Fortifying China

The Struggle to Build a Modern Defense Economy

Tai Ming Cheung

• Publisher: Cornell University Press
• Year: 2013
• ISBN:
  9780801468490
• Topic: Politica e relazioni internazionali
• Subtopic: Politica asiatica

Fortifying China explores the titanic struggle to turn China into an aspiring world-class military technological power. The defense economy is leveraging the country's vibrant civilian economy and gaining access to foreign sources of technology and know-how. Drawing on extensive Chinese-language sources, Tai Ming Cheung explains that this transformation has two key dimensions. The defense economy is being reengineered to break down bureaucratic barriers and reduce the role of the state, fostering a more competitive and entrepreneurial culture to facilitate the rapid diffusion and absorption of technology and knowledge. At the same time, the civilian and defense economies are being integrated to form a dual-use technological and industrial base.In Cheung's view, the Chinese authorities believe this strategy will play a key role in supporting long-term defense modernization. For China's neighbors and the United States, understanding China's technological, industrial, and military capabilities is critical to the formulation of economic and security policies. Fortifying China provides crucial insight into the impact of China's dual-use technology strategy. Cheung's "systems of innovation" framework considers the structure, dynamics, and performance of the defense economy from a systems-level perspective.

[1]

Bridging the Civil-Military Technological Divide in the Information Age

Innovation, China’s leaders assert, is the soul of a nation’s progress and the guarantee of its national security.1 But for many years this vital source of creativity and competitiveness was lacking on the factory floors and research laboratories of the country’s sprawling defense economy. Decades of stultifying central planning, bureaucratic compartmentalization, political upheavals, and isolation from the outside world produced a sterile system that held back initiative, new thinking, and risk taking. Stagnation and backwardness took root instead, and the defense economy became a burden to the building of the country’s military power. There was little urgency in seriously addressing these shortcomings because of inadequate government funding and the reluctance of the defense industry’s leadership to carry out meaningful reforms. Moreover, after China opened its doors to economic reforms and the outside world, its security situation improved, and defense modernization dropped toward the bottom of state priorities at the end of the 1970s.

Since the 1990s, however, the situation has changed. Despite the end of the cold war, Beijing has faced major security challenges, of which the most pressing are the containment of Taiwan’s quest for autonomy and keeping pace with the global revolution in military affairs. China’s emergence as a thriving, globally connected, market-oriented, and prosperous power, coupled with a sharp acceleration in the rearmament needs of the People’s Liberation Army (PLA), has led to a concerted effort to tackle the defense economy’s deficiencies and put it on a development path with the goal of catching up with the West within a couple of decades. Bringing the defense economy into the twenty-first century by creating an environment that will allow technological innovation to flourish has been a colossal and costly challenge. But the Chinese authorities appear determined to carry out this task. They see an independent and vibrant defense economy as a core pillar of the country’s national security and standing as an emerging global power.

This book examines the complex and protracted struggle for the transformation of the Chinese defense economy since the beginning of the reform era in the 1980s and the efforts to establish a civil-military dual-use economy since the 1990s. Beijing has used a two-pronged approach. First is the internal reengineering of the defense economy. This focuses on breaking down bureaucratic barriers and paring back the role of the state in conjunction with the nurturing of a more competitively minded and entrepreneurial institutional culture that encourages the nurturing, diffusion, and absorption of technology and knowledge. The second plank of the strategy is to integrate the defense economy into the broader civilian economy to form a dual-use technological and industrial base that serves both military and civilian needs. The Chinese authorities view this move as central to the long-term modernization of the country’s military capabilities, as well as in the development of its science and technology (S&T) establishment.

INTEGRATING THE CIVILIAN AND DEFENSE ECONOMIES

The backdrop to this book is the intense technological and industrial competition among the world’s arms manufacturers in the information age and the blurring between the civilian and military pillars of their economies. It is becoming apparent that states that seek to join or remain in the top tier of military technological innovation and production in the digital era can do so only if they are able to integrate their military and civilian economies.2 Those that do not vigorously pursue this goal risk falling behind in the technological race because they will be unable to exploit the synergies that arise from a growing convergence in the development of civilian and defense technologies.

