Monday, 28 April, 2008

SUPPLY-SIDE EXPLANATIONS OF CHINESE ARMS EXPORTS

The People's Republic of China, like all other states, has exported arms to improve its security, shape the policies of clients, and realize economic gain.
since the founding of the PRC, China has been a regional land power. Beijing's limited ability to project naval and air forces has generally restricted its military influence and most pressing security interests to contiguous areas. Arguably, Chinese gratis arms shipments to Third World nations and resistance movements (especially African) during the 1960's and 1970's could be viewed as furthering its ideologically-based national security strategy as PRC leaders spoke of the developing world constituting "a revolutionary driving force propelling the wheels of history" and serving as "the main force combating colonialism, imperialism, and particularly the super-powers." Yet the rather modest quantities involved suggest more symbolism than substance. In contrast, Chinese arms exports patterns from the mid-1960's until present do reflect an enduring commitment to maintaining favorable military balances against and among its neighbors. The PRC's transfer of weapons to North Korea, North Vietnam (until the collapse of the South), and the Afghan and anti-Vietnamese Cambodian resistance groups (mostly during the 1980's) are indicative of Beijing's willingness to use arms exports to secure its borders against perceived superpower threats.In fact, the PLA's lack of a credible force projection capability has probably made the provision of military hardware one of the most cost-effective means by which the PRC can be a player in regional security affairs. It is more difficult to attribute other major arms transfers to Asian nations to a realistic expectation by China that a key adversary might be weakened in any significant way. It wasn't until eight years after the 1962 Sino-Indian War that the PRC began to provide Pakistan with any appreciable amounts of military equipment, and this being of dubious quality (T-54 tank and MiG-19 fighter equivalents). Although Beijing and Islama-bad did subsequently develop and sustain a substantial arms trade , India, for reasons of geography and capabilities, was never regarded by China's leaders and PLA planners as a serious threat. PRC arms transfers to Thailand are analogous. Beijing had been at war with Hanoi since late-1978, and had made secret arrangements with Bangkok as far back as early-1979 to funnel military aid to the Khmer Rouge. Yet it is not until the late-1980's that sizeable amounts of Chinese ordnance (Type-69 tanks, Type-531 armored personnel carriers, and artillery-all, admittedly, at least as capable as Vietnamese Army equipment) were provided to Thailand. By this time, Vietnam's control over Phnom Penh was clearly slipping. With the possibilities of open Vietnamese-Thai warfare increasing remote, it is unlikely the PRC deemed expanded weapons deliveries to Bangkok as a crucial dimension of its anti-Hanoi strategy.

There are signs, however, that with its growing affluence and military capabilities, China is utilizing arms exports to increase its regional war fighting potential. For example, a reported 1989 $1.2-$1.4 billion arms deal between the PRC and Burma has possibly provided the Chinese Navy with access to a base on Hangyi Island flanking the Bay of Bengal. Rangoon may have also agreed to allow the PRC to set up a monitoring station on Grand Coco Island, just north of India's Andaman Islands in the east Indian Ocean. Moreover, China's continuing supply of naval vessels and aircraft to Bangladesh, North Korea, Pakistan, Sri Lanka, and Thailand throughout the 1980's would seem to point to an effort to expand the list of seaports and air bases available to the PLA Navy and Air Force. Such access, of course, is a sine qua non for China to acquire a regional power projection capability.

A second motivation for supplying arms is to gain influence over the policies of the recipient. There is little evidence of this having been a key factor impelling China's arms exports. The PRC's endeavors to serve as Tanzania's chief weapons supplier during the 1970's and early 1980's do suggest an expectation (realized) that President Julius Nyerere and his military would be more amenable to Beijing's attempts to transship arms to various liberation movements in Angola, Mozambique, and Zimbabwe. Furthermore, military assistance was only one aspect of a multi-dimensional aid program perhaps best symbolized by the Chinese-built 1600-kilometer Tanzania-Zambia railway line, completed in 1976. The intense ideological persuasions of Beijing's leadership during this era resonated with Nyerere's own pan-African aspirations, resulting in a conviction among PRC foreign policy makers that leverage over Dar es Salaam was both attainable and useful. But attainability and utility are measures by which other potential Chinese arms for political influence arrangements fall short, helping to explain their scarcity. Within a competitive market, poor quality lowers demand. In a narrow sense, the PRC has yet to produce the kinds of sophisticated, reliable weaponry that would entice other states to acquire them in return for major policy concessions or adjustments. Furthermore, China has not developed to the stage that it offers potential customers with the depth and breadth of additional benefits available from suppliers such as the United States. For instance, prospective foreign purchasers of United States equipment may be convinced not only by the quality of the particular hardware in question, but also by such factors as impressive and credible American security guarantees, access to much needed technology through offset agreements, and opportunities to study in advanced civil and military institutions. However, even in those instances where the PRC may have a real chance of gaining influence through arms transfers, the rewards would usually fall short of the investment costs. A state may occasionally turn to China as a seller of last resorts, or to supplement their most advanced equipment. Yet the PRC, as a regional power, will only look to arms transactions within Asia as offering meaningful possibilities to attain policy leverage over recipient states. Hence, while the United States, for instance, has equipped the armed forces of key Middle East countries with an eye on shaping their oil production and distribution policies, Beijing's attempts to use of arms for influence have generally been more localized (the Khmer Rouge and possibly Burma, for example).

