THE PLA AND THE CHANLLENGE OF

CHINESE EXPORT CONTROLS

by

TIAN ZHAO

Under the Direction of Gary Bertsch

ABSTRACT

While China has made significant progress in export control legislation and policy, most of the scholars in the area of nonproliferation and export controls agree that Chinese government lacks the capability to effectively implement those laws and policies. There are various factors that undermine the efficacy of Chinese export control implementation. This paper examines the impact of one of the most important factors, the People’s Liberation Army (PLA). This paper analyzes the PLA’s involvement in the command chains of Chinese export control system and in Chinese defense-industrial and military enterprises decision-making. The conclusion is that the PLA, by caring for and protecting its own interests, has become a hindrance to the effective implementation of Chinese export controls.

INDEX WORDS: Defense-industrial enterprise, Export Control, PLA, Military enterprise

THE PLA AND THE CHANLLENGE OF

CHINESE EXPORT CONTROLS

by

TIAN ZHAO

B.A., Peking University, P.R. China, 2001

A Thesis Submitted to the Graduate Faculty of The University of Georgia in Partial

Fulfillment of the Requirements for the Degree

MASTER OF ARTS

ATHENS, GEORGIA

2003

© 2003

Tian Zhao

All Rights Reserved

THE PLA AND THE CHANLLENGE OF

CHINESE EXPORT CONTROLS

by

TIAN ZHAO

Major Professor: Gary K. Bertsch

Committee: Jeffrey D. Berijikian William O. Chittick

Electronic Version Approved:

Maureen Grasso Dean of the Graduate School The University of Georgia May 2003 iv

TABLE OF CONTENTS

Page

LIST OF TABLES...... v

LIST OT FIGURES ...... vi

SECTION

1 INTRODUCTION ...... 1

2 DEFINITIONS...... 4

3 AN OVERVIEW OF CHINESE ARMS EXPORTS AND EXPORT CONTROLS...... 5

4 CHINA’S PROLIFERATION AFTER THE 1998 REFORM...... 9

5 THE PLA’S AUTHORITY AND ITS IMPACT ON EXPORT CONTROL REFORM ...... 12

6 PLA-OWNED ENTERPRISES AND THEIR INCENTIVE FOR ARMS EXPORTS ...... 20

7 THE PLA’S CAPABILITIES AND NETWORKS TO EXPORT ARMS...... 27

8 THE PLA’S RELATIONSHIP WITH DEFENSE-INDUSTRIAL ENTERPRISES...... 33

9 CONCLUSION...... 40

APPENDIX

I EVOLUTION OF CHINA’S EXPORT CONTROL SYSTEM...... 42

II CHINA’S PROLIFERATION RECORD TIMELINE ...... 45

III CHINESE DEFENSE-INDUSTRIAL ENTERPRISES...... 50

REFERENCES ...... 56

v

LIST OF TABLES

Page

Table 1

CITS assessment of the elements of the PRC system of nonproliferation export

controls Fall 1996 and Fall 1998 ...... 7

Table 2

Numbers of military enterprises controlled by various branches of PLA ...... 32

vi

LIST OF FIGURES

Page

Figure 1

The percentage of PLA officers in Central Committee and Political Bureau...... 13

Figure 2

Structure of the Chinese arms control system before the 1998 reform...... 18

Figure 3

Structure of the new Chinese arms control system following the 1998 reform...... 18

Figure 4

The PLA’s main conglomerates...... 22

Figure 5

Commercial earnings of the PLA 1989-1998 ...... 23

Figure 6

The estimated process of defense-industrial exports through the channel of PLA...... 39

1

INTRODUCTION

Export control and nonproliferation is a very important issue in US-Chinese relations and is referred to as one of the four pillars in these states’ bi-lateral relations.1

The study of Chinese export controls is of increasing importance to scholars.

This paper is based on the general argument that, rather than resulting from a

grand geo-strategic design, Chinese weapons proliferation results from fragmented

autonomous, and uncooperative decision-making institutions and power groups within

the defense establishment.2 Complex family-connected networks operate across military

organizations, government ministries, and nominal civilian corporations. These networks

can be unresponsive to admonitions from the Ministry of Foreign Affairs, who must deal

with the protests of foreign governments.3 The goal of this paper is to address one of the

powerful groups in Chinese arms export system, namely, the People’s Liberation Army

(PLA). The PLA is a very important, but often ignored factor in China’s export control

system. The PLA plays a very significant role in both Chinese politics and economics. In

regards to the study of Chinese arms exports and export controls, the PLA has penetrated

every aspect of the export control system. Firstly, the PLA assumes partial authority to

implement export control regulations and policies and oversees Chinese weapons and

other defense-related exports. Secondly, the PLA itself possesses hundreds of enterprises,

1 The other three pillars are US-Sino trade, human right issues and Taiwan issue. 2 For a good discussion, see Lewis, John W., and Hua, Di, and Xue, Litai, 1991. "Beijing's Defense Establishment: Solving the Arms-Export Enigma," International Security, 15 (4): 87-109; also see Blasko, Dennis J., 1994. "An Introduction to the Chinese Defense Industry," Defense Intelligence Reference Series, VP-1920-271-90; Donovan, Kevin F., 1996. The Economics of Proliferation in the People's Republic of China. Research Report at Air War College, Air University, AU/AWC/RWP075/96-04. 3 See Hyer, Eric, 1992. "China's Arms Merchants: Profits in Command," China Quarterly, 0 (132): 1101-1118; also see Medeiros, Evan S., and Gill, Bates, 2000. Chinese Arms Exports: Policy, Players, and Process. Strategic Studies Institute.

2 which produce all kinds of weapons and other sensitive products. Some of those

enterprises are among the most active and aggressive weapon exporters in China. Thirdly,

the Chinese army has possessed and maintained a well-developed connection with

influential individuals in the Chinese political system, which largely facilitates the PLA’s

exports.

Therefore, any analysis of the Chinese export control system will be incomplete

without addressing the PLA. Surprisingly, existing writings on the PLA’s impact on

Chinese export controls are very limited. One reason for the limited literature is that the

Chinese government has not released much information regarding how the PLA is

involved in policy making and implementation. In China, the PLA stays in power mainly

due to historical reasons and traditions.4 Hence, the inner workings and mechanisms of

the PLA can hardly be traced to any laws, policy statements or any other sources.

Another possible reason is that PLA has penetrated, to a large extent, various aspects of the Chinese economy, defense and civilian sectors alike. Therefore, a significant number of companies can hardly be thought of as being connected with the military establishment.5 As a result, literature on Chinese export controls fails to see how PLA decisions impact industry decision-makings as well as their corresponding export activities.

This paper is trying to overcome the difficulties noted above and takes a close look at how the PLA impacts the Chinese export control system. This paper will show that the PLA’s involvement in export control development has hampered the progress of

4 For a good discussion, see Falkenheim, Victor C. ed., 1987. Citizens and Groups in Contemporary China. Center for Chinese Studies, the University of Michigan. 5 Medeiros, Evan S., and Gill, Bates, 2000. Chinese Arms Exports: Policy, Players, and Process. Strategic Studies Institute; also see Blasko, Dennis J., 1994. "An Introduction to the Chinese Defense Industry," Defense Intelligence Reference Series, VP-1920-271-90.

3

Chinese export control reform and undermined the effectiveness of the export control system. The paper will be divided into several sections. The first section is the clarification of a couple of confusing definitions, the understanding of which is important to the arguments of this paper. The second section is an overview of the development of

Chinese export controls. The third section is a brief description of recent Chinese proliferation behaviors. It shows the gap between relatively developed export control laws and policies and the less effective implementation. It will imply that despite the progress of export control regulations and policies, some intervening variables, among which is the PLA, have not been changed or changed little, and that this is the major loophole within the Chinese export control system. The fourth section will closely look at the PLA’s power and authority within the Chinese political system. It will show that the

PLA’s traditional impact and power have become a hindrance to the civilian reform of export controls. The fifth section will focus on military enterprises owned and run by the

PLA. It will also reveal the major impetus for the PLA’s weapon exports. The sixth section will closely examine how the PLA is able to circumvent regular export control system and export arms that should be controlled. The seventh section is aimed at analyzing the interaction between the defense industry and the PLA. It will reveal that the

PLA is a significant factor that intensifies and facilitates weapons exports and proliferations from the defense industry.

4

DEFINITIONS

Two distinctive but related definitions must be clarified. When writing about

Chinese export controls, some scholars do not differentiate between defense–industrial enterprises and military enterprises. Both categories differ on all aspects except with respect to economic operations.6 Defense-industrial enterprises are civilian-run

enterprises, which produce defense products, but are managed by civilians and report to a

State Council. These enterprises were formerly divided among China’s five-defense

production “ministries”.7 Military enterprises, on the other hand, are owned and operated

by the PLA, engaged in both military and civilian commerce and report to the Central

Military Commission (CMC). The difference between defense-industrial and military

enterprises has made the Chinese export control system more complicated and more

difficult to understand. The distinction between the enterprises has determined that military enterprises have a different command chain and an administrative mechanism from those of defense-industrial enterprises and this difference has provided a privilege for military enterprises regarding their arms exports. This will be further addressed later.

6 For a good discussion, see Bickford, Thomas J, 1994. "The Chinese Military and Its Business Operations: The PLA as Entrepreneur," Asian Survey, 34 (5): 460-474; also see Blasko, Dennis J., 1994. "An Introduction to the Chinese Defense Industry," Defense Intelligence Reference Series, VP-1920-271-90; also see Mohanty, Deba R., 2000. "The PLA Industries: Issues and Implications," Strategic Analysis, 24 (3): 509-523. 7 The five ministries are Nuclear Energy Ministry, Aviation Ministry, Electronic Ministry, Ordnance Ministry and Space Industry Ministry.

