Potential of Chinese Civil Industry Integration
 with Military Industry ( CMI)

Gp Capt Anil Kumar

According to revised figures from China’s National Bureau of Statistics, Chinese GDP reached close to $2trillions in 2004, making it the sixth largest economy in the world surpassing Italy. According to BBC news business report on 27 Dec 2005, Chinese economy is expected to have grown at 9.3% in 2005,  predicted to rise by 9.4% in 2006 and by 9.5% in 2007. At this rate of growth, it would be third largest economy in the world surpassing U.K., France and Germany by 2010. This suggests that China will  have more money available for defence expenditure and thus has  the economic potential to become a U.S. military rival by 2020. However if China has to actually become such a rival, China’s defense industries would have to produce weaponry technologically comparable to that of the United States and other western countries. This needs a dramatic advance over China’s current military technology. It is pertinent to analyse whether china presently has the capability to produce high technology defence goods for it to be considered a real threat to U.S. militarily by 2020. 

At present, China’s military hardware is largely based on 1950s Soviet technology. To produce weaponry technologically superior or comparable to U.S. weaponry by 2020, China has the following three options to improve its technological capabilities.

   (a)   Import of military technology from abroad (From U.S and other western countries)

   (b)   Import of components and equipment

   (c)   Diffusion from China’s civilian industries.

Chinese leaders understand the fact that out of these three, the third option i.e diffusion from civilian industries, is the most promising over the long run (1)

EXISTING CHINESE MILITARY-INDUSTRIAL COMPLEX

China possesses one of the largest, and most diversified military industrial complexes in the developing world. It is one of the few countries in the newly industrialised world to produce a full range of military equipment, from small arms to armored vehicles to fighter aircraft to warships and submarines, in addition to nuclear weapons and intercontinental ballistic missiles. However the state-owned military-industrial complex has long suffered from a number of weaknesses and shortcomings. China's defense technology base is perhaps two decades behind the West in several critical areas, including aeronautics, propulsion (such as jet engines), microelectronics, computers, avionics, sensors and seekers, electronic warfare, and advanced materials.(2)

CHINA’S ATTEMPTS TO INTEGRATE CIVIL INDUSTRUY AND DEFENCE INDUSTRY

In the latter part of the 1970s, China launched four modernization programmes which were in the following order: industrial modernization, agricultural modernization, scientific and technological modernization, and national defence modernization. National defence was listed as the last of the four modernization programmes. The decision was based on the fact that the Chinese government could not afford an all-round military modernization. 

In order to ensure that the defence development would not burden the economy, the Chinese leaders had to find solutions for the financial difficulty of the army. To that end, they allowed the military industries to diversify in order to engage in civilian production, They also allowed the military enterprises to commercialise certain products to raise extra military funds for themselves.

 The defense industry branched out into a broad array of civilian manufacturing during the 1980s and 1990s. China's aviation industry, for example, established a number of commercial joint ventures with Western aircraft companies. The McDonnell Douglas Corporation , Boeing, the European Airbus consortium, Sikorsky Helicopter, Pratt & Whitney (a manufacturer of jet engines), and Bombardier of Canada all established facilities at various China aircraft factories to produce subassemblies and parts for Western civil aircraft. Chinese shipyards successfully converted much of their production to more profitable civilian products, such as bulk carriers and general cargo ships. China's missile industry entered the lucrative satellite-launching business Many defense enterprises became engaged in commercial ventures far outside of their traditional economic activities. Ordnance factories assembled motorcycles, aircraft companies built mini-cars and buses, and missile facilities put together refrigerators, television sets, and even corrugated boxes. (2) 

The opportunities for the direct spin-on of civilian technologies to military production, however remained limited.  During this period , spin-off - that is, the transfer of military technologies to civilian applications (such as in the development of China's space-launch business, which was initially based on the commercialization of its intercontinental ballistic missile systems) - was more important  than civilian-to-military spin-on. These attempts by the Chinese defence industry to integrate with civil industry in the early 1980s and mid 1990s were only modestly successful but they did little to transfer innovative commercial technologies to military uses. (3)

 On the other hand gradually, the negative Impact of military industries in commercial business,  became increasingly noticeable, such as the corruption in the army, the erosion of the party control on the army, and the involvement of the military in the export of some sensitive materials and arms to some unstable regions .Under such circumstances, with the purpose of combating corruption in the army, the chairman of the Central Military Commission Jiang Zemin banned the army from doing business in 1998.  

Since then, China has pursued an active strategy of commercial-to-military spin-on and  dual-use technology development particularly in the areas of microelectronics, space systems, new materials, propulsion, missiles, computer-aided manufacturing, and information technologies (IT). 

An ambitious critical science and technology development effort called 863  programme  was launched as a long-term initiative to expand and advance China's high-technology base in a number of areas, many of which had potential military applications, including aerospace, lasers opto-electronics, semiconductors, and new materials.

CHINA’S APPROACH TOWARDS EXLOITATION OF DUAL TECHNOLOGY AFTER OPERATION  DESERTSTORM

The Gulf War, in 1990, shocked the Chinese leaders by the effectiveness of high-technology. The Chinese leaders realised the large gap between the Chinese technology and their counterparts in the Western world. This motivated them to focus on the modernisation program of national defence. Affected by this, China’s military modernisation was attached great importance only from the mid- 1990s. 

With this, China's approach to aspects concerning civil-military integration began to change around the mid-1990s. There was a crucial shift in policy, from conversion (i.e., switching military factories over to civilian use) to the promotion of integrated dual-use industrial systems capable of developing and manufacturing both defense and military goods. 

