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Respondents should be aware that notwithstanding any other provision of law, no person shall be subject to a penalty for failing to comply with a collection of information if it does not display a currently valid OMB control number. 1. REPORT DATE 3. DATES COVERED 2005 2. REPORT TYPE 00-00-2005 to 00-00-2005 4. TITLE AND SUBTITLE 5a. CONTRACT NUMBER A New Direction for China’s Defense Industry 5b. GRANT NUMBER 5c. PROGRAM ELEMENT NUMBER 6. AUTHOR(S) 5d. PROJECT NUMBER 5e. TASK NUMBER 5f. WORK UNIT NUMBER 7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES) 8. PERFORMING ORGANIZATION Rand Corporation,1776 Main Street,PO Box 2138,Santa REPORT NUMBER Monica,CA,90407-2138 9. SPONSORING/MONITORING AGENCY NAME(S) AND ADDRESS(ES) 10. SPONSOR/MONITOR’S ACRONYM(S) 11. SPONSOR/MONITOR’S REPORT NUMBER(S) 12. DISTRIBUTION/AVAILABILITY STATEMENT Approved for public release; distribution unlimited 13. SUPPLEMENTARY NOTES The original document contains color images. 14. ABSTRACT 15. SUBJECT TERMS 16. SECURITY CLASSIFICATION OF: 17. LIMITATION OF 18. NUMBER 19a. NAME OF ABSTRACT OF PAGES RESPONSIBLE PERSON a. REPORT b. ABSTRACT c. THIS PAGE 332 unclassified unclassified unclassified Standard Form 298 (Rev. 8-98) Prescribed by ANSI Std Z39-18 This product is part of the RAND Corporation monograph series. RAND monographs present major research ﬁndings that address the challenges facing the public and private sectors. All RAND monographs undergo rigorous peer review to ensure high standards for research quality and objectivity. A New Direction for China's Defense Industry Evan S. Medeiros Roger Cliff Keith Crane James C. Mulvenon Prepared for the United States Air Force Approved for public release; distribution unlimited The research described in this report was sponsored by the United States Air Force under Contract F49642-01-C-0003. Further information may be obtained from the Strategic Planning Division, Directorate of Plans, Hq USAF. Library of Congress Cataloging-in-Publication Data A new direction for China’s defense industry / Evan S. Medeiros ... [et al.]. p. cm. “MG-334.” “RAND Project Air Force.” Includes bibliographical references. ISBN 0-8330-3794-3 (pbk. : alk. paper) 1. Military readiness—China. 2. Military research—China. 3. Defense industries—China. I. Medeiros, Evan S. II. Project Air Force (U.S.). UA835.N46 2005 338.4'7355'00951—dc22 2005011668 The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors. R ® is a registered trademark. Cover design by Stephen Bloodsworth. Photo by Zhu Jianguo/Imaginechina. Aircraft: FC-1 Xiaolong (initially known as Super-7). © Copyright 2005 RAND Corporation All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from RAND. Published 2005 by the RAND Corporation 1776 Main Street, P.O. Box 2138, Santa Monica, CA 90407-2138 1200 South Hayes Street, Arlington, VA 22202-5050 201 North Craig Street, Suite 202, Pittsburgh, PA 15213-1516 RAND URL: http://www.rand.org/ To order RAND documents or to obtain additional information, contact Distribution Services: Telephone: (310) 451-7002; Fax: (310) 451-6915; Email: [email protected] Preface Since the early 1980s, a prominent and consistent conclusion of Western research on China’s defense-industrial complex has been that China’s defense R&D and production capabilities are rife with weaknesses and limitations.1 In this study, we call into question this conventional wisdom. Our research found that certain Chinese defense enterprises are designing and producing a wide range of increasingly advanced weapons that, in the short term, are relevant to the Chinese military’s ability to prosecute a possible conflict over Taiwan but also to China’s long-term military presence in Asia.2 This study puts forward an alternative approach to assessing China’s defense-industrial capabilities: From the vantage point of 2005, it is time to shift the focus of research to the gradual improvements in and the future potential of China’s defense-industrial complex. This report is intended to help the U.S. Air Force assess the ability of Chinese defense industries to design and produce more- capable weaponry in the coming decades. The study assesses institu- tional changes in the operations of defense-industry enterprises in ____________ 1 Bates Gill, “Chinese Military-Technical Development: The Record for Western Assess- ments, 1979–1999,” in James C. Mulvenon and Andrew N. D. Yang, eds., Seeking Truth from Facts: A Retrospective on Chinese Military Studies in the Post-Mao Era, Santa Monica, Calif.: RAND Corporation, CF-160-CAPP, 2001. 