5

AN OVERVIEW OF CHINESE ARMS EXPORTS AND EXPORT CONTROLS8

Historically, Chinese export controls development can be divided into two major

periods. The first period covers from the early 1950s after the establishment of the PRC

government to the late 1970s. During this period, Chinese arms exports were guided by

Mao-era ideological rhetoric and motivation. Arms export policies then involved

supporting nascent communist or socialist regimes, fueling revolutionary unrest,

generating anti-American and (later) anti-Soviet support, and doing so in the form of

cost-free military aid. Due to China’s communist identity and its relative isolation from

the rest of the world, the Chinese government did not have an export control system in

the real sense. Though, during the period of economic restructuring in the beginning of

the regime, export control regulations were promulgated. According to these regulations,

all exporters were required to have licenses issued by foreign trade authorities for their

export activities. However, when all private foreign trade companies were nationalized in

1956, all import-export activities came under the control of state-owned specialized

trading corporations, and the old licensing systems were, in effect, abolished.9

The second period started in the late 1970s, when China adopted a more

pragmatic approach to its arms export policies in line with its economic reform. After the

1970s, China dramatically increased the quantity and quality of weapons exports, to

8 For a good summary of the development of Chinese arms exports and export controls, see Yuan, Jing-Dong, and Saunders, Phillip C., and Lieggi, Stephanie, 2002. "Recent Developments in China's Export Controls: New Regulations and New Challenges," The Nonproliferation Review, Fall-Winter 2002; also see Zhu, Mingquan, 1997. "The Evolution of China's Nuclear Nonproliferation Policy," The Nonproliferation Review, Winter 1997; also see Fu, Cong, 1997/1998. "An Introduction to China's Export Control System." The Monitor, Center for International Trade and Security (CITS), 3/4 (4/1): 17-19; also see Hu, Weixing, 1997/1998. "Play by International Rules: the Development of China's Nuclear Export Controls," The Monitor, Center for International Trade and Security (CITS), 3/4 (4/1): 19-26. 9 Hu, Weixing, 1997/1998. "Play by International Rules: the Development of China's Nuclear Export Controls," The Monitor, Center for International Trade and Security (CITS), 3/4 (4/1): 19-26.

6 supply a diverse cross-section of importers, and to do so for payment. In response to this

change, the Chinese government gradually developed a real and functioning export

control system. Starting from the beginning of the second period, the Chinese

government gradually established more formal policies regarding export control. Yet, a

formal and comprehensive legal framework was not established until 1997 when two sets

of regulations on export controls were promulgated by Chinese government. Chinese

export controls were previously largely built on executive decrees and policy

coordination within bureaucracy. Therefore, the 1997 regulations were a big step forward.

The regulations have legalized the guiding principles and rules regarding China’s export

controls. The Chinese government has made further progress in legislation regarding

export controls after 1997. (Refer to Appendix I for a summary of Chinese laws and

regulations on export controls.)

In addition to the progress of law makings, China has also gradually integrated

itself into the international community regarding the issue of export controls.10 Since the

early 1980s, China has taken special efforts in making its export control system more compatible with international standards. In 1984, China joined the International Atomic

Energy Agency (IAEA). Since then, China has attempted to fulfill its obligations stipulated by the IAEA Statute. Beijing has taken important steps to be more compatible with major international export control regimes. These include the February 1992 promise to abide by the Missile Technology Control Regime (MTCR); the March 1992 accession to the Nuclear Nonproliferation Treaty (NPT); the January 1993 signing and

10 For a good summary, see Yuan, Jing-Dong, and Saunders, Phillip C., and Lieggi, Stephanie, 2002. "Recent Developments in China's Export Controls: New Regulations and New Challenges," The Nonproliferation Review, Fall- Winter 2002; also see Yuan, Jing-Dong, 2002. Strengthening China's Export Control System. Center for Nonproliferation Studies, Monterey Institute of International Studies.

7 subsequent ratification of the Chemical Weapons Convention (CWC); the October 1994 statements on the MTCR and fissile material production; the signing of the

Comprehensive Test Ban Treaty (CTBT) in September 1996 and the joining of the

Zangger Committee in October 1997. Although China has not joined some informal international nonproliferation groups, such as the Nuclear Suppliers Group (NSG) and the

Australia Group (AG), most observers would agree that China has made significant

progress in the recent decade.

By strength of the above achievements and progress, the Chinese export control

system has been significantly improved. Table 1 presents a comparison of the export control system assessments for 1996 and 1998 by Center for International Trade and

Security (CITS) at the University of Georgia.

Table 1: CITS assessment of the elements of the PRC system of nonproliferation export controls11Fall 1996 and Fall 1998 Control Elements 1996 1998 Licensing 6.2 6.2 Bureaucratic Process 2.6 2.6 Lists 4.2 5.3 Regime Adherence 0.5 1.3 Catch-All controls 0.0 0.0 Training 0.4 1.3 Customs Authority 3.3 4.4 Verification 1.2 2.0 Penalties 1.2 1.2 Information Sharing 1.2 2.8 Total (72/41.82) 20.9 27.1 Percent of Total (100/100) 50.1 64.8

From Table 1, one can see that significant progress in Chinese export controls was

made between 1996 and 1998. Nonetheless, the CITS’ assessment of export control system is an evaluation of export control policies and procedures, not an evaluation of

11 Source: Cupitt, Richard T., and Murayama, Yuzo, 1999. "Export Controls in the People's Republic of China," Bulletin of Asia-Pacific Studies, IX (March 1999): 29-72.

8 their effectiveness.12 In fact, the effectiveness of Chinese export controls has been questioned.13 In spite of above improvements and achievements in policies and laws, there are reports that China continues to supply weapons of mass destruction (WMD) technology and conventional weapons inconsistent with nonproliferation goals.14 After

1998 reform, China’s transfers and exports of missile technology and products continued, though at relatively restrained pace. China was also believed to continue cooperation on nuclear projects with countries of proliferation concern, such as North Korea and

Pakistan. (Appendix II presents a summary of Chinese proliferation efforts during the past ten years.) China’s continuing proliferation poses a puzzle for scholars of Chinese export controls. The real control of Chinese proliferation behaviors has lagged behind the development of Chinese export control policies and regulations. Next section will provide a brief review of China’s recent proliferation behaviors.

12 Through discussion with people at Center for International Trade and Security at University of Georgia, I confirmed that the assessment is not about effectiveness. 13 Yuan, Jing-Dong, and Saunders, Phillip C., and Lieggi, Stephanie, 2002. "Recent Developments in China's Export Controls: New Regulations and New Challenges," The Nonproliferation Review, Fall-Winter 2002; also see Yuan, Jing- Dong, 2002. Strengthening China's Export Control System. Center for Nonproliferation Studies, Monterey Institute of International Studies; also see Cupitt, Richard T., and Murayama, Yuzo, 1999. "Export Controls in the People's Republic of China," Bulletin of Asia-Pacific Studies, IX (March 1999): 29-72. 14 For a good summary, see Morrison, Wayne M. “China’s Proliferation of Weapons of Mass Destruction” CRS Issue Brief, http:// www. Fas.org/spp/starwars/crs/980717CRSWwapons.htm; also see “PRC Military Weapons Sales” http://news.bbc.co.uk/low/english/world/asia-pacific/newsid_462000/462625.stm; also see Eikenberry, Karl W., 1995. Explaining and Influencing Chinese Arms Transfers. Institute for National Strategic Studies, National Defense University.

9

CHINA’S PROLIFERATION AFTER THE 1998 REFORM

The 1998 reform has, to some degree, improved Chinese export controls.

However, there are still an apparent gap between Chinese export control legislation and policy and China’s actual export behaviors. After the 1998 reform, China’s transfers and exports of weapons of mass destruction (WMD) and related materials and technology continued, though at relatively restrained pace.

In the area of missile and missile technology, according to a report that the CIA submitted to Congress in September, 2001, Chinese firms continued to provide missile- related items, raw materials, and assistance to countries of proliferation concern such as

Pakistan, Iran, North Korea, and Libya. For example, in cooperation with North Korea,

China has contracted to supply titanium-stabilized steel, which was used as basic raw material for Pakistan missile development project. In 2001, China sold Iran specialty metals and chemicals used in missile production. China was also reported to have helped train Iranian engineers on inertial guidance techniques.15

China’s proliferation of chemical weapons, though less active than missile proliferation, also raised concern from the international community. China was reported to have been exporting poison gas ingredients to Iran for years. China was also found to sell entire factories for making poison gas to Iran. The shipments also included 400 tons of chemicals useful for making nerve agents. The limited efficacy of export control

15 See Milhollin, Gary, 2002. “Testimony of Gary Milhollin before the Committee on Governmental Affairs, Subcommittee on International Security, Proliferation, and Federal Services, United States Senate, June 6, 2002” http://216.239.53.100/search?q=cache:AEqAz055KQMC:www.senate.gov/~gov_affairs/060602milhollin.pdf+TESTIM ONY+OF+gary+&hl=en&lr=lang_en&ie=UTF-8.

10 reform in 1998 can perhaps be best illustrated in the example of a Chinese chemical

company. In May 1997, Jiangsu Yongli Chemical Engineering and Technology Import

and Export Corporation was found and sanctioned by the U.S. government for contributing to Iran’s chemical weapon program. Three years after the reform, in June

2001, however, the very same company was found and sanctioned again for helping Iran build a plant to manufacture equipment useful for making chemical weapons.16

After the 1998 reform, China remained one of the leading proliferators of nuclear weapon technology. China is notorious for providing assistance and materials for

Pakistan’s nuclear programs since the 1980s. Even After the 1998 reform, however,

China was still reported to be providing nuclear assistance to Pakistan. For example, in

February 2001, China’s Seventh Research and Design Institute supplied 50 ceramic capacitors to Pakistan’s New Labs plutonium reprocessing plant.17 Moreover, although

China assured the United States in October 1997 that China would not undertake any new

WMD related cooperation with Iran, China resumed a new round of negotiations with

Iran on construction of a nuclear graphite production facility in April 2000.18

This reality raises questions about the effectiveness of China’s export control implementation. While most scholars agree that implementation is a problem in China, no serious effort studying this phenomenon has been undertaken. Why is implementation not

as effective as it should be? What factors have led to this inefficacy? How does it connect

16 See Milhollin, Gary, 2002. “Testimony of Gary Milhollin before the Committee on Governmental Affairs, Subcommittee on International Security, Proliferation, and Federal Services, United States Senate, June 6, 2002” http://216.239.53.100/search?q=cache:AEqAz055KQMC:www.senate.gov/~gov_affairs/060602milhollin.pdf+TESTIM ONY+OF+gary+&hl=en&lr=lang_en&ie=UTF-8. 17 See Kan, Shirley A., 2003. “China and Proliferation of Weapons of Mass Destructions and Missiles: Policy Issues” http://216.239.51.100/search?q=cache:aJkQctOTT_8C:fpc.state.gov/documents/organization/17339.pdf+sanction+chi na+jiangsu+proliferation&hl=zh-CN&ie=UTF-8&inlang=zh-CN 18 See Milhollin, Gary, 2002. “Testimony of Gary Milhollin before the Committee on Governmental Affairs, Subcommittee on International Security, Proliferation, and Federal Services, United States Senate, June 6, 2002” http://216.239.53.100/search?q=cache:AEqAz055KQMC:www.senate.gov/~gov_affairs/060602milhollin.pdf+TESTIM ONY+OF+gary+&hl=en&lr=lang_en&ie=UTF-8.

