Inside the Ring

NEWS AND ANALYSIS:

GE-CHINA VENTURE INVESTIGATED

The Pentagon is investigating the joint avionics venture between General Electric and a Chinese company that was linked in the past to U.S. arms proliferation sanctions.

“The [Defense] Department shares your concern over the transfer of our nation’s most sensitive technologies to foreign nations, including the People’s Republic of China,” Frank Kendall, acting undersecretary of defense for acquisition, technology and logistics, stated in a letter to Rep. J. Randy Forbes, Virginia Republican.

• Click here to view the letter (PDF)

Mr. Kendall said he directed Brett Lambert, deputy assistant defense secretary for manufacturing, to conduct an interagency review of the deal between GE and the Aviation Industry Corp. of China, known as AVIC.

Meanwhile, U.S. officials said a new national security worry is emerging over a proposal by Honeywell to sell helicopter engines to China. The Pentagon thinks the engines will be used for a new Chinese military transport helicopter.

China currently is barred from buying U.S. military equipment under sanctions imposed following the Chinese military’s 1989 crackdown on unarmed protesters in Beijing’s Tiananmen Square.

Honeywell spokesman Chris Barker said the company sells engines for China’s civilian AC311 helicopter but the engines are prohibited for use in the military version. Mr. Barker said he is not aware of any diversions by the Chinese of any engines.

The Pentagon has some power to review sensitive joint ventures involving high technology, and the GE-AVIC deal crosses several agencies’ authorities, Mr. Kendall said in his letter.

Mr. Kendall’s letter contradicted an earlier letter by Michele A. Flournoy, undersecretary of defense for policy, who said the Pentagon had no legal authority to review sensitive foreign joint ventures.

AVIC is a state-owned defense firm that produces fighters, nuclear-capable bombers and 90 percent of the aviation weapon systems used by the Chinese military, according to the Wisconsin Project on Nuclear Arms Control. An AVIC subsidiary, China National Aero-Technology Import & Export Corp., was under U.S. sanctions in 2008 for illicit arms sales to Iran and Syria.

Mr. Kendall wrote the letter in response to an earlier letter from Mr. Forbes to Defense Secretary Leon E. Panetta, asking whether the avionics deal was reviewed by national security officials.

Mr. Forbes said that “neither GE nor the Department of Commerce have asserted the necessity for an export control license for the joint venture between GE and AVIC, and that the Department of Defense may not have independent authority to pose a binding objection or block the transaction.”

Still, the Pentagon must advise Congress and U.S. defense contractors and the public to the dangers of such technology transfers, Mr. Forbes stated.

Mr. Forbes also asked Mr. Panetta to review a Defense Intelligence Agency report from Oct. 7, 2011, that said China’s civilian aircraft industry is “likely” to transfer foreign military technology to the Chinese military.

Jennifer Villarreal, a spokeswoman for GE Aviation, said the venture with China involves civilian avionics technology.

“We are continuing to work with relevant government agencies through the process,” she said.

Pentagon spokeswoman Cheryl Irwin said Mr. Kendall has asked Mr. Lambert “to look at how national security interests can best be protected in the increasing range of business transactions that sometimes don’t fit neatly under [the Committee on Foreign Investment in the U.S.], such as joint ventures, bankruptcy purchases, and minority investments with significant observation rights.”

CHINA BACKS TAIWAN’S KMT

U.S. officials are closely watching the final days of the presidential election campaign in Taiwan to see whether the ruling Kuomintang Party will retain power or if the opposition Democratic Progressive Party, which is despised by Beijing, will win.

U.S. assessments show the race between current President Ma Ying-jeou and Democratic Progressive Party (DPP) candidate Tsai Ing-wen to be very close with predictions mixed between a ruling party and opposition party victory.

The election will be held Saturday.

According to the officials, Beijing has been covertly backing Mr. Ma. According to one official, Beijing has been helping some of the 150,000 Taiwanese now working in mainland China to return to Taiwan. The Chinese are calculating that the returning expatriates will vote for Mr. Ma and help re-elect the KMT president.

U.S. officials also said China’s state-run media in recent weeks have been stepping up broadcasts that indirectly support the KMT by citing KMT positions in campaign coverage by Chinese and Hong Kong television and other propaganda organs.

China’s communist leaders fear that a win by Ms. Tsai will heighten tensions because of the party’s pro-independence stance.
The official suggested that China is helping pay the airfare for the Taiwanese, who cannot vote with absentee ballots and must be in Taiwan to cast their votes.

Both candidates have made gaffes during the campaign that U.S. officials say have hurt their standing within the Taiwan electorate.

The Obama administration claims to be neutral in the vibrant democratic island’s presidential race.

However, a senior U.S. official told the Financial Times in September that Ms. Tsai, during a U.S. visit, “left us with distinct doubts about whether she is both willing and able to continue the stability in cross-Strait relations the region has enjoyed in recent years.”

A defense official told The Washington Times recently that Mr. Ma has been weak on bolstering the island’s defense in the face of a large-scale Chinese arms buildup. He has failed to press the Obama administration for more advanced weaponry, the official said.

Taiwanese officials denied the claim, but it has become a campaign issue.

The administration agreed recently to sell upgrading packages for F-16 jet fighters but has declined to sell more advanced versions of the jet that the Taipei government sought.

AL QAEDA SECRET WEAPON

A new book by financial analyst Kevin Freeman, who told the Pentagon that the 2008 financial crisis may have been economic warfare or terrorism, reveals that documents found during the raid on Osama bin Laden’s compound in Pakistan revealed that al Qaeda was planning an economic terror attack on Europe.

“In short, the crisis across the Atlantic is Europe’s 2008, with the twist that the attack is directed toward sovereign credit, as well as the banking structure,” Mr. Freeman wrote in “Secret Weapon: How Economic Terrorism Brought Down the U.S. Stock Market and How It Could Happen Again.”

Mr. Freeman’s 2009 Pentagon study, first disclosed by The Washington Times last year, suggests that the Great Recession of 2008 was triggered in part by financial subversion carried out by unknown parties, such as terrorists or hostile nations.

“The government has been too siloed and too partisan to really address this problem,” Mr. Freeman told Inside the Ring.

“Everyone has their own narrative and too few have been willing to look at the facts or search for the truth. After maybe 200 briefings, the vast majority at my own expense, only a handful of patriots have been willing to address this,” he said.

“Some don’t understand and don’t want to deal with it for that reason.”

CHINESE SLBM TEST UPDATE

A U.S. official confirmed the report in this column last week that China’s military conducted a flight test of several JL-2 submarine-launched missiles between Dec. 30 and Dec. 31.

The JL-2 is China’s newest submarine-launched ballistic missile, based on the road-mobile DF-31 long-range missile.

Taiwanese Defense Ministry spokesman Col. David Lo told the Taipei Times that China tested at least two JL-2s before New Year’s.
U.S. intelligence agencies were alerted to the test Dec. 28 after China announced two airspace closures in the Bohai Sea for what the Chinese government said were military exercises.

The closure area stretched from the coast to western China, where the Chinese military is known to have a missile-impact range.

Richard Fisher, a military affairs analyst with the International Assessment and Strategy Center, said the test came shortly before the Pentagon announced its new budget-cutting defense strategy.

Mr. Fisher said of the test confirmation: “China’s message: Happy defense cuts America!”