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Current and Future Challenges Facing Chinese Defence Industries*

Published online by Cambridge University Press:  12 February 2009

John Frankenstein  and
Bates Gill
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The fundamental questions are simple. Can the Chinese defence industries make what the People's Liberation Army (PLA) needs? Can they develop and produce systems to allow the PLA first to overcome its problem of “short arms and slow legs,” secondly to move from brownwater coastal defence to green-water offshore defence (and eventually blue-water power projection), and thirdly successfully to conduct “limited wars under high-tech conditions”? Indeed, in a larger sense, can the defence industry, under the conditions and pressures of economic reform, survive except by “converting”? The answers, however, are not as simple as might be thought.

Type
The Defence Economy
Information
The China Quarterly , Volume 146 , June 1996 , pp. 394 - 427
Copyright
Copyright © The China Quarterly 1996

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References

1. Guang, Xie et al.(eds.), Dangdai Zhongguo de guofang keji shiye (Modern China's Science and Technological Undertakings of National Defence),Vol. 2 (Beijing: Dangdai Zhongguo chubanshe, 1992), pp. 503–504 (authors′ translation).Google Scholar

2. Quoted from British Broadcasting Corporation, Summary of World Broadcasts: Far East(SWB-FE), 11 November 1992, p. B2/4.

3. On the historical development of the modern Chinese defence industry, see Guang Xie et al.(eds.), Science and Technological Undertakings of National Defence;Li Wang et at.(eds.), Dangdai Zhongguo de bingqi gongye (China Today: Ordnance Industry)(Beijing: Dangdai Zhongguo chubanshe, 1993); Western sources include Chen, Gideon, Lin-Tse-Hsii: Pioneer Promoter of the Adoption of Western Means of Maritime Defense in China(Beijing: Yenching University, 1934)Google Scholar; Kennedy, Thomas L., The Arms ofKiangnan: Modernization in the Chinese Ordnance Industry, 1860–1895(Boulder: Westview Press, 1978)Google Scholar; Frankenstein, John, ”The People's Republic of China: arms production, industrial strategy and problems of history,” in Wulf, Herbert (ed.), Arms Industry Limited(Oxford: Oxford University Press, 1993)Google Scholar; Gill, Bates and Kim, Taeho, China's Arms Acquisitions from Abroad: A Quest for ”Superb and Secret Weapons(Oxford: Oxford University Press, 1995), ch. 2. See also Mel Gurtov, ”Swords into market shares: China's conversion of military industry to civilian production,” The China Quarterly,No. 134 (June 1993), Eric Hyer, ”China's arms merchants: profits in command,” The China Quarterly,No. 132 (December 1992), and Paul Humes Folta, From Swords to Plowshares? Defense Industry Reform in the PRC(Boulder: Westview Press, 1992).Google Scholar

4. Jianshe, Zhou, Guofang ziyuan nixiang kaifa: Zhongguo junzhuanmin wenti yanjiu (Changing Course ofNational Defence Resources: Research on Chinese Defence Conversion Issues)(Changsha: Hunan chubanshe, 1992), p. 205; ”Making a modern industry,” Jane's Defence Weekly,19 February 1994, p. 28.Google Scholar

5. ”Guoyou qiye ku sun mian zaidu kuoda” (”State enterprises still face increasing losses”), Zhongguo guoqing guoli (China's National Conditions and Strength),October 1994, p. 7.6

6. See for example, Ross Munro, ”Eavesdropping on the Chinese military: where it expects war-where it doesn't,” Orbis,Vol. 38, No. 3 (1994), p. 356. While the publication analysed in this article is not an official document, and appears to resemble the kinds of studies produced by middle grade officers attending military academies as strategic planning exercises, the views are consistent with those we have heard expressed by Chinese security analysts. For other expressions of the U.S. threat to China, see the People's Dailyyear-ender editorial in Foreign Broadcast Information Service, Daily Report: China(FBIS-CHI), 7 January 1994, pp. 27 ff; Zhengmingreport in ”Hong Kong: CPC seminar views U.S., Japan as leading archenemies,” FBIS-CHI, 25 January 1994, p. 4: the conference concluded that ”for the present...the major target of U.S. hegemonism and power politics is China and the Third World countries in Asia,” but 60% of those attending thought that by the year 2020 Japan would be the major enemy. Apparently many of those attending, including those in the military, favoured playing ”the Russian card” against Japan and the U.S. For quotations of Chinese leaders Liu Huaqing, Ding Guangen and Hu Jintao on the U.S. threat to China, see, for exampleZhengming,1 May 1994 cited in ”Hong Kong: military said behind 'hard line' policy,” FBIS-CHI, 5 May 1994, p 12; Cheng bao,5 May 1994 cited in “Hong Kong: Liu Huaqing stresses antihegemonist policy,” FBIS-CHI, 5 May 1994, p. 5: “U.S. hegemonism now takes China as its main enemy, and tries to interfere in China's internal affairs.”

