Testimony: China’s Proliferation Record – 2001

Testimony of Gary Milhollin

Professor Emeritus, University of Wisconsin Law School and
Director, Wisconsin Project on Nuclear Arms Control

Before the U.S.-China Security Review Commission

October 12, 2001

I am pleased to appear today before the U.S.-China Security Review Commission. The Commission has asked me to comment on China’s proliferation record and to recommend possible responses by the United States.

Today, China’s exports are one of the most serious proliferation threats in the world. Since 1980, China has supplied billions of dollars’ worth of nuclear weapon, chemical weapon and missile technology to South Asia and the Middle East. It has done so in the face of U.S. protests, and despite repeated promises to stop. The exports are still going on, and while they do, they make it impossible for the United States and its allies to halt the spread of weapons of mass destruction. For a comprehensive look at China’s export activities, I invite the members of the Commission to examine the charts prepared by the Wisconsin Project entitled “China’s Dangerous Exports” that are available in your briefing packets.

Missile proliferation

According to a report that the CIA submitted to Congress last month, Chinese firms provided missile-related items, raw materials, and/or assistance to Pakistan, Iran, North Korea, and Libya during the last half of the year 2000. And just last month, the China Metallurgical Equipment Corporation (CMEC) (MECC) was sanctioned by the United States for transferring missile parts and technology to Pakistan’s National Development Complex (NDC), which makes the Shaheen-series of solid propellant missiles.

There have also been disturbing reports lately in the press saying that China, in cooperation with North Korea, has contracted to supply titanium-stabilized steel used in making missiles to Pakistan, that China is training Iranian engineers (in China) on inertial guidance techniques, and that China has sold Iran specialty metals and chemicals used in missile production.

Chemical weapon proliferation

In 1995 my organization discovered, and wrote in the New York Times, that the United States had caught China exporting poison gas ingredients to Iran, and that the sales had been going on for at least three years. In 1996, the press reported that China was sending entire factories for making poison gas to Iran, including special glass-lined vessels for mixing precursor chemicals. The reported shipments also included 400 tons of chemicals useful for making nerve agents.

This activity appears to have continued. In May 1997, the U.S. government sanctioned the Jiangsu Yongli Chemical Engineering and Technology Import Export Corporation for contributing to Iran’s chemical weapon program. The same Chinese firm was sanctioned again in June 2001 for helping Iran build a plant to manufacture equipment useful for making chemical weapons.

Nuclear weapon proliferation

China has also been one of the leading proliferators of nuclear weapon technology. In the early 1980s, China gave Pakistan a tested nuclear weapon design and at least some enriched uranium to fuel it. This has to be one of the most egregious acts of nuclear proliferation in history. Then, China helped Pakistan produce high-enriched uranium with gas centrifuges. More recently, it has helped Pakistan build the Chashma 300 megawatt power reactor and the clandestine Khushab reactor which is now producing plutonium for nuclear weapons.

In February 2001, the press reported that China’s Seventh Research and Design Institute, which is overseen by the China National Nuclear Corporation, supplied 50 ceramic capacitors to Pakistan’s New Labs plutonium reprocessing plant. The Institute was reportedly paid through a bank account maintained by an official at the Pakistani embassy in Beijing. The Chinese-supplied Khushab reactor can generate enough plutonium for at least one nuclear weapon per year, and probably more.

It was also reported in April 2000 that China had revived long-dormant negotiations with Iran on the construction of a nuclear graphite production facility. It is important to remember that in October 1997, China assured the United States that China would not supply Iran a uranium conversion facility and would undertake no new cooperation with Iran after completion of two existing projects – a zero-power reactor and a zirconium production plant.

Chinese national export control

The Commission has asked me to comment on China’s export control laws. According to the web site of China’s State Council, China now pursues a

“policy of not endorsing, encouraging or engaging in nuclear weapons proliferation and not assisting other countries in developing nuclear weapons. At the same time, China stresses that the prevention of nuclear weapons proliferation should not impede the international cooperation in peaceful uses of nuclear energy.”

In October 1997, China joined the NPT Exporters Committee, also known as the Zangger Committee. China’s representative to the Committee has stated that China’s policy of not assisting unsafeguarded nuclear facilities extends to activities related to nuclear explosive devices, and that China strictly prohibits any exchange of nuclear weapons related technology and information with other countries. China has also pointed out that its export controls include a “catch-all” authority whereby exports which pose a proliferation risk, whether or not they are on a control list, will be denied export licenses.

Notwithstanding this apparent progress, China’s export control system does not yet meet international standards, according to the U.S. State Department. Chinese entities continue to provide, for example, equipment, technology and materials to missile programs in Iran and Pakistan. China has also helped Pakistan build a plutonium-producing reactor at Khushab. It is still uncertain whether China will implement its export control laws or live up to its international obligations in the future.

China’s global and regional strategy

China’s conduct in export control has not matched its statements about it. China’s policy with respect to Pakistan has been to keep Pakistan even with India in nuclear weaponry, including long-range missiles. Each time India has taken a step forward, China has acted to help Pakistan keep pace. I expect this pattern to continue, regardless of what China says its policies are. China sees Pakistan as an important ally and a bridge to the outside world. This point of view has resulted in a special relationship that China sees as very much in its interest. To a lesser extent, China has maintained a special relationship to Iran, for essentially the same reasons.

