FEER: Make War,Not Money: China PLA
Gets Out Of Business
By SUSAN V. LAWRENCE
BEIJING -- No one ever said it was going to be easy.
President Jiang Zemin's July 1998 order to the military to give up its
business empire was risky as well as ambitious. It threatened to bring about
a crisis in civil-military relations in China, with implications for stability
throughout the region. The original time-frame for divestiture - just five
months - made the order more ambitious still.
Two years on, however, the effort appears to be a qualified success. The
People's Liberation Army and the paramilitary People's Armed Police have
indeed either closed down or handed over to civilian control most of the
purely commercial enterprises covered by the divestiture order.
This category includes the PLA's giant trading companies, flashy star-rated
hotels, seamy nightclubs, and much else.
Moreover, the war in Kosovo and developments on Taiwan have led to
more policymaking clout and bigger budgets for the military, meaning that
relations between the Communist Party and the army have survived
divestiture better than once looked likely.
But the book is not yet closed. In defiance of the civilian authorities, the
PLA still hasn't given up control of some businesses it should have. And
bureaucratic infighting has broken out over what should happen to some of
the businesses the army has surrendered.
"Shortcomings Still Exist"
Even as he declared in late May that divestiture work was "basically
completed" in March, Vice-President and Central Military Commission
Vice-Chairman Hu Jintao admitted "shortcomings still exist." He promised
to hold those in charge of recalcitrant departments responsible.
What's more, the divestiture order has allowed the PLA to continue
operating many not-so-purely commercial businesses, such as farms and
factories employing soldiers' family members. The army's retention of these
businesses may help blunt opposition to the divestiture program, but it may
also hinder efforts to root out corruption in the military.
Much rests on the success of the divestiture campaign. Rampant smuggling,
in which military firms played a prominent role, was by 1998 producing
significant distortions in the economy.
Cheap smuggled oil, for example, encouraged factories to generate their
own electricity rather than rely on the national grid, artificially depressing
official figures for electricity generation and skewing energy policy.
Smuggling drove down central government revenues; in 1999, the year
after the divestiture order, customs revenue leapt 80%.
More significantly, the military's business interests were eroding popular
support for the PLA, undermining military discipline and distracting the
army from its primary mission: preparing to fight wars.
"Divestiture is removing obstacles to further professionalization" of the
PLA, argues James Mulvenon, a China expert at Rand Corp. in Arlington,
Virginia, and author of a forthcoming book on China's military-business
complex. The PLA's professionalization, he notes, has strategic
implications, particularly for China's quest to retake Taiwan.
Several Contentious Issues
An early issue of contention in the divestiture process was compensation.
The civilian leadership declared from the start that the PLA wouldn't be
compensated for individual companies.
Instead, the army was offered a single lump-sum payment with annual rises
thereafter in the military budget. A Chinese official who is familiar with the
divestiture program says the lump sum was 10 billion yuan
($1=CNY8.28), paid in March 1999. That caused unhappiness in military
circles because it was half of what the PLA had asked for.
Early in the divestiture process, "I got the impression that we may have
been looking at a low-level civil-military crisis," Mulvenon says. But the
war in Kosovo changed that, as China became concerned about the
potential for foreign intervention in the Taiwan dispute. "Because of
Kosovo, we have a situation where the military feels it is back in the
driver's seat. They have some leverage over a relatively weak civilian
leadership, which is afraid of being accused of losing Taiwan," Mulvenon
says.
Although China hasn't announced how much the military budget will rise, he
adds, "the military has every reason to expect this will result in generous
budgets" in years to come.
Another source of friction has been compliance. According to a March
1999 article in the monthly magazine Shidai Chao, published by the official
People's Daily, the PLA and PAP had transferred 2,937 businesses to the
state and closed a further 3,928 by an initial deadline of December 1998.
Of those, 82% had belonged to a single department of the PLA, the
General Logistics Department.
Among the enterprises handed over were some of the crown jewels of the
military's business empire, including China's largest pharmaceutical
company, 999, and the Xinxing Group, whose core business is trade in
military supplies such as uniforms, tents and port equipment.
But the Chinese official says an early 1999 audit found the military had
failed to declare approximately 10% of the businesses covered by the
divestiture order. The civilian leadership set a second deadline of August
1999 for the PLA and PAP to hand them all in. By early this year, the
official says, the number of businesses handed in had risen to 3,530,
employing some 230,000 people.
Even now, however, between 100 and 200 cases may still be outstanding.
One such case is reported to be the General Staff Department's China
Electronic Systems Engineering Co., which is involved in CDMA
mobile-phone technology ventures.
The leadership may have been persuaded that allowing the PLA to stay
active in telecommunications work will have big pay-offs in raising
information-technology levels in the armed forces.
One of the most closely watched cases in Beijing has been that of the
Huabei Hotel. The Beijing Military Region refused to hand over the
three-star hotel in 1998, and refused again in 1999. A Ms. Tong, who is
employed in the Huabei's office, says the hotel's owner is now the Beijing
Economic Commission. That is the body to which the military is meant to
transfer its Beijing businesses. But a spokesman at the commission says
while the Beijing Military Region did hand in a four-star hotel in the capital,
the Jinlang, it has not yet handed over the Huabei.
Disputes have arisen after the military has closed down or handed over
enterprises. The State Economic and Trade Commission, or SETC, which
has been coordinating divestiture work, told a foreign visitor recently that
the work has been slowed by contentious bankruptcy proceedings. Banks
that lent money to PLA businesses now being shuttered have been
demanding their money back, but the central government has been
unwilling to bail out the banks.
(For the complete story, see this week's edition of the Far Eastern
Economic Review.) |
