HQ-9

HQ-9 Batterry-models

china

china signalint station

China’s Air Defence missile systems

When the Soviet Union collapsed in
1991, China’s air defence capabilities
were of debatable effectiveness, built
around indigenous clones of the
Soviet S-75 Dvina / SA-2 Guideline
along with indigenous fighter aircraft
such as the Chengdu J-8 Finback
in addition to vast numbers of
1950s and 1960s technology J-6
Farmer and J-7 Fishbed fighters.
Radar capabilities centred on cloned
1950s Soviet equipment, some pre-
Tienamen Western imports, and a
stalled indigenous AEW&C program
centred on a turboprop engined Tu-4
Bull / B-29 Superfortress airframe.
Much has changed over the following
decade and a half. While the SA-
2 remains numerically significant,When the Soviet Union collapsed in
1991, China’s air defence capabilities
were of debatable effectiveness, built
around indigenous clones of the
Soviet S-75 Dvina / SA-2 Guideline
along with indigenous fighter aircraft
such as the Chengdu J-8 Finback
in addition to vast numbers of
1950s and 1960s technology J-6
Farmer and J-7 Fishbed fighters.
Radar capabilities centred on cloned
1950s Soviet equipment, some pre-
Tienamen Western imports, and a
stalled indigenous AEW&C program
centred on a turboprop engined Tu-4
Bull / B-29 Superfortress airframe.
Much has changed over the following
decade and a half. While the SA-
2 remains numerically significant,
it has been modernised.
Patriot
class S-300PMU / SA-10 / SA-20
Grumble / Gargoyle long range SAMs
have been acquired in strategically
significant numbers. The Tor M1 /
SA-15 has been reported and a range
of indigenous short range SAMs have
been developed. The KJ-200 / Y-8 and
KJ-2000 / A-50 AEW&C programs are
well into advanced development, and
strategically significant numbers of the Su-27SK /
J-11 and Su-30MK have been deployed, while the
indigenous ‘Sinocanard’ J-10 fighter has achieved
Initial Operational Capability.
The PLA’s air defence capabilities are transforming
from a legacy force with static and undeployable
systems to a state of the art force, which is
highly deployable in-country and demonstrably
expeditionary as it matures. This evolution in
capabilities has been sufficient to elicit alarm in
many US analysts, recognising that legacy fighters
such as the F-15C/E and F/A-18C-F have very poor
odds of surviving if they need to penetrate the
emerging PLA IADS.
China’s investment in top tier SAMs has not gone
unnoticed across the wider region. Indonesia has
for some time been coveting the S-300PMU SAM
system, and in a recent statement expressed an
interest yet again in acquiring the latest Russian
SAM technology. What the growth in China’s
capabilities is achieving more than anything else is
the stimulation of arms purchases, more than often
of like technology, in lesser regional nations.
The scale of growth in the PLA’s capabilities is
revealed in any survey of the full gamut of area
and point defence SAM systems deployed and
developed.
HQ-1/HQ-2/CSA-1 (S-75 / SA-2)
GUIDELINE
The Chinese-built derivatives of the Soviet SA-2
Guideline were until the arrival of the SA-10/20
the numerically most important SAM system in
PLA service. Current official US estimates put the
remaining inventory at more than 60 batteries, for
a total of about 400 single rail launchers.
When the PRC split with the Soviets during the
Krushchev era, early variants of the S-75 were
the only then modern weapons China possessed,
with a mere six batteries in service.
These comprised the standard static
road transportable semi-mobile rail
launchers, the S-band Fan Song
engagement radars, and the VHF
band P-12 Spoon Rest acquisition
radars. China’s 5th Research
Academy of the Ministry of Defence
subsequently reverse-engineered
this hardware and started the
manufacture of the HQ-1, a cloned
S-75 system. By 1966 an improved
HQ-1, the HQ-2, was introduced
with incremental upgrades to the
HQ-2A during the 1970s, and HQ-
2B during the 1980s.
The HQ-2B was a significant
advance on the Soviet original since
it introduced a high mobility tracked
TEL (Transporter Erector Launcher)
vehicle. Other improvements
included a better liquid rocket
motor, more G capability, better
warhead, digital command link for
guidance with crypto capability,
a monopulse engagement radar
capability for jam resistant angle
tracking, and electro-optical angle
tracking.
The stated long term intent is to replace the HQ-
2 with the indigenous HQ-12/KS-1A SAM, as a
second tier supplement to the Russian S-300PMU
series.
HQ-12 / KS-1A KAI SHAN 1
The indigenous HQ-12 is now being deployed with
PLA air defence units, and the US DoD puts the
number of fielded launchers at 60 units. Developed
to replace the HQ-2, the HQ-12 has been observed
in a number of variants, these including static rail
launchers clearly derived from the HQ-2 design,
a 6x6 road mobile TEL also derived from the
HQ-2 launcher, and a road mobile Patriot like box
launcher.
The single stage solid propellant KS-1A missile itself
compares best to the RIM-66 SM-1/2 in general
layout, but with a very short span delta wing design
more akin to the US Hawk. The rail launchers
are conceptually similar to the underslung SM-1
rail launcher. Missile performance is cited at a
maximum range of 27 nautical miles, maximum
altitude of 80 kft, and a maximum load factor of
20G with capability against 4-5 G targets. The
nearest equivalent US missile is the RIM-66 SM-1
and SM-2 series, the KS-1 falls between the SM-1
and SM-2 in performance, and it is about 20 per
cent larger and 40 per cent heavier at launch.
Chinese sources claim early KS-1 variants used
the HQ-2 radar package, but since then the H-
200 phased array engagement radar has been
disclosed as the primary radar component of
the KS-1A system. This phased array compares
closely in configuration to the US MPQ-53 Patriot
and Russian 30N6E series engagement radars,
and is available either as a static relocatable
installation, or a fully road mobile design on a 6x6
truck. Chinese sources claim a high resistance to
jamming, which is credible given the phased array
design technique used.
The HQ-12 is clearly a credible modern SAM
system, and like the J-10 fighter, illustrates China’s
technological capability to compete in the design of
modern weapons.
CADT HQ-9 / CPMIEC FT2000
The HQ-9 was developed to provide a long range
SAM capability, distinct from the medium range
capabilities of the HQ-12/KS-1 series. The FT-2000
is a derivative fitted with an anti-radiation seeker
and intended for engagements against AEW&C/
AWACS and stand-off jamming aircraft. The US
DoD puts current deployments at 64 launchers,
making for 8 to 16 batteries.
The PLA have not been overly generous in disclosing
details of this design. There is general agreement
in open sources that the HQ-9 uses Russian S-
300PMU technology extensively, including the cold
launch design for vertical ejection from launcher
tubes on TELs, 48N6 rocket motor technology,
and a range of other S-300PMU components,
including an 8x8 four tube TEL modelled on the
5P85DU series. Some sources claim the weapon
uses a two-stage arrangement akin to the S-300V
but in the absence of good imagery this is difficult
to validate. Slant range performance figures also
vary across sources, between 50 and 100 nautical
miles. What data is available suggests a missile
which is similar in capability to early variants of
the MIM-104 Patriot and SA-10B 48N6E, including
Track via Missile (TVM) guidance.
The HQ-9 is supported by the HT-233 phased array
engagement radar, like the H-200 modelled on the
MPQ-53 and 30N6E designs, carried on the Taian
TAS5380 8X8 high mobility vehicle, common to
the HQ-9 TEL and similar in design to the S-400’s
BAZ-6900 series vehicle. Chinese sources claim
C-band operation with 300 MHz receiver/antenna
bandwidth, detection range of 65 nautical miles,
and monopulse angle tracking to resist jamming.
According the US DoD, the FT2000 has yet to be
deployed, as is the case with the follow-on HQ-9
variants. Open sources describe the FT2000 as
an inertially guided SAM with an anti-radiation
terminal seeker, programmed before launch for the
characteristics of the intended target. Each battery
includes four ESM vehicles, used to generate
targeting data for the missile battery.
Given that the FT2000 is derived from the HQ-9,
any claims that this weapon has not been deployed
should be treated with caution since the missile
and its guidance support package could have been
integrated into the baseline HQ-9 system design,
and other than by covert intelligence gathering or
PLA disclosure, this cannot be easily determined
by simple observation. It is entirely conceivable
that a HQ-9 battery could be armed with a mix of
HQ-9 and FT2000 rounds, and this could only be
determined in combat once missiles are actually
launched and enter their terminal guidance phase.
ALMAZ S-300PMU / SA-10B/C
GRUMBLE
The S-300PMU was the first of the S-300 family
of missiles to be procured by the PLA, and the US
DoD puts current launcher numbers at 32, making
for 4 to 8 deployable missile batteries. This system
is the export configuration of the high mobility
Soviet S-300PS (P- PVO, S – Samochodnyy/Selfpropelled)
system, usually designated SA-10B
Grumble, successor to the Patriot-like semi-mobile
S-300PT. This subtype is either designated as an
SA-10B or SA-10C in the literature.
The S-300PMU best compares to earlier variants
of the US Patriot system, but with the important
difference that the S-300PMU is highly mobile, with
all key battery elements carried on MAZ-7900/543
variant 8x8 vehicles, common to the Scud TEL. The
S-300PS/PMU was the first true ‘shoot and scoot’
SAM system to be deployed, specifically built to
evade the F-4G Wild Weasel. When the export
variant was defined a towed semitrailer TEL was
introduced, the 5P85T with a KrAZ-260B tractor,
self-contained electrical power supply and masted
radio datalink for remote launch control of TELs.
Excluding mast mounted components, the battery
could deploy or stow itself in five minutes or less.
The search and acquisition radar package
comprised the high altitude oriented 36D6/ST-
68UM Tin Shield rated between 1.23 MegaWatts
and 350 kiloWatts, optionally on a semi-mobile
40V6, 40V6M and 40V6MD mast system, and
the low altitude FMCW (Frequency Modulated
Continuous Wave) 76N6 Clam Shell radar. The
latter, mounted on the 23.8 metre tall 40V6M or
37.8 metre tall 40V6MD, was specifically built
to hunt the US AGM-86 and BGM-109 cruise
missiles. The engagement radar is the 30N6E Flap
Lid, usually fully mobile on a MAZ-7900/543 but
also available semi-mobile on the 40V6M mast
for cruise missile defence. Technically, the 30N6E
compares best to the MPQ-53 Patriot radar.
The command link guided missiles in the S-300PT
were supplanted by TVM guided extended 50
nautical mile range 5V55KD and 5V55R rounds.
With all-altitude coverage the S-300PS/PMU was
a formidable system, capable of threatening the
full gamut of conventional combat aircraft, and
provided the impetus for the development of the
F-117A and B-2A stealth aircraft.
ALMAZ S-300PMU-1 / SA-20A
GARGOYLE A
Initially designated the SA-10D Grumble, and later
redesignated the SA-20A Gargoyle, the S-300PMU-
1 was a ‘deep modernisation’ of the S-300PS/PMU
system. The US DoD puts the current PLA inventory
at 64 launchers, for a total of 8 to 16 batteries.
While the S-300PMU-1 retained improved Flap
Lid, Clam Shell and 5P58TE/DE TELs, it introduced
two major new improvements intended to match
or outperform the Patriot PAC-1 and PAC-2
configurations. The first was a new missile design,
the 80 nautical mile range 48N6 with a seeker
capable of engaging 0.02 square metre targets.
The more important addition was the NIIIP 64N6E
Big Bird 3D search and acquisition radar carried on
a high mobility 8x8 MAZ-7910 series articulated
vehicle. This Janus-faced large phased array
was built to provide the S-300PMU-1 with long
range acquisition and tracking capabilities akin
to those in the SPY-1 Aegis naval radar – so
that the missile batteries could survive in heavily
jammed environments and engage supersonic
aircraft, cruise missiles and ballistic missiles. The
64N6E has no Western equivalent and provides
a significant capability to manage engagements
in a rapidly evolving high threat and high density
environment.
Until recently, the S-300PMU-1 was the most lethal
SAM system the PLA deployed but it has been now
supplemented with the S-300PMU-2.
ALMAZ S-300PMU-2 FAVORIT / SA-
20B GARGOYLE B
The last of the S-300P derivatives to carry the S-
300P designation, the S-300PMU-2 Favorit, adds
further capabilities. According to the US DoD, the
PLA has deployed 32 launchers for a total of 4 to
8 batteries.
The Favorit is an incrementally enhanced S-
300PMU-1 encompassing the 30N6E2 Flap Lid,
64N6E2 Big Bird, 54K6E2 command post. and
providing interfaces and software to control
legacy missile batteries, such as the S-200VE/
SA-5 Gammon. It is intended to compete directly
against the Antey S-300V Giant and Patriot PAC-
2/3 systems as an Anti-Ballistic Missile system.
The new LEMZ 96L6E search radar is available as
an option with the Favorit.
With the S-300PMU-1 and PMU-2, the PLA gains
enough range to be able to threaten aircraft over
Taiwan if the missile batteries are deployed along
the coastline. The systems have a robust capability
to engage reduced signature aircraft such as the F/
A-18E/F and Eurofighter Typhoon, and from some
aspects will threaten the Joint Strike Fighter. US Air
Force sees only the F-22A and B-2A as survivable
against these systems.
S-400 TRIUMF / SA-21A GROWLER A
There are no reports to date that the S-400 has
been procured by the PLA although there are
claims that China partly financed the development
of this S-300PMU-2 derivative.
The S-400 recently achieved IOC in Russia with
the first batteries deploying around Moscow last
year. The system extends the reach of the S-
300PMU-2 by adding the 200 nautical mile class
48N6DM missile, and the highly agile 9M96E/E2
interceptor missiles modelled on the PAC-3 ERINT
design. In an S-400 battery, 48N6 launch tubes
can be replaced by four-round tube clusters of the
9M96E/E2, providing a battery with considerably
more firepower.
9K331 TOR-M1 / SA-15 GAUNTLET
While most of the PLA’s investment in SAMs has
been focused on expanding and enhancing strategic
and long range area defence coverage, much effort
has also been put into the modernisation of point
defence SAM capabilities.
During the 1990s the PLA procured the Russian
9K331 Tor-M1 / SA-15 Gauntlet system, a highly
mobile rapid reaction SAM built to replace the Cold
War era SA-8 Gecko system. Like the SA-8 Gecko,
the Tor M1 TELAR is a fully self contained package,
with a search radar, a monopulse tracking and
engagement radar, and a magazine of Automatic
Command to Line Of Sight guided missiles. The
design aims of the Gauntlet were, however,
broader than those for the Gecko, and not only are
low flying aircraft and helicopters intended targets
but also cruise missiles, standoff missiles and
smart bombs during their terminal flight phase.
Russian thinking is that S-300PMU/S-400 battery
elements such as radars and command posts are
to be covered by Gauntlet point defence systems,
intended to engage and destroy guided munitions
targeting the S-300PMU/S-400 battery elements.
The Gauntlet is carried on a GM-355 tracked
chassis. The E/F-band folding surveillance radar is
carried on the top of the turret, and the G/H-band
engagement radar, claimed to be a phased array
design, is mounted on the front. Eight vertically
launched 9K331 SAM rounds are carried in sealed
magazines. These are vertically ejected before
ignition using the cold launch technique. Once
clear of the TELAR, the canard missiles use nose
rocket thrusters to pitch over in the direction of the
target and effect the engagement. Reaction time
to threats is credited in seconds between track
confirmation and launch.
While in conceptual terms the Gauntlet compares
well to the Franco-German Roland; the missile is
more advanced and the TELAR far more capable
than the Roland ever could be.
Chinese sources put the SA-15 inventory at around
25 systems deployed with the 31st and 38th Army
Groups. The Russians have exported this system to
Greece and Iran.
HQ-6 AND HQ-7/FM-80/FM-90 /
CSA-4 CROTALE
The US DoD credits the PLA with 30 ‘HQ-6’
launchers, most likely referring to the HQ-61
series point defence SAMs deployed during the
1980s. The missile round most closely resembles
the US RIM-7 Sparrow but is larger, heavier and
is equipped with a semi-active radar homing
seeker and midcourse command link guidance. A
6x6 YanAn SX2150 truck carries two rounds on a
slewable elevating launcher. Guidance is provided
by the Type 571 radar system. The HQ-61 series
has been largely superceded by the HQ-7.
The HQ-7 is a Chinese clone of the French Thales/
Thomson CSF Crotale SAM. During the 1970s the
French supplied samples of the Crotale, which
was promptly reverse engineered. The cloned
Crotale has been built in two configurations, a high
mobility variant for PLA Army units on a 4 x 4 scout
vehicle and a less mobile PLA-AF air field defence
system, using either a trailer or a truck platform. A
four-round elevating tube launcher turret is used,
mounting the X-band Automatic Command to Line
Of Sight monopulse radar dish antenna. Export
variants are the FM-80 and FM-90 with a FLIR
tracker and longer ranging missiles. HQ-7 batteries
are typically supported by an acquisition radar
system, usually on a 6x6 light armoured personnel
carrier. The HQ-7 has been widely deployed as a
naval point defence weapon on PLA-N warships.

