other approaches to civil-military integration: the

Other Approaches to Civil-MilitaryIntegration: The Chinese and Japanese

Arms Industries

March 1995

OTA-BP-ISS-143

GPO stock #052-003-01408-4

Recommended Citation: U.S. Congress, Office of Technology Assessment, OtherApproaches to Civil-Military Integration: The Chinese and Japanese Arms Industries,BP-ISS-143 (Washington, DC: U.S. Government Printing Office, March 1995).

Foreword

A s part of its assessment of the potential for integrating the civil andmilitary industrial bases, the Office of Technology Assessment con-sidered how the People’s Republic of China (PRC) and Japan, twoAsian states with sizable defense industries, have succeeded in

achieving significant levels of civil-military integration (CMI).CMI involves the sharing of fixed costs by promoting the use of common

technologies, processes, labor, equipment, material, and/or facilities. CMI cannot only lower costs, but in some cases, it can also expedite the introduction ofadvanced commercial products and processes to the defense sector.

The paper is divided into two sections, one on the PRC and one on Japan.Each section describes the structure and management of the respective defenseindustrial base and then compares it with its U.S. counterpart. The paper thenassesses the degree to which lessons from the PRC and Japanese cases can beapplied to the U.S. defense technology and industrial base (DTIB).

Although the political and security situations of the PRC and Japan, as wellas their CMI objectives, differ from those of the United States, several interest-ing observations can be made. The Japanese, for example, with a limited de-fense market and an American security guarantee, emphasize dual-use designas well as the commercial aspects of many defense developments. Dual-usedesign and high quality are enhanced in some instances by Japanese personnelpolicies that combine design and manufacturing personnel into product groupsthat understand the entire design, development, and manufacturing process.

The PRC’s experience appears to have less application to the United Statesbecause its defense technology is far less sophisticated and large segments ofthe Chinese economy, and almost all of the Chinese DTIB, remain under statecontrol. Still, the PRC’s CMI effort is of interest in its potential impact on eco-nomic modernization of the PRC and the potential for technology transfer intothe future PRC defense structure.

This report responds to a request from the House Armed Services Commit-tee to investigate the potential for deriving lessons from foreign states to fur-ther American efforts at increasing integration in the American DTIB. As withall OTA studies, the content of this background paper is solely the responsibil-ity of the Office of Technology Assessment.

ROGER C. HERDMANDirector

Ill

Reviewers

OTHER APPROACHES TO CIVIL-MILITARY INTEGRATION:THE CHINESE AND JAPANESE ARMS INDUSTRIES

Arthur AlexanderJapan Economic InstituteWashington, DC

Michael ChinworthTASCArlington, VA

Paul H.B. GodwinNational War CollegeWashington, DC

Ken Holtel Gregg RubinsteinOffice of the Secretary of Defense Nomos Corp.The Pentagon Washington, DC

John Nixon Richard SuttmeierDefense Intelligence Agency Pleasant Hill, ORWashington, DC

Frank TaparroJonathan Pollack Office of the Secretary of DefenseRAND Corp. The PentagonSanta Monica, CA

James PrzystupThe Heritage FoundationWashington, DC

iv

Peter Blair PRINCIPAL STAFFAssistant Director, OTA Jack NunnIndustry, Commerce & Project Director

International Security Division

Alan ShawDEAN CHENGAnalyst

Program DirectorInternational Security and Space

Program

Project Staff

ADMINISTRATIVE STAFF

Jackie Robinson-Boy kinOffice Administrator

Ellis LewisAdministrative Secretary

Don GallagherSecretary

Preface

A merica’s national security and economic well-being have longrested on its technological and industrial prowess. Over thefour-decade-long Cold War, the nation’s defense technology andindustrial base (DTIB) became isolated from the commercial

base. That isolation raised the cost of defense goods and services, re-duced the Department of Defense’s access to commercial technologieswith potential defense application, and made it difficult for commercialfirms to exploit the results of the nation’s extensive defense science andtechnology investments.

The integration of defense and commercial technology and industry(often termed civil-military integration—CMI) is advocated as a meansto preserve the U.S. defense capability in the face of budget reductions.Under CMI, common technologies, processes, labor, equipment, materi-al, and/or facilities are used to meet both defense and commercial needs.

This background paper examines how the People’s Republics ofChina and Japan, two countries with sizable defense industries, havesucceeded in achieving significant levels of CMI.

It is a supplement to a full report, Assessing the Potential for Civil-Military Integration, released in September 1994, that assesses the po-tential for greater CMI in the United States, its benefits, and implement-ing steps.

Despite several previous initiatives to promote integration, much ofthe U.S. DTIB remains isolated. Concerns over possible costs and risksto modifying government acquisition to implement CMI have hinderedchange. The report Assessing the Potential for Civil-Military Integra-tion considers three broad policy areas—policies to increase commercialpurchases and practices, policies to increase integrated processes, andpolicies to improve operations in that portion of the DTIB likely to re-main segregated—that might lead to greater CMI.

OTA found that some technologies, industrial sectors and producttiers are more amenable to integration than others, and indeed, integra-tion is already occurring in many of the tiers and technologies most ame-nable to CMI. Increasing CMI will depend in part on the product, proc-ess, and tier involved. Prime contractors performing systems integrationare less able to integrate their products and processes with commercialcounterparts than are producers of components and subcomponents. Onthe other hand, services appear particularly amenable to commercial pur-chases.

vii

There are clear benefits to increasing CMI. OTA’s analysis indicatedsignificant cost savings resulting from increased use of commercialitems and integrating R&D, production, and maintenance processes.Even greater savings might come from changes in military systems de-sign. Further, CMI may improve defense access to new technology in thefuture.

There are, however, obstacles to further CMI. One major obstacle isthe sheer complexity involved. Inmost instances, the barriers to CMI aresufficiently intertwined to demand a comprehensive (and complex) setof policies if projected benefits are to accrue. Efforts to promote integra-tion therefore carry costs and risks as well; one of the most discussedrisks is that commercial goods and services may fail in military opera-tions. Increased CMI may also result in greater dependence on foreigngoods and services. Changes in oversight might result in increasedinstances of fraud and abuse. Alternatives exist to deal with such risks,but efforts to increase CMI must carefully balance expected benefits tothe DTIB and the economy with potential pitfalls resulting from thosesame policies.

Assessing the Potential for Civil-Military Integration outlines threestrategies for consideration. A Readjustment Strategy involves the leastrisk but may generate the fewest benefits. It seeks to increase CMI mod-estly while retaining many of the current procedures for oversight of de-fense expenditures. It includes increasing commercial purchases for de-fense needs. The Federal Acquisition Streamlining Act of 1994 (FASA),signed in October 1994, provides the legislative basis for implementingmuch of the commercial purchase portion of a Readjustment Strategy. AReform Strategy, building on a Readjustment Strategy, seeks to fosterCMI more actively; changing rules to promote the integration of bothR&D and production of defense and commercial products. Finally, a Re-structuring Strategy that incorporates the two earlier strategies mightgain the maximum potential CMI benefits, but would demand majorchanges in future military acquisition policy, system design, and forcestructure. This strategy would present correspondingly greater risks.

