WASHINGTON, Dec. 10 (UPI) -- China's Red Army was the force behind a major international business empire in the 1980s and 1990s that extended into almost every industry: agribusiness, food processing, transportation and hotels, construction, real estate, karaoke lounges and even smuggling -- bringing in an estimated $3 billion annually.
The Chinese government officially cut off the PLA's involvement in external ventures in 1998, forcing the PLA to divest many of its enterprises and adopting a strict stance against corruption within the military ranks. However, although Chinese international commercial defense industries, PLA Inc., may have gone undercover, they have not disappeared. Where did they go?
Experts presented their findings last Friday on the Chinese defense industry to a hearing with the congressional "U.S.-China Commission."
James Mulvenon, director of the Rand Corporation, has tracked the movement of what he terms "PLA Inc.," the business arm of China's People's Liberation Army. The PLA is reported to have controlled between 15,000 and 20,000 known enterprises the mid-1990s, the heyday of the Red Army's business interests, and foreign estimates place the organizations' profits at $1 billion to $3 billion.
Since the Chinese government undertook the process of divestiture in 1998 this number has dropped, but the PLA retains control of between an estimated 8,000 to 10,000 business operations. David Shambaugh, director of the China Policy Program at George Washington University, estimates that with as many as 20 percent of the units continuing their involvement in "extracurricular commerce" this informal business network yields approximately $2 billion per year.
Mulvenon said that despite his research, he has been unable to track any international defense enterprises in the United States since 1997. Some companies, however, still maintain clear ties to the PLA, including 56 subsidiaries of Xingxing Co. that produce goods for the PLA, a three-star hotel for each major department and agricultural ventures at lower levels. Other companies have hidden behind front companies, one step further from the public eye.
"PLA-owned businesses are eventually a 'black box," even unclear to (the) Chinese government or the General Logistics Department," making it impossible to decipher the money's derivation or subsequent use, said Xionong Cheng from Princeton University's department of political science.
It is understood, Cheng reports, that the greater part of the profit goes to the private pockets of military officials and their relatives and only one-third makes its way to the military budget of the PLA.
The five panelists, all experts on different aspects of the subject of the Chinese government and the PLA, expressed different opinions regarding the status of the military. Mulvenon illuminated the myths regarding divestiture of the Chinese military. Most important, he stated, was an understanding that the PLA remains an active member of the Chinese economy, despite the ongoing divestiture process. The day the Chinese government announced plans to remove the commercial capacities from the army -- Dec.15, 1998 -- "was in fact just the beginning," Mulvenon stated.
Shambaugh presented an attempt to decipher the intricacies of Chinese accounting to track the actual values of the military budget, its sources and outputs. Dr. John Marble, a visiting research fellow at the Institute of International Relations in Taiwan, presented a picture of the commercialization and profitability of the PLA.
Dr. John Frankenstein, a research associate and adjunct faculty at the East Asian Institute at Columbia University, presented an analysis of Chinese defense industries. "The Chinese defense industry complex is a burden on Chinese military modernization," he said.
Frankenstein explained the difficulties of accurately assessing the status of the Chinese budget and the mechanisms of the PLA. "Everything you read about China is true but none of it is reliable." Yet despite these difficulties, Frankenstein reported that the industrial complex within China is facing fundamental problems creating incentives for internal manufacturing groups to enter defense construction and manufacturing due to the industry's sporadic demand and fixed prices. This failure, together with the Chinese military modernization process, forces the industrial complex to seek outside producers.
Inevitably, Frankenstein said, "the PLA faces a future of small scale acquisitions and modernizations."
Col. John Corbett, senior analyst with Centra Technologies, outlined motivations for Chinese modernization and presented recommendations for the future study of the Chinese military budgetary process. He warned that the Chinese defense industrial complex is alive and well in the United States, and that we should "have an eye to protecting critical, sensitive technologies."