China’s participation in Asian multilateralism: pragmatism prevails

Introduction

China started to truly participate in various multilateral regimes after it was admitted into the United Nations (UN) and became a permanent member of the UN Security Council in the early 1970s. Its involvement in international economic institutions intensified as its reform and opening-up program was initiated in the early 1980s and deepened in the 1990s. China’s participation in Asian regional multilateralism, however, lagged behind its presence in regimes at the global level. It was really in the late 1990s that China started to take an active stance towards multilateralism in Asia, partly because of the belated development of multilateralism in the region. Beijing now regards multilateral diplomacy as an integral and important part of its foreign policy.

It now seems a cliché to say that China no longer shuns multilateralism in the Asian region. Not only is China a participant in almost all official and track-two institutions and forums, it has played a leading role in creating one of the most influential regional organisations: the Shanghai Cooperation Organisation (SCO). China is now not only involved in all these processes, it actively makes proposals on all sorts of issues of regional concern. In recent years, Beijing has even shown some signs of confidence in participating in multilateral security activities—for example, joint military exercises. On the South China Sea issue, which is a highly contentious one in East Asia, China has changed its previous callous position of adhering to bilateral talks and now at least grudgingly agrees to multilateral discussions. In fact, in the past few years, China has conscientiously pushed for trilateral cooperation—with the Philippines and Vietnam—on resource exploration in the South China Sea.

Why has China become so active in multilateralism? What are the most notable Chinese concerns about regional multilateralism? This chapter, extensively utilising various Chinese sources and interviews, attempts to address these questions. I seek some answers by looking at the track record of China’s participation in regional multilateral processes and comparing the differences in China’s participation and role in the three subregions in Asia: South-East Asia, North-East Asia and Central Asia. I conclude that China has not yet developed a grand vision for regional multilateralism and integration. China’s behaviour in Asian multilateralism has been driven largely by pragmatism: the pursuit of short-term national interests in accordance with changes in regional political and economic circumstances. This pragmatism is revealed in China’s super-activism in economic multilateralism, enthusiasm for non-traditional security cooperation and differentiated approaches to conflict prevention in East and Central Asia.
China assesses the prospect of East Asian multilateralism

It goes without saying that China attaches great importance to its relations with countries in its neighbourhood. In fact, Chinese analysts propose that as part of its strategy to ensure its own rise, China should regard East Asia as its strategic hinterland and should actively participate in regional institution building as a fundamental policy (Angang and Honghua 2005). The Chinese Communist Party’s sixteenth congress report in 2002, for the first time, juxtaposed regional multilateral cooperation with bilateral relations—a clear indication that Beijing had begun to attach greater importance to multilateralism (Honghua 2008). Five years later, Chinese leaders reaffirmed this position at the Seventeenth Party Congress. In recent years, China has regarded good relations with its contiguous neighbours and multilateralism as two of its four basic foreign policy guidelines. [1]

This section describes China’s overall assessment of the ultimate prospect of various multilateral mechanisms in Asia. Even though China has willingly accepted multilateralism as an approach in its international relations in Asia, it is not clear what Beijing regards as the ultimate goal or what kind of regional community all these multilateral mechanisms should eventually lead to. In 1999, at the landmark third ‘10+3’ summit, leaders of the 13 countries agreed on the principles, direction and key areas for East Asian cooperation. Together with other members of the 10+3 framework, at the sixth 10+3 summit, China approved the report drafted by the East Asian Vision Group in 2002. The report proposed an East Asian free trade agreement (FTA) and an East Asian community. Despite clear support for an East Asian FTA, Beijing has offered no clear blueprint of its own version of an East Asian community.

In fact, there is profound scepticism among Chinese decision makers and analysts with regard to the prospect of East Asian regionalism. In the Chinese understanding, many challenges remain with regard to the further development of regionalism in East Asia. One of the challenges is the geographical expansion of regional cooperation and forums—for example, the East Asian Summit (10+6), which also includes India, Australia and New Zealand. Many Chinese analysts regard the East Asian Summit (EAS) as a setback or at least a new barrier to the growth of East Asian multilateralism. They believe such expansion has made forming a common geographical identity (related to cultural identity and common values)—an essential element in any regionalism—more difficult, if not impossible (Jianren 2008). Chinese analysts also take note of the fact that the Association of South-East Asian Nations (ASEAN), currently the driver of East Asian regionalism, has no consensus on the geographical boundary of regional multilateral processes. For instance, two of the three conditions required by ASEAN for other states to become EAS–ASEAN dialogue partners—signing ASEAN’s Treaty of Amity and Cooperation (TAC) and substantive interactions with ASEAN—have no specific geographic limitation. According to Chinese analysts, this vision of a borderless regional community would only compound the growth of multilateralism in the region given the fact that even within the 10+3 framework, differences in cultural identities and values are already a huge challenge.