7. It is useful to distinguish between force extension and force projection. The latter term, as Paul Godwin and others have argued, means the ability to insert and sustain military force in theatres distant from the homeland. Force projection thus requires the development of forces capable of operating on their own and the logistics capability to sustain them. Force extension, on the other hand, would require only the ability to employ force at a distance for a short time and without the intention or requirement to sustain it. An extension strategy might be suitable for certain scenarios in the South China Sea, but would be inadequate for an invasion and necessary occupation of Taiwan.

8. See, for instance, Zhao Chengmou, “A prediction of future battlefield and weaponry in the early 21 st century,” China Defence Science and Technology Information Centre Papers Nos. 4 and 5, Beijing, 1990.

9. Jiefangjun bao,12 March 1994 cited in “Defense Minister views defense building, army work,“ FBIS-CHI, 17 March 1994, p. 21.

10. Jiefangjun bao,28 May 1993citedin“ 'Roundup' on high technology warfare tactics,” FBIS-CHI, 2 July 1993, p. 22; quotations are on pp. 24 and 27.

11. This section is based on Lewis, John and Litai, Xue, China's Strategic Seapower(Stanford: Stanford University Press, 1994)Google Scholar, ch. 4; Frankenstein, “The People's Republic of China”; Wang Li, Ordnance Industry; Guang, Xie et al., Science and Technological Undertakings of National Defence; Zijun, Duan et al.(eds.), China Today: Aviation Industry(Beijing: China Aviation Industry Press, 1989)Google Scholar. Lewis provides a fascinating account of the politics, often driven by personal animosities fuelled by the paranoid manoeuvrings of elite survival politics in Mao's court, that led to the CMIC's “bewildering array of bureaucratic organs.”

12. These remarks were relayed through private conversations with knowledgeable foreign observers in Beijing.

13. Interestingly, the Ministry of Electronics, which nominally oversees one of the most successful “converting” sectors, has not “corporatized.” Industry sources suggest that since most electronics factories have been placed under provincial and local control, there remained little if anything for the Centre to corporatize. As in the NORINCO example, the Centre's absolute authority over production wanes as decentralization and commercialization continue. Even so, given its responsibilities in the development of telecommunications and technology acquisition, the MEI remains.

14. Data from China Aviation News, 2June 1994 cited in Defense Science, Technology and Industry Monthly Report(DSTI) (Hong Kong: U.S. Consulate General, Defense Liaison Office, June 1994), p. 5.

15. Shao Mingjun, “Jiangxi sheng bufen kuisan qiye xianzhuang yu chulu” (“Current situation and way forward for some loss-making enterprises in Jiangxi province”), Zhongguo jungong bao (China Defence Industry News),6 December 1994, p. 3; Lan Jiageng, “Junzhuanmin yinyang zhang biduan” (“Defence conversion should stress strong points, avoid weak points”), Zhongguo jungong bao,27 December 1994, p. 2; Shen Ming, “Jingji cong zhong tang tiao lu” (“Making the way on a brambled path”), Zhongguo jungong bao,27 December 1994, p. 1.

16. Ming, Shen, “Making the way on a brambled path,” p. 1.Google Scholar

17. See Naughton, Barry “The Third Front: defence industrialization in the Chinese interior,” The China Quarterly,No. 115 (September 1988), and commentary on the Third Front in China Daily,5 December 1991, p. 1.Google Scholar

18. Xinhua report, 18 July 1992 cited in “Third Line military enterprises expand operations,” FBIS-CHI, 21 July 1992, p. 27.

