The PLA Industries:Issues and Implications

Deba R. Mohanty, Associate Fellow, IDSA

 

The role of armed forces around the world has mostly been confined to defend the territorial status and guarantee peace to the citizens of a state. Professional armed forces, apart from committing themselves to the integrity of their states, are also engaged in duties that have not traditionally been assigned to them. These range from various humanitarian activities like disaster management, welfare activities like helping the poor through a variety of schemes, to peacekeeping in troubled areas. There are instances where the armed forces have contributed significantly to the economic construction. Very rarely, however, have they ventured into business as the market-place is a different battlefield for them. This is not the case with the People's Liberation Army (PLA). Since the last (nearly) two decades, the PLA has aggressively participated in business activities to such an extent that some of its flagship companies have become major players in important industrial sectors like transport, pharmaceuticals, telecommunications, textiles, services, and others. A widely known joke in China declares: "China has only a navy, because the air force and the army have all 'jumped into the sea' (xia hai, gone into business)". The PLA's headlong rush into business has brought it substantial profits that have been growing at a fast pace, at the same time it has created numerous problems: corruption, especially among the senior officers is growing; professional standards are falling; reluctance on the part of the young generations to join the armed forces is growing; local sentiments have been hurt to a great extent; negative impacts on the central-local relationship have been noted. These negative developments are beginning to hamper the PLA's role as a military organisation. After showing the green signal to the PLA to participate in business in the mid-1980s, the Chinese leadership after a gap of one and a half decades woke up to find that the armed forces had gone too far. In July 1998, the CCP's Political Bureau in its fifth expanded session reviewed these commercial activities by the PLA and sought to curb them immediately. But, these activities are still going on. In this research paper, the development, structure, and activities of the military-business empire and the impact of these business activities on the PLA's unity and operational readiness have been examined. Before examining such a vast subject, however, it is important to study the evolution of the PLA's business activities.

Brief History

The PLA's involvement in economic activities can be traced to its origins as a guerrilla army. Military units relied on growing their own food to meet basic subsistence needs. Indeed, during the pre-Communist period, Mao had emphasised on the self-reliance of the army to fight the revolutionary war in which participation and contribution to the national production was underlined.1 In 1939, the army began the famous "Big Production Campaign". Senior Communist leaders like Zhou Enlai and Zhu De took the lead in participating in agricultural production and textile weaving together with rank-and-file soldiers. The 359th Brigade led by former PRC Vice President Wang Zhen, a role model at that time, allegedly went so far as to plant opium for profits to compensate for an inadequate military budget. This campaign was a great success.2 Following the establishment of the People's Republic of China (PRC) in 1949, the PLA devoted less time to farming and more to training to become a professional army. Nevertheless, it was also required to assist in the country's economic construction. Regular military units were left to divide their time between military training, political study, and sideline agricultural and production work. In brief, the PLA was primarily a 'production force' in a strict economic sense. This role continued till the late 1970s and early 1980s.

The Evolution of Commercial Activities

The PLA's priorities began to change after Deng Xiaoping took power in 1978 and launched an ambitious "Four Modernisation" programme in which military modernisation was the last in the sequence. Appropriations for other parts of the state budget were cut to pay for increased investment in economic projects, and the military was one of the biggest losers. The PLA saw its military budgets substantially slashed in real terms from the beginning of the 1980s. The share of the official defence budget in overall expenditure shrank from 17.5 percent in 1979 to 8.3 percent in 1987.3 It continued to be deficient in subsequent years.

The PLA chiefs were ordered at around the same time to undertake a comprehensive review of their military posture—specifically, of whether the need to maintain a massive standing army still existed as the threat of a Soviet invasion began to recede. After lengthy deliberations, they came to the conclusion that China no longer faced imminent attack and could afford to devote time towards economic construction in this period of peace. They could afford to reduce troop levels. At an enlarged session of the Central Military Commission (CMC) in 1985, it was announced that a million soldiers would be demobilised.

