中国军工企业

An Estimate of the Value of Chinese Arms Production Eamon Surry Stockholm International Peace Research Institute A research note presented at the Eleventh Annual Conference on Economics and Security, hosted by the University of the West of England and Economists for Peace and Security (UK), 5th – 7th July 2007. The author would be grateful for comments and feedback. eamonsurry(at)gmail.com. 2 An Estimate of the Value of Chinese Arms Production Eamon Surry 1 I. Introduction The economic scope and technological capabilities of China’s arms industry have been much discussed in academic and policy circles, in particular since the Chinese government initiated modernization of the arms industry in 1998. Analysis of the Chinese military sector has often been based on estimates and speculation that are not based on open-source data and cannot be easily checked. Specifically, one of the major impediments to an informed debate on trends in the Chinese defence industrial base has been the lack of publicly available information on arms sales and other financial and employment data on the arms industry.2 Western analysis of China’s military capabilities has been driven, at least in part, by a perceived military threat from China3 and a desire to understand what the implications of increased production of higher quality weapons by China might be for their own armed forces and export markets. The analysis has been very much focused on specific capabilities, that is, the extent to which China wants to or is able to project military power outside its own territory.4 However, a lack of empirical data on the value of the industry means there has been little information or analysis on the scope of China’s arms production capacity. The purpose of this research note is two-fold. First, it seeks to draw attention to a broad set of industrial data that may be of use for researchers interested in data on the Chinese arms-producing enterprises. Second, it discusses how these data might be used to make a rough estimate of the magnitude of Chinese arms sales, and to cross-check information provided by the Chinese government. A table of company revenues is presented, drawn entirely from open-source information translated from Chinese. While it has not been possible to check the reliability and comprehensiveness of these figures, it is hoped that by making them broadly available, their credibility and implications can be discussed, and that this will contribute to informed debate and assist researchers and policy makers to understand the changes taking place in the Chinese arms industry. These changes, as well as the increased availability of information, should be seen both 1 The author is grateful to Elisabeth Sköns, Bates Gill and Tai Ming Cheung, who commented on draft versions of this research note. Any errors, omissions or miscalculations remain my own. 2 For the most comprehensive study in recent years see Medeiros, E., et al., A New Direction for China’s Defense Industry (RAND: Santa Monica, 2005), URL . The study also includes an extensive bibliography. SIPRI studies on the Chinese arms industry include Eric Arnett, ‘Military technology: the case of China’, SIPRI Yearbook 1995: Armaments, Disarmament and International Security, (Oxford: Oxford University Press, 1995), and Frankenstein, J., ‘The People’s Republic of China: Arms production, industrial strategy and problems of history’, in Wulf, H., Arms Industry Limited, SIPRI (Oxford: Oxford University Press, 1993). See also the China studies in Arnett, E. (ed.) Military Capacity and the Risk of War: China, India, Pakistan and Iran, SIPRI (Oxford: Oxford University Press, 1997). 3 ’Peaceful rise: even when China is trying hard to be conciliatory, it scares its neighbours’, Economist, 24 June 2004, URL . 4 E.g. the RAND report (Medeiros, note 1), argues that China’s increasingly advanced weapons may be ‘relevant to a possible conflict over Taiwan but also to China’s long-term military presence in Asia’. There has also been considerable interest in China’s arms exports to the developing world. 3 in the context of the unprecedented expansion of the Chinese economy and the transition from a planned to a market economy. II. Background In order to set the context for the increase in the amount of available data it is useful to provide a brief background on the development of the Chinese arms industry in recent years. Analysts have long speculated that the Chinese military–industrial base was beset with inefficiencies.5 Military technologies were considered to be several generations behind those of the Western powers. Weapons produced domestically were not delivered on time to the People’s Liberation Army (PLA), and they were defective or of poor quality.6 However, a recent study by the RAND Corporation concludes that it is time to reevaluate this assessment.7 It argues that the Chinese arms industry is no longer as backward as was once widely thought. The quality of arms produced in China has increased markedly in recent years and there are specific ‘pockets of excellence’ in some industry sectors, for example in missile production. The historical problems in the Chinese military–industrial base were related both to technological capabilities and to policy. The capabilities problem is to an extent being addressed by China’s rapid economic growth and the flow of economic investment and technical expertise into the country, although China still remains a long way behind the advanced Western powers in terms of military technology and capabilities. In 1998 the Chinese government addressed the policy problem of procuring arms in a timely and efficient manner by bringing under civilian control the formerly military-controlled Commission on Science Technology and Industry for National Defense (COSTIND) and establishing the General Armaments Department (GAD), which took on the duties of military procurement.8 Another highly significant change in the Chinese arms industry was the July 1999 reorganization of China’s five arms companies into ten ‘enterprise groups’. An eleventh enterprise group (for defence electronics) was added in 2002.9 These groups are effectively holding companies and are often referred to as ‘group corporations’. They have under their control many major companies that produce both civil and military goods for the domestic and international markets. The idea behind the reorganization was to introduce a level of commercialization by encouraging competition between the companies and increasing their accountability for financial losses.10 This restructuring 5 According to a comprehensive review of the scholarship by Bates Gill, ‘Probably the single most consistent theme in the literature of Chinese military–technical development stresses the problems that China faces, rather than the accomplishments it has achieved’. See Bates G., ‘Chinese military–technical development: the record for Western assessments, 1979–1999’, in Mulvenon, J. C., and Yang, A. N. D. eds, Seeking Truth from Facts: A Retrospective on Chinese Military Studies in the Post-Mao Era (RAND Corporation: Santa Monica, CA, 2001). 