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Military

ANNUAL REPORT TO CONGRESS
Military Power of the People's Republic of China
2008

Chapter Five
Resources for Force Modernization


"We need to build an innovative system of defense science and technology . that integrates military and civilian scientific-technological resources, and that organically integrates basic research, applied R&D, product designing and manufacturing, and procurement to technologies and products so as to create a good structure under which military and civilian high technologies are shared and mutually transferable."
- President Hu Jintao

Overview

Resources for PLA modernization include domestic defense expenditures, indigenous defense industrial developments, dual-use technologies, and foreign technology acquisition - all of which are driven by the performance of the economy. As China's defense industries develop, the PLA is relying on acquisition of foreign weapons and technology, primarily from Russia, to fill near-term capability gaps. China also harvests spin-offs from foreign direct investment and joint ventures in the civilian sector, technical knowledge and expertise of students returned from abroad, and state-sponsored industrial espionage to increase the level of technologies available to support military research, development, and acquisition. Beijing's long-term goal is to create a wholly indigenous defense industrial sector able to meet the needs of PLA modernization as well as to compete as a top-tier producer in the global arms trade. China is already competitive in some areas, such as communications, with leading international defense firms.

Military Expenditure Trends

On March 4, 2007, Beijing announced a 17.8 percent increase in its military budget to approximately $45 billion. This number was later revised by the PRC State Council to $45.99 billion, a 19.47 percent increase from 2006. The announced 2007 military budget continues a trend of official annual budget increases that surpass growth of the overall economy. Analysis of PRC budget data and International Monetary Fund (IMF) GDP data for the period of 1996 to 2006 show average annual defense budget growth of 11.8 percent (inflation adjusted) compared with average annual GDP growth of 9.2 percent (inflation adjusted).

Of note, China’s 2006 Defense White Paper states that between 1990 and 2005 the defense budget grew by an average of 9.6 percent, while China’s GDP over the same period grew in constant prices an average of 9.7 percent yearly, according to the IMF. The 1996-2006 data are a more useful measure, however, as they cover the period following the 1995 and 1996 Taiwan Strait crises and incorporate the 9th and 10th Five Year Plan periods (1996-2000 and 2001-2005, respectively), which more fully reflect the post-Persian Gulf War reinvigoration of the PLA modernization drive.

Estimating China’s Actual Military Expenditures.

China’s published defense budget does not include large categories of expenditure, such as expenses for strategic forces, foreign acquisitions, military-related research and development, and China’s paramilitary forces. Accurately estimating actual PLA military expenditures is a difficult process due to the lack of accounting transparency and China’s incomplete transition from a command economy. As a result, outside estimates of China’s military spending vary. The Department of Defense estimates China’s total military-related spending for 2007 could be between $97 billion and $139 billion.


Outside the Department of Defense, many think tanks and academic institutions produce a wide range of analyses of PRC military expenditure, applying alternative methodologies to estimate defense-related expenditures and funding streams, and various models to convert these estimates to U.S. dollars. Although experts may disagree about the exact amount of military expenditure in China, most arrive at the same conclusion: Beijing significantly under-reports its defense expenditures.

The United States and other countries have for many years urged China to increase transparency in defense spending. On August 31, 2007, China announced that it will begin submitting an annual report to the UN Secretary General on its military expenditures. China has not disclosed whether it will report based on the UN’s Standardized Reporting Form used by the United States, the NATO countries, and many of China’s neighbors such as Russia, Japan, Indonesia, Thailand and the Philippines, or the more superficial and less useful Simplified Reporting Form.


Budgetary increases that have supported domestic military production and foreign acquisitions have accelerated modernization in each military service, as evidenced by:

    • New generations of survivable nuclear missiles, both land- and sea-based, capable of targeting the United States as well as regional powers; • Domestic production of advanced short- and medium-range ballistic missiles;

    • Advanced attack and ballistic missile submarines and associated weaponry;

    • Advanced Russian aircraft and precision weaponry for the air and naval air forces;

    • Domestic development of the multi-mission F-10 fighter aircraft;

    • Advanced Russian guided missile destroyers and domestic versions of modern guided missile destroyers, frigates, and amphibious landing craft;

    • Modern, long-range, mobile air defense systems; and,

    • Programs to increase professionalism and quality of life for military personnel.