Drastic cutbacks in both defence appropriations and manpower levels led to an examination of the PLA's role in economic activities. The military authorities found it difficult to make ends meet with their reduced appropriations. As a result, military chiefs decided to allow military units to expand their participation in economic activities to acquire additional sources of income. PLA factories were encouraged to convert from military to civilian production, major military trading corporations were established, and previously banned areas of economic activity, such as the tertiary industry, were opened up for military enterprises.4 In 1985, the CMC finally issued a directive of 'releasing water to feed fish', a green light for the armed forces to participate in business in order to compensate for deficiencies in the national defence budgets.5 After this, military units rushed to set up companies: military-affiliated companies and enterprises doubled in number from around ten thousand to more than twenty thousand within a few years, and total profits from the military-business complex grew rapidly.6 The number of military enterprises posted the most spectacular growth, increasing by a hundred fold between 1978 and 1992—from fifty to five thousand firms.7 This explosive growth in PLA's involvement in business activities led to the emergence of a series of serious problems, including corruption, smuggling, speculation, and the illegal use of military equipment for commercial purposes.8 Seeing such unhealthy trends for quite some time, the CMC was compelled to issue a set of regulations in 1989 detailing forbidden business undertakings. The "Ten Nos", as the regulations were called, outlawed army units' use of vehicles or resources for 'speculation, profiteering and smuggling'; they were also not permitted to 'lend, hire out and sell military licenses, bank accounts and bank invoices'; they could not 'participate in panic buying of goods at higher prices, illegally buy up goods, profiteering and raising prices in any form'; and active service military personnel could not be employed by companies or engage in trade.9 Additional regulations banning military personnel and units from speculating in the foreign exchange, stock, and real estate markets have been issued in the past few years. The General Logistics Department (GLD) of the PLA, which is directly responsible for overseeing the military's economic activities has had to undertake regular rectification campaigns to purge unhealthy business practices. These campaigns, however, have had little impact on the PLA. The GLD has been hampered by inadequate resources and lack of an effective regulatory system to monitor the activities of military enterprises.

Deng's call for faster reforms during a trip to southern China in 1992 sparked another period of high-speed growth for the military-business complex. This obviously gave a boost to unhealthy practices which automatically led to a decision by the CMC to launch a hard-hitting army wide rectification campaign in November 1993. This campaign had been declared a success. The total number of military run enterprises had been slashed by 40 per cent, with nearly one thousand trading companies alone being forced to close. Regulations to close, merge, or transfer enterprises to higher level military units were vigorously enforced, thus curbing the commercial activities of the PLA to a certain extent. But, as will be shown later, these measures have not achieved the overall objectives.

The Structure and Management of Military Enterprises

In many ways, PLA companies may be defined as anomalous state-owned enterprises (SOEs). They are by nature government enterprises but in reality are tightly controlled by the PLA. Many people continue to confuse PLA enterprises with defence industries. Although the two have a close relationship, they belong to two separate management systems—the PLA's companies are under the leadership of the CMC, whereas China's defence industries, like other civilian industries, are subordinate to the State Council.10 As mentioned earlier, the overall management system has been the responsibility of the GLD which has adopted a double-track management system to oversee the running of the military enterprises.

Administrative Control System: The Production and Management Department (PMD) under the GLD is responsible for administrative oversight of military enterprises. These departments extend down to the provincial military district and also to major operational units, such as group armies.

Enterprise Control System: Most large and medium sized military enterprises must now be affiliated with a conglomerate11 that is owned by either the logistics department at the general headquarters or the military region command.

The PMD supervises the day to day management of the military enterprises. This department is an army level unit whose responsibilities include drawing up long-term PLA business development plans, inspecting enterprises, managing labour, and overseeing major production projects. All military regions, service arms, and the Commission on Science, Technology, and Industry for National Defence (COSTIND) also have PMDs located within their logistics departments. The PMDs have not been able to keep up with the explosive growth of the military enterprises. Reasons are not difficult to find. They have outdated administrative structures and management techniques, lack manpower and resources. The GLD's Finance Department supervises the financial accounts of military firms and has established a finance enterprise office to carry out this task. The Finance Department has also set up special accounting centres in all military regions. Its audit teams regularly undertake inspections of enterprises and units to check their accounts. The Military Supplies Production Department oversees the production part of the enterprises.