6 Medeiros (note 1), p. 33. 7 Medeiros (note 1), p. iii 8 Medeiros (note 1), p. xx, 9 Medeiros (note 1), p. xix 10 The Chinese arms industry ‘broke even’ in 2002 after eight consecutive years of losses. See ‘China’s defence i n d u s t r y b r e a k s e v e n i n 2 0 0 2 ’ , P e o p l e ’ s D a i l y , 9 Jan . , 2003 , URL 4 of the military–industrial base had important implications for the defence industrial base but must be understood in the context of the broad economic reforms in China. The next section provides some historical and contextual background, which is necessary to understand why there have been difficulties in obtaining reliable data on arms production in China. III. Transparency in Chinese arms production China’s centralized Soviet-inspired model of arms production, apart from providing a lack of incentive for efficiency and innovation, also made it difficult for researchers to gather information about the Chinese arms industry during the cold war. There was a high level of military secrecy in several countries, among them China, which lacked confidence in its military strength and feared invasion. The ‘machine building industries’, in which arms production took place, reported to different government ministries (which often had overlapping responsibilities)11 and these data were not made publicly available. In the rest of the world arms production now takes place mainly within privately held or publicly listed companies.12 Shareholder owned companies in particular are compelled to provide extensive financial information about their activities, both to their shareholders and to regulatory authorities. Most of the companies are involved in civil as well as arms production, but the disclosure of these data sheds light on both sides of their business.13 This is not to say that the level of transparency among Western arms- producing companies is satisfactory, as in many cases it remains far from acceptable,14 but the privatization of arms production has resulted in more data for researchers to analyze. The entire arms industry in China, by contrast was—and remains—effectively state owned. In recent years some private companies in China have started to produce military equipment on a small scale, although this development is at the very early stages.15 Thus, during the cold war, the picture of arms production was much clearer in Western Europe and the USA than it was in China. In the absence of data on arms production provided by national governments, researchers were able to look at the sales 11 Medeiros (note 1), p. 14, 12 Notable exceptions are Russia, India and Israel. A significant part of the arms industry in France is also state owned. 13 There are several different criteria on which transparency can be assessed, including availability (ease of access, timeliness and clarity of presentation); reliability (quality of information); comprehensiveness (type and quantity); comparability (over time and between countries, requiring consistent methodologies); disaggregation (level of detail of information); and relevance (relevance of data to stated purpose). See Surry, E., Transparency in the Arms Indus t ry . SIPRI Po l icy Paper No. 12 (SIPRI : S tockholm, Jan . 2006) , URL . 14 Surry, E., Transparency in the Arms Industry. SIPRI Policy Paper No. 12 (SIPRI: Stockholm, Jan. 2006), URL . 15 ‘China should introduce private firms to manufacture arms, expert’, Chinanews.cn, 15 Sep. 2006, URL . The author interviewed the source for this article (Jiang Luming, Director of the National Defense Economic Research Center, China National Defense University), 30 Oct. 2006, and confirmed that this trend is still in the very early stages. It should also be noted that, while some of China’s defense production companies have commercialized (and in some cases have listed these ostensibly civil production entities on stock exchanges in China and Hong Kong), the military production side of these enterprises remains under state-ownership. Some financial data can be gleaned from open sources about the civilian parts of formerly purely military–industrial enterprises, but it cannot be determined if any of the capital being raised by these public offerings is being used on the military side of the business. 5 of the major arms-producing companies in each country as a ‘next-best’ option. This was not the case with the state-owned industry in China; in fact, it has been the only country to be specifically excluded from the SIPRI list of top 100 arms-producing companies due to the lack of comparable data. The Chinese government has improved its level of transparency in recent years, in particular through the publication of a series of defence white papers. The Commission of Science and Technology and Industry for National Defence (COSTIND) now provides much interesting information on their website. A noteworthy piece of information they produce is an annual value of total civilian output from the arms industry.16 But these data are difficult for researchers to independently verify because disaggregated information is not supplied. China acceded to the World Trade Organization (WTO) in December 2001. As a consequence, it made ‘commitments to open and liberalize its (economic) regime in order to better integrate in the world economy and offer a more predictable environment for trade and foreign investment in accordance with WTO rules’.17 This has resulted in increased transparency and openness not only by the Chinese government, but also by companies seeking to attract investment from overseas. The companies are increasingly adapting to Western market