Chinese firm under U.S. sanctions wins Turkish missile deal

By Ece Toksabay

ISTANBUL (Reuters) - NATO member Turkey has chosen a Chinese defense firm hit by U.S. sanctions to co-produce a $4 billion long-range air and missile defense system, rejecting rival bids from Russian, U.S. and European firms.

Western defense analysts said they were surprised by the choice of the Chinese system, having expected the contract to go to the U.S. Raytheon Co (RTN.N) company, which builds the Patriot missile, or the Franco/Italian Eurosam SAMP/T.

Turkish analysts said they believed Ankara had chosen its Chinese partner for technological reasons as well as a lower price.

"Turkey's NATO allies are distanced to the idea of co-production and technological transfer," Atilla Sandikli, the chairman of think-tank Bilgesam and former high-level officer in the Turkish army, said.

"But the Chinese firm states the opposite. I think Turkey's choice is a message to its NATO allies in this sense."

The Turkish defense minister announced the decision to award the contract to China Precision Machinery Import and Export Corp (CPMIEC) in a statement on Thursday.

NATO STANDARDISATION

In February, the United States announced sanctions on CPMIEC for violations of the Iran, North Korea and Syria Nonproliferation Act.

It did not say precisely what CPMIEC had done, but Washington has penalized the company before. In 2003, Washington said it was extending sanctions on the firm for arms sales to Iran. It was unclear when those measures were first imposed.

Turkey has long been the United States' closest ally in the Middle Eastern region, bordering during the Cold War on the Soviet Union. The U.S. military exercised great influence over a Turkish military that strongly influenced domestic politics.

Under Prime Minister Tayyip Erdogan, elected in 2002, the role of the Turkish military in politics has been curbed. Political and military relations between Ankara and Washington, while still close, play a less central role and this could be reflected in procurement policy.

NATO has generally been averse to the buying in of weapons systems from outside the Western world, pursuing as it does a policy of standardization that allows member armies to work more smoothly together.

Nick de Larrinaga, Europe Editor of IHS Jane's Defense Weekly, said the Chinese bid was long understood to have 'massively undercut other bidders'. He said Western competitors were also offering wide involvement for Turkish industry.

"The decision...is undoubtedly a surprise," he said.

"Meanwhile IHS Jane's understood that the Franco/Italian Eurosam SAMP/T was preferred by many in the Turkish Armed Forces from a capability point of view...although it was also believed to be the most expensive of all the bids."

PATRIOTS

Officials at state-run CPMIEC, the marketing arm of China's missile manufacturing industry, could not immediately be reached for comment.

Turkey, which has the second-largest deployable military force in the NATO alliance, has no long-range missile Defense system of its own, but NATO has deployed the U.S.-built Patriot air and missile Defense system there since 2012.

The winning Chinese FD-2000 system beat the Patriot, the Russian S-400 and the French-Italian Eurosam Samp-T.

Raytheon, which builds the Patriot, said it had been informed about the Turkish decision and hoped to get a briefing soon. It said there were 200 Patriot units deployed in 12 countries, including Turkey.

"NATO has long supported the system, deploying Patriots in five aligned countries and, in 2012, providing a requested Patriot deployment to Turkey. Given this strong performance, we hope to have an opportunity to debrief and learn more about this decision," Raytheon spokesman Mike Doble said.

CPMIEC does not make missiles itself. The two main manufacturers are China Aerospace Science and Technology Corp (CASC) and China Aerospace Science and Industry Corp (CASIC). CASC makes intercontinental ballistic missiles, while CASIC focuses on short- and intermediate-range rockets.

After decades of steep military spending increases and cash injections into local contractors, experts say some Chinese-made equipment is now comparable to Russian or Western weaponry.

China last year became the world's fifth-biggest arms supplier with 5 percent of the market, according to the Stockholm International Peace Research Institute. Pakistan was its biggest buyer.