Skip to comments.Missile Technology Sent To China
Posted on 02/05/2003 8:08:53 AM PST by Stand Watch Listen
An important U.S. high-tech manufacturer is shutting down its American operations, laying off hundreds of workers and moving sophisticated equipment now being used to make critical parts for smart bombs to the People's Republic of China (PRC), Insight has learned.
Indianapolis-based Magnequench Inc. has not yet publically announced the closing of its Valparaiso, Ind., factory, but Insight has confirmed that the company will shut down this year and relocate at least some of its high-tech machine tools to Tianjin, China. Word of the shutdown comes as the company is producing critical parts for the U.S. Joint Direct Attack Munition (JDAM) project, more widely known as smart bombs, raising heavy security issues related to the transfer of military technology to the PRC. The factory uses rare earths to produce sintered neodymium-iron-boron permanent magnets that have many industrial applications but are essential to the servos critical to precision-guided munitions. According to documents obtained by Insight, Magnequench UG currently is producing thousands of the rare-earth magnets for "SL Montevideo Tech," a Minnesota-based manufacturer of servos. That company confirmed to Insight that it holds a Department of Defense (DoD) contract to produce the high-tech motors for the precision-guided JDAM.
The Valparaiso-based manufacturer, originally known as UGIMAG, became Magnequench UG when it was acquired by Magnequench Inc. in August 2000. Magnequench Inc. had been purchased in 1995 by a consortium that included the China-based San Huan New Materials and Hi-Tech Co., created and at least partially owned by the Chinese Academy of Sciences in Beijing. Magnequench was a spin-off company of General Motors Corp. (GM), and at the time of the buyout was headquartered in Anderson, Ind.
Clyde South was a negotiator for the United Auto Workers Local 662 representing the workers at Magnequench when the consortium began negotiating to buy the company in 1995. In an interview with Insight, South says that worker concern about PRC influence over the consortium led to an "agreement with GM" that the plant would remain in Anderson for at least 10 years According to South, the buyers made the same agreement with the union, but since he had doubts about their intentions he took his concerns to Washington. Warnings fell on deaf ears. In August 2001, the sixth year of the 10-year agreement, South's distrust was validated when the consortium's managers "told us they intend to close the plant" and eliminate roughly 400 jobs.
The Magnequench plant in Anderson transforms neodymium, iron and boron into powder using a unique patented process that produces the exotic rare-earth magnets. Following the buyout in 1995, the production line at Anderson was "duplicated in China" at a facility built by the PRC company. According to South, after the company "made sure that it worked, they shut down" the Anderson facility. South says he suspects the buyout was about getting the technology, adding, "I believe the Chinese entity wanted to shut the plant down from the beginning. They are rapidly pursuing this technology."
Meanwhile, says the union negotiator, "They told us, 'We are going bankrupt,'" and therefore had to close the Anderson facility. This was not long after the consortium purchased UGIMAG in Valparaiso, according to critics, telling the workers there that they planned to keep the factory running. But, according to some sources, Magnequench Inc. had "refused to buy the buildings or the property" on which the factory was located, "suggesting a temporary arrangement." South said of his experience, "You just couldn't believe anything they told you."
The plant workers at Magnequench UG are organized by the United Steelworkers of America. Insight contacted union official Michael O'Brien, who confirmed negotiations with Magnequench UG regarding the company's future, but declined to comment further.
The transfer to Communist China of technologies that make rare-earth permanent magnets also is a matter of concern for defense and national-security experts, says Peter Leitner, a senior strategic-trade adviser to the DoD. Leitner says rare-earth magnets "lie at the heart of many of our most advanced weapons systems, particularly rockets, missiles and precision-guided weapons such as smart bombs and cruise missiles." He tells Insight why the PRC's need for this type of technology is urgent, noting that "China has an ongoing high-priority effort to produce a long-range cruise missile. They are trying to replicate the capabilities the U.S. has, such as with the Tomahawk [cruise missile], as part of their power projection, and expanding their ability to strike targets at long distances."
