MISSILE TECHNOLOGY CONTROL REGIME (MTCR): CHINA'S RECORD ON CONTROLLING MISSILE-RELATED EXPORTS

S E C R E T STATE 105132



SIPDIS

PARIS FOR EST: HELEN SMITH

LONDON FOR CHRIS PALMER

CANBERRA FOR CAROL HANLON



E.O. 12958: DECL: 10/01/2033

TAGS: MTCRE, ETTC, KSCA, MNUC, PARM, TSPA, FR, UK, AS, CH

SUBJECT: MISSILE TECHNOLOGY CONTROL REGIME (MTCR): CHINA'S

RECORD ON CONTROLLING MISSILE-RELATED EXPORTS



Classified By: ISN/MTR Director Pam Durham.

Reasons: 1.4 (B),(D),(H).



1. (U) This is an action request. Please see paragraph 2.



2. (S) ACTION REQUEST: Department requests Embassy Paris

provide the interagency cleared paper "China's Record on

Controlling Missile-Related Exports" in paragraph 3 below to

the French Missile Technology Control Regime (MTCR) Point of

Contact (POC) for distribution to all Partners. Department

also requests Embassy London provide paper to the MTCR

Information Exchange (IE) Co-Chair (John Andrews),and

Embassy Canberra provide paper to the Australian MTCR Plenary

Chair for 2008/2009 and/or appropriate staff. Info

addressees also may provide to host government officials as

appropriate. In delivering paper, posts should indicate that

the U.S. is sharing this paper as part of our preparation for

the Information Exchange that will be held in conjunction

with the MTCR Plenary in Canberra (November 3-7). NOTE:

Additional IE papers will be provided via septels. END NOTE.



3. (S) BEGIN TEXT OF PAPER:



(SECRET REL MTCR)



China's Record on Controlling Missile-Related Exports



China in recent years has taken some positive steps to

curb ballistic missile-related proliferation, and we have

seen some limited improvements continue over the past year,

particularly in regard to sales by some state-owned

enterprises to Iran. Despite indicators that Chinese

authorities are gradually adopting more responsible export

control policies, Chinese firms over the past year have sold

ballistic missile-related items - mostly metals and other raw

materials - to Iran, Pakistan, and to a lesser extent, North

Korea, and marketed sub-MTCR-class ballistic missile systems

and technology to a growing range of customers. Such

activities are indicative of China's uneven track record in

enforcing its missile-related export controls.



Increased Export Control Efforts by China



Over the past year, Beijing appears to have increased its

efforts to have China's defense trade firms move away from

WMD- and ballistic missile-related sales to Tehran. This

decision is most likely partially attributable to the

international scrutiny on Iran's nuclear program, including

the numerous UN Security Council Resolutions which also limit

missile-related trade, and China's calculation that such

sales had the potential to tarnish China's image in the

run-up to the August 2008 Olympics in Beijing. Whatever the

motivations of Chinese authorities, we assess that several of

China's state-owned enterprises - including entities such as

China North Industries Corporation (NORINCO),China Precision

Machinery Import/Export Corporation (CPMIEC),China Xinshidai

Company, and China Great Wall Industry Corporation (CGWIC),

have curtailed ballistic missile-related sales to Iran.

However, it is unclear how long China's commitment to curbing

some sales to Iran will last. Debate within China about

whether Chinese

firms should resume their earlier level of trade in sensitive

military and dual-use technologies with Iran most likely is

ongoing. It remains to be seen whether Chinese authorities'

resolve to curtail such transfers will weaken following the

conclusion of the Olympics.



Another positive indicator is that Beijing over the past year

has engaged in a bilateral nonproliferation dialogue with the

U.S. and Chinese enforcement authorities have worked with

U.S. officials to begin to close gaps in China's export

control system. China also has accepted U.S. offers of

export-control-related training. For example, Chinese export

control officials participated in a January 2008 U.S.-China

industry-government relations forum designed to encourage

industry to comply with national export control regulations.

Over 40 Chinese officials representing six ministries

attended the workshop. Additionally, in a new development

designed to complement our bilateral nonproliferation

dialogue, the United States proposed and China agreed in late

2007 to allow U.S. officials to engage in nonproliferation

discussions directly with some state-owned enterprises, such

as NORINCO and CGWIC.



Enforcement Efforts Incomplete



China's efforts to enforce its export controls, while

improving in some areas, remain incomplete. Several

entities, including both state-owned and private firms, have

continued to sell items to Iran's missile programs, in some

cases even after being the subject of investigations by

Chinese authorities. Such cases suggest that Beijing has not

imposed adequate measures to deter future sales that pose

missile proliferation concerns.



One such example involves the Chinese firm LIMMT. The U.S.

has discussed this firm's missile-related exports to Iran

extensively with Chinese authorities over the last several

years. In response to these approaches, China has stopped

several proliferation-related transfers by LIMMT to Iran.

