As the White House pressures Iran and North Korea to suspend their nuclear-weapons programs, the Bush administration is offering a record subsidy deal to the arm of the Chinese government that has equipped Iran and Pakistan with vital nuclear-weapons technology.

The China National Nuclear Corporation (CNNC) is the Chinese government agency in charge of both nuclear weapons and nuclear power. Westinghouse Electric, a partly American company, is one of three firms bidding to build the four new nuclear reactors CNNC plans to construct in two of China’s eastern provinces. As an enticement to CNNC, the U.S. Export-Import Bank—a federal agency that subsidizes American exports—has offered $5 billion in loans and loan guarantees to China, if they’ll go with Westinghouse.

U.S. intelligence has repeatedly caught CNNC transferring or intending to transfer nuclear-weapons technology to Pakistan and Iran. Now Ex-Im is offering taxpayer money to subsidize that same Chinese agency.

In fact, taxpayers are already subsidizing CNNC. The Clinton administration approved Ex-Im loans so that the Chinese would employ Bechtel for reactors it built at the beginning of this decade.

Aside from the five major nuclear powers—the U.S., Russia, China, Britain, and France—India and Pakistan are the two countries that have detonated nuclear weapons. Pakistan can thank CNNC for its nuclear capability.
In early 1995, Capitol Hill and the White House were sent into a minor frenzy after a Washington Times article by intelligence correspondent Bill Gertz reported CIA findings tying CNNC to Pakistan’s infamous nuclear scientist A.Q. Khan. Gertz reported, “According to intelligence sources, the CIA recently notified the State Department that China sold 5,000 ring magnets to the A.Q. Khan Research Laboratory in Kahuta, Pakistan, last year.”

Ring magnets are necessary components of the high-powered centrifuges that can enrich uranium from its natural state to weapons-grade matter. The Clinton administration tacitly confirmed this report, imposing temporary limits on U.S. trade with CNNC, but lifted them upon a commitment from China not to distribute more nuclear-weapons materials.

A 2002 report from the Congressional Research Service (CRS) attributes the Clinton administration’s immediate retraction of sanctions to “considerations of trade interests of U.S. corporations with business in China.” Sure enough, Bechtel at the time was helping CNNC build nuclear plants—also with Ex-Im support. Many other U.S. companies rely heavily on their trade with China, which is often aided by U.S. government subsidies.
Undeterred by their commitment to the U.S., China continued to arm Pakistan. In 1996, the Washington Times reported that the Chinese Nuclear Energy Industry Corporation (CNEIC), a wholly owned subsidiary of CNNC, had equipped Pakistan with special furnaces for weaponizing uranium and plutonium.

Pakistan detonated a nuclear weapon in May 1998 in response to India’s nuclear capability. Yet most worrisome may not be Pakistan’s use of the technology but its distribution of it. Pakistan, like India, Israel, and Cuba, is not a party to the Nuclear Nonproliferation Treaty.

Although A.Q. Khan is something of a hero to many Pakistanis, the Pakistani government, under U.S. pressure, arrested Khan in 2004 for shipping centrifuges to Libya. Khan’s desire for centrifuge materials was long known in the intelligence world—he was convicted in absentia in 1983 for stealing designs for a uranium centrifuge from the Dutch labs where he had worked. (The conviction was later overturned on a technicality.) Khan admitted after his arrest that he had sold nuclear weapons technology on the black market to North Korea and Iran as well as Libya.

After leading the international hunt for Khan—who had received his technology from China—the Bush administration has continued doing business with his supplier, CNNC.
CNNC has also done business with Iran’s weapons program. The Washington Post reported in 1995 that CNEIC intended to sell Iran equipment for enriching uranium. China followed that report with another pledge that it would not help Iran’s weapons program, but the CIA reported in 2002 that it was uncertain this pledge was holding up, according to CRS.
In 1998, the Washington Post also reported that CNEIC offered Iran’s nuclear agency “a lifelong supply” of hydrofluoric acid, used in both uranium weaponization and the preparation of deadly sarin gas. Protests from Washington stopped the sale, according to CRS.

The U.S. government’s declared interest in this deal centers on 5,000 jobs in Monroeville, Pennsylvania, where Westinghouse Electric presumably will build the reactors if CNNC grants them the contract. By some definitions, Westinghouse is not an American company. It is a wholly owned subsidiary of British Nuclear Fuels Ltd. (BNFL), which, in turn, is owned by the British government. This means the profits from the sale subsidized by U.S. taxpayers would end up in the coffers of the British government.

