CHINA: CHANGES IN MILITARY-INDUSTRIAL DEVELOPMENT POLICY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84S00928R000300030006-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 26
• Document Creation Date: December 22, 2016
• Document Release Date: May 14, 2009
• Sequence Number: 6
• Publication Date: March 1, 1984
• Content Type: REPORT

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Intelligence
China: Changes in
Military-Industrial
Development Policy
Secret
EA 84-10053
March 1984
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Directorate of Secret
Intelligence
China: Changes in
Military-Industrial
Development Policy
Division, OEA,
This paper was prepared by ~ Office of
East Asian Analysis. Comments and queries are
welcome and may be directed to the Chief, China
Secret
EA 84-10053
March 1984
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China: Changes in
Military-Industrial
Development Policy
Key Judgments China has pressed the merger of its military and civilian R&D organiza-
Information available tions in order to force the development of indigenous scientific and
as of 30 January 1984 technological research. At the same time, the military industries, most
was used in this report.
notably the six military machine-building industries, are being integrated
with civilian industry. The aim is to lift the technological levels of military
industry and enlarge its contribution to overall development of the
economy.
Resistance within the People's Liberation Army (PLA) and the military-
industrial establishment had prevented reform of military industry until
1981, although the civilian sector had been committed to reform as early as
the Third Plenum of the CCP Central Committee in 1978. The 1979
attack on Vietnam, however, showed that Chinese weaponry was inferior
and demonstrated the need to abandon the traditional Chinese emphasis
upon quantity in favor of higher quality military production:
? The military subsequently was given assurance that defense programs
would continue to be given a high, if not the highest, priority in Beijing's
decisions on how its limited resources will be allocated.
? The military was also assured that it would have initial use of all new
technology developed or acquired abroad.
We believe the organizational and policy changes introduced since 1981
will have major impact on future Chinese military and civilian industrial
activity:
? Planning of military and civilian S&T and industrial activity will be
increasingly centralized.
? Military and civilian research institutes and factories will be consolidated
into specialized research and production combines.
? Acquisition of advanced foreign technologies and equipment will be
stepped up.
The relationships among the many new organizations that are to imple-
ment the new policies are still evolving, and we believe the process will not
go smoothly. Some elements in the military still resist the new policies, and
bureaucratic inertia and organizational rivalries continue to slow the effort.
Nevertheless, we believe that Beijing will benefit:
? There will be a more systematic ordering of priorities. This could
eliminate some of the wasteful duplication of past Chinese efforts to
acquire technology and equipment abroad.
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EA 84-10053
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? Although military needs will remain paramount, civilian industry will
also profit from increased access to technology developed or acquired for
military purposes.
? Increased production of civilian goods by military industry should also be
a plus-for the military in terms of greater use of idle capacity and
increased revenues; for the civilian economy in terms of larger quantities
of badly needed producer and consumer goods.
The concentration on key industrial and S&T projects implied by these
policy changes may already be starting to bear fruit. China's new
"Galaxy" computer was developed by combining the talents of both
military and civilian research organizations and using both domestically
produced and imported components.
The closer military-civilian relationship will pose new problems for the
United States in monitoring Chinese weapons programs and in implement-
ing the export control system:
? The merger of military and civilian institutes and factories into special-
ized combines will further obscure Chinese progress in the strategic and
special mission areas as will newly tightened security measures in
Chinese research and production facilities and on Chinese personnel.
? Determining the military or civilian status of end users of US and
Western technology exports will become far more difficult.
? If China follows through on its stated preference for acquiring US
technologies, other members of COCOM may become even more
reluctant to agree to further liberalization of export restrictions.
? The new policies also increase the likelihood of closer military linkages to
joint ventures and similar technology transfer mechanisms. These types
of transactions may become a more sensitive issue in COCOM delibera-
tions than the export of particular pieces of equipment and machinery.
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Laying the Groundwork (1978-8 1)
The Need for Policy Change 1
Effects of Readjustment 2
Need for New Technology 3
Unified Procurement of Foreign Technology 13
Key Targets in Development: Electronics and the Machine-Building Industries 13
Electronics Development and Military Needs 14
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China: Changes in
Military Industrial
Development Policy
Laying the Groundwork (1978-81)
The Need for Policy Change. When China began to
develop its military-industrial base during the First
Five-Year Plan (1953-57) it drew heavily on Soviet
organizational experience. The defense industrial and
scientific establishment operated as an independent
and self-sustaining entity well insulated from the
civilian industrial sector. By late 1965, the heart of
China's military-industrial establishment comprised
six consecutively numbered defense industrial minis-
tries, the Second through Seventh Machine Building
Ministries.' These were tasked respectively for the
research, development, and manufacture of nuclear
weapons, aircraft, electronics, land armaments, naval
ships, and ballistic missiles. The defense industrial
system enjoyed greater financial and political support
than the non-military-industrial sector. It received
special treatment in the allocation of scarce re-
sources-scientists and technicians, precision machin-
ery and instrumentation, and high-quality materi-
als-to the detriment of the civilian economy.
Military research and development (R&D) was kept
separate from manufacturing throughout most of the
defense industrial ministries, however, and this tended
to slow technological progress in weapons production.
Until 1979, China's policy for both military and
civilian industrial development emphasized large-
scale expansion of capacity through both indigenous
construction and importation of turnkey facilities.
Various domestic construction programs, such as the
Great Leap Forward (1958-60), had little effect on
military industry. In contrast, the so-called war prepa-
rations effort that began in 1961 had a long-lasting
impact on military industry. For 10 years or more
China invested massive amounts of labor and capital
into moving its heavy industrial and defense facilities
from coastal and central areas to remote locations,
including mountain valleys and caves, to make them
Acquisitions of foreign plants and equipment-from
the Soviet Union in the 1950s and from Japan and
Western Europe in the 1960s and 1970s-significant-
ly increased China's industrial capacity and provided
the basis for a fairly sophisticated industrial complex.
