Chinese Views of Future Warfare, Part Three


Institute for National Strategic Studies


Shun Zhenhuan

Shun Zhenhuan is Senior Researcher at the State Planning Commission.

Structure and Main Problems

China's defense industry system after 1949 was basically modeled on the plan in the former Soviet Union. It has been a highly centralized system since the first 5-year plan. Under the circumstances of a weak economic base, then, this system played an important role in concentrating abilities on those priority projects in the defense industry and rapidly improving the levels of weapon development and production. However, along with national reform, opening up, and the policy of developing the national economy, this kind defense industry system is not suited to the new situations.

A highly centralist planned economy can not meet the needs of the tremendous changes in military supplies. Those state-owned enterprises of the war industry command vast reserves of qualified scientists and technicians, high-level technology, well-equipped facilities and great potential. During peacetime there are fewer military production quotas, therefore many productive forces are left unused. But during wartime military supplies increase sharply and are urgently needed. In the face of today's unceasing changes in military strategy and operational modes as well as the continual improvement in weapons, modern war requirements for weapons and equipment have grown considerably.

The special military enterprises could hardly satisfy the needs for supplies expended in warfare, even in a regional war. As a result, we should try to reform our present system in accordance with the objective requirements.

Because the military enterprises represent a small group, we can not hope such a closed system will encourage civil industry development. The Soviet Union proved this argument. The Soviet Union adopted a plan of highly centralized but separate military and commercial industries. Although there was remarkable success in the production of munitions, the price that was paid was the sacrifice of other civil industries that should have grown. Like the Soviet Union, China devoted major efforts to developing the A-bomb, the H-bomb, satellites, and nuclear-powered submarines with limited funds and an inadequate technical force. While some areas in the defense industry came up to advanced world standards, much of our general mode of production lagged. Shortcomings such as high consumption, high cost, inefficiency, and low quality were present everywhere, and some advanced defense technologies were set aside for years. Obviously this is harmful to the national economy.

The system has not solved these long-standing problems; for example, defense and commercial industries are separate, enterprises are isolated from each other, manufactures and imports are duplicated, and factories, whether large or small, are unnecessarily affected. Management and administration followed conventional supply systems. The state issued projects, allocated materials of production, bought products, and assumed sole responsibility for profits and losses; consequently, enterprises were dependent on the state, and workers dependent on the enterprises. The military product price was fixed (cost and 5 percent of profit). One factory, one price, no matter the volume; the more cost, the more profit, and vice versa.

A poor variety of products made it difficult for military enterprises to be productive. Because most of the enterprises, over a long period of time, were preparing for war and targeted only military products, it was not until 1979 that the output value of commercial products in four war-industry departments finally accounted for 8.1 percent of the total output value.

The state had total control over military enterprises so that they could not develop their own designs. Lacking power and function, and with responsibility being divorced from profit, the enterprises were not at all vigorous.

From the 1960s to the mid-1970s, the movement called the construction of the third defense line was fully under way. Almost all the enterprises, were committed to large projects, pursued high production targets and were eager to succeed. They practiced the tactics of "mountain," "dispersion," "cave," "village," and so on. This finally resulted in a far-flung front that was too large in scale.

Success and Experience in Defense Industry Reform

After the CCP's Third Plenary Session of the Thirteenth Central Committee, China's defense industry was steadily reformed, as restructuring of the state economic system was implemented. During the past decade, the State Council and Military Commission of the Central Committee passed a series of resolutions: the State Council governed directly the six departments formerly run by the State Defense Science and Industry Commission but headed by both the State Council and Central Military Commission. According to their special needs, every military department, restructured themselves, from the governing body to administrative setup to product structure to internal organization to work patterns and distribution. The variety of changes propelled the defense industry forward. The success and experiences laid a good foundation for further reform.

New Merits of Military Production

The whole defense industry entered a new strategic stage of history after the reform. Scientific research for military products is carrying out a policy that emphasizes small scale and advanced levels. By putting stress on the foundation, strengthening key science and technology, and keeping in step with high technology, we are amking progress and are renewing our military production.

There are some new achievements in the nuclear industry. New nuclear weapons designs have given our strategic missile force the ability to counterattack, which is one of the important factors that helps establish our nation's international status. A new generation of research has also made considerable headway. The completed high-flux engineering test reactor provides a significant medium for development in the nuclear industry.