Since the 1995 buyout of Magnequench by the consortium of two Chinese companies and a cooperating U.S. firm, it has in turn bought at least two more high-tech companies that deal in rare-earth magnets. In addition to UGIMAG in 2000, which became Magnequench UG, it has bought GA Powders, which was a spin-off company of the Idaho National Engineering and Environmental Laboratory, a U.S. national lab. An insider tells Insight that "Magnequench UG is the last American company making these rare-earth magnets. When it moves to China, there are none left." Leitner sees a pattern. He says the Chinese "have targeted the manufacturing process through a variety of suspicious business activities and have been furiously transferring the manufacturing technology to China, thereby becoming the only source. They are purchasing U.S. companies, shutting them down and transferring them to China."
According to Leitner, "The Chinese are clearly trying to monopolize the world supply of rare-earth materials such as neodymium that are essential to the production of the militarily critical magnets that enable precise guidance and control of our most advanced weapons and aircraft." He warns that risks are involved in allowing this kind of technology transfer, adding: "By controlling the access to the magnets and the raw materials they are composed of, U.S. industry in general and the auto industry in particular can be held hostage to PRC blackmail and extortion in an effort to manipulate our foreign and military policy. This highly concentrated control -- one country, one government -- will be the sole source of something critical to the U.S. military and industrial base."
Intelligence analysts emphasize that the PRC routinely combines espionage operations with business deals. Internal PRC documents refer to this as advancing "economy and ... national-defense construction." A 1999 congressional report on PRC espionage states that the Beijing government sees "providing civilian cover for military-industrial companies to acquire dual-use technology through purchase or joint-venture business dealings" as a responsibility of the government. The report lists "rare-earth metals ... for military aircraft and other weapons" as one of the primary targets of the PRC.
So how could this be happening? Because of the PRC's involvement in the 1995 buyout of Magnequench, the deal required the approval of the Committee on Foreign Investments in the United States (CFIUS), which is chaired by the secretary of the Treasury. CFIUS approval of the buyout predated a series of reports by the FBI and congressional committees warning of massive PRC espionage efforts against U.S. businesses and military technology. In one case, which involved the then-struggling McDonnell Douglas Corp., the China National Aero-Technology Import and Export Corp. (CATIC) targeted the U.S. aircraft giant's plant at Columbus, Ohio, according to government sources. Plant 85, as it was known, is where the bodies of the U.S. Air Force C-17 strategic transport plane and the MX intercontinental ballistic missile were made.
In 1994, CATIC made an offer to buy Plant 85 and relocate it to what was to be a civilian aircraft-production facility, according to government documents. The request for an export license for the plant's machine tools touched off a bitter feud among export-control officials at the DoD that still lingers nine years later. Those opposed to the sale argued that once the Plant 85 machine tools were exported to the PRC, they would be used to produce missiles for China's People's Liberation Army (PLA). Those who favored the sale pointed to the ancillary deal the PRC dangled in front of McDonnell Douglas to purchase more than $1 billion worth of aircraft.
In the end, those in favor of the sale of Plant 85 won out and those opposed almost immediately were vindicated. According to government documents, within months of exporting the plant to China, U.S. officials learned that the sensitive machine tools had been diverted for use in a Chinese factory that makes the Silkworm missile that Beijing has provided to rogue nations. United Auto Workers union official South tells Insight he sees similarities between the cases of McDonnell Douglas and Magnequench, noting that immediately after the consortium's first Magnequench acquisition, "They transferred the patented jet-casting process to China."
In an interview with Insight, Magnequench Inc. President Archibald Cox Jr. initially denied but later confirmed having a contract for the production of rare-earth magnets for the JDAM. When asked about the shutdown of the Anderson plant last year, he acknowledged having a 10-year agreement with GM and the steelworkers, but insists that despite the early termination of that agreement the workers "got a fair deal" when the company bought out their contract. Cox tells Insight the closing of the Valparaiso plant was a matter of economics, and denies that the company is moving equipment to China.