Little attention was given, however, to improving the
technological capabilities of these facilities. After the
first generation of merchandise was produced, there
was no follow-on research and development of new
product types. In some cases the products of civilian
and military industry have remained unchanged for
Many of these problems were the result of the Soviet-
style planning introduced in the 1950s, under which
factory managers paid attention to output quotas and
little else. With few, if any, rewards for technical
innovation, factory managers had little incentive to
develop close ties with research units. Those links that
did develop were usually conducted through unofficial
channels and were aimed at maintaining the existing
level of production rather than developing new prod-
ucts or more efficient manufacturing methods.
The gap between research and production was partic-
ularly acute within the defense industrial system. The
problem resulted from a division of responsibility,
beginning in the late 1950s, between the National
Defense Industries Office (NDIO) and the National
Defense Science and Technology Commission
(NDSTC). The NDIO ostensibly was responsible for
serial weapons production, while the NDSTC was
charged with research and development. The NDIO,
however, had also assumed control over conventional
weapons research in the mid-1960s, and there was
little pressure from the NDIO's primary customer,
less vulnerable to foreign attack.
' The First Ministry of Machine Industry was established in 1952
and, although its production tasking has frequently been modified,
is charged with design and production of machinery used in the
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the General Logistics Department of the PLA, for
new weapons development. Moreover, the ministries
under direct NDIO administration-the Third
through Sixth-did not want to risk failure attempt-
ing any new weapons designs. Because there were few
strategic weapons available for series production in
the 1960s, the NDSTC retained the manufacturing
functions of the Second and Seventh (nuclear weapons
and missiles) MMBs, in addition to its remaining
research and development responsibilities.
After the death of Mao Zedong in September 1976
and continuing until early 1978, Beijing's military
and civilian planners pursued industrialization poli-
cies of expanding industrial capacity. Growth of
China's major defense industrial facilities continued,
and large quantities of obsolete weaponry were serial-
ly produced. And with new emphasis being given to
acquiring weapons technology from abroad, indige-
nous R&D continued to be slighted. An ambitious
program, however, was being undertaken on the civil-
ian side to import entire industrial complexes from
abroad.
By early 1978 Beijing began to reassess its military
and civilian industrial programs and to question the
need for additional capacity to manufacture an in-
creasing amount of obsolete equipment. In January
1978 the theoretical group of the NDSTC argued
publicly that the key to a modern national defense
was priority development of science and technology
and the national economy. At the same time, critics of
China's policy of importing complete plants were
debating the wisdom of relying totally on foreign
suppliers for turnkey facilities when portions of these
plants could be produced domestically. The implica-
tion of these arguments became clearer in December
1978 when Beijing called for a closer coordination of
military and civilian resource allocation and greater
military involvement in nonmilitary manufacture.F_
Reforming the Industrial Base
The December 1978 meeting'of the Third Plenum of
the 11th Central Committee and the decisions made
for readjustment, reorganization, and reform of the
economy in general and the machine-building indus-
try in particular marked a major turning point in
military and civilian industrial cooperation and pre-
pared the way for China's current economic restruc-
turing effort. These proceedings reaffirmed earlier
calls for the defense industrial sector to direct its work
to both military and civilian purposes.
the principles governing military
production of civilian goods adopted by the Beijing
leadership in mid-1978 were
aimed at
maintaining a large standby defense production ca-
pacity during peacetime that would be supported and
camouflaged by commercial activity and civilian pro-
duction. In addition, military production was to focus
on strategic tasks, and more emphasis was to be
placed on research and development of new weapon
systems.
F4ffects of Readjustment. China's efforts to reorganize
and reform its machine-building industry began to
accelerate with the establishment of the State Ma-
chine Building Commission (SMBC) in February
1980.' The responsibilities of this commission-which
was headed by Vice Premier Bo Yibo-were to
restructure and upgrade all machine-building indus-
tries in China.
Transport, and the Ministry of Railways.
The SMBC made substantial progress throughout
1980 and 1981 restructuring the various industries
under its control. In addition to the Electronics and
Shipbuilding Ministries, the SMBC also was tasked to
oversee readjustment and reform of the Ministries of
Machine Building and Agricultural Machinery, the
machine-building bureaus within the Ministries of the
Coal Industry, Petroleum Industry, Building Materi-
als Industry, Textile Industry, Light Industry, Marine
'The State Machine Building Commission was subsequently abol-
ished in May 1982 and its readjustment responsibilities were
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Many small plants were merged or consolidated with
other facilities to enhance specialized production.
Improvements also were made in the organizational
structure and management of larger facilities. A
number of economic combines formed on the basis of
product specialization were established within the
machine-building industries. Several were given au-
thority to function beyond respective ministerial and
provincial boundaries and to engage in foreign trade.
Significant progress was made in readjusting the
electronics and shipbuilding industries. Readjust-
ments within the electronics sector resulted in in-
creased output through specialized production, new
product lines, production of new civilian goods, and
improved industrial technologies and product quality
through closer cooperation between research and pro-
duction.
Reshaping Science and Technology
Need for New Technology. Despite the accomplish-
ments in some sectors of the machine industry, there
was a growing awareness within the leadership that
most of China's military and civilian industrial facili-
ties suffered severe technical deficiencies. To promote
a revitalization of these enterprises, actions recom-
mended by the Beijing reformers included a greater
diffusion of R&D achievements, and a direct transfer
of technology from the military to the civilian sector.
Methods for transferring technology to the civilian
sector were to include: (1) using part of the military
production capacity to manufacture civilian goods
that were badly needed; (2) transferring military
research and design personnel to civilian facilities to
provide technical service and technological support;
(3) providing the civilian sector with the results of
military research as technological spinoffs for nonmil-
itary production.
In April 1981 the Chinese Government adopted a new
science and technology policy for the development of
the national economy. The new policy stressed Chi-
na's need to: intensify research and development of
new production technology; increase the spread of
R&D achievements for use in advanced industrial and
agricultural production; and to assimilate foreign
S&T achievements into the domestic S&T establish-
Convincing the Critics. The 1979 Chinese attack on
Vietnam played an important role in weakening mili-
tary opposition to moving China's military industry
into new ways of operating. Vietnamese weaponry was
more advanced and superior to Chinese arms.
a major conclusion
emerging from Chinese postmortems was the need to
abandon traditional emphasis upon quantity in favor
of higher quality military production. This would
require new efforts to strengthen China's capabilities
for both military and civilian research and
development.
