A Monthly Journal of the IDSA
Rise and Fall of the PLAs Business Empire: Implications for Chinas Civil-Military Relations
By Swaran Singh *
The profit-seeking commercial business empire of Chinas Peoples Liberation Army (PLA) represents a unique example in the present day world. The PLA is the only agency that singularly controls the largest number of Chinas business firms which span not only traditional sectors like agricultural and animal farms or mining raw materials but also high-tech areas like transportation, telecommunication, launching satellites, as also carrying out mass-production of popular consumer goods like bikes and television. The PLA has also built an important presence even in service sector industries like hotels, discotheques as also real estate, shares and securities. More than this, the PLA also controls a vast ocean of technical infrastructure, skilled manpower and other resources and it enjoys special privileges that make it not only extremely successful but also extremely attractive as a partner for joint ventures by other entrepreneurs both from home and abroad.
During the early 1980s, for example, in the face of successive reductions in its annual financial allocations, the registered PLA enterprises had peaked at over 20,000. The number had since, however, stabilised at over 15,000 enterprises employing over 600,000 civilians. All this had made the PLAs business empire the financial guarantor for Chinas military modernisation drive thereby enabling it to virtually emerge into an independent force that was becoming increasing immune to the tradition of civilian political control. 1 Besides, the large number of unaccounted non-registered seasonal and part-time enterprises were always too difficult to keep track of and profits from these could only be speculated upon. The accounting was further complicated as much of the profits from these enterprises were utilised towards improving the living standards of PLA troops. This also resulted in the evolution of strong vested interests within Chinas armed forces that not only believe in sustaining but promoting these business enterprises. All this further strengthened the PLAs clout in Chinas decision-making thus making it a most formidable political force.
It is necessary to clarify at the very outset that there was nothing originally very special about the PLAs economic activities and, like many other armed forces, those of China had also been traditionally involved in certain industrial and agricultural sectors. This was permitted to generate self-sustaining resources and, thereby, reduce the defence burden on the masses. Instead, what made PLA business operations unique (and controversial) was its more recent involvement in purely profit-making commercial activities. This profit-seeking had led to increasing incidents of the PLA top-brass using their special privileges to promote their business interests which had gradually begun to subvert the militarys priorities and, thereby, emerged as a major predicament for Chinas leaders. 2 This process, apart from undermining the PLAs professionalism, soon resulted in the PLA coming under repeated charges of bribery, fraud, embezzlement, smuggling and other forms of corruption which led to controversy and problems in Chinas civil-military relations. 3 The issue is further complicated by the fact that the post-Deng third generation leadership of China happens to be led by a civilian technocrat, President Jiang Zemin. Unlike Chinas earlier two paramount leadersMao and DengPresident Jiang does not have any direct military background. Accordingly, in an effort to propitiate the armed forces, for a long time, Jiang continued to play soft on PLAs activities. This only further complicated the challenge of rectifying the PLAs business ethics as it began to impinge on Chinas tradition of the military being subordinate and subservient to the Communist Party.
Besides, it was the sheer magnitude of the PLAs business operations that made it so formidable for the future of Chinas civil-military relations, portends of which had begun to sound during the last few years. To say the least, this danger was vividly reflected in the PLAs continued apathy towards President Jiang Zemins repeated calls for streamlining and professionalising Chinas armed forces since the early 1990s. Since 1993, President Jiang had, in fact, begun to clearly stress on the issues of conspicuous consumption and corruption amongst the armed forces. Accordingly, as a last resort, to rectify his equations with the PLA, President Jiang Zemins anti-corruption crusade took a historic decision in July 1998 in which he directed the armed forces to completely shun all their business operations. This directive not only disallowed the PLA any involvement in any form of economic enterprise but also directed Chinas armed forces and other law enforcing agencies to surrender their existing business operations before the end of last year (1998). Special agencies were also set up under the State Commission on Trade and Economyknown as Chinas new superministry under its State Councilwhich were expected to effect these transfers as per schedule.
