C HAPTER 5
5.2 Overview and Trends
73 Chinese Defence Industry’s Transformational Aspects for India
Another defence reform in July 1999 created 10 new Defence Industry Enterprise Groups (DIEGs). These DIEGs functioned as true conglomerates, integrating R&D, production and marketing. It also intended to encourage the new industry enterprise groups to compete with each other for PLA procurement contracts, which would pressurise them to be more efficient and technologically innovative. These new enterprise groups were given the authority to manage their own operations and take responsibility for their own profits and losses.
The defence firms played an important role in this relationship. Before the 1998 reforms, the defence enterprise groups were all state-owned, bureaucratic, monopolies with little independence from the central government12. The reforms transformed the conglomerates into profit- oriented, shareholding entities with operational autonomy while remaining entirely state owned. Moreover, each defence conglomerate was divided into two entities to promote limited competition within their industrial sectors.
The arrangement ensured cooperation between the firms and the PLA through realistic commitments and extensive information sharing. Accordingly, revenues and profits for the entire defence industry have grown strongly since the early 2000’s. The cooperation between the PLA and the defence industry is at multiple levels ranging from high-level strategic and doctrinal planning and policy-making at the centre to the factory floors around the country.
PLA, civilian defence industry officials, and S&T experts have been cooperating on long-range S&T development plans since the early 2000’s.
This includes the drafting of the S&T development plans.
Indigenisation: Key to Self-Sufficiency and Strategic Capability 74
Chinese armed forces’ involvement in defence production. According to authoritative source, Jane’s, there are “at least 10,000 enterprises (state and privately owned companies) employing about 2.5 million people which have a PLA involvement of one sort or another, including the production of weapons for sale”13. Of these around 1,000 are SOE’s, which employ around three million workers, including over 3,00,000 engineers and technicians14. These enterprises largely centre around 10 conglomerates with each one controlling several dozens of subsidiaries to more than 10015. A few large conglomerates are discussed.
The Aviation Industry Corporation (AVIC) of China is a single “ultra- large” corporate entity formed from the merger of AVIC I and AVIC II in November 2008. These had operated separately for over a decade. The merger was undertaken to improve business practices, streamline bureaucracy and increase production capacity. While employing nearly 4,50,000 people, the new entity is responsible for developing, manufacturing and marketing both military and commercial aircrafts, engines and airborne equipment. With nearly 200 subsidiary companies and 20 listed companies, AVIC is managed through 10 business units relating to defence, transport aircraft, aviation engines, helicopters, avionics, general aviation aircraft, aviation R&D, flight test, trade and logistics, and asset management. Its major products include JF-17 Thunder fighter; F-7 and F-8 combat aircraft; FBC-1, H-5 and H-6 bomber aircraft; trainer aircraft; turbo fan engines; weapon systems; military helicopters; and Unmanned Aerial Vehicles (UAVs)16.
China State Shipbuilding Corporation (CSSC) is an “extra-large”
conglomerate engaged in shipbuilding, ship-repair, shipboard equipment production, marine design and research17. With two headquarters in Beijing and Shanghai, CSSC controls over 60 enterprises. It has nine R&D institutes including the notable Marine Design and Research Institute of China (MARIC). Over the years, the corporation has evolved as one of the largest shipbuilders in the world with a wide spectrum of products, ranging from conventional oil tankers and bulk carriers to sophisticated and state-of-the- art vessels, as LNG carriers, chemical carriers, passenger freight ships, container ships, LPG carriers, large self-unloading ships, high speed ships and various civil ships and offshore engineering facilities. In defence, CSSC boasts of
“remarkable capacity for building surface warships, submarines and auxiliary vessels. In recent past, it has built and delivered to PLA Navy a large number of ships, including those of ‘new generations’ as missile destroyers, missile frigates, and space instrumentation ships, among others, claims the official
75 Chinese Defence Industry’s Transformational Aspects for India
website. CSSC has the ultimate goal of becoming the largest shipbuilder by 2015. For this it is constructing two shipbuilding bases in Changxing Island of Shanghai and in Longxue, Guangzhou. With completion of these two bases, CSSC’s shipbuilding capacity would increase from four million dwt (dead weight ton) to 14 million dwt by 201518.
China Shipbuilding Industry Corporation (CSIC) is another state-owned conglomerate in the ship-building and associated sector. It comprises of 46 industrial subsidiaries and 28 Scientific and Research Institutes, with a total workforce is 1,40,000, including 30,000 engineers for R&D. Its main activities include ship design, ship-building, ship-repairing and marine engineering.
On the civil side, it has a wide range of products including tankers, chemical and product carriers, bulk carriers, containerships, ro-ro vessels, LPG, LNG and, engineering and offshore vessels. CSIC claims to have built and exported ships to “over 60 countries and regions around the world”. Currently, the annual shipbuilding capacity of CSIC is five million dwt, claims the official website. On the defence side, the group claims to be the “largest manufacturer”
of naval products, with the core capability to “design and build many different types of naval ships including submarines, missile destroyers and fleet replenishment vessels”19.
China North Industries Group Corporation (CNGC) and China South Industries Group Corporation (CSGC) are China’s two enterprises that are responsible for the ordnance sector. Among the two, CNGC is the largest producer of weapons. Also referred to as NORINCO (G), the group employs nearly 3,00,000 people, has 103 subsidiaries and 35 research institutes20. Besides, it has established over 100 JVs and has more than 20 overseas offices and 60 branches. The product profile of the enterprise include “tanks, armoured vehicles, artillery guns and shells, missiles, bombs, explosives, fuses and pyrotechnics, propellants, optical products, electronic and photo electronic products, information and control products, night vision equipment, anti-chemical devices, and simulation and training equipment etc. It also undertakes R&D of high-tech defence equipment in the fields of precision strike, amphibious operation, in-depth neutralisation, air defence, antimissile, information and night vision, high-efficient destroy and damage”21.
China National Nuclear Corporation (CNNC) and China Nuclear Engineering and Construction Corporation (CNECC) are two enterprise groups that manage China’s nuclear industry. CNNC manages the R&D,
Indigenisation: Key to Self-Sufficiency and Strategic Capability 76
production, and foreign cooperation related to nuclear power, nuclear materials, the generation of nuclear electricity, uranium exploration, nuclear instrumentation, and the application of nuclear technologies. CNECC on the other hand constructs nuclear power plants and defence infrastructure facilities. Its business areas include nuclear engineering, surveying, manufacturing, foreign trade, real estate and software development. It serves as the prime contractor for domestic nuclear power projects. Specifically, it manages the construction and engineering for China’s nuclear power plants in Yagang, Lingao, Tiangang, and Qinshan.
China Aerospace Science and Technology Corporation (CASC) and China Aerospace Science and Industry Corporation (CASIC) oversee China’s missile and aerospace sector. CASC develops and manufactures ballistic missiles and space launch vehicles. It also specialises in providing launch services for civilian commercial satellites.” CASIC’s primary focus is missile systems. Its business areas also include satellite R&D and delivery systems, and military and civilian applications of information technology.
China Electronics Technology Enterprise (CETC) was created in 2002.
CETC represents Beijing’s defence electronics industry. With its supervisory responsibility over 47 SOE’s and the research institutes previously under the authority of the former Ministry of Industry Information, CETC’s creation signified China’s move towards a strong defence electronics and IT sector.
5.3 Government Strategic Objective Budgetary Support and