19. Description provided by COSTIND to the U.S. Defense Attache Office, Beijing.

20. Pollack, Jonathan D., “Structure and process in the Chinese military system,” in Lieberthal, Kenneth G. and Lampton, David M. (eds.), Bureaucracy, Politics, and Decision Making in Post-Mao China(Berkeley: University of California Press, 1992), pp. 172–173.Google Scholar

21. According to the official history of the Chinese defence industry, the number of persons working in the area of national defence science and technology information (guofang keji qingbao gongzuo)numbers more than 20,000. See Xie Guang et al., Scientific and Technological Undertakings of National Defense,Vol. 2, p. 392. In another example, the conventional weapons testing centre run by COSTIND at Baicheng employs “over 1,000 S&T [science and technology] personnel.” Liberation Army Daily,8 April 1995 cited in DSTI, April 1995, p. 15.

22. For instance, Qiao Shi was Party Secretary of the Shaanxi Engineering Administration Office in the early 1960s during the initial period of the Third Front movement; Li Tieying is a former Minister of Electronics; Tian Jiyun had financial responsibilities in the south-west during Third Front construction; and Zou Jiahua, son-in-law of the late Marshal Ye Jianying, was Minister of the Ordnance Ministry, Minister of MMBEI and Vice-Minister of the Science and Technology Commission for National Defence. Admiral Liu Huaqing, the only military man on the Politburo, headed the Warship Design Academy, and was Deputy Director of the NDSTC (a COSTIND forerunner) as well as a Vice-Minister for the State Science 's daughter, as a Vice-Minister for the State Science & Technology Commission, He Ping, Deng's son-in-law, with the PLA Equipment Department, which has connections with Polytechnologies, and relatives of Ye Jianying, Yang Shangkun and Zhao Ziyang with Polytechnologies.

23. Bao Chen, “Zhonggong tuixing (xiandaihua jianjun) suo baolu de nanti” (“Revealing the difficult problems faced by the Chinese Communists in promoting modernization in army building”), Zhonggong yanjiu,15 June 1988, p. 108 cited in Ostrov, Benjamin A., Conquering Resources: The Growth and Decline of the PLA's Science and Technology Commission for National Defense(Armonk, NY: M. E. Sharpe, 1991), p. 99.Google Scholar

24. SWB-FE, 23 December 1992, FE/1571, p. B2/6.

25. Nie Li is closely involved in defence science and technological issues, and well as in associated business activities. The most recent version of Directory of PRC Military Personalities(Hong Kong: Defense Liaison Office, U.S. Consulate General, October 1995) lists Lt. General Nie Li as an advisor to the Science and Technology Committee of COSTTND, and a member of the Standing Committee of the National People's Congress.

26. Berthe'lemy, J. C. and Deger, S., Conversion of Military Industries to Civilian Production in China: Prospects, Problems and Policies,OECD Development Centre Report (draft) (Paris: OECD, June 1995), p. 26 and China Dailycited in FBIS-CHI, 8 May 1995, pp. 50–51.Google Scholar

27. See Ruyong, Ling, “Procurement auditing of weapon systems,” unpublished manuscript, February 1995.Google Scholar

28. Latham, Richard, “China's defense industrial policy” in Yang, Richard H. (ed.), SCPS PLA Yearbook, 1988–89(Kaohsiung: Sun Yat-sen University, 1989), p. 86.Google Scholar

29. Lewis and Xue, China's Strategic Seapower,p. 20.Google Scholar

30. Xuesen, Qian, “Military systems engineering,” China Defense Science and Technology Information Centre Paper No. 2, Beijing, 1989.Google Scholar

31. Benliang, Chai, “Retrospect and prospect of defence R” unpublished manuscript, November 1994, p. 6.Google Scholar

32. Jiefang ribao,6 August 1993 cited in “Liu Huaqing writes on military modernization,” FBIS-CHI, 18 August 1993, p. 19

33. See Allen, Kenneth W., Krumel, Glenn and Pollack, Jonathan D., China's Air Force Enters the 21st Century(Santa Monica: RAND Corporation, 1995), especially ch. 8. The system described here has produced its share of failures-cancelled programmes, prototypes that never flew, failed production. One such was the FB-7, a twin-engined naval aviation fighter bomber, produced in prototype in 1988; a Beijing military attache termed it “a programme that began with an engine looking for an airframe, and now is an airframe looking for an engine.”Google ScholarIbid. pp. 184, 234.