11 to the function of government agencies and the operation of Chinese industry and economics?

One common explanation for the weak implementation of Chinese export control laws and regulations is that while the policy and law making have improved, some intervening variables between law making and implementation have not changed and these intervening variables have formed a stumbling block to China’s export controls.

The PLA may be one such intervening variable. In the following paragraphs, I will show that the PLA, by using its power to purchase its own interests, undermines the effectiveness of the Chinese export control system.

12

THE PLA’S AUTHORITY AND ITS IMPACT ON EXPORT CONTROL REFORM

The PLA is an important player on China’s political stage and has significant influence on national and international politics. Arms exports and export controls used to be overwhelmingly dominated by the PLA. The reform of the Chinese exports control system since the 1990s is one toward increasing civil power. In China, military and civilian institutions have always been in a constant contention for power. With increasing civilian power in export controls, the contention between the two institutions has intensified. This trend in the Chinese export control system will help establish a neutral authority overseeing China’s arms exports. However, the existing power and influence of the PLA have become a hindrance to reform and remain the major reason that the reform is far from being complete and effective.

The status of the military in the Chinese political system is best reflected by Mao

Zedong’s dictum in which he states that: “Political power grows out of the barrel of a gun.” As the military power of China, the PLA has always been the political backbone of the Chinese Communist Party (CCP) and has therefore enjoyed significant power in

Chinese politics.19 The PLA commands an unusual measure of political legitimacy, because the Communist Party came to power after more than two decades of protracted guerrilla warfare. The Red Army20 was organized as the military arm of the communist

movement shortly after the formation of the Party itself, and most top party leaders held

19 Falkenheim, Victor C. ed., 1987. Citizens and Groups in Contemporary China. Center for Chinese Studies, the University of Michigan; Karmel, Solomon M., 2000. China and the People's Liberation Army: Great Power or Struggling Developing State? New York: St. Martin's Press. 20 The Red Army was the previous form of the PLA. The Chinese army under the CCP was called Red Army during the Chinese civil war from 1927 to 1937. It was amalgamated with Kuo Ming Tang army during the Anti-Japanese War from 1937 to 1945. The Chinese army was called PLA since 1945 when the second Chinese civil war broke out.

13 positions as either commanders or commissars in the communist armed forces during the

revolution. When the CCP came to power in China, there was comparatively little

differentiation between the party center and the military high command. Instead, a single

elite existed, in which a relatively small and cohesive group of men shared both military

and civilian responsibilities. Although the establishment of the new government of the

People’s Republic of China (PRC) has led to a growing division of labor between

military officers and civilian officials, it did not immediately erode the special political

legitimacy of the PLA.

The PLA, due to its political legitimacy and high political status, enjoys easy

access to the political process. At central levels, the PLA displays significant

representation in both the Central Committee and the Politburo. Figure 1 shows that the

PLA generally constitutes 20 to 30 percent of the Central Committee and occupies

averagely 50% of the seats on the Party Politburo. Though, according to Figure 1, the

PLA’s power had dramatically dropped in the 1980s, after the 1989 political upheaval,

however, the PLA significantly regained its power.

Figure 1: The percentage of PLA officers in Central Committee and Political Bureau21

70% 60% 59% 50% 51% 45% 40% 40% 42% Central Committee 35% 30% 30% Politburo 26% 20% 22% 19% 10% 12% 0% 1956 1969 1973 1977 1982 1987

21 Source: Shambaugh, David, 1991. "The Soldier and the State in China: the Political Work System in the People's Liberation Army," China Quarterly, 0 (127): 527-568.

14

The PLA has regular access to the central party and state bodies that turn general policy guidelines into specific bureaucratic directives and supervise the implementation of national policy. Traditionally one member of the party secretariat and at least one vice premier have been active duty military officers.22

Despite the PLA’s privileges, ambivalent attitudes from top decision makers toward the PLA remain. To ensure the supreme status of the CCP, decision makers need the PLA’s political and military support. To achieve the modernization of the military, decision makers have taken particular measures to professionalize the PLA and transform it into a politically neutral group under civilian control. However, this process proves to be very difficult. The PLA has the backing of the most powerful interest groups in

Chinese politics and has different means and resources available to maintain its political interests and power. This has led to contention between military and civilian institutions within Chinese political circles.23 In the early 1950s, the PLA administered China through its temporary leadership on military and administrative committees. The establishment of civilian administrations in the provinces between 1952 and 1954 reduced the role of the PLA substantially. During the period of the Cultural Revolution, the PLA regained its power and authority and over 70% of government positions were assumed by PLA officers. After the Cultural Revolution, civilian power started to erode the PLA’s powers. Over 80% of the military representatives were removed from the civilian party and government positions.24 Starting in 1982, Deng Xiaoping made efforts

22 See Shambaugh, David, 1991. "The Soldier and the State in China: the Political Work System in the People's Liberation Army," China Quarterly, 0 (127): 527-568. 23 For a good summary, see Falkenheim, Victor C. ed., 1987. Citizens and Groups in Contemporary China. Center for Chinese Studies, the University of Michigan; also see Paltiel, Jeremy T., 1995. "PLA Allegiance on Parade: Civil- Military Relations in Transition," China Quarterly, 0 (143): 784-800; also see Bullard, Monte R., and Dowd, Edward C., 1986. "Defining the Role of the PLA in the Post-Mao Era," Asian Survey, 26 (6), 706-720. 24 See Paltiel, Jeremy T., 1995. "PLA Allegiance on Parade: Civil-Military Relations in Transition," China Quarterly, 0

15 to place the military under civilian control. The civilian authorities enjoyed power

through most of the 1980s. Despite Deng Xiaoping’s efforts, the PLA overpowered the

civilian party during the Tiananmen Square protests, thus regaining much of its lost

privileges. The struggle for power between civilian and military authorities in the early

1990s became more pronounced, due to large-scale governmental restructuring.

The PLA’s political privileges and the ongoing power struggle with the civilian

authorities also exist in the area of arms exports and export controls, which can be

illustrated via export control reform and the corresponding restructuring of the government in 1998. Before 1998, the PLA commanded an overwhelming control over arms exports and export controls.25 The General Staff Department (GSD), the National

Defense University, the Commission of Science, and the Technology and the Industry for

National Defense (COSTIND) worked out arms control policies together. The first two institutions were under the direct control of the PLA and reported to the Central Military

Commission (CMC). Theoretically COSTIND fell under the joint control of both civilian and military party and reported to both the State Council and the CMC. In reality,

COSTIND largely fell under military leadership and all leading COSTIND personnel held military rank.

The PLA has a strong incentive for promoting the arms trade and weapon-related exports. (This will be addressed in the next section.) The PLA’s dominance in export policy making and implementation has led to many irresponsible arms exports to countries of concern such as Iran, Iraq, Pakistan and North Korea. However, when such exports occurred, the international community and existing control regimes blamed the

(143): 784-800. 25 See Lewis, John W., and Hua, Di, and Xue, Litai, 1991. "Beijing's Defense Establishment: Solving the Arms-Export Enigma," International Security, 15 (4): 87-109.

16

Ministry of Foreign Affair (MFA). As a matter of fact, as a civilian ministry, the MFA

did not have any real authority over arms exports or export control policies. The Ministry

of Foreign Trade and Economic Cooperation (MOFTEC) was supposed to have authority

on issues of arm exports. However, its authority was only a nominal one and it had no

real power over weapons export issues.26 Due to pressure from the international

community and domestic civilian parties, Chinese decision makers decided to improve its

export controls by civilianizing the export control system in the early 1990s.

The 1997 regulation regarding military exports made COSTIND the final authority over arms exports and export controls. A particular effort to achieve the civilianization of export controls was the restructuring of COSTIND. In March 1998,

COSTIND, together with 14 other ministries and commissions was abolished. Instead, a new commission was established using the same name. The new COSTIND is completely separated from the CMC and the PLA and answers only to the State

Council.27 Liu Jibin, the newly appointed director of COSTIND, is a civilian and the first non-PLA director of COSTIND. COSTIND is charged with the development of plans and

regulations, and manages all defense-industrial enterprises. The establishment of the new

COSTIND is an indication that the civilian authority is determined to wrest power over

export control from the PLA. While previously, COSTIND coordinated with the PLA on

matters regarding military needs and requirements, Liu Jibin did not mention the PLA or

its needs in his explanation of the new COSTIND.28 Alongside COSTIND, the MFA was

26 See Lewis, John W., and Hua, Di, and Xue, Litai, 1991. "Beijing's Defense Establishment: Solving the Arms-Export Enigma," International Security, 15 (4): 87-109. 27 For a good discussion, see Jencks, Harlan W., 1999. "COSTIND is Dead, Long Live COSTIND! Restructuring China's Defense Scientific, Technical, and Industrial Sector," In People's Liberation Army in the Information Age, ed. James C. Mulvenon and Richard H. Yang. Rand Corporation. Pp. 59-77. 28 See Gao Jiquan, “Shoulder Heavy Responsibilities, Accept New Challenges-Interviewing with Liu Jibin, Newly Appointed State Commission of Science, Technology, and Industry for National Defense Minister” Jiefangjun bao,

17 also becoming more influential in discussions about China’s arms export policies and decisions about specific sensitive weapons exports. The MFA established the Department of Arms Control and Disarmament (DACD), in which 10-12 officials focus solely on

conventional weapons issues.29

In spite of increasing civilian control of Chinese arm exports, top decision makers were prudent toward any loss of the PLA. In fact, the interests of the PLA had been fully considered in the whole reform and restructuring process. Parallel with the restructuring of COSTIND, a new department internal to the PLA was created. The newly established

General Armaments Department (GAD) took over part of the military responsibility from the old COSTIND and from the Bureau of Military Equipment and Technology

Cooperation (BOMETEC). The GAD oversees military aid and is in charge of military sales from PLA-controlled military enterprises.30

Fully taking the PLA’s interests into consideration, China’s efforts to civilianize the export control system has, as a matter of fact, divided the system into two independent systems. On one hand, defense-industrial enterprises no longer have official ties with the PLA and are subject to complete civilian control. On the other hand, the

PLA gained more control on military enterprises and their exports. Figure 2 and 3 provide a comparison of the structures of Chinese export controls before and after the restructuring. Figure 2 shows that, before the restructuring, Chinese defense-industrial enterprises and military enterprises as well as their exports were jointly administered by

April 9, 1998, p.5 in FBIS-CHI-98-119, April, 29, 1998. 29 For a good discussion, see Medeiros, Evan S., and Gill, Bates, 2000. Chinese Arms Exports: Policy, Players, and Process. Strategic Studies Institute. 30 For a good discussion, see Jencks, Harlan W., 1999. "COSTIND is Dead, Long Live COSTIND! Restructuring China's Defense Scientific, Technical, and Industrial Sector," In People's Liberation Army in the Information Age, ed. James C. Mulvenon and Richard H. Yang. Rand Corporation. Pp. 59-77; also see Medeiros, Evan S., and Gill, Bates, 2000. Chinese Arms Exports: Policy, Players, and Process. Strategic Studies Institute.