Both the main report and this background paper found that successfulimplementation of CMI requires a long-term commitment. It involvescareful design and planning of systems, components, and subcompon-ents, and extends to all tiers and throughout the planning and productionprocess. While the potential benefits are significant, they will take timeto accrue. Patience and a steady effort are paramount requirements forsuccessful CMI.

Copies of the full report, Assessing the Potential for Civil-Military In-tegration, are available from the U.S. Government Printing Office for$13.00 (200 pp, S/N 052-003-01394-1). Call GPO at (202) 512-1800.

For congressional requests, call OTA’s Congressional and Public Af-fairs Office at (202) 224-9241.

Vlll

c ontents

Other Approaches to Civil-MilitaryIntegration: The Chinese andJapanese Arms Industries 1The People’s Republic of China 5

Japan 21

Comparison of the PRC and Japan with theUnited States 36

Relevance of the Chinese and Japanese experiencesto the United States 39

ix

Other Approaches toCivil-Military Integration:

The Chinese andJapanese Arms

Industries

he end of the Cold War has not necessarily heralded theend of prospects for conflict for the United States, as theGulf War showed. It is generally recognized that a strongAmerican defense-industrial base should be preserved as

insurance against potential future conflicts. There is, however,also a desire to gain a technological and industrial “peace divi-dend,” through the redirection of resources from defense needs tothe civilian economy. These somewhat conflicting objectivesconfront not only the United States, but also other countries. Use-ful lessons might, therefore, be learned from examining othercountries’ approaches to defense procurement, particularly thedegree to which their defense and commercial technology and in-dustrial bases are integrated.

In 1994, the Office of Technology Assessment (OTA) issuedits assessment report, Assessing the Potential for Civil-MilitaryIntegration: Technologies, Processes, and Practices.1 An earlierOTA background paper examined the French defense industry.2

This background paper addresses the People’s Republic ofChina (PRC) and Japan, which are of interest for several reasons.First, they both have extensive defense-industrial bases that allowthem to support their militaries with predominantly domesticallyproduced weapons (although in both cases, many of these weap-

1 See U.S. Congress, Office of Technology Assessment, Assessing the Potential forCivil-Military Integration: Technologies, Processes, and Practices, OTA-ISS-611(Washington, DC: U.S. Government Printing Office, September 1994).

2 U.S. Congress, Office of Technology Assessment, Lessons in Restructuring DefenseIndustry: The French Experience, OTA-BP-ISC-96 (Washington, DC: U.S. GovernmentPrinting Office, 1992).

| 1

2 | Other Approaches to Civil-Military Integration

ons are based on foreign designs). Second, bothstates’ defense and commercial-industrial basesare somewhat integrated. That is, in both states, atleast some defense items are produced with thesame methods, sources, equipment, and personnelused to produce certain civil items.3 (see box A).Because civil-military integration (CMI) has beensuggested as one way to achieve the disparate ob-jectives of preserving a defense-industrial basewhile gaining a peace dividend, some have sug-gested the PRC’s and Japan’s approaches may of-fer useful lessons for the United States.

Secretary of Defense William Perry, for exam-ple, has shown great interest in the Chinese4 con-version effort and its effect on the national techno-logical-industrial base by initiating severaldiscussions with the Chinese on the subject.5 In-deed, the Chinese have been pursuing a form ofconversion and integration since Deng Xiaoping’sascension to the top leadership in the late 1970s.Although this effort has been motivated by factorsconsiderably different from those at play in theUnited States, the Chinese effort may providesome insights into both the benefits and pitfalls ofthe conversion and integration processes.

The Japanese, meanwhile, have created an ad-vanced economy, including technological and eco-nomic leadership in several technological sectors,with little emphasis on military production. In-deed, the United States has sought to acquire com-mercial Japanese technology since at least 1980.The relatively small Japanese military (both interms of absolute size and relative to the Japanesepopulation) enjoys the support of a fairly compre-hensive defense-industrial base. Tokyo is, there-fore, believed by some analysts to have success-fully integrated its commercial technology andindustrial base (CTIB) and its defense technologyand industrial base (DTIB) (see figure 1).

The proportions of defense and commercial in-dustries in the Chinese, Japanese, and Americaneconomies differ. These differences reflect severalcircumstances. Each country began the post-World War II era with a different level of overalltechnological sophistication within its economy,as well as widely disparate economic and humanresources. As of 1950, for example, the Chinesewere the poorest of the three countries, as well asthe least sophisticated. Japan had a trained workforce but was still recovering from the devastationof World War II, and the United States had thewealthiest economy and the most available re-sources, both human and technological. In thepostwar period, Beijing, Tokyo, and Washingtoneach placed a different degree of emphasis on thedevelopment of military-industrial power, rela-tive to its commercial base. Each state’s decisionsabout economic and technological resources haveyielded different results.

The PRC’s top priority, until the 1980s, was de-veloping its military capabilities. Commercial de-velopment was slighted as the best available Chi-nese resources were directed toward thedevelopment of the country’s defense industries.With the rise of Deng Xiaoping, however, the Chi-nese have shifted their focus toward a more broad-based industrial-development program. Part ofthis effort has involved directing much of the Chi-nese DTIB to produce commercial products.

On the other hand, the Japanese in the post-World War II period have focused primarily on de-veloping commercial technologies and industries.This has been due to several factors. The Japanesehave pursued a more pacifist foreign and defensepolicy, codified in their Constitution. This hasbeen possible, in turn, because of the American se-curity umbrella that allowed the Japanese to de-

3 In this background paper, the modifiers “civil,” “civilian,” and “commercial” are used interchangeably when discussing the portion ofthe national technology and industrial base that sells non-military goods on the basis of price.

4 In this background paper, the terms Chinese and PRC are used interchangeably.

5 B. Gertz, “Perry Approves Helping China’s Defense Conversion,” Washington Times, p. 3, Feb. 1, 1994, and S. Mufson, “U.S. To HelpChina Shift Arms Output to Civil Use,” Washington Post, p. 28, Oct. 18, 1994.