The importance of civil-military integration in determining long-term military technological competitiveness is due to at least three major trends that have become increasingly influential since the 1990s. First, the advent of the information age has helped to bring about a revolution in military affairs among major powers. Information technology is profoundly transforming the nature of future wars and the makeup of armies to fight them. In a 1999 assessment, the U.S. Defense Science Board pointed out that the civilian commercial sector “is now driving the development of much of the advanced technology integrated into modern information-intensive military systems,” such as software and microelectronics hardware.3

Second, globalization is challenging the traditional configuration of defense industries structured along national lines. Since the 1990s, we have seen a growing trend in the global merger and acquisition of defense firms and cross-border collaboration on weapons development projects, especially between U.S. and European companies. The result is a “world characterized by the routine diffusion of weapons and technology, embedded security of supply issues, and reduced national control over indigenous defense industrial bases.”4 An important feature of this globalization is a high degree of outsourcing for components and subsystem technology to civilian firms around the world. Consequently, “the majority of militarily useful technology is or eventually will be available commercially.”5

Third, commercialization is prompting far-reaching changes in the way that countries manage their defense industrial bases. The adoption of commercial practices requires defense industrial entities to operate according to market demands from customers and shareholders, who want products that are more cost-efficient, quicker to develop, and less prone to obsolescence.6 This more entrepreneurial and flexible approach is a sharp departure from the rigid, government-based procedures of the past. This situation applies to all leading military industrial powers. The United States, the United Kingdom, France, and Russia have faced the same dilemmas in restructuring the relationships between the civilian and military components of their economies in the aftermath of the cold war and the advent of the information age.7

In the case of China, the establishment of a vibrant dual-use economy provides a valuable opportunity for the defense economy to gain access to advanced technologies, knowledge, techniques, and practices and narrow the gap with the top tier of advanced defense industrial powers. During the cold war, the military sector in China enjoyed privileged access to economic resources that allowed it to become the most advanced pillar of the national economy. But the civilian economy has powered ahead in the post-cold war era and has enjoyed strong and sustained growth that has fueled technological modernization, rising levels of prosperity, and a highly competitive manufacturing base. The defense sector has meanwhile struggled to keep pace because of falling budgets and downsizing. Coupled with the revolution in military affairs, globalization, and other systemic changes, the commercial sector has either caught up or overtaken the defense sector in performance, expertise, and technological capabilities.

With the civilian economy in the ascendancy, the armed forces and the defense economy are actively embracing the integration of the commercial and defense sectors. To reap these benefits, the defense economy has had to overcome an insular, secretive, highly bureaucratic, and risk-adverse institutional culture that is deeply rooted in its socialist past. The outcome of this titanic struggle will determine whether the defense economy is able to close the yawning gap in technological innovation and capabilities with the world’s leading military powers.

This book addresses key questions about this epic quest to transform the Chinese defense economy:

• What are the nature, role, and activities of the Chinese defense economy, and how has that economy adapted to the challenges of the post-cold war and reform era? Has the restructuring of the defense economy successfully addressed deep-seated systemic problems that have hampered technological innovation? Can these reforms be sustained over the long term?
• How successful has China been in the integration of the civilian and defense economies through dual-use strategies such as spin-off and spin-on? What kinds of civil-military integration initiatives are being pursued?
• How does the Chinese approach to the forging of a dual-use economy compare and contrast with policies being undertaken elsewhere by more experienced participants in civil-military integration, such as the United States and Japan?
• What are the prospects that the Chinese defense economy will catch up as it becomes more innovative and is able to harness the resources of the civilian economy?

