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Cablegate: Pre-License Check D355915 Zhejiang Hesheng

VZCZCXRO5409
RR RUEHCN RUEHGH RUEHVC
DE RUEHBJ #0070/01 2640534
ZNR UUUUU ZZH
R 210534Z SEP 06 ZFF4
FM AMEMBASSY BEIJING
TO RUCPDOC/USDOC WASHDC
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHGH/AMCONSUL SHANGHAI 5864
RUEHC/SECSTATE WASHDC 7613
RHEHNSC/NSC WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 020070

SIPDIS

SIPDIS

USDOC FOR 532/BIS/OEA/TANDRUKONIS/LLAUCIUS
USDOC FOR 532/BIS/OEE/JSONDERMAN/MOBRIEN
USDOC FOR OIO/ADESSARAN
STATE FOR EB/ESP
STATE FOR EAP/CM
SHANGHAI FOR FCS
NSC/PROSTRAT
US DEPARTMENT OF HOMELAND SECURITY FOR IMMIGRATION AND
CUSTOMS ENFORCEMENT

E.O. 12958: N/A
TAGS: BEXP CH ETRD ETTC PREL
SUBJECT: PRE-LICENSE CHECK D355915 ZHEJIANG HESHENG
CHEMICAL CO. LTD

REF: USDOC 3976 (07/10/06)

BEIJING 00020070 001.2 OF 002


Unauthorised disclosure of the information provided below is
prohibited by Section 12(c) of the Export Administration Act.

1. REFTEL requested a Pre-License Check end-use visit to
determine the reliability of ZHEJIANG HESHENG
CHEMICAL CO. LTD (a/k/a HE SHENG CHEMICAL) to receive
controlled United States goods and technology.
BIS license application D355915 lists ZHEJIANG HE SHENG
CHEMICAL CO. LTD as the potential ultimate
consignee of four heat exchangers that will be used to strip
methyl chloride from a silicone process.
These items are valued at $972,500, classified as ECCN 2B350
and controlled for chemical and biological
warfare reasons. CARBON OF AMERICA, 540 Branch Drive, Salem,
Virginia 24153 (540-389-7535) submitted
this export license application.

2. On August 8, 2006, ECO requested that the Department of
Mechanical-Electrical and High Technology
Industries of the Ministry of Commerce (MOFCOM) arrange a
pre-license visit to ZHEJIANG HE SHENG
CHEMICAL CO. LTD in accordance with the Exchange of Letters
on End-Use Visit Understanding. On August
24, 2006, MOFCOM scheduled this visit for August 31, 2006.

3. On August 31, 2006, ECO, accompanied by MOFCOM official
ZHOU Quan; TAO Fei, Vice Division Chief,
Division of mechanical and Electronic Products I/E of the
Foreign Trade and Economic Cooperation
Bureau of Zhejiang Province; and LU Jian Liang, Vice Division
Chief, Foreign Trade and Economic
Cooperation Bureau of the Jiaxing Municipal Government,
conducted a site visit at the plant premises
of ZHEJIANG HE SHENG CHEMICAL CO. LTD, Wai Huan Xi Lu (Outer
Ring West Road), Jia Pu Economic Development
Zone, Jia Xing Town, Zhejiang Province, China, and met with
ZHOU Jun, General Manager; LI Wei, and other
employees of the company. BAI Ju, Sales Coordinator,
SHANGHAI ANGELINT CHEMICAL TECHNOLOGY CO. LTD
also attended this meeting.

4. ZHEJIANG HE SHENG CHEMICAL CO. LTD also maintains a
business office approximately three kilometres
away at the Old Customs Building, 2/F, Ya Shan West Road, Jia
Pu Exonomic Development Zone, Jia Xing
Town, Zhejiang Province, China.

