President Bush, citing grounds of national security, yesterday ordered a Chinese government corporation to sell a Seattle aircraft-parts manufacturer after government investigators reported the Chinese firm could use its new acquisition to gain secret U.S. aircraft engine technology.
Administration sources said the Chinese company, the China National Aero-Technology Import & Export Corp. (CATIC), has been "trying to get military secrets."
Specifically, a source said CATIC is seeking technology that would allow the Chinese to build jet fighter engines with the capability of in-flight refueling.
"We were concerned over CATIC's past activities" and the possibility that the Chinese company could use its ownership of Mamco Manufacturing Inc. of Seattle, which it bought two months ago, to gain secret engine technology, sources said.
Administration officials emphasized that the Seattle firm brought the case to the government's attention and was not the focus of the investigation.
Mamco makes metal parts for commercial aircraft, and government officials said the technology it uses was not an issue in the president's decision.
"Our concern is CATIC using this purchase as a front to penetrate into other, more promising areas of security," said a senior administration official.
This is the first time the president has used the provisions of an 18-month-old law to overturn the purchase of a U.S. company by foreign interests on national security grounds.
In his official order and a statement to Congress, Bush said he used the Exon-Florio provisions of the 1988 trade law because there was no other way to block a sale that endangered U.S. national security.
"My action in this case is in response to circumstances of this particular transaction. It does not change our open investment policy and is not a precedent for the future with regard to direct investment in the United States from the People's Republic of China or any other country," said Bush. The president gave CATIC three months to sell the Seattle company and ordered a close government watch to make sure there are no national security violations during that period.
Administration officials said there were no indications that the Chinese company, which makes military planes and missiles, had used Mamco over the past two months to gain secret U.S. technology.
Following Japanese purchases of such U.S. institutions as Rockefeller Center and Columbia Pictures, the increasing degree of foreign investment in the United States has become a touchy political issue.
But Presidents Reagan and Bush have fought off efforts to restrict foreign investment, arguing that funds from overseas are needed to cover the U.S. fiscal deficit and that investment is a two-way street with many American companies investing abroad.
Further, there were concerns within the administration that stopping this sale would undercut President Bush's new conciliatory China policy that seeks improved ties with Beijing by easing sanctions imposed after the violent suppression of pro-democracy demonstrators in June.
In ordering CATIC to sell Mamco, Bush was following the unanimous recommendation of a subcabinet level group that investigated the purchase, the Committee on Foreign Investment in the United States.
That recommendation was based on classified information detailing CATIC's past activities, said a Treasury Department official.
Treasury chairs the intra-agency committee.
The Chinese Embassy here, which was notified of the president's action yesterday morning, had no comment last night.
In Beijing yesterday, China lodged a strong protest with Ambassador James Lilley against the Bush administration and Congress for imposing economic and military sanctions. There was no mention, though, of the president's actions against CATIC.
Sen. James Exon (D-Neb.), co-author of the Exon-Florio provision with newly inaugurated New Jersey Gov. James Florio, hailed the president's actions and said it "demonstrates the obvious need" for the law.
"The acquisition of Mamco would have certainly furthered China's military power, the same military power that was used to brutally crush the Chinese democracy movement," Exon added.
Rep. Doug Walgren (D-Pa.), chairman of the House subcommittee of science, research and technology, expressed concern that the law allowed the sale to go through while it was under investigation by the government.
"We may not know for a long time what harm was done to our national security," he said.