practices by listing on stock exchanges and reporting financial data, including their revenues and profits.18 Thus, the availability of general industrial information has improved in recent years. This research note proposes an alternative way to make an estimate of the annual value of Chinese arms production – by looking at this ‘supply-side’ (using industry data), instead of focusing only on the ‘demand-side’ (using government data). The list of top 500 enterprises in China The China Enterprise Confederation/China Enterprise Directors Association (CEC- CEDA) has 436 000 members, including companies, individual employers and industry associations.19 Since 2002 they have been compiling data on Chinese companies and producing a list of the ‘top 500 enterprises in China’. The list ranks companies by their total revenues, and also includes data on profit, taxes and employment. The companies themselves submitted the data.20 The list is apparently modeled, at the initiative of the CEC-CEDA Director, on the Fortune 500.21 It is produced only in Chinese and can only be purchased in book form 16These data will be further discussed in section V. 17 World Trade Organization (WTO) ‘WTO successfully concludes negotiations on China’s entry’, Press release, URL . 18 The 11 defence enterprises all have websites and publish a variety of information about themselves including contract awards, product information, employment data and other general press releases. Increasingly they are seeking to attract overseas investment and form industrial partnerships, and this may also be a reason for the growth in published information. The companies are now more confident in their ability to compete on the world market and they want to promote their products. It is worth noting that developments in information technology can assist non- Chinese speaking researchers who want to find out more about the companies. Advancements in auto-translation services provided by various websites opens up a wealth of information that was only available to Chinese speakers just a few years ago. These make it possible for non-Chinese speaking researchers to identify possible webpages of interest before deciding whether to obtain full translations. 19 F o r m o r e i n f o r m a t i o n a b o u t CEC-CEDA, v i s i t URL . 20 Zhao, H., Project Manager of CEC-CEDA, Interview by the author, 31 Oct. 2006, in Beijing. 21 See the 2006 Fortune 500 list at URL . 6 direct from the association (although selected data has been reproduced by Chinese newspapers in their reporting about the book) The list contains information on companies from many sectors of the Chinese economy. In 2006 the 500 companies on the list accounted for 78 per cent of China’s GDP.22 This data set, although intended primarily to be of interest to a wider audience, can also contribute to our understanding of the size of the Chinese arms industry. The reorganization of the Chinese military sector has, as mentioned above, resulted in 11 distinct holding companies that now make up the bulk of the military–industrial base. Most of these companies appear in various years on the top 500 lists (table 1). This provides an insight into their economic activities to an extent that would have been unthinkable just a decade ago. Combined with increased transparency regarding military production by the Chinese government, it means that researchers can get a rough picture of how the industry looks. Table 1 lists the publicly available information on total sales by the 11 defence enterprises from the CEC-CEDA top 500 list. The reasons for the ‘blanks’ are unknown. Since one of the nuclear enterprises submitted information, it can be reasoned that military secrecy is not the main factor behind the non-reporting. One possible reason of many might be that companies did not submit data because they were not aware of the list. The ‘blanks’ in the data that can be filled with rough estimates, however. The next section explains the methodology that has been employed in this research note to make those estimates. IV. A provisional estimate of the military output of the Chinese arms industry The companies that make up the 11 defence enterprises produce civil as well as military goods, and the difficulties in estimating what percentage of each company’s sales is military remain. But increasing transparency on the part of the Chinese government can shed some light at least on the magnitude of the value of total national arms production, since the clear bulk of this takes place within these 11 companies. Since 1998 China has published five defence White Papers. The following item of interest was published in the 2004 version: ‘In 2003, the output value of civilian products rose by 20 per cent as compared with that of the previous year, accounting for more than 65 per cent of the total output value of the defense-related science, technology and industry.’23 By implication, the military share of total output was up to 35 per cent. This information was of limited value as long as the revenues or value of production of the defence enterprises were not generally known. But by combining the CEC-CEDA data on total company sales with the information on the military share of the industry in 2003 that was provided in China’s 2004 Defence White Paper, a very rough estimate of total Chinese military output can be derived for that year. The ‘blanks’ in the data set are problematic, however, and require estimates to be made of the total sales for some companies for 2003. 22 ‘Top 500 Enterprises 2006 account for 78 percent of China’s GDP’, People’s Daily, Sep. 2 2006, URL . 23 ‘White Paper on National Defense Published’, China.org.cn, URL . 7 While there are always definitional problems with the classification of ‘military’ and ‘civil’, it is known that parts of the military–industrial base are used for the production of buses, automobiles, and motorcycles for civilian use. These companies are responsible for manufacturing many of the vehicles on China’s roads today.24 Table 2 shows the total sales for 10 of the 11 Chinese defence companies in 2003 (in local currency, at current prices), including estimates for the five enterprise groups for which no data was available in that year. These estimates have been made based on the following assumptions. If it is assumed that the trend in total sales of China Avia