The upward swing of Beijing’s military-industrial complex

On May 6, in its first official indictment of the Chinese government, the U.S. Department of Defense (DoD) accused Beijing of using espionage to acquire defence technology for its military modernisation programme. In its 83-page annual report to the U.S. Congress, titled ‘Military and Security Developments Involving the People’s Republic of China 2013,’ the Pentagon charged China of also breaking into computer systems in the U.S. to steal technology. It also cited the advancements made by the Chinese in stealth aircraft and aircraft carrier projects.

The report comes at a time when China has emerged as one of the top five arms exporter worldwide, as affirmed by data from the Stockholm International Peace Research Institute (SIPRI). In its 2013 annual report, SIPRI notes that China has now displaced the U.K. to become the fifth largest arms exporter, accounting for 5% of global arms exports. The DoD noted that Chinese arms sales were worth US$11 billion from 2007-2011. While still far behind the U.S. (which has a 30% share of global arms exports) and Russia (26%), the rise of the Chinese defence industry is notable when compared to the early 1990s, when it was characterised by inefficiency, corruption, and poor performance.

The rise of the domestic defence industry has enabled China to reduce its arms imports. SIPRI data shows that from 2008 to 2012, China’s arms imports halved, as compared to 2003-2007, when it was the world’s largest arms importer.

What explains this upward swing of Beijing’s military-industrial complex? The answers to questions about how the Chinese defence industry developed hold lessons for the Indian defence industry, especially at a time when our private sector is entering this previously public sector domain.

The Chinese defence industry’s performance is backed by the double digit growth in China’s annual defence outlays. Media reports have noted an upsurge of 11.8% in annual defence budgets from 2000-2011 (adjusted to inflation), with an 11.2% increase in 2012, or an expenditure of US$106 billion. According to figures of the Chinese government, one-third of these funds cover equipment expenses, including research and development (R&D). But estimates by western analysts suggest that a much greater amount is allocated to military research, development and acquisition.

China has one of the largest and most diversified military-industrial complexes in the developing world: around 1,000 enterprises employing approximately three million workers, including 3, 00, 000-plus engineers and technicians. In the past, China’s defence industry was highly centralised, characterised by a lack of access to capital and technology. As a result, the industry produced shoddy arms, forcing China to heavily rely on foreign imports.

After the 1989 Tiananmen Square protests and the subsequent arms embargo by European countries, China turned to the Soviet Union and then Russia for arms imports. Over the years, a number of Russian weapons systems constituted the mainstay of Chinese firepower, including the Su-27 fighter jets, the Kilo-class submarines, the Sovremenny-class destroyers and the Sunburn anti-ship missiles.

However, as China embarked on a military modernisation programme under the leadership of Deng Xiaoping in the late 1980s, and then under Jiang Zemin in the 1990s, defence sector industries were reinvigorated. Major reforms included ending the monopoly of state-owned firms, allowing the private sector to enter the defence sector, and integrating the commercial and manufacturing aspects into R&D.

Various studies have pointed out that China’s path to military modernisation involved a dependence on foreign technology, acquiring critical dual-use equipment, and a focus on indigenous R&D. China has consistently emphasised indigenous R&D using official guiding principles for the development of science and technology (S&T). In 2006, a document issued by the State Council noted that by 2020, S&T will contribute 60% to China’s overall development, and the country’s reliance on foreign technology will decline by 30%. This will be achieved by strengthening research, and the defence industry is one of the eleven key industries to be prioritised.

A U.S. DoD study in 2009 observed that China has done exceedingly well in sectors that are well-integrated into the global R&D production chain. Beijing has performed well in the aviation sector, and in missiles and ship-building. In recent years, it has launched two classes of locally-designed and built conventional submarines. It has produced variants of the Su-27 aircraft and developed two locally built fighter aircrafts, the J-10 and J-20 (though details of the latter are hazy). It has made substantial progress in ballistic and cruise missiles. In 2012, China also commissioned its first domestically-produced aircraft carrier, Liaoning.

But the West and Russia have accused the Chinese of copycat (or “reverse”) engineering and violating intellectual property rights to leapfrog and integrate advanced technologies into their production lines. Reverse engineering is evident in the aviation sector; the design and technology of the J-10 fourth-generation aircraft strongly resembles a variety of existing aviation platforms earlier sold to the Chinese.

The Russians have also accused the Chinese of copying from Russian naval ships to produce their own variants. The Chinese are also said to have copied from the Pentagon and U.S defence industries. The DoD has noted that “China is using state-sponsored industrial and economic espionage to acquire technology fueling its fast-paced military modernization program and cut its reliance on foreign arms makers.”

The Bureau of Industry and Security of the U.S. Department of Commerce has also noted numerous instances over the last few years where American companies were “forced” to transfer technology to China in exchange for access to its huge market. The Chinese have leveraged their market potential to pit one competitor against another, resulting in some companies offering to transfer far more technology than their competitors. This has given China access to key technologies.

Besides, as part of the military-industrial complex, many government-affiliated firms in China have been able to acquire crucial dual-use technologies, which have then been channelled into military requirements.

China’s rapid economic growth in recent years is accompanied by the impressive performance of its information technology (IT) sector. Although IT is not an official part of the defence industry, it has contributed significantly to the defence sector. Reports note that the People’s Liberation Army in China has leveraged IT products to improve the military’s command, control, communications, computers, and intelligence (C4I) capabilities.

The entry of the private sector has also enabled the Chinese defence industry to access global R&D in technology and rapidly absorb it into Chinese production. The private sector has made the defence industry more competitive. Beijing plans to promote private defence contractors in order to continue the forward march of its defence industry. Media reports note that listed subsidiaries of private military contractors are now planning to buy assets worth US$3.15 billion from China’s state-owned corporations.

What can India learn from the Chinese defence industry? Integrating commercial and manufacturing aspects into R&D of weapons systems is the way forward. It allows the end-user to have a say in the shape of the final product. But the key to improving India’s defence industry is innovation, not copycat engineering, which has left China lagging in technological innovation. This is especially evident in the aviation sector, where Chinese defence firms have been unable to serially produce complex aviation platforms or heavy bombers.

Introducing accountability and competition, along with greater participation by the private sector, will benefit India’s defence sector. China has lured back talented Chinese engineers and other professionals from the U.S. and Europe. They may have contributed to the burgeoning Chinese defence industry. India should think on these lines to give our defence industry access to better-trained personnel.

China’s leadership has promoted technology transfers, sometimes incorporating them into defence agreements. Indian leaders could do the same. India must also plan better for the long gestation periods of investments in the military.

India can draw these and other important lessons from China, while working out our own template for military-industrial growth.

Sameer Patil is Associate Fellow, National Security, Ethnic Conflict and Terrorism, at Gateway House.

India Today published this article on 16 May, here.