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Strategic Comments ISSN: (Print) 1356-7888 (Online) Journal homepage: https://www.tandfonline.com/loi/tstc20 The PLA's business interests A long-term source of extra revenue To cite this article: (1997) The PLA's business interests, Strategic Comments, 3:10, 1-2, DOI: 10.1080/1356788973104 To link to this article: https://doi.org/10.1080/1356788973104 Published online: 22 Oct 2007. Submit your article to this journal Article views: 108 View related articles Citing articles: 1 View citing articles Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=tstc20 The PLA’s business interests A long-term source of extra revenue Renewed criticism by the US Congress cations and financial services, and aims of China’s domestic and foreign policies The structure of the CMBC to become one of China’s corporate overshadowed the successful summit on While the CMBC may be opaque, the powerhouses. Each of the PLA’s 14 top 29 October 1997 between Chinese Presi- Chinese media regularly reports on its central and regional military commands dent Jiang Zemin and US President Bill activities. Officially, there are around has two or more of these enterprises. Clinton. During Congressional hearings 10,000 military-owned factories, trading in early November, a topic that featured companies, farms and other commercial Centralising control prominently, alongside human-rights entities operating throughout the The formation of these conglomerates is abuses, was the commercial activities of Chinese economy. The vast majority of part of a broader effort by the military the People’s Liberation Army (PLA), these firms are small and barely high command to centralise control of especially their dealings in the US. The profitable, but as much as three-quarters the disparate network of businesses and House of Representatives passed a bill of the CMBC’s total output and profit is to clean up their malpractices. When the on 7 November 1997 – that Clinton will generated by 500–1,000 large enterprises. authorities agreed in the mid-1980s that almost certainly reject – banning PLA This level of production is believed to be military units could engage in companies from operating in the US. equivalent to that of a small province, commercial activities, little effort was These concerns are based on allegations such as Hainan or Qinghai. made to supervise their operations. This that PLA-owned firms are employing Many of these large enterprises are laissez-faire approach quickly led to a prison labour and are using their being merged into conglomerates that sharp rise in corruption, smuggling, earnings to fund China’s military-devel- will drive the CMBC’s growth into the profiteering and other abuses. Military opment programme. next decade. Around 30 of these bodies readiness and cohesion also suffered as However, these suspicions are based have been formed, each comprising soldiers neglected their duties in order to more on political rhetoric than hard facts. between 40 and over 100 subsidiaries. make money. One conclusion from the hearings was The most profitable is the China Poly These problems became so acute that that little was known for certain about Group (CPG), the PLA’s primary the military leadership launched a two- the Chinese military-business complex weapons-trading firm which sells arms year rectification campaign at the end of (CMBC)’s operations. US government to countries such as Myanmar and 1993 and closed down 40% of the PLA’s officials stated that the names and Pakistan. CPG – which is run by He commercial entities. Combat units were activities of PLA companies changed so Ping, a son-in-law of the late Chinese also banned from running businesses, often that it was impossible to impose leader Deng Xiaoping – is also involved but they were allowed to participate in effective sanctions against them. in property development, telecommuni- agricultural and other subsistence acti- PLA business structure CPC Central Military Commission Chairman Jiang Zemin PLA general staff department PLA general political department PLA general logistics department Commission for Science, Technology and Industry for National Defence Head General Fu Quanyou Director General Yu Yongbo Director General Wang Ke Director General Cao Gangchuan Service arms air force, navy, Production and management strategic missile force, group armies subdepartment Director Major General Sun Chengjun Subordinate China Poly Group Corporation China Carrie Corporation China Xinxing Corporation 999 Enterprise Group China New Era conglomerates President Major General President Major General President Fan Yingjun President Zhao Xinxian Corporation Group and corporations He Ping Ye Xuanning Seven military regions Beijing, Chengdu, Guangzhou, Jinan, Lanzhou, Nanjing, Shenyang Southern Industrial and Trading Corporation PLA troops at a ceremony in Shenzen PHOTO © AP © I I S S ● STRATEGIC COMMENTS ● Vol. 3, No. 10 ● DECEMBER 1997 The PLA’s business interests page 2 vities. Control over many of the enter- growing parts of the economy, including: have also laid most of China’s fibre-optic prises was transferred to military Transportation communication lines. authorities at the regional and central An extensive military-dedicated trans- levels. This allowed the General Logistics portation system – airports, naval bases Foreign trade Department (GLD), in charge of and railways – has been converted to Military conglomerates have begun to managing the PLA’s business operations, commercial use. The Air Force has its expand their operations into overseas to collect a greater share of the profits own airline and uses military transport markets because of rising domestic and taxes that lower-level units had jets to serve less-popular domestic competition. Hong Kong is a favoured previously kept for themselves. Despite routes; the Navy has several inland and destination, and a small but growing this