Related to this concern, and perhaps a much more important factor in China’s assessment of Asian multilateralism, is the role of the United States. Many analysts in China simply do not believe that the United States will play a constructive role in promoting East Asian integration. Many believe that US supremacy in East Asia is not good for regional integration. They argue that since many East Asian countries still depend on the United States for political, economic and security interests, they have little incentive to further enhance multilateral cooperation within the region. Regional states still have to pay respect to US preferences when it comes to regional multilateralism. For instance, during the East Asian financial crisis, Japan proposed setting up an Asian monetary fund to cope with future financial problems in the region. Japan had to drop the idea, however, when the United States strongly opposed it (Hongsong 2006).

Beijing also believes that the traditional US ‘hub and spokes’ security arrangements are not conducive to the growth of new security modes in East Asia—for example, cooperative security. The popular expectation among regional states of US security protection does not provide any incentive to push for new security arrangements. Given the fact that US predominance and its bilateral security ties with various regional states are perceived as effective in maintaining regional security, cooperative security in East Asia is not likely to take shape in the foreseeable future (Fan 2005).

In the Chinese understanding, the United States can live with an East Asian regionalism that is open, inclusive and capable of solving all problems, including security issues, but Washington is opposed to a stronger Chinese role in any regional grouping. Washington once favoured Japan as the leader in spearheading East Asian multilateralism, but in recent years it has realised that there are many restraining factors for Japan: its relations with neighbouring countries and its declining economic importance as China’s economy continues to grow. The United States is, however, not ready to accept any Chinese leadership role in pushing for East Asian regionalism, fearing that the rise of Chinese influence might diminish American clout in the region. By default, Washington continues to support ASEAN remaining in the driver’s seat. The United States is also concerned about the function of a future East Asian community, fearing that it might marginalise the Asia Pacific Economic Cooperation (APEC) group and the ASEAN Regional Forum (ARF), two institutions that Washington has a lot of complaints about yet still regards as useful tools to advance its interests in East Asia (Xinbo 2007).

In addition to these factors, Beijing takes note of conflicting policy pronouncements from Washington and believes that American policy on East Asian multilateralism is uncertain. Former Secretary of State Colin Powell (2004) commented that the United States regarded an East Asian community as unnecessary and warned that any effort towards such a community should not be carried out at the expense of Washington’s good and stable relations with its Asian friends. In early 2006, US APEC senior official Michael Michalak (2006) commented on East Asian regional processes by saying that the United States did not think the ASEAN+3 or EAS would harm American interests but, at the same time, he unequivocally reiterated the importance of cross-Pacific institutions and organisations. In May 2006, Assistant Secretary of State Christopher Hill (2006) said that America understood Asian countries’ consideration for regional architecture, which was largely a reflection of the economic and financial integration among these nations. The United States welcomed that effort.

Some Chinese scholars believe that the uncertainty in American policy is reflected in its conditional support for and selective participation in East Asian multilateralism. They argue that the United States should further adjust its policy to become a constructive force in East Asian integration (Rongsheng 2007). On the part of China, despite profound suspicion of US intentions, there has been growing awareness that Beijing will ultimately have to recognise US preponderance in the region even in the long run and accommodate US interests in any future East Asian multilateral mechanisms. Lin Limin, a strategic analyst at the China Institute of Contemporary International Relations (CICIR) argues that the United States is a ‘special’ external power to East Asia due to all the political, economic, historical and emotional ties it has with many countries in the region. He argues that US policy towards East Asian regionalism is at a crossroads. The United States should support and participate in the process of East Asian integration and be a responsible member of the grouping. East Asia, in return, should adopt a ‘grand’ scheme of integration to incorporate the United States (Limin 2007).

In the Chinese perception, Japan’s policy on regional multilateralism has also been inconsistent. This is largely a result of Japan’s uncertain orientation—whether it should identify itself as one of the Western powers or root itself in East Asia. Chinese analysts detect some sort of oscillation in Japanese strategy in regional multilateralism between strengthening its alliance with the United States as its key international strategy and pushing for a leadership role in regional integration. They believe that currently Japan does not have a coherent regional integration plan, which does not bode well for a Japanese leadership role in furthering regional multilateralism (Shichun 2007).

Many Chinese analysts believe that Japan, nevertheless, intends to strive for a leadership role and restrain China and forestall China’s dominance in East Asia, which is likely to work against a smooth development of multilateral cooperation in the region (Hongling 2006). They point to many instances in Japan’s policy moves in South-East Asia to demonstrate Japan’s intention of trying to outrun China. For instance, in 2002, when former Japanese Prime Minister Junichiro Koizumi proposed the idea of an ‘expanded East Asian community’, he had in mind a leading role for Japan, with support from ASEAN, to include extra-regional states such as Australia. China believed Koizumi’s plan was an obvious initiative to check growing Chinese influence in East Asia (Honghua 2008). Another example frequently mentioned in China is Japanese reaction to China’s signing of the TAC. Two months after China acceded to the ASEAN TAC, Japan decided to sign the treaty as well—a clear indication of a Japanese response to China’s proactive engagement in South-East Asia. Beijing maintains that Japan’s insistence on incorporating India, Australia and New Zealand in the East Asian Summit is simply another major Japanese step to restrain Chinese influence in East Asia (Zhilai 2006).

More recently, in 2006, Japan proposed an East Asian Economic Partnership Agreement (EPA), envisioning concluding an economic partnership agreement among ASEAN countries: Japan, China, South Korea, India, Australia and New Zealand (Junhong 2006). This EPA proposal would far surpass a regional FTA to include arrangements for investment, services and human flows. Chinese reports claimed that the Japanese proposal was intended to put Japan in a leadership position in East Asian regionalism and to restrain the rise of China (‘Japan intends to promote “East Asia economic partnership agreement” to check China’s rise’, China News Service, viewed 7 August 2008, ). Since the second half of 2006, China and Japan have made many efforts to improve their strategic trust, but Japan’s intention to constrain China on political and security issues in the region has not dwindled (Honghua 2008). The Sino–Japanese competition for leadership in East Asian multilateralism, in particular the Chinese perception of an assertive Japan, is another factor that has contributed to China’s lack of confidence in a bright future of regional multilateralism.

China is also not sure how ASEAN is going to readjust its policy on East Asian multilateralism. China takes note of ASEAN’s volatile positions on the geographic boundary of regional integration. The chairman’s statement of the twelfth ASEAN Summit in January 2007 insisted that 10+3 should be the main approach to an East Asian community, but in the chairman’s statement from the thirteenth ASEAN summit, there was no mention of using 10+3 as the main channel; it instead emphasised the complementarities of 10+3 and EAS. At the third EAS, ASEAN Secretary-General, Ong Keng Yong, noted that ‘ASEAN has reached a consensus regarding Japan’s proposal of including Australia, New Zealand, and India into [an] East Asian community’ (‘East Asia community to accept New Zealand, Australia, and India’, Central News Agency, 20 November 2007). Beijing closely watches these subtle changes in ASEAN’s position and is likely to regard ASEAN’s vacillation as further evidence that continuing substantive growth of multilateralism in Asia is still inopportune. In the long run, China might not have confidence in ASEAN’s ability to lead multilateralism in East Asia. According to one Chinese observer (Xiaosong 2008), if multilateralism in this region is going to lead to further regional integration, the leadership role will have to be exercised by a three-power consortium: China, the United States and Japan. Given the above evidence of the relations among these three powers, however, such a consortium might not be feasible in the foreseeable future.

In response to all these challenges, China steadfastly insists on relying on the 10+3 as the main framework for regional economic cooperation, it supports ASEAN’s role in the driver’s seat and maintains a gradualist approach to East Asian regional multilateralism. China believes that the 10+6 should not replace the 10+3 and that conditions for an FTA among the 10+6 countries are not yet mature (Jianren 2008). In order not to appear obstructionist, China has tried to downplay the importance of the EAS instead of refusing to be part of it, arguing that the EAS should more properly serve as a strategic platform for the exchange of ideas and facilitation of cooperation (‘Premier Wen Jiabao’s speech at the second EAS’, Xinhua News Agency, 15 January 2007). In practice, Beijing still values 10+3 and 10+1 mechanisms for substantive cooperation.

In sum, in spite of active participation in all regional institutions and emphasis on 10+3 and 10+1, China believes that the prospect that various regional multilateral processes will lead to a discernable East Asian community is not good in the near future. Many factors are restraining the growth of such a community, including regional states’ reluctance to relinquish their sovereignty, cultural differences, historical problems and the still-dominant position of the United States (Hongsong 2006). Because of the United States’ hegemonic presence and the rivalry between China and Japan in East Asia, East Asia can develop only limited regionalism, an incomplete regional security architecture and security community (Zhongqi 2006). Due to these factors, China has not clearly defined its role and position in the East Asian community (Xintian 2008). In the meantime, China seems unconcerned by the pessimistic estimation of the prospect of East Asian multilateralism. What it intends to focus on now is pragmatic cooperation in areas of Chinese concern. Former Deputy Foreign Minister Wang Yi (2004) once noted that China pursued an open regionalism to carry out practical cooperation with regional states and at the same time did not exclude the United States and other external powers.
China’s super-activism in economic multilateralism

Despite the fact that China is not exceptionally sanguine about the prospect of East Asian integration, it has taken a proactive stance on bilateral and multilateral economic cooperation. China has worked hard to push for bilateral FTAs with various East Asian states—for example, South Korea and Japan—but at the same time has strenuously pushed for economic collaboration at the multilateral level. Some Chinese analysts believe that bilateral FTAs could be beneficial to parties in the bilateral frameworks, but bilateral agreements that work parallel to each other could bring about various costs—for instance, policymaking and administrative expenditure, industrial readjustment costs and increased trade transfers that could offset the benefits of comparative advantage (Ronglin 2005). Thus, Beijing favours liberal multilateral economic cooperation.

China’s early interest in economic multilateralism had its origin in political considerations. When the former Malaysian leader Mahathir bin Mohamad made the proposal to set up an East Asian economic group in December 1990 during a visit to Beijing, then Chinese Premier Li Peng immediately responded positively, indicating that China’s consent was largely a political decision instead of one made after careful deliberation of economic costs and benefits. Former Chinese Presidents Yang Shangkun and Jiang Zemin on different occasions between 1992 and 1994 expressed China’s support for such an idea, showing China’s enthusiasm for such a regional economic grouping (Jianren 2008). China’s early interest in economic multilateralism was related partly to its desire to end its diplomatic isolation in the aftermath of the Tiananmen Square episode.