The Chinese and Japanese Arms Industries | 3

There is no single definition of civil-military integration (CMI), This background paper uses the defini-tion of CMI that is in the OTA report Assessing the Potential for Civil-Military Integration: Technologies,Processes, and Practices, 1 There, CM I is defined as:

The process of uniting the Defense Technology and Industrial Base (DTIB) and the larger CommercialTechnology and Industrial Base (CTIB) into a unified National Technology and Industrial Base (NTIB)

Under this definition, CMI Involves the sharing of fixed costs, incurred in the course of both defenseand commercial product and process development, by promoting the use of common technologies,processes, labor, equipment, material, and/or facilities. This includes cooperation between governmentand commercial facilities in research and development (R&D), manufacturing, and/or maintenance op-erations; combined production of similar military and commercial items, including components andsubsystems, side by side on a single production line or within a single firm or facility; and use of com-mercial off-the-shelf items directly within military systems,

The desire to increase economic efficiency through reductions in redundant fixed costs may lead toCMI. Political or social goals, particularly the preservation of existing organizations or labor pools, mayalso call for CMI. In pursuit of such goals, CM I can involve the alternative use of defense facilities, infra-structure, or work forces for commercial applications when past Investments in training, experience,R&D, equipment, and structures might be useful, even if they are not economically efficient or profit-able,

CMI may occur at three levels The most thorough form of integration is at the facility level. Facility-Ievel Integration Involves the sharing of personnel, equipment, and materials within a single facility Inan Integrated facility, ideally, defense and commercial goods are manufactured side by side, with differ-ences in production processes and parts dictated solely by differences in product function

Another form of integration can occur at the firm level. Firm-level integration involves the use ofcorporate resources to meet both defense and commercial needs Under this scenario, defense andcommercial product lines have access to the same management, workers, research centers, equip-ment, stocks, and perhaps even facilities. A corporation that has integrated facilities is, by definition,also integrated at the firm level. An integrated firm might have segregated facilities, however, because itmight separate its operating divisions along commercial and defense product lines. Within an inte-grated firm, however, there are, ideally, no barriers to the flow of staff, information, and product andprocess technologies among the divisions.

Sector-level integration IS somewhat more abstract than the other levels. An Industrial sector IS con-sidered to be integrated if defense and commercial goods and services are developed from the samepool of technologies, specialized assets, and processes. In particular, a sector IS considered integratedif the same standards and manufacturing processes are used for both defense and commercial productand service Iines, Sector-level integration, however, does not necessarily imply that the resulting prod-ucts and services are Identical or that they are produced at the same firms or facilities

1 U S Congress, Office of Technology Assessment, Assessing the Potential for Civil-Military Integration: Technolo-gies, Processes, and Practices, OTA-ISS-611 (Washington, DC U S Government Printing Office, September 1991),p. 5

SOURCES: A Alexander, Japan Economic Institute, August 1994; Office of Technology Assessment, 1994

4 I Other Approaches to Civil-Military Integration

6 , 0 0 0 , 1

4,000

2,000

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

400

b

100

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

PRC, Japanese, and U S GNP 1981-1991PRC, Japanese, and U S Military Expenditures 1981-1991PRC, Japanese, and U S Military Expenditures as Percent of GNP, 1981-1991

SOURCE Arms Control And Disarmament Agency, World Military Expenditures And Arms Transfers 1997-1992, 1994


vote more resources to commercial developmentwithout endangering Japanese national security.The constrained size of the Japanese Self DefenseForces (SDF), coupled with a decision not to ex-port arms, has also limited sales opportunities forthe Japanese DTIB. Therefore, although the Japa-nese have a DTIB that produces a wide variety ofproducts, it is neither a substantial portion of theJapanese national technological-industrial base(relative to its CTIB) nor the primary focus of Jap-anese technological development.

The United States followed a third path be-tween these two extremes. Over the course of theCold War, extensive U.S. security considerationsrequired a large, robust DTIB. Domestic politicalconsiderations and security doctrine emphasizedtechnological sophistication over sheer mass andled to the development of advanced, and expen-sive, weapons. Commercial interests and theAmerican political structure, meanwhile, ensuredthat the defense sector would not dominate theeconomy. As a result, although the AmericanDTIB is ahead of the CTIB in some areas oftechnology, the opposite is true in other areas. Afurther consequence was that portions of the DTIBbecame segregated from the CTIB (see box B).

This background paper focuses on integrationin the PRC and Japan. It begins by outlining theChinese and Japanese defense procurement sys-tems. It then assesses the extent to which they areaffected by the same obstacles that shaped theAmerican system, particularly those factors thatled to segregation of the American DTIB from theCTIB: acquisition laws and requirements, mili-tary specifications, militarily unique technolo-gies, and emphasis on military performance. Theextent of integration at each level of production—sector, firm, and facility—is then considered. The

paper concludes by assessing the relevance of theChinese and Japanese experiences to the Ameri-can CMI effort.

THE PEOPLE’S REPUBLIC OF CHINAA fundamental aspect of the Chinese People’sLiberation Army’s (PLA) ideology is that “theArmy and the People are one.” The PLA has,therefore, long been integrated into the general de-velopment of the Chinese economy. PLAconstruction troops, for example, were responsi-ble for developing much of the Chinese trans-portation infrastructure in the first decades of thePeople’s Republic.6 Similarly, most Chinese am-phibious forces have been integral to Chinese riv-erine trade on a day-to-day basis. “Typical em-ployment of the [military] ships includes haulageof cement for civilian construction projects, im-ported foodstuffs from one region to another andbulk cargoes not easily handled by other haulagemeans.”7

Such integration, however, did not initially ex-tend to the Chinese DTIB. At the time of thefounding of the PRC, the Chinese had only a mini-mal defense-industrial base. This was due, in part,to the predominantly agrarian nature of the Chi-nese economy in 1949, coupled with the devasta-tion of both World War II and the subsequent Chi-nese Civil War. The PLA was primarily equippedwith weapons captured from either the ImperialJapanese Army or the Nationalist Army.

With the signing of the Sino-Soviet Treaty in1950, the Soviet Union became the primary armssupplier of the Chinese military. Soviet aid in-cluded not only the provision of complete weap-ons, but also involved the transfer of Soviet-de-signed arms factories, among them those for“aircraft, naval vessels, electronic equipment, and

6From 997,600 km of highway and 22,512 km of railroads in 1950 to 6,500,000 km and 40,000 km, respectively, in 1970. M.D. Eiland,“Military Modernization and China’s Economy,” Asian Survey17(12): p. 1148, 1977.

7G. Jacobs, “China’s Amphibious Capabilities,” Asian Defence Journal, p. 64, January 1990.


As the OTA report Assessing the Potential for Civil-Military Integration: Technologies, Processes, andPractices Indicated, the American defense technology and industrial base (DTIB) and commercialtechnology and industrial base (CTIB) exhibit signs of segregation. That is, there are clearly limits to theextent to which common technologies, processes, labor, equipment, material, and/or facilities can beused to meet both defense and commercial needs.

Several factors have led to the segregation of the American DTIB from the CTIB. The factors that aremost relevant to this background paper are discussed below.

Acquisition Laws, Regulations, and Culture. In the four decades of the Cold War, an acquisitionculture arose in the American defense procurement system, marked by special accounting rules andregulations. Many of these rules and regulations are the results of past acquisition abuses and scan-dals. The resulting network of rules and regulations has separated the DTIB from the CTIB by imposingadditional reporting burdens on any venture interested in providing defense products or services Insome cases, these reporting requirements have included demands for details (e g., technical datarights) that are central to a firm’s competitive advantage.