China, of course, also sells weapons for economic reasons. It was previously noted that market reforms beginning in the late-1970's led to pressures and opened possibilities to enter the global arms market. To understand the stakes involved for the PRC's defense industries and PLA, some comparisons are in order. The value of arms exports as a percentage of total Chinese exports has been significant, but less so in recent years, reaching a high of 6.7% in 1984, and falling to under 1.5% in 1991. But from the more limited perspective of China's defense sector, the value of arms transfers is very substantial. To illustrate, in the mid-1980's, the ratio of the value of U.S. arms exports to total defense spending was just under 4%; for the PRC, the ratio (very roughly estimated) was 7.6%. To be sure, expanding military budgets and declining weapons sales have, in the 1990's, diminished the contribution arms transfers make to PLA modernization efforts. Moreover, the diversification of the former mini-stries of machine building industry factories into the production of civilian goods has probably reduced PRC defense industry dependence on arms sales. A 1992 study, in fact, showed impressive progress in Chinese defense conversion over the past decade.

Nevertheless, the economic motives to sell weapons abroad remain strong. Even if defense conversion is taking place, an aspiring great power like China will still seek an autarkic defense production capability. As such, military and civilian goods output is valued differently. For example, in terms of labor, investment capital, sales, and profits, the Chinese shipbuilding sector in aggregate is far more beholden to civilian than to military orders. Yet, this may be is of little comfort or relevance to the PRC's top party leaders, Central Military Commission (CMC), PLA General Staff and Navy, COSTIND, and shipbuilding military subsector. For this group of actors and institutions, booming sales in commercial vessels may make only marginal contributions to the development of advanced naval shipyards. Their parochial interests lead them to esteem warship production in and of itself because of the resulting increases in R&D, and manufacturing skills and capacities. Hence, to the extent weapons exports help realize these goals, they acquire a worth beyond contract price. In 1992, CMC Vice Chairman Liu Huaqing commenting on defense conversion, noted:

"The building of the weapons industry is an important component of national defense building. It is the first duty of the weapons industry to satisfy the needs of national defense modernization, to safeguard the sovereignty and dignity of the state, and to guarantee smooth progress in socialist modernization. Fighters engaged in the weapons industry must regard the completion of the task of scientific research in and production of military products as the first task and on this foundation, deepen reform, readjust mechanisms, and vigorously do well in converting defense industries to civilian industries while ensuring the development of the weapons industry.
Additionally, the compartmentalization of the PRC defense industry subsectors has most probably led to arrangements that allow much of the profit earned offshore to be retained by the military and relevant manufacturing firms, further elevating the importance of weapons exports. The fact that China is only a second-tier supplier in global arms market, should not obscure the relative magnitude and significance of their sales. For example, the 1987 Sino-Saudi CSS-2 IRBM deal was reportedly worth $3 to $3.5 billion to Beijing. Assuming, conservatively, U.S. military expenditures that year were on the order of twenty-five times larger than the PRC's, then on a proportional basis, an equivalent 1987 American arms sale might have netted between $75 and $87.5 billion. Lastly, the search for technology has occasionally been an important factor motivating particular Chinese weapons sales. Reports since the mid-1970's have claimed PRC deals with, among others, Egypt and Pakistan, to obtain the MiG-23, T-62, Crotale SAM, and Magic AAM for subsequent reverse-engineering. It is reasonable to speculate Beijing looks upon its long-term arms supply relationships with such clients as Cairo and Islamabad as providing the best, and possibly only, access to advanced Western and Soviet weaponry. Given the weakness of its defense R&D and production base, the PRC can be expected to cultivate partnerships that offer good prospects for opportunities to acquire high technology otherwise not available to it.

Drawing on the foregoing discussion, and assuming China's economy and defense industries continue to maintain rapid growth rates, we can infer the following about the direction of its arms sales in the decade ahead:

1) Commensurate with its expanding regional security interests, China will increasingly attempt to become a major arms supplier to Asian states.

2) Although it cannot possibly develop a credible overseas power projection capability in the foreseeable future, the demands of the PRC's burgeoning economy may induce China to selectively sell arms to more distant states in return for preferential trade agreements. For instance, the PRC, as a net importer of oil by the year 2000, could plausibly guarantee favorable Middle East contracts with weapons exports.
3) While, in a macroeconomic sense, the contribution of arms exports to China's trade balance and overall growth will continue to decline in relative terms, great power aspirations and the dynamics of the PRC defense industries will, nevertheless, encourage continued aggressive sales abroad.

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