China’s motivation is both political and economic. Exports earn money. They also produce diplomatic influence. As long as China can gain these advantages, and do so at an acceptable cost, it is reasonable to expect that China’s exports will continue. For them to stop, the costs would have to start outweighing the benefits.

Are current U.S. export controls strong enough?

The Commission has asked whether U.S. export controls on transfers to China are sufficient to prevent subsequent transfers by China that lead to proliferation. The answer to this question is “no.” The Commerce Department has favored, and continues to favor, exports to China that are likely to undermine U.S. national security. Three cases illustrate the point.

(a) Huawei Technologies

Huawei Technologies is the Chinese company that was recently caught helping Iraq improve its air defenses by outfitting them with fibre optic equipment. The assistance was not approved by the United Nations, and thus violated the international embargo against Iraq.

The history of Huawei shows how American exports to China can wind up threatening our own armed forces. At about the time when this company’s help to Iraq was revealed earlier this year, Motorola had an export license application pending for permission to teach Huawei how to build high-speed switching and routing equipment – ideal for an air defense network. The equipment allows communications to be shuttled quickly across multiple transmission lines, increasing efficiency and immunizing the network from air attack.

Motorola is only the most recent example of American assistance. Other American firms have sold Huawei supercomputers and other equipment. During the Clinton Administration, the Commerce Department allowed Huawei to buy high-performance computers worth $685,700 from Digital Equipment Corporation, $300,000 from IBM, $71,000 from Hewlett Packard and $38,200 from Sun Microsystems. In addition, Huawei got $500,000 worth of telecommunication equipment from Qualcomm.

Still other American firms have transferred technology to Huawei through joint operations. Last year, Lucent Technologies agreed to set up a new joint research laboratory with Huawei “as a window for technical exchange” in microelectronics. AT&T signed a series of contracts to “optimize” Huawei’s products so that, according to a Huawei vice president, Huawei can “become a serious global player.” And IBM agreed to sell Huawei switches, chips and processing technology. According to a Huawei spokesman, “collaborating with IBM will enable Huawei to…quickly deliver high-end telecommunications to our customers across the world.” One wonders whether IBM knew that one of these customers might be Saddam Hussein.

As a result of deals like these, Huawei’s sales rocketed to $1.5 billion in 1999, to $2.65 billion in 2000, and are projected to reach $5 billion in 2001. These are extraordinary heights for a company that began in 1988 as a $1,000 start-up. Real growth did not begin until the mid-1990s, when American help started rolling in. Texas Instruments started its assistance in 1994, and by 1997 had set up laboratories to help Huawei train engineers and develop digital signal processing technologies. Also in 1997, Motorola and Huawei set up a joint laboratory to develop communication systems.

This sudden flood of help was unleashed by the Clinton Administration, which decided in 1994 to remove the need for prior government approval of the export of fiber optic, switching, and telecommunication transmission equipment. The first President Bush had resisted pressure from AT&T, Lucent and US West to decontrol fiber optics, but Clinton freed up the technology over the objection of the National Security Agency, which argued that the widespread use of fiber optics would cripple its eavesdropping ability. A study by the U.S. General Accounting Office found that in the first two years after the decontrol, China bought large amounts of telecommunication equipment suitable for military command and control and intelligence gathering, as well as for civilian uses. It is highly likely that Huawei was one of the buyers.

(b) China Precision Machinery Import-Export Corporation (CPMIEC)

Sanctioned by the United States in August 1993 for missile proliferation, the China Precision Machinery Import-Export Corporation (CPMIEC) has supplied C-801 and C-802 anti-ship cruise missiles to Iran, and, according to United States intelligence, shipped M-11 missiles to Pakistan in 1992. CPMIEC markets and sells the M-family of medium-range surface-to-surface missiles, a variety of shipborne, anti-ship, and tactical missiles, as well as liquid and solid rocket motors, precision machinery, optical equipment, and radars.

The U.S. Commerce Department approved six licenses for export of equipment to CPMIEC from 1989 to 1993. Most notably, the export of a computer workstation for the simulation of wind effects was licensed. The ability to simulate wind effects is something the designer of an anti-ship missile could find useful. The missiles now pose a threat to U.S. ships and sailors in the Persian Gulf as well as to commercial shipping.

(c) China National Electronics Import-Export Corporation (CEIEC)

CEIEC markets electronic and cryptographic systems, radars, mine detection equipment, fiber and laser optics, and communications technology. In the mid-1990s, Iran imported a powerful surveillance radar from CEIEC – it can detect targets up to 300 kilometers away – and integrated it into its air defense system. This radar may have been built using U.S. equipment. Microwave research equipment, a very large scale integrated system for testing integrated circuits, equipment for making semiconductors, and computer equipment were all licensed for export to CEIEC by the Commerce Department from 1989 to 1993.

What can the United States do?

