China’s Developing Military-Industrial Complex

On November 12, Xu Qiliang, a vice chairman of China’s Central Military Commission (and thus China’s third-ranking military official, after President and CMC Chairman Xi Jinping and Vice Chairman Fan Changlong) wrote an article in People’s Daily arguing for joint civilian-military cooperation. “China will next move to break the traditional dualistic structure that isolates the military from the civilian... while promoting joint construction and use of technology, talent, and infrastructure,” Xu wrote.

The article closely coincides with ideas from an essay Xu contributed to a book on the topic of China’s 13th five-year plan. In the essay, Xu argued that China must advance the development of its military-industrial complex to fully realize its military modernization. “We must improve our economic, technological and military prowess,” Xu wrote, “otherwise we will be large but not powerful, appearing strong but actually being weak.”

The idea that China needs a strong military-industrial complex is not new. Three years ago, in 2012, China already had plans to transform its top military contractors – China State Shipbuilding Corporation (CSSC), Aviation Industry Corporation of China (AVIC), and China Aerospace Science and Industry Corporation – into thriving international corporations, in addition to being China’s domestic arms producers. That year, Chinese contractors revealed plans to buy over $3 billion in assets from state-owned companies in an attempt to move China’s defense sector toward privatization.

In part, this is a process being mirrored across China’s industries: the quest to have Chinese firms “go global” while also turning to marketization to combat the inefficiencies that typically plague state-owned enterprises (SOEs). But while China’s bid to turn its economic firms into global powerhouses may be concerning for their overseas competitors, its build-up of a military-industrial complex that is buoyed by the global economy has far-reaching security ramifications.

Just like in China’s overall five-year plan, there are certain sectors that are targeted as priorities for developing public-private networks within the military-industrial complex. Xu named three in his People’s Daily article, saying that China plans to “launch key maritime, space, and Internet projects for integration of the country’s military and civilian resources in the next five years.” Xu identified these areas as “strategic fields for military competition” and “commanding grounds for boosting economic and sci-tech development” – a clear indication of the synergy Xu sees between military development and economic growth for China.

Not surprisingly those three areas – maritime, space, and cyber – are highlighted in China’s military strategy (issued in a white paper in May 2015) as well. The white paper noted that, “In line with the evolving form of war and national security situation, the basic point for PMS [preparation for military struggle] will be placed on winning informationized local wars, highlighting maritime military struggle.” To win “informationized local wars” in the maritime domain will require modernization and technological innovation in the three domains Xu named: maritime, space, and cyber. In fact, the military strategy also explicitly named these as three of the four “critical security domains” (with the fourth being nuclear weapons).

The logic here is that, by partnering with the private sector, China’s military can reap the benefits of innovation as well as providing economic stimulus for Chinese companies in critical sectors (particularly the space and cyberspace realms, where military and economic goals align most closely). Earlier this year, China’s largest banks joined together to create a $28 billion fund designed specifically for investment in public-private partnership projects; while mostly aimed at infrastructure initiatives, it’s entirely possible some of those funds will wind up in the areas pegged as high-priority for both security and economic reasons.

Xu’s article mostly focused on the potential for public-private cooperation in space, arguing that the Chang’e lunar probes and Shenzhou spacecraft had brought China important economic and social benefits. However, China’s aerospace industry, while developing rapidly, remains dependent to a large extent on global firms. For China, which would like to become a leader in the civilian as well as military “space race,” boosting indigenous innovation and capabilities in the aerospace realm fits a number of goals: providing economic opportunities, giving Chinese companies a leg up as they seek global recognition, increasing China’s military capability in the space domain, and helping boost national prestige by successfully achieving goals such as launching a Chinese space station.

The dual military and economic applications of Chinese advances in cyberspace are just as promising. Xi Jinping has said he wants China to be a “cyber power” – a dream that will succeed or fail based largely on the progress made by the science and technology industry in China. The economic reasons for wanting China to become a cyber power are obvious: Xi wants Chinese firms to be seen as global leaders in technological innovation, on par with U.S. giants Apple, Microsoft, and IBM. However, the security rationale is inseparable from this goal as well. Ever since the leaks from former U.S. National Security Agency employee Edward Snowden revealed the extent of NSA surveillance, Chinese officials have been open about the urgent need to wean China off foreign technology for national security reasons. That will involve government investment to help boost cyber companies – and pave the way for public-private partnerships in the military cyber domain as well.

In the maritime industry, the sort of public-private partnerships Xu wrote about are still far away, as Andrew Erickson, an expert on China’s maritime assets and the People’s Liberation Army Navy, has argued. China’s commercial shipbuilding companies remain far behind their military counterparts in terms of capabilities and innovations alike. However, despite these limitations, Gabe Collins, the co-founder of China SignPost, notes that China’s military shipbuilding companies have been wildly successful at getting capital from private sources. “Between January 2004 and January 2015, the publicly listed arm of China Shipbuilding Industry Corporation, CSIC Limited and that of China State Shipbuilding Corporation, CSSC Holdings, raised a combined total of $22.26 billion from selling stock and bonds,” Collins wrote for The Diplomat in September.

From Beijing’s point of view, there’s never been a better time to explore public-private partnerships and the building of a true military-industrial complex. As China’s economic growth continues to slow, the double-digit defense budget increases become less justifiable – but if some of those defense funds are going toward building up China’s private sector and advancing the “China dream” as laid out by Xi it’s a “win-win” situation, to use China’s favorite phrase. Even better if private investment is used to fund China’s military modernization in the maritime, space, and cyber domains. To date, China’s military-industrial complex has not impressed outside observers, but if Xi (and Xu) has anything to say about it, that’s about to change.