Saturday, May 27, 2017, 12:09 PM CST – China

Politics

Civilian-Military Integration

Priority One

As China launches its ‘Made in China 2025’ strategy to promote innovation, it is escalating integration between civilian and military interests

Logistics equipment manufacturing, such as anti-chemical weapons tech, is one of the major military fields attracting private enterprises Photo by CFP

In the past couple of years, the People’s Liberation Army (PLA) has unveiled a wide array of new generation weaponry and equipment tailored to the expanding needs of its army, navy and air force.

Not only is China developing a series of new weapons systems – including a home-grown aircraft carrier and its first two stealth fighters, J-20 and the J-31 – it has also made major improvements across the board, reducing its arms imports, mainly from Russia, and becoming a major arms exporter in its own right.

A recent rumor that Russia is interested in purchasing China’s Type 054 frigate has also led military experts to surmise that the quality of some Chinese-made hardware is catching up with Western equivalents.

Analysts attribute much of this progress to the rapid development of dual technologies in China’s commercial center during its emergence as the world’s factory.

Now, as China adopts a more assertive defense policy and seeks to transform its manufacturing industry to become more innovation-oriented, civilian-military integration (CMI) has been given renewed priority on the agenda of the country’s leadership.

In a meeting with a PLA delegation on the sidelines of the annual National People’s Congress (NPC) session held on March 12, Chinese President Xi Jinping, who is also head of the country’s Central Military Commission, called for deeper integration between State and private firms in order to meet China’s defense needs. Xi’s remarks were interpreted as having turned a decade-plus effort to fuse business and the military into national policy.

Preliminary

Efforts to integrate private firms into China’s defense sector can be traced back to 1999, when the country started to issue permits to qualified firms allowing them to manufacture military equipment. Prior to that, China’s defense industry, including the weaponry industry, aerospace, shipbuilding, and the nuclear industry, was carved up and ring-fenced by ten major State firms and their subsidiaries.

Although the overwhelming majority of 540 permits initially issued went to State-owned firms with very few private firms allowed access, 1999 marked the beginning of the gradual opening up of China’s defense industry to the private sector.

After 2005, when the State Council issued a guideline to open the defense industry to private firms in order to introduce more competition into perhaps the country’s most opaque industrial sector, some real efforts began to be made to deepen the impact of CMI. Currently, of the 2,343 enterprises officially certified to manufacture military equipment for the use of the PLA, 879, making up more than one-third, are private firms.

However, CMI in China, as highlighted in Xi’s March remarks, remains in a “preliminary phase” of development. Not only are private firms forbidden from engaging in the development of what the PLA classifies as “core” weapons systems, they are also only allowed to supply auxiliary and peripheral products to the military, with the bulk of hardware still produced by an old guard of State-owned and -operated monopolies.

While private firms may engage in the development of China’s most advanced weapons system – it is reported that radar-jamming composite materials used by the J-20 stealth fighter were supplied by a private firm – few commercial firms are equipped to meet the full range of needs of a modernized PLA. The most successful example case of entirely privately funded R&D in China’s military so far is a high-speed patrol boat recently adopted by the PLA Navy.

According to senior colonel Zhang Jian, an expert from the PLA National Defense University (CNDU), 85 percent of core military technologies can be used for civilian purposes, while 80 percent of commercial technologies, such as IT, microelectronics and aerospace tech, have military applications. However, the level of CMI in China, according to a report on the development of civilian-military integration published by CNDU, is only about 30 percent.

In his March speech to the PLA, Xi called for CMI reforms that would “break new ground” in developing the PLA’s capabilities, adding that efforts should be made to improve both implementation and “top-level coordination.”

There are signs that change is already underway. In May 2014, the PLA’s General Armament Department (GAD), the Ministry of Industry and Information Technology (MIIT) and the State Administration of Science, Technology and Industry for National Defense (SASTIND), three major agencies responsible for CMI, co-launched an industrial exhibition and forum with the All-China Federation of Industry and Commerce. Releasing procurement information for more than 200 pieces of military equipment, the exhibition attracted more than 100 private firms.

Then, just one week after Xi’s speech, the PLA initiated an open bidding process through its newly established procurement website for the purchase of general and maintenance equipment such as storage containers, gas masks and field lighting.

More than 20 enterprises took part in the bidding process, with a mix of State-owned and private contractors ultimately winning out. The PLA claimed that the total volume of winning bids, valued at about 90 million yuan (US$14.48m), saved the army close to 12 million yuan (US$1.93m) on the list price of the various contracts. This move by the PLA, military experts believe, has set a precedent for open bidding on military contracts which could become standard practice in the future.

Barriers

However, military observers have pointed out that the authorities would need to address some major political and technical barriers to achieving even deeper CMI in China. In the past, a major obstacle has been the secrecy which continues to shroud the country’s arms sector.

This institutionalized lack of transparency continues to be justified as being in the interests of protecting the secrets of China’s military development. The relative lack of public information available on the country’s military is painted as an advantage over potential enemies who are often equipped with more advanced weaponry. Under this doctrine of secrecy, the PLA has traditionally been wary of private firms and the profit motive.

As a result, private enterprises hoping to engage in the defense industry have to undergo lengthy assessments from the authorities. Currently, private firms need to obtain four permits and certificates from several different departments, such as the GAD, the National Administration for the Protection of State Secrets, and the SASTIND before they can legally enter the defense industry. These certificates can take months, if not years, to obtain.

According to an executive from Shenzhou Tianhong, a company contracted by the PLA to produce global positioning devices based on China’s GPS rival, the Beidou satellite network, the company’s executives, major shareholders and their immediate family members had to go through lengthy and strict background checks to obtain the relevant permits.

Not only does a labyrinthine bureaucracy deter private firms from cooperating with the PLA, it also leads to a degree of information asymmetry, with the commercial sector intentionally kept ignorant of the needs of the military – needs that private firms might otherwise be better placed to fulfill than State contractors.

New Strategy

As China has become more confident in its military development, largely thanks to advances made in the domestic arms industry, the Chinese leadership appears to be ready to adopt a more liberal set of policies to allow more active participation from the private sector. The edge held by the private sector in certain fields, particularly drone and new materials technologies, is likely to be particularly appealing to policymakers.

On April 3, the MIIT released a grand plan on deepening civil and military industry integration. It defined 12 concrete tasks, including formulating a five-year (2016-2020) plan for CMI. A major pledge is to simplify administrative procedures on industry access, with experts now predicting that the various permits and certificates from various agencies currently demanded by the PLA will soon be streamlined into a single permit.

The plan also highlights specific areas of innovation, including the new materials industry and application of super materials and carbon fiber technology in armaments manufacture, two key areas for cooperation between civilian and military manufacturers.

More specifically, the MIIT also pledged to establish “innovation centers” in seven national universities and to support the transfer and industrialization of no fewer than 20 key military technology programs. It also vowed to draft policies and rules to facilitate the development of industries requiring military and civil integration such as civil aviation and shipping.

As broad and ambitious as it is, CMI is also a major area highlighted in the so-called “Made in China 2025” initiative, a national economic strategy recently announced by the Chinese leadership. Focusing on promoting innovation, industrial upgrading, the integration of industrialization and information technology, “Made in China 2025” calls for the creation of world-leading industrial giants to make China the world’s number one manufacturing powerhouse in terms of both quantity and quality.

While the details of China’s CMI strategies remain hazy, the country’s leadership seems determined to construct its own version of the US’s military-industrial complex. Its success will hinge on the military’s willingness to give ground to largely untested private interests in a vast and rapidly developing industrial sector.

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