McDonnell Douglas and China National Aero-Technology Import and Export Corporation (CATIC) entered into an agreement in 1992 to co-produce 40 MD-80 and MD-90 aircraft in China for the country's domestic "trunk" routes. A contract revision signed in November 1994 reduced the number of aircraft to be built in China to 20 and called for the direct purchase of 20 U.S.-built aircraft. The four Chinese factories involved in the Trunkliner program include the Shanghai Aviation Industrial Corporation, Xian Aircraft Company, Chengdu Aircraft Company, and Shenyang Aircraft Company. The Shanghai facility is responsible for final assembly of the aircraft. All of these factories are under the direction of Aviation Industries Corporation of China (AVIC) and CATIC. CATIC is the principal purchasing arm of China's military as well as many commercial aviation entities.
In May 1994, McDonnell Douglas submitted license applications for exporting machine tools to China. The machine tools were to be wholly dedicated to the production of 40 Trunkliner aircraft and related work. Under the Trunkliner program, the Chinese factories were responsible for fabricating and assembling about 75 percent of the airframe structure and the tools were required to produce parts to support the planned 10 aircraft per year production rate. The machine tools exported by McDonnell Douglas to China have military and commercial applications. Some of these US exported machine tools were subsequently diverted to a Chinese facility engaged in military production. The machine tools were shipped to three locations contrary to the license conditions and CATIC's assurances regarding end use. Six machine tools were diverted to the Nanchang Aircraft Company, and the rest were stored in two locations in the port city of Tianjin. By August 1996, about 18 months after the diversion was first reported, all the machine tools were at the Shanghai aviation facility .