"We are going to sell everything in the plant ... unless we can use it somewhere else," says Cox. Insight has obtained evidence that "somewhere else" may mean China. A copy of an internal memo from the Valparaiso plant seems to contradict the "sell or auction" option. A brief memo, dated Jan. 23, states in part, "In the near future you will be seeing people in the plant performing measurements and a variety of estimating and planning activities in preparation for equipment sale and/or removal ... to give the company an idea of cost and logistics." According to eyewitness accounts, all such "people have been from China." Cox also acknowledges that Magnequench Inc. did not purchase the buildings or land where the Valparaiso plant is located, but refuses to characterize reluctance on the company's part: "It just wasn't part of the deal," Cox says.
And, Cox insists, "China is already selling the same products for less money."
A source with detailed and specific information about the internal operations of the company tells Insight that "the company set up their own competitors by transferring the machines and technology to China. Once the Chinese companies bought into Magnequench, they created their own competition."
According to company officials, Mangnequench asked for and received clearance to export equipment it has shipped to the PRC.
Meanwhile, employees of Magnequench UG have placed their hope in an unlikely labor-union ally. The one surefire deterrent to Magnequench UG's move to China would be for President George W. Bush to exercise his authority under the 1988 Exon-Florio amendment to the Defense Production Act and order San Huan New Materials to divest its holdings in this strategic U.S. company. In his State of the Union Address, the president offered a glimmer of hope for Magnequench employees by declaring his administration's intent to "strengthen global treaties banning the production and shipment of missile technologies." If so, say the workers, this may be a very good place to begin the process.
Scott L. Wheeler is an investigative reporter for Insight magazine.
Is the entire defense intelligence apparatus asleep at the wheel ?
This is the type of "benign espionage" the Soviets conducted against us during and after WWI to obtain fisson and thermonuclear technology they lacked !!
***INSIGHT On The News online: "MISSILE TECHNOLOGY SENT TO CHINA" by Scott L. Wheeler (ARTICLE SNIPPET: "Indianapolis-based Magnequench Inc. has not yet publically announced the closing of its Valparaiso, Ind., factory, but Insight has confirmed that the company will shut down this year and relocate at least some of its high-tech machine tools to Tianjin, China. Word of the shutdown comes as the company is producing critical parts for the U.S. Joint Direct Attack Munition (JDAM) project, more widely known as smart bombs, raising heavy security issues related to the transfer of military technology to the PRC.") (020503)
***WASHINGTON TIMES.com: "CHINA ENACTS LAW EXTENDING ITS CONTROL" by Bill Gertz (ARTICLE SNIPPET: "China has enacted a new decree extending its control over a 200-mile economic zone from its coast that Bush administration officials say could lead to another clash with the United States over freedom of navigation.") (012703)
DefenseLINK.mil: "Remarks by Deputy Secretary of Defense Paul Wolfowitz , Frontiers of Freedom, Dirksen Senate Office Building, Washington, DC, Thursday, October 24, 2002." (SPEECH Question & Answer Session SNIPPET: "DepSec Wolfowitz: I think what it points out, and I think it should be a reminder to people on every side -- I was about to say both sides of this debate, but I find it a multi-sided debate. Whatever position one holds, one I think should recognize the potential for things to develop in ways that we don't anticipate, and the fact that if you stop and think about it, that concern that I mentioned which is a real one -- As I said, we demonstrated it in 1947 and we aren't the only ones who have thought about it, is something that requires thinking about missile defense in yet another difficult way. One could build the best possible defenses against intercontinental ballistic missiles and miss that possibility. I think as long as there are countries out there -- and there are -- who are as clearly determined as they are and they evidence it among other things, I mentioned the amount of resources they devote to being able to attack us. We need to be thinking ahead of them. We need to be thinking out of the box. We need to remember that there was a time when we said, I believe it was March of 1962, that it was inconceivable the Soviet Union would put missiles in Cuba. I believe in the 1980s when Saudi Arabia acquired long-range ballistic missiles from the Peoples Republic of China it took us completely by surprise. We think a relatively harmless surprise, but nonetheless a surprise.")
