DOUGLAS C. LOVELACE, JR.
                         Colonel, U.S. Army
                         Acting Director of Research
                         Strategic Studies Institute

The People's Republic of China (PRC) is seen by many as an economic powerhouse with the world's largest standing military that has the potential to translate economic power into the military sphere. As one of the elements of power, a nation's military potential is based not only on its capability to defeat an adversary, but also its ability to coerce and exercise influence. China's standing armed force of some 2.8 million active soldiers in uniform is the largest military force in the world. Approximately 1 million reservists and some 15 million militia back them up. With a population of over 1.2 billion people, China also has a potential manpower base of another 200 million males fit for military service available at any time. In addition to this wealth of manpower, China is a nuclear power. It has enough megatonnage, missiles, and bombers to hit the United States, Europe, its Asian neighbors, and Russia. Notwithstanding the recent detargeting announcement between China and the United States, that does not change China's capability to hold Los Angeles or other U.S. cities hostage to nuclear threat. China is also an economic power of considerable strength. The PRC's economy quadrupled in the 15 years up to 1995. The latest World Bank report on its economy, China 2020, indicates that China's gross domestic product (GDP) increased at a rate of between 6.6 percent and 8 percent annually between 1978 and 1995. And China has foreign exchange reserves of about U.S.$140.6 billion, primarily from foreign direct investment. For China's leaders, the economy is the most important factor determining future military power. The director of the political department of the People's Liberation Army's (PLA) Guangzhou Military Region described national power as a combination of economic strength and the "level of defense modernization." Chinese leaders believe that economic growth will stagnate if resources are poured into military modernization at the expense of broader economic development. There are many serious problems for China's leaders to confront if they are to maintain healthy economic growth. Among the issues are an aging population, state owned enterprises (SOE) operating at a loss (50 percent), potential labor unrest, and potential financial crisis. If China is to continue on its current path of economic integration, the central leadership must remain linked to the international economy. It also means that domestic stability must be ensured because no foreign country or banking house will invest in an unstable political environment. When Chinese military and civilian leaders claim that their priority is economic growth and stability, they mean it; the primary mission of the PLA and the People's Armed Police (PAP) is internal security and stability. To a large extent, the PLA has had to postpone its mission of external defense. In the short term, Beijing is distracted from a serious military buildup by problems that are resource-demanding. At this stage, and aware that the collapse of the Soviet Union occurred when Moscow attempted to win the arms race against the West, the PLA is prepared to remain under-resourced. To compensate, China's military leaders are working to develop the capability to control sea lines of communication, project regional force, and deter the United States and other potential adversaries in creative ways without matching forces.