China’s Advancing Defense Industries

Since the late 1990s, China’s state-owned defense and defense-related companies have undergone a broad-based transformation. Beijing is attempting to improve business practices, streamline bureaucracy, shorten development timelines, boost quality control, and increase production capacity for military orders.


Beijing is also emphasizing integration of defense and non-defense sectors to leverage the latest dualuse technologies on the market and the output from China’s expanding science and technology base. Augmented by direct acquisition of foreign weapons and technology, these reforms have enabled China to develop and produce advanced weapon systems, such as missiles, fighter aircraft, and warships.

Increasing Efficiency and Capacity. China’s 2006 Defense White Paper notes that across the spectrum of defense-related science, technology and industry the output value, added value, and gross revenue in 2005 increased by 24.3 percent, 20.7 percent, and 21.6 percent, respectively, over the previous year.

Through at least the 11th Five-Year Plan period (2006-2010), China’s defense-related industries will continue to reap benefits from:

    • Transfers of technology and skills from foreign joint ventures;

    • Increased government funding for research, development, and procurement;

    • The manned space flight program, including its vessels and tracking stations;

    • Legal and illegal acquisition of foreign military and dual-use technology;

    • Increased partnerships with some academic institutions, which improve student recruitment and technical training for existing staff; and

    • Overseas training and experience gained by an increasing number of scientists, engineers, and managers returning to China.

Civil-Military Integration. The development of an innovative dual-use technology and industrial base that serves both military and civilian needs is among the highest priorities of China’s leadership, as expressed by President Hu Jintao in his political report to the CCP’s 17th Party Congress:

We must establish sound systems of weapons and equipment research and manufacturing … and combine military efforts with civilian support, build the armed forces through diligence and thrift, and blaze a path of development with Chinese characteristics featuring military and civilian integration.

China’s defense industry has benefited from integration with China’s rapidly expanding civilian economy and science and technology sector, particularly those elements that have access to foreign technology. According to the Organization of Economic Cooperation and Development (OECD), China’s research and development (R&D) spending has increased at an annual rate of 19 percent since 1995 to reach $30 billion in 2005. The OECD assessed that while China has significantly invested in R&D, human resources, and R&D infrastructure, China still has “a long way to go” to build a mature national innovation system.

Progress within individual defense sectors appears to be linked to the relative integration of each – through China’s civilian economy – into the global production and research and development chain. For example, the shipbuilding and defense electronics sectors, benefiting from China’s leading role in producing commercial shipping and information technologies, have witnessed the greatest progress over the last decade. Information technology companies, including Huawei, Datang, and Zhongxing maintain close ties to the PLA and collaborate on research and development. Commercial off-the-shelf technologies, such as computer network switches and routers, increasingly provide the PLA with stateof- the-art telecommunications equipment.

In contrast, enterprises producing specialized defense microelectronics with no counterpart in the civilian economy, such as those found in radars and weapons subsystems, have experienced slower progress. The aviation and ordnance sectors have similarly suffered from a lack of spin-on benefits from partnerships between foreign multinational corporations and domestic industry.

Foreign Technology Acquisition. As of October 2007, China had signed arms agreements worth more than $150 million in 2007, up from the approximately $100 million in agreements in 2006. This represents a steep decline from recent years in which China was one of the largest arms purchasers among developing countries. On-going negotiations for several major Russian weapons systems suggest this trend could be short-lived.

Russia remains China’s primary weapons and materiel provider, having sold it advanced fighter aircraft, missile systems, submarines, and destroyers. China relies on Russian components for several of its production programs, has purchased production rights to Russian weapon designs, and is negotiating the purchase of several advanced systems. Russia cooperates with China on technical, design, and material support for numerous weapons and space systems.


Logistics Reform

Over the last decade, the PLA has improved its capability to support operations within its borders and along its periphery. Frequent training in mobility operations, improvements to command, control and coordination, professionalization, standardization, and reforms to the warehouse system have strengthened the PLA’s overall ability to mobilize and support local military operations. Integration of automated logistics systems into PLA command and control systems, and civil logistics capabilities into military support systems will further improve this capability.

The absence of a true expeditionary logistics capability, however, will limit the PLA’s ability to project and sustain military operations at distances from the mainland. First among these is the capability to transport and sustain more than a division of ground troops and equipment by sea or air. The PLA Navy’s total amphibious lift capacity has been estimated to be one infantry division of approximately 10,000 troops and equipment at one time. Likewise if all the large transport aircraft in the PLAAF were operational and rigged for parachute drop, only approximately 5,000 parachutists could be delivered in a single lift, much less if equipment is carried at the same time. PLA in-flight refueling capability is limited and can only support small numbers of fighter aircraft. The PLA Navy has gained some proficiency with underway replenishment and sustainment of long distance deployments, but this capability remains limited by the small numbers of support ships.

