US AND MULTILATERAL EXPORT CONTROLS FOR CHINA: BEIJING'S AGENDA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00907R000300040001-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 22, 2016
• Document Release Date: May 17, 2012
• Sequence Number: 1
• Publication Date: April 14, 1987
• Content Type: MEMO

Declassified in Part - Sanitized Copy Approved for Release 2012/06/22 : CIA-RDP04T00907R000300040001-6L5X1
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DIRECTORATE OF INTELLIGENCE
14 April 1987
US and Multilateral Export Controls for China: Beijing's Agenda
Aware that US and COCOM export controls for China are being
revised, Chinese officials will use bilateral meetings this month to air their
complaints about the current process as well as to press for changes.
Beijing's top priority is eliminating the need for COCOM review, and
Chinese officials will probably press US officials to change US policy
unilaterally as well as to influence COCOM to do away with multilateral
review. Beijing will also lobby for shorter case-processing times in the
United States, and may request assistance from US visitors in expediting
cases that have been held up by interagency review.
We expect Chinese officials to press for restrictions to be eased in
several areas, including supercomputers, and production technology and
equipment for microelectronics, fiber optics, composite materials, and
mainframe computers. Beijing will probably hint that China will seek
Japanese or West European technology if US technology is not made
available.
This memorandum was prepared byl Office of East Asian Analysis.
Information available as of 14 Apr1I 1987 was used in its preparation. Comments and
queries are welcome and may be directed to the Chief, Trade and Technology, China
Division, OEq
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We expect Beijing to react in a low-key manner to general
statements about impending changes in US export controls for China.
Beijing will remain skeptical about what the changes will mean in practical
terms. In addition, for the next few months, discussions of US technology
transfer policy will be overshadowed by China's uncertain domestic
environment, and Beijing's preoccupation with other bilateral economic
issues.
The Litany of Complaints
Over the last few years, in public statements as well as private comments to US
officials, Chinese leaders have enumerated their frustrations with US and COCOM
controls on the sale of sophisticated dual-use and military equipment (see appendix A
for a chronology of changes in US and COCOM policies for China). Aware that US and
COCOM export control policies are being revised, Chinese officials have reiterated
Beijing's concerns in recent bilateral discussions. We expect Chinese officials to register
many of these same complaints during meetings later this month:
The Level of Technology China May Acquire. Last November, Vice Foreign
Minister Zhu Qizhen remarked to visiting Assistant Secretary of State Sigur that
there had been no fundamental relaxation in the level of technology allowed
China. In February, China's Deputy Chief of Mission in Washington, Tang Shubei,
charged that although less than 1 percent of China's license applications are
denied, the statistic is misleading because fear of denial keeps Chinese users and
US vendors from signing contracts for many controlled goods. Tang listed the
categories of equipment and manufacturing technology most frequently denied
licenses for shipment to China: carbon fiber, engineering plastics, special
materials for the electronics industry, integrated circuits, optical fiber
communications, and computers for scientific work.
Lengthy Processing Times. According to Tang, Chinese statistics indicate that
nearly half of their requests for high-tech goods from the United States suffer
delays in receiving export licenses.
in late February, Tang volunteered that some in China
believe US Government agencies deliberately delay cases to block transactions
without having to deny the licenses outright.
COCOM Review of US Licenses for China_ Beijing considers COCOM review to
be a major reason for licensing delays; indeed Premier Zhao Ziyang in 1984 noted
that after the November 1983 liberalization of US controls for China, the
bottleneck in export licensing shifted from Washington to Paris. Beijing also
objects in principle to COCOM review of US licenses. Chinese officials regard the
policy as discriminatory, because China is the only "friendly" country (i.e.,
Country Group V of the US Export Control Administration Act) subject to COCOM
consideration.
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Chinese officials lobby nearly every visiting US delegation to exert influence in
COCOM to do away with required multilateral review of intermediate-level technology
sales to China, shorten case processing times within the US Government, and raise the
level of technology China may acquire.
Among these issues, eliminating the requirement for COCOM review of China
cases has become Beijing's top priority. Beijing has long regarded a 1985 change
allowing countries to themselves license exports in more than two dozen categories as
only an intermediate step toward removing China from the list of COCOM-proscribed
countries. Beijing has quietly lobbied all COCOM members to accept this change, but
recognizes that US support is crucial, because the United States initiates 75 percent of
the China cases. At the same time--and as a temporary expedient--Chinese officials
have pressed for the United States to implement this change, by ceasing to forward
China cases to COCOM.