Military Specifications and Standards. In pursuit of standardization after various logistical difficul-ties experienced in World War 11, and to ensure interoperability and uniform quality of components andsystems from diverse sources, the Department of Defense (DOD) created a plethora of military specifi-cations and standards. The resulting system of military specifications and standards allowed the Ameri-can DTIB to support a globally deployed military, operating in environments ranging from the Arctic tothe tropics. However, the system eventually came to dictate methods of production as well as perfor-mance standards, however, as it grew more bureaucratized over the subsequent 40 years. Significantdivergences between military and commercial specifications and standards developed, particularly ascommercial quality control and production processes evolved, which led to segregation of the DTIBfrom the CTIB.

Militarily Unique Technologies. In some cases, segregation IS due to the militarily unique nature ofa given technology. Items are militarily unique where there is no commercial demand for a technology,either because the technology is classified, as with weapons of mass destruction, or because the rele-vant systems and technologies have no commercial market, as with military explosives, missiles, andarmored fighting vehicles. In many cases where the final product may be militarily unique, however, andparticularly with advanced weapon systems, although the final product may not have a commercialmarket, its components and subsystems and production technologies and processes might have com-mercial applications. Moreover, in the course of product and process evolution, technologies that wereonce militarily unique may become integrated.

Emphasis on Military Performance. American military equipment has tended to emphasize highperformance; in particular, it has sought to gain the greatest possible performance margin. Not only isthis additional performance not necessarily sought in commercial products (e.g., commercial engineshave little need for an afterburner), it often imposes an additional cost. This additional cost was oftenconsidered acceptable during the Cold War because the United States sought to gain military advan-tage through superior quality rather than through superior quantity. It is unclear the degree to which thatwill remain true in the post-Cold War environment.

SOURCES: U S Congress, Office of Technology Assessment, Assessing the Potenial for Civil/Military Integration: Technologies,Processes, and Practices, OTA-ISS-611 (Washington, D.C.: U. S. Government Printing Office, 1994), Office of Technology Assess-ment, 1994

Mos t Ch inese m i l i t a r y equ ipmen t , i nc lud ing tanks , i s de r i vedfrom earlier Soviet designs.

land armaments. . . .”8 The Soviets also trainedlarge numbers of Chinese engineers, designers,and other members of the intellectual infrastruc-ture (including those involved in the Chinese nu-clear program). As a result, the Chinese defense-industrial base was organized and managed alonglines similar to those of the Soviet DTIB.

In the wake of the Sine-Soviet split in the early1960s, the Chinese were forced to rely on theirown efforts. Chinese leaders decided to develop awholly indigenous arms industry to ensure thatthey would never again be as dependent or as vul-nerable as they felt they had been during theheyday of the Sine-Soviet relationship. This deci-sion was strengthened by concerns over Sovietand U.S. military intentions.

Thus, the Chinese began-a major expansion ofthe DTIB in the mid-1960s. This effort was over-seen by a newly expanded group of eight Minis-tries of Machine Industry (MMI), which were re-sponsible for the development of heavy industry


in all sectors. Of the group, only one was responsi-ble for civilian economic development; the restwere devoted to development for national (andprimarily military) purposes of such sectors aselectronics, aerospace, shipbuilding, nuclearweapons, and energy. During this period, Chinesedefense production is believed to have constitutedat least 10 percent of overall national industrialproduction (by volume).9

Chinese efforts during the 1960s included theconstruction of “hundreds—possibly thou-sands-of small, medium and large-scale [de-fense] industrial projects in every region of thecountry, including the remote interior.”1° Suchdispersion, however, coupled with the limitedChinese technological, financial, and trained-per-sonnel base, meant that the available resourceswere not necessarily exploited efficiently. Instead,Chinese weapon systems, particularly relativelysophisticated ones, were often only available invery limited quantities. Indeed, “the total outputof the more complicated pieces [of equipment]can be traced to a single industrial complex and insome cases a single factory.”ll

Furthermore, the DTIB was not very sophisti-cated. For example, although the Chinese devel-oped a substantial machine-tool industry, it wasprimarily weighted toward the low- and medium-grade end, rather than toward the precision toolsneeded for production of sophisticated items,whether military or civil. The level of sophistica-tion did not improve significantly during the1960s and 1970s.

The lack of sophistication in the technological,financial, and trained-personnel base was exacer-bated further by the isolation of the Chinese DTIBfrom its CTIB. This isolation was due, in part, to

8 D. Shambaugh, "China's Defense Industries: Indigenous and Foreign Procurement,” The Chinese Defense Establishment, P.H.B. Godwin(cd.) (Boulder, CO: estview Press, 1983), p. 44.

9 S. James, "Military Industry," Chinese Defence Policy, G. Segal and W.T. Tow (eds.) (Chicago,l: Univesity of Illinois Press, 1984), p.121.

10 Ibid., p. 118.1l J.R. Blaker, "The Proc\duction of Conventional Weapons," The Military and Political Power in China in the 1970s, W.W. Whitson (ed.)

(New York, NY: Praeger Publishers, 1972), pp. 223-224.


the secrecy associated with the Chinese arms in-dustry, which restricted information flow andtechnological developments within the DTIB andkept the DTIB separate from the larger commer-cial economy. During the 1960s and 1970s, theChinese did not express significant interest in de-veloping a consumer economy. Indeed, the politi-cal chaos of the Cultural Revolution during thelate 1960s and early 1970s further strengthenedthe isolation of the military-industrial base (someof which was deliberately insulated by the PLAand the highest echelons of the Chinese Commu-nist Party from rampaging Red Guards). From theSine-Soviet split to the end of the Cultural Revo-lution, the PRC’s CTIB and DTIB were also iso-lated from global technological developments,due to Beijing’s isolated stance and deliberate pur-suit of autarky.

That isolation was not necessarily considered aproblem at the time, however. In the first place,given the pervasive Soviet influence, the ChineseDTIB resembled the Soviets’. Practicing “verticalintegration, . . .each plant was composed of asmany departments as the whole manufacturingprocess required.”12 The Chinese DTIB was,therefore, in many ways autonomous, dependingon neither the CTIB nor the general economy tofunction.

The demands on the DTIB were limited. ThePLA at this time was focused on the Maoist doc-trine of “People’s War," which was the result oflessons learned from the War of Resistanceagainst Japan (1937-1945). It emphasized thepreparation of masses of foot soldiers and militia(which China had in abundance) to engage in pro-longed guerrilla warfare in China’s interior. Thefocus was on basic, infantry-oriented equipment,which the Chinese DTIB was well-suited to pro-vide. Indeed, the doctrine essentially made a vir-tue of the relatively primitive state of the ChineseDTIB. “People’s War” as a doctrine, therefore,provided both customers for the DTIB’s productsand a rationale for their continued production.