18 the PLA and civilian authorities, although the PLA was much more powerful. Figure 3 shows that Chinese export control system was largely improved in the sense that civilian authority has gained more power and authority in administering arms exports. Defense- industrial enterprises have been put under complete civilian supervision. In the mean time, however, the PLA has also gained its exclusive control over military enterprises.

Figure 2: Structure of the Chinese arms control system before the 1998 reform31

State Council PLA

N/A

Defense-industrial enterprises Military enterprises

Figure 3: Structure of the new Chinese arms control system following the 1998 reform

State Council PLA

COSTIND GAD

Defense-industrial enterprises Military enterprises

* means weak or nominal connections

31 The reason I place “N/A” in the middle box is that before the 1998 reform, it was very hard to tell exactly which office was in charge of the export control system due to the complicated distribution of power in Chinese political system. With growing foreign interest in its arms sales in late 1980s, China established an export control agency, the State Commission for Arms Export Administration (SCFAEA). Members include senior officials from the Ministry of Foreign Economic Relations and Trade, the PLA General Staff, and COSTIND. The State Arms Export Administration (SAEA) serves as the Commission’s executive agency. However, on 26 September 1989, a supra-ministerial level administrative body, the Military Products Export Leading Group (MPELG) was created under the CMC and State Council to oversee arms sales. The group meets at the General Office of the CMC and is headed by the CMC’s vice- chairman and the state councilor in charge of the arms industry. Other members are officials at vice-ministerial level from the defense and foreign ministries. Therefore it is uncertain who really is in charge of Chinese export controls.

19

This division proves to be the main reason behind the inefficiency of the Chinese

export control system. Independent from the PLA, defense-industrial enterprises fall under complete civilian control and their export behaviors should be better disciplined.

However, the military enterprise is subject to PLA control, and the PLA has a tradition of

surpassing state laws and regulations. As a result, exports from PLA-controlled

enterprises have become an exclusive area controlled only by the PLA. Leaders of the

PLA are fully responsible for executing all major operational dimensions of policies. In

this character, they undoubtedly champion, in the policy process, the interests of their

organizations on issues of critical institutional concern and also oversee the

implementation of all major policies within their own departments. For this reason,

military enterprises are able to export without going through the whole civilian control process as the defense-industrial enterprises do.

20

PLA-OWNED ENTERPRISES AND THEIR INCENTIVE FOR ARMS EXPORTS

The above section demonstrated that due to the PLA’s power and influence in

China’s political system, export control reform was incomplete and has left significant loopholes, which have given the PLA political and institutional privileges to commit sometimes questionable arms exports. Yet, one question remains to be asked: why and how does the PLA export? In other words, what factors have caused the PLA to become an obstacle to the progress of export control reform? To answer this question, two facts about the PLA should be understood. Firstly, the PLA has its own military enterprises that are conducting weapon exports. Secondly, these military enterprises, which are owned and controlled by the PLA, have strong incentives to export weapons. This section will take a closer look at the PLA-owned military enterprises and their incentives for arms exports.

The PLA-owned military enterprises are an indicator of the PLA’s deep involvement in Chinese economic activities.32 The PLA’s economic role can be traced to

its origin as a guerrilla army in the 1920s. At that time, military units relied on growing

their own food to meet basic subsistence needs. The PLA’s economic activities were

guided by Mao Zedong’s famous military philosophy, according to which “self-reliance

of the army to fight the revolutionary war” is a necessary condition. As a result, even

after the establishment of the PRC, regular military units were still required to participate

32 See Bickford, Thomas J, 1994. "The Chinese Military and Its Business Operations: The PLA as Entrepreneur," Asian Survey, 34 (5): 460-474; Mohanty, Deba R., 2000. "The PLA Industries: Issues and Implications," Strategic Analysis, 24 (3): 509-523; Shambaugh, David, and Yang, Richard H. ed., 1997. China's Military in Transition. Oxford: Clarendon Press.

21 in sideline agricultural and later industrial production work to prepare for possible war.

Through the years, the military has become an inseparable part of the Chinese national economy. Since 1978, due to economic reforms and an opening policy, military authorities have had increasingly more freedom in their economic operations. As a result, many military leaders allowed military units to expand their participation in economic activities to acquire additional sources of income. The PLA’s enthusiasm in economic

activities was further fueled by a defense budget cut in the early 1980s.33 To compensate

for the budget deficiency, the CMC, in 1985 issued a directive of “releasing water to feed fish”, thus officially supporting the military’s role in business policies.34 PLA enterprises

were granted more freedoms in production and management matters. As a result, many

military companies and enterprises were established. Currently, the PLA owns and has

connections to 20,000 companies and enterprises. Most large and medium sized military

enterprises must be affiliated with a PLA conglomerate that is owned and directly

controlled by a general headquarters department. Figure 4 briefly summarizes these PLA

conglomerates.

China’s Xinxing Corporation is the arms sales agent of the PLA’s General

Logistics Department. It markets primarily logistics equipment. Under the General

Political Department, the Kaili Corporation deals with communications equipment. The

People’s Armed Police oversees the Jingan Equipment Import-Export Corporation, which deals in small arms and riot and security equipment. The Zhihua Corporation Limited is

33 One particularity of Chinese defense expenditure deserves attentions. According to different sources, Chinese military expenditure has been constantly increasing in the 1980s. However, this fact was not contradicted with the defense budget cut stated here. The sources of Chinese military expenditure can be divided into three categories: the first is the national defense budget, the second is the commercial earnings from PLA-owned enterprises and the third component is local government funds. In the 1980s, among the 6 categories of national budgets, defense budget had indeed been reduced and this defense budget cut created PLA enterprises’ incentive for wider economic involvement. This had compensated for the national budget deficiency and had maintained the increase of military expenditure. 34 Wang Fang, “Fighting at Wartime and Pursuing Business at Peacetime” China Daily, August 6-12, 1995.

22 the agent of the Communications Department of the PLA’s General Staff Department and markets mainly communication systems. The General Staff Department owns and

controls Polytechnologies. Polytechnologies was established in 1983. Although it is officially registered as a subsidiary of the country’s largest foreign investment firm,

China International Trust and Investment Corporation (CITIC), which lends it a “civilian

corporate facade”, it is completely a PLA-owned enterprise. Polytechnologies is well known among international arms merchants as China’s most aggressive arms dealer. At the regional level, each military region also has its own military enterprise subject either to the military region itself or to different levels of military units. (This will be further addressed in next section).

Figure 4: The PLA’s main conglomerates35

Central Military

General Staff Dept. General Logistics General Political People’s Armed

Kaili Corp. Jingan Im/Ex China Xingxing

Equipment Communication PLA Air Force PLA Navy

Lantian Corp. Xinghai

China Zhihua Corp. China Electronics Syst Eng.

Polytechnologies Ping He Electronics

PLA military enterprises have become a main source of income for the army.

Declared profits from the military’s commercial activities are roughly equivalent to

35 Source: edited from Bickford, Thomas J, 1994. "The Chinese Military and Its Business Operations: The PLA as Entrepreneur," Asian Survey, 34 (5): 460-474.

23 between 10 to 15 percent of the country’s published defense budget. Annual turnover and

profits of those military enterprises have maintained a 15 per cent increasing rate every

year since middle 1980s.36 See Figure 5.

Figure 5: Commercial earnings of the PLA 1989-1998 (in billion current yuan)37

12

10 9. 751 8. 64 8 7. 64 6. 387 6. 608 6 5. 668 4 3. 303 2. 515 2. 903 2

0 1989 1990 1991 1992 1993 1994 1995 1996 1997

Military enterprises are allowed to keep a substantial portion of their earnings, retaining between 20 to 40 percent of their profits for reinvestment and other uses; the majority of the profits are, however, repatriated to the General Logistics Department

(GLD) to subsidize the PLA’s budget.38

Since the early 1980s, PLA companies have become more and more active in arms exports. Arms exports from PLA’s trading companies have become the largest single source of the military’s extra budgetary income. Ironically, the PLA’s behavior is concomitant with the Chinese government’s efforts to reform and improve the existing export control system and therefore, has, to a large extent, undermined the effectiveness of export control reform.

36 See “China’s Leading Companies: 1994” China Statistical Information and Consultancy Service Center in Hong Kong. 37 Source: edited from Wang, Shaoguang, 1999. "The Military Expenditure of China, 1989-98," In SIPRI Yearbook 1999: Disarmament and International Security, appendix 7D. 38 See Mohanty, Deba R., 2000. "The PLA Industries: Issues and Implications," Strategic Analysis, 24 (3): 509-523; Medeiros, Evan S., and Gill, Bates, 2000. Chinese Arms Exports: Policy, Players, and Process. Strategic Studies Institute.

24

There are mainly two reasons for the PLA’s strong incentive to export weapons.

First, profits from arm exports have become a major financial source and compensate for the military budget deficiency.39 Second, arms exports are a means for the PLA to get hard currencies that are needed to purchase foreign advanced defense technology and

weapons for modernization.

Since 1978, China has undertaken economic reform and has gradually adopted

more liberal and open policies. These policies have led to a re-prioritization and more emphasis has been placed on economic development. In the early 1980s, a special

committee was formed to undertake a comprehensive evaluation of China’s national

security environment and the global security environment overall. It was concluded that

both environments have improved in China’s favor.40 The committee’s findings further

strengthened the will of decision makers to carry out economic reforms and many

resources have been diverted to programs and projects for economic development. This

in turn led to the defense budget being significantly cut in favor of economic investment.

From1979 to 1989, the Chinese defense budget for each year was lower than the

expenditure for 1979, and comprises only a small portion of the Chinese government’s

national budget. Within 10 years, defense allocations as a portion of national spending

fell from 17.5% to 7.4%.41 Even with a budget increase after 1989, the PLA was still

unable to meet all of its needs. This situation was exacerbated by the rise in commodity

prices. Between 1981 and 1989, commodity prices went up by 90%.42 The PLA expanded

39 See note 33 40 Donovan, Kevin F., 1996. The Economics of Proliferation in the People's Republic of China. Research Report at Air War College, Air University, AU/AWC/RWP075/96-04. 41 See note 33. 42 See Chinese Statistical Yearbook 1992.

25 its role in national economic matters to support its military budget and arms exports have become a major means for financing military projects.