The change in the military's position began to emerge
at the December 1981 sessions of the National Peo-
ple's Congress (NPC). In his published report to the
NPC, Premier Zhao Ziyang amended the S&T policy
announced in April with a plan that was more appeal-
ing to the military in terms of its initial use and
application of all new technology and achievements.
The plan emphasized four types of technology trans-
fers: from laboratory to production; from military use
to both military and civilian use; from coastal regions
to the inland; and from foreign countries to China.
the Army and state and between Army and people
were at an alltime low and that the military's contin-
ued resistance to the new policies had become a
particularly serious matter.
The PLA deputies and other members of the NPC
reportedly acceded to party and government demands
that China's defense industry in peacetime would
concentrate research and development on new weap-
onry but that the bulk of the defense industry's
production capacity would be diverted to nonmilitary
manufacture.
(there was also agreement
that: (1) major defense industrial facilities would
retain the capability to design, develop, trial-produce,
and manufacture small quantities of weaponry; (2)
military factories within the defense industrial system
would be incorporated into economic combines along
with nonmilitary enterprises, based on their particular
specialization; and (3) that these economic combines
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would be given a certain autonomy in foreign trade
and a share of the foreign exchange earnings. There
was also agreement that the defense industry would
be included as part of the unified state plan, with the
provision that the weapons manufacturing responsibil-
ities of defense facilities would be given appropriate
attention when these plans were made.
Organizing the Bureaucracy
Many NPC members reportedly expressed concern
that the government would be unable to implement its
new policy because of resistance from middle-level
cadre to programs that they believed endangered their
vested interests. Beijing pushed forward with its in-
dustrial integration and technology development plan
despite these misgivings. In March 1982 Zhao Ziyang
announced a major reorganization of the state bu-
reaucracy. A subsequent shakeup shifted the orienta-
tion of the machine-building ministries from servicing
primarily heavy industrial and military construction
to advancing the technological level of the entire
country.
The State Council's new structural organization pro-
vides China the necessary framework to coordinate
military and civilian research,. development, and pro-
duction program (see figure 1). As in the past, major
policy decisions are made by the Politburo and Cen-
tral Committee and, in the defense area, the Military
Commission of the Chinese Communist Party.
Under the State Council, four commissions are known
to be involved in coordinating plans for China's
industrial modernization effort.' These are the State
Planning Commission (SPC), the State Science and
Technology Commission (SSTC), the State Economic
Commission (SEC) and the National Defense Science,
Technology and Industry Commission (NDSTIC).
The SPC is responsible for formulating long-term
plans and an annual plan for national economy and
social development. The SEC is responsible for the
day-to-day implementation and coordination of annu-
al plans and also for the adjustment and reform
functions previously assigned to the SMBC.
'So far, there is no evidence that the new State Military Commis-
sion, established in December 1982, plays a role in these activities.
Perhaps the single most powerful entity to emerge
from the bureaucratic reshuffling was the NDSTIC,
which was formed through a merger of the NDIO and
the NDSTC. The NDSTIC is responsible for the
managing and coordinating of all military research,
development, and production. With the SPC and the
SEC, it jointly formulates the national defense indus-
try plan and a national defense science and technology
plan. The NDSTIC also is the focal point for major
redirections of military-industrial and scientific re-
sources and has considerable influence in the selection
and purchase of military and dual-use technologies.
In January 1983 a special supraministerial body was
established directly under the State Council to coordi-
nate national scientific and technological activities.
This organization, the Science and Technology Lead-
ing Group, is headed by Premier Zhao Ziyang and is
composed of senior representatives from all leading
economic, education, research, and defense R&D
sectors as well as the various commissions of the State
Council. Its major tasks include improving the links
between defense and civilian scientific and technologi-
cal entities, coordinating the program for foreign
technology acquisition and technical transformation
of enterprises, and overseeing all scientific and tech-
nological planning and policy formulation from a
unified perspective. One of the research bodies to
which the leading group funnels research projects and
from which it gets feedback is the SSTC's National
Research Center for Science and Technology for
Development (NRCSTD), which plays a major role in
formulating China's science and technology research
and development strategy.
China also announced in March 1983 the establish-
ment of a Special Defense Coordinating Committee
that would be in charge of both military research and
the armament industry.
this new organization may serve as a liaison
between defense and civilian industries on production
problems. It is still unclear how this organization's
function fits in with the responsibilities of the
NDSTIC.
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Figure 1
China's Military Industrial/Scientific Complex
Central
Military
Commission
State Planning
Commission
Song Ping June 83
State Economic
Commission
Ministry of
National Defense
National Defense
Science,Technology and
Industry Commission
Chen Bin Aug 82
Ministry of Machine-
Building Industry
Zhou Jiannan May 82
(1st MMB-Civ)
Ministry of
Nuclear Industry
Jiang Xinxiong June 83
(2nd MMB-Nuc)
Ministry of
Aeronautic Industry
Mo Wenxiang May 82
(3rd MMB-A/C )
Ministry of
Electronics Industry
Jiang Zemin June 83
(4th MMB-Elec)
10th, 11th, 14th, 19th
Research Academies
^ Responsible for National Defense
Science and Technology Plans and
Implementation in Concert with
the NDSTIC
^ Managerial Control of Military Research
Development and Production
Ministry of
Ordnance Industry
Yu Yi May 82
(5th MMB-LandArm)
China State Ship-
building Corporation
Chai Shufan (Chm) May 82
(6th MMB-Naval)
Ministry of
Astronautic Industry
Zhang Jun May 82
(7th MMB-Msis)
1st, 2nd, 3rd, 4th, 5th
Research Academies
Military
Affairs
Commission
State Scientific
and Technological
Commission
Fang Yi Oct 77
Chinese Academy
of Sciences
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Beijing's determination to pursue a new course of
military industrial development was underlined by the
appointment of Gen. Zhang Aiping as Minister of
Defense in August 1982. As director of the former
NDSTC, Zhang had been a key figure in the Chinese
military R&D establishment since the mid-1970s.