Chinese strategy until the 1980s relied on massed forcesw ie ld ing bas ic weapons .

“People’s War” also emphasized the continua-tion of war even in the wake of Soviet (or Ameri-can) nuclear strikes. This view of prolonged war-fare, coupled with the need to support and sustainforces even if Chinese industrial centers were oc-cupied or devastated, exploited the vertically inte-grated nature of Chinese defense production faci-lities by ensuring that production did not dependon provision of parts, components, or other sup-plies from facilities that might be destroyed orotherwise isolated. Much of the Chinese DTIBwas deliberately located in the (relatively) inac-cessible Chinese interior. This deployment, de-spite the absence of transportation links, wasdeemed a defensive measure, enabling the militiato always have access to at least basic weaponseven in a protracted war. Such a view, again, alsomade a virtue of a preexisting condition becausesophisticated weapons presumably would be dif-ficult to produce, much less maintain, in the ab-sence of an intact logistical and support structure.

After the death of Mao, however, and in thewake of the subsequent power struggle thatbrought Deng Xiaoping to power, Chinese policy-making hewed to a less ideological line. At the na-tional level, this was marked by Deng’s reiteration


of the “Four Modernizations”: to modernize agri-culture, industry, science and technology, and na-tional defense, in that order. The Chinese econo-my would no longer be autarkic, but wouldinstead establish links with the outside world togain access to global technological and economicdevelopments. Only through such efforts couldthe Chinese avoid becoming completely irrele-vant in the political, economic, and technologicalrealms.

As part of this national modernization effort,resources were shifted from military to commer-cial economic development through both conver-sion and outright diversions away from the mili-tary.13 To make this shift palatable to the PLA, thenational authorities essentially proposed a long-term bargain. The strengthening of the nationaleconomy and the technological base by the short-term transfer of funds, resources, and personnelfrom the DTIB to the CTIB would ultimatelybenefit defense by establishing a more sophisti-cated national technological, industrial, andscientific base from which to develop future de-fense capabilities.

The PLA embraced the shift. The poor perfor-mance of the PLA in the 1979 “pedagogical war”with Vietnam had demonstrated the primitive na-ture of the Chinese military’s doctrine and equip-ment. The subsequent organizational restructur-ing resulted in a reduction of the role of ideologyin the PLA’s thinking. This triumph of “expert”military thinkers (i.e., military professionals) overthe more ideological, or “red,” elements, in turn,brought to the fore PLA officers who were inter-ested in gaining access to more sophisticatedweapons and in developing a doctrine with morenuance.

To acquire more sophisticated weapons, thePLA recognized that national economic and tech-

nological development was necessary. Essential-ly, the PLA was prepared to tolerate short-termpain, including lower budgets and reductions innumbers of forces and dedicated industrial assets,on the premise that it would eventually recoupthose losses through improved equipment in fu-ture years.

This combination of changes, including theshort-term deemphasis on military production andmodernization, implied a radical alteration of theChinese approach toward not only military acqui-sition and procurement, but the relative impor-tance of the Chinese DTIB and CTIB. Rather thansingle-mindedly pursuing an improved DTIB tothe exclusion of the CTIB, the Chinese wouldseek to develop their overall technological sophis-tication, with an emphasis on the CTIB, in orderultimately to improve the DTIB’s capabilities.

Such an approach, though, presented two enor-mous problems, as Chinese defense plannersthemselves recognized. The first was how to mod-ernize an industry that for two decades had pro-duced few new weapons but that had relied insteadon designs provided by the former Soviet Union inthe 1950s, designs that themselves dated fromWorld War II. The second was how to cut or cancelexisting production lines and retain the workforce, and still generate arms-export orders in or-der to allow some production plants to remainopen in the event of hostilities.14

As the Chinese defense budget subsequentlyshrank, it became imperative to both the Chinesegovernment in general and the PLA leadership inparticular that the resources available to them beused more efficiently. One of the first signs of thiseffort involved the replacement in the late 1970sof the leadership of the MMIs, up to then com-posed of senior military personnel, with civilianadministrators.15 This was followed by the estab-

13 “Conversion” involves commercial application of defense facilities; it occurs when the fixed costs are paid for by the military.

14G. Jacobs, “The PLA—From Doctrine to Organizations,” Jane’s Intelligence Review, p. 373, August 1993.

15H.W. Jencks, “The Chinese ‘Military-Industrial Complex’ and Defense Modernization,” Asian Survey 20 (10): p. 987, 1980.


lishment of a commission to “tighten central su-pervision of the machine-building industries andto coordinate their production.”16 In 1983, in anapparent move to “erase special treatment of themilitary in the allotment of scarce resources,” thevarious Chinese organizations and committeescharged with oversight of defense productionwere merged into a single body, the Commissionfor Science, Technology and Industry for NationalDefense (COSTIND).17 Concomitant with this,the Chinese military was cut by some millionpeople, from 4 million to 3 million.

In the early 1980s, Beijing also began to con-vert many of the available defense-oriented plantsinto commercially oriented ones. Industries thatwere not producing critical hardware or that wereunable to attract export markets were targeted forconversion to civilian production. This effort wasaided by the release, in the course of economic lib-eralization, of massive, pent-up demand for vari-ous consumer (and later, light-industrial) goods.This massive demand ensured that at least an ini-tial market existed for many of the commercialgoods produced by the DTIB during this transi-tion.

The conversion of redundant defense-indus-trial plants was further facilitated by the Chinesegovernment’s promulgation of several guidelinesaimed at furthering integration of the civilian andmilitary economies. These included the mandatethat “civilian goods manufactured by their de-fense industry must use production technologiessimilar to military products, and must be goodswhich are in short supply and have market poten-tial.”18 This ensured that the manufacture of com-mercial goods would involve minimal changes tothe current plant (requiring, in turn, minimal capi-

tal and technological investments). It also meantthat those goods that were produced would begoods that were desired (i.e., a market existed forthem). To further assist the shift toward civilianproduction by military industry, the China Indus-trial and Commercial Bank set aside money forloans aimed at transferring military technology tocivilian purposes.19 This shift soon began to bearfruit. Between 1978 and 1983, civilian productionon military lines rose 90 percent, until it amountedto nearly 20 percent of the defense industry’s totaloutput (by volume).20 By the early 1990s, civilianproduction had risen to over 70 percent of Chinesedefense-industrial production (by volume).21

❚ PLA ProcurementThe current Chinese military procurement processis oriented toward two specific goals: improvingthe PLA’s combat capabilities and using the de-fense base to generate income. Although the Chi-nese defense budget has risen by over 10 percentannually for the past several years (see figure 1),Chinese resources for military modernization re-main badly constrained. Much of the increasedspending has gone toward salaries (a substantialoutlay in a military still numbering over 3 mil-lion), rather than acquisitions. Furthermore, theheated state of the Chinese economy has meant ahigh inflation rate, further minimizing the real ef-fect of defense-budget increases. Consequently,the primary focus of the Chinese military has gen-erally involved upgrading available equipment,rather than purchasing new or additional items.