The PLA’s incentive for arms exports has further intensified since the 1990s. The

Gulf War and the awesome display of U.S. firepower and technology revealed that warfare had made a quantum leap into a new era. The Gulf War had a huge impact on the

PLA’s strategies and doctrines. After the war, the PLA changed its doctrine and called for the preparation of “limited war under high technology conditions”. The success of this doctrine is based upon the ability of the Chinese military to transform itself into a highly mobile and flexible military force capable of responding rapidly. In addition, it must also possess concentrated and coordinated firepower and offensive power projection capabilities.43 All these require the PLA to improve its technological capabilities and possess more advanced weapons and related technologies, transportation and communications facilities. A fast and efficient way to improve PLA capabilities is to purchase advanced weapons and technologies from other developed countries. In the

1990s, the PLA purchased advanced weapons systems and technologies from countries such as Israel, France, Britain, the United States and Russia. These weapons and

technologies included air-to-air missiles, air-refueling technology, Global Positioning

Systems (GPS) technology, electronic communication technologies and facilities,

helicopter parts, and assorted avionics.44 To provide the hard currency necessary to

facilitate these purchases, the PLA exported weapons from its own inventory. It is estimated that in 1998, almost all of the profits from PLA arms exports were used to

43 For a good discussion, see Buran, R. Scott “China’s PLA: A sleeping Dragon or Asian Goliath” http:// www.globalsecurity.Org/military/library/report/1997/Buran.htm; also see Kondapalli, Srikanth, 1999. China’s Military, The PLA in Transition. New Delhi: Knowledge World. 44 See Gallagher, Joseph P.1987. "China's Military Industrial Complex: Its Approach to the Acquisition of Modern Military Technology," Asian Survey, 27 (9): 991-1002.

26 purchase foreign high-tech weapons systems and related facilities.45 Therefore, the PLA’s

arms exports are not only a means to finance the military budget, but are considered a

necessary and inherent part of the PLA’s modernization strategy.

In conclusion, the PLA has owned and tightly controlled a significant number of

military enterprises, which actively and aggressively participate in arms exports. The

increasing incentive for those companies to pursue arms exports runs parallel with the

development of economic reforms. The shift in the national strategy have diverted

resources to economic development and therefore, significantly reduced the defense

budget.46 In turn, profits from arms exports provide new sources of income to

compensate for this deficiency. Arms exports are also being used to generate more hard

currencies to purchase advanced weapons and technologies from developed countries so

as to modernize the army. Arms exports, therefore, have become an inseparable part of

the modern PLA’s strategic development. Because arms sales continue to provide much

needed hard currency, the PLA has little incentive to bend to pressure from civil authority

and discipline its weapons export behavior.

45 PLA itself claims that earnings from its arms exports are used to finance the livings of the army. However, most scholars believe that almost all the arms exports earnings are used for weapon and technology acquisition and R & D. 46 In the 1980s, Deng Xiaoping advocated the “Four Modernization Movement”. They are Industrial Modernization, Agriculture Modernization, Science & Technology Modernization and Defense Modernization. The defense modernization was put in the last and resources and funds allocation priority was given to the former three modernization goals.

27

THE PLA’S CAPABILITIES AND NETWORKS TO EXPORT ARMS

It is almost impossible to paint a complete picture of the detailed process of arms exports conducted by PLA-owned enterprises, especially if sensitive weapons are involved. The PLA export network operates independent from its defense-industrial counterpart, which is overseen and controlled by civilian government agencies. PLA- owned enterprises have no responsibility of reporting business operations and export activities to civil government agencies. Information and data regarding PLA exports are very limited. Only a handful of high-ranking military officers have knowledge of important and sensitive weapons exports and deals are mostly permitted and completed through personal connections and authorizations. It is almost impossible to trace the PLA export process by tracking the formal bureaucratic process. Due to these difficulties, the following paragraphs of this section will focus on examining PLA capabilities and privileges. This section will show that historical reasons and current Chinese political culture have enabled the PLA with arms export privileges.

The PLA has an institutional privilege regarding its arms exports and after the governmental restructuring in 1998, the export control system has been divided into two independent networks. Though the government has tightened its control of the defense- industrial sector, the PLA via GAD has been given more authority to oversee its own military enterprises. GAD controls the “old” COSTIND’s arms control division and tracks the full spectrum of arms control and nonproliferation issues including WMD proliferation, export controls, and nuclear tests. The creation of GAD has helped military

28 enterprises to circumvent the civilian export control system and to freely conduct exports.

A 1997 regulation stipulates that all military exports require a government-issued license.

However, regulations and government officials are vague with respect to PLA-owned enterprise licensing procedures. Should they apply for licenses from civilian-controlled government agency or from GAD? In theory, as is the case in most other countries, PLA- owned enterprises go through the same process as defense-industrial enterprises. In reality, PLA-owned enterprises have circumvented the regular licensing and control system. Export activities from those enterprises are generally unknown to civilians and independent of civilian controls. For example, when a foreign ministry spokesman was asked during a press conference about Polytechnologies’ arms sales to Libya, he responded that, “I am not clear about the matter”.47 It is speculated, that PLA-owned enterprises indeed first apply for licenses from civil agencies, but that GAD enjoys veto powers and can reconsider and override civilian decisions. Hence, for PLA-owned enterprises, the initial application process is only a nominal step and of no real importance. Theoretically, GAD must coordinate with the Foreign Affair Office (FAO) and the Ministry of National Defense (MND) on arms export decisions. In reality, however, FAO and MND have no real influence on any GAD decisions.

The institutional privilege enjoyed by the PLA stems form the particular characteristics of modern Chinese military and political history. Since the revolutionary era, the PLA was closely connected and controlled by the party, thus forming the CCP’s backbone. Unlike other countries’ militaries, the PLA is not a state but a party army. This unique feature makes it the only major army in the world that is under the "absolute

47 Anderson, Jack and Atta, Dale Van, 1986. “Red China Sells arms to the Contras” Washington Post, 5 May 1986; AFP in FBIS, Daily Report, China, 6 May 1987; Hyer, Eric, 1992. "China's Arms Merchants: Profits in Command," China Quarterly, 0 (132): 1101-1118.

29 leadership" of a political party. The CCP depends on PLA support and the army is the guarantor of the regime. The party's power pact with the PLA has meant that army personnel and military organizations are exempt from the power of civil government and the scrutiny of the National People's Congress (NPC).48

In addition to institutional privileges, the PLA’s officer corps has many strong connections to party personnel and has thus easy access to the highest decision-making bodies. Furthermore, the Chinese political culture is characterized by establishing and managing these connections, also known as “Guanxi”. In daily business negotiations,

Chinese officials and army officers are likely to utilize this integrated Guanxi network, rather than relying on formal institutions and the bureaucratic process.49 This is the major reason for the slow progress of Chinese political institutionalization.

The network of personal connection has been a major factor facilitating the PLA’s arms exports. The 1998 governmental restructuring has physically broken the PLA’s institutional ties with defense industries and civilian authority on exports controls.

However, the PLA still maintains personal connections. As a matter of fact, when the

COSTIND was civilianized, all former COSTIND officials moved to the newly created

GAD or other PLA departments. These people, familiar with both civilian and military parties, are important personal connections for the PLA. For example, the head of GAD,

General Cao Gangcuan was the former head of COSTIND. As the former head of

COSTIND, Cao had established a tremendous amount of connections with people in the

State Council, the MND and the MFA. It is believed that Cao has played an important

48 For a good discussion, see Falkenheim, Victor C. ed., 1987. Citizens and Groups in Contemporary China. Center for Chinese Studies, the University of Michigan. 49 For a good discussion, see Yuan, Jing-Dong, 1998. "Culture Matters: Chinese Approaches to Arms Control and Disarmament," Contemporary Security Policy, 19 (1): 85-128.

30 role in some of China’s well-known arms export cases, such as the 1988 transfer of DF-3 intermediate range ballistic missiles to Saudi Arabia.50

At enterprise levels, important and influential persons also support many PLA-

owned military enterprises. For example, Polytechnologies provides one of the most

prominent illustrations of the power of PLA enterprises. Polytechnologies is one of the most active and aggressive arms exporters in China. In fact, original purpose of the enterprise was to engage in the aggressive sale of arms. Indirectly, the profitability of

arms sales by defense-industrial enterprises in the early 1980s gave rise to the creation of

Polytechnologies. The military, envious of defense-industrial enterprises’ profits, set up

Polytechnologies under the Equipment Department of the PLA’s GSD in order to share in the substantial income from arms sales. Ever since its creation, Polytechnologies has been run and supported by influential individuals. During the start-up years, it was run by a group of military officers and was supervised and headed by General He Pengfei, son of

Marshal He Long. Currently, the president of Polytechnologies is Colonel He Ping, the son-in-law of Deng Xiaoping. The executive vice president, Wang Xiaochao, is the son- in-law of former president Yang Shangkun.51 The networks of close relatives who

dominate Polytechnologies and other corporations play an important role in China’s arms

sales. They have not only helped PLA-owned enterprises circumvent the regular

bureaucratic process but have incorporated individual interests of China’s most

influential persons and families into exports thus making regulation extremely difficult.

50 See Medeiros, Evan S., and Gill, Bates, 2000. Chinese Arms Exports: Policy, Players, and Process. Strategic Studies Institute. 51 See Hyer, Eric, 1992. "China's Arms Merchants: Profits in Command," China Quarterly, 0 (132): 1101-1118; also see Lewis, John W., and Hua, Di, and Xue, Litai, 1991. "Beijing's Defense Establishment: Solving the Arms-Export Enigma," International Security, 15 (4): 87-109.

31

PLA-owned enterprises have enjoyed other advantages for their exports. Usually,

PLA-owned enterprises sell military products from existing stockpiles. Hence, the PLA can usually ensure the speedy delivery to customers. Therefore, unlike defense-industrial

enterprises, PLA enterprises are immune to production cycles. It is believed that besides having direct access to the PLA stockpile, these enterprises also assume part of the accounting responsibilities for PLA weapons and sales. PLA officers and military enterprises secretly and internally handle records of stockpiles and weapons caches,

which makes tracing of sensitive exports extremely difficult. Since defense-industrial

enterprises have to spend time, invest capital, and obtain licenses from civilian authorities

to produce items intended for export, they are easier to track than PLA-owned enterprises.

At provincial and local level, military regions and military units have control over

their own enterprises. These enterprises, far from central supervision, lack serious

controls and regulations and military regions and military units exclusively run these enterprises. See Table 2. Provincial and local governments usually have little or very weak control over these military enterprises.