Vice President Dick Cheney and then-Energy Secretary Spencer Abraham have both made trips to China in recent months to encourage the Chinese to buy Westinghouse’s cutting-edge AP-1000, a 1,000-megawatt reactor touted as the safest and most efficient nuclear reactor ever developed. Abraham then traveled to Pittsburgh during the 2004 campaign and informed the people of Western Pennsylvania that he was working to bring jobs to the region.

On Feb. 18, days before CNNC’s deadline for bids on the new project, the Export-Import Bank gave a preliminary commitment to Westinghouse for $5 billion in direct loans and loan guarantees. This promised subsidy allowed Westinghouse to offer CNNC favorable financing—at the American taxpayer’s expense.

If Westinghouse gets the contract and the loan deal goes through, it will be the largest subsidy in the history of Ex-Im, an agency Franklin Roosevelt created in 1934 to spur normalized relations with Josef Stalin’s Soviet Union. The deal would likely be a combination of direct loans to China and Ex-Im guarantees of private bank loans, but the details are still undetermined.
The administration’s enthusiasm for selling the AP-1000 is also tied to its visions of a domestic energy plan. Vice President Cheney has made it known since the 2000 election that he would like to see the U.S. rely more heavily on nuclear power. In March 2001, as media enthusiasm for the Kyoto Protocols was peaking, Cheney said on “Hardball,” “If you want to do something about carbon dioxide emissions, then you ought to build nuclear power plants. They don’t emit any carbon dioxide. They don’t emit greenhouse gases. … Let’s take another look at nuclear power, use that to generate electricity without having any adverse consequences.”

The U.S. Nuclear Regulatory Commission (USNRC) has not granted new permits to build U.S. nuclear plants since 1975, before the Three Mile Island disaster of 1979. According to various news reports, USNRC plans soon to grant new permits. There is plenty of anti-nuclear-power sentiment in the U.S., which makes the effort to restart nuclear power in America an uphill climb.

The AP-1000 uses “passive safety” mechanisms, which require much less maintenance and promise to reduce the risk of meltdown dramatically. If it works well in China, the technology will aid the administration as well as Westinghouse in trying to sell the reactor to wary Americans.

Spokesmen for Westinghouse and Ex-Im say that building the AP-1000 for CNNC poses no proliferation threat. Westinghouse spokesman Vaughan Gilbert said the technology in the reactor “is not readily transferable to a weapons program.” The administration concurs, according to a Reuters article last March: “U.S. officials, speaking on condition of anonymity, said the Bush administration and the U.N.’s International Atomic Energy Agency have determined that the technology involved in the proposed plants for the state-run China National Nuclear Corp. would not represent a proliferation threat.” But this does not make the potential sale and subsidy unproblematic.

To begin with, engaging in a bidding war to offer CNNC the most favorable possible deal enriches the same agency that is developing China’s nuclear weapons—some of which are currently pointed at the United States. Ex-Im officials have justified the subsidy, in part, by pointing to French and Russian subsidies of their respective bids. By joining in the subsidy pile-on, the U.S. is further driving down the price of the reactors to CNNC, meaning that Ex-Im has aided CNNC even if France gets the contract.

Second, the subsidy poses a moral hazard. The U.S. government is rewarding an agency that has engaged in nuclear proliferation. This provides bad incentives to CNNC and harms the credibility of the United States in its efforts to discourage other nations from developing nuclear weapons or to punish other nuclear proliferators.

Third, the subsidy damages the administration’s credibility in Washington as it tries to limit spending. Looking at a federal budget deficit, the White House is proposing spending cuts that the Left is assailing. At the same time, the administration is offering Westinghouse a record subsidy deal—hardly leading by example.

Finally, extending loans and loan guarantees to the Chinese government gives the U.S. government, and by extension the U.S. taxpayer, a vested interest in the survival and prosperity of a Communist dictatorship that the same U.S. government has scolded for abuses of human rights and religious freedom. More specifically, the Bush administration is now invested financially and politically in the health of the Chinese nuclear program.

The Bush administration talks about free trade, fiscal discipline, and nonproliferation, but the actions of Ex-Im, whose board of directors is appointed by President Bush, all point in the opposite direction.

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Timothy P. Carney is a Phillips Fellow and a freelance journalist.