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China's Proliferation Practices and Role in the North Korea Crisis Hearing CHINA’S PROLIFERATION PRACTICES AND ROLE IN THE NORTH KOREA CRISIS HEARING BEFORE THE U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION ONE HUNDRED NINTH CONGRESS FIRST SESSION MARCH 10, 2005 Printed for the use of the U.S.-China Economic and Security Review Commission Available via the World Wide Web: http://www.uscc.gov U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 2005 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001 U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION Hon. C. RICHARD D’AMATO, Chairman ROGER W. ROBINSON, Jr., Vice Chairman CAROLYN BARTHOLOMEW, Commissioner Hon. PATRICK A. MULLOY, Commissioner GEORGE BECKER, Commissioner Hon. WILLIAM A. REINSCH, Commissioner STEPHEN D. BRYEN, Commissioner Hon. FRED D. THOMPSON, Commissioner JUNE TEUFEL DREYER, Commissioner MICHAEL R. WESSEL, Commissioner THOMAS DONNELLY, Commissioner LARRY M. WORTZEL, Commissioner T. SCOTT BUNTON, Executive Director KATHLEEN J. MICHELS, Associate Director The Commission was created in October 2000 by the Floyd D. Spence Na- tional Defense Authorization Act for 2001 sec. 1238, Public Law 106– 398, 114 STAT. 1654A–334 (2000) (codified at 22 U.S.C. sec. 7002 (2001)), as amended, and the ‘‘Consolidated Appropriations Resolution of 2003,’’ Public Law 108–7, dated February 20, 2003. Public Law 108–7 changed the Commission’s title to U.S.-China Economic and Security Review Com- mission. The Commission’s full charter is available via the World Wide Web: http:// www.uscc.gov. The Commission’s Statutory Mandate begins on page 178. (II) U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION MAY 12, 2005 The Honorable TED STEVENS, President Pro Tempore of the U.S. Senate, Washington, D.C. 20510 The Honorable J. DENNIS HASTERT, Speaker of the House of Representatives, Washington, D.C. 20515 DEAR SENATOR STEVENS AND SPEAKER HASTERT: On behalf of the U.S.-China Economic and Security Review Com- mission, we are pleased to transmit the record of our March 10, 2005 public hearing in Washington, D.C. The hearing on ‘‘China’s Proliferation Practices and Role in the North Korea Crisis’’ gave the Commission revealing insights into proliferation transfers ema- nating from China and China’s role in addressing the North Korea nuclear problem. As you know, the Commission is mandated by Congress to ana- lyze and assess the Chinese role in the proliferation of weapons of mass destruction (WMD) and other weapons (including dual-use technologies) to terrorist-sponsoring states and to suggest possible steps which the United States might take, including economic sanc- tions, to encourage the Chinese to stop such practices. (P.L. 108–7, Division P, Sec. 2(c)(2)(A)). In a post 9/11 world, the issues ad- dressed are of dire importance, not only to the United States but to all countries. Based on testimony received at its hearing on these issues in July 2003, this Commission concluded that China was a substantial source of WMD and missile-related proliferation. Regrettably, based on the testimony presented at its March 10 hearing, we must advise that Chinese entities continue to pro- liferate WMD and missile-related technologies to countries of con- cern such as Iran. We also note that the situation in North Korea has not improved since 2003 and, if anything, has become more worrisome. Earlier this week (May 11), a North Korean Foreign Ministry spokesman announced his country is taking measures to increase its nuclear arsenal. The stakes associated with these issues could not be higher and the potential consequences could not be more global in scope. In order to address these problems, the Commission heard testi- mony from U.S. Representatives Edward Markey and Curt Weldon and received a written statement from Representative Solomon Ortiz. The Commission also heard from executive branch officials and leading non-governmental experts. The hearing was timely since a number of Chinese entities had been sanctioned by the ex- ecutive branch for transferring missile-related technology to Iran in December 2004 and because of North Korea’s February 2005 an- nouncement that it possesses nuclear weapons and was withdraw- ing from the Six-Party Talks aimed at denuclearizing the Korean Peninsula. China’s Proliferation Practices As we have indicated in our previous reports, China’s role in the proliferation of weapons of mass destruction and their delivery sys- iii tems remains a serious concern. At the hearing, one Department of Defense official stressed his concern that, as China modernizes its nuclear and ballistic capabilities, such improved technology and know-how could be proliferated to problematic countries. Over the past few years China has increased its public nonproliferation posture through its involvement in a number of multilateral non- proliferation commitments. For example, China was accepted into the Nuclear Suppliers Group in May 2004. Its promulgation of some export control laws is