Table 2 is a brief summary of numbers of military enterprises controlled by different military branches. Under each of these companies, there are numerous military companies controlled by military units. In the 1980s, due to defense budget deficiencies, many PLA regions and units rushed to establish military enterprises. As a result, many enterprises were established unbeknownst to the above-mentioned military units. For example, upon visiting one of his plants, an official of Xinxing Corporation discovered that eight additional businesses had been opened without corporate headquarters’

32 knowledge.52 This situation has led to a serious spread of corruption, smuggling and other illegal behaviors within the army. Since the 1990s, these enterprises are more centralized and basically controlled by higher levels of military units or by military regions, but remain independent of government controls.

Table 2: Number of military enterprises controlled by various branches of PLA53

Branch enterprises Numbers General Staff 27 Political Commissars 3 General Logistics 67 Air force 27 Navy 27 Second Artillery 2 Shengyang Military Region 20 Beijing Military Region 8 Lanzhou Military Region 5 Chengdu Military Region 13 Guangzhou Military Region 11 Jinan Military Region 10 Nanjing Military Region 8

52 See Cheung, Tai Ming, 1993. “Serve the People” Far Economic Review, 14 October 1993; also see Donovan, Kevin F., 1996. The Economics of Proliferation in the People's Republic of China. Research Report at Air War College, Air University, AU/AWC/RWP075/96-04. 53 Source: Karmel, Solomon M., 2000. China and the People's Liberation Army: Great Power or Struggling Developing State? New York: St. Martin's Press.

33

THE PLA’S RELATIONSHIP WITH DEFENSE-INDUSTRIAL ENTERPRISES

The 1998 reform divided the Chinese export control system into two separate networks. As a result, control over defense industrial enterprises has been tightened and those enterprises are more willing to conform to the wishes of civil authorities. On the other hand, the PLA has been given more exclusive authority and power in managing and overseeing its own enterprises. This bifurcation has created loopholes in China’s export control system. Yet, the PLA and defense industrial enterprises are not completely separate from each other. In fact, though the formal institutional tie has been cut, the PLA still has a strong impact on the behavior of defense-industrial enterprises. Regarding the issue of arms exports, the PLA is indirectly playing an important role in the arms exports of defense-industrial enterprises.

Although, defense-industrial enterprises are currently more tightly controlled and are more willing to conform to export control regulations and policies, they have no less an incentive for arms exports than their PLA counterparts. The reason for the defense- industrial enterprises’ strong incentive to export can be traced to a structural problem in the Chinese socioeconomic system, namely the imbalanced development of civilian production and technology compared to that of defense production and technology.

Chinese defense industry is more efficient in technology development and production in defense sectors than in civilian sectors (Appendix III provides a list of defense-industrial enterprises). This by no means suggests that Chinese defense productions are far advanced, but it does mean that defense production in China enjoys a comparative

34 advantage over civilian production. This dates back to the militarization-skewed priorities

in national technology strategy during the 1950s and 1960s, which steered away from

comprehensive development. The biggest challenge imposed on the new PRC

government at that time was its survival and security in an unfavorable international environment. Therefore, from the 1950s to the early 1970s, the Chinese government, first

under the help of Soviet Union and later independently, had diverted huge resources to

develop its defense capabilities.54 For example, of the 156 “key industrial projects” that formed the centerpiece of Soviet assistance to the PRC in the 1950s, more than 40% were weapons and other defense-related strategic productions. From 1966 to1976, the Chinese government made huge efforts to build the “Third Front” to relocate key defense plants away from vulnerable coastal areas. This program absorbed more than 50% of the

Chinese national investment.55 Therefore, up to the early 1970s, Chinese socioeconomic development had been skewed toward the defense sector, and the growth of the civilian sector had been seriously stunted. In fact, many of the civilian sectors were run by defense industries as well. While incentives existed to develop and improve defense technologies and productions, no comparable incentives for the civilian sector existed. In this highly centralized and planned economy, no other enterprises provided civilian goods to the public.

While this situation has led to a huge gap between the development levels of defense and civilian sectors, the more serious impact was in the socioeconomic structural change, which has turned out to be a critical factor in determining Chinese defense export

54 For a good summary, see Frankenstein, John, 1999. "China's Defense Industries: A New Course?" In People's Liberation Army in the Information Age, ed. James C. Mulvenon and Richard H. Yang. Rand Corporation. Pp 187-216. 55 See Naughton, Barry, 1988. "The Third Front: Defense Industrialization in the Chinese Interior," China Quarterly, 0 (115): 351-386; also see Frankenstein, John, 1999. "China's Defense Industries: A New Course?" In People's Liberation Army in the Information Age, ed. James C. Mulvenon and Richard H. Yang. Rand Corporation. Pp 187-216.

35 activities. The skewed allocation of resources to defense sectors through the 1950s to the early 1970s had improved the efficiency of defense sectors compared to civilian sectors.

As a result, even when social economics became less command and control oriented, the comparative advantage of military defense industries in technology and production enabled them to easily absorb more resources. This was primarily the result of economic

optimization of the market. In other words, the government’s skewed efforts in defense development later created a self-maintained resource allocation mechanism in favor of the defense sectors.

Empirical evidence for this economic imbalance can be found by a brief look at

the failure of “defense conversion” in the early 1980s. The defense conversion is a reflection of government’s attempt to reverse the trend of disproportional resource allocation toward defense sectors. A large-scale defense conversion was started a few years after the launch of economic reforms. Those few years represent a period in which

the government had increasingly realized the socioeconomic structural problems it had

created during the past 30 years. Apparently, they were slowly learning that a free market

economy would not solve the problem, because free markets, which are characterized by optimal business solutions, represent the very mechanism that maintained the imbalanced structure. For this reason government had been playing a major role in defense

conversion. The proposal of defense conversion received attention at the highest levels

and was incorporated into the mechanisms of the central Five-Year Plans. The

operationalization of defense conversion had been put under the direction of a Three

Commission Liaison Group for Defense Conversion (TCLGDC), which brought together

36 officials from the State Planning Commission (SPC), the Science and Technology

Commission (STC), and the COSTIND.56

However, defense conversion has proven to be a failure. By the end of the 1980s,

90% of defense firms were having problems meeting their payrolls.57 One military researcher noted, “the policy of stimulating civilian industry through military R&D and arms production, if not a complete failure, has many limitations itself.” Along with the promulgation of new export control regulations and corresponding bureaucratic restructuring, the government started another program of a long-term strategic restructuring of China’s defense industries. Whether this new program can be successful remains to be seen. The failure of defense conversion in the 1980s made defense industries more reluctant to divert their resources towards civilian production. In fact, many defense firms had shifted their defense productions back to their original scales.

The comparative advantage in defense productions for defense-industrial enterprises has created incentives for arms exports. Since the beginning of economic reform, subsidies for the defense industry have decreased. One of the objectives of the economic reform is to market defense-industrial enterprises so that they could support themselves instead of being funded by the government. However, as mentioned before, the failure of defense conversion has brought financial difficulties to many defense- industrial enterprises. Arms exports have become a viable and important financial resource.

56 See Folta, Paul H., 1992. From Swords to Plowshares? Defense Industry Reform in the PRC. Boulder: Westview Press. 57 See Pei, Jiansheng, 1994. “Market solution eludes remote military-industrial complex,” China Daily Business Weekly, 6-12 November 1994, p7.

37

The PLA plays an active role throughout the entire process. The relationship between the PLA and defense-industrial enterprises is very subtle. There is an ambivalent feeling from defense industrial enterprises toward the PLA. On one hand, the PLA is the single largest end-user of military and military related products produced by the defense industry. Therefore, continuing demand from the PLA for defense products guarantees the financial health of defense-industrial enterprises. Arguably, the PLA’s consumption of and acquisition from defense enterprises is an important determinant of the defense industry’s incentives for military exports. One current trend, however, is that the shrinking domestic market for the defense industry, due to the declining demand from the

PLA, has become a major driving force for Chinese defense export activities.

Traditionally, the PLA tended to consume mainly domestically procured products, because the Chinese government did not want its national defense to be dependent on any external factor. However, as mentioned before, the Gulf War changed the Chinese decision-makers’ view about modern war. The PLA realized the urgent need to modernize China’s military force and defense technology. Yet domestic military and military-related R&D is far from being able to meet the goals of defense modernization.

Therefore, the PLA has started to intentionally violate the Chinese imperative of self- reliance and turned outward for modern military products and technologies.58 Such

declining domestic demand was part of the reason leading to an overcapacity of defense industries and thus China’s export efforts intensified. On the other hand, PLA enterprises are competing with defense-industrial enterprises for arms exports. The previous section

58 See Gallagher, Joseph P.1987. "China's Military Industrial Complex: Its Approach to the Acquisition of Modern Military Technology," Asian Survey, 27 (9): 991-1002.

38 has shown that PLA enterprises are enjoying very critical advantages compared to defense-industrial enterprises.

Before the 1998 reform, the PLA enjoyed partial authority of overseeing defense

industrial enterprises. Principally, civil authorities and the PLA jointly controlled the

defense industry. In reality, the PLA had real power over most of the important defense

issues. With PLA support, defense industrial enterprises were generally very active in

arms exports, but due to their connection and partial subjection to civil authorities,

defense industrial enterprises were not as unregulated as PLA enterprises. Nonetheless,

support from the PLA enabled them to ignore the wishes and preferences of civil

authorities most of the time. After the 1998 reform, however, the management structure

of the defense industrial enterprises has been significantly changed. Defense industrial

enterprises have been placed under direct and complete control of the State Council and have no official institutional ties with the PLA. However, it is believed that a channel has

already been established between defense industrial enterprises and the PLA to facilitate

arms exports. As shown before, any arms export by the defense industry requires a

license. This licensing system can be circumvented by the PLA and estimations regarding

the channel’s mechanisms can be made: Defense-industrial enterprises first sell their to-

be-exported products to the PLA in the form of PLA arms acquisition. Since the PLA’s

acquisition of weapons is completely a decision within the PLA, civil authorities

generally have no power to interfere. Therefore, no license is required for such a sale.

When the deal between the defense-industrial enterprises and the PLA is complete, sold

weapons are placed in the PLA stockpile and fall completely under the management of

the PLA accounting system, which lies beyond the reach of the civil authorities. Then,

39 these weapons are pulled by PLA military enterprises and exported to foreign costumers.

In return, defense-industrial enterprises generally allow the PLA to retain a certain percent of the profits.

Figure 6: The estimated process of defense-industrial exports through the channel of PLA

Licensing System

Defense-Industrial Foreign Demanders Civil Controls Suppliers

PLA demanders

PLA stockpile PLA military Regular Channel enterprises PLA Channel

PLA accounting system

Figure 6 estimated the process. Export deals through PLA channels depend mostly on personal connections between the defense-industrial officials and the PLA officers. Therefore, the detailed process is very difficult to track and is, most of the time, not open to public knowledge.