However, whether or not these transfers have been effected until the last detail remains an open ended question. Reports about the initial process of implementation of this decision have highlighted the inherent lacunae and pitfalls of the process. It is said that despite all the type attached to this campaign, it is not going to put an end to all the PLAs enterprises nor is it going to be implemented in the time-bound and comprehensive manner that was projected by Chinas official statements. At the same time, however, going by the vigour and commitment of Chinas top leaders, this is not likely to become just another slogana mere formality with little action. In the end, therefore, given the larger context of President Jiang being the first non-military leader at the helm, even partial success of this campaign will have important implications for the future of Chinas civil-military relations.
Genesis and Growth: Doctrine of Self-Reliance
To understand the process of the rise and fall of the PLAs business empire, it is imperative to first explore the historical process of its evolution as also the theoretical underpinnings of this business tradition amongst Chinas armed forces. And here, amongst others, it the Doctrine of Self-Reliance that perhaps lies at the core of this unique experiment. Also, historically, the armys engagement in production activities can be traced to its very inception during the early 1930s when this tradition was fostered by Mao Zedong himself for he took pride in casting as little financial burden on his people as possible. Indeed, this Doctrine of Self-Reliance was to gradually evolve as the integral part of Maos later agrarian Communism that differentiated it from other brands of Communism. Later, this witnessed the PLA emerging as the strongest pillar of Maos experiment with the commune system. Still later, during the early 1980s, Deng Xiaoping was to use the PLA once again as a major catalyst for his experiment with opening up and economic reforms, thus, encouraging the armed forces to become an integral part of Chinas economic boom during these recent years.
To recall, this began in the days when Communist Party leaders were holed up in the Jing gang shan mountains (1927-34) in southern China. It was here that Mao encouraged his Red Army troops to grow grain and vegetables to supplement their supplies. Later, during his days in Yunnan as well, at the time of the Sino-Japanese War (1937-45), Mao had launched the so-called Great Production Campaign, ordering troops to cultivate abandoned land, grow grain and spin and weave cloth. This was also the period when some basic arsenals were set up. After the Communists seized power in October 1949, the tradition was further glorified by declaring that the Communist forces had won wars through self-reliance. In fact, with the establishment of New Delhi, these military-run farms were soon to be seen everywhere and this tradition became an integral part of Chinas later efforts at modernisation.
Also, at the core of Maos agrarian Communism was the ancient Chinese idealistic social code: All under Heaven are equal. And this thinking was clearly reflected in his vision of China where the armed forces were seen not only as integral part of society but equal partners in all societal endeavours for development. On May 7, 1966, on the eve of Chinas Cultural Revolution, Mao had written an important letter to the then defence minister, Marshal Lin Biao, whom Mao had already handpicked as his successor. This letter clearly showed Maos thinking on this subject and it said:
The PLA should be a great school...In addition to fighting battles (the troops) should do all other works. In this great school, (the troops) can learn politics, learn military skills, acquire education, as well as engage in agricultural and sideline production. At the same time they should be also able to run certain small and medium-sized factories making products that meet their own needs and for exchange with the state for other goods of the same value. 4
This was followed by the onslaught of the Cultural Revolution that further enhanced the militarys societal entrenchment by allowing it to penetrate into all social sectors, including the economic sectors. And during his later days, as Mao began to lose control over the state of affairs, the mid-1970s witnessed these vested interests growing from strength to strength. The merging clout of the PLA over the civil state-of-affairs and the consequent conflict in civil-military relations reached its climax in the bizarre Lin Biao affairthe alleged attempt by an increasingly beleagured defence minister and his colleagues to assassinate Mao and seize the state power. 5 Accordingly, taming the PLAs rising influence in economic matters had, in fact, presented an equal important challenge to post-Mao leaders. Added to this were the five difficult years of transition between Maos departure and Dengs arrival at the helm, and during this critical period of transition, these vested interest had further consolidated their positions. However, instead of ousting them, Deng put them to full use once again in his process of opening up and reforms in Chinas economic sectors.