A recent trend in keeping pace with the market-oriented economy has been the formation of military conglomerates and holding companies.12 Most of these conglomerates are organised at three different levels : national level conglomerates, regional and provincial level conglomerates, and unit level entities.

National Level Conglomerates: They are among the largest and most profitable of all military enterprises. They were also among the first military corporations to be established in the mid-1980s. Each general and service headquarters department has one or more of these enterprises. Some of them merit attention here. The Poly Group Corporation and China Huitong Corporation are the two principal corporations that belong to the General Staff Department (GSD). The former was originally established in 1984 and was known as Poly-Technologies. Set up as the foreign weapons trading arm of the GSD, it became an independent enterprise group in 1992. It has about one hundred subsidiaries under its control and has an international presence. With assets of more than 8 billion yuan, Poly has the largest capital base of all the PLA enterprises and is also the top foreign trading entity.13 The latter was established in 1991 and took control over all GSD enterprises apart from those that belonged to Poly. It has over six hundred factories, mines, and firms, and more than fifty research institutes. It engages in a wide range of business activities, from running hotels to tourist companies to foreign trade.14 Its assets are difficult to evaluate due to its diversity. Kaili Corporation and China Tiancheng Corporation are the General Political Department's (GPD) major conglomerates. Kaili was set up in 1984 as a trading company and has expanded itself to include property development, audiovisual products, etc. It has also been extremely active overseas; it has a listed iron ore mining company in Australia, a bank in the Cook Islands, and business operations in Hong Kong. Tiancheng Corporation, originally established in 1985, like Huitong, includes enterprises of GPD that do not belong to Kaili. It has a capital asset of 5 billion yuan, has twenty-odd subsidiaries, and engages in several activities like coal mining in Shaanxi province to real estate investment in Guangdong province.15 China Xinxing Corporation is GLD's primary conglomerate that includes nearly one hundred enterprises specialising in marketing, real estate, foreign trade, chemicals, and advertising. It has assets worth 2 billion yuan and like others is a profit making conglomerate.16 The air force has a major conglomerate in China Lantian Industry Corporation which oversees its business activities. The air force also runs its own airline—known as United Airlines. China Songhai Industrial and Commercial Corporation is the navy's principal conglomerate engaged in industrial production and foreign trade. The Shanhaidan Enterprise Group, engaged principally in pharmaceutical products, is the Second Artillery's main business branch. It has assets worth 2 billion yuan. COSTIND runs a number of corporations, including Chin Yuanwang Group, China Xiaofeng, China Galaxy, and New Era Corporation. China Anhua Development Corporation is People's Armed Police's (PAP) major trading enterprise. These corporations are among the PLA's most profitable commercial enterprises.

Regional and Provincial Level Conglomerates: A large number of conglomerates can also be found under almost all military regions and some provincial military districts. Many of these plants are set up in the 'Third Front'17 or hinterland areas. Hubei Jinghai Enterprise Corporation is a holding company under the Beijing Military Region (MR). It has industrial, agricultural, mining, and other commercial operations. It has assets worth 1 billion yuan and is a profit making entity. Dongbei Jincheng Industrial and Commercial Corporation belongs to Shenyang MR and is one of the largest regional conglomerates with a capital asset of 2 billion yuan. It is also a profit making company. Songlio Enterprise Group, famous for vehicle production and repair, is also a conglomerate under the Shenyang MR. There are some conglomerates which are not confined to a particular MR, they spread across other MRs as well. Huadong Industrial Corporation is an example. It comes under the Nanjing MR, but has operations in five other provinces. Shandong Dongyue Corporation manages the commercial operations of enterprises in the Jinan MR. It has assets worth 650 million yuan and is a profit making entity. Nanfang Industrial and Trading Corporation is the largest of all military region conglomerates. It was ranked as the country's 148th largest foreign trading company with exports of $117 million in 1994.18 Cuicon Enterprise Group is another important conglomerate which manages 500-odd industrial and production bases.19 The Chengdu MR has Southwest Great Wall Economic Development General Corporation, whose operations are mainly in the hinterland and regions and hence, it is not as profitable as its other coastal counterparts.