During most bilateral meetings, Chinese officials ask their US counterparts to
intercede in the resolution of specific cases that have been stalled in the US review
process. According to Embassy reporting, for example:
? Vice Premier Li Peng presented to Vice President Bush a list of 21 unresolved
export license cases during the Vice President's October 1985 trip to China.
? In February 1986, Vice Foreign Minister Zhu Qizhen pressed visiting
Undersecretary of State Schneider to resolve the cases raised by Li Peng.
? Vice Minister of Foreign Economic Relations and Trade Zhang Haoruo presented
a list of 30 delayed license cases in
Most recently, China's Vice Minister of Petroleum Industry asked visiting
Commerce Deputy Assistant Secretary Searls to check on the status 'of two
licenses for computer equipment used in processing seismic data.
More generally, Beijing continues to press the United States to streamline the
interagency review process, although this issue has become less prominent as delays in
COCOM have assumed greater importance to the Chinese over the last two years.
We expect Beijing to press for greater access to a wide range of dual-use
technologies as well. Tang Shubei's list of items currently denied China--primarily
involving special materials and information technologies--provides a general idea of the
categories in which Beijing will probably press the hardest.
we believe Beijing may push for some ot these items:
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? Supercomputers Beijing has been negotiating with US and Japanese firms for
supercomputers to be used in seismic data processing and meteorological
forecasting.
To further bolster its
arguments for receiving a supercomputer, Beijing may also point to the recent
approval of a supercomputer sale to Taiwan.
? Microelectronics production equipment. One of China's highest priorities is the
electronics sector, and the development of an indigenous microelectronics
capability forms the basis for the advancement of this sector. US and COCOM
controls generally restrict the transfer of technologies and equipment that would
enable China to produce very-large-scale integration (VLSI) and very-high-speed
integrated circuits (VHSIC). Beijing has active VLSI and VHSIC research programs,
and seeks a variety of restricted items that are suitable for fabricating
sophisticated microelectronics devices. Chinese officials may press for: software
and source codes suitable for computer-aided VLSI design, and up-to-date
models of equipment used in lithography, dry etching, digital circuit testing, ion
implantation, and clean room control.
? Fiber-optics production technologies. Beijing views fiber optics as a high
priority for upgrading China's severely strained telecommunications network and
seeks foreign technology to boost weak indigenous capabilities. Beijing
particularly seeks production technology for high-speed (140
megabits-per-second or higher), long-distance transmission links. US policy still
restricts transfers of the production equipment and know-how capable of
upgrading China's indigenous capability to this level. Beijing seeks other
technologies and equipment used in data communications as well; computer
networking--for military command and control as well as a variety of civilian
applications--will be a priority over the next few years.
? Composite materials. China's push into advanced composite materials for
defense-related aerospace applications as well as for civilian uses has prompted
Chinese requests for controlled equipment and technology. For example, Beijing
has approached US, Japanese, and West European firms for carbon- and
graphite-fiber production technology. Approval last week of a year-old US
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license application for machinery used in processing graphite fibers will probably
prompt other license requests for similar technologies as Beijing probes the
limits of the recent approval.
Mainframe Computer Manufacturing. Beijing is reviewing bids from three
suppliers for cooperative production
of mainframe computers in China. Because the project will be the first to involve
full-scale mainframe production--a 1985 kit-assembly deal involving five
mainframe computer kits and very limited transfer of US technology has not
grown into the larger operation once anticipated--Beijing doubtless expects
whatever firm is chosen to face contentious licensing discussions. Beijing's
decision on which firm to award the contract to may be influenced by its
perception of which government will consider a license application for mainframe
production technology more favorably; Chinese officials may attempt to get a
preliminary assessment of US policy in this area before awarding the contract.
A Lukewarm Response to Impending Changes in US Policy Expected
We believe that Beijing's response to US statements this month about further
liberalizing export controls for China will be reserved. We expect Chinese officials to
voice their appreciation for the changes, but to express concern over the restrictions
that remain, as they have after previous rounds of liberalization. We also anticipate that
Chinese officials will turn discussions of the licensing changes to other factors--such as
preferential financing--that keep US firms from being competitive in Chinese markets, as
Vice Minister of Foreign Economic Relations and Trade Shen Jueren did in meetings with
US officials earlier this year.
A major reason for Beijing's anticipated low-key response is lingering skepticism
about what the changes will mean in practical terms. Premier Zhao Ziyang greeted the
1983 announcement of changes to US export control policy with a comment about
waiting to see if "thunder in Washington" led to "rain in Beijing," according to Embassy
reporting. Beijing probably anticipates that licensing delays will continue for especially
sensitive cases even after the changes are implemented, and doubtless recognizes that
some limits will remain. Moreover, we believe the changes in US policy do not address
China's primary concern about export controls--China's treatment in COCOM--about
which Beijing will learn little until after COCOM meets to revise its China policy in July.