However, in 2007 and 2008, LIMMT, operating under the name

Dalian Sunny Industry, supplied a range of raw materials to

Iran's solid-propellant missile organization Shahid Bakeri

Industries Group (SBIG). China has indicated its enforcement

agencies are working to find a legal basis to curtail this

firm's cooperation with Iran's missile program and last year

China's Ministry of Commerce reportedly decided to take

punitive action against the company. However, the company

appealed the measures and its proliferant activities have

continued. Our information indicates that LIMMT's main

representative is a former government official who has been

using his government connections to conduct business and

possibly protect himsel

f from Beijing's enforcement actions. More broadly, China's

ability to successfully resolve this case may be further

complicated by China's national-level officials' tendency to

relinquish some control of investigations to the provincial

level. Leads on impending proliferation-related transactions

reportedly are passed to relevant regional offices for

investigation. Although these offices have the freedom to

act independently to stop a shipment once being referred a

case, a lack of national-level oversight probably allows

local level officials to continue to shield firms in their

economic zones.



In another example, the U.S. has obtained information in

recent years that Chinese firms have made several shipments

of sodium perchlorate to Iran's Parchin Chemical Industries.

Sodium perchlorate can be used to manufacture the

MTCR-controlled oxidizer ammonium perchlorate (AP),which

Iran uses in its solid propellant ballistic missiles. In one

case involving sodium perchlorate, a Chinese firm likely used

what we assess to be a cover company to ship sodium

perchlorate to Iran. Additionally, we assess other Chinese

firms over the past year have supplied Iranian ballistic

missile organizations with graphite, metals, and the

solid-propellant fuel aluminum powder. In many cases, they

have used front company names.



China has continued to act as a key supplier of technical

assistance, raw materials, and other items to missile

programs in Pakistan, although Islamabad's reliance on

Chinese ballistic missile-related assistance has decreased as

its ballistic missile programs have matured. Over the past

year China has supplied truck chassis to Pakistan that we

assess are for conversion into missile

transporter-erector-launchers and ground support equipment

for Pakistan's ballistic missile force. Additionally,

Pakistan's Space and Upper Atmosphere Research Commission

(SUPARCO),which historically has been responsible for the

Abdali solid-propellant SRBM program as well as Pakistan's

space program, procured MTCR-controlled unsymmetrical

dimethylhydrazine (UDMH) from China Xinshidai Company in late

2007. This material can be used as a fuel in

liquid-propellant ballistic missiles and space launch

vehicles.



While not reaching the levels of support provided to Iran and

Pakistan, Chinese firms continue to provide North Korea with

sporadic shipments of military and dual-use items with

potential ballistic missile applications. These are

typically sent by ground, often through Dandong. For

example, over the past year, a Chinese firm sold Pyongyang

types of steel that can be used in the production of

SCUD-type ballistic missiles, including steel that we assess

is controlled under the MTCR.



China also continues to market the new P12 SRBM to a growing

range of customers in the Middle East, Africa, and South

Asia. The P12 SRBM is advertised as a 150-km-range,

solid-propellant system carrying a 450 kg warhead, using a

dual launcher, with an accuracy of 30-50 meters. Although

the system falls below MTCR Category I range and payload

thresholds, we remain concerned that a P12 sale might also

include access to related production technology that could

help advance the buyer's domestic ballistic missile

production capabilities.



Shortfalls Limit Progress



We have identified several practices and conditions that

hinder the effectiveness of China's export control

enforcement. These include a reluctance to invoke catch-all

controls to prevent proliferation-related sales, and lax

expectations regarding a firm's responsibility to know the

bona fides of the end-users for their products.



In many cases involving the transfer of proliferation

sensitive cargo to programs of concern, Beijing has shown a

reluctance to prohibit the export of an item unless it is

specifically listed on China's missile-related export control

list or the MTCR Annex. Beijing has also demonstrated an

unwillingness to hold Chinese firms accountable for fully

evaluating end users of a Chinese-origin item. Ensuring that

firms are performing due diligence with respect to their

customers is particularly critical in deals with Iran, where

front companies are often used to mask the ultimate

end-users.



We have also raised with the Chinese government our concerns

that Chinese seaport facilities and international airports

are transit and transshipment points for governments and

entities that wish to ship sensitive materials to programs of

proliferation concern.





Conclusion



China has made export control progress in recent years.

In addition to taking some steps to limit sales of military

and dual-use items by Chinese entities that pose

proliferation risks, China has engaged in a productive

dialogue with the U.S. on export control and nonproliferation

issues, including allowing the U.S. to participate in

outreach activities to select Chinese companies. However,

these positive steps have been offset by some Chinese firms'

continued support to missile programs in Iran, North Korea,

and Pakistan and by China's unwillingness to actively utilize

its catch-all controls authorities. China's lack of

consistency in its regulation of exports of missile-related

goods and technology will continue to be an impediment to the

overall effectiveness of its export controls.



END TEXT OF PAPER.



4. (U) Please slug any reporting on this or other MTCR

issues for ISN/MTR. A word version of this document will be

posted at www.state.sgov.gov/demarche.

RICE