In the last decade, aviation industry factories have manufactured the most modern aircraft in history. Of the more than 20 types of aircraft on our assembly lines, 75 percent are new types that were put into production this decade. A new lot of fighters, attack planes, bombers, helicopters and unmanned planes have been furnished to the army to replace old ones. The fact that more advanced warplanes have been designed and finalized marks our capability to make aviation product designs of our own.

The ordnance industry is quickening its pace of renewing heavy weapons. The industry has been fruitful in manufacturing modern tanks, armored carriers, infantry fight vehicles, heavy-caliber guns, and antitank missiles.

Numbers of special ships oceangoing comprehensive monitoring ships, oceangoing survey ships, oceangoing supply ships, landing ships, and minesweepers are proof of the development of the ship-building industry. These ships successfully completed many trials. According to statistics, within the China Shipping Industrial Company, the output value of new-style products accounted for 60 percent of the gross value of industrial output, and of those products, 38.6 percent came up to the advanced world standards of the 1980s, including 47.7 percent of necessary ship-building industry accessories.

The successes in the space industry have attracted worldwide attention, especially the results in strategic missiles, space technology, and tactical missiles. In May 1980 we successfully launched a long-range carrier rocket to the Pacific for the first time. In October 1982 a rocket launched underwater from a submarine showed a qualitative leap in our strategic missile technology. The manifold tactical missile weapon systems finalized one after another are increasing the modern combat effectiveness of the troops. Today, our space technology reflects the advanced world standards:

Great Advances in Commercial Products

Since the Third Plenary Session of the Thirteenth Central Committee, civilian production of the defense industry has made great strides. The proportion of commercial product output value in the industry has risen from 8.1 percent in 1979 to 62 percent in 1990.

Concerning the military enterprises located in 'three-line', from 1980 to 1987, the output value of their commercial products increased at an average rate of 40 percent a year, and in 1987 reached around 50 percent of the value of all military enterprises in the whole nation. According to preliminary estimates, departments in the defense industry have completed more than 400 main commercial product assembly lines, developed over 300 kinds of key products, and sent over 7,000 commercial products to market. For the last 10 years, they have supplied, to domestic and foreign markets, large quantities of products and technical equipment for energy, traffic, light textile, and other trades, and have technically transformed assortments of spare parts for import equipment to improve food machinery, packing machinery, and medical instruments. Isotopes (and their outcomes) have been used into agriculture, industry and medical services. Commercial aircraft is one good scene of prosperity: over 500 passenger transport planes are flying for over 70 airlines, and 13 main line passenger planes made cooperatively with Mydao Co. have been delivered to the General Administration of Civil Aviation of China. Three military factories, in Chongqing, Baotou, and Taiyuan, have the capacity to produce 5,000 open freight cars in 1 year but the investment is only 40 percent of what is needed to build these same items.

During the sixth 5-year plan, 193 kinds of commercial products made in defense industry departments won national gold, silver, or national invention prizes.

Through 10 years of experience and practice in developing commercial products, military enterprises created a set of rules for product development, administration, management and restructuring, organization, sales, and service:

The Export of Commercial Productions
For a period of considerable time our defense industry basically did not export because until the reform and the opening up we did not want to be munitions merchants. In the Third Plenary Session of the Thirteenth Central Committee, we did away with that idea. Several departments in the defense industry have set up foreign-trade companies, featuring defense/commercial, industry-commerce, and technique-commerce enterprises. Trade contacts with more than 50 countries or areas exist. By the end of 1987, 65 military factories or enterprises were assigned to be the bases for exporting commercial mechanical and electronic products or to be independent enterprises with the right to conduct foreign trade on their own.

Commercial nuclear fuel has entered into the overseas market with the government's approval. The metal calcium made by the nuclear industry also occupies a certain status in international market.

Aircraft made in China were on display at the International Aviation Fair. Six Y-12s, a light multiuse plane of our own design and manufacture, was sold to overseas buyers. Another new medium-range transport plane carrier-8 was also exported. The British General Administration of Civil Aviation, recognized as a worldwide authority in aviation, issued a certificate of quality to our carrier-12 in 1990; this signifies that the carrier-12 has reached a world-class level and increases the plane's export channels. Besides the eight already sold, we have also signed contracts for 14 other carrier-12s. Our aviation industry system as a whole has exported several hundred aircraft to about 10 countries, and has also exported aircraft engines, carrier equipment, parachutes, and aircraft spare parts. We manufactured aircraft parts and engine parts for a dozen foreign factories or companies, thus earning foreign exchange totalling 12 million.