Unit Level Military Corporations: These corporations are now in troubled waters. The decision made by the CMC at the beginning of retrenchment in late 1993 was that all division level and lower units would no longer be permitted to engage in commercial activities. They were thus ordered to close or transfer the control of their enterprises to higher level logistics departments. The group armies are allowed to continue their commercial operations but are now under stricter controls. The nature of commercial activities among the group armies varies, depending on their location and operational status. Like, 38th Group Army or 39th Group Army are less intensely involved in business activities than their coastal counterparts. In fact, group armies in the coastal region fare better than their inland counterparts due to several advantages. The 42nd Group Army is one of the most successful of the PLA's armies. It has a profit making conglomerate called the Changcheng Huihua Industrial Corporation. It is heavily into foreign trade. Most of the enterprises owned by division or lower level units are small ventures. Of the military's twenty thousand enterprises, only a small fraction qualify as large or medium sized ventures. PLA is estimated to have around 60 large enterprises, out of a national total of 3,500-odd large SOEs. Another 160 are officially categorised as medium sized enterprises. The rest are small entities.

The Business Range

PLA enterprises can be found in virtually every sector of the Chinese economy. Before the economic reforms in the late 1970s, almost all army-run enterprises were engaged in either agriculture or in some industrial activities. But, the focus has shifted rapidly over recent years. The enterprises are now attracted more towards service industry than any other field. Official statistics, however, suggest that the economic focus has not changed as drastically as it might appear. Let us take a look at the broad fields in which these enterprises are operating.

Agriculture: The PLA owns about 600 agricultural firms and bases. These accounted for 13 percent of the total turnover from the PLA's economic activities in 1987.20 The figure in the mid- 1990s was around 6 percent. It seems to have gone down in recent years.

Industry: The PLA enterprises produced about 62 per cent of the total output value in 1987. Now they probably generate around 55-60 per cent of the PLA's business turnover and around 40 per cent of the total profits.21

Tertiary Industry: PLA enterprises engaged in tertiary industry, such as hotel management, medical care, trading and construction, produced 25 percent of the PLA's total business turnover in 1987. This officially rose up to 30 percent by 1992. However, given the enormous growth in numbers of military enterprises engaged in this sector, it may be a gross underestimation. One assessment is that these enterprises account for nearly half of the total output value and nearly half of the profits.22

The PLA enterprises are selective about their involvement in business activities now. They prefer to be in profit making sectors. Let us take a look at the kinds of industries where they are heavily concentrated.

Vehicle Production: This is a pillar industry of China. The PLA enterprises produce around 20 percent of China's passenger cars annually. Nearly 70 plants are engaged in vehicle production and they produce 50,000 vehicles and 500 million yuan worth of vehicle parts every year. Annual output value of all PLA vehicle factories in 1991 was 1.2 billion yuan with post tax profits of 110 million yuan.23

Pharmaceutical Production: The PLA has almost four hundred pharmaceutical factories. Nearly a quarter of these are large and medium sized plants. They account for more than 10 per cent of the country's total annual output of pharmaceutical goods.

Hotels: Military units operate more than fifteen hundred hotels and guest houses employing more than seventy thousand workers. They range from former military barracks to luxury hotels. Turnover from these hotels totaled 1.6 billion yuan in 1992.24

Property Development: Real estate business has become quite lucrative in recent years. The PLA units occupy large tracts of prime land in many major cities and many of them have teamed up with foreign and domestic companies to redevelop these sites into high rise offices and commercial buildings. PLA units especially in Beijing, Shanghai, Guangzhou, Shenzhen, and Hainan have been active in property development.

Textile Production: The GLD operates several dozen factories that produce uniforms, garments, and a range of textile goods. PLA's enterprises occupied seven of the top ten ranks in a 1996 survey of the country's largest textile enterprises.25

Mining: Military units run more than 150 major mines that produce coal and ferrous and non ferrous metals. Coal production in 1992 totaled 39 million tons and a significant proportion was handed over to the government. In 1993, PLA units were ordered to hand over all their mines in Shanxi province to the provincial authorities. This is estimated to have cut overall PLA coal production by one-third and resulted in a loss of nearly 1 billion yuan annually.

