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U.S. slapping more sanctions on Chinese defense companies

WASHINGTON—Until recently, U.S. consumers who wanted an el cheapo hunting rifle could've shopped at Wal-Mart or Kmart for a low-cost model made by North China Industries Corp.

But that company and other Chinese defense companies are in the penalty box with the Bush administration for selling weapons to nations that are considered rogue states.

Since it came to office, the Bush administration has slapped sanctions on Chinese companies or individuals 62 times for illegal arms proliferation. That follows a nearly three-year period in the Clinton administration in which not a single sanction was imposed.

The huge increase in sanctions raises questions: Do the sanctions push China toward better behavior? Are individual Chinese defense companies deterred? Why are some sanctions imposed on Chinese subsidiaries, letting parent companies off the hook?

China complains bitterly about the U.S. sanctions, asserting that it has new laws in place to curb arms sales and has reined in state-run companies that had been operating somewhat independently.

"Their response is generally to say, `It's outrageous! The sanctions are unfair. Show us proof,'" said Matthew Godsey, a research associate in Washington at the Wisconsin Project on Nuclear Arms Control, a disarmament advocacy group.

U.S. officials say the evidence comes from intelligence sources from various federal agencies that can't be divulged publicly.

Many of the sanctions have been imposed on just a few state-run Chinese companies. For example, North China Industries Corp., commonly known as Norinco, has received six sanctions since May 2003, all for missile-related exports to Iran. A state-run conglomerate based in Beijing, Norinco has won hundreds of millions of dollars in trade with Iran, including expanding a mass transit system in Tehran, and it considers Iran a major market. The company manufactures everything from ordnance and tanks to auto parts and rugs.

Officials from the company declined interview requests, instead sending an unsigned response to written questions.

"It is unreasonable and extremely wrong that the U.S. government has imposed many sanctions on our company in the name of nonproliferation," the statement said. "Norinco is a responsible company managed according to law."

Other U.S.-sanctioned companies in China include Precision Machinery Import/Export Corp., Wha Cheong Tai Company Ltd., Zibo Chemical Equipment Plant, and China Great Wall Industry Corp. The sanctions even reach down to individuals. One Chinese national, Q.C. Chen, an arms broker, has been sanctioned four times since 2002.

The U.S. sanctions vary in severity, ranging from a ban on soliciting U.S. government contracts to a wholesale prohibition of exporting goods to the United States.

Experts inside and outside the Bush administration assert that the sharp increase in sanctions has made Chinese defense companies cautious about wholesale proliferation but hasn't halted the flow of missile and chemical weapons technology abroad.

"They really don't transfer complete platforms anymore, complete missiles and things like that. They are into the murkier world of components," said James Mulvenon, a specialist on the Chinese defense industry at the Center for Intelligence Research and Analysis, a consultancy in Washington. "They've become a more sophisticated manipulator of the system. They are still engaged in bad behavior."

Much of the tougher stance toward Chinese defense companies came while John Bolton, a conservative whom President Bush recently installed as ambassador to the United Nations, served as the State Department's point man on arms control and nonproliferation, leading a team that pushed for sanctions.

"They've been taking a far less tolerant attitude toward the Chinese than in previous years," said Tai Ming Cheung, author of "China's Entrepreneurial Army," a book about the nation's military industries.

Much of what the Chinese defense firms sell abroad is permitted under Chinese law, but not American law, and the U.S. sanctions have barely slowed the companies down.

"If you look at their corporate performances, they continue to grow rather robustly. They've all been doing extremely well in the past few years," Tai said.

But U.S. officials say they can't seem to get China's attention on weapons proliferation matters unless they target a specific company, such as Zibo Chemical, which is accused of selling glass-lined chemical vessels to an Iranian company linked to chemical weapons production.

In many cases the sanctions have few teeth, targeted at subsidiaries of parent Chinese companies that have poor track records, but that may have ties to U.S. trade.

"We're so afraid, so concerned, that U.S. companies might lose business that the laws are almost impotent," said Godsey, the anti-proliferation advocate at the Wisconsin Project. "We don't see any indication that it (the sanctions) has changed behavior."

Godsey said a company like Norinco "has shrugged these off because it figures it can still make money" in Iran even if it loses up to $200 million in U.S. business.

A Norinco official, in the faxed response to Knight Ridder, said U.S. companies are hurt by the sanctions against the company.

"My company has conducted extensive business cooperation with American companies," the response said, adding: "We strongly demand that the U.S. government lift all the sanctions against us ... and let our business cooperation with U.S. companies recover and develop."

In some cases, Chinese companies have listed their firms on overseas stock exchanges in Hong Kong and elsewhere even as their subsidiaries stand accused by Washington of proliferating to nations such as Iran and Pakistan.

"Sanctions are often imposed on a subsidiary of a large Chinese enterprise, but there is no impact on the parent company, even if it is 100 percent owned," said Roger W. Robinson, vice chairman of the U.S.-China Economic and Security Review Commission, a congressionally mandated body.

Robinson said he was particularly concerned about the case of Sinopec, a state-run oil company that began selling shares to foreign investors in 2000 even as two subsidiaries, Jiangsu Yongli Chemical Engineering and Nanjing Chemical Industries Group, were sanctioned for proliferation to Iran.

Robinson said he believes U.S. sanctions have brought "significant progress" with China but that the nation "remains part of the problem in proliferation worldwide."

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(c) 2005, Knight Ridder/Tribune Information Services.

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