40

CONCLUSION

Despite China’s significant progress in export control regulations and policies,

China has still been criticized for aggressive arms exports and secret assistance to some sensitive countries, such as North Korea, Iran and Pakistan. The Chinese government receives and bears the blame in the international community. The Ministry of Foreign

Affairs has assumed considerable burdens trying to claim repeatedly China’s principles and positions regarding exports controls and to clarify and explain Chinese weapons proliferation. While continuing pressure on the Chinese government is worthwhile, more attention should be paid to the internal political structure that prevents further progress in

Chinese exports controls. When writing about Chinese exports controls, most scholars are focusing on the progress of law and policymakings. However, it is the implementation of laws and polices that is proving to be the biggest problem hampering further progress in

Chinese exports controls.

The PLA is one of the most important players in the Chinese political system and it is the PLA that has significantly undermined the effectiveness of Chinese exports controls. Any significant improvement of China’s current export control system will cost the PLA dearly, because arms exports represent a major means of making up for the financial deficiencies resulting from China’s defense budget cut.59 Such incentives for

exports have been reinforced by the PLA’s strong intention for modernization, especially

since the 1990s. Therefore, when the Chinese government started to reform and tighten

59 See note 33.

41 its export control systems, the PLA became one of the major opposing forces responsible for derailing past and current attempts at reform.

The PLA’s arms exports are supported by its political privileges, strong personal connections and easy access to the highest decision makers. By strength of these factors, the PLA is able to maintain an independent and separate export network and hence PLA- owned military enterprises can circumvent China’s regular export control system and conduct arms and other weapon-related exports more easily than defense industrial enterprises. This bifurcation of export controls has created loopholes in the Chinese system and has rendered many export laws and policies ineffective.

Though the Chinese government is making an attempt at decommercializing the

PLA, the PLA’s influence in China’s arms exports is unlikely to diminish in the near future. Therefore, to make China more cooperative regarding export controls and nonproliferation, it is worthwhile to search for ways at diverting at least part of the pressure directly to the PLA instead of only to the civil government. After all, while somewhat immune to domestic pressure, the PLA may bend to international requests. In an era dominated by high technology, the PLA relies on international weapons and technology suppliers for its own modernization.

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APPENDIX I: EVOLUTION OF CHINA’S EXPORT CONTROL SYSTEM

SECTORS LAWS AND REGULATIONS

General • Foreign Trade Law, 1994

Chemical & • Regulations on Chemical Export Controls, December 1995 Dual-Use • Supplement to the December 1995 regulations, March 1997 • A ministerial circular (executive decree) on strengthening chemical export controls, August 1997 • Decree No.1 of the State Petroleum and Chemical Industry Administration (regarding chemical export controls), June 1998 (Note: These regulations have expanded the coverage of China's chemical export controls to include dual-use chemicals covered by the Australia Group) • Measures on Export Control of Certain Chemicals and Related Equipment and Technologies and Certain Chemicals and Related Equipment and Technologies Export Control List, issued on 19 October 2002

Biological • Regulations of the People's Republic of China on Export Control & Dual-Use of Dual-Use Biological Agents and Related Equipment and Technologies and Dual-Use Biological Agents and Related Equipment and Technologies Export Control List, issued 14 October 2002

Nuclear & • Circular on Strict Implementation of China's Nuclear Export Dual-Use Policy, May 1997 • Regulations on Nuclear Export Control, September 1997 (Note:

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The control list included in the 1997 regulations is identical to that used by the Nuclear Suppliers Group, to which China is not a member) • Regulations on Export Control of Dual-Use Nuclear Goods and Related Technologies, June 1998 • Nuclear export control list as amended, 28 June 2001

Military & • Regulations on Export Control of Military Items, October 1997 Dual-Use • The Procedures for the Management of Restricted Technology Export, November 1998 (Note: The new regulations cover 183 dual-use technologies, including some on the Wassenaar Arrangement's "core list" of dual-use technologies) • China's Ministry of Foreign Trade and Economics Cooperation (MOFTEC) released a Catalogue of Technologies which are Restricted or Banned in China, presumably also in late 1998 • Decision of the State Council and the Central Military Commission on Amending the PRC Regulations on Control of Military Products Export, issued on 15 October 2002)

Missile • Chinese government gave verbal assurance of its intention to Systems & adhere to MTCR, November 1991, followed by written Components commitment, February 1992 • U.S. and Chinese governments issued a joint statement on missile proliferation, October 1994. Beijing agreed to ban all MTCR-class missiles and to the "inherent capability" principle in defining MTCR-class missile systems. • The Chinese government issued a statement in November 2000 promising for the first time to promulgate missile export control regulations and to issue a control list. • China announced the promulgation of the Regulations on Export

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Control of Missiles and Missile-related Items and Technologies and the Control List in August 2002.

Source: Yuan, Jing-Dong, 2002. Strengthening China's Export Control System. Center for Nonproliferation Studies, Monterey Institute of International Studies.

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APPENDIX II: CHINA’S PROLIFERATION RECORD TIMELINE

1990

• China begins selling C-802 anti-ship missiles to Iran, continuing a trend of missile transfers between the two states. Following the war with Iraq, Iran purchased a number of anti-ship and CSS-8 short-range cruise missiles from China. Due to their relatively short range, these missiles are not covered by the MTCR. By the mid-1990s, this co-operation appears to have ceased, and China is thought to have provided Iran with a total of 150 C-802 missiles (out of 400 ordered).

January

• China signs a 10-year military technology transfer agreement with Iran. Agreement heightens U.S. concerns that China is assisting Iranian nuclear programs. By 1995, China had provided Iran with three zero-power research reactors, one 30-KWt reactor, and two calutrons.

September

• Following U.N. embargo on Iraq, China is suspected of shipping lithium hydride to the country. The chemical is an ingredient in missile fuel, and also has other weapons uses.

1991

April

• Discovery of Algerian Ain Oussera reactor publicized. U.S. announces that it has discovered the transfer of an M-11 missile from China to Pakistan.

June

• U.S. applies Missile Technology Control Regime (MTCR) Category II sanctions on China and Pakistan for missile technology transfers. China denies that it transferred missiles to Pakistan.

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1992

January

• U.S. officials charge China with transferring chemicals used in making missile fuel to Syria.

November

• China reportedly transfers 34 M-11 missiles to Pakistan. The missiles are believed to be stored in canisters at Sargodha Air Force Base near Lahore. Although unassembled, it is thought that the missiles could be operational within 48 hours.

1993

August

• U.S. again applies MTCR Category II sanctions on China and Pakistan for missile technology transfers.

1995

June

• News stories citing U.S. intelligence sources report that China is believed to have transferred rocket fuel ingredients, guidance systems, and computerized machine tools used in missile production to Iran.

1996

• U.S. Arms Control and Disarmament Agency (ACDA) report states that "Since China’s accession to the NPT, it appears that China may have continued to assist Pakistan’s unsafeguarded nuclear program and may have continued contacts with elements associated with Pakistan’s nuclear weapons related program."

February

• Discovery of Chinese ring magnet sale to Pakistan causes U.S. to halt acceptance of Export-Import bank loan applications from China. The magnets, sold to the Kahuta Research Laboratory (a facility outside of IAEA safeguards), are made of

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a samarium-cobalt alloy and can be used in uranium enrichment processes. Both Pakistan and China deny the sale took place.

March

• Pakistan reports that it has completed work on a research reactor at Khushab, another facility outside of IAEA safeguards. Although Pakistan claims that the plutonium production reactor is "indigenous," China is believed to have provided assistance in its construction.

June

• China and Algeria sign a nuclear co-operation agreement. China is believed to be involved in the construction of the Algerian Center of Nuclear Energy Research, a facility that will be placed under IAEA safeguards.

August

• Reports surface that China is assisting Pakistan in construction of Rawalpindi missile manufacturing facility, and that the China Precision Engineering Institute is planning to sell missile guidance technology to Iran.

1997

May

• U.S. places sanctions on seven Chinese business entities for assisting Iran’s chemical weapons programs. However, the U.S. also concludes that the Chinese government was not involved in the transfers.

July

• CIA report calls China "The most significant suppliers of weapons of mass destruction related goods and technology to foreign countries" from July to December 1996.

November

• A Department of Defense report titled "Proliferation: Threat and Response" states, "In recent years, China has increasingly participated in arms control and nonproliferation regimes. On the other hand, China’s continuing and long- standing economic and security relationships provide incentives for activities that are inconsistent with some nonproliferation norms; Chinese firms continue to

48

assist Pakistan’s indigenous missile development effort; China also is an important supplier of equipment, materials, and technology for Iran’s chemical warfare and ballistic missile programs."

1998

June

• Senate Foreign Relations Committee holds hearing titled "Chinese Missile Proliferation." Dr. Gordon Oehler, a recently retired CIA non-proliferation expert, testifies "Since late 1992, China has not transferred complete MTCR-covered missiles to any country. Instead it has concentrated on transferring production technologies and components." Later at the same hearing, Dr. Gary Milhollin of the Wisconsin Project testifies, "China’s exports remain the most serious proliferation threat in the world. Since 1980, China has supplied billions of dollars worth of nuclear weapon, chemical weapon and missile technology to South Asia, South Africa, South America and the Middle East."

October

• At a Senate Foreign Relations Committee hearing on "The Ballistic Missile Threat to the United States," former Secretary of Defense Donald Rumsfeld testifies, "Russia and China have emerged as major suppliers of (missile) technology to a number of countries." Later in the hearing, Dr. Bill Graham, former Science Advisor to President Reagan, testifies, "States that we call rogue states, Iran, Iraq, Syria, Libya, might better be characterized as client states to Russia and China. In the case of Russia and to some degree, China, there is good money in selling ballistic missiles and ballistic missile technologies." • U.S. protests the delivery of telemetry equipment from China to Iran.

1999

February

• CIA report states that, from January to June 1998, China "provided a variety of missile-related items and assistance to several countries. Chinese entities sought to supply Iran and Syria with CW-related chemicals"

July

• China is reported to have recently provided missile guidance components to North Korea.

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September

• The National Intelligence Council reports "Foreign Missile Developments and the Ballistic Missile Threat to the United States Through 2015" states "Pakistan has Chinese-supplied M-11 short-range ballistic missiles." The statement represents the first time a U.S. report publicly asserted that China transferred completed M- 11s to Pakistan.

2000

February

• CIA report states that from January to June 1999 "Firms in China provided missile related items, raw materials, and/or assistance to several countries of proliferation concern – such as Iran."