Telecommunications: PLA units use parts of their telecommunications systems for commercial ventures. PLA units are especially active in the pager industry, and many pager companies use military communications facilities. In recent times, army backed companies are muscling into China's red hot mobile phone market as well. China Unicom, a giant conglomerate is planning a multi billion dollar listing in Hong Kong and possibly New York.26 China Great Wall Communications has also been operating US standard networks in the cities of Beijing, Shanghai, Guangzhou for several years.

The Earnings

It is not difficult to debate the prime rationale for allowing PLA units to enter into business activities. Primary reasons are economic and politico-strategic. It is fairly well known that compensating the income by undertaking commercial ventures to cover the military's severe budgetary shortfalls is one of the prime motives. However, this decision came out after a comprehensive review of the overall external security environment and China's domestic economic conditions. At a politico-strategic level, it was felt by both the political and military authorities that the time was ripe for economic modernisation which invariably drove the decision-makers to contemplate on military modernisation. Options were limited and opportunities were few. To balance both, after a long deliberation, the Chinese leaders gave the green signal to the PLA to diversify their activities which included commercialisation.

The PLA enterprises appear to have done reasonably well unlike their SOE counterparts. Official figures show that declared profits from the military's commercial activities are roughly equivalent to between 10 and 15 percent of the country's published defence budget. In 1992, for example, total profits from military business operations were 5 billion yuan, and defence expenditure for the same year stood at 37 billion yuan.27 Indeed, income from PLA's business activities has increased rapidly since the mid-1980s. Annual turnover and profits have registered between 10 to 15 per cent increase every year for the past ten years. It appears that enterprises in the tertiary and to some extent agricultural sectors have registered consistent profits while enterprises in the general industrial sector have not fared well. It is not difficult to find the reasons for this variation. This is the age of service industry to flourish, and hence the enterprises in the tertiary sector are in tune with the times. It is not that only military enterprises engaged in industry sectors have fared badly. It is true with defence industries under the State Council as well as SOEs (reasons have been explained in a previous paper). Large enterprises including conglomerates have generally fared better than the medium and small firms. This is because they enjoy special privileges, including priority access to capital. The PLA's most profitable corporations are Poly, Shenzhen 999, and Xinxing. These giants alone account for nearly one-third of PLA's total earnings in business.

It is generally agreed that official figures for business turnover as well as profits certainly under-represent what military enterprises actually earn from their commercial operations. Under reporting of profits is acute, especially among lower level military units, and the military authorities have suffered losses in revenue collection as a result. The GLD regularly conducts extensive audits of the companies but undeclared earnings still exist. Losses suffered by the military authorities is reportedly to the tune of 2 billion yuan every year.28 Military enterprises are allowed to keep a substantial portion of their earnings. They retain between 20 to 40 per cent of their profits for reinvestment and other uses.29 The remainder is divided between the GLD which keeps between 40 to 60 per cent, regional and provincial military authorities who keep between 10 to 20 per cent and the local PLA unit gets 10 to 20 percent. The average profits received by the GLD is between 2.5 to 4 billion per year (since 1993 onward).

Parent military units get the money from the enterprises which are used for training and improvement in the living standards of troops. One group army is reported to have allocated 85 per cent of its total profits to barrack construction and repair, food subsidies, medical coverage for troops, and miscellaneous facilities.30 At the same time, a substantial amount of money is also spent on luxury items and services for senior officers and executives of the military conglomerates. Enterprises also earn foreign exchange for the PLA. Military authorities have encouraged civilian exports especially since the late 1980s when earnings from military exports started declining. About fifty PLA corporations are currently engaged in foreign trade and they exported $230 million worth of goods in 1992. Most of the profits are retained by the GLD.

The earnings generated by the enterprises significantly help the military authorities survive inadequate defence outlays. According to the PLA officials, about one-third of the current official defence budget goes toward living expenses, with the remainder allocated for maintenance and procurement. Without the contribution from the military business complex, the military authorities might have to devote as much as half of the budget for living expenses alone. In brief, earnings from commercial ventures seems to have helped the military immensely.