2 To be sure, these new weapon systems are in most cases 1970s- and 1980s-era platforms, which possess updated technologies (e.g., sensors and weapon suites) and are often derived from foreign-influenced designs. iii iv A New Direction for China’s Defense Industry four sectors: missiles, shipbuilding, military aviation, and information technology/defense electronics. The study, sponsored by the U.S. Air Force’s Director for Operational Plans and Joint Matters (AF/XOX) and the Combatant Commander of the Pacific Air Force (PACAF/CC), is part of the RAND Corporation’s ongoing research on China and China’s military establishment. It is a companion study to • Keith Crane, Roger Cliff, Evan Medeiros, James C. Mulvenon, and William Overholt, Modernizing China’s Military: Oppor- tunities and Constraints, MG-260-AF, 2005. It builds on previous RAND Project AIR FORCE work, including • Roger Cliff, The Military Potential of China’s Commercial Technology, MR-1292-AF, 2001 • Zalmay Khalilzad, Abram N. Shulsky, Daniel Byman, Roger Cliff, David T. Orletsky, David A. Shlapak, and Ashley J. Tellis, The United States and a Rising China: Strategic and Military Implications, MR-1082-AF, 1999 • James C. Mulvenon and Richard H. Yang, eds., The People’s Liberation Army in the Information Age, CF-145-CAPP/AF, 1999 • Daniel L. Byman and Roger Cliff, China’s Arms Sales: Motivations and Implications, MR-1119-AF, 1999 • Erica Strecker Downs, China’s Quest for Energy Security, MR-1244-AF, 2000 • Richard Sokolsky, Angel Rabasa, and C. R. Neu, The Role of Southeast Asia in U.S. Strategy Toward China, MR-1170-AF, 2000 • Mark Burles and Abram Shulsky, Patterns in China’s Use of Force: Evidence from History and Doctrinal Writings, MR-1160- AF, 2000 • Mark Burles, Chinese Policy Toward Russia and the Central Asian Republics, MR-1045-AF, 1999. The information in this report is current as of January 2005. Preface v RAND Project AIR FORCE RAND Project AIR FORCE (PAF), a division of the RAND Corpo- ration, is the U.S. Air Force’s federally funded research and development center for studies and analyses. PAF provides the Air Force with independent analyses of policy alternatives affecting the development, employment, combat readiness, and support of current and future aerospace forces. Research is performed in four programs: Aerospace Force Development; Manpower, Personnel, and Training; Resource Management; and Strategy and Doctrine. Additional information about PAF is available on our Web site at http://www.rand.org/paf. Contents Preface....................................................................iii Figures.................................................................... xi Tables....................................................................xiii Summary..................................................................xv Acknowledgments.......................................................xxv CHAPTER ONE Introduction...............................................................1 The Changing Shape of China’s Defense-Industrial Complex, 1980–1998 ...........................................................4 Explaining the Defense Industry’s Poor Performance .....................11 Weaknesses of Past Reforms............................................14 Understanding “the Soviet Paradox” .....................................18 New Progress in Defense-Industry Reform: The 1998 Reforms and Beyond..........................................................22 Beijing’s “Grand Strategy” for Improving Defense-Industrial Capabilities..........................................................24 The Goals of the 1998–1999 Reforms .................................28 Specific Organizational Reforms........................................31 Systemic Constraints on China’s Defense-Industry Reform...............47 Reform Imperatives Versus Social Stability.............................48 GAD Versus State COSTIND.........................................48 Localization Versus Free-Market Practices..............................49 Organization of This Report ..............................................49 vii