• Chinese Foreign Minister Tang Jiaxuan visits Iran. Iranian news reports state that nuclear and missile technology co-operation is discussed.

April

• U.S. press reports surface that China recently supplied missile technology to Libya.

Source: edited from “China Proliferation Factsheet” Carnegie Endowment for

International Peace, http://www.ceip.org/programs/npp/Chinafactsheet72400.htm

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APPENDIX III: CHINESE DEFENSE-INDUSTRIAL ENTERPRISES

Commission of Science, Technology, and Industry for National Defense (COSTIND) has at least three companies and two think-tanks subordinate to it:

• China Xinshidai (New Era) Development Corporation (CNECO); • High and New Technology for Peace and Development Co. Ltd. (a joint venture by New Era with U.S. and Japanese companies); • China Yuanwang (Group) Corporation; • Galaxy New Technology Corporation; • China National Defense Science and Technology Information Center (CDSTIC); • China Association for Peaceful Use of Military Industrial Technology (CAPUMIT); • National Defense Sciences and Technology University in Changsha and the National Defense Science and Technology University in Harbin also appear to be affiliated with COSTIND.

China National Nuclear Corporation (CNNC) consists of more than 200 enterprises. Among them are:

• China Nuclear Energy Industry Corp (CNEIC); • China Nuclear Instrumentation and Equipment Corp (CNIEC); • China Nuclear Equipment and Materials Corp (CNEMC); • China Institute of Atomic Energy (CIAE) (also affiliated with the Chinese Academy of Sciences); • Air Survey Remote Sensing Center of Nuclear Industry (ASRSC); • China Institute for Radiation Protection (CIRP); • No. 2 Research and Design Institute of the Nuclear Industry (formerly known as "Beijing Nuclear Engineering Research and Design Institute" or still BINE, for short); • Eighth Research Institute of Nuclear Industry (ERINT); • Beijing Research Institute of Chemical Engineering and Metallurgy (BRICEM); • Research Institute of Nuclear Power Operations (RINPO); • Shenzhen Kaili Industrial Development Corp (SKIDC); • Gansu Huayuan Enterprise Corporation (GHEC); • Research Institute of Uranium Mining (RIUM); • Southwest Institute of Physics (SWIP); • China Zhongyuan Engineering Corp (CZEC);

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• Qinshan Nuclear Power Plant; • Nuclear Industry Physicochemical Engineering Research Institute; • Jianzhong Chemical Industry Corp (JCIC) (probable association with CNNC).

China North Industries Group, NORINCO (G), has over 300 subelements including factories (157 medium to large factories), research institutes, and trading companies. It has established over 100 joint ventures and has more than 20 overseas offices and 60 branches. Among the best known elements are:

• China North Industries Corp (NORINCO); • China Yanxing National Corp; • China General Industrial Material and Equipment Supply Corp; • Northeast Machinery Plant; • Benxi Precision Machinery Plant; • Shandong Machinery Plant; • Inner Mongolia No. 1 Machinery Plant; • Inner Mongolia No. 2 Machinery Plant; • China North Industries Xiamen Corp; • Xi'an Qinchuan Machinery Plant; • Xi'an Kunlun Machinery Plant; • Henan Xiangdong Machinery Plant; • Changfeng Machinery Plant; • Hebei Yanxing Machinery Plant; • Henan Qinghua Machinery Plant; • Jiangnan Machinery Plant; • Hubei Jiangshan Machinery Plant; • Henan Zhongyuan Special Steel Plant; • Wangjiang Machinery Plant; • Sichuan Nanshan Machinery Plant; • Beijing North Vehicle Works; • Shanxi Qiyi Precision Machinery Plant; • Shenyang Wusan Complex; • Huachuan Machinery Plant; • Jianshe Industry (Group) Corp; • China Jialing Industry Co., Ltd (Group); • Changan Machinery Plant; • China Jiangling Machinery Factory; • China North Chemical Industries Corp; • Shandong Chemical Plant; • Liaoning Xiangdong Chemical Plant; • Jindong Chemical Plant; • Liaoning Qingyang Chemical Industrial Corp; • China North Optics and Electronics Corp; • Xi'an Northwest Optical and Electrical Instruments Plant;

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• Hunan Baiyun Household Electrical Appliances Factory; • Nanjing Xuguang Instruments Plant; • Chengdu Guangming Materials Plant; • Jiangsu Shuguang opto-Electronics Instrument Factory; • Huazhong Pharmaceutical Plant; • North Pudong Eco-Tech Development Corp; • Shenyang Industrial Institute; • China North Vehicles Research Institute.

China Electronics Industry Corporation (CEC), also known as Chinatron, remains subordinate to the Ministry of Electronics Industry. The corporation's structure is still relatively unclear, while it is believed to only control research institutes of the industry, some sources show factories under CEC administration. Enterprises affiliated with MEI include:

• China National Electronic Import-Export Corporation (CEIEC); • Hefei Cryoelectronics Institute; • East China Research Institute of Electronic Engineering; • China Southwest Electronic Equipment Research Institute (affiliated with CEC); • Tianjin Electronic Materials Research Institute; • Taiji Computer Company; • Xinghua Instruments Plant; • Beijing No. 3 Radio Equipment Factory; • Jinning Radio and Appliances Factory; • Jiangsu Huaning Electronics Group; • Beijing Broadcasting Equipment Factory; • Beijing Wire Communications Plant; • Huanan Electronic Device Plant (a member of the Xi'an Xijing Electronic Devices Industrial Company); • Xingguang Electronics Devices Factory (XEDF).

China State Shipbuilding Corporation (CSSC) enterprises has 161 enterprises consisting of 27 shipyards, 67 marine equipment factories, and 40 research and development institutes. A few of its enterprises are:

• China Shipbuilding Trading Co Ltd (CSTC); • Hudong Shipyard; • Jiangnan Shipyard; • Zhonghua Shipyard; • Qiuxin Shipyard; • Guangzhou Shipyard; • Donghai Shipyard;

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• Dalian Shipyard; • Wuchang Shipyard; • Zhongnan Optical Instrument Factory; • Kunming Ship Equipment Group Co.; • Zhenjiang Marine Diesel Works; • Dalian Marine Propeller Plant; • Wuhan Heavy Duty Casting and Forging Plant; • Anqing Marine Diesel Engine Plant; • Jiangsu Leisheng Electronic Equipment Plant: • Shanghai Shipyard Diesel Branch (SSDB); • Jiangjin Turbocharger Plant; • Sichuan Diesel Engine Works; • Sichuan Gear Box Plant; • Huazhong Electro-optical Technology Research Institute; • Shanghai Marine Electronic Equipment Research Institute; • Luoyang Ship Material Research Institute; • China Ship Sciences Research Center (CSSRC); • Wuhan Maritime Communications Research Institute; • Shipbuilding Technology Research Institute; • China Ship Research and Development Academy; • Hangzhou Applied Acoustics Research Institute; • Nanjing Maritime Radar Research Institute; • Harbin Marine Boiler and Turbine Research Institute; • Shanghai Marine Diesel Engine Research Institute (SMDERI); • Shanghai Merchant Ship Design and Research Institute (SDARI); • Zhengzhou Mechanical and Electrical Engineering Institute; • Tianjin Navigation Instruments Research Institute; • Marine Design and Research Institute of China (MARIC); • Jiangsu Automation Research Institute; • Yangzhou Marine Electronic Instruments Research Institute; • Shipbuilding Technology Research Institute.

China Aerospace Corporation (CASC) has over 75 commercial enterprises plus research institutes and factories. A few of its affiliated enterprises are:

• China Great Wall Industry Corp (GWIC) • has incorporated the former China Precision Machinery Import-Export Corp (CPMIEC) into its structure); • China Academy of Launch Vehicle Technology (CALT) (also called China Carrier Rocket Technology Research Institute; its commercial name is Beijing Wan Yuan Industry Corp); China Chang Feng Mechanics and Electronics Technology Academy; • Sea Eagle Electro-Mechanical Tech Academy of China; The 4th Academy (Hexi Corp);

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• Chinese Academy of Space Technology; • China Space Civil and Building Engineering Design and Research Institute; • Shanghai Academy of Spaceflight Technology; • China Academy of Basic Technology for Space Electronics; • China Jiangnan Space Industry Co Group; • Sichuan Aerospace Industry Corp; • Guizhou Space Industry Corp; • Meiling Chemical Works (affiliated with Suizhou Space Industry Corp); • China Sanjiang Space Group; • Shaanxi Lingnan Machinery Company; • Shanghai Xinyue Instruments Factory; • Institute for Astronautics Information; • China Astronautics Standard Institute; • Beijing Institute of Information and Control.

Aviation Industries of China (AVIC) consists of over 200 manufacturing enterprises and trade companies, ever 30 research institutes, and six colleges and universities. Among them are:

• China National Aero-Technology import-Export Corp Group (CATIC Group); • Xiamen Industrial and Trade Center (a branch of CATIC); • China South Aero-engine and Machinery Corp; • Harbin Aircraft Manufacture Corp; • Changhe Aircraft Industry Corp; • Chengdu Aircraft Industrial Corp; • Shanghai Aircraft Plant; • Suiyang Aviation Hydraulic parts Plant; • Guizhou Aircraft Industrial Corporation; • Yubei Machinery Plant; • Baoding propeller Plant; • Changzhou Lanxiang Machinery Works; • Beijing Aircraft Materials Institute; • Shenyang Aircraft Manufacturing Corp; • Shenyang Aero-Engine Research Institute; • Institute of Composite Special Structure; • Guizhou Xinyi Machinery Plant; • Shenyang Xinghua Electrical Appliances Corp; • Sanjiang Machinery Plant (affiliated with China Aviation Equipment Corp); • China Aviation Industry Supply and Marketing Corp; • Nanhua Power Machinery Institute; • Zhengzhou Aircraft Gear General Plant; • China South Aero-engine and Machinery Corp; • Yangtze Aero-engine Plant; • Chengdu Aircraft Industrial Corp;

55

• Xi'an Fareast Machinery Manufacturing Company; • Shenyang Liming Engine Manufacturing Corp; • Chuanxi Machinery Plant; • Chinese Aeronautical Academy; • Liuzhou Changhong Machinery MFG Co; • pingyuan Machinery Plant; • Xiangfan parachute Factory; • Jincheng Machinery Factory; • China Light Duty Gas Turbine Developing Center; • Chuanjiang Instrument Plant; • Qingan Aerospace Equipment Corp.

Source: edited from Blasko, Dennis J., 1994. "An Introduction to the Chinese Defense

Industry," Defense Intelligence Reference Series, VP-1920-271-90.

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