Ordnance industry manufactured and sold their motorbikes, bicycles, and others to the United States and other countries or areas. During just the first sixth of the 5-year plan, the exports and projected contracts of the whole ordnance industry were 80 percent of the total business of the preceding 30 years.

Our space technology started servicing the international market. The Long-March-2, Long-March-3, and Long-March-4 carrier rockets were put on the international market one after another. In 1987 and 1989, we provided carrier service to the former West Germany and France using our retrieval satellites. Our new Long-March-2E and Long-March-3 carrier rockets will launch satellites for Australia and an Asian satellite company. This is a indication that China is entering the international space technology international market and is catching up with the advanced world.

The shipbuilding industry was unwilling to lag behind in their export business. In the latter half of 1981, the world's shipbuilding output was less than half its actual production capacity, and many shipyards went bankrupt. But China's shipbuilding output rose uninterrupted, doubling from 1986 to 1987. And during the first seventh of the 5-year-plan, ship exports were 1.53 million tons, twice as much as that during the first sixth of the 5-year-plan. The volume of export was 40 percent of the general volume of ship-building. The trade volume of export business reached $2.3 billion, three times as much as during the first sixth of the 5-year plan.

Military Technology Shifts to Commercial Use

The conversion of military technology to commercial uses has many objectives. It may be domestic or external. Domestically, it can be geared to big enterprise or small township factories and even used in the agricultural sector.

The transfer of military technology to commercial technology may occur in various ways and forms. Through mediums such as technical interchange and the technology market, both sides can strike bargain, or by means of direct talks they make agreements. The following ummary of our practices in carrying out technology transfers amke clear the five areas in which we find it important to engage jointly:

Joint Defense/Commercial General and Special Policies

Although this is not easy, it is a good beginning and lays a foundation for building military/commercial joint efforts. There are five general policies on the conversion from defense to military/commercial joint enterprises:

Taking Further Steps to Restructure the National Defense Industry

The ultimate aim of restructuring our defense industry is to build a integrated system of defense/commercial production viable for both war and peace times. In addition, we should build a multi-administrative policy body we can centralize or decentralize. The system must guarantee that the State Council and Central Military Commission are able to keep national defense under their macro control, which includes control of the direction, scale, speed, layout and structure of national defense development. Moreover, it will help national economic actions to keep its vitality, separate organization from production and streamline administration.

Suggestions about how to make various military enterprises more efficient include further reduction of scale, adjustment of structure, strengthening macrocontrol, increasing necessary investment, and making serious efforts to develop commercial products. To realize defense/commercial production unity, the national defense industry should serve the Four Modernizations, meaning take on a double task:

From now on, to reform our national defense industry, we must concentrate on eight aspects:

1. National defense economic and administrative systems need to get onto the right path of the socialist market economy.
2. The reforms must accord with economic construction, upholding the four cardinal principles as well as continuing the reform and opening up.
3. The national defense construction is the strategic development principle.
4. The reform should suit the needs of the system and the operation of the socialist market economy.
5. A policy of joint defense/commercial production in war and peacetime is the policy that must be implemented from beginning to end.
6. Every plan must consistently adhere to combining national safety with national economic benefit.

The national defense system will adjust its industrial and productive structure, according to the principles of planning, rational division of labor, mutually complementary advantage, and coordinated development. The department responsible for military enterprises will send the plans for adjustment of research and production of military products one by one, down to their enterprises as soon as possible. This will further restructure these enterprises by making them more self-governing so that they have the rights and duties that average state enterprises have. It will help most of them to become socialist commercial firms, and manufacturers that are able to run a business by themselves and assume sole responsibility for their profits or losses. In addition to fulfilling military orders, it will intensify the reform of the administrative system by pursuing and perfecting production, and by rewarding the hardworking but punishing inferior quality and indolence, it willencourage military enterprises and their workers.

Military enterprises need to heighten their commodity consciousness, market sense, and competitive ideas and keep aware of market information isre always changing, the factories should constantly develop new products on the basis of market requirements. They also must foster the three kinds of motivation forces that modern factories have: inventing or finding new technology, applying new technology to production, and promoting products to domestic and external markets.

The military sector should introduce competition through separate cost accounting for defense and commercial products, which would solve the problems that arise from sharing equally regardless of ability or contribution. A small accounting unit exists within every factory. Under certain conditions, a branch or workshop of a factory will run relatively independently, whereas the group of enterprises that possesses economic strength will properly retain the power of decisionmaking over investment.

