Last year, the Bush administration proposed new controls to limit the transfer of technology to China that could be used to strengthen Beijing’s defense industry and military capabilities. Some items would be prohibited, while special licenses would be needed for other products. There would be more background checks and oversight of transactions. This followed the Pentagon’s findings in its annual report on Chinese military power that Beijing “continues to invest heavily in its military, particularly in programs designed to improve power projection. The pace and scope of China’s military build-up are, already, such as to put regional military balances at risk.” These warnings were repeated in the 2006 report released May 23, which noted, “China continues a systematic effort to obtain dual-use technologies through trade, commercial transactions, and joint ventures.”
The Bush administration has lobbied hard against a proposed lifting of the European Union arms embargo on China, managing to block it for the moment. Washington has also pressured Israel to curtail its cooperation with China. In Congress, Rep. Henry Hyde, R-IL, chairman of the House International Relations Committee, had been pushing hard to tighten export controls across the board.
Establishing national security as the priority in international economics has not set well with two groups: American firms that want to sell high-tech goods to China, and the Chinese government which wants to acquire technology it does not yet have. Beijing has tried for years to have export controls lifted, arguing that high-tech exports could reduce the huge U.S. trade deficit, which topped $201 billion last year. President Hu Jintao made a mention of this on the White House lawn during his meeting with President George W. Bush April 20. But as James Sasser, ambassador to China during the Clinton administration, has said, “The Chinese really don't do any lobbying, The heavy lifting is done by the American business community.”
According to press reports, the computer, aviation and machinery industries, led by Intel, Boeing and umbrella groups like the Coalition for Employment Through Exports, have been successful in lobbying the Commerce Department for less restrictive rules and a shorter list of controlled products. Among the items taken off the list include aircraft engines, ball bearings, machine tools, and virtual-reality systems. An original list numbering into the hundreds has been reduced to a list of less than 50 items. As Undersecretary of Commerce for Industry and Security David McCormick told the Wall Street Journal, “The policy I've described is a very different approach than was being discussed just six months ago. There are some philosophical shifts here.”
The final version of the new regulations are due out at the end of the month, with a 120 day comment period to follow. It is important that the comments come from a wider circle that the lobbyists employed by the exporters.
I attended the biennial Zhuhai, China, Airshow in 2004. Two strong doses of reality were much in evidence, beyond the very apparent expansive nature of Beijing’s ambitions (the depiction of Chinese bases on the Moon were quite thought-provoking). First, there is no clear line separating civilian and military enterprises in China, making the Commerce Department’s desire to reduce the licensing burden for “legitimate” Chinese buyers of U.S. technology illusionary. The aerospace and shipbuilding industries are state-owned and operated, as is most of the rest of heavy industry. Chinese plans for new airliners and executive jets were displayed in the same booths as cruise missiles and artillery rockets. One third of China’s economy is still in the hands of state-owned firms, and much of the so-called private sector is run by elites with direct ties to the government and the Communist party.
Second, there was no lack of American firms eager to sell Beijing whatever it wanted, with the training, research facilities and production cooperation the Chinese authorities demand as part of any deal. Business firms exist to make money, not to contemplate the larger consequences of their actions. They have no self-control. That is why export controls by the government, whose duty it is to think about changes in the global balance of power, are necessary.
China particularly wants high-performance computers and semiconductor-manufacturing equipment, which Beijing claims will be used for civilian purposes, such as in the information technology (IT) sector. Yet, a new report by the RAND Corporation on the Chinese military found it was more advanced that previously thought, in part due to the infusion of commercial technology. The authors state, “China’s emerging IT sector is not an officially designated part of China’s defense-industrial complex; however, it is probably the most organizationally innovative and economically dynamic producer of equipment for China’s military. And it is at the forefront of China’s improving defense-production capabilities. Although IT enterprises are primarily (exclusively, in most instances) oriented toward domestic and international commercial markets, the PLA has been able to effectively leverage certain IT products to improve the military’s command, control, communications, computers, and intelligence (C4I) capabilities—a critical element of the PLA’s modernization efforts.” Department of Commerce regulations seemed headed in the direction of directly helping this trend in PLA capabilities.
The argument that high-tech equipment sales to China would significantly close the trade deficit does not add up. Sales of military or “dual use” technology might amount to billions of dollars over some time period, but not on anything like the scale needed to balance trade. For example, 2003 was a peak year for Russian arms sales to China, not just “dual use” technology, but entire weapons systems including fighters, missiles and warships. But the total was only $5.1 billion.
According to testimony by Francis C. Record, Acting Principal Deputy Assistant Secretary for Counterproliferation at the State Department, before the U.S.-China Economic and Security Review Commission on March 17, 2006, even under the current embargo on lethal weapons, “EU nations have approved significant non-lethal military exports to China, including military helicopters, fire control radar, aircraft engines, submarine technology, and airborne early warning systems. In 2004, these EU governments approved more than 200 defense export licenses worth more than 400 million U.S. dollars.” But $400 million is a long way from the $200 billion U.S.-China trade gap. The transfer of the knowledge from the sale of American technology to China would do more to narrow the military capabilities gap than the trade gap. China has shown itself quite adept at taking a few samples and replicating them, making the technology their own without any further need for payments. Indeed, the Chinese scientific community has been thrown into turmoil by recent scandals involving the attempt by some researches to claim stolen foreign technology as their own inventions.
Some individual American companies might make a short-term profit if restrictions were lifted, but if the result was higher performance for Chinese weapons, the cost that the U.S. economy would have to bear to regain its advantage would be greater by orders of magnitude. For example, Toshiba Machine sold four nine-axis and four five-axis milling machines to the Soviet Union in 1982-1984. The machines were used to make improved propellers for Soviet submarines which made them quieter and harder to detect. Toshiba Marine rang up $17 million for the sales, but it cost the U.S. several billions of dollars to regain the ability to track those improved submarines. Private profit is a wholly inappropriate factor to weigh against national security in trade with potential adversaries.
A 2002 report by the Government Accountability Office (GAO) concluded “The current export control system has not effectively slowed China’s ability to obtain billions of dollars worth of advanced semiconductor equipment as part of its national strategy to modernize its semiconductor industry.” The GAO found that licenses were routinely approved and there were inadequate follow up inspections to confirm promises by China's Commerce Ministry that items would not be used for military purposes. No U.S. department or agency has the manpower to police the use of U.S. technology is a country the size of China once it has been delivered, even if Beijing cooperated, which it doesn’t.
The National Security Strategy of the United States, released in March, stated “Our strategy seeks to encourage China to make the right strategic choices for its people, while we hedge against other possibilities.” Part of that hedging involves redeploying aircraft carriers and submarines to the Pacific, developing new deep strike weapons, and strengthening Asian alliances. But export controls are also properly part of this strategy, to prevent having to face a China regime which has been given the critical capabilities needed to advance its ambitions by irresponsible mercenaries.
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