Overall PLA equipment holdings have im-proved only slowly. The slow pace of improve-ments is exacerbated by the need for hard currency

16E. Joffe, The Chinese Army After Mao (Cambridge, MA: Harvard University Press, 1987), p. 101.

17S. Jammes, op. cit., footnote 8, p. 125.

18E. Joffe, op. cit., footnote 15, p. 102.

19China Today: Defense Science and Technology, Volume 1 (Beijing: National Defence Industry Press, 1993), p. 160.

20E. Joffe, op. cit., footnote 15, p. 102.

21Chong-Pin Lin, “The Stealthy Advance of China’s People’s Liberation Army,” The American Enterprise, p. 33, January/February, 1994.


because most Chinese equipment upgrades haverequired foreign assistance. The upgrade of theA-5 aircraft, for example, centers on the additionof French inertial guidance and attack systems, in-cluding a heads-up display and laser range-find-er.22 Similarly, the new Luhu-class destroyershave extensive foreign equipment, including Amer-ican gas turbines (for dash power) and French sur-face-to-air missiles (to remedy the dearth of air de-fense within the Chinese surface navy).23

The Chinese goal of using the defense base togenerate income applies not only to the PLA as awhole (through such means as arms exports), butalso to individual factories, units, and commands(which usually involve commercial production ofsome sort). These groups are further motivated togenerate income by the bureaucratic competitionwithin the Chinese procurement system. All of themajor players of the Chinese procurement processsponsor their own firms, which in some cases nowhave competing product lines (discussed below).

The PRC’s current procurement structure com-prises several players (figure 2). The importantones are the PLA, the MMBs (the Ministries ofMachine-Building, formerly the MMIs), and theCommittee on Science, Technology and Industryfor National Defense (COSTIND). Each player isnot only involved in procurement for the PLA as awhole, but also heads up commercial organiza-tions aimed at generating income, especially hardcurrency.

The PLA is the most important player of all,both due to the prominent role of the military inChinese politics and because the PLA is chargedwith developing requirements for new equipment,thereby setting the agenda to some extent. ThePLA answers to the Central Military Commission(CMC). The most important of the three elementswithin the PLA is the General Staff Department’s

Equipment Department (GSD/ED). The GSD/EDdraws up operational parameters for PLA equip-ment acquisitions and coordinates demands fromthe three services. The PLA’s General LogisticsDepartment (GLD) is responsible for logistics andquartermaster duties, primarily food and uni-forms. The third element, the General PoliticalDepartment, has no direct influence on PLAweapons procurement.

Both the GSD/ED and the GLD control theirown private corporations, which use the defensefactories under their jurisdiction to produce notonly weapons for the PLA, but also goods for ex-port, including weapons and commercial items.The GSD/ED controls Poly Technologies Inc., amajor corporation at least loosely affiliated withthe China International Trade and InvestmentCorp. (CITIC), one of the first corporations estab-lished under Deng Xiaoping’s reforms and stillone of the largest and most well-connected. TheGLD controls China Xinxing Corp., which num-bers among its products food, clothing, andconstruction materials.24

Although it is the PLA that sets requirements, itis the MMBs that fulfill them. The six “defense-industrial ministries” answer to the State Council:the Ministry of Nuclear Industry, the Ministry ofAviation Industry, the Ministry of Electronics In-dustry, the China State Shipbuilding Corporation,the Ministry of Space (Astronautics) Industry, andthe Ministry of Ordnance Industry. Each of these,in turn, controls at least one corporation. Thus, forexample, China North Industries Corp. (NORIN-CO) is affiliated with the Ministry of Ordnance In-dustry, while the Great Wall Corp. and China Pre-cision Machinery Import/Export Corp. (CPMIEC)are associated with the Ministryof Space Industry.The ministries and their subordinate corporations

22Mao Jingli, “Replacing the Old with the New—on Upgrading China’s Qiang (A)-5 II Aircraft,” Xiandai Bingqi [Beijing] 7, pp. 4-5, July 8,1993, in Joint Publication Research Service report (hereafter JPRS) 93-075 (Oct. 12, 1993) p. 36.

23”New Ships for the PLAN,” Jane’s Defence Weekly, p. 88, Jan. 18, 1992.

24Tai Ming Cheung, “On Civvy Street,” Far Eastern Economic Review, 155:41, Feb. 6, 1992.

“own” China’s DTIB, except for the portion that is GSD/ED officers were also often unfamiliarunder the control of the PLA and COSTIND.

In the past, the GSD/ED and the MMBs haveoften failed to see eye to eye. In particular, theGSD/ED’s officers were not necessarily con-cerned with budgets because production costswere frequently the responsibility of the state,rather than the military per se. Nominally, this al-lowed military users to set requirements withouthaving to worry about budgetary stresses. 25

with the production process. At the same time, theMMBs often did not necessarily understand op-erational requirements. As a result, the MMBspaid little attention to either potential combat needsor maintenance requirements. Instead, equipmentwas produced according to MMB capabilities,rather than to a plan for greater sophistication(with its ideological implications). This was mostevident with aircraft production. The Ministry of

25 A.J. Alexander, “National Experiences: A Comparative Analysis,” Disarmament, Topical Papers #5, Conversion: Economic Adjust-ments in an Era of Arms Reduction, Vol. 2 (New York, NY: United Nations, 1991), p. 19.

The Chinese and Japanese Arms Industries 113

SOURCE Defense Intelligence Agency, 1990

Aviation produced thousands of combat aircraft,most of which were obsolescent, if not obsolete,rather than attempt to develop better designs.

With the commercialization of the Chineseeconomy over the past 15 years, however, the Chi-nese procurement process has changed somewhat.The PLA now has greater responsibility for thebudgetary aspects of acquisition, and the PLA’srequests for more sophisticated arms must now be

reconciled with other demands. At the same time,the MMBs now have a far greater incentive to pro-cure and develop more sophisticated technolo-gies. This does not mean that the MMBs are nec-essarily more responsive to the demands of themilitary, however. Instead, the “ministries tend toseek out technology that will directly affect indus-trial modernization.”26 They have, therefore,often subordinated military production to com-

26 J. P. Gallagher, “China’s Military Industrial Complex,” Asian Survey 28(9):998, 1987.


mercial requirements. COSTIND’s role is tomediate between the PLA and the MMBs.

COSTIND combines research and develop-ment (R&D) functions. In some ways, it re-sembles the Director of Defense Research and En-gineering (DDR&E) office within the Office ofthe Secretary of Defense in the United States. It is,however, granted a much wider purview. COS-TIND is responsible for the specification, assess-ment, and application of all advanced technolo-gies within the Chinese military and DTIB. Thepolitical power of COSTIND, moreover, is fargreater than that of DDR&E. Several of COS-TIND’s members sit on both the State Council andthe CMC.