34. Chai Benliang, “Retrospect and prospect,” p. 5.

35. See Arthur Ding's article in this issue for a further discussion of budget issues. See also Ng, K. P., “China defence budgeting: structure and dynamics,” in Kin, Lo Chi et al.(eds.), China Review 1995(Hong Kong: The Chinese University Press, 1995).Google Scholar

36. Shen Zhihua, “Jianlun junpin jiage gaige” (“Discussing military price reform”), Junshi jingjiyanjiu (Defence Economics Research),January 1995, p. 50; Chai Benliang, “Retrospect and prospect,” p. 5.

37. There is another-if paradoxical-angle on the potentially negative effect of price reform, industrial structure modernization and the growing commercialization of the CMIC. According to a study of the Chinese airforce written by two former U.S. defence attaches, the export models of the F-7, a modified version of the MiG-21, which contained advanced Western avionics, were not purchased by the air force because the Ministry of Aerospace Industries required payment in hard currency. See Allen, Kenneth and Latham, Richard, “Chinese defense reform: the air force as a case study,” Problems of Communism,Vol. 40, No. 3 (1991), p. 30.Google Scholar

38. Ling Ruyong, “Procurement auditing,” p. 4.

39. Cohen, Jonathan and Peach, Andrew, World Combat Aircraft Holdings, Production, and Trade,IDDS Almanac 1994 (Cambridge, MA: Institute for Defense & Disarmament Studies, 1994), Table C–1.Google Scholar

40. Shenyang Aircraft Corporation produces the J–8; Chengdu Aircraft Corporation produces the J–7; Guizhou Aviation Industry Corporation produces the JJ–7 trainer. The Chengdu Aircraft Corporation reported in late 1992 that it “used to produce fighter planes” and that “the factory has cut back its output of military planes by a wide margin.” See “Military aircraft plant turns to civil aviation” in SWB-FE, 16 December 1992, p. A/3. The producerof the JJ-7 has also been identified in the Chinese press as the Shuangyang Aircraft Manufacturing Plant. See “Aircraft manufacturing plant resolves product quality problems,” in SWB-FE, 5 November 1992, p. B2/8.

41. Allen, Krumel and Pollack, China's Air Force,cites Jonathan A. Cohen, “China's combat aircraft domestic and export production schedules for firm orders 1992–2000,” Memorandum to Glenn Krumel as saying that Pakistan will continue to receive Q–5s until 1998.Google Scholar

42. Opall, Barbara, “Chinese tout trainers for global market,” Defense News,7–13 March 1994, p. 16.Google Scholar

43. “Chinese aircraft group turns to small cars,” The Financial Times,6 December 1994, p. 20.

44. Interview, Beijing, December 1994.

45. Cohen and Peach, World Combat Aircraft,Table 4.8.Google Scholar

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47. Cohen and Peach, World Combat Aircraft,Table 4.8.Google Scholar

48. Fulghum, David A., “China pursuing two-fighter plan,” Aviation Week & Space Technology,27 March 1995, p. 44.Google Scholar

49. Reports on the poor quality of Chinese naval production are widespread. See, for example, Stuart Slade, “Thailand push to blue water,” Naval Forces,No. 6 (1990), p. 77; Jacobs, Gordon, “Chinese navy destroyer Dalian,” Navy International,September-October 1992, p. 263Google Scholar; Jacobs, Gordon, “PLAN'S ASW frigate Siping,” Navy International,March-April 1993, p. 69.Google Scholar

50. Starr, Barbara,“ Designed in China: a new SSK is launched,” Jane's Defence Weekly,13 August 1994, p. 3.Google Scholar

51. See Sharpe, Richard (ed.), Jane's Fighting Ships, 1995–1996(Coulsdon, Surrey: Jane's Information Group, 1995), p. 116.Google Scholar

52. Arnett, Eric, “Military technology: the case of China,” in SIPR1 Yearbook 1995(Oxford: Oxford University Press, 1995), p. 395.Google Scholar

53. For instance, the electronics sector claims that by 1992, 97% of its production was in civilian products. China Electronic Industry Trading Delegation Catalogue (Hong Kong: 1993), p. 1.