Since 1982 he has been the most prominent spokes-
man for the new policies and has been instrumental in
persuading military officials and officials in the minis-
tries of nuclear industry, aeronautics, ordnance, and
astronautics to cooperate in using defense production
capacity for national economic construction.
A Plan for Action. By August 1983 Beijing apparently
was confident that it had garnered enough support
within the military-industrial system to press its mili-
tary-civilian merger plans publicly. In an unusually
candid article in Liberation Army Daily, Zhang
presented a, number of sweeping proposals for speed-
ing up the modernization of China's national defense.
These proposals embodied the decisions reached in
December 1981, as well as many additional sugges-
tions that the Defense Minister had made in the 12
months after his appointment. Zhang noted that
although China's defense research and industrial base
was extensive, its capabilities were considerably be-
hind those of developed countries, and its weaponry
and equipment did not meet the demands of modern
war. Zhang noted that, since the state had to concen-
trate its money and material on key construction
projects and could not allocate additional funds to
military construction, the only alternative was for the
defense industry to accomplish its modernization un-
der existing conditions. He proposed the following
steps:
? In peacetime the armed forces would cut troops and
streamline operations.
? Outmoded weapons and equipment would be dis-
carded and, apart from meeting the needs of border
defense units and training, no old weapons would be
held in reserve.
? The defense industry's production capacity would be
diverted to civilian manufacture and armament
production urgently needed in military training.
? Military research activity would increase with the
focus on specific R&D projects.
? Renovation of existing military equipment would be
stepped up.
? The research and manufacturing capabilities of
defense facilities would be used to develop and
produce civilian goods for domestic use and foreign
export.
? Savings made through reduced production of mili-
tary equipment would be used to develop new
weapons and equipment. Some of the revenue gener-
ated through civilian production would be used to
develop technology-intensive defense industries.
Zhang's proposals are consistent with the major
changes that have occurred in overall Chinese defense
modernization strategy and are now occurring within
the defense industry.' Resources and material that
have in the past been dedicated to supporting defense
production are now beginning to be diffused through-
out the economy. In nonferrous metals, for example,
factories that were previously subordinate to an indi-
vidual defense-related industrial ministry, such as the
Ministry of Aeronautic Industry, are now being ad-
ministered at the national level by the China Nonfer-
rous Metals Industrial Corporation through affiliates
such as the China Huaxing Tungsten Corporation.
The Huaxing Corporation is responsible for coordi-
nating the planning, pricing, purchasing, and supply-
ing of all tungsten metal throughout China in addition
to popularizing new products and promoting scientific
research within the industry.
In September 1983, the SPC, SEC, and NDSTIC
held a conference with China's military and provincial
industrial leaders. The conference formally endorsed
Zhang Aiping's earlier proposals and discussed a
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military-civilian industrial cooperation plan. The pur-
pose of the meeting was to: (1) relay the instructions of
the Party Central Committee, the State Council, and
the Military Affairs Commission on transferring mili-
tary technology to civilian use; (2) plan and arrange
for the military's research and production of civilian
goods; and (3) mobilize the defense research and
industrial facilities to serve national economic mod-
ernization objectives. A decision also was made to
incorporate defense production of civilian goods into
the State plan for the remainder of the Sixth Five-
Year Plan (1981-85) and in the Seventh Five-Year
system. According to one Chinese official, this three-
generation process of importing and absorbing foreign
technology is China's definition of self-reliance. F_
Plan (1986-90).
Emphasis on Weapons Research
Because research and development of conventional
weaponry had been largely ignored in the past by both
the NDIO and the defense industries, China is now
attempting to upgrade its capabilities in this area by
renovating existing conventional weapons systems and
stepping up development of an indigenous R&D pro-
gram. A similar problem has been avoided in the
strategic weapons sector because the NDSTIC con-
trolled both the research and production of nuclear
weapons and ballistic missiles
China is attempting to apply more sophisticated
methods to its conventional weapons renovation and
development programs by introducing systems engi-
neering, integration, and design concepts into the
overall process. It is making efforts to implement a
"three-generations" weapons development policy-
improving of one-generation, developing another gen-
eration, and preparing for the development of a
follow-on generation. For example, Beijing is current-
ly upgrading a number of indigenously developed
weapon systems including antitank missiles, air-to-air
missiles, and radar, while looking to Western suppli-
ers for the "second-generation" technology. Beijing is
aware that much of weapons technology it may
acquire from abroad will not be state of the art. Thus,
its indigenous research capability must be upgraded
in order to improve on this imported technology and to
develop a Chinese style "third-generation" weapon
New Methods of Management. China's use of systems
engineering techniques has been strongly encouraged
by Deng Xiaoping and other Chinese leaders and is
being widely applied to the management of military
R&D activity. China has introduced a technical com-
mand system into the defense industrial system that
appears to be patterned after the chief designer
systems used in the USSR and the United States. The 25X1
Chinese system makes a specific individual officially
responsible for a particular weapons development
project at each level of the technological hierarchy.
This individual can come from industry, an institute,
or from within the military.
China also has established a contingent of
factory-based military representatives from each of
the armed services who will be responsible for ensur-
ing that the quality of weaponry produced meets the
expectations of the respective military organization.F
In addition, Beijing is responding to the problem of
having too many research institutes engaged in over-
lapping activities by limiting the research within these
facilities to specifically assigned tasks such as antiair,
antitank, and electronic countermeasure systems re-
search. To make more judicious use of its R&D
resources Beijing also is attempting to bring about
closer cooperation between military and civilian re-
searchers and technicians and to increase military
participation in the development of nonmilitary equip-
ment. China also is stepping up efforts to promote
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closer cooperation between research and production in
its key manufacturing enterprises by installing new or
additional research units within these facilities.
The Research and Production Combine
Beijing's decision to formalize cooperation between
military and civilian research and production presages
significant structural changes in China's military-
industrial organization, particularly below the minis-
terial level. Until now, China's defense plants have
been supervised by an unwieldly, though identifiable,
system that subordinated them to the provincial bu-
reaus of their parent ministry and the provincial
bureaus of the National Defense Industries Office
(NDIO). As now planned, many defense research and
production facilities will be merged into joint research
and production combines.
