PROCUREMENT AND THE DEFENSE INDUSTRIAL BASE  

Prepared by Wendy Frieman  
For Chinese Military Affairs: A Conference on the State of the Field  
15 October 2000 

 

INTRODUCTION 

It is a great pleasure to respond to Ron Montaperto's request to return to a subject that occupied me early in my career as a China analyst and has never since been far from my thoughts.  My very first job involved analyzing China's just concluded national science conference of 1978; even then, no one knew whether my report should go to the technology analysts or the China analysts.   Six years later, in 1984, someone who later occupied that same office found my report at the bottom of a stack of documents, covered in dust, with no evidence that it had ever gone anywhere.  Not much has changed in the United States on that score, although certainly a great deal has changed in China.  

The importance of the topic that Ron assigned to me and James Mulvenon cannot be overstated, for three reasons.  First, it has been seriously understudied, in part because it falls between organizational and disciplinary lines.  Although the instructions for preparation of this essay specifically stated that authors should not discuss what is and what is not known, it is imperative to state at the outset that the literature in this area is somewhere in between weak and non-existent.  At best, insights about China’s defense related research and technology have to be inferred from documents such as the Cox Report or annual reports to the Congress about China’s military capability.  The focus is on tangible and measurable output, such as new hardware.  Second, the raw material for serious analysis is out there for the taking if someone wants to spend the time and effort to get it.  This was certainly not true 15 or even 10 or even 5 years ago.  Third, understanding the defense industrial base is one way to look intelligently into the future rather than wait for new hardware and new capabilities to emerge and make themselves manifest. 

What are the key questions and how can they be approached?  The answer falls into two categories—the first is issue-oriented and second involves questions of methodology. 

ISSUES 

A. Organizations and People 

It goes without saying that it helps to understand how the military R&D bureaucracy works in China.  Which are the key organizations?  How are their responsibilities defined?  Where do they get their funding?  Who reports to whom?  Among the more obvious applications for this knowledge are: validation of information  in end use certificates required for certain technology transfers, insights into Chinese weapon sales and dual use technology sales, and identification of the relevant expertise when arranging bilateral discussions on defense technology.  This is the “grunt work” that could previously only be done by the intelligence community, and even there, it was the low glamour end of the China business.  It meant reading piles and piles of cables, memcons, and other raw material and extracting minute data points.  

Today, however, the important and up date information comes from entirely different sources: journalists, businesspeople, scholars, NGOs.  As before, the relevant data points are embedded in the context of business negotiations, technical discussions, and so forth.  It is very rare for someone in China to give present a top-down organizational overview for its own sake.  A sensible approach would be to find the people who are already acquiring the relevant data points, and figure out how to tap into and synthesize their knowledge base.  The internet and the wide range of software applications that are available today at little or no cost should make this much easier to do than in the past, and will make it possible to continually update the information.  The Chinese internet itself has a growing number of websites that could be mined for data.   

Some of the glaring holes that could probably be at least partially filled by aggressive outreach to the types of individuals mentioned above include: 

 B.  Where are the Pockets of Excellence? 

For at least a decade, analysts have been characterizing Chinese technology as a sea of mediocrity with islands of excellence.  To date, however, there is very little precision as to what is on those islands.  Analysts have pointed to impressive engineering feats, which have resulted in incremental improvements to existing systems.  However, hardware is not the same thing as know-how and theoretical understanding of important disciplines.  A one-time upgrade does not reflect the depth of the knowledge base; it might reflect nothing more than a lucky break.  Twenty years after the inception of the Open Door Policy, China has begun to develop a reservoir of indigenous scientific talent that could be a continuing source of revolutionary, rather than evolutionary, change.  It is critical to understand where this talent is, how it compares with the state of the art elsewhere, and what the potential implications are. 

To complete this work successfully, it is essential that social scientists team with hard scientists.  Most China analysts cannot tell one missile guidance system from another, and papers from Chinese journals on shock physics or opto-electronic materials can sound impressive without actually being impressive to a trained scientist.  In fact, it will require an experienced scientist to even identify which sub-fields are worthy of in-depth investigation.  Solid state physics is probably more important than cosmology, for example, from a weapons development perspective, and genetic engineering more relevant than cellular biology.  Software engineering and telecommunications are clearly relevant, but it would require an expert to decide where to look within these large fields. 