There is considerable confusion among the Western analysts regarding the actual earnings made by the PLA. It ranges from US $5 to US $20 billion per year.31 In contrast, the official PLA figures are quite low. It is also not possible to get the exact figures due to lack of reliable sources. A more realistic estimate for the PLA's annual commercial profits is about 10 billion yuan. The actual amount that may go to GLD and other PLA units is probably between 4-6 billion yuan. If this is the scenario, then one may assume that the PLA business may not be as lucrative as the Western analysts think.

Implications

The PLA's growing influence in the economic field have several implications. The most serious implications include rising corruption among high officials, falling levels of professionalism, the rise of localist sentiments and eroding central-local relationship, and a widening gap between coastal and inland units. Corruption is perhaps the most serious problem. It was manageable during the initial years. But, in recent years, it appears to have spread rapidly within the ranks. A Liberation Army Daily editorial points out: "At present, army-building is confronted with many new issues and challenges. A number of people in the society are showing tendencies of making use of their power for private gains, hedonism and caring only for profits. Such tendencies are also reflected in the army".32 Many instances of smuggling and corrupt activities by the senior officers have been reported in recent years which adds to the worries of the military authorities. In an effort to prevent the spread of corruption, the military authorities have ordered a clear separation between military units and the commercial enterprises they run. One such order came out as late as in July 1998 by the CCP's Political Bureau which urged the military authorities to curb their commercial activities.

A major problem is the falling standard of professionalism among soldiers as a result of their focus on money making. Many authoritative reports in military publications have been raising their voice on this issue. The need to bring in income has forced some military units to devote more time towards commercialisation rather than to maintaining professional chores, in particular, training. The lack of adequate training not only reduces the combat readiness and effectiveness of the troops but also leads to lax discipline and ebbing morale. Some argue that decrease in overall professional standards may not be a very serious issue as changes in the military thinking in recent year have shifted the focus of preparation from large scale wars to limited regional conflicts for which China is aiming to develop small, well-equipped rapid reaction forces that could be deployed in any part of the country at short notice. This in turn leaves the large front line units to maintain lower level of readiness. If this is what the situation is, then the latter can pursue economic activities up to a certain level so as not to seriously impinge on the falling professional standards.

The PLA's commercial ventures have shown a disturbing trend in growing disparities between military units across the country. Units in major trade zones and coastal regions have fared well while the units in the hinterland have suffered. This is attributable to reasons like location, communication, and distribution facilities.

One of the important consequences resulting from the PLA's commercial ventures is that it has hurt local sentiments. PLA's involvement in commerce has made local military-civil economic linkages more intimate, at the same time, it has raised local sentiments. Local industries have suffered at the hands of military-run enterprises. This is one reason as to why they resent moves by military authorities to set up new factories. Military enterprises, on the other hand, realise this and try to curb it by trying to join hands with local industries through joint ventures but so far have not been as successful as they thought.

Future Trends

It seems that after a rapid but uneven growth for about a decade (till mid-1990s), the PLA's business activities are undergoing a much needed period of consolidation and restructuring. This phase will in all probability differ from the earlier period. The military authorities have signalled their intention to play a more active role in controlling business activities. Some of the trends that are seen in recent years are described below.

More Conglomerates in the Offing: The military authorities are thinking on these lines. They are also focusing on expanding the role of large enterprise groups especially at national level. This is evident from examples like Poly Group and Kaili Corporations which have assumed additional responsibilities to manage small and medium sized enterprises that are in the process of mergers. Mergers of small firms with big ones have been reported and this trend is believed to continue for some time. This, in a way, is expected to ease the burden of supervision of the enterprises by the military authorities.

More Corporations: This key reform will be to turn conglomerates and other military enterprises into limited liability corporations. This entails legally defining the rights and obligations of these enterprises, in particular, their decision-making powers and the ownership of assets. Once their assets have been appraised and ownership rights clarified, they will be allowed to issue shares to their parent military units, banks, other enterprises, and parties that are owed debt by these enterprises. This process is currently being undergone in the state sector. It is expected to bring in more transparency into the functioning of the enterprises.

Emphasis on Core Areas and Quality: The military authorities are contemplating on allowing profit making enterprises to go further and closing or merging the small and loss making entities. This may leave a large number of small and loss making entities to close down their operations. The surviving enterprises will be encouraged to concentrate on specialised and advanced areas like vehicle production, information technology, financial sectors and telecommunications.