As the various defense industrial ministries merge
their subordinate facilities with nonmilitary enter-
prises, the identity and function of the individual
defense industrial facility will become obscured.
These economic entities will be headed by boards of
directors. Within each economic region or key munici-
pality, such as Shanghai or Tianjin, there is a supervi-
sory body for research and production and a science
commission whose functions are to administer the
various corporations within the area jointly with
assistance from local authorities and to report these
activities to the State Council.
A number of the specialized research and production
corporations that have been only recently formed
seem to be at least administratively responsible to a
military control element. The Tianjin Machine Tool
works, for example, is a regional corporation compris-
ing machine tool, heavy machinery, and off-highway
equipment plants and several research facilities. The
director of this conglomerate is
an active duty PLA general who was assigned tot e
unit in 1983 as part of a nationwide program to
improve efficiency in key Chinese industries.
]senior
PLA officers are now being placed in charge of many
other large regional groupings of key industries.F_
Each civilian element within a military-controlled
research and production corporation appears to re-
main subordinate to its civilian parent unit in all
aspects except research, design, and technology trans-
fer, which are activities administered by military
control elements within the corporation. The manu-
facturing process reportedly is a combined activity up
to the final assembly or packaging stage. And where
the military and civilian product are the same, coordi-
nated production continues through final manufac-
ture. Where the military production process is highly
specialized, for example, nuclear weapons, there
would be little or no civilian involvement.
The research and production corporations that have
been observed so far appear to be organized along the
same regional boundaries as the country's new eco-
nomic regions or priority investment zones. These
economic regions are planned by China to be focal
points for 90 percent of all foreign investment and an
increasing share of domestic investment. At least
eight priority investment zones have been established
thus far, including the Northeast Zone, the Beijing-
Tianjin Zone, the Shanghai Zone, the Min River
Zone, the Pearl River Delta Zone, the Wuhan Zone,
the Central China Zone, and the North China Zone.
A number of joint military and civilian regional
industrial companies have been formed over the past
year in Chongqing (Central China Zone) as part of a
State Council economic experiment. The Ministry of
Ordnance Industry (MOI) as well as the China State
Shipbuilding Corporation (CSSC) reportedly cooper-
ated with Chongqing authorities in working out plans
for the joint production of military and civilian goods.
The CSSC also has regional shipbuilding industry
companies in Shanghai (Shanghai Zone), Guangzhou
(Pearl River Delta Zone), Tianjin (Beijing-Tianjin
Zone), and Wuhan (Wuhan Zone).
Contract research and the establishment of consultan-
cies also are becoming additionally significant forms
of cooperation between the research community and
industrial enterprises. Funding from these types of
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technical exchange are key sources of revenue for
both military and civilian universities and institutes.
For example, the Ministry of Petroleum Industry has
signed agreements with several universities to initiate
long-term research in several of its priority areas.
Jointly managed research centers also are being es-
tablished on some university campuses to intensify
cooperation between research and production.
The defense industry has only recently started to
introduce new and extensive forms of technology
cooperation with the civilian sector. Among these
exchanges is a long-term technical cooperation agree-
ment that was signed between the NDSTIC and the
city of Tianjin. The agreement enables 38 of China's
military research institutes to cooperate with 80 civil-
ian industrial facilities in manufacturing military and
civilian products. A similar agreement also is being
arranged by the NDSTIC with Sichuan Province.
Another first in defense science and technology ex-
change is the recent establishment of a consultancy
corporation under the auspices of the Ministry of
Astronautic Industry (MOAI) -the defense industrial
ministry responsible for China's ballistic missile and
space development. The corporation offers the serv-
ices of the MOAI's 60,000 technicians to provide
expertise in introducing and appraising foreign tech-
nology that is being imported by civilian industrial
enterprises. Other military research organizations are
beginning to augment their research budgets with
revenues received from supplying technical expertise
to civilian firms on a contractual basis
Linking the R&D Community
Combining the research and production unit is only
one of several methods China is using to forge closer
ties between its military and civilian industrial enter-
prises and the R&D community (see figure 2). This
form of cooperation is limited in that it can only bring
together universities and industrial facilities located
within the same general area.
China's research and development system comprises
about 4,300 facilities and employs more than 425,000
researchers; there are more than 6 million scientific
and technical personnel throughout China. The prin-
cipal elements of the research system are the Chinese
Academy of Sciences (CAS) and its affiliated insti-
tutes, the institutes under the direction of the Minis-
try of Education (MOE), those under various industri-
al ministries, the local research sector, and the
national defense research units.
Based on recent Chinese claims, in 1983 there were 25X1
119 research institutes affiliated with the CAS and
more than 900 civilian research institutions under the
jurisdiction of ministries and commissions of the State
Council. there are 200 25X1
or more research facilities within the defense industri-
al system that are not included in China's published
statistics. These are the most advanced research
facilities in China and are staffed by some of the
country's most accomplished researchers and techni- 25X1
cians. Many Chinese students now studying in the
United States come from these institutes.
Engineering education ranks as China's highest aca-
demic priority. Approximately one-third of the million
or more college-level students in China are studying
engineering. About 100,000 of engineers graduate
from Chinese universities each year-a figure sur-
passed only by the Soviet Union. In addition, China
reportedly has some 20,000 students studying abroad
who are engaged in science and technology and
related management curriculums. As shown in appen-
dix A, the majority of China's college-level students
are engaged in a standard four- to five-year curricu-
lum. In an effort to expand its body of engineer-
technicians, China is developing a shortened engineer-
ing curriculum that would provide the senior 25X1
technicians needed to fill intermediate positions be-
tween the university-level engineer and the technician
produced by specialized secondary schools (see
table 1).
In addition to its research organizations China has
over 106 science and engineering associations and
societies affiliated with the China Association for
Science and Technology (CAST). CAST is a multidis- 25X1
ciplinary science and technology organization that is
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directly subordinate to the Chinese Communist Party.
