TAIWAN ARMS: CHINESE CALL IN U.S. FIRM

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 000295

SIPDIS

STATE FOR EAP/CM SFLATT
STATE FOR EEB/TRA/AN JBYERLY, KURS, VLIMAYE-DAVIS
STATE PASS TO USTR STRATFORD
COMMERCE FOR AHAAKENSEN; EALFORD
DEPT OF TRANSPORTATION FOR PGRETCH, KGLATZ, NPORTER
NSC FOR JLOI
FAA FOR RCICERO

E.O. 12958: DECL: 02/03/2020
TAGS: ETRD EAIR PREL CN TW
SUBJECT: TAIWAN ARMS: CHINESE CALL IN U.S. FIRM

REF: A. A. BEIJING 248

B. B. BEIJING 260

C. C. BEIJING 268

D. D. BEIJING 269

E. E. BEIJING 270

Classified By: Econ Deputy Counselor Robert Forden. Reasons 1.4 (b) an
d (d).


1. (C) SUMMARY. China's Ministry of Foreign Affairs (MFA)
summoned General Electric (GE) China President Mark Norbom to
the MFA on February 4 to warn GE on its participation in
Taiwan arms sales, referring specifically to the sale of
Sikorsky helicopters "built by UTC and GE." The MFA
official, drawing from a prepared script, made reference to
unspecified sanctions, but provided no detail nor indicated
any specific action against GE would follow. Noting that the
MFA official had begun and ended the meeting in an unusually
friendly manner, Norbom said he interpreted the message as
more of a general warning to be conveyed to GE management
rather than a sign that China was preparing sanctions.
Separately, Econoff heard from other contacts that some U.S.
firms, including Honeywell, had been called in by the Chinese
Embassy in Washington, but local offices of those firms tied
to the arms deal reported that they have not heard anything
from the Chinese government here. END SUMMARY.

GE CHINA GETS THE CALL
--------------


2. (C) In a late afternoon February 4 meeting with DCM, GE
China President & CEO Mark Norbom reported that China's
Ministry of Foreign Affairs (MFA) that morning had summoned
GE to the MFA for an urgent meeting. Norbom had immediately
flown to Beijing from his Shanghai base and met that
afternoon with MFA Deputy Director General Deng. Deng had
opened the meeting in a surprisingly friendly manner, noting
that Deng had been a classmate of GE's General Counsel and
praising his classmate's abilities. Deng then turned to what
seemed to be a scripted message regarding GE's supply of
engines for the UTC Sikorsky helicopters in the Taiwan arms
deal. Deng reviewed the various agreements in which, Deng
asserted, the U.S. had agreed not to sell arms to Taiwan, and
stated such actions constituted gross interference in China's
internal affairs.


3. (C) Deng cited the possibility of sanctions, but did not
provide any specifics. He told Norbom that China was aware
of GE's long participation in the China market, and counseled
that the company "should not look for small profits that hurt
its larger interests." If GE goes through with the deal,
Deng emphasized, "there could be repercussions," noting GE's
"great potential in the civil aviation market." (Note:
Norbom later told EconOff that GE was the market leader for
aircraft engines in China, as in the world, with more than a
third of the installed base in Chinese airlines. End Note).
In response, Norbom noted that while GE did supply engines
that were used in Sikorsky helicopters, he did not believe GE
was involved in deciding to whom the end product was sold.
Deng ignored the distinction, Norbom said, continuing to
refer to helicopters "built by UTC and GE."


4. (C) GE's Norbom said that it was clear Deng wanted him to
convey the message upward in the company, and that GE's
DC-based government affairs office had already been contacted
by the Chinese Charge d'Affaires in Washington who had
delivered a similar message. Norbom interpreted the meeting
as more of a general threat than an indication that China was
preparing specific sanctions against GE. He noted that Deng
had ended the meeting much like he had started it -- in a
very friendly mode -- and even had walked Norbom to his car.
Norbom said he would report the meeting to the management of
GE International in Brussels, but said GE was not considering
any particular response to the MFA. Norbom expressed
disappointment that GE had been targeted by MFA, nothing that
the company's name had not been cited in the local press and

BEIJING 00000295 002 OF 002


he had hoped it would stay that way.

HONEYWELL A TARGET; OTHERS COMPANIES REPORT NO NEWS
-------------- --------------


5. (C) Separately, EconOff heard from other contacts that
Honeywell had also been called in by the Chinese, but in
Washington by the Chinese Embassy. Local Honeywell China
government relations staff, however, reported that they had
not been contacted here yet by Chinese authorities.
Honeywell had not been previously identified as connected to
the Taiwan arms sale in Western and Chinese media.
Honeywell's Beijing office told us that its China business is
in the four core areas of automation, aviation, transport and
specialty materials. Aviation represents around 30 percent
of its China revenues, and its aviation unit here is the
second largest after automation. In addition to flight
control systems, Honeywell's aviation unit sells braking
systems, lighting, and avionics systems in China. Localized
operations for its aviation business primarily involve
maintenance, rather than manufacturing. Local offices of
Boeing and United Technologies Corp. (UTC) reported they have
not been contacted here by Chinese officials.
HUNTSMAN