Missile Technology Sent to China

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.

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. email the author

re : Every time I see you you are shilling for the ChiComs.

In what way am I shilling for the ChiComs.

I am merely stating facts, and the plain fact is that many companies in the west are moving there manufacturing base out to countries like India, and China.

That is not an analysis it is a plain statement of fact.

The reason why I take an interest in this is because one of those jobs moved out was mine.

I am not sure with your every time either since for the last year or so I have been back in uniform as a called up reservist.

Cheers Tony

The primary foundation of all of this is NAFTA and GATT and the related economic philosophies that brought them about. A primary one of these is what I refer to as "economic appeasement". Followed by the vain hope that conversion to liberty, freedom, and capitalism would be the byproduct. **EL STUPIDO**

This has permitted not only the direct attack against our defense related technology and manufacturing but the inderect erosion of our entire economy, work force, non-defense manufacturing base, and our entire future.

I know of no other way than to continue to wave the elements of our distruction in the face of the ignorant so at least they could not ever say they were not told.

It is as much a treason to be intentionally ignorant as it is to do it openly.

http://www.afpc.org/crm/crm479.htm

January 1, 2003
Two major US aerospace companies, Hughes Electronics Corp. and Boeing Satellite Systems, Inc. have been charged by the US State Department with 123 counts for violating the Arms Export Control Act and the International Traffic in Arms Regulations, reports the Washington Post. The companies are charged with illegally transferring sensitive US space technology and instructions during the mid-1990's that could have helped the Chinese military develop and perfect intercontinental missiles. In addition, to curry favor with Beijing, Hughes hired the son of a PLA military General-called China's "most important space official"-who oversaw a $600 million communications satellite contract. A third company, Loral, previously agreed to pay a $14 million fine and to spend $6 million on internal reforms to stop [illegal] overseas technology transfers.

http://www.afpc.org/crm/crm478.htm

December 9
China's Deputy Chief of Staff for Intelligence, General Xiong Guangkai - the man who threatened to level Los Angles using nuclear weapons - arrived in Washington D.C. to meet with Under-Secretary of Defense Douglas Feith, reports the Washington Times. Evidence suggests China has sold M-11 short-range ballistic missile technology to Pakistan, transferred CSS-2 intermediate-range ballistic missiles to North Korea, and may now be complicit in the nuclear technology swap that recently took place between Pakistan and North Korea. The Pakistan C-130 cargo transport aircraft that has shuttled between Islamabad and Pyongyang, trading nuclear enrichment technology and equipment for longer-range missiles, in fact has been refueling at a Chinese PLA Air Force base. Last Spring, General Xiong signed "Joint Military Production" and "Joint Defense" Agreements with Pakistan

http://www.freerepublic.com/focus/news/710245/posts

Telecom Equipment Project by the Chinese for Taliban after 9-11

About FutureWei Technologies

1700 Alma Drive, Suite 500
Plano, TX 75075, USA
Tel: +1-972-509-5599

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.

http://www.senate.gov/~gov_affairs/110701milhollin.htm

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 company’s 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” Huawei’s 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, Huawei’s 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.

http://www.afpc.org/crm/crm423.htm

January 9, 2002

China is expected to have between 75 and 100 long-range nuclear missiles pointed at the United States by 2015, roughly quadruple the current number, according to a CIA study released Wednesday, the Associated Press reports. Many of those intercontinental ballistic missiles will be on mobile launchers, helping China maintain a nuclear deterrent against the vastly larger U.S. missile force, says the report, titled "Foreign Missile Developments and the Ballistic Missile Threat Through 2015."

The Chinese military is developing three new missile systems, all of which could be fielded by 2010, the study says. The Chinese may also be able to mount multiple-independent re-entry vehicles - MIRVs - on its older silo-based missiles. These enable a single missile to launch warheads at several targets, vastly increasing potential damage.

http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=25680

Book says China involved in 9-11 attacks: Beijing used bin Laden to assault U.S., claims author

Saying that bin Laden has traveled to China numerous times to meet with officials there, Thomas contends that "almost certainly he talked to them about obtaining" material to build weapons of mass destruction.

China's President Jiang Zemin, adds Thomas, waited three days to contact Bush about the Sept. 11 attack and told the U.S. president that, vis-à-vis the war on terrorism, China would find itself in a "difficult situation, given our well-known position of opposing any interference in the internal affairs of any country."

Washington sources say that Bush "gritted his teeth and said he would push on without China," Thomas wrote.

The author also cites what he calls the "happy parties in the streets of Beijing" following the 9-11 attacks.

"They're selling videos there with commentary saying, 'America had it coming,'" said Thomas. "Their message is: 'America can be defeated.'"

http://www.magnequench.com/mag_news/comp_info_officers.html

Archibald Cox, Jr.
President and Chief Executive Officer

Mr. Cox was appointed President and Chief Executive Officer of Magnequench in 1995. Before joining Magnequench, he was a managing director of Morgan Stanley International and the President and Chief Executive Officer of CS First Boston Corporation. Mr. Cox serves on the boards of Hutchinson Technology Inc., Hutchinson, Minnesota (1996); Sterling Cruise Lines, LLC, Cape Canaveral, Florida (1998); and Builders Information Group, Inc., Chicago, Illinois (2002). Mr. Cox has more than 38 years of local and overseas financial and management experience and is the founder of Sextant Group, Inc. He holds a bachelor’s degree in economics from Harvard College and an M.B.A. from the Harvard Business School

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