The key areas of China's new focus on dual-use technology development and subsequent spin-on include microelectronics, space systems, new materials (such as alloys), propulsion, missiles, computer- aided manufacturing, and particularly information technologies. Over the past decade, China has worked hard both 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

RESEARCH AND DEVELOPMENT EFFORTS  BY CHINA IN HIGH TECHNOLOGY FIELD

In an effort to be self reliant in the field of high technology products China continues to lay great stress on its research, development and testing capabilities. Defense enterprises have formed partnerships with Chinese universities and civilian research institutes to undertake cooperative R&D on dual-use technologies.  Foreign high-tech firms willing to invest in China have been pressured to set up joint R&D centers and to transfer more technology to China. 

China is steadily increasing its expenditure on research and development activities. In the tenth FYP (2001-05), one of the plans was to increase its overall spending on Science& Technology R&D to 1.5% of GDP and to prioritise spending on key strategic technology (including IT& electronics) . China has been widely successful towards this goal. China’s spending on R&D reached 1.44 in 2004 as illustrated in the chart below :

Research and development expenditure

  A white paper “Peaceful Development Road” published by information office of state council, China’s cabinet, was released on 22Dec2005. Paper states that China plans to increase expenditure on S&T research and development to 2.5 %of GDP by 2020. Paper lays great stress on “China’s self reliance to solve problems in its development”.  According to white paper, China has made short and long term plans in promoting S&T development strengthening the ability of independent innovations.

   Chinese leaders have approached their national development in a systematic and far looking manner. They also realise the benefits to be derived from advanced technology production. They have therefore, encouraged foreign investments offering substantial financial incentives and tax rebates to foreign investors. As a result many corporations from Europe, Japan and U.S have shifted their operation to China including their research and development activities. Foreign invested R&D centers in China continues to rise rapidly At the end of 2004, number of  high tech R&D centers was reported to be 750. (4) All  this is bound to have a far reaching effect on China’s capability to produce advance technology products. 

 The combined effect of  the Chinese development of its domestic capacities and  the setting up  of foreign facilities is  evident from the scale and diversity of Chinese advanced technology production and foreign direct investment. Beginning from virtually zero Advanced Technology Products (ATP) trade 20 years ago, China exported more than $45 billion of ATP goods to the United States in 2004, creating a $36 billion U.S. deficit in such transactions between the two nations. Specifically, as illustrated in table 1, China ran an ATP surplus with the United States in biotechnology, opto-electronics, information and communications, advanced materials, weapons trade, and nuclear technology goods. In the fields of information and communications ATP, China supplies 31 percent of all U.S. imports – a market share that promises to expand in the years immediately ahead.(5)

US Trade in Advance Technology Products with China (US million Dollars)

Source: Calculated from ATP trade data “Foreign Trade Statistics” published by US Census Bureau April 2005. (5)  

Results of these efforts by China   are already evident.  New York Times on 11 Dec2005 reported that China has overtaken the United States as the world's biggest supplier of information technology goods, according to a report by the Organization for Economic Cooperation and Development.

Data in the report shows that China's exports of information and communication technology - including laptop computers, mobile phones and digital cameras - increased by more than 46 percent to $180 billion in 2004 from a year earlier, easily outstripping for the first time United States exports of $149 billion, which grew 12 percent from 2003.

These figures also reveal that China has come close to matching the United States in the overall value of its trade in information and communications technology products. The value of China's combined exports and imports of such goods soared to $329 billion in 2004 from $35 billion in 1996. Over the same period, the value of American information technology trade expanded at a slower rate, to $375 billion from $230 billion.

These figures are a clear indicator of China’s resolve to be a clear leader as a producer of advance technology   products and use these technologies to modernise its military. 

BENEFITS ACCURED BY  CHINA IN DUAL TECHNOLOGY DEVELOPMENTS

These efforts at exploiting dual-use technologies have apparently paid dividends in at least a few defence sectors. China's military ship building., for example, appears to have particularly benefited from  Dual Technology development efforts. 

More important, the PLA has clearly benefited from development and growth of the country's commercial IT industry. The 2004 Defense White Paper of china identifies the “technological gap resulting from the RMA” as having a major impact on China’s security. China’s leaders seemingly determined not to be left far behind by the developed countries, have asked PLA to acquire “informationalized” capabilities.  The PLA is working hard to enhance its C4ISR capability to expand and improve its    capacities for command, control and communications, information processing, and information warfare.

Other defense sectors where civil- military integration have achieved some success is China's satellite business. In this field China has entailed considerable development and application of dual-use civilian technologies. Chinese telecommunications satellites which are basically commercial in nature, serve military purposes as well. China's small but growing helicopter industry has always been dual-use in  execution .

China is also modernizing key basic industries, such as strategic metals, by building new facilities and equipping them with advanced manufacturing technologies, This has enabled Chinese firms to produce specialty metals and alloys used in a variety of defense and commercial industries.

CONCLUSION

Despite these achievements, Chinese civil-military integration effort -particularly when it comes to commercial-to-military spin-on is still in its infancy. There still exist many gaps in China's science and technology base, and China's commercial high-tech sector is still quite weak. Production of most of dual use high technology goods  (e .g Semiconductors) is controlled by foreign owned companies. China’s commercial technology, which is well behind that of the United States and other advanced countries, is likely to advance considerably over the next fifteen years, but technological levels in China will remain significantly behind those in the United States and other western countries even by 2020. 

However, appreciating the potential benefits of civil military integration, China is likely to continue to promote dual-use technology development and spin-on as a means of promoting the country's military buildup since this alone is the most viable and long lasting option available to Beijing in light of embargos imposed by U.S and EU on transfer of  high- technology to China since tiananmen square crackdown in1989.