Its objectives are to enhance public understanding of
science and technology and make significant contribu-
tions to the rapid advance of China's expertise in this
area. As part of this function, CAST's responsibilities
involve: organizing both domestic and international
academic exchanges and symposiums; providing in-
service training; publishing periodicals and other ma-
terial for the scientific community and the general
public; providing advice and expertise to various
sectors in military and civilian industry; and serving
as a mechanism to relay its constituents' comments
and appeals to the party and relevant government
departments.
In early 1983 CAST played a major role in the
formation of the China Science and Technology Con-
sultive Service Center in Beijing. The center, com-
posed of more than 500 separate consulting organiza-
tions, serves as a vehicle for bringing together
multidisciplinary teams of experts to advise on eco-
nomic and technical matters. Where appropriate,
advice reportedly will be rendered on a fee basis. The
center is located within the SSTC and operates closely
with the Commission's Institute of Science and Tech-
nical Information, which has widespread access to
Western technical data bases.
firms, institutes, and technical personnel to deal di-
rectly with Chinese Government organizations such
as the SSTC, the center will, on behalf of the
commission, maintain contact with these foreign enti-
ties and people on a nongovernmental basis. The
CSTEC, for example, sponsored the much publicized
Beijing Science and Technology Policy Forum held in
June 1983 and attended by more than 20 overseas
Chinese scientists and technicians from the United
States and Canada. Deng Xiaoping underlined Bei-
jing's interest by meeting separately with these indi-
viduals during the conference.
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The Search for Foreign Expertise
China has significantly increased efforts to enlist
foreign scientists in its scientific and technological
development as teachers, advisers, and researchers. In
October 1982 a China Science and Technology Ex-
change Center (CSTEC) was established under the
auspices of the State Science and Technology Com-
mission (SSTC). A major function of the CSTEC is to
organize and promote exchanges and cooperation
between Chinese scientific and technological circles
and corresponding nongovernmental scientific and
technological communities and people in foreign
countries. Because of the reluctance of some foreign
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Figure 2
China's Research and Development Community
State Economic Commission
Chair: Zhang Jingfu
Center for Techno-Economic
Chair: Ma Hong
State Planning Commission
Chair: Song Ping
Vice Minister: Zhao Dongwan
Chinese Academy of
Social Sciences (CASS)
President: Ma Hong
Science and Technology
Leading Group
Chair: Premier Zhao Ziyang
Deputies: Fang Yi, Song Ping
Office Director: Zhao Dongwan
State Science and
Technology Commission
Chair: Fang Yi
Vice Ministers:
Zhao Dongwan, Yang Jun
Commissioners:
Wuy Mingyu, Yang Weizhe
Computer and LSI
Leading Group
Chair: Vice Premier Wan Li
'S&T Planning Department
SPC and SSTC Joint office for
long term plans
Director: Zhao Dongwan
' S&T Policy Department
Joint SEC and SSTC office for
annual plants and implementation
Director: Wu Mingyu
'National Research Center
for S&T Development (NRCSTD)
Director: Wu Mingyu
-Institute for S&T information
International S&T Cooperation Department
-China S&T Exchange Center
Key Projects Department
Chinese Academy of Science
(CAS)
President Lu Jiaxi
National Defense Science
Technology and Industry
Commission
Chair: Chen Bin
(Responsible for national defense
S&T plans and implementation
in concert with SPC and SEC)
Ministry of Education (MOE)
Minister: He Dongchang
Industrial Ministers
Research Academies
and Institutes
Chinese Association for
Science and Technology
Chair: Zhou Peiyuan
'China S&T
Consultative Service Center
President: Lin Bomin
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Table 1
China: Developments in
Engineering Education a
1965
1978
1981
1982
Enrollment in normal
65,598
114,689
81,432
91,329
Enrollment in short-
cycle courses
1,846
17,436
9,829
11,496
Unified Procurement of Foreign Technology
China reportedly is attempting to define its foreign
industrial technology and equipment needs more sys-
tematically through a process of unified planning that
will encompass most basic military and civilian needs.
Each industrial ministry is to formulate its technology
and equipment requirements according to domestic
and foreign availability. These requirements are fur-
ther refined in terms of regional, central city, and key
installation needs. When submitted to the State
Council the requirements are examined to determine
requirements.
those technologies and equipment available domesti-
cally, those that can be expected to become available
domestically, and those that must be imported. The
state planning commission reviews the requirements
further, in the context of broad military and civilian
industrial objectives. A decision is then made as to
what foreign technology and equipment would best
meet these comprehensive research and industrial
factories they control.
Key Targets in Development: Electronics and the
Machine-Building Industries
Development of China's machinery and electronics
industries is crucial to technological progress in all
sectors of the economy. Because of this, the State
Council decided in 1981 that development of these
industries should receive priority attention. To facili-
tate this objective, the State Council indicated its
intention in December 1982 to import 3,000 advanced
technology packages during the last three years of the
Sixth Five-Year Plan. More than 1,000 of these
projects will be used to refurbish 490 factories and
nearly 60 research institutes within the machine-
building and electronic industries. The plan also
provides that an additional 3,800 items would be
manufactured or developed indigenously to upgrade
many other facilities, most of which will be machinery
and electronic plants. In addition, local governments
and specialized trade corporations are making similar
investment to modernize the machinery and electronic
The priority on machinery and electronics was reflect-
ed in Beijing's effort to attract foreign investors and
suppliers to the China International Mechanical and
Electronic Technology Conference held in Beijing in
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December 1983. The conference was used as a forum
to work out technical and commercial details for 107
machinery and electronic projects, most of which
represent technologies of the late 1970s and early
1980s, that China hopes to assimilate and eventually
replicate for use in other machinery and electronic
facilities throughout China
China has set strict guidelines on which plants within
the machinery and electronics industry will use for-
eign technology and equipment. The State Council in
early 1983 stressed, in its "Tentative Rules for the
Technical Transformation of the Engineering and
Electronics Industries," that factories selected to use
advanced foreign technology and equipment must
have a solid foundation and strong administration and
management so that the imported technologies can be
rapidly studied and assimilated. The guidelines fur-
ther suggest that importing facilities must pay close
attention to purchasing "know-how" as well as the
equipment, so that the technology can be closely
integrated with the factory's own research and devel-
opment.