Deng Xiaopings Economic Reforms
Contrary to the popular belief that Deng allowed the armed forces to indulge in profit-making commercial activities, this process had, in fact, preceded his economic reforms. 6 Also, contrary to the view that the PLAs economic operations were allowed to go berserk and virtually hijack the economic reforms, Deng had perhaps conceived a well-measured role for the PLA in Chinas economic reforms. He may have visualised the PLA either as the fundamental compulsion or catalyst for the success of his economic reforms and definitely provided the PLA the role of what Yang Baibing called an imperial escortbaojia huhangto his economic reforms. 7 Deng, a long-time military leader under Mao Zedong, fully understood the PLAs key role both in keeping society stable as also in initiating any social transformation. In more specific terms, in creating this role for the PLA, Deng may have conceived it as a device to deal with the monstrous bureaucracy that he himself had helped create.
For the PLA, the boom period of the 1980s, had its own ups and downs and the increasing orientation towards civilian production had its special costs and benefits as well. Especially, some of the PLAs production lines had to be recast and its advanced military technologies had to be honed for appropriate civilian levels that also resulted in relative neglect of some of its important projects. 8 Indeed, the PLA already had a stake in Dengs future as it had helped him to fight his first ideological campaign to end the rule of Maoist dogmatism in the 1978-79 debate over the criterion of truth, thus paving the way for his return to the helm. As a result, when, in the face of strong opposition and criticism, Deng set up his first Special Economic Zone (SEZ), he ordered the PLA engineer troops to march into the then small town of Shenzhen bordering Hong Kong. And it was the hard work and dedication of these engineering troops that built the entire infrastructure that was responsible for Shenzhens economic boom during the early 1980s. Therefore, the PLA had actually played a critical role in the success of Dengs reforms.
There is also the view that Deng had opened a pandoras box by allowing the military to get involved in business in exchange for military support for his reforms. There is some element of truth in this argument but it is an oversimplification of the issue and represents only part of the complex truth. The fact of the matter is that when Deng started the economic reforms in the late 1970s, the military had already emerged as an inevitable part of Chinas economic life. Apart from its farms and other industrial activities, there was this mammoth defence production industrial complex that had the nations best human and technical resources. Amongst civilian enterprises as well, most of Chinas major airports were under the control of the military. And this was especially true of sensitive regions like Tibet where, right from beginning, many more sectors also were being controlled and administered by the armed forces. Chinas railways, for example, had to give priority to the militarys orders. As a result, the PLA troops during the early 1980s had peaked at 4.1 million in number and as a pointer towards their priorities, their registered business firms were triple their antiquated main battle tanks.
However, it was the follow-up trends since the late 1980s that made the PLAs business empire appear more like a liability than an asset. Part of this shift can be understood in terms of Dengs priorities that seemed to neglect the funding problems of Chinas armed forces. One most visible contradiction was that in the face of Chinas economic boom since the mid-1980s, the PLAs budgetary allocations were not allowed to grow in equal measure. In fact, there was negative growth in the PLAs official budgets for some of these years. Accordingly, it was quite understandable why their traditional Doctrine of Self-Reliance gradually slipped down towards increasing Self-Indulgence and why the armed forces could not indefinitely restrict their activities to only raising hogs and vegetables. Even then, what made the PLA difficult to deal with was not their increasing indulgence in profit-making, but the fact that armed forces gradually began to use their advantages of vast technical infrastructure, skill manpower and other prerogatives to obtain undue advantage in their commercial competition with civilian entrepreneurs. And not too soon this unequal competition reached a scale where it began to threaten the very credibility of Chinas economic reforms. 9 To many commentators, it seemed like a reincarnation of Chinas traditional warlordism that the Communist leaders had pledged to fight and eliminate.