Once some fields have been selected, information is plentiful.  There are large numbers of scientific papers, trade journals, promotional material from exhibitions, reports of scientific and engineering exchanges, and so forth.  The list of potential sources is long.  The Chinese-American scientific community itself has a large number of professional organizations throughout the country.  The raw material is there if someone is willing to dig for it and analyze it intelligently. 

C. Budget 

The preoccupation of China analysts with figuring out how much China spends on defense appears to me to be an old-think relic of the Cold War era, when various parts of the US government spent many hours and many dollars trying to figure out Soviet defense expenditures.  At the end of the day, there were huge disagreements, many of which rage on to this day, despite the fact that the question is largely obsolete.  This just goes to show that it in Russian studies, as in China studies, it's not only hard to predict the future, it's hard to predict the past. 

There are five core problems with recent attempts to estimate the budget. 

First, a number of the assumptions that are the foundation for the estimates are inherently troublesome.  One example is the assumption that the amount of  research and development spending for a given service is reflected in the budget of the corresponding industrial ministry.  In other words, if the budget for China Aerospace Corporation is larger than the budget for China State Shipbuilding Corporation, that means that the PLA air force gets more money than the PLA navy.  Second, not surprisingly, there is a huge range in predictions, and a factor of 10 or 20 separates different estimates.  Third, the granularity of the results is poor.  Analysts are able to make guesses for the major categories of activity—research and development, military pay, and so forth, perhaps even by service, but they can achieve nothing like the detail that would really be required for this to be a useful tool.  Fourth, the statistics are all somehow tied to Chinese government numbers, which are more and more questionable every day.   Who in China today believes the government figures on GNP, for example?  If those numbers cannot be trusted, estimating the defense budget is a futile activity.  Finally, even if the resulting estimate were reliable, it isn't clear what it would tell us.  Would it be useful as a comparison with Russian defense spending, or US defense spending, or Indian defense spending?  Probably none of the above. 

Lacking the proper disciplinary training for this effort, and loath to suggest that it be scrapped altogether, here are three suggestions as to how to proceed. 

First, it should be possible to find out some of the "building block" costs and track those, paying careful attention to the reasons that they might be changing  over time. One example would be annual pay for different military ranks.  Another one would be imports of military hardware, whose prices can at least be estimated with some confidence.   Dramatic changes in some of these discrete areas might well be revealing. 

Second, it might be possible to use the entree that the business community has into the civilian side of key industrial ministries to make better assumptions about spending in the military piece of those industries.  This is a piece of the suggestion embedded in Section D below, and it might prove to be a futile exercise.  However it seems to be worth at least an initial inquiry. 

Third, devote time and energy to establishing reasonable indicators, and then stay with them over time.  The real potential value of this exercise is to compare China of 1995 with China of 2000 and to do this, it is essential to keep the units of measure consistent. 

D. Industrial Modernization in the Civilian Sector 

One of the shortfalls in the budget estimate exercise is that a budget number, whether for a service arm or a defense industrial research institute, represents only the "input" and is meaningless unless one also understands the black box that constitutes the process of spending the money before it is translated in to "outcome." 

Analysts have been struggling with this one for many years.  The main reason that the budget number is meaningless, at least for the defense industries, is that there is no way to know how efficiently the money is invested or how it is distributed.  This is a process question.  What has changed over the past 20 years is that the civilian side of Chinese industry has been forced to open its doors, at least partially, to foreigners.  Scientists and businesspeople have been able to gain some visibility into how state owned enterprises in the industrial sector work -- or, more likely, don't work.  Casual conversation with these people suggests that they have data points and partial information about how the accounting is done, what the salary levels are, how equipment is paid for and maintained, who has to approve different levels of purchases, how much money comes in horizontally from other organizations outside the formal chain of command, how much business the factory or institute can do "off the books," and so forth.  If these data points have been collected and systematically analyzed specifically for civilian state-owned enterprises, it is worth using them as a basis for assumptions about what is going on in the defense sector.  What is needed is a study comparable in depth and sophistication to Armann and Cooper’s The Technological Level of Soviet Industry.  A study of this caliber might already exist.  If not, it will be necessary to first examine what has been happening on the civilian side of the SOEs and then reaching judgments about which trends also pertain to the defense sector.  Whereas it is no doubt true that the defense side of the big industrial ministries differ in important respects from the civilian side, it is also true that the line between military and civilian industry in China appears to be getting fuzzier.  That is to say, the fuzziness of the line is getting clearer, since in the past there were many of us who suspected it was always fuzzy, but it wasn't clear that it was fuzzy.  So to speak!  Without having paid careful attention to the new literature on Chinese industrial modernization, my suspicion is that there remains much more work to be done in this area. 