Like both of the other players, COSTIND alsocontrols its own corporations. These include Chi-na Xinshidai Corp. and Xiaofeng Technology andEquipment Corp.. The former is primarily ori-ented toward advanced technologies generally,whereas the latter is more narrowly focused, withspecial interests in computers, testing equipment,and robotics.

❚ Comparison of the PRC with the UnitedStates

The Chinese DTIB differs in several important re-spects from its American counterpart. Initially,starting in 1949, the Chinese DTIB—indeed, theentire Chinese economy—was state-run. The Chi-nese economy was also heavily militarized. Fordecades, the DTIB had priority for receiving thehighest-quality raw materials, trained personnel,and advanced technology. Although the Chineseeconomy has changed drastically since the adventof Deng Xiaoping and the introduction of eco-nomic reform and liberalization measures, signifi-cant portions, particularly the heavy-industrialsectors, remain centrally planned. Such differ-ences clearly limit the relevance of the Chineseexperience for the United States.

In the past decade, however, the Chinese havestriven to liberalize their economy and to increaseits sophistication. This has involved the acquisi-tion of more sophisticated technology fromabroad. At the same time, the Chinese have soughtto make greater use of their current work force andavailable industrial plant. As a poor country, thePRC seeks to maximize its use of available laborand resources. Thus, there is a great emphasis ontransferring DTIB resources to the CTIB (hencethe Chinese emphasis on conversion). Those ef-forts, particularly in the areas of conversion andincreasing the use of the same production lines forboth civilian and military items, may offer someuseful comparisons with the American case.

Acquisition Laws and ProceduresOne of the most important obstacles to integratingcivil and military procurement in the UnitedStates involves acquisition law.27 The myriad re-quirements for reporting various costs have dis-couraged integration by imposing additional ex-penses on firms that seek to produce goods for themilitary. Even highly successful commercialfirms are, therefore, frequently reluctant to under-take military production for fear of incurring thesecosts.

One aspect of the acquisition-law problem istechnical data rights. The Department of Defense(DOD) frequently demands extensive rights totechnical data to ensure that a given system cancontinue to be produced even if the original con-tracting corporation goes out of business. Thus,DOD may request not only data about the systemitself, but also information on the manufacturingprocesses, which the company may well have de-veloped on its own, often at significant expense.

The Chinese suffer from fewer such problems.In the past, this may have been due to state owner-ship of the bulk of the means of production. In-deed, within the Chinese DTIB, the State con-

27U.S. Congress, Office of Technology Assessment, Assessing the Potential for Civil-Military Integration: Technologies, Processes, andPractices (Washington, DC: U.S. Government Printing Office, 1994).


trolled and supplied all of the relevant industrialelements. As long as the DTIB was ahead of theCTIB, therefore, technical data rights were hardlya problem because the government possessedmost technical data rights from the outset and wasunder no pressure to share them with the CTIB.

Furthermore, the Chinese DTIB was shroudedin secrecy. Thus, there was only a limited flow, ifany, of technical data rights to the CTIB. Becausethe Chinese emphasized the military sectors overtheir commercial sectors, technical data, especial-ly for relatively advanced processes, rested in theDTIB.

Military Specifications and StandardsIn the PRC, although operational parameters areset by the PLA, the standards involved in actualproduction have been, and still are, set by theMMBs. This is due, in part, to the different back-grounds of PLA officers and MMB officials. Thelatter are far more versed in engineering, whereasthe former have generally been capable only ofsetting out operational requirements without nec-essarily understanding the industrial demands in-volved. Thus, production standards have been theresponsibility of the producers, rather than theusers.

Chinese manufacturers set fairly high stan-dards for the manufacture of their weapon systemswithin the capabilities of the Chinese DTIB. Aswas true for their Soviet counterparts, quality hasgenerally been higher on military than on com-mercial production lines. The difference has beendue, in part, to the Chinese DTIB receiving thebest raw materials and facilities and the best-trained labor force. In addition, the priority ac-corded the DTIB by political authorities for mate-rial and political support may have obviatedsomewhat the need for extensive military specifi-cation. The government expected that only thehighest-quality items would be provided for mili-

tary production lines and that only the highest-quality products would be made.

Questions have been raised about the quality ofChinese military items, however. There have beenreports, for example, that Chinese aircraftmanufacturers’ quality control has tended to beuneven. Entire Chinese aircraft types were re-called to their factories in 1975. In the 1980s, Chi-nese combat aircraft were reported to have seriousproblems that involved contamination of their hy-draulic systems.28 In the wake of joint ventureswith the United States and Europe in the area ofcivilian aircraft (particularly the MD-80 andMD-90 at Shanghai Aircraft Industries Corp.(SAIC)), though, the general level of Chinese air-craft workmanship has apparently risen. Indeed,the certification by the U.S. Federal Aviation Ad-ministration of Chinese-manufactured compo-nents for McDonnell-Douglas aircraft, includingfuselages and nose cones, for sale in the UnitedStates would seem to suggest that the Chinesework force at SAIC is now capable of meetingWestern commercial standards. Because Westerncommercial standards are more stringent than pre-vious Chinese specifications, the overall level ofChinese quality control, at least at this facility,would appear to have improved.

At the same time, Chinese combat aircraft arenow reported to have a much smoother surface, orskin, than before.29 This suggests that there is aflow of personnel and expertise from civilian tomilitary production lines, at least in situationswhere the former had become more advanced thanthe latter. Such a flow would amount to “spin-on”of (relatively) more advanced techniques and ca-pabilities from the commercial to the militaryside.

The Chinese modernization program currentlyfocuses on the acquisition of more-advanced for-eign weapons technology, such as the Su-27 fight-er. Right now, these efforts do not involve any

28R. J. Latham and K.W. Allen, “Defense Reform in China: The PLA Air Force,” Problems of Communism, p. 46, May-June 1991.

29Professor P. Godwin, National Defense University, Washington, DC, personal communication, March 1994.


Chinese manufacturing, nor have the most recentacquisitions yet led to either production of re-verse-engineered equipment or purchase of pro-duction facilities. Mastering the production ofsuch equipment, by either method, will undoubt-edly take several years. Because current Chineseefforts are aimed at producing much more sophis-ticated equipment, with higher tolerances, thanthe country had previously manufactured, it islikely that better quality control will be necessary.If requirements exceed current Chinese standards,new specifications, essentially military specifica-tions and military standards, may be necessary.