5. According to company literature and information provided
by Mr. ZHOU, HE SHENG CHEMICALS was formed
in August 2005 through a joint investment between NINGBO CIXI
TIAN YI INVESTMENT CO. LTD (70%) and
HONG KONG OU BO INVESTMENT COMPANY (30%), and began with
registration capital of 135 million RMB.
NINGBO CIXI TIAN YI COMPANY is part of the NINGBO HESHENG
GROUP, which includes NINGBO HESHENG HATS
CO LTD, CIXI ZHENGDE CO LTD, NINGBO SHIMAZU HESHENG CO LTD,
NINGBO LUO NING SILICONE MANUFACTURING
CO LTD., HANGZHOU XINXIN REAL ESTATE DEVELOPMENT CO LTD,
HANGZHOU JIMEI REAL ESTATE DEVELOPMENT CO
LTD AND NINGBO HESHENG MAGNETS CO LTD. The NINGBO HESHENG
GROUP is headquartered in Chang He Town,
Cixi City, Zhejiang Province, and was founded in August 1998.
The Chairman of the Board of NINGBO
HESHENG GROUP is LUO Liguo and the General Manager is LUO
Liwei.

6. According to Mr. ZHOU, NINGBO LUO NING SILICONE
MANUFACTURING CO LTD uses silicone to make
silicone rubber for applications in consumer electronics and
other products including wristbands
as popularised by major sports and entertainment figures,
e.g., Lance Armstrong's yellow "Live
Strong" wristbands. (NOTE: The website for NINGBO LUO NING
SILICONE MANUFACTURING CO LTD is
www.in-silicons.com) NINGBO LUO NING SILICONE MANUFACTURING
CO LTD needed a reliable supplier

BEIJING 00020070 002.2 OF 002


of raw materials so the parent company, TIANYI INVESTMENT CO,
formed HE SHENG CHEMICAL. HE SHENG
CHEMICAL's only other prospective customer is GENERAL
ELECTRIC, specifically GE-TOSHIBA JIANGSU
NANTONG SILICONE MANUFACTURING FACTORY; however, a firm
contract has not een signed nor has an
order for product actualy been placed. Other possible
customers include: ZHEJIANG JIANGSHAN
FUSHITE CHEMICAL CO LTD, HANGZHOU JICHIDA ORGANIC SILICON CO
LTD, SHENZHEN TIAN DING FINE CHEMICAL
CO LTD, DONG GUANG NAN TAI INSULATION MATERIAL CO LTD, WUJIN
HUA YU, HANGZHOU DALU CO LTD FINE
CHEMICAL FACTORY, PINGHU UNITED CHEMICAL CO LTD, SHAOXING
ZHEN TIAN CHEMICAL CO LTD, and HANGZHOU
TRANSFER CHEMICAL CO LTD.

7. Mr. ZHOU stated that HE SHENG CHEMICAL will specialise in
the following product areas: silicone
oil, silicone resin, and silicone rubber. The factory is
currently under construction and he is
awaiting equipment, including the heat exchangers sought in
this export license application, in
order to complete construction. Mr. ZHOU expects to start
operations in November 2006 with actual
production commencing in January 2007. Mr. ZHOU anticipates
annual output of approximately 4000
tons of room temperature and high temperature silicone
rubber. HE SHENG CHEMICAL currently has
200 employees and Mr. ZHOU plans to hire up to 600 employees.
Mr. ZHOU stated that all of the
managerial staff have backgrounds in chemical engineering.

8. ECO toured the construction site with Mr. ZHOU and
observed the area where the heat exchangers
will be installed. The actual factory is being constructed by
the THIRD CHEMICAL CONSTRUCTION
COMPANY, which was selected through an open bidding process.
HE SHENG CHEMICAL occupies a 400 "mu"
lot and is building in two phases, with Phase 1 on 160 "mu".
Additional construction will be
considered after the completion of Phase I, and a
construction company selected through another
open bid.

9. RECOMMENDATION - FAVOURABLE. ECO notes that para. 13 of
REFTEL (USDOC 3976) states "Interagency
PLC request on commodities controlled for CBW reasons...
There are also issues regarding the
purchaser that should be resolved." It is unclear what issues
require further resolution, and
efforts to clarify this and interagency concerns were
unsuccessful. Research by ECO did not
uncover any ties to parties of proliferation or law
enforcement concern. ECO found Mr. ZHOU
and other company officials to be cooperative and forthcoming
during the site visit, Mr. ZHOU
also provided ECO with photographs of the HE SHENG CHEMICAL
facility under construction, which
can be made available to interested parties through direct
request to ECO. Based upon the
limited information provided in REFTEL and the information
developed during the PLC, ECO
recommends this company as a likely to be a responsible
recipient of U.S. controlled items and
technology.

RANDT

RANDT

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