Another even more compelling reason exists to track developments in China's civilian technology.  The Cold War model for understanding China's defense industries was linear and one-dimensional.  Analysts tended to assume that the leadership established a military strategy, set certain development objectives, invested to support that strategy, and waited for results to emerge from the pipeline or until there was a Russian fire sale that could provide a quick fix.  Suppose, however, that the "junkyard" approach is the operative one?  In this scenario, the military leadership might establish requirements and then look to see what is already shelf ready in the civilian sector to support those requirements.  Or, it is possible that the existence of a particular technology in the civilian sector will itself give birth to a military requirement that did not previously exist.   Examples of these can be found in other economies, and there is every reason to believe that this could happen in China, if it hasn't already. 

METHODOLOGICAL 

A.  Historical Case Studies 

Evaluations of China's defense industrial base are prey to the same polarization that plagues evaluations of China's overall military capability.  Either the Chinese are ten feet tall or they are the gang that can't shoot straight.  The reason that both assessments stand up to scrutiny is that one camp (ten feet tall) is looking at inputs, and another (gang that can't shoot straight) is looking at outputs. No one can speak with confidence about how long it takes an input to become an output, or which investments will go down a black hole.  Once again, this is a process question.  One way to begin to understand the black box that transforms inputs into outputs is to focus on historical cases.

One obvious suggestion is China's tactical ballistic missile program.  This is now recognized as an island of excellence for the Chinese defense industry, and one that has resulted, because of the deployment of the missiles, in a major source of tension between the Untied States and China.  What is known about how the capability evolved?  What were the constituent technologies that China had to master?  Were they imported, reverse engineered, indigenously developed?  Was technology transferred from the commercial sector?  Were there subsidies to help the program along?  Although authors have filled many pages bemoaning the existence of these missiles and decrying the Chinese for having deployed them, I don't know of any studies that have systematically analyzed how they came to be.  Is it true, for example, that the Chinese began to look seriously at the potential role of short range ballistic missiles in their own defense doctrine only after the United States applied pressure on China to curtail missile exports?  If so, this history contains some important lessons for the future. 

B. Internet 

The content of the internet has not been adequately mined for what it might say about China's defense industry.  The Chinese search engines are quite powerful, and there is much more access than one might expect.  Many Chinese home pages are quite sophisticated, and information is added to these pages very frequently.  Virtually any of the topics mentioned above would benefit from carefully targeted internet searches at regular intervals.  There are now sophisticated software tools that will perform automatic searches and email the results, and there is even software that will perform rudimentary translations.  

C. Field Work 

Field work, site visits, and in-depth interviews used to be the exciting part of a career in China studies.  These have now been replaced by the conference circuit, much to the detriment of the field.  The important answers are down in the details.  Although China is by no means transparent, and access remains a problem, the ability of someone who speaks Chinese to establish contacts, maintain relationships, and find information has vastly increased over what it was a decade or two ago.  Field work is often tedious, the conditions are rarely ideal, and the subject of the inquiry will probably have to be indirectly related to the real question.  However, much more could be done, particularly in the institutes of the Chinese Academy of Sciences, some of which are known to be involved in military programs, and in the key universities. 

D. Nontraditional Indicators 

It is by now clear that the US analytical community lacks the right vocabulary to describe an emerging world power that is neither ally nor enemy, neither an immediate threat to be contained nor a third world military to be ignored.  For these reasons, it is not surprising that much analysis still focuses on traditional, Cold War era measures of sophistication in military related research and technology.  Given the growing integration of military and civilian research in China, and the speed of innovation in the commercial sector, it makes sense to re-examine these measures and consider adding new ones.  For example, it might make more sense to understand the telecommunications infrastructure that is being installed throughout China than the modifications being made to Chinese tanks and APCs.  The way in which the military is absorbing and applying information technology might be more important than the exact specifications of a new weapon system.   A multi-disciplinary team of experts, especially if it includes analysts who have studied the military industries of countries other than the United States and Russia, could be tasked to compile a post-Cold War agenda. 

CONCLUSION 

Chinese officials are transparent about their desire to remain ambiguous.  For this reason, analysis of the defense industrial base -- and, for that matter, the defense budget -- will never be easy.  At the same time, the opening of Chinese industry to the West, together with the growing integration of military and civilian research and technology, provides opportunities to do a much better job.  The comments above are simply a starting point from which it might be possible to rejuvenate this area of research, and bring it up to date.