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Chinese army's unique role


Jane's on defence

THE Chinese People's Liberation Army (PLA) is not just a fighting force - it is a major commercial presence in Beijing's market.

Since the middle of the last decade, the PLA, which makes up the nation's armed forces, has built up thousands of enterprises that are generating hundreds of millions of dollars in vital profits.

Officially, there are about 10,000 factories, trading companies, farms and other commercial units owned by the military in all spheres of the Chinese economy.

Although most are small and barely profitable, between 500 and 1,000 larger ventures generate as much of China's total production profits as a small province such as Hainan or Qinghai.

So far about 30 of these large enterprises are merged into conglomerates to spearhead the military-business complex's growth into the next decade.

One of the most significant of these rising enterprises is China Poly Group, the PLA's most profitable weapons-trading company. It sells arms to countries such as Pakistan and Myanmar (Burma). On the civilian side, China Poly is engaged in property development, telecommunications and financial services. Run by a son-in-law of the late Deng Xiaoping, Poly is aiming to become one of the country's corporate powerhouses.

Each of the People's Liberation Army's top central and regional military commands has two or more enterprise groups. The military high command aims to centralize control of this network and cut out their malpractices.

The PLA got involved in running businesses primarily to make it possible to subsidize the declining living standards of troops as well as provide employment for dependents after major 1980s' cuts in defence spending led to serious funding shortfalls for lower-level units.

Much of this money was spent on improving military housing, supplementing wages and, in many instances, even buying cars for senior officers.

Before the 1993 rectification campaign, the GLD received only a small share of business earnings, probably no more than 25 per cent, but this has grown substantially since it took over direct control of a large number of enterprises.

As of 1996, with declared profits from the PLA's business activities at about $480 million to $780 million, it is estimated that one-half and two-thirds of this sum may have gone into central military coffers. However, most of the money is likely to have been restored to lower units to cover their loss of earnings.

Only a small part of all this money - most likely the arms sales profits of China Poly Group - is believed to go directly to buying new weapons. A sizeable sum is also probably spent on improved troop training.

Today's PLA factories and mines, numbering about 4,000, account for about half of the military-business complex's annual turnover, while military-owned hotels, import-export firms, finance companies and other ventures are about 40 percent of production output. About 600 military farms account for the other 10 percent of revenues.

Army-owned companies have carved out lucrative niches in some of the fast-growing parts of the economy.

Military conglomerates have also begun to expand into overseas markets as they face growing competition at home. A favourite destination has been Hong Kong, and a small but growing number of subsidiaries of prominent PLA business groups have listed on the stock market there to finance corporate expansion.

Many PLA companies have also established shell companies in offshore tax havens such as the British Virgin Islands to deposit money siphoned off from their profit earnings.

Two growing markets for PLA companies include the United States, a top destination for military exports of consumer products, and the former Soviet republics.

Overall, PLA companies are estimated to earn as much as $1 billion a year from foreign trade, excluding arms sales. China Poly Group was the PLA's top foreign trade earner, with total exports and imports last year of $440 million, which probably includes arms transactions.

When the PLA began to go into business, it was a temporary expedient to make up for inadequate defence budgets. But after nearly 15 years of spectacular growth, this military-business complex is likely to be a permanent and powerful presence in the Chinese economy.

Some of its ventures are:

TRANSPORTATION: PLA-owned companies have converted an extensive military transportation system to commercial use. It includes railways, airports and naval ports. The air force has its own airline, using military transport jets, that serve less popular domestic routes, and the navy has several inland and oceangoing shipping companies.

VEHICLE PRODUCTION: Seventy army-run factories produce about 20 percent of China's passenger cars and trucks. But because of poor efficiency and a lack of orders, most operate at less than half-capacity. The most successful of these, the Shenyang Military Region-owned Liaoning Songliao Vehicle Corp., was listed on Shanghai's stock market in 1995.