also a positive step. However, China needs to acknowledge the frightening prospects of proliferation and do much more to fully implement its export control policies and stop its companies and people from engaging in WMD-related pro- liferation. Despite Beijing’s assertions that it is addressing the problem, the reality is that Chinese entities, many of which have very close ties to the government, continue to provide nuclear, chemical, and mis- sile-related technologies to countries of concern. In his testimony to us, a Department of State official noted that ‘‘there is no doubt that we feel China can do and should be doing more to prevent the spread of WMD, missiles, and conventional weapons. Their [Bei- jing’s] inability to take action against serial proliferations calls into question China’s commitment to truly curb proliferation to certain states.’’ Currently the Administration has a parallel strategy to address Chinese proliferation: conveying U.S. concern to Beijing about Chi- nese proliferation activities and imposing sanctions against pro- liferating Chinese entities. Despite the Administration’s complaints and aggressive use of penalties, Chinese entities, such as the North China Industries Corporation (NORINCO) which has been sanc- tioned numerous times, continue to sell WMD and missile-related technologies abroad. We have serious questions about both China’s commitment to policing its serial proliferators and the effectiveness of current U.S. sanctions, which in some instances have been waived by the executive branch. A reevaluation of the effectiveness of our sanctions is in order. One non-governmental expert witness complained, ‘‘[Current sanc- tions] are not strong enough to affect the profitability of the offend- ing companies. Put simply, our sanctions do not have any real teeth.’’ In some cases sanctions do not punish parent companies for the proliferation activities of their subsidiaries unless the parent companies ‘‘knowingly assisted’’ in the prohibited transactions—a burden of proof that is very difficult to meet. The penalties aimed at the actual proliferating entities often restrict them from con- ducting business with the U.S. Government, and occasionally re- strict their exports from entering U.S. markets, but have little fi- nancial effect as few of the proliferating subsidiaries have direct business connections with the U.S. Government or American com- panies. Currently it is possible for a Chinese parent company to engage in joint ventures with American companies and raise money on the New York Stock Exchange while its subsidiaries are under U.S. proliferation sanctions, and this is not a hypothetical situation. One witness explained how the Chinese oil giant Sinopec benefited from joint ventures with American companies and raised roughly iv $3 billion in American capital markets while several Sinopec sub- sidiaries were subject to U.S. proliferation sanctions. During the same period, another Sinopec subsidiary was aided by a $429,000 management feasibility study funded by the U.S. Trade and Devel- opment Agency. If the U.S. wants its antiproliferation efforts to have significant impact, it must punish the parents of proliferating entities by limiting their access to American markets, including our capital markets. Further, if Chinese entities continue to be in- volved in proliferating activities, demonstrating that the govern- ment of China is not taking effective steps to curtail such activities, the U.S. should consider sanctioning the government in an effort to gain its attention and spur it to meaningful action in halting proliferation. China’s Role in the North Korea Nuclear Crisis On February 10, 2005 North Korea abruptly announced that it possesses nuclear weapons and was withdrawing from the Six- Party Talks aimed at denuclearizing the Korean Peninsula. This was a serious setback to efforts seeking to attain peace and sta- bility in the East Asia region and beyond. China plays a key role as the host of the Six-Party Talks and also, with its aid program to North Korea, prevents that country’s economy and regime from collapsing. As one witness noted, ‘‘extreme pressure must be ap- plied to North Korea, and Pyongyang must understand that diplo- matic, political, and economic pressure will only increase if it con- tinues its nuclear programs. China’s active participation in such an effort is necessary to achieve any success.’’ China can and should be doing more to bring Pyongyang back to the Talks as soon as pos- sible and without pre-conditions. Failure to do so could lead to a regional arms race, or worse. It is possible that China wants to maintain the status quo, per- haps seeing that as desirable for its own security interests. Regard- less, China can muster and apply much greater leadership and le- verage than it has chosen to deploy to date. Recently China has sought a heightened global status, but until it brings North Korea back to the Six-Party Talks, it is demonstrating failure as a diplo- matic leader.
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