PLAs Growing Economic Clout
Though in matters of governance, the Communist Partys army had always been part and parcel of Chinas state administrative structures, it was their new role of money-making managers that began to disturb the fabric of Chinas power-sharing arrangements. Taken to their extreme, some of these military-run enterprises gradually became completely immune to civilian controls thereby making them the most awkward obstacles in the process of Chinas economic reforms that the PLAs business empire had once sought to accelerate and strengthen. Also, as the process of economic reforms deepened, it began to assert pressures for creating basic requirements of marketisation, things like rule of law, transparency and fair competition. The 1990s, in fact, witnessed growing international pressure on China on some of these issues, with its membership to the World Trade Organisation (WTO) becoming subject to these conditions.
The PLA, on the other hand, had increased the use of its uncontested special privileges, that was the very antithesis of marketisation that requires free and fair competition. Also, unlike other armed forces which run defence production units or export weapons and other defence equipment, over two-thirds of the PLAs business was geared towards civilian production and services. Going by the simple yardstick of quick and easy profits, the PLA had begun to run hotels, restaurants, pharmaceuticals, night-clubs, karaoke halls and even begun to give army ports and airplanes on rent to civilians. So much so, that 165 firing ranges were open for tourists where high-ranking officers enthusiastically welcome not only visits but shooting by private persons. 9 This misuse of their special privileges increased to a degree crossed all lines special position.
Also, over the years, the PLA business empire had grown both in actual size and numbers, and the armed forces had come to acquire monopoly in some specific categories of popular consumer items like bikes, televisions and refrigerators, and so on. Accordingly, the sheer magnitude of the PLAs business empire made Chinas leaders apprehensive about attempts to control what looked like the irrepressible economic enterprises of their armed forces. In addition to typical defence production sectors, the known non-defence areas of the PLA enterprises were reported to span over 72 industries, including some special industries like night clubs and dance halls where the PLAs special position seems to have greatly facilitated its dominance and flourish. The other areas included real estate, transportation, tourism, pharmaceuticals, munitions and other industrial and mining enterprises where profits are quick and more likely to come by. 11 Apart from their use in improving the living standards of their troops, some of the profits are believed to have been diverted to socalled perks and even personal accounts of the PLAs high and mid-level leadership, thus, sowing the seeds of nepotism as also resentment within Chinas armed forces.
Problems in Streamlining PLA Business
Apart from dealing with the PLAs known powerful business empire, the most intractable challenge lay in detecting and pursuing the large number of small, seasonal and part-time unregistered enterprises by PLA units that had remained completely unaccounted for. Secondly, there are also business enterprises that have evolved under state patronage and operate as front-agencies to camouflage Chinas intelligence gathering and other secret operations. 12 Detection and closure of such business enterprises would pose a major threat for Chinas intelligence gathering and other secret operations. Thirdly, even in pure financial terms of the PLA business being the source for Chinas military modernisation, transfer of these enterprises is likely put a heavy burden on the state that will have to compensate the PLA by increasing its budgetary allocations. And considering that this exercise is not limited to the armed forces alone but extends to other government departments like those of public security, state security, procuratorial department, courts and police forces, this exercise is going to present a monumental challenge for the government even in pure monetary terms.
According to one report, the total annual revenue earned by PLA-run business for 1997 exceeded $18 billion with exports alone accounting for $7 billion of foreign exchange earning. 13 With the apparent economic slowdown, there is no possibility of the providing these various agencies of the government that are involved in business sufficient funding to ensure that they do not look for loopholes to protect their business interests. The challenge becomes especially formidable because of repeated reports regarding the alleged involvement of various high-ranking leaders. There have been accusations, for example, of the highest level officials or their relatives being involved in unaccounted and illegal activities like smuggling. It is well known that there are prized postings within the PLA and princelings of the big party bosses are said to be often controlling these positions. Dengs son-in-law, for example, has been reported to be holding some such positions, thus, controlling some of the major PLA-run business corporations. On a more regular basis, the PLA officers have been accused of overspreading in the name of perks and entertainment during business deals and other meetings and trips.
