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Export-Import Bank Deal of the Day: $36M direct loan to Chinese nuclear proliferators

By Timothy P. Carney

The charter of the Export-Import Bank of the United States expires June 30. Despite a high-profile fight in Congress, many Americans don’t know what Ex-Im does. For each of the agency’s final 17 work days, this space will give an example of an Ex-Im financing deal.

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By early 1996, the Clinton administration knew that the China National Nuclear Corporation, a state-owned corporation, has “transferred to the A.Q. Khan Research Laboratory in Kahuta, Pakistan, 5,000 ring magnets, which can be used in gas centrifuges to enrich uranium,” as discussed in a report by the Congressional Research Service.

Five months later, Ex-Im’s board approved a direct loan of $36,347,390 to China’s State Development Bank so the China Nuclear Corporation could buy “steam turbines and auxiliaries” from Westinghouse to build the second phase of the Qinshan power plant.

The Clinton administration made the loan with the excuse that China had reformed and pledged to cease its weapons proliferation.

Then two months later, new intelligence emerged that CNNC subsidiary was nonetheless continuing its proliferation activity. From the CRS report:

CIA report[ed] that China sold a ‘special industrial furnace’ and high-tech ‘diagnostic equipment’ to unsafeguarded nuclear facilities in Pakistan. In September 1996, Chinese technicians in Pakistan reportedly prepared to install the dual-use equipment. The deal was allegedly made by the China Nuclear Energy Industry Corporation, the same firm which sold the ring magnets. Those who suspect that the transfer was intended for Pakistan’s nuclear weapons program say that high temperature furnaces are used to mold uranium or plutonium.

Why was the U.S. government subsidizing a known nuclear proliferator? Here’s CRS’ account:

The Clinton Administration’s decision-making was apparently complicated by considerations of trade interests of U.S. corporations with business in China. Administration officials reportedly considered imposing then waiving sanctions or focusing sanctions only on the China National Nuclear Corporation, rather than large- scale sanctions affecting the entire Chinese government and U.S. companies, such as Westinghouse Electric Corporation (which had deals pending with China National Nuclear Corporation) and Boeing Aircraft Company.

At the end of February 1996, then-Secretary of State Christopher instructed the Export-Import Bank to suspend financing for commercial deals in China for one month. Christopher reportedly required time to try to obtain more information to make a determination of whether sanctions would be required. Meanwhile, then-CIA Director John Deutch reportedly said at a White House meeting that Chinese officials at some level likely approved the sale of magnets. This view was said to have been supported by Defense Secretary Perry, but disputed by officials from the Commerce and Treasury Departments and the U.S. Trade Representative office, who cited a lack of solid proof. (Washington Post, April 1, 1996) Observers noted the latter departments are interested in promoting trade.

So Ex-Im, touted as a national security tool, ended up being part of a Clinton administration effort that undermined U.S. national security objectives.

Ex-Im Myths Exploded

1) Ex-Im is a valuable foreign policy tool: Here it undermined U.S. foreign policy.

2) Ex-Im is crucial to combat China’s influence: Here, Ex-Im directly subsidized Chinese state-owned industry.

3) Ex-Im steps in where there is no available credit: The buyer was the Chinese government.

4) Ex-Im subsidizes American small business: Westinghouse is not a small business.

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