PHARMACEUTICALS: The PLA's nearly 400 pharmaceutical factories produce about 10 percent of the country's annual output of pharmaceutical goods. Their main speciality is traditional Chinese medicines. The 999 Enterprise Group in Shenzhen, owned by the military's General Logistics Department, is the country's largest pharmaceutical company.

HOTELS: There are more than 1,500 PLA-owned hotels across China, ranging from converted army pesthouses to five-star luxury hotels.

REAL-ESTATE DEVELOPMENT: Military companies are building high-rise office-commercial complexes and luxury residential homes in major cities. China Poly Group has a real-estate portfolio ranging from the new home of the Shanghai Stock Exchange to luxury villas in Beijing.

GARMENT PRODUCTION: Four of China's 10 largest garment enterprises are old PLA military-uniform factories that now manufacture anything from running shoes to designer-label gowns.

MINING: Military units run nearly 150 major mines producing coal and ferrous metals. The People's Armed Police, a paramilitary group with close ties to the army, is one of China's leading gold producers.

TELECOMMUNICATIONS: The PLA has a major commercial presence in the country's fast-growing mobile telecommunications market, largely because of its control of crucial radio wavebands. Military construction units are also laying most of the country's fibre-optic communication lines.

NO THREAT: Russia's military threat to the West has fallen significantly with rising desertions, fewer weapons purchases and lack of readiness, according to a new study from the U.S. Congressional Research Service.

But the crumbling Russian military does pose an internal threat to economic and political stability, the study concludes.

"Many experts assert that the 'Russian military threat' is now more to Russia than from Russia," it says. The Russian government has "taken better care of internal security forces than the army," fearing the greater internal threat than an external one.

The report, which focused only on Russia's conventional forces, revealed that the number of troops has fallen from 4.3 million to 1.27 million since 1985. The number of tanks and other armoured vehicles is down from 53,200 to 17,650, artillery from 29,250 to 19,150, combat aircraft from 7,360 to 5,160 and surface combat vessels from 269 to 166.

Training, exercises and naval deployments have fallen dramatically. Morale is low because soldiers are not being paid.

"Draft evasion and desertion are rising," the report says. "Half the officers say they plan to quit the military in 1998." The research service claims it would take Russia a decade to rebuild its forces.

If, on the other hand, the downward trend continues for another three years, it "must lead either to more drastic force reductions or to military collapse."

While President Boris Yeltsin has made military reform a high priority, proposals have been made to cut the army's size further, consolidate the command structure and services, and move toward a force composed entirely of volunteers.

TWO-WAR SCENARIO: Independent defence specialists are urging the U.S. Department of Defence to drop its strategy of planning to meet two near-simultaneous crises.

The National Defence Panel warns that the two-wars scenario drains "funds that could be used to reduce risk to our long-term security." Describing the Pentagon's scenario as "unlikely," its report says current forces, working with allied support, should be sufficient to deal with today's threats.

The panel says the Department of Defence should be more concerned with future threats and the vulnerability of the United States itself. It cites terrorism, information warfare and ballistic and cruise missiles. It also notes "the apparent ease of infiltration of our borders by drug smugglers, illegal immigrants and contraband goods."

The U.S. Congress set the panel up in late 1996 to counterbalance the Pentagon's Quadrennial Defence Review, released in May 1997. The panel elected to develop a 'transformation strategy' for moving the department into the 21st century. It believes the Department of Defence should put $5 billion to $10 billion annually into initiatives to boost U.S. capabilities in intelligence, space, urban warfare, joint experimentation and information operations, starting in the year 2000.

AIR CRASHES: The U.S. military's record of aircraft crashes in 1997 is the best since the Department of Defence started keeping statistics in 1958.

There were 68 crashes in the year to September, down from 71 in 1996. The aircraft major accident rate equalled 1.5 accidents for every 100,000 flying hours. Deaths in military aviation accidents also fell in 1997 to 76, from 116 in the previous year.

The Pentagon is eager to demonstrate its confidence in its fighters after a spate of unrelated crashes at the end of the fiscal year in September, including that of an F-117 Stealth fighter that broke apart in flight. -Dawn/NYT Features