Over the years, China’s growing interest in multilateral economic regimes has been a reflection of a mixture of economic and political interests. In 2001, Beijing proposed the FTA with ASEAN together with some flexible measures such as the early harvest scheme. This move was seen widely as being driven partially by China’s political goal of reassuring ASEAN countries of its benevolence and further defusing the ‘China threat’ in the region. There are, of course, other multilateral projects in South-East Asia in which China plays an active role—for instance, the Greater Mekong River Basin project and the emerging pan-Tonkin Gulf regional economic zone. The Kunming Initiative, although supported by China, has, for various reasons, not made much progress.

In North-East Asia, China is also engaged in a number of multilateral economic projects, the largest of which is the Tumen River regional development, initiated by the UN Development Program (UNDP) in 1991. This project covers a wide range of areas, including investment, trade, transportation, environmental protection, tourism, human resources, communications and energy. Japan, however, has not participated fully, but has instead joined as an observer only (Guoping 2007). Chinese scholars have also been advocating the Bohai economic circle in order to further develop the economy in northern China and to revitalise the industrial base in north-eastern China. This subregional economic zone would require the participation of South Korea and Japan (Ziheng 2004).

China is also enthusiastic about a trilateral FTA between China, South Korea and Japan. In 2002, China made an informal proposal for such an FTA. A joint research group completed a feasibility study in 2003, concluding that a trilateral FTA would be very beneficial to the three economies. The group also conducted a feasibility study on possible modes of trilateral investment arrangements and concluded that such arrangements would contribute to economic growth in the three countries. At the informal meeting in Bali, Indonesia, in 2003, leaders of the three countries signed a joint statement on the promotion of trilateral cooperation on trade and investment facilitation. Since then, the three parties have made some progress in adopting facilitation measures in customs, networking of ports, communications and environmental protection.

In official Chinese planning, an FTA among the 10+3 countries should ultimately take shape. A Chinese study concluded that a 10+3 FTA would contribute economic growth of 1.96 per cent and 0.34 per cent to China and Japan respectively (Lijun 2007). At the 2004 ASEAN–China summit, Chinese Premier Wen Jiabao called for an FTA in East Asia and an East Asian community based on such an FTA. This clearly shows China’s strong desire to push for broader economic multilateralism in East Asia. The incentive for such preference is derived increasingly from the inherent need of China’s domestic economic growth. China is increasingly becoming the trading and production centre of East Asia. According to some estimates, the volume of China’s foreign trade is likely to overtake that of Japan and be close to that of the United States by 2020. By then, more than half of China’s imports will come from other East Asian countries. In the coming 20 years, China is likely to maintain notable surpluses in its trade with the United States and Europe and large-scale deficits with East Asian countries. On the basis of the expected economic interdependence, Chinese analysts recommend that a future East Asian FTA could be formed on the basis of China–ASEAN, South Korea–ASEAN and Japan–ASEAN FTAs (Yunling 2006). Likewise, in Central Asia, China has exhibited much interest in multilateral economic cooperation. At the 2003 SCO summit, Premier Wen proposed setting up a free-trade area among member states of the organisation. China’s active involvement in Central Asia has stemmed largely from its need for secure and diversified energy supplies to safeguard its rapidly developing economy.
China’s enthusiasm for NTS multilateralism

In the past decade or so, China has demonstrated enthusiasm towards non-traditional security (NTS) cooperation in Asia. Chinese analysts believe that cooperation on NTS helps enhance mutual understanding and trust among regional states, cultivates the growth of regional identity and deepens and broadens regional cooperation mechanisms. All these are helpful for gradual integration in the region (Shengrong 2008). In recent years, many Chinese analysts have been proposing a larger role for the military in multilateral cooperation on NTS issues in East Asia. [2]

China has cooperated extensively on NTS issues with other countries in Asia. In 2000, bilaterally with ASEAN, China signed an action plan on countering drug trafficking. In the same year, China participated in the Chiang Mai initiative for East Asian cooperation on financial security. In 2001, China, Laos, Myanmar and Thailand held a ministerial-level meeting on fighting drug trafficking and published the ‘Beijing Declaration’. In 2002, China and ASEAN signed a joint declaration that specified issues of cooperation between the two sides in the NTS area: drug and human trafficking, piracy, terrorism, arms trafficking, money laundering, other international economic crimes and Internet crime. China pledged to cooperate with various parties concerned on marine environmental protection, search and rescue and anti-piracy. In 2003, China and ASEAN held a special summit meeting to tackle severe acute respiratory syndrome (SARS) and initiated a cooperation mechanism on public health. In 2004, China signed a memorandum of understanding with ASEAN on NTS cooperation, which further emphasised the need for Sino–ASEAN cooperation on NTS matters.

In North-East Asia, China, South Korea and Japan have also taken some steps to strengthen their cooperation on NTS issues. These measures include environmental protection, earthquake relief and tackling transnational crime. Starting from 1999, the three countries launched a ministerial-level meeting on the environment and various concrete proposals on sandstorms and marine environmental protection were carried out. In 2004, the authorities monitoring earthquakes in the three countries agreed to share seismic information and technology. The immigration authorities of the three countries have also held workshops on countering terrorism, drug trafficking and human trafficking in North-East Asia.

In the larger context of East Asia, China’s posture towards NTS has also been quite positive. In 2004, ASEAN+3 held its first ministerial-level meeting on fighting transnational crime. In 2005, ASEAN+3 signed an agreement on cooperation among their capital police agencies to jointly fight various NTS challenges. China also has no problem working on NTS issues within the ARF. China did not lodge any opposition to the 2002 ARF joint statement that called for enhanced cooperation on fighting drug trafficking, illegal immigration, money laundering and piracy at sea. The 2005 ARF joint declaration stressed regional coordination and cooperation on disaster relief and other measures for emergencies.

In APEC, in which China has quite vehemently opposed any inclusion of discussions of security matters, Beijing has not blocked multilateral efforts on fighting NTS issues. The APEC summits in 2001 and 2002 published two statements on counter-terrorism. The 2003 and 2004 declarations further emphasised multilateral cooperation to fight terrorism and other transnational crimes. China also agreed to the APEC initiative to deal jointly with various transnational health epidemics, such as HIV/AIDS, SARS and avian influenza.

In Central Asia, China has an impressive record of working with other SCO members to meet various NTS challenges—primarily the so-called ‘three evil forces’: separatism, religious extremism and terrorism. The SCO has set up various institutions and signed many legal documents on all sorts of NTS threats.
China’s different approaches to preventive measures on security

China’s policy stance on traditional security issues is in sharp contrast with its attitude towards economic and NTS cooperation. Overall, China is still reluctant to work multilaterally on sources of potential interstate military conflicts. In particular, China has been opposing quite strongly any preventive measure that would impinge on domestic issues. There are, however, some notable differences in China’s stance across various regions. In South-East Asia, China has been quite adamant in opposing the further institutionalisation of preventive measures on traditional security issues. In North-East Asia, China has taken an active role in helping solve the North Korean nuclear crisis. China is also open to the discussion of a security framework in North-East Asia. [3] In Central Asia, China has been more willing to engage member states of the SCO on preventive measures to deal with traditional and non-traditional security issues.

Overall, China’s reluctance to agree to more substantive multilateral preventive measures is a reflection of its concerns about US predominance and what it perceives as the United States’ hostile security policy towards China in East Asia. The most alarming assessment of American intention in East Asia is that Washington plans to establish and consolidate a strategic encirclement of China from East Asia, South-East Asia, South Asia and extending to Central Asia. China believes that various military exercises that the United States conducts with China’s neighbouring states are intended to put pressure on China and provide more leverage to states in China’s neighbourhood (Deqi 2006). For many years, China did not participate in the Shangri-la security dialogue, the primary reason being its belief that the dialogue was influenced too excessively by Washington from behind the scenes. The forum was perceived as a mechanism to constrain China strategically. [4]

In the first years of China’s participation in the ARF, China was afraid that the United States and its allies would use the forum as a tool to harm China’s security interests. Beijing understood that one of the original goals of setting up the ARF was to restrain and socialise China. In 1995, at the second ARF meeting, China expressed its reservations with regard to the norms and principles on regional security proposed by other participating countries. At the 1996 ARF meeting, former Chinese Foreign Minister Qian Qichen elaborated China’s ‘new security concept’, urging states to solve security problems through dialogue and consultation. China hoped to expand confidence among major powers in the Asia-Pacific, strengthen ASEAN’s understanding of China and thus reduce the influence of the perception of the ‘China threat’. China also found out that the ARF could be a good forum in which to fight the Cold War mentality of some external powers (Yanbing 2000). All these demonstrate China’s pragmatism in security cooperation.

For China, participation in the ARF has been both an opportunity and a challenge. China can utilise the forum to explain its policies and stances so as to reduce misunderstanding and influence the perceptions of other states towards it. Participation also means, however, that China will have to face up to the collective pressures of ASEAN and other countries. Chinese analysts list China’s concessions on the South China Sea issue as examples of the negative consequences of China’s participation. Some of the major concessions include agreeing to multilateralism as a means to deal with the dispute instead of the previous bilateral approach, China’s agreement to use international law as a basis for a solution to the problem and the signing of the declaration of cooperation (Changsen 2000).

In 1997, China sent a delegation to various Asian countries to lobby for the abrogation of bilateral and multilateral security alliances. The focus was of course on persuading various countries in East Asia to forgo their bilateral security ties with the United States. That effort was not successful. ASEAN countries indicated their disapproval of the Chinese suggestion. China, in return, understood better the concerns of ASEAN countries and has not since openly pursued this issue. It was a turning point for China to accept at least implicitly US military presence as a balancing force in East Asia (Xiaopeng 2006).

Still, the biggest challenge for China is how to cope with the security environment in East Asia. On one hand, there is the reality of the US-centred bilateral security arrangements that still serve as the backbone for security in the region. On the other hand, the bilateral arrangements seem to be expanding at the expense of Chinese security interests. For instance, in the past few years, there has been growing interest among the neo-conservative thinkers in Washington in constructing an Asian version of the North Atlantic Treaty Organisation (NATO). In March 2007, Japan and Australia signed a joint declaration on security cooperation in which the two countries pledged to enhance cooperation and consultation on issues of common strategic interest including regularly holding the ‘2+2’ defence and foreign ministers’ talks. In the past few years, efforts have also been made to bring India in to form some sort of quadrilateral security mechanism in East Asia. Although leadership changes in Japan and Australia made the possibility of forming a quadrilateral security mechanism less likely, to Chinese decision makers, all these efforts reinforced their perception that other regional powers had the intention, no matter how volatile, to gang up on China.