China's objective for technological progress in the
machinery and electronics industries is to develop and
produce a variety of quality products that have both
significant export potential and are urgently needed in
China's modernization effort. To further these objec-
tives the machinery and electronics industries have
been assigned specific product improvement targets
that must be attained in the course of China's present
and future five-year plans.
According to SEC Vice Minister Lu Dong, who also
serves as a member of the State Computer and
Integrated Circuit Leadership Group, the research
and design contingent within China's machinery and
electronics industries will be expanded until it consti-
tutes one-third of the total technical personnel em-
ployed in these sectors. Technological development
also will require greater coordination between the
research units and the production facilities and be-
tween the machinery and electronic industries and the
raw material suppliers. Increased attention also is
being directed to improving the quality and training
of scientists, technicians, and managers; establishing a
strict system of individual responsibility; promoting
the application of modern management techniques in
both research and manufacturing; and raising quality
control and product standards to international levels
by yearend 1985.
Electronics Development and Military Needs. Bei-
jing's highest technological priority in modernizing its
industries is to establish a modern electronics industry
capable of satisfying both its military and economic
needs. Particular attention has been focused on build-
ing a modern semiconductor industry that can support
Chinese plans for expanding computer development
and manufacturing. Beijing is thus engaged in a
massive effort to replace its obsolete electronic compo-
nent production lines and processes with technology
and equipment of a more current vintage. In addition
to importing all types of electronic component and
integrated circuit manufacturing equipment, China is
stressing the acquisition of relevant "software"-
design technology, training, management techniques,
production, and quality control methods-in order to
assimilate, replicate, and diffuse this advanced tech-
nology and equipment to other parts of industry.
This technology acquisition process is consistent with
China's goals:
? To achieve within a decade an integrated circuit and
computer manufacturing capability equal to that
existing in the United States.
? To provide an infrastructure to support China's
strategic, military, and commercial electronic needs.
? To minimize China's dependence on foreign supplies
of electronics and equipment.
? To establish a competitive foothold in the interna-
tional market for electronic materials and
equipment.
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Beijing's progress toward these objectives is reflected
in its development of a near state-of-the-art super-
computer with an operational speed of 100 million
operations a second,
What the Military Receives ... More and more, we
have seen the Beijing leadership addressing the impor-
tance of, electronic advancement to China's military
weapons development. A special leading group was
established within the State Council to monitor Chi-
nese civilian and military progress in development and
manufacture of computers and large-scale integrated
circuits (LSIs). Defense Minister Zhang Aiping has
called for rapid development of the electronic indus-
try, describing it as crucial to all Chinese military
research and development goals. China's Minister of
the Electronics Industry also has recently stated that
military electronics occupies a top priority in the
industry's development.
The strategic importance Beijing attaches to its elec-
tronics industry at this juncture is consistent with
China's policy for using new and emerging technol-
ogies for military use before they are transferred to
economic and social applications. A leading official of
the Chinese Academy of Sciences stated in October
1983 that China's strategy for technology dissemina-
tion is to transfer achievements from the laboratory to
production, from production to the military, and from
the military to both military and civilian application.
China's Defense Minister also has frequently stated
over the past year that new technologies will be used
in military R&D before they are transferred to civil-
ian economic use.
China's interest in applying new technologies first to
military experiment goes beyond microelectronics and
computers. Technologies in such fields as nuclear,
space, laser, bioengineering, and the material sciences
are also targets. In the material sciences, for example,
China has shown strong interest in acquiring an
advanced composite materials production capability.
Advanced composite materials are used in the fabri- 25X1
cation of rocket motor cases and weapons reentry
vehicles.
... And What It Delivers. As increased cooperation
between military and civilian research and production
progresses, the defense industrial sector is expected to
play an increasingly more positive role in China's
economic development. The value of civilian products
turned out by military factories has grown considera-
bly since 1978. According to Chinese claims, nonmili-
tary production by the defense industries for 1982
represented more than 20 percent of their total indus-
trial output value, or roughly 2.3 billion yuan.
In addition to production for the civilian sectors,
military-industrial facilities continue to produce arms
for export. Shipments of A-5 aircraft to Pakistan and
Type-69 tanks to Iraq, for example, provide foreign
exchange earnings. Nevertheless, industrial capacity
within the defense industry continues to be underuti-
lized. as much as one-third
of China's total military industrial capacity remains
idle.
Military-industrial cooperation in civilian manufac-
ture is, nevertheless, leading to problems of competi-
tion between military and civilian producers. The
North China Industries Corporation (NORINCO),
the export-import arm of the Ministry of Ordnance
Industry, is actively involved in a number of foreign
transactions relating to the manufacture of nonmili-
tary products (see table 2). In 1982 it was engaged in a
dispute with the Ministry of Light Industry (MLI)
concerning the conversion of 22 MOI facilities to the
production of bicycles and mopeds. Because MLI
wanted the domestic market to itself, it successfully
sought State Council intercession in order to force
NORINCO to limit its production scheme to the
export market.
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Table 2
China: Defense Industry Affiliated
Trade Organizations
for implementing the new policies are still evolving.
Nevertheless, China appears to have dismantled its
Soviet-style R&D and military-industrial production
systems and is beginning to integrate them with
civilian economic activity (see figure 3).
