. information indicated that aluminum powder and potassium
perchlorate was sent to Mehr Engineering and Industry Group,
while toluene diisocyanate and anti-oxidant A02246 was sent
to Omid Research Industry Group. According to Chinese
investigations, Zhang confirmed that Dalian Zhongbang
Chemical Industries shipped these products, but the buyers,
Kingsview Limited and ISS Mart Product PTE Limited, were
"Singaporean, not Iranian, companies." Further, the items
were shipped freight on board (FOB) and unloaded in
Singapore. Zhang said documentation regarding the
transactions was in good order when reviewed by China and
that the items were loaded onto the Iranian ship at the
request of the Singaporean companies.


14. (S) Zhang noted that despite U.S. concern that Chinese
authorities may have been "misled" about the vessel's
destination, the Ministry of Transportation certified that
the vessel would stop and unload in Singapore (Ref M). Zhang
said that China previously briefed the Embassy that the items
shipped were not controlled under Chinese law and that Dalian
Zhongbang is "in full compliance with Chinese laws and normal
trade activities." According to Zhang, China "attaches great
importance to U.S. information" and if the United States
provides additional evidence, China will conduct further
investigations. Zhang also suggested that the United States
approach the Singapore Government regarding this matter.
(Note: No new information was provided regarding Dalian
Zhongbang.)

PRC REQUESTS ACCURATE AND RELIABLE INFORMATION
-------------- -


15. (S) Director Zhang told Poloffs that China "always
attaches great importance and holds a careful cooperative
attitude" when conducting investigations into possible
proliferation cases. He also noted that in "taking into
account U.S. concerns," the PRC has taken some measures that
"go beyond" PRC laws and obligations. For example, China has
requested "many Chinese companies to cancel contracts with
companies that are in no way in violation of relevant laws."
This "clearly shows sincerity and cooperation from the PRC,"
said Zhang.


16. (S) However, said Zhang, there are "two main problems"
with U.S. requests. First, much of the information provided
by the United States is "incorrect or insufficient" and
sometimes the only information provided is the name or
address of a company. Zhang asserted that the United States
is often "reluctant" to provide additional information "in
order to protect the source." This places China in a
"difficult situation" as relevant agencies are "frustrated"
over the "manpower and time wasted." Second, Zhang said many
of the raised cases are "neither in violation of UN accords
nor controlled by Chinese laws and regulations." He charged
that this is "an enlargement" of expectations that the PRC
"cannot accept."


17. (S) Zhang said that if the United States provides
"accurate and reliable information in the future and raises
cases with a constructive attitude," it would "improve
cooperation and prompt the PRC to start actions against
possible violators." Zhang noted the lifting of sanctions
against Great Wall and said he believes it is a "step in the
right direction." He asserted that the "threats of sanctions
are not acceptable" and that they would only "impede"
cooperation between the United States and China.
RANDT