Militarily Unique TechnologiesAnother obstacle to U.S. civil-military integrationinvolves militarily unique technologies, whichnecessarily limit the degree of commonality be-tween commercial and military goods and ser-vices. Although militarily unique technologiesusually have no direct civilian applications in theUnited States (e.g., ballistic missiles and electron-ic warfare programming), in the PRC militarytechnologies have tended to be rendered “unique”because certain resources have been in limitedsupply. That is, the PLA had priority for receivingmany of the more advanced and expensivetechnologies and facilities (e.g., computers andwind tunnels) until Deng Xiaoping’s economicliberalization raised the Chinese CTIB’s status. Itis likely, for example, that the Chinese air-defensenetwork has a more advanced set of air-traffic-control capabilities than does the Chinese civilianair-traffic net.30 Similarly, until the liberalizationprogram commenced, one-half to two-thirds, ifnot more, of all Chinese-produced electronicswere dedicated to military use.31

The decision to promote defense-industrialparticipation in the commercial market, however,would suggest that those items and qualities once

reserved for the PLA, such as high-quality steeland better-trained workers, may now be seepinginto the CTIB. Even now, however, the MMBshave sole control over many areas of Chinesetechnology that were once primarily military.Thus, the means of producing communicationsequipment remain concentrated in the hands of theDTIB, although the products are being dispersedinto the CTIB at large. The arrival of Western tele-communications corporations in China may alterthat situation further in the coming decade, al-though Chinese demands for co-production sug-gest that the MMBs may retain a large degree ofcontrol over any technologies and processes trans-ferred from the West.

Emphasis on Military PerformanceSince the beginning of the Cold War, the UnitedStates has placed a greater emphasis on military-product performance than on cost, whereas in thecommercial sector, quality and performance werebalanced against the likely costs incurred. Theemphasis on high performance not only raisedcosts, but in some cases, minimized the com-monality between functionally similar militaryand commercial goods.

In the PRC, significant effort does not seem tohave been made to acquire or develop state-of-the-art weapons technologies. This is due, in part, tothe relatively primitive state of the Chinese DTIBand, in part, to political and bureaucratic pressur-es, particularly within the MMBs. As a result, de-spite the Chinese DTIB’s favored status comparedwith the Chinese CTIB’s, for high-quality rawmaterials and tools, Chinese defense productshave generally not been significantly more ad-vanced than products of the Chinese CTIB as awhole, particularly in such areas as electronicsand communications. According to one Chineseassessment, “In the realm of firepower and control

30Chinese aviation officials noted in conversations that only one Chinese civilian airport has the more advanced Type 2 instrument landingrules (ILR) equipment. All others are equipped with only Type 1 ILR equipment. December 1993.

31D. Shambaugh, op. cit., footnote 8, p. 58.


systems, the Chinese fighters are lagging some 15years behind advanced foreign levels.”32 Theelectronics in the most sophisticated domesticallyproduced fighter aircraft, the J-8II, are compara-ble to American 1970s-level technology. Al-though the DTIB has tended to have priority forreceiving higher-quality items (e.g., higher-quali-ty machine tools), the quantities available havebeen so limited that they have had little effect onthe overall quality of the DTIB, much less theCTIB.

The situation has been exacerbated by thePLA’s own lack of interest in technologically ad-vanced weapon systems. Only relatively recentlyhas the PLA leadership demanded access to high-tech weaponry and advanced capabilities for itsnonnuclear forces. These demands were then rap-idly preempted by the Four Modernizations. As aresult, it is only in the past four years that the PLAhas had both the interest in and the wherewithal toobtain more sophisticated weapon systems. Thesehave, in turn, primarily involved acquiring for-eign technology. Thus, the Chinese DTIB’s state-of-the-art weapon systems still lag behind Rus-sia’s, and even further behind the West’s.

❚ Integration of Levels of ProductionIn light of the circumstances enumerated above,what is the degree of integration between the Chi-nese DTIB and CTIB? As noted earlier, the PLAhas played an important role in the economic de-velopment of the PRC. Conversely, the PLA alsorelies on the civilian infrastructure. The Chinesemilitary, for example, evidently continues to usethe national communications network, includingthe telephone system, microwave radio, telex, andmultiplex wireless.33 The PLA’s Tibetan garrisonis supported by China Southwest Airlines, which

has ferried rotating formations of troops in and outof the region.34 Thus, at a minimum, it appearsthat the Chinese military and popular economiesare closely linked.

With economic liberalization, however, theadditional impetus of making money has arisen,pushing all the ministries, corporations, and sub-sidiaries into seeking and exploiting commercialopportunities. Consequently, the output of civil-ian goods made on military production lines hasrisen sharply since economic liberalization beganin the late 1970s and early 1980s. Indeed, accord-ing to some estimates, “profits generated in 1992by more than 20,000 military-run companies[alone] totaled around 30 billion yuan [renmin-bi]—. . . with just six billion yuan given to thecentral military authorities.”35 The result has beena form of integration at all three levels (sector,firm, and facility; see box A). The Chinese versionof integration, however, does not necessarily cor-respond with that in the United States.

Sector LevelAt the sector level, most industrial sectors are inte-grated, insofar as they are involved in both mili-tary and commercial R&D, production, and op-erations and maintenance (O&M). The Chinesehave emphasized the exploitation of their defenseR&D facilities and resources in pursuit of overallnational economic growth. One government ef-fort aimed at facilitating this shift is the Torch Pro-gram, which promotes the shift of scientists andengineers from traditional research institutes andprojects to those with greater commercial poten-tial.36

The PLA itself is pressuring such centrally di-rected programs to promote R&D in a more com-mercial direction. In particular, given the semiau-

32Zhang Yongqian, “Brief Look at China’s Fighter Aircraft Development Level,” Xiandai Bingqi [Beijing], Oct. 10, 1993, in JPRS 94-008,Jan. 31, 1994, p. 21.

33D. Shambaugh, op. cit., footnote 8, p. 60.

34”Making a Modern Industry,” Jane’s Defence Weekly, Feb. 19, 1994, p.27.

35”Balancing the Books,” Jane’s Defence Weekly, Feb. 19, 1994, p.35.

36R.D. Humble, “Science, Technology and China’s Defence Industrial Base,” Jane’s Intelligence Review, January 1992, p. 8.


tonomous nature of many PLA units, there is analmost grass-roots quality to some of the PLA’sR&D projects, which tend to emphasize commer-cially profitable ventures. Thus, the LiberationArmy Daily reported on an “All-Army EnterpriseScientific and Technological Research Achieve-ments Fair” in Beijing. At the fair, over 2,000projects and experiments, few of which were formilitary customers, were displayed.37

In the heavy-industry sectors, it is reported that68.8 percent of the output from Ministry of Ord-nance Industry facilities and 80 percent of ship-building and repair activities are now for nonmili-tary use.38 In Chinese shipbuilding, integration ofthe military and commercial sides is quite explic-it: the China State Shipbuilding Corp. owns allChinese shipyards and shipbuilding and marine-equipment firms.39 Thus, shipyards that oncebuilt warships are now turning their expertise andfacilities to the construction of freighters and oth-er vessels for commercial purposes.40 Similarly,in the automotive sector, NORINCO, the largestChinese arms corporation, which produces muchof the PLA’s heavy equipment including tanks andself-propelled guns, is also responsible for some50 percent of Chinese motorcycle production and30 percent of all minivans.41 In