These perceptions and beliefs explain why, in the ARF, China, together with ASEAN countries, belongs to the group of ‘reluctant’ countries that has not been enthusiastic about preventive diplomacy. China’s unwillingness to move towards preventive diplomacy in the ARF is a reflection of its concern that any problem in the South China Sea or the Taiwan Strait would allow international interference (Yuzawa 2006). Beijing maintains that there is still a lot of work that needs to be done to enhance confidence-building measures in the region, which are at their most primitive stage in East Asia. Pushing to enter a stage of preventive diplomacy would not be good for the development of the ARF (Kuisong 1998).

China realises that Asia-Pacific is an area in which major powers have significant interests. The primary goal for China’s security strategy in the region is to maintain at least normal and functioning relations with all other major powers so that China is not isolated by other powers. China’s second goal is to try its best to maintain friendly relations with other regional states to forestall the possibility of any containment alliance supported by other major powers. China increasingly realises that economic interdependence creates common interests and is conducive to the prevention of conflicts. Beijing believes that the best strategy is to become the provider of markets, investment and technology for regional states to transform China into the engine of regional economic growth (Shiping and Yunling 2004).

One area in which China has been trying to play a role is its proposal of a ‘new security concept’. Official rhetoric in Beijing constantly emphasises ‘mutual trust, mutual benefit, equality and coordination’ as the principles of practising a new security mode. According to the Chinese interpretation, the gist of a new security concept is to pursue cooperative security. China’s preference for cooperative security is perhaps one of necessity. In today’s East Asia, there are three primary modes of security arrangements: US hegemony, the traditional balance of power and various loose multilateral security forums. China pushes strongly for cooperative security simply because the first two security modes work against its security interests. Advocating cooperative security serves many Chinese security goals. First, it helps alleviate the China threat. Second, it conforms to China’s interest in maintaining a stable regional environment. Third, it serves as a check to the first two security modes, thus improving China’s strategic security position in East Asia. The challenge for the future is for China to come up with concrete proposals to make cooperative security really work in East Asia.

China’s security policy and practice in Central Asia are notably different from those in East Asia. China demonstrates much more confidence in dealing with security issues in Central Asia, as shown in the high level of institutionalisation of the SCO and its willingness to embrace preventive measures.

According to Chinese analysts, China’s security policy in the SCO is intended as a contrast to US security policy in East Asia, which is underpinned by bilateral alliances and ‘forward deployment’. Chinese analysts argue that in the SCO, China and Russia have been working on cooperation and dialogue as the main means for security building and reducing the military presence in border areas (Kuisong 1998). Confidence-building measures have been and appear to continue to be a key area for the SCO, as evidenced in the two treaties regarding border security signed in 1996 and 1997, and the recently signed treaty among SCO member states on good neighbourly relations, friendship and cooperation.

The SCO has, however, gradually taken on the concept of preventive diplomacy. Currently, preventive diplomacy in the SCO is essentially carried out in areas of NTS by a wide range of agencies, including the military. There are, however, signs that the SCO is increasingly moving towards a more substantive practice of preventive diplomacy. The SCO is likely to meaningfully discuss preventive diplomacy in tackling traditional security issues, including dealing with domestic crises. A few recent SCO official documents clearly refer to this possible development.

The ‘Declaration on the Fifth Anniversary of Shanghai Cooperation Organisation’ mentions that the SCO has the potential to play an independent role in safeguarding stability and security in this region. The document points out that in case of emergencies that threaten regional peace, stability and security, SCO member states will have immediate consultation on responding effectively to fully protect the interests of the SCO and its member states. The paper calls for member states to study the possibility of establishing a regional conflict-prevention mechanism within the SCO framework. The 2007 Joint Communiqué of the Meeting of the Council of Heads of SCO Member States proclaims that it is vital to implement preventive measures against the processes and phenomena causing instability in SCO territory. The document calls for the process of creating a mechanism of joint responses to situations threatening peace, stability and security in the region to be expedited. In the recently concluded SCO summit in Dushanbe, the member states once again proclaimed that the SCO would conduct preventive diplomacy to safeguard peace and security in the region. [5]

A few scholars at various Chinese government-sponsored institutions have conducted studies on the need for and feasibility of some formal preventive diplomacy measures in the SCO. They justify the establishment of such formal mechanisms on the grounds that the SCO will not be able to grow further without preventive diplomacy given the fact that the Euro-Asian region is so complicated in cultural, ethnic and geo-strategic contentions, and because of potential conflicts among those Central Asian states in terms of territorial borders, water and other resources and internal socio-political instability in the smaller members of the SCO. They conclude that all these contentions and internal instability have the potential to not only hamper the further progress of the SCO but to derail the SCO process.
Conclusion

China’s policy towards Asian multilateralism pretty much reflects the overall ‘low-profile’ foreign policy line that was set by the late leader Deng Xiaoping. Deng, back in the early 1990s, advised that China should not act aggressively as a leader in international politics to avoid too much international attention while it was rising. At the same time, he admonished other leaders that China had to play a role (‘you suo zuo wei’). Playing a role is particularly important in issues of concern to China and relevant to Chinese interests. Deng’s foreign policy line was deeply rooted in pragmatism. Chinese policy on various multilateral processes reflects that pragmatic consideration.

In addition to the perceived attitudes of other major players, part of the reason why China lacks a grand vision of regional multilateralism has to do with the fear that any Chinese effort to lay out a blueprint for regional integration will only invite suspicion on the part of other major powers, further complicating China’s strategic position in East Asia and the world. China has not openly or strongly opposed matters that it does not favour. Instead, Beijing has made its reservations known and has worked subtly to reduce the negative impact on its interests. This is clearly the case with regard to the EAS. Chinese officials now recognise that it is unwise for China to openly obstruct the EAS. Instead, they maintain that China could go along with any policy proposal that works to the benefit of all participants. [6]

Emphasising multilateral cooperation on economic and NTS issues is also a clear demonstration of Chinese pragmatism in practice. It helps build a better image of China in the region—a more benign and cooperative China. It helps create a friendlier environment for China’s rise in the long run. Economic multilateralism is also necessary for the sustained growth of the Chinese economy. Cooperating on NTS issues is highly desirable simply because all these non-traditional challenges have transnational roots and impacts. China stands to benefit from all these multilateral mechanisms in dealing with NTS threats.

Beijing’s different positions on preventive measures in East and Central Asia also have to do with its pragmatic response to the different regional political and strategic contexts. In East Asia, the strategic rivalry is much higher than other areas; China’s position has to be largely defensive. In Central Asia, however, China enjoys much stronger political power and less strategic competition. As long as China can accommodate Russia’s core interests, Beijing will find much room to be flexible in embracing preventive measures.

China’s defence industries: change and continuity

China’s defence-industrial sector is being transformed by reforms introduced in the interest of enhancing its competitiveness and capacity to meet the ambitious conventional arms requirements of the People’s Liberation Army (PLA). China’s defence-industrial base is becoming more decentralised, with increasing scope for local state-owned enterprises (SOEs) and privately owned enterprises to contribute to research and development (R&D) and production. This chapter assesses the long-term implications of this structural transformation. The progressive ‘marketisation’ of R&D and production is strengthening China’s capacity for sustained defence-industrial development and helping to narrow its capability gap with major industrialised states, but ingrained attitudes and procedures and enduring concern about the political implications of defence-industrial dependence limit the scope for structural reform. China is not in a position to exploit the full defence potential of its impressive industrial and technological progress in the near term, but its long-term prospects are more positive.
Defence-industrial development in China

Defence-industrial development has figured prominently in China’s efforts to enhance its security in the face of perceived threats to its sovereignty, territorial integrity and national interests. The development of indigenous defence industries capable of supplying modern arms constituted a central pillar of the self-strengthening movement pursued by the Qing Dynasty in the late nineteenth and early twentieth centuries. Similar efforts were a feature of the 1916–28 ‘warlord period’, when competing military leaders struggled for local and national power, and the Nationalist Government of the Republic of China devoted considerable resources to defence-industrial development during World War II.

The new Chinese Government moved quickly to restore and expand the defence-industrial base after 1949. Technological development ‘to serve construction of…national defense’ was enshrined in Article 43 of the Common Program of 1950, which constituted the initial de facto constitution of the People’s Republic of China (Wang 1993:37). By 1950, the defence-industrial sector encompassed 45 factories employing some 100 000 workers (Shambaugh 2002:226). By the end of the decade, China was self-sufficient in terms of a comprehensive range of arms required by the land, air and naval branches of the PLA, with notable exceptions such as major surface combatants and long-range strike aircraft. Though the level of support for defence R&D and production has waxed and waned under the People’s Republic and there have been a number of major policy shifts, the need to maintain key defence-industrial capabilities has never been in doubt.
The established Chinese defence-industrial model

China’s post-1949 defence-industrial model was broadly similar to that of the Soviet Union. Defence-industrial activity was the exclusive domain of the State and China’s defence-industrial base featured highly centralised control and a very bureaucratic structure. All arms production undertaken by SOEs and defence-related R&D were either allocated to a research institute answering to one of the Ministries of Machine Building responsible for various aspects of China’s arms programs or undertaken by academic institutions that answered to the State. There was no apparent requirement to ensure that arms production was economically viable, though the substantial arms requirements of the PLA undoubtedly often resulted in considerable economies of scale. Since the 1950s, for example, China has produced more than 14 000 military aircraft and 50 000 aircraft engines, mostly for the PLA (Matthews and Bo 2002:36). The absence of a profit motive meant that no resources were devoted to developing arms tailored to the particular requirements of export customers.

Where the Chinese defence-industrial model differed from that of the Soviet Union was with respect to the importance attached to technological progress. Defence R&D and production in China were characterised by modest technological objectives. While the Soviet defence industry was geared to the requirements of providing a comprehensive range of arms that was relatively technologically advanced, if not necessarily on a par with comparable Western systems, China’s sights were set on much less ambitious requirements. At no point did China strive to even approach foreign arms in qualitative terms, choosing instead to focus on the large-scale production of relatively unsophisticated arms. The Chinese defence industry established a reputation for the quantity of production of arms that were obsolescent, if not obsolete, and for progressing to new product generations long after their introduction elsewhere.
Defence industrialisation and autonomy

The objective of autonomy has been central to Chinese defence industrialisation. In this, China is by no means unique, but the form that this takes here has been distinct, and reflects China’s particular security imperatives and policy objectives. These have been conditioned by its past difficulties in securing arms supplies and by the ideological basis of the ruling Chinese Communist Party. China was the subject of a Western arms embargo between the early 1950s and 1980s and, after 1960, was the target of what effectively constituted a Soviet arms embargo as well. The characteristic features of China’s established defence-industrial model testify to the importance attached to self-reliance (‘zili gengsheng’), which is seen in China as an ‘indispensable component…of national security’ (Park and Park 1988:119). China long pursued a general developmental approach summed up by the slogan of ‘walking on two legs’. This emphasised the importance of relying on China’s own capabilities, regardless of the level of efficiency or even the effectiveness that this involved.