The PLA’s force projection capabilities will remain limited over the next decade as the PLA replaces outdated aircraft and maritime vessels and adjusts operational doctrine to encompass new capabilities. These changes will require tailored logistics equipment and training which will take time and money to develop proficiency. Although foreign produced equipment and maintenance parts, as well as the civil sector, may help to fill near-term gaps, continued reliance on non-organic assets will hinder PLA capabilities to sustain large-scale operations over time.

Israel has previously supplied advanced military technology to China. However, in 2005, Israel began to improve government oversight of exports to China by strengthening controls of military exports, establishing controls on dual-use exports, and increasing the role of the Ministry of Foreign Affairs in export-related decisions. The Israeli Knesset also took a positive step in passing the Defense Export Control Act in July 2007, and adopting associated implementing regulations for this law in December 2007. The United States looks forward to working with the Government of Israel on continued implementation and effective enforcement of these new procedures.

Since 2003 China has been pressuring EU states to lift the embargo on lethal military sales to China that the EU imposed in response to China’s 1989 crackdown on Tiananmen Square demonstrators. In their Joint Statement following the 2004 EU-China Summit, European and PRC leaders committed to work towards lifting the embargo. Although the issue officially remains on the EU agenda, there is no consensus among the EU Member States on lifting the embargo any time in the near future.

China continues a systematic effort to obtain dualuse and military technologies from abroad through legal and illegal commercial transactions. Many dual-use technologies, such as software, integrated circuits, computers, electronics, semiconductors, telecommunications, and information security systems, are vital for the PLA’s transformation into an information-based, network-enabled force. Several high-profile legal cases highlight China’s efforts to obtain sensitive U.S. technologies (e.g., missile, imaging, semiconductor, and submarine) illegally by targeting well-placed scientists and businessmen. ICE officials have rated China’s aggressive and wide-ranging espionage as the leading threat to U.S. technology. Between 2000 and May 2006, ICE initiated more than 400 investigations involving the illicit export of U.S. arms and technologies to China, which led to several convictions of U.S.-based violators of the Export Administration Act and the Arms Export Control Act.

Key areas where China continues to rely most heavily on foreign technologies include guidance and control systems, turbine engine technology, and enabling technologies such as precision machine tools and advanced diagnostic and forensic equipment, applications and processes essential to rapid prototyping, computer-assisted design/manufacturing (CAD/CAM) and reverseengineering.

Sector-by-Sector Analysis. Progress across sectors of China’s defense industry has been uneven. Production trends and resource allocations appear to favor missile and space systems, followed by naval assets (both surface and sub-surface), aircraft, and ground force materiel. In all areas, however, China is increasing the quality of its output and surge production capabilities.

Missile and Space Industry: China develops and produces a broad range of sophisticated ballistic, cruise, air-to-air, and surface-to-air missiles. Many of China’s primary SRBM and MRBM final assembly and rocket motor production facilities have received upgrades over the past few years, increasing overall production capacity. In addition to supplying China’s military, these complete systems and missile technologies could also be marketed for export by Chinese entities. Surge production for these systems could result in a significantly higher output of SRBMs and perhaps double the number of MRBMs per year. China’s space launch vehicle industry is expanding to support satellite launch services and the manned space program.

Naval Industry: China operates a vibrant commercial and naval shipbuilding industry that is globally competitive. China is the third-largest shipbuilder in the world, after Japan and South Korea. Shipyard modernization and expansion has increased China’s overall shipbuilding capacity and capabilities, generating corresponding benefits for all types of naval projects, including submarines; surface combatants; naval aviation, including initiatives for aircraft carriers; and amphibious/sealift-airlift assets. China continues to rely on foreign suppliers for some propulsion units and, to a lesser degree, fire control systems, cruise missiles, ship-to-air missiles, torpedo systems, sensors, and other advanced electronics. Modular shipbuilding techniques will allow China to spread production across multiple locations, increasing both efficiency and the number of ships that can be simultaneously produced. China has already demonstrated an ability to surge submarine and amphibious ship production.