CHINA’S ENDURING QUEST FOR WEALTH AND MILITARY POWER

The relationship between the civilian and military components of the Chinese economy has often been turbulent, especially since the Communist Party took power in 1949. The quest for wealth and power has been an enduring aspiration of China’s rulers throughout the country’s long history, but finding an appropriate balance has been elusive. Whenever the pendulum has swung too far in either direction, the results have been calamitous. Excessive military spending invariably plunged the state into financial crisis, such as during the late Song Dynasty. But when military needs were neglected—especially during times of external threat, as in the late Qing period—the country was often too enfeebled to repel foreign invasion.8

Today’s leaders face the same conundrum of how to pursue prosperity while ensuring the country’s military might. Since embarking on the “Open Door” policy of economic reform and liberalization in the late 1970s, the ruling elite has emphasized economic development over defense priorities. This has led to rapid and sustained economic growth and the emergence of a competitive market-driven economy. While the military establishment and defense economy have been significantly reduced in size, national security remains a central priority for the leadership, which subscribes to the traditional view that economic progress and military strength are intimately intertwined.

Forging a mutually beneficial relationship between the competing interests of wealth and power is crucial for ensuring sustainable long-term growth and security. The country’s civilian and military leaderships consider the establishment of extensive ties between the civilian and defense economies to be one of the best means of achieving this strategic goal. But daunting obstacles exist, not the least of which is that this integrative approach goes against the traditional principle of the separation of the two economies. Nonetheless, the integration is likely to accelerate as China seeks to build up its defense capabilities to meet long-term challenges to its national security.

A host of strategic, economic, political, military, institutional, personality, and developmental factors and concerns explains why Deng Xiaoping, the father of the Open Door policy and reform era, and his successor, Jiang Zemin, were so enthusiastic in promoting spin-off and spin-on initiatives to assist in realigning the relationship between the civilian and military economies. Under Deng, the strategic rationale for the continued militarization of the economy faded as he switched strategic and domestic priorities from cold war confrontation to economic engagement. This led to a significant easing in military tensions. Harnessing the strengths of the civilian economy has been considered an important mechanism for China to promote self-reliance and mitigate its dependence on foreign sources, especially for critical technologies. Indigenization has become a crucial component of Chinese thinking on the relationship between technology, national security, and economic prosperity, which is sometimes referred to as techno-nationalism.9

Decisions makers, especially senior military leaders, have become increasingly reluctant to rely exclusively on the defense economy to meet the needs of the military establishment, particularly because of its poor track record in weapons development and innovation. Leaders have also argued that dual-use transfers of technology, research, and production capacity, especially through the conversion process, are a cost-efficient and effective means of making use of surplus defense industrial capabilities. Official Chinese statistics claim that around 80 percent of the production output value of the defense industry in the late 1990s were civilian goods compared with less than 10 percent in the late 1970s.10 The actual experience may not be as clear-cut because much of the military-to-civilian output came from newly added rather than converted production facilities. Nonetheless, the result is a defense economy that today is decidedly dual-use in nature.

The dual-use strategy has been developed and implemented over the last three decades. The military-to-civilian conversion initiative—known as the “Combine the Military and Civilian Sectors,” or Junmin Jiehe strategic guidance—was first put forward by Deng in 1978 and subsequently adopted as state policy.11 The strategy, also referred to as the “sixteen character guideline,” was initially a political response by a new leadership seeking an alternative approach to tackling the burdens of excessive militarization that had contributed to stifling the growth of the civilian economy during the Maoist period. The actual definition of this slogan was left deliberately ambiguous because it served more as a political statement of intent than a detailed policy announcement. One of the key political purposes of the guidelines was to allay the concerns of the powerful military and defense industrial establishments that the shift from military industrialization to civilian economic development would lead to a serious erosion of the country’s defense industrial base.

The four original phrases contained in the Junmin Jiehe guidance addressed a number of key issues pertaining to the country’s transition from cold war preparedness to economic construction:

• Combining military and civilian activities (Junmin Jiehe): The original meaning of this term was that defense enterprises should engage in both civilian and military production rather than focus exclusively on military output. Since the 1990s, though, it has been reinterpreted to mean the development of an integrated dual-use technological and industrial base.
• Combining peacetime and wartime preparations (Pingzhan Jiehe): This phrase refers to the need to ensure that wartime mobilization requirements are taken into consideration during peacetime economic construction. The concern at the beginning of th...