China Yanshan Science and
Technology Corporation a
China Xinshidai Corporation a
China Nuclear Energy Corporation
(CNEIC)
China National Aero-Technology
Import-Export Corporation
(CATIC)
China Air Materials Company
China Electronics Import-Export
Corporation (CEIEC)
China North Industries
Corporation (NORINCO)
China State Shipbuilding
Corporation (CSSC)
China Great Wall Industry
Corporation (GWIC)
China National Precision
Machinery Import-Export
Corporation (CMPC)
China Hua Feng Industrial
Corporation
Oriental Scientific Instruments
Import-Export Corporation (OSI)
China Scientific Instruments and
Materials Corporation (CSIMC)
China Electronic Systems
Engineering Corporation
National Defense Science,
Technology and Industry
Commission (NDSTIC)
NDSTIC
Ministry of Nuclear
Industry (NMI)
Ministry of Aeronautic
Industry (MAI)
MAI
Ministry of Electronics
Industry (MEI)
Ministry of Ordnance
Industry (MOI)
China State Shipbuilding
Corporation
Ministry of Astronautic
Industry (MOAI)
MOAI
Chinese Academy of
Sciences
Ministry of Machine
Industry
PLA General Logistic
Department
a The Yanshan Science and Technology Corporaton and the Xin-
shidai Corporation are NDSTIC elements that are responsible for
coordinating the military weapons and technology procurement
activities of the various trade organizations affiliated with the
defense industry. Yanshan Corporation reportedly deals primarily
with weapon systems and technologies that are more advanced,
while Xinshidai Corporation concentrates on procurement of weap-
on systems of a lower technology level or where little technology
Beijing will benefit from this merger in several ways.
In general, China should be able to take better
advantage of the increasingly rapid worldwide diffu-
sion of technology.' We believe these new policies will
lead to a more systematic ordering of priorities as to
which technologies will be developed and which will
be imported. Although military needs will remain
paramount, civilian industry will also profit from the
increased opportunity to draw on technologies devel-
oped or acquired for military purposes. Both military
and civilian industry will gain as increased centraliza-
tion of R&D programs eliminates some of the waste-
ful duplication that has accompanied Chinese efforts
to acquire technology and equipment abroad. In-
creased production of civilian goods by military indus-
try should also be a plus-for the military in terms of
greater use of idle capacity and increased revenues
and for the civilian economy in terms of larger
quantities of badly needed producer and consumer
goods.
The concentration of resources on key industrial and
S&T projects implied by these policy changes may
already be bearing fruit. In electronics, for example,
the new state-of-the-art "Galaxy" computer was de-
veloped by using the combined talents of the military
and civilian research establishments to incorporate
both domestically produced and imported compo-
nents. Although this computer is expected to help
China's nuclear weapon program by allowing studies
of more complex weapons models, it also may be
applied in such areas as oil and geological exploration,
long-term weather forecasting, and satellite imagery
processing.
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Prospects
The reorientation of China's R&D and military indus-
trial systems is only beginning. The relationships
between the many new organizations-committees,
commissions, institutes, combines, corporations, and
professional societies-that are to be the mechanisms
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Figure 3
China: Evolution of the Military-Industrial/Scientific Complex
Research &
Development
410
Military Civilian
Research &
Development
and Production
Military
Industrial
Complex
Research &
Development
and Production
The increasing Chinese emphasis on scientific and
engineering education is a fundamental part of the
new policies. The number of engineers now graduat-
ing from China's universities is second highest in the
world, a figure that is being boosted each year by
thousands of foreign-trained scientists and techni-
cians. Moreover, China is attempting to attract scien-
tists and engineers living abroad to China for extend-
ed stays. In large measure, China's ability to
replicate, and eventually to improve upon advanced
technology to produce achievements such as the Gal-
axy computer will depend upon the abundance of the
resources made available to these personnel and the
working conditions provided for them. In this last
respect, the leadership has repeatedly stressed that
China's scientists and technicians are not the targets
of the current campaign against "spiritual pollution."
Nonetheless, ambivalent leadership policies toward
intellectuals seem unlikely to encourage innovative
thinking.
In any event, we believe there are significant obstacles
to the full integration of military and civilian research
and production elements. In January 1984 Minister of
Defense Zhang Aiping indicated that military re-
search and production elements continue to be unen-
thusiastic in supporting the merger effort. Personnel
within these facilities believe that their primary func-
tion should be military research and production and
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not non-military-related activity. There is also evi-
dence of a developing rivalry between the State
Economic Commission, which is tasked with the
overall acquisition of foreign technology and equip-
ment, and the various national-level foreign trading
organizations-including those associated with the
military establishment-over the extent of SEC con-
trol over individual transactions. Similarly, although
individual plants are being encouraged to compete
with each other for specific foreign technologies, this
has strengthened the longstanding tendency of enter-
prises to refuse to share newly acquired technologies
with other enterprises.
For the United States, the merger of military and
civilian institutes and factories into specialized re-
search and production combines probably will further
obscure Chinese strategic or special mission activity.
because it has meant additional business for everyone.
However, as China continues to concentrate on ac-
quiring technology, rather than hardware, and, if it
follows through on its stated preference for US tech-
nology, the market for other COCOM members will
contract. The other members of COCOM are already
sensitive on this score and they may become less
willing to approve further liberalization of export
restrictions. The new Chinese policies also increase
the likelihood of closer military linkages to joint
ventures and similar technology transfer mechanisms.
Thus, these types of transactions may become a more
sensitive and more complex issue in COCOM deliber-
ations than the export of particular pieces of equip-
ment or machinery.
The new Chinese policies will also create additional
problems in the export control area. As the delinea-
tion between military and civilian research and pro-
duction becomes less clear, determining the status of
end users will become far more difficult. Problems
with other members of COCOM are also likely to
multiply. Until recently, COCOM members have
agreed to a relaxation of export controls for China
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Appendix A
Table A-1
China: Breakdown of Undergraduate Students,
by Academic Specialities
Table A-2
China: 1982 Graduates, New Entrants, and Enrollment,
by Academic Specialities
New
Entrants
Engineering
37.7
32.6
Agriculture
7.1
5.8
Forestry
1.2
1.0
Pedagogy
28.3
30.9
Humanities
6.0
5.1
Natural sciences
8.9
6.5
Finance and economics
2.9
5.8
Politics and law
0.3
1.6
Physical culture and sports
1.2
0.8
Arts
0.7
0.5
Four- to Five-
Year Programs
Two- to Three-
Year Programs
362,763
35,451
54,764
9,563
11,020
452
149,532
139,916
55,649
4,014
79,140
1,992
45,341
10,639
12,562
2,073
8,875
630
5,988
552
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