Ground Force Industry: China’s ground force modernization includes the development and production of new tanks, armored personnel carriers, and artillery pieces. There have been advances in almost every area of PLA ground forces, and China has developed the production capacity to accommodate surge requests. China continues to rely on foreign partners to fill gaps in critical technical capabilities that could limit actual surge output.


Status of Aircraft Carrier Developments

There does not appear to be evidence that China has begun construction of an aircraft carrier. However, evidence in recent years increasingly suggests China's leaders may be moving forward with an aircraft carrier program. For example, beginning in early 2006 and with the release of China's Eleventh Five Year Plan, PRC-owned media reported on statements from high-level government and military officials on China's intent to build aircraft carriers - including a March 2007 statement from the then-minister of China's Commission on Science, Technology and Industry for National Defense (COSTIND). Continued renovations to the former Soviet Kuznetsov-class aircraft carrier suggest China may choose to use the platform for training purposes. Moreover, Russian press has reported Chinese interest in acquiring Russian Su-33 carrier-borne fighters. In October 2006 a Russian press report suggested early-stage negotiations were underway for China to purchase up to 50 such aircraft at a cost of $2.5 billion. However, there has been no announcement of a contract for the aircraft.

Analysts in and out of government project that China could not have an operational, domestically-produced carrier before 2015. However, changes in China's shipbuilding capability and degree of foreign assistance to the program could alter those projections.

Aviation Industry: China’s commercial and military aviation industry has advanced from producing direct copies of early Soviet models to developing and producing indigenous aircraft, including improved versions of older aircraft and modern fourth generation fighters. China’s commercial aircraft industry has imported high-precision and technologically advanced machine tools, electronics, and other components that can also be used in the production of military aircraft. China’s ability to surge production in the aircraft industry will be limited by its reliance on foreign sourcing for aircraft engines and avionics, as well as the availability of skilled personnel and facilities.

Looking to the Future: Trends and Projections

China’s National Medium- and Long-Term Program for Science and Technology Development (2006-2020), issued by the State Council in February 2006, seeks to transform China into an “innovationoriented society by 2020.” The plan defines China’s science and technology focus in terms of “basic research,” “leading-edge technologies,” “key fields and priority subjects,” and “major special items” – all of which have military applications.

Basic Research. As part of a broad effort to expand basic research capabilities, China has identified five areas that have military applications as major strategic needs or science research plans requiring active government involvement and funding: material design and preparation, manufacturing in extreme environmental conditions, aeronautic and astronautic mechanics, information technology development, and nanotechnology research. In this last area, China has gone from virtually no research or funding in nanotechnologies and processes five years ago, to being a close second to the United States in total government investment.

Leading-edge Technologies. China is emphasizing the following technologies for rapid development:

    Information Technology: priorities include intelligent perception technologies, ad hoc networks, and virtual reality technologies.

    New Materials: priorities include smart materials and structures, high-temperature superconducting technologies, and highly efficient energy materials technologies.

    Advanced Manufacturing: priorities include extreme manufacturing technologies and intelligent service robots.

    Advanced Energy Technologies: priorities include hydrogen energy and fuel cell technologies, alternative fuels, and advanced vehicle technologies.

    Marine Technologies: priorities include threedimensional maritime environmental monitoring technologies, fast, multi-parameter ocean floor survey technologies, and deep-sea operations technologies.

    Laser and Aerospace Technologies are also high priorities.

Key Fields and Priority Subjects. China has identified certain industries and technology groups which hold the potential to provide technological breakthroughs, remove technical obstacles across industries, and improve international competitiveness. Specifically, China’s defense industries are pursuing advanced manufacturing, information technology, and defense technologies. Examples include radar; counter-space capabilities; secure C4ISR; smart materials; and, low-observable technologies.

Major Special Items. China has also identified 16 “major special items” for which it plans to develop or expand indigenous capabilities. These include: core electronic components; high-end universal chips and operating system software; very-large-scale integrated circuit manufacturing; next-generation broadband wireless mobile communications; high-grade numerically controlled machine tools; large aircraft; high-resolution satellites; manned spaceflight; and, lunar exploration.


1 For surface and subsurface forces, "modern" is defined as those platforms that are capable of firing an anti-ship cruise missile. For air forces, "modern" is defined as 4th generation platforms (SU-27, Su-30, F-10) and platforms with 4th generation-like capabilities (FB-7). Modern air defenses are defined as advanced Russian SAMs (SA-10, SA-20), and their PRC indigenous equivalents (HQ-9).

 



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