The defence-industrial strategy of the People’s Republic has been distinguished by the dedication and persistence with which the objective of autonomy has been pursued. In many states, practical efforts to promote defence-industrial autonomy are restricted to production capacity, but in China the long-term development of autonomy with respect to R&D and production is considered crucial. This has involved developing and maintaining a capacity to supply the complete range of arms required by the PLA, including in terms of the local production of all arms components. Studies of the Chinese defence industry generally see its defence industrialisation as being driven by the objective of maximising self-sufficiency (see, for example, Shambaugh 2002:226). It is noteworthy, for example, that China moved to reconstitute its defence-industrial capabilities in the 1950s despite its success in securing large-scale arms transfers from the Soviet Union. China developed its defence industries as a means of ensuring a domestic capacity to meet the material requirements of the PLA. Interest in providing arms as military assistance to friendly states constituted an objective of secondary importance, and there was no apparent interest in the commercial opportunities of arms exports until the 1980s, when China emerged as a major supplier of arms to the Middle East.

The importance attached to defence-industrial autonomy was manifest in the relative isolation of Chinese R&D processes. Defence-related R&D in China did benefit from foreign input, but technological flows were unidirectional and did not involve arrangements that had the potential to generate long-term dependent ties, including collaborative R&D arrangements. This included technology transfers from the Soviet Union during the 1950s. After the termination of Soviet defence-industrial support in 1960, China continued to exploit foreign sources of arms-related technology, but this was limited to the reverse engineering of arms and components, either in terms of the outright copying of foreign designs or the derivation of technological insights contributing to the development of more advanced arms in China. This involved the opportunistic exploitation of opportunities as they arose, rather than any regularised ties. Only towards the end of the Cold War did China supplement such efforts with selective purchases of technology and subsystems from other states. Until recently, none of China’s external defence-industrial arrangements threatened its efforts to maintain independent arms R&D and production capabilities. The effective isolation of China’s defence-industrial base eliminated the prospect of dependence on potential adversaries, which China had been unable to overcome despite its best efforts during the self-strengthening movement.

China’s defence-industrial approach came at some cost. China’s reluctance to engage other states on defence-industrial issues other than the terms that it did was inherently limiting in qualitative terms, particularly given China’s relatively low technological base and the limited resources it was in a position to devote to defence-industrial development. That China was able to meet its defence-industrial needs with so little foreign support was due in large part to its unique arms requirements. For most of the history of the People’s Republic, China pursued a strategy of ‘people’s war’, which emphasised drawing an attacker deep into the Chinese hinterland, where superior numbers and geography could be exploited to China’s advantage. This approach obviated the requirement for conventional arms that were on a qualitative par with those of China’s potential adversaries. This factor, along with the difficulty involved in supplying China’s large military establishment with sophisticated arms and developing the logistical capacity to support them, meant that less-advanced arms that were within the developmental and production capacity of Chinese industry were sufficient.

Even so, China struggled to meet its limited requirements in terms of more complex categories of arms such as combat aircraft. Here, while there was progress in absolute terms, in relative terms China’s defence-industrial capacity regressed over time. The 1960s saw China producing the J-6 fighter, which was a derivative of the early 1950s-vintage Soviet MiG-19, but 20 years later it had advanced only to the point where it was producing the J-7, based on the Soviet MiG-21 design from the late 1950s. While the leap involved in progressing from the technological generation of the MiG-19 to that of the MiG-21 was considerable, its failure to advance further than this meant that China steadily fell behind its potential adversaries. China’s struggle to advance technologically in areas such as aerospace was exacerbated by the severe anti-intellectualism of the Cultural Revolution, which saw the closure of many academic institutions.

China’s defence-industrial approach came under threat only when it became apparent that it was incapable of meeting its changing arms requirements, which resulted from its evolving military strategy. By the 1980s, the utility of the strategy of people’s war was being questioned. Its limitations were demonstrated by the Gulf War of 1990–91, when American-led forces soundly defeated numerically superior, relatively well-equipped Iraqi forces within a matter of days. This highlighted the potential conferred by conventional military capabilities that were beyond the scope of China’s defence industries to support.
The Chinese military-industrial complex in the late 1990s

By the late 1990s, China still possessed one of the most technologically backward defence industries in the world; most indigenously developed weapons systems were at least 15 to 20 years behind those of the West—basically comparable with 1970s or (at best) early 1980s-era technology—and quality control was consistently poor. China’s defence R&D base was regarded to be deficient in several critical areas, including aeronautics, propulsion (such as jet engines), microelectronics, computers, avionics, sensors and seekers, electronic warfare and advanced materials. Furthermore, the Chinese military-industrial complex remains weak in the area of systems integration—that is, the ability to design and develop a piece of military equipment that integrates hundreds or even thousands of disparate components and subsystems and have it function effectively as a single unit (Medeiros et al. 2005:4–18).

Consequently, aside from a few ‘pockets of excellence’ such as ballistic missiles, the Chinese military-industrial complex appeared to demonstrate few capacities for designing and producing relatively advanced conventional weapon systems. China generally confronted considerable difficulties in moving prototypes into production, resulting in extended development phases, frequent program delays and limited production runs. For example, the J-10 fighter jet—China’s premier fourth-generation-plus combat aircraft—took more than a decade to move from program start to first flight, and more than 20 years before it entered operational service with the PLA Air Force (Medeiros et al. 2005:161–2; Shambaugh 2002:261–2). Even after the Chinese began building a weapon system, production runs were often small and fitful. According to Western estimates, during much of the 1990s the entire Chinese aircraft industry of about 600 000 workers manufactured only a few dozen fighter aircraft a year, mainly 1960s and 1970s-vintage J-8 IIs and J-7s (Allen 1997:244). According to the authoritative Jane’s Fighting Ships, China launched only three destroyers and nine frigates between 1990 and 1999—a little more than one major surface combatant a year. Moreover, the lead boat in the Song-class submarine program—China’s first indigenously designed diesel–electric submarine—was commissioned only in 1999, eight years after construction began (Jane’s Information Group 1999:119–20, 124–5).

Consequently, despite years of arduous efforts, the inability of China’s domestic defence industry to generate the necessary technological breakthroughs for advanced arms production meant that Beijing continued to rely heavily—even increasingly—on direct foreign technological inputs in critical areas. It is believed that the J-10 fighter, for example, is based heavily on technology derived from Israel’s cancelled Lavi fighter-jet program. Chinese dependency is especially acute when it comes to jet engines, marine diesel engines and fire-control radar and other avionics. For example, endemic ‘technical difficulties’ surrounding the JH-7 fighter-bomber’s indigenous engine resulted in significant program delays, forcing the Chinese to approach the British in the late 1990s about acquiring additional Spey engines in order to keep the aircraft’s production line going; additionally, current versions of the J-10 are being outfitted with a Russian engine, until the Chinese aviation industry is able to perfect an indigenous replacement (Medeiros et al. 2005:170–1). The new Song-class submarine uses a German-supplied diesel engine, while the Ming and Han-class submarines have reportedly been upgraded with a French sonar and combat system. Chinese surface combatants incorporate a number of foreign-supplied systems, including Ukrainian gas-turbine engines, French surface-to-air missiles, Italian torpedoes and Russian naval helicopters.

Finally, and perhaps most significant, in the past decade—and particularly since the turn of the century—the PLA has increasingly favoured imported weapons platforms over locally built counterparts. From this, one can infer that the Chinese military remains dissatisfied with the quality and capabilities of weapon systems coming out of domestic arms factories, or that local industry is unable to produce sufficient numbers of the kinds of weapons required by the PLA. In the early 1990s, for example, despite the fact that China already had four fighter aircraft programs either in production or development—the J-7, J-8 II, JH-7 and J-10—the PLA nevertheless decided to buy several dozen Su-27 fighters; this purchase was later supplemented by an agreement to license-produce 200 Su-27s and a subsequent purchase of approximately 100 more advanced Su-30 strike aircraft. The PLA Navy (PLAN) is currently acquiring 12 Kilo-class submarines and four Sovremennyy-class destroyers (armed with supersonic SS-N-22 anti-ship cruise missiles), even though Chinese shipyards are building the Song and several new types of destroyers. In addition, China has reportedly purchased precision-guided munitions, advanced air-to-air missiles, airborne warning and control aircraft and transport aircraft from Russia, as well as acquiring several hundred S-300 and SA-15 surface-to-air missiles. Consequently, China has become one of the world’s largest arms importers, and, between 1998 and 2005, Beijing signed new arms import agreements worth some US$16.7 billion; in 2005 alone, it purchased US$2.8 billion worth of foreign weapon systems (Grimmett 2006:56, 57).

Compounding these technological deficiencies was a number of structural and organisational/cultural deficiencies that impeded the design, development and manufacture of advanced conventional arms. Overall, arms production in China has largely been an inefficient, wasteful and unprofitable affair. One reason for this was over-capacity: quite simply, China possessed far too many workers, too many factories and too much productive capacity for what few weapons it produced, resulting in redundancy and a significant duplication of effort, inefficient production and wasted resources. The Chinese aircraft industry, for example, was estimated in the late 1990s to possess a workforce nearly three times as large as it required (China Daily, 3 October 1997). Within the shipbuilding industry, output during the same period was only 17 tonnes a person a year, compared with about 700 tonnes a person in shipyards in more advanced countries (Gangcan 1998:17).

By the mid 1990s, at least 70 per cent of China’s state-run factories were thought to be operating at a loss, and the arms industries were reportedly among the biggest money-losers. As a result, most defence firms were burdened with considerable debt, much of it owed to state-run banks (which were obliged to lend money to state-owned firms); at the same time, arms factories were owed money, which was nearly uncollectible, by other unprofitable state-owned companies (Frankenstein 1999:197–9; ‘Industry embraces market forces’, Jane’s Defence Weekly, 16 December 1998, p. 28; Jencks 1999:617).

The creation of China’s ‘third-line’ defence industries—that is, the establishment of redundant centres of armaments production in the remote interior of southern and western China—in the 1960s and 1970s only added to the overcapacity, underutilisation and unprofitability of the Chinese military-industrial complex. Estimates are that from 1966 to 1975, third-line construction consumed perhaps two-thirds of all industrial investment. Even by the late 1990s, approximately 55 per cent of China’s defence industries were located within the third line, yet most of these industries were much less productive than coastal factories and continued to operate in the red (Shambaugh 2002:277; Frankenstein and Gill 1996:403).