Also, the PLAs success has inspired others like the police and judiciary to follow in the militarys footsteps and enter similar business in a major way. Compounding the difficulty of dealing with these enterprises is the fact that all of them have been virtually immune from Chinas struggle to weed out corruption from state structures. Especially, in the face of recent measures towards restructuring Chinas State Owned Enterprises (SOEs), their inability to stand in competition with the PLAs privileged business firms had threatened Chinas economic reforms. Besides, there have also been persistent reports of the PLAs increasing involvement in smuggling. There have been reports of the PLA on various occasions even challenging the customs and other border security agencies in undertaking such activities. 14 Accordingly, despite all anti-smuggling measures, Chinas prosecutors handled over 100,000 corruption cases and confiscated over $30 billion worth of smuggled goodscars, computers, oils, mobile telephones and cigaretteswhich were smuggled into China during 1998. 15 And finally, it was the PLAs failure to respond to this negative publicity and increasing criticism from the Party leadership that made it the target of President Jiangs anti-graft campaign.
President Jiangs Directive
President Jiang Zemin announced in July 1998 that the Army and armed police are henceforth to cease all business activities. 16 This announcement was unexpected and to begin with, many officials and commentators simply ignored it as one not likely to be pursued seriously by the Party leadership. This is partly also because this announcement by President Jiang was, in fact, totally out of tune with the traditional way of taking decisions where any such historic policy-change was first presented in the form of a suggestion from the highest level of the political leadership. This was generally followed by the Central Committee, the State Council and the Central Military Commission deliberating on the proposed changes, either endorsing or rejecting the proposed policy changes. However, President Jiangs aforesaid announcement did not come as a suggestion, instead it came as a blunt policy directive. So much so, that it took some time to be fully understood and accepted even by the concerned authorities. As a result, while Chinas top leaders seemed confident of carrying out this anti-graft campaign, according to most estimates available, it was expected to affect not more than one-third of the PLAs enterprises. 17 First of all, this was not to affect the PLAs defence related industrial activities. Secondly, most of the industries converted to civilian production were also likely to be kept outside the realm of this directive on the plea that these were being reconverted for defence production activities. Besides, it was said that the PLA seemed only too happy to dump some of these enterprises for they are reported to be running in losses. As regards the major profit making enterprises like Polytechnologies or XinXin Corporation, media reports of resistance have continued to tickle in.
However, going by the initial reports, at least the paperwork seems to be progressing at full speed. To do a quick recount, President Jiangs announcement in July last year (1998) was followed by Vice-President Hu Jintaos address to a teleconference meeting of the Central Disciplinary Commission and the Central Politics and Law Commission where he detailed President Jiangs directive and the Party leaderships commitment to this policy of disengaging the PLA from business activities that he said were part of the Partys agenda for streamlining the countrys armed forces. He also promised that the leadership would compensate for the losses that the PLA would incur by giving up its flourishing business which contributes substantially towards the PLAs budget, especially for providing an improved standard of living for its troops and leadership. In fact, as a demonstration of goodwill, some corrective measures have already been affected. From 1998 to 2000, the State Council has earmarked funds of Rmb 30 billion per year to make up for the militarys withdrawal from business activities. Local governments will also be permitted to compensate the military units for their participation in local constructions projects, etc. The State Council has already appropriated an additional Rmb 5 billion for the provinces and centrally administered cities to be used for increased expenditure on retirement and re-employment with provincial governments. The other sources have put the figure at a total of Rmb 50 billion as compensation which, of course, is to be paid in installments. 18
On October 6-7, 1998, the Central Committee, the State Council and the Central Military Commission held another enlarged meeting on this issue and their deliberations finally endorsed President Jiangs aforesaid policy directive. They also urged the armed forces and police to fully comply with Jiangs national policy and deadline of December 15, 1998. Also, plans were drawn up for taking over of PLA-run business, and the state media has reported this as having been completed on time. Chinas State Commission on Trade and Economya super ministry of Chinas State Councilhad apparently created sixteen government agencies for to supervise the handover of the PLAs business activities. 19 However, serious doubts remain about the authenticity of these reports as details on these transfers have not been as yet released.