The atmosphere in Beijing also accounts, in part, for the toned-down response
we expect. While development strategy as a whole is under debate, Chinese trade
officials may want to downplay their interest in the sophisticated equipment covered by
export controls to preempt charges from critics that a preoccupation with high-tech
items has resulted in too little emphasis on the more basic technologies needed to
modernize mature Chinese industries. China's difficulties absorbing Western technology
have lent credence to proponents of a more restrictive open door policy; for them,
China's widely publicized problems using imported computers, microelectronics
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production lines, and scientific instruments are proof that freer Chinese access to
advanced Western equipment is not a panacea for the country's economic ills.
Chinese officials will make it clear to US visitors why and how they would like
US and COCOM rules for China eased. But we believe that, from the Chinese
perspective, liberalization of export controls is fairly far down the list of what Beijing will
be seeking from the United States during this month's bilateral talks. Concerns about
the impact of US trade legislation on Chinese textile exports and China's need for more
US investment--made more urgent by Beijing's current foreign exchange crunch--will
force technology transfer to take a back seat to these other issues for at least the next
few months.
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Chronology of Changes in US and COCOM Policies toward China
United States moves China from country group Y--which
includes the Soviet Union and some East European
countries--to group P, created for China alone.
In defining parameters of group P, United States adopts the
general principle that it will approve exports to China at a
technical level twice that approved for the Soviet Union.
United States places China along with other friendly
non-allied European, African, and Asian countries in group V,
and publishes technical guidelines ("green lines") for seven
categories of goods (accounting for 75% of cases) to be
exempt from interagency review. The change also results in
the creation of a "red zone," in which licenses for China
carry the presumption of denial, and a "yellow zone,"
involving intermediate-level technologies that must be
reviewed both within the US Government and in COCOM on
a case-by-case basis.
1984 China becomes eligible for US government-to-government
(FMS) military sales.
COCOM agrees to expedited handling of China cases
involving dual-use goods in 27 categories (accounting for
50% of COCOM China cases). Under new "Administrative
Exceptions Notes" (AENs), COCOM countries can export
covered items, notifying COCOM afterwards. COCOM
requires China to issue end-use certificates specifying that
goods will not be diverted to unauthorized users within or
outside of China.
The new COCOM procedures take effect in February.
COCOM discusses further changes in exports of dual-use
(International List) items as well as changes in the handling
of military (International Munitions List) sales to China.
1987 (Jan) United States announces, in general terms, that export
controls for China will again be liberalized later this year.
1987 (July) COCOM will meet to finalize provisions allowing greater
Chinese access to both dual-use and military items.
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l , I ..
Distribution:
White House Executive Staff
1 - Dr. William Graham, Office of Science and Technology Policy, Rm 360,
Old Executive Office Building
Central Intelligence Agency
2 - Chief, China, Office of East Asian Analysis, China Division, Rm 4G20,
Headquarters
10 - Trade and Technology, Office of East Asian Analysis, China Division
Rm 4G32, Headquarters
1 - Chief, International Security, Office of East Asian Analysis
China Division, Rm 4G32, Headquarters
1 - Chief, Political Assessments, Office of East Asian Analysis
China Division, Rm 4G32, Headquarters
1 - Chief, Economic Assessments, Office of East Asian Analysis
China Division, Rm 4G24, Headquarters
1 - Systems Development Staff, Office of East Asian Analysis, Rm 4G48,
Headquarters
1 - Director, Office of East Asian Analysis, Rm 4F18, Headquarters
1 - DDI, Rm 7E44, Headquarters
1 - National Intelligence Council, Analytic Group, Rm 7E47, Headquarters
1 - Senior Review Panel, Rm 5G00, Headquarters
1 - President's Daily Brief Staff, Rm 7F30, Headquarters
1 - EA, National Intelligence Officer, Rm 7E62, Headquarters
I - Chief, Product Evaluation Staff, Rm 7F24, Headquarters
1 - Chief, EA_m 5E18, Headquarters
1 - Intelligence Liaison Staff, Office of Current Production and
Analytic Support, Rm 7G50, Headquarters
5 - Control Branch, Office of Current Production and Analytic Support,
IMC, Rm 7G07, Headquarters
1 - D/DCI/DDCI, Executive Staff, Rm 7D60, Headquarters
1 - Chrono, Office of East Asian Analysis, China Division, Rm 4G20
Headquarters
1 - Production Officer, Office of East Asian Analysis, Rm 4G48, Headquarters
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