1. This is an action request. Embassy Beijing, please
see paragraph 4.



2. (S) Background/Objectives: Since February 2006, we
have repeatedly discussed with China our concerns
regarding the proliferation-related trading activities
of the Chinese firm Dalian Sunny Industries, which is
also known as LIMMT (Reftels). This activity has
included supplying Iran's solid-fueled ballistic
missile developer Shahid Bakeri Industrial Group (SBIG)
with graphite cylinders and tungsten powder likely
controlled by the Missile Technology Control Regime
(MTCR), as well as providing SBIG with tungsten copper
alloy ingots that could be used to produce missile jet
vanes. In response to this information and as a result
of their own ongoing investigations, Chinese officials
have indicated that they have taken unspecified
punitive measures against LIMMT for its illegal
activities and revoked its license (Refs M-O).



3. (S) Despite these actions, we continue to receive
information indicating that LIMMT has not ceased its
efforts to supply SBIG with tungsten copper alloy,
tungsten powder, graphite cylinders and other
materials. LIMMT has also engaged in trade with Iran's
Khorasan Metallurgy Industries - an entity affiliated
with the Defense Industries Organization (DIO) and
possibly with Iran's nuclear program. Under UNSC
Resolution 1737, all States have an obligation to
freeze the assets of designated entities and to prevent
entities within their territories from making economic
resources available to designated entities. SBIG and
DIO were designated in UNSCR 1737 on December 23, 2006.
UNSCR 1737 also requires Member States to prevent the
supply, sale, or transfer to or for the benefit of Iran
of MTCR equipment (with one exception related to
unmanned aerial vehicles) and any other items that the
country determines would contribute to Iran's
development of nuclear weapon delivery systems. We
want to alert Chinese officials to LIMMT's activities
and ask that they consider shutting LIMMT down as the
most effective means of ceasing the firm's proliferant
behavior and meeting China's obligations under these
UNSC resolutions. In order to ensure compliance with
these resolutions, China should block any further
transfers by LIMMT and freeze any assets related to
such transfers. At a minimum, China should terminate
LIMMT's ability to export products. We also want to
highlight the fact that LIMMT's behavior could result
in the imposition of sanctions pursuant to U.S. law,
and could result in action against LIMMT personnel and
subordinate entities under E.O. 13382 and the Commerce
Department's denied-person list. Post should
acknowledge MFA Arms Control and Disarmament Department
Missile Division Deputy Director Wang Daxue's January
18 comment (see Ref P) indicating that he had recently
participated in meetings related to the investigation
of LIMMT and that the PRC would soon be able to share
information on this case. We want to ask that PRC
officials share with us the results of their
investigation and the punitive measures they have taken
in their efforts to stop LIMMT from acting as a source
of supply to Iran's ballistic missile program. In this
context, we should make Chinese officials aware that
the U.S. expects to decide this case in the near term
and will consider any information China provides as
part of our sanctions review. Post should advise that
such information needs to be provided very soon if it
is to have any bearing on the sanctions case.



4. (U) Action Request: Request Embassy Beijing
approach appropriate host government officials to
deliver talking points in paragraph 5 and report
response. Post should underscore that the USG needs to
receive information on Chinese enforcement action
against LIMMT by no later than February 29 to ensure it
can be factored into our sanctions review of this case.
Talking points also may be provided as a non-paper.



5. (S) Begin talking points/non-paper:

(SECRET REL CHINA)

-- On many occasions since February 2006, we have
discussed with you our serious concerns regarding the
proliferation-related trading activities of the Chinese
firm Dalian Sunny Industries (which is also known as
LIMMT (Dalian) Metallurgy and Minerals co. Ltd. or
LIMMT (Dalian FTZ) Economic and Trade Organization).

-- This activity has included supplying Iran's solid
propellant ballistic missile developer Shahid Bakeri
Industrial Group (SBIG) with graphite cylinders and
tungsten powder likely controlled by the Missile
Technology Control Regime (MTCR), as well as tungsten
copper alloy that could be used to produce missile jet
vanes.