Another structural impediment affecting the Chinese defence-industrial complex was the emergence of a highly compartmentalised and vertically integrated defence-industrial base. Such a stratified environment had several repercussions for the local defence industry. It restricted the diffusion of advanced, relevant civilian technologies to the defence sector. It also limited communications between the R&D institutes that designed the weapons and the factories that produced them, between defence enterprises when it came to collaborating on weapons projects and even between the defence industry and its major consumer, the PLA, when it came to requirements and specifications. It also exacerbated redundancy and the duplication of effort within the arms industry, as each defence enterprise tried to ‘do it all’, resulting in the maintenance of expensive but under-utilised manufacturing processes, such as dedicated second and third-tier supplier networks and the establishment of in-house machine shops for parts production, instead of outsourcing such manufacturing to other firms.

Finally, China’s military-industrial complex functioned for a long time under an organisational and managerial culture that, in a manner typical of most SOEs, was highly centralised, hierarchical, bureaucratic and risk averse. This stymied innovation, retarded R&D and further added to program delays. In a study on Chinese capacities for innovation, two Western analysts (Arayama and Mourdoukoutas 1999) argued that ‘Chinese managers do not have the will, the expertise, or the freedom to take the risks and make the adjustment associated with innovations’. Consequently, production management was often highly centralised and ‘personality-centric’, with most critical project decisions being made by a single chief engineer. At the same time, lower-level managers tended to be ‘conformist, adhering to standard rules and procedures rather than to personal judgments based on their professional experiences’. Hence, they were usually reluctant to make ‘learning mistakes’ or to act on their own to deal with problems that might arise on the factory floor, thereby inhibiting experimentation and innovation (Arayama and Mourdoukoutas 1999).

An American aerospace industry representative best summed up China’s problems with armaments production in the 1990s, writing that:

Part of the problem with Chinese [aircraft] manufacturing…is that industrial management in China still relies on 1950s Soviet styles. This involves ‘batch-building’ a full order of aircraft in advance based on state-planned and dictated order[s] for parts and materials. As a consequence of this system, there are no direct lines of accountability for quality control, and no cost-cutting discussions or steps available to mid-level management. There is no competitive bidding for contracts, workers are redundant, and schedules continually slip because state planning doesn’t have a fixed required-delivery date for products…Young managers stay risk-averse and are reluctant to change or improve the system. (Quoted in Wortzel 1998:20)

Reforming China’s defence industry, 1997 to the present

Chinese authorities have long been aware of the deficiencies in their defence industry and have undertaken several rounds of reform to improve and upgrade their R&D and production processes. The intention of this overall restructuring effort was to spur the defence SOEs to act as true industrial enterprises and therefore be more responsive to their customer base (that is, the PLA), and to reform, modernise and ‘marketise’ their business operations.

These goals are central to the PLA’s new modernisation strategy, as laid out in China’s 2004 defence white paper, of ‘generation leap’—that is, to skip or shorten stages of R&D and generations of weapons systems. This process, in turn, entails a ‘double construction’ approach of mechanisation and ‘informisation’ in order to concurrently upgrade and digitise the PLA. Part of this strategy also depends on China’s ‘latecomer advantage’ of being able to more quickly exploit technological trails blazed by others, as well as avoiding their mistakes and technological dead ends (Ji 2004).

In the early 1990s, in an effort to ‘corporatise’ the defence-industrial base, the Chinese transformed their military-industrial complex from a series of machine-building ministries into large SOEs. The Ministry of Aerospace, for example, was broken up into the Aviation Industries of China (AVIC; aircraft) and the China Aerospace Corporation (CASC; missiles and space), while the Ministry of Atomic Energy was converted into the China National Nuclear Corporation (CNNC). Other ‘super SOEs’ within the defence industry included the China Ordnance Industry Corporation (COIC, often referred to as Norinco; ground combat systems) and the China State Shipbuilding Corporation (CSSC; naval systems). At the same time, control of individual production facilities, research units and trading companies was transferred to these new corporations.

The most recent round of defence industry reforms began more than a decade ago, in September 1997, when the Fifteenth Communist Party Congress laid out an ambitious agenda for restructuring and downsizing the SOE sector (including the defence industries) and for opening up SOEs to free-market forces—that is, supply-and-demand dynamics, competitive products, quality assurance and fiscal self-responsibility. In March 1998, the Ninth National People’s Congress further refined this agenda by announcing plans to reorganise the government’s defence industry oversight and control apparatus and to establish new defence enterprise groups.

One of the most important decisions to come out of the 1998 congress was the creation of a new PLA-run General Armaments Department (GAD), acting as the primary purchasing agent for the PLA, overseeing defence procurement and new weapons programs. As a 2005 RAND report put it, the GAD is part of a process ‘to create [a] system that will unify, standardize, and legalize the [Chinese] weapons procurement process’ (Crane et al. 2005:165). In particular, the GAD is supposed to ensure that local arms producers meet PLA requirements when it comes to capabilities, quality, costs and program milestones.

Another key element of current defence reforms was the creation in July 1999 of 10 new defence industry enterprise groups (DIEGs) (Table 1). These DIEGs were supposed to function as true conglomerates, integrating R&D, production and marketing. Breaking up the old SOEs was also intended to encourage the new industry enterprise groups to compete with each other for PLA procurement contracts, which it was hoped would pressure them to be more efficient and technologically innovative. At the same time, the government’s role in the daily operations of the defence industry was to be greatly reduced, and these new enterprise groups were given the authority to manage their own operations as well as to take responsibility for their own profits and losses.

Another crucial aspect of these new reform initiatives was the declared intent to significantly downsize the Chinese military-industrial complex, including eliminating (through retirement, attrition or even lay-offs) as much as one-third of its workforce. The aircraft industry, for example, intended to downsize by 200 000 workers. The rationalisation of the defence industry was also supposed to include factory closings and consolidation as a result of government-encouraged mergers, as part of the policy of ‘letting the strong annex the weak’.
At the same time, Beijing prodded defence industries to undertake more civilian production as a means of acquiring dual-use technologies that could also be used to support arms production. This strategy goes back to the late 1970s and the enunciation of Deng Xiaoping’s so-called 16-character slogan: ‘Combine the military and civil/combine peace and war/give priority to military products/let the civil support the military.’ Whereas earlier efforts at civil–military integration (CMI) tended to revolve mostly around conversion—that is, switching military factories over to civilian use—China’s approach to CMI after 1997 entailed a critical shift in policy towards promoting integrated dual-use industrial systems capable of developing and manufacturing defence and military goods; or, as one Western analyst (Folta 1992:1) put it, ‘swords into plowshares…and better swords’. This new strategy was embodied and made a priority in the defence industry’s tenth Five-Year Plan for 2001–05, which emphasised the dual importance of the transfer of military technologies to commercial use and the transfer of commercial technologies to military use, and which therefore called for the Chinese arms industry to not only develop dual-use technologies but to actively promote joint civil–military technological cooperation. Consequently, the spin-on of advanced commercial technologies to the Chinese military-industrial complex and in support of the overall modernisation of the PLA was made explicit policy.

The key areas of China’s new focus on dual-use technological development and subsequent spin-on include microelectronics, space systems, new materials (such as composites and alloys), propulsion, missiles, computer-aided manufacturing and particularly information technologies. In the past decade, Beijing has worked hard to encourage further domestic development and growth in these sectors and to expand linkages and collaboration between China’s military-industrial complex and civilian high-technology sectors. In 2002, for example, the Chinese Government created a new industry enterprise group, the China Electronics Technology Corporation, to promote national technological and industrial developments in the area of defence-related electronics. Under the tenth Five-Year Plan, many technology breakthroughs generated under the so-called ‘863’ science and technology program, initiated in March 1986, were finally slated for development and industrialisation. Defence enterprises have formed partnerships with Chinese universities and civilian research institutes to establish technology incubators and undertake cooperative R&D on dual-use technologies. Additionally, foreign high-technology firms wishing to invest in China have been pressured to set up joint R&D centres and to transfer more technology to China.

In this regard, China’s military shipbuilding appears particularly to have benefited from CMI efforts in the past decade. After an initial period of basically low-end commercial shipbuilding—such as bulk carriers and container ships—China’s shipyards have, since the mid 1990s, progressed towards more sophisticated ship design and construction work. In particular, moving into commercial shipbuilding began to bear considerable fruit beginning in the late 1990s, as Chinese shipyards modernised and expanded operations, building huge new dry docks, acquiring heavy-lift cranes and computerised cutting and welding tools, and more than doubling their shipbuilding capacity. At the same time, Chinese shipbuilders entered into a number of technical cooperation agreements and joint ventures with shipbuilding firms in Japan, South Korea, Germany and other countries, which gave them access to advanced ship designs and manufacturing technologies—in particular, computer-assisted design and manufacturing, modular construction techniques, advanced ship-propulsion systems and numerically controlled processing and testing equipment. As a result, military shipbuilding programs co-located at Chinese shipyards have been able to leverage these considerable infrastructure and software improvements when it comes to design, development and construction (Medeiros et al. 2005:140–52).

China’s nascent space industry has also spurred the development and application of dual-use technologies. This includes telecommunications satellites, as well as China’s rudimentary Beidou navigation satellite system and its Ziyuan-1 and Ziyuan-2 Earth-observation satellites. In addition, many of the technologies being developed for commercial reconnaissance satellites, such as charge-coupled device cameras, multispectral scanners and synthetic aperture radar imagers, have obvious spin-on potential for military systems.

Finally, the PLA has clearly profited from exploiting the development and growth of the country’s commercial information technology (IT) industry. The PLA is striving to expand and improve its capacities for command, control and communications, information processing and information warfare, and it has been able to enlist local IT firms—many of which have close ties with China’s military-industrial complex and were even founded by former PLA officers—in support of its efforts. Consequently, the PLA has developed its own separate military communications network, utilising fibre-optic cable, cellular and wireless systems, microwave relays and long-range high-frequency radios, as well as computer local area networks.
A disappointing track record

Nevertheless, Chinese efforts to reform its military-industrial complex have been disappointing. If the intention of creating new industrial enterprise groups was to inject greater competition into China’s military-industrial complex—and therefore spur innovation and greater responsiveness to PLA systems requirements—these restructuring efforts have largely been a failure. The GAD, for example, has yet to implement competitive bidding and market pricing into the overall arms procurement process; in particular, competitive bidding is apparently still not used when it comes to major weapons programs, as any purchases of more than CNY2 million (less than US$250 000) are exempt (Crane et al. 2005:167).