The United States can do a much better job of controlling sensitive exports to the Chinese firms that are developing weapons of mass destruction. The United States now publishes a list of dangerous buyers in the Federal Register. It is essentially a warning list. Before selling any listed company a product that could contribute to the spread of weapons of mass destruction, an exporter is required to obtain an export license. This allows our government to turn down dangerous sales without impeding innocent ones, and enables American industry to keep its competitive edge without arming the world. There will always be the buyer who smuggles, or uses a front company, but without an export license that buyer will find it harder to get the parts and service needed to keep a high-tech enterprise going.

The United States did publish a list of 150 dangerous buyers in India and Pakistan after the two countries tested nuclear weapons in 1998. But so far, our government has not published a comprehensive, worldwide list of such buyers. The U.S. warning list for China, for example, contains only nineteen names. Our government has claimed that a more extensive list would reveal intelligence sources and set off diplomatic conflicts. But it is well-known that scores, if not hundreds of firms in China are active in nuclear, missile and military production. Their names are not secret. It is silly to pretend we don’t know they exist. The computer industry, in fact, would welcome a list of dangerous buyers. Industry would prefer to spend its scarce marketing dollars on buyers that don’t present problems. As a first step in building such a list, I have attached to my testimony the names of 50 firms that are well-known parts of China’s nuclear, missile and military complex. They have been selected on the basis of reliable, unclassified information. I recommend that the Commission submit these names to the Department of State, and ask for an opinion on whether the names should be included on the published U.S. export warning list. If the State Department judges that these firms should be included, then the Commission should ask the Commerce Department to add the names to the “entity” list in Part 744 of the Export Administration Regulations. American firms should not unwittingly make sales that undermine American security.


Appendix to the testimony of Gary Milhollin before the U.S.-China Security Review Commission, October 12, 2001

22nd Construction and Installation Corporation (Yichang)

23rd Construction Corporation (Beijing)

Aviation Industries of China I and II (AVIC) (Beijing)

Beijing Institute of Aerodynamics (BIA) (Beijing)

Beijing Institute of Electromechanical Engineering (Beijing)

Beijing Institute of Electronic Systems Engineering (Beijing)

Beijing Institute of Nuclear Engineering (BINE) (Beijing)

Beijing Institute of Space System Engineering (Beijing)

Beijing Institute of Technology (BIT) (Beijing)

Beijing Research Institute of Uranium Geology (BRIUG) (Beijing)

Beijing Wan Yuan Industry Corporation (BWYIC) (also known as the China Academy of Launch Vehicle Technology [CALT]) (Beijing)

Chengdu Aircraft Industrial Corporation (CAIC) (Chengdu)

China Aerospace International Holdings Ltd. (CASIL) (Hong Kong)

China Aerospace Machinery and Electronics Corporation (CAMEC) (Beijing)

China Aerospace Science and Technology Corporation (CASC) (Beijing)

China Chang Feng Mechanics and Electronics Technology Academy (Beijing)

China Great Wall Industries Corporation (CGWIC) (Beijing)

China Haiying Electro-Mechanical Technology Academy (Beijing)

China Hexi Chemistry and Machinery Company (Beijing)

China Nanchang Aircraft Manufacturing Company (Nanchang)

China National Aero-Technology Import-Export Corporation (CATIC) (Beijing)

China National Aero-Technology International Supply Corporation (CATIC Supply) (Nanchang)

China National Nuclear Corporation (CNNC) (Beijing)

China North Chemical Industries Corporation (NOCINCO) (Beijing)

China North Industries Corporation (NORINCO) (Beijing)

China North Opto-electro Industries Corporation (OEC) (Beijing)

China Nuclear Energy Industry Corporation (CNEIC) (Beijing)

China Precision Machinery Import-Export Corporation (CPMIEC) (Beijing)

China Sanjiang Space Group (Wuhan)

Chinese Academy of Sciences (CAS) (Beijing)

Commission on Science, Technology and Industry for National Defense (COSTIND)

East China Research Institute of Electronic Engineering (ECRIEE) (Hefei)

Harbin Engineering University (Harbin)

Harbin Institute of Technology (HIT) (Harbin)

Hua Xing Construction Company (HXCC) (Yizheng)

Hubei Red Star Chemical Institute (also known as Research Institute 42) (Xiangfan)

Luoyang Electro-optical Technology Development Center (LEODC) (Luoyang)

Nanjing University of Science and Technology (Nanjing)

National University of Defense Technology (NUDT) (Changsha)

Nuclear Power Institute of China (NPIC) (Chengdu)

Research Institute 31 (Beijing)

Shaanxi Institute of Power Machinery (also known as Research Institute 41) (Shaanxi)

Shanghai Institute of Electromechanical Engineering (Shanghai)

Shanghai Power Equipment Research Institute (SPERI) (Shanghai)

Shanghai Xinfeng Chemical Engineering Research Institute (Shanghai)

Shanghai Xinli Research Institute of Power Equipment (Shanghai)

Shanxi Xingan Chemical Material Plant (Taiyuan)

Shenyang Aircraft Corporation (SAC) (Shenyang)

Shenyang Aircraft Research Institute (SARI) (Shenyang)

Xidian University (also known as the Xian University of Electronic Science and Technology) (Xian)