The PLA's business activities are huge and wide ranging. It is not possible to have a thorough cleanup. The lure of making money is too tempting for many military units to resist. New bans on preventing units from commercial activities is unlikely to bear fruit. It may induce them to carry out covert operations and may lead to the growth of underground business and other activities, and that will be even more difficult for the military authorities to monitor and control. This is being discussed in recent times both at political and military levels. The issue is very likely to become a hot debate between the present political and military authorities.

Notes

1. For a brief account of the role of the army in economic activities during the pre-Communist era, see, Tai Ming Cheung, 'The Chinese Army's New Marching Orders: Winning on the Economic Battlefield', in Jorn Brommelhorster and John Frankenstein (eds.) Mixed Motives, Uncertain Outcomes: Defence Conversion in China (London: Lynne Rienner; 1997), pp. 182-83.

2. See, Min Chen, "Market Competition and the Management Systems of the PLA Companies", in n. 1, p. 206.

3. Stacey Solomone, 'The PLA's Commercial Activities in the Economy: Effects and Consequences', Issues and Studies, vol. 31, no. 3, March 1995, p. 22.

4. For details, see, Srikanth Kondapalli, China's Military: The PLA in Transition (New Delhi: Knowledge World; 1999), pp. 211-13.

5. Wang Fang, "Fighting at Wartime and Pursuing Business at Peacetime", China Daily Magazine, August 6-12, 1995, p. 16.

6. Foreign Broadcast Information Service: Daily Report China (hereafter FBIS-CHI), April 8, 1992, p. 41.

7. China Business Times, July 29, 1995, pp. 1-2.

8. Srikanth Kondapalli has narrated in detail about the ill-effects of PLA's commercial activities. See, n. 4, pp. 220-23.

9. FBIS-CHI, May 2, 1989, p. 16.

10. Paul Humes Folta, From Swords to Plough-shares ? Defense Industry Reforms in the PRC (Boulder, Colorado: Westview Press, 1992), p. 15.

11. The Chinese 'conglomerate' consists of any group of companies linked by some form of cooperation : for example, a core plant and a number of satellite plants. For details, see, Arthur S. Ding, 'Mainland China's Defence Industry in the Context of Central-Local Relationships', Issues and Studies, vol. 32, no. 7, July 1996, pp.8-9.

12. A holding company, in China, is one that issues shares to various institutions and the state has a stake in it. A joint stock company can buy shares from another company. For details, see, note 11, pp. 10-11.

13. FBIS-CHI, July 22, 1994, p.1.

14. n. 13, p. 1.

15. Cheung, n. 1, p. 184.

16. Cheung, n. 1, p. 185.

17. For a detailed account of the performance of the 'Third Front' industries, see, Barry Naughton, 'The Third Front : Defence Industrialisation in the Chinese Interior', The China Quarterly, no.115, September 1988, pp. 351-86.

18. China Military Conversion News, July 29, 1994, p. 1.

19. n. 18, p.1.

20. FBIS-CHI, 24 August 1996, p.1.

21. Cheung, n. 1, p. 192.

22. The government has had great difficulty in accurately measuring the contribution of the service sector to the country's gross domestic product. In 1994, for example, it had to significantly revise the GDP growth rate after discovering that it had underestimated the growth of the tertiary sector by nearly 20 percent. The service industry now accounts for nearly one-third of the GDP.

23. FBIS-CHI, November 8, 1994, p.5.

24. China's Leading Companies: 1994 (Hong Kong: China Statistical Information and Consultancy Service Centre, 1994), p. 153.

25. n. 24, p. 154.

26. "China's Military Muscling into Hot Mobile Phone Empire", The Observer of Business and Politics, February 16, 2000.

27. n. 24, p. 154.

28. FBIS-CHI, June 11, 1995, p. 13.

29. FBIS-CHI, August 20, 1994, p. 4.

30. FBIS-CHI, August 8, 1991, p. 16.

31. Richard A. Bitzinger, 'China's Defence Budget', International Defence Review, February 1995, p. 36.

32. FBIS-CHI, April 25, 1993, p. 11.