After talking with departments and districts concerned, the factories, which must have approval not to undertake military production, can according to their technical specialty and equipment situation, decide to whom they are subordinate. They can also not change subordinate relationships and just incorporate each kind of products into commercial departments or districts, taking responsibility for production plans and product types. We encourage interindustry, interdepartmental, and interregional relationships. The factories can arrange their production on the basis of voluntarism, mutual benefit, specialized cooperation, and responsibility, and can develop new products by way of economic or technical cooperation with each other.

We will give energetic support to export commodities and urge enterprises to be familiar with the concept of two resources and two abilities. They should open up their own path to international markets through widespread cooperation and strengthen their competitive power through high-quality, low-priced products.

The enterprises located in the third defense line could, if possible, open a "window" in coastal cities or special to develop commercial products. The experiences of the last few years have showed that there are some principles we have to follow:

1. Focus on exports, combine production with trade, technology with commerce, and recognize that specialization is important but promote a diversified economy.
2. Actively depend on the backbone of the enterprises, uphold import but cooperate with internal; take products as the key factors to give full play to the "window."
3. Have both exports and imports to keep the foreign exchange balance and to win more foreign exchange; to bring economic benefits, stress advanced technology that could improve the quality of products, increase the variety, speed up the replacement of the old with the new, and lower the consumption of resources and materials.
4. Putting the stress on the key products that are intensive science and technology, take the above-mentioned road of import, digestion, creation, and development.
5. Boldly attract the investment of foreign capital, raise funds in every way, and actively use them.
6. Give full play to the enterprises and enhance competitive power through union with others.
7. Make full use of favorable conditions, create special districts or open cities as bridges to trade with Hong Kong, Taiwan, and surrounding countries, and then expand to other countries and areas.
8. Enable special districts to become centers for training managers, engineers, and other qualified personnel.
9. Strengthen the enterprises by adjusting both the plan for military production and the quantity of important civil production and by removing factories from the third line; formulate specific policies for reorganization, merger, and cooperation of the enterprises; and implement a rational organized system for each enterprise and form competent groups of enterprises in the spirit of voluntary participation and mutual benefit.

If military sectors are able to research or manufacture some product and are able to ensure its long-term supply, the commercial sector will no longer produce this kind product.

To protect national industry and avoid unnecessary equipment imports or technology re-introduction, the military sector should utilize existing abilities as fully as possible to produce things that can supply the market over a long period of time and to guarantee the products' quality and quantity.

When, in commercial industries, products are needed to expand production or some items require a large research basis, the military enterprises' surplus abilities, technical superiority and facilities should first taken into account. For any items needing technological reconfiguration, we should choose the better one between a defense or a commercial enterprise.

The nation will broadly guide the defense sector to cooperate with the commercial sector to developcommercial products. This will depend on market requirements and on enterprise's expertise. The aim is coordination rather than unchecked independence.

Defense and commercial units may have mutual concerns and need to exchange information, solutions, and motivations. The industries, departments, and districts will set up mediation netowrks and go between them to solve related problems.

We will link the military development plan with each regional economic development program.

1. To avoid harming the interests of the whole, arrange production and technical reconfiguration, in accordance with state industrial policies and macroscopic guidance as well as the requirements of domestic or foreign markets, and not based on just what enterprise wants.
2. In transferring military technology to commercial uses, choose products similar in structure and close in technology, use existing workshops and facilities, and strive for little investment but high production.
3. Devote major efforts to technology-intensive equipment that is difficult for commercial enterprises to manufacture, as well as to famous, excellent, new, and special products; fill the gap and eliminate shortages in technology.
4. Develop substitutes for import products or analyze foreign technology and master imported products as much as possible for reproduction and imitation.
5. Proceed from the actual situations of each factory or each product in deciding the technology methods for mass production, sticking to coordination on specialties.
The state economic complex and related department or district will stipulate that some enterprises will have a long-term commitment to manufacture and develop certain productsaccording to the above rules. The military sector can turn production tasks over to the commerical sector. In peacetime, this division of tasks would not be altered, and the commercial sector will not generally invest in expanding the productive capacity of the products. If disputes arise regarding significant commercial items, we may settle them through public bidding. The military production will proceed in a planned way, avoiding blind competition and duplicate construction and research.

SOURCE: Chinese Views of Future Warfare
edited by Michael Pillsbury
Institute for National Strategic Studies