There is also little evidence to suggest that recent institutional reforms have strengthened PLA oversight of armaments manufacturing, particularly when it comes to quality control. RAND notes that the military has long had a Military Representative Office (MRO) system in place in many factories to watch over production, but even it admits that this system is woefully understaffed and ineffective when it comes to overseeing armaments production and quality control, and that the effectiveness of current reform efforts is ‘far from clear’ (Medeiros et al. 2005:45–6).

Moreover, at one time it was expected that the Chinese would create large, trans-sectoral, cross-competing defence conglomerates, similar to the South Korean chaebols or, more specifically, to horizontally integrated mega-defence companies such as Lockheed Martin or Britain’s BAE Systems. Such a strategy would have entailed a much more complicated restructuring of the defence industry, crafting enterprise groups that would have competed with each other to produce a broad array of weaponry. Instead, all Beijing did was break up each of its former defence corporations into smaller groups.

With few exceptions, too, China’s new DIEGs still do not compete with each other when it comes to defence materiel. Of the two new enterprise groups replacing the old AVIC, for example, all fighter aircraft production is concentrated within one DIEG, while all helicopter and trainer-jet production is centred in the other. The nuclear industry will be split into separate enterprises for either construction or nuclear energy development, while Norinco appears to have been subdivided into one enterprise group concerned mostly with armoured vehicles and ground ordnance, while the other is almost entirely civilianised, specialising in automobile and motorcycle production. In fact, Beijing appears to have intended that these new defence industries not vie directly with each other. For example, the two new aerospace (missile) enterprise groups do not compete in terms of products, but rather ‘in terms of their systems of organization and their operational mechanisms’ (‘Applying technology to national defence’, China Space News, 26 May 1999). Naval construction is the only defence sector that appears to be truly competitive in that both major shipbuilding companies (CSSC and CSIC) vie with each other for PLAN contracts.

It could even be that the Chinese have abandoned the idea of competing defence firms: in 2008, Beijing announced that AVIC I and AVIC II would merge, creating, again, a single aviation company. This new, reunited AVIC will also establish a cross-corporate subsidiary, similar to Europe’s Airbus, dedicated to developing and manufacturing large passenger jets (Minnick 2008).

Rationalisation of the defence industry has also been much slower than expected. Details are sketchy, but according to one Western estimate, no more than 20 per cent of the labour force in the overall defence sector has been laid off (‘Chinese defence industry: Chinese puzzle’, Jane’s Defence Weekly, 21 January 2004). AVIC, for example, had downsized by only 10 per cent overall, and this was likely accomplished through retirement and job leavers (‘Chinese defence industry: Chinese puzzle’, Jane’s Defence Weekly, 21 January 2004). At the same time, there have been few cases of arms factories being closed or merged. Much of the defence industry therefore appears to still suffer from excess capacity, in terms of the workforce and redundant manufacturing capacity.

It is also unclear how independent these new defence enterprises will be of government control or how responsible they will ultimately be for their own profits and losses. Beijing made it clear from the beginning that arms production was a strategic industry too critical to national security to be privatised, and that it would keep the new DIEGs under much stricter supervision than other types of reformed SOEs. At the same time, these same rules will work in favour of the arms industries, as Beijing will likely feel pressured to continue to prop up unprofitable defence enterprises in order to preserve key arms programs.

Above all, the reform initiatives implemented so far do not directly address those impediments affecting technology absorption and upgrading of China’s defence industry—that is, the lack of advanced technical skills and expertise, compartmentalisation and redundancy within the industrial base and a bureaucratic/risk-averse corporate culture. As a result, it is doubtful that these reforms will go very far in injecting market forces that will, in turn, drive the modernisation of the Chinese military-industrial complex and affect China’s ability to develop and manufacture highly advanced conventional weapons systems. It is also doubtful whether there really exists much of a latecomer advantage when it comes to extremely esoteric high-tech sectors such as arms production, where the technological demands are very high and the economic pay-offs are very low. Even RAND noted that while ‘the technological gap between China’s military aviation industry and that of the United States and other major aviation producers will likely narrow in coming years, [it] will still remain significant unless China makes fundamental changes in contracting and enterprise management’.
Chinese arms production: success in spite of failed reforms?

Despite reforms making little apparent progress, the Chinese defence industry appears to be booming. Production and sales are up—by 19 per cent and 14 per cent, respectively, in 2001 (the last year for which we have reliable data)—and China’s military-industrial complex technically broke even in 2002 after eight straight years of losses. The missile and shipbuilding sectors have been particularly profitable in recent years (‘Chinese defence industry: Chinese puzzle’, Jane’s Defence Weekly, 21 January 2004; Medeiros et al. 2005:8).

It is also increasingly evident that the Chinese have in recent years greatly added to their military capabilities in terms of power projection, stand-off precision strike and improved command, control, communications, computing, intelligence, surveillance and reconnaissance (C4ISR). China’s defence industry has begun manufacturing and delivering to the PLA several new types of advanced weapons systems, including the fourth-generation J-10 fighter, an upgraded version of its JH-7 fighter-bomber, the HQ-9 long-range surface-to-air missile (akin to the US Patriot air-defence missile), the improved Song-class diesel–electric submarine and the Type-052C destroyer (which incorporates low-observable features and an Aegis-type phased-array air defence radar into its design). Moreover, the quality and capabilities of some Chinese weaponry have also apparently improved. Recent versions of the Song-class submarine, for example, are outfitted with a skewed propeller for improved quieting and are capable of carrying an encapsulated anti-ship cruise missile that can be launched underwater.

The shipbuilding industry has made particular progress in modernising its design and manufacturing capabilities and in spinning-on commercial shipbuilding technologies to its naval construction side. Chinese shipbuilding is competitive domestically and globally (at least, at the low end of the technology scale), and it also appears to be profitable—so much so that it is the only sector in the defence industry that is actually adding productive capacity (that is, new shipyards and more workers). This in turn has permitted a significant expansion in naval-ship construction since the turn of the century, and, since 2000, China has begun construction of at least six new destroyers, seven frigates and eight diesel-powered submarines—more than double the rate of naval-ship construction during the 1990s.

Nevertheless, most progress in expanding armaments production, quantitatively and qualitatively, seems to have come about despite defence industry reforms—or at least the more recent attempts at reform—rather than because of them. Many of the so-called successes in generating new-generation weapon systems actually have their genesis in design and development decisions made years, even decades, ago—that is, long before the reforms of the late 1990s were inaugurated. These weapons programs were already in the pipeline and on schedule to enter production in the late 1990s and the first decade of the twenty-first century, and while the most recent reform efforts could have helped to accelerate or expand production of these weapons systems, they certainly did not play any key role in their initiation. For example, the success of the Chinese shipbuilding industry appears to be the result mostly of decisions made back in the early 1980s to commercialise the shipbuilding sector, to open up the industry to foreign technology inputs and to compete on the global market.

In addition, it is perhaps premature to make overly optimistic and sweeping statements about recent progress in modernising the Chinese defence-industrial base. In particular, the continuing lack of transparency on the part of the Chinese forces Western analysts to rely too much on scanty, often anecdotal, evidence and inference. Some new weapons systems and platforms could appear to be more modern and more capable, but in the absence of sufficient and reliable information (which is perhaps collectable only by covert means), one can only speculate about any true increase in the capabilities and quality of weapons systems presently coming off Chinese assembly lines. We also continue to lack detailed and consistent economic data regarding the Chinese defence industry (such as sales, profits, capacity utilisation, productivity, and so on) when it comes to assessing the success of defence-sector market reforms.

Moreover, rising defence spending also likely has had as much to do with the recent expansion in Chinese arms production as any reform efforts. Chinese military expenditure has nearly quadrupled in real terms since the mid 1990s. China’s official 2007 defence budget was CNY350 billion (US$45 billion)—an increase of nearly 18 per cent from the previous year and thus continuing a trend of double-digit real increases in Chinese military spending extending back more than a decade. PLA annual spending on equipment increased from US$3.1 billion in 1997 to an estimated US$12.3 billion in 2006—a fourfold increase in real spending; at this rate, the 2007 equipment budget would total about US$15 billion (not including likely extra-budgetary funding for foreign arms purchases, which was running at about US$1.5–2 billion a year). It could be argued, therefore, that simply throwing more money at the problem has had the most impact on the local defence industry—that is, in increasing procurement spending and therefore production, and by providing more funding for R&D.

It also is important to note that the sharpest edges of the pointy end of the PLA spear are still mostly foreign—and particularly Russian—sourced, such as the Su-27 and Su-30 fighters, the Sovremennyy-class destroyers and S-300 surface-to-air missiles. They are, with few exceptions (such as tactical ballistic missiles or nuclear submarines), still the most critical force multipliers when it comes to calculating Chinese military power.

Overall, it appears that Beijing’s formal strategy regarding its defence sector still relies on minor structural tinkering, a healthy increase in defence spending and a continuing reliance on ‘pockets of excellence’. While past reform efforts have resulted in some technological and structural improvements in weapons R&D and manufacturing, China’s military-industrial complex remains in many respects an inefficient and less-than-optimal production model. This will continue to exert a drag on the Chinese military modernisation process and make it harder for the PLA to close technology and capability gaps with its rivals.

It is important to note, however, the long-term potential of China’s general industrial transformation. The growing scope for non-state economic activities in China extends to militarily relevant high-technology industries, and there are numerous indications that the private sector is eager to avail itself of the opportunity to develop and produce arms for the PLA and for export. There is some recognition of this potential on the part of Chinese authorities, who are permitting non-state enterprises to enter the defence market. In 2006, for example, it was announced that the State was prepared to subsidise private-sector arms production (Vogel 2006:18). It remains to be seen how this trend will develop or what impact it will have, but if China is able to effectively harness the potential inherent in its dynamic industrialised economy, this could help to offset the limitations of the state defence-industrial sector outlined above.
Conclusions

China faces major obstacles in developing its defence-industrial capabilities. These stem from its structural basis and its political requirements, which will continue to encourage extensive reliance on autonomous national industries under the close supervision—if not the direct control—of the State. China can, however, be expected to continue to seek foreign technological inputs to help address particular equipment requirements and even to import arms when these could be developed locally, in cases where this is seen as justified by the capability difference involved.

The transformation of China’s defence-industrial sector likely will continue to be a gradual, incremental process that is beset by major difficulties. The principal features of China’s emerging defence-industrial model are continued strong state direction and a continued reliance on SOEs for a considerable amount of R&D and production, but some acceptance of a defence-industrial role for private enterprise, in terms of meeting China’s requirements and those of other states.

China could, in the long term, be in a much better position to provide the PLA with the advanced arms it requires, and to do so in a much more timely manner than currently is the case. How successful its efforts are will depend in no small part on the extent to which it is prepared to adhere to established objectives of defence-industrial autonomy. Opening up defence-related R&D and production to market forces holds great promise, but this will force political authorities in China to carefully consider which sovereign capabilities are crucial and which are not.