The handover process was to be carried out in three distinct stages, which include preparations, enterprise transfer and restructuring of these enterprises. The first period had been wound up by the end of October 1998. And, after official registeration and asset appraisals, these enterprises are reported to have been handed over to designated government agencies by December 15, 1998, thus completing the second stage of planned transfer of PLA enterprises. In the final stage of this process, the commission is now expected to readjust, restructure, merge and transfer these enterprises along the path of the reforms taking account of their operational conditions so as to avoid over-staffing or duplication. 20 Also, measures have been taken to demonstrate their commitment to streamlining various state agencies that have been accused of misusing their privileged positions. As one of these measures, a 6,000 strong special force under the newly created Smuggling Investigation Bureau was launched nation-wide on January 5, 1999 and 4,000 more troops are likely to join this force by June 1999. 21 Similarly, President Jiang Zemin has also announced the creation of additional para-military forces that will work towards weeding out corruption from public life in general. Most of these projected 150,000 troops are likely to come from the PLAs manpower cuts.
Problems of Implementation
There is, however, the other side of this official enthusiasm which indicates that things are not moving as smoothly as they are made out to be. First of all, this sudden announcement had caught various interest groups in the military unprepared, without enough time to develop lobbying and resistance campaign of any kind. Also, the implementation of these orders is believed to be extremely slow and has not really touched the PLAs defence production enterprises (most of their conversion industries remain intact under this category) as also their tradition industrial and agricultural enterprises. This leaves only small number of PLA-run enterprises that are being targetted. Even here, many of them are not likely to be given up without resistance from the armed forces. What is generally being offered for surrender are the loss-making enterprises which have been in the red for years. Also, as a measure to limit the damage, the Party leadership seems to have halted all major decisions regarding re-grouping of Chinas Military Regions or making any changes in Chinas military leadership. Despite all this, the decision to transfer the PLAs business has brought to light some expressions of dissatisfaction and its implementation has also been circumscribed by various other practicalities.
In a way, it appears that a weak political leadership is finding it difficult to implement its policies when it comes to taming the dragon which had also been the king-maker during the last fifty years. The thinking and planning on this policy had been apparent for the last few years, but that PLA had all along continued to ignore it. Especially, during the First Plenary Session of Chinas 9th National Peoples Congress during March 1998 such ideas had been floated from the highest level of Chinas leadership, including President Jiang Zemin. This was followed by Zhu Rongji being selected to head Chinas State Council, and China has since carried out a major exercise in streamlining its notorious SOEs. These should have ideally included also the business enterprises of Chinas military, police and legal agencies but they were able to circumvent President Jiang and Premier Zhus policy directives. And even when these agencies have been ordered to desist from undertaking any business activities, the compliance has been experiencing its own limitations and its own difficulties. In the end, therefore, whatever may be the tenor of the political leadership, it definitely does not forecast an end of the PLAs business enterprises.
The last one year has been perhaps the most critical for Chinas armed forces. Apart from the historical announcement of reducing the PLA by 500,000 more troops, President Jiang had taken another historic decision of curbing the PLAs involvement in profit-making commercial activities. A series of factors will determine how far President Jiang and his team of civilian-technocrats will be able to achieve their goals. Firstly, while the military may seem to have little influence in Chinas day-to-day decision-making, actually its role remains much too significant to be either ignored or overlooked. Also, the PLA represents the most conservative element within the Chinese government which itself has been often sceptical about the economic reforms, seeing them as threatening the power of the state. The PLA also has a direct stake as it has come to be a major direct player in Chinas economic liberalisation. 22 But, at the same time, the political leadership also seems to know its limitations in uprooting the PLAs business interests and operations. This is why the taking over of their business operations has been more an exercise on paper than on the ground. But whatever be the level of success or failure in this exercise, it signals the determination of Chinas political leaders to keep the military subordinate in Chinas civil-military relations.
Note 15: Shao Zongwei, Closer Scrutiny of Officials to Stop Corruption, China Daily, January 21, 1999, p. 1; Shao Zongwei, Graft Busters Induct 17,000 Corrupt Officials, China Daily, January 5, 1999, p. 1; also Graft Busters Target Officials, China News, January 14, 1999, p. 5. Back.