54. Wang, Xiang, “Development of modern technology and defense conversion: interview with Huai Guomo, vice minister of the Commission of Science, Technology and Industry for National Defense,” Conmilit,No. 196 (May 1993), p. 4. This perception may have been reinforced when Huai was a visiting fellow at the Stanford University Center for International Security and Arms Control, located in the heart of Silicon Valley, in 1993. COSTIND joint ventures with U.S. firms, such as Hua Mei Telecommunications, may have been set up with “spin-on” in mind. Projects like this aim at the acquisition of foreign dual-use technology in areas under active research by the CMIC. See Bruce Gilley, “Peace dividend,” Far Eastern Economic Review,11 January 1996, pp. 14–16.Google Scholar

55. Jiefanjun bao,15 January 1995, cited in “Liu Huaqing urges development of defense technology,” FB1S-CHI, 30 January 1995, pp. 30 ff.Google Scholar

56. Xinhua report cited in FBIS-CHI, 25 January 1995, p. 24.Google Scholar

57. See Zhude, Jin and Benliang, Chai, “Strategic thinking of Chinese conversion in the 1990s,” in Proceedings, Conference on International Cooperation in the Peaceful Use of Military Industrial Technology, Beijing, October 1991.Google Scholar

58. One such is Sichuan Chang Hong Electric, a former defence electronics plant that converted to the manufacture of colour televisions and was selected to rank among China's top 100 listed companies by the China Shareholding Enterprises Evaluation Centre and The Financial Times.See Foo Choy Peng, “Asset-rich firms win mainland's popularity stakes,” South China Morning Post,China Business Review section, 10 August 1995, p. 6.

59. This list of criticisms was put forth by Chinese engineers at a conference on arms control held in Beijing in the spring of 1994 attended by the authors. These criticisms are quite similar to other critiques made of defence conversion in other countries, including the U.S. and the former USSR. Interestingly, 1995 official evaluations of the conversion effort echo these criticisms, a remarkable shift from Beijing's earlier rosy scenarios. See the paper by Jin Zhude, Vice-Chairman of CAPUMIT, “The development and policy of Chinese defence conversion,” OECD International Conference on the Conversion of China's Military Industries, Beijing, June 1995. The same paper was distributed at the Workshop on New Business Opportunities in China sponsored by the UNDP and CAPUMIT in Chongqing, November 1995.

60. Renmin ribaocited in FBIS-CHI, 7 November 1991, p. 32; the 1995 OECD Report on Chinese defence conversion however, suggests that about 80% of the CMIC is somehow involved in conversion. Berthelemy and Deger, Conversion of Military Industries,p. i. Given the differences-a four-year time gap and a different sample-between these two reports, one should not be surprised by the discrepancy.

61. For reports of low plant utilization rates and loss-makers see Tai Ming Cheung, “On civvy street: China's lumbering arms makers face market rigours,” Far Eastern Economic Review,6 February 1992, pp. 40–43; Xinhua report cited in “Weaponry industry improving profit margin,” FBIS-CHI, 23 January 1995, p. 37.

62. Jiansheng, Pei, “Market solution eludes remote military-industrial complex,” China Daily Business Weekly,6–12 November 1994, p. 7.Google Scholar

63. Wei, Fan, “Arms procurement and national economic development in China,” unpublished manuscript, March 1995.Google Scholar

64. MacMurray, T. and Woetzel, J., “The challenge facing China's state-owned enterprises,” The McKinsey Quarterly No. 2 (1994), pp. 61–74.Google Scholar

65. As Paul Godwin estimated at the Hong Kong meeting, between 15 and 25% of PLA forces are being modernized into these rapid reaction units-even if we pick the lowest percentage, that still means a relatively modern establishment of 450,000 troops, hardly an insubstantial force. But even RRUs are not fully equipped with the most modern equipment available to the PLA.

66. See for example, Wilborn, Thomas L., Security Cooperation with China: Analysis and a Proposal(Carlisle Barracks: Strategic Studies Institute, U.S. Army War College, November 1994), pp. 24–25.CrossRefGoogle Scholar

67. Opall, Barbara, “U.S. lays groundwork to soften China sanctions,” Defense News,19–24 December 1994, p. 21.Google Scholar

68. China might avoid potential problems with Western export restrictions by forming joint ventures for dual-use technology acquisition. See Gilley, “Peace dividend.”

69. “Liu Huaqing writes on military modernization,” FBIS-CHI, 18 August 1993, p. 19.

70. Guang, Xie et al. Science and Technological Undertakings of National Defence,pp.493, 494.Google Scholar