Saturday, October 3, 2009

China Threatens U.S. Defense Contractors Over Taiwan



China Threatens U.S. Defense Contractors Over Taiwan

By WENDELL MINNICK And VAGO MURADIAN TAIPEI and WASHINGTON — Over the past two years, China has threatened to stop buying com­mercial airliners from Boeing and civil helicopters from Bell Heli­copter and Sikorsky if the com­panies continue to sell weapons and “advanced helicopter tech­nologies” to Taiwan, sources said. Each of the companies stands to lose billions of dollars in po­tential orders, sources added.

Pressure on U.S. officials and arms makers is a growing part of Beijing’s efforts to isolate the self­ governing island and undermine its defenses. When Chinese Defense Minister Liang Guanglie placed the first call on the new Beijing-Wash­ington military hot line in April, he asked his American counterpart, Robert Gates, to halt arms sales to Taiwan.

“China is flexing its economic muscle,” said a U.S. military official, who said China had also threatened to withhold entry visas from U.S. governors whose trips included vis­its to Taiwan.

“The subject is radioactive,” one U.S. defense contractor based in Taiwan said. “There have been some nasty exchanges” between his company and Beijing on the is­sue of military sales to Taiwan.

Executives said that companies like Lockheed Martin and Raytheon — which make commercially com­petitive products like air traffic and other systems — admitted that they’re handicapped in the lucrative Chinese market, in part because of their arms sales to Taiwan, sources said.

“We have some commercial work that we do in China, like RFID [radio frequency identifica­tion] and weather radars,” said Rick Kirkland who heads Lock­heed’s South Asia operations. “But we don’t expect to be invited to compete for large commercial ten­ders because we are such a large supplier to Taiwan. That’s just a fact of life. Our product portfolio doesn’t fit well with what’s re­leasable to China.” Washington imposed an embar­go of arms and military technolo­gy on China after its 1989 crack­down against demonstrators in Tianamen Square.

Boeing’s Reaction

In 2006, China’s threats led Boeing to shutter its Taipei office and move the staff to Singapore, sources said.

A Taiwan military official con­firmed the problem.
“Boeing did not want its employ­ees talking to Taiwan,” he said.

Now the Chicago-based firm is hoping its expected $1 billion deal to supply 30 AH-64D Apache at­tack helicopters will not hurt com­mercial sales to China, which has ordered more than 100 jetliners an­nually in the past five years and is the world’s largest and fastest growing commercial jet market.

Boeing, Bell and Sikorsky prefer to sell arms to Taiwan through the U.S. Defense Security and Cooper­ation Agency under the Foreign Military Sale system. Under the system, the U.S. government buys equipment from contractors and then transfers them to allied and friendly nations.

The companies have been telling China that they have a responsibil­ity to fill these orders, especially when they come from the U.S. gov­ernment. What that government chooses to do with the items is not the firms’ concern or responsibili­ty.

Boeing spokesman Doug Ken­nett declined to comment directly on Beijing’s threats. But he said that the company continues to supply the U.S. government with weapons systems that through the FMS system are transferred to na­tions worldwide.

Kennett stressed, however, that Boeing’s three-decades-plus of jet­liner sales to China were a pillar of the two countries’ ties.

“Boeing’s export of commercial aircraft to China has met their bur­geoning civilian transport needs while supporting thousands of jobs here at home,” he said. “Our com­mercial products represent the sin­gle strongest export in the U.S.­ China trade relationship.” Richard Millies, the deputy direc­tor of the Defense Security Coop­eration Agency, said he had no knowledge of Beijing’s threats, but added that leading American firms with commercial interests in China have asked that all defense sales to Taiwan be handled through the For­eign Military Sales system.

None of the American companies have declined to sell to the U.S. government, and if any did so, it would be cause for alarm and con­cern, Millies said.

In the April 10 hot line call, Gates stressed the U.S. commitment to the one-China policy and restated that the United States opposes any unilateral effort by either China or Taiwan to change the status quo, according to Chinese Defense Min­istry press releases.

It’s not clear whether any of this will placate China; Chinese officials could not be reached for comment. Lin Chong-Pin, a former Taiwan deputy minister of defense, believes this is part of a sophisticated soft­power strategy by Beijing.

“Since late June 2007, high-rank­ing U.S. officials pressured by Bei­jing have publicly criticized the Taipei government 11 times for the referendum to join the United Na­tions under the name of Taiwan, while Beijing itself has taken a low profile on this issue,” said Lin, who is president of the Taipei-based Foundation on International and Cross-Strait Studies. “Urged by Bei­jing, other powers such as Paris, Singapore, Tokyo, Canberra, Lon­don and more have done the same in past months.” Lin said Chinese pressure on Bell, Boeing and Sikorsky reflects the same principle.

Air Show Antics

China’s drive to isolate Taiwan was evident in February at the Sin­gapore Air Show. Chinese officials complained to the show’s organiz­ers, who curtailed the participation of Taiwan’s state-run Aerospace In­dustrial Development Corp. (AIDC). AIDC makes Taiwan’s Indigenous Defense Fighter and has been man­ufacturing tail booms for Bell UH­-1Y and AH-1Z helicopters for the U.S. Marine Corps.

Singapore Air Show officials said China forced them to order AIDC to remove brochures featuring their products. Airshow officials also used blue ink to cover Taiwan’s na­tional emblem, the 12-pointed star, on a poster displaying fighter air­craft built by AIDC.

Airshow sales manager Lim Mei Ling told AIDC that Chinese offi­cials had complained, AIDC senior manager Rocky Yao said. Four men were assigned to watch the booth to make sure AIDC did not hand out any brochures or display any national symbols. They remained at the booth for several hours, then were replaced by two men who identified themselves as mainland Chinese.

Lim refused to discuss the issue but did not deny issuing the order or assigning four men to monitor the booth.

She did issue a written response: “Singapore Airshow reserves the right to reject or prohibit any part of the exhibits at the airshow. We have taken action as the exhibitor has not complied to the previously agreed guidelines. This practice is consistent with the previous air­shows held in Singapore.” According to sources, organizers did not clear a Bell 412 helicopter — carrying AIDC Chairman Kent Feng — to take off for a flight demonstration over the airfield. The aircraft, leased at a cost of $25,000 for the week, was hired to allow company executives to demonstrate products and reward suppliers — among them AIDC — for their work.

“It’s unfortunate that the Chinese assert pressure on the Singaporean government in this commercial event,” said Alexander Huang, a senior associate of the Washington­based Center for Strategic and In­ternational Studies.

Arthur Ding, a cross-Strait mili­tary affairs expert at Taiwan’s Na­tional Chengchi University, called the action “childish” and an “over­reaction.”

Singapore’s attitude to Taiwan is puzzling. Singapore has been send­ing Army personnel to Taiwan for training, and Taiwan was generous with training and support for Sin­gapore’s fledgling Air Force and Navy when it first declared inde­pendence in 1965. China complains about this relationship, but a Singa­pore Ministry of Defense official said, “we just explain it to them that we’ve had a relationship with Tai­wan on this issue for many years.” Yet at the Singapore airshow, Tai­wan’s national flag was conspicu­ously absent from the row of na­tional flags lining the airshow facil­ity. Ironically, the flag of the British territory of Gibraltar was among those displayed at the show.