reorganisation, however, corruption ocean-bound shipping companies. number of prominent PLA-owned sub- and other forms of misconduct remain a Vehicle production sidiaries have been listed on the local major problem for the authorities. Seventy army-run factories produce stock market to finance their corporate around 20% of China’s passenger cars expansion. Many PLA firms have also Commercial earnings and trucks. But because of poor effi- established ‘shell’ companies in offshore A key reason for allowing the PLA to ciency and a lack of orders, most operate tax havens – such as the British Virgin engage in business activities was to at less than half capacity. The most Islands – to deposit money siphoned off improve the living standards of troops successful of these firms, Liaoning from their profits. and to provide employment for their Songliao Vehicle Corporation, belonging Other growing markets for PLA families. Reductions in defence spending to Shenyang Military Region, was listed companies include the US – a top des- during the 1980s led to serious funding on the Shanghai stock market in 1995. tination for military exports of consumer shortfalls for lower-level units. Conse- Pharmaceuticals goods, such as food products, toys and quently, they were allowed to retain The PLA has nearly 400 pharmaceutical garments – and the former Soviet Union. most of the business profits for their own factories producing around 10% of the Overall, military firms are estimated to use. Much of this money was spent on country’s annual output of medical earn as much as $1bn annually from improving accommodation, supple- goods, particularly traditional Chinese foreign trade, excluding arms sales. In menting wages and, in many instances, remedies. The 999 Enterprise Group in 1996, CPG achieved total exports and buying luxury cars for senior officers. Shenzhen – owned by the GLD – is imports of $440m, a figure which Before the 1993 rectification cam- China’s largest pharmaceutical company. probably included weapon transactions. paign, the GLD received only a small Hotels share of business earnings – probably no There are more than 1,500 PLA-owned The future more than 25%. However, this has in- hotels in China. These range from When the PLA started setting up its creased substantially since the GLD converted army guest-houses to five-star business ventures, it was a temporary assumed direct control of a large number luxury accommodation. expedient to make up for inadequate of enterprises. With declared PLA busi- Real-estate development defence budgets. After nearly 15 years of ness profits in 1996 of approximately Military companies are heavily involved spectacular growth, however, the CMBC Yuan 4–6 billion ($480–780 million) from in China’s booming property sector. is likely to be a permanent and powerful a total turnover of more than Yuan 50bn, They are building high-rise office and presence in the Chinese economy. between half and two-thirds of this sum commercial complexes as well as afflu- Despite the additional business rev- may have gone into central reserves. But ent residential homes in major cities. enue, PLA chiefs are demanding most of this money is likely to have been CPG, for instance, is one of the most increased government funding because given back to lower-level units to cover active property-development companies, of the financial benefits the state derives lost earnings. with a real-estate portfolio ranging from from economic reforms. The country has Only a small proportion of the PLA’s the Shanghai stock exchange’s new more than $130bn in foreign-exchange commercial revenue is believed to fin- building to luxury villas in Beijing. reserves. Senior military officers argue ance the procurement of new weapons. Garment production that they need more money to replace It is more likely that these funds come Four of China’s ten largest clothing depreciating weapon systems and to primarily from CPG’s profits. A sizeable enterprises are PLA-owned. They origi- establish a military capability com- amount of money retained by military nally produced military uniforms, but mensurate with China’s emerging units is also spent on improving training. now manufacture anything from run- regional-power status. ning shoes to designer-label outfits. Many of the thousands of small PLA Commercial activities Mining enterprises are unlikely to survive in the PLA enterprises can be found through- Military units run almost 150 major short to medium term, especially since out the Chinese economy, although they mines, producing coal and ferrous the Communist Party of China (CPC) are most heavily concentrated in the metals. Annual coal production is endorsed a massive state privatisation industrial and service sectors. The PLA’s around 40m tons, most of which is sold programme at its 15th Congress in 4,000 factories and mines contribute on the open market. The paramilitary September 1997. Nevertheless, a small about half of the CMBC’s annual People’s Armed Police – which has close core of giant military conglomerates is turnover, while military-owned trading ties with the PLA – is one of China’s taking shape. The military’s relationship companies, hotels, finance firms and leading gold producers. with these corporations will be as other entities in the tertiary sector Telecommunications passive owners or majority shareholders generate around 40% of output. The The PLA has a major commercial rather than as active managers. These remaining 10% of revenue is produced presence in the rapidly growing mobile enterprise groups are likely to become a by the military’s 600 farms. telecommunications market, largely major corporate force over the next few PLA-owned firms have carved out because it controls crucial radio fre- years, providing a long-term source of lucrative niches in some of the fastest quencies. Military construction units revenue for the PLA leadership. © I I S S ● STRATEGIC COMMENTS ● Vol. 3, No. 10 ● DECEMBER 1997