stepping back in time...NYI.edu - GLOBAL BEAT: "U.S.-CHINA TECHNOLOGY TRANSFER: ANNOTATED TIMELINE 1980- JANUARY 1998" by Bates Gill (ARTICLE SNIPPET: "1988 March - Reports reveal that China has transferred approximately 36 CSS-2 intermediate-range ballistic missiles to Saudi Arabia. This is first transfer of missiles of this range and capability within the developing world; the missiles were originally part of China's strategic arsenal, but Saudi and Chinese officials assure that the missiles will not be nuclear-armed. July - In Beijing, U.S. Secretary of State George Shultz expresses his concern over Chinese missile and weapons exports to Iran, Iraq, and Saudi Arabia.") (June 22, 1998)
WASHINGTON TIMES.com: "CHINA SHIPS NORTH NORTH KOREA INGREDIENT FOR NUCLEAR ARMS" by Bill Gertz (ARTICLE SNIPPET: "North Korean procurement agents succeeded in buying 20 tons of tributyl phosphate, known as TBP, a key chemical used to extract material for nuclear bombs from spent nuclear fuel, said officials familiar with intelligence reports of the transfer.") (121702)
Following the buyout in 1995, the production line at Anderson was "duplicated in China" at a facility built by the PRC company. According to South, after the company "made sure that it worked, they shut down" the Anderson facility.
No doubt that they already had the technology prior to starting the Chinese plant in '95, because you have no idea what plants you need until you have the design. But I see no reason we should allow them to buy our plants--probably pretty darn cheap.
It looks to me like our defense industry should be building as fast and as hard as it can. I don't know what weapons we have in the pipeline, but it's time to accelerate the program and ramp up production.
More related information on this thread.
Before the Subcommittee on International Security, Proliferation and Federal Services Committee on Governmental Affairs United States Senate November 7, 2001
There is little doubt that the present system allows American exports to endanger our security. A recent example is American transfers to Huawei Technologies, the Chinese company caught helping Iraq improve its air defenses by outfitting them with fibre optic equipment. The assistance to Iraq was not approved by the United Nations, and thus violated the international embargo.
The history of Huawei shows how American exports to China can wind up threatening our own armed forces. At about the time when this companys 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 reducing the risk from air attack.
Motorola is only the most recent example of American assistance. During the Clinton Administration, the Commerce Department allowed Huawei to buy high-performance computers worth $685,700 from Digital Equipment Corporation, worth $300,000 from IBM, worth $71,000 from Hewlett Packard and worth $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 Huaweis 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. Did IBM know that one of these customers might be Saddam Hussein?
As a result of deals like these, Huaweis 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.
These exports no doubt make money for American companies, but they also threaten the lives of American pilots.
About FutureWei Technologies
1700 Alma Drive, Suite 500
Plano, TX 75075, USA
Incorporated in 2002, FutureWei is a subsidiary wholly owned by Huawei Technologies, China's leading telecom equipment and network solutions provider. FutureWei aims to become a leading supplier of carrier class telecom equipment and low to mid-range enterprise network equipment in North America. Headquartered in Plano, Texas, FutureWei is dedicated to the research and development, sales and marketing and customer services for its owned branded and Huawei branded network equipment and solutions.
Testimony of Gary Milhollin Professor Emeritus, University of Wisconsin Law School and Director, Wisconsin Project on Nuclear Arms Control
Before the Subcommittee on International Security, Proliferation and Federal Services Committee on Governmental Affairs
United States Senate
November 7, 2001
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 Chinas nuclear, missile and military complex. I should point out that this is not a blacklist. It is only a warning list. These names have been selected on the basis of reliable, unclassified information. I recommend that Congress 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 Subcommittee 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.
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)
Magnequench Inc. had been purchased in 1995 by a consortium that included the China-based San Huan New Materials and Hi-Tech Co., created and at least partially owned by the Chinese Academy of Sciences in Beijing.
This is SOP for China. They will have JDAM technology with this deal.
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