-- In August 2007, we alerted you that LIMMT, acting
under the name Dalian Sunny Industries, was working to
fill new orders of tungsten-copper alloy plates,
tungsten powder, and graphite on behalf of SBIG.

-- In response, you told us that LIMMT had conducted
activities in violation of export regulations, but that
the firm had been punished for its illegal activities.

-- You also indicated that you had revoked LIMMT's
export license - a measure intended by PRC authorities
to prevent the export of graphite - but that the firm
had found loopholes in the restrictions.

-- To address this, you advised us that you had stopped
"all of LIMMT's exports of graphite" and introduced new
interim export controls on graphite in September 2006.

-- You also informed us that MOFCOM had decided to take
punitive measures against LIMMT in January 2007.

-- We appreciate your government's efforts in this
matter.

-- However, we continue to see information indicating
that Dalian Sunny/LIMMT continues its work to export
graphite and other sensitive items to Iranian ballistic
missile and other UN-sanctioned entities.

-- Specifically, we understand that in mid-September
2007, Dalian Sunny Industries shipped 100 tungsten
copper alloy plates and 5,000 kg of tungsten powder to
Iran.

-- As in the previous exports to Iran by Dalian Sunny,
these tungsten copper alloy plates and tungsten powder
were intended for SBIG.

-- We have further information indicating that as of
mid-November, SBIG had received 258 graphite cylinders
and 100 more tungsten copper alloy plates from LIMMT,
and that additional shipments of tungsten copper alloy
plates and graphite cylinders were being readied by
LIMMT for shipment to SBIG.

-- We also understand that in late September 2007,
LIMMT agreed to ship approximately 50 kg of maraging
steel and 24,000 kg of 42CrV6 heavy metal rods to
Iran's Khorasan Metallurgy Industries.

-- Khorasan Metallurgy Industries, which may be
involved in Iran's nuclear program, is associated with
the Defense Industries Organization (DIO), an entity
sanctioned under UN Security Council Resolution 1737.

--We do not have specific information on the type of
maraging steel sought by DIO, but in general, maraging
steel is extremely strong and hard and can be
controlled by the Missile Technology Control Regime
and/or the Nuclear Suppliers Group.

-- LIMMT may be using the name Liaoning Industry &
Trade Co. in some of these transactions.

-- UN Security Council Resolution 1737 requires all
states to freeze the assets of designated entities such
as SBIG and DIO and prevent entities within their
territories from making economic resources available to
them. The transactions between LIMMT and SBIG/DIO
would be subject to these requirements.

-- Given LIMMT's continued work to supply graphite and
other missile-related items to SBIG and the firm's
flouting of Chinese restrictions against such activity,
we ask that your government consider shutting LIMMT
down or, at a minimum, terminating LIMMT's ability to
export products.

-- Such a measure would be the most effective means of
ensuring that LIMMT would no longer be able to act as a
source of supply to SBIG and other UN-designated
entities, and would best ensure China's compliance with
United Nations Security Council Resolutions.

-- As we have mentioned previously, LIMMT's proliferant
activities could result in the imposition of sanctions
under U.S. law.

-- We are also considering using E.O. 13382 and the
Commerce Department's denied-person list against LIMMT
personnel and sub-entities to address these continued
transfers.

-- In this context, we urge you to share with us the
results of your investigation of LIMMT, as well as the
specific enforcement measures your government has taken
against the firm and its head, Karl Lee. Any
information you provide in this context will be
considered as part of our sanctions review.

-- We welcome information recently provided by MFA Arms
Control and Disarmament Department Missile Division
Deputy Director Wang Daxue indicating that he had
recently participated in meetings related to the
investigation of LIMMT and that the PRC would soon be
able to share information on this case.

-- However, such information needs to be provided by
February 29 if it is to have any bearing on this case.

End talking points/non-paper.



5. (U) Washington POC is ISN/MTR John Paul Herrmann
(Phone: 202-647-1430). Please slug any reporting on
this issue for ISN and EAP.



6. (U) A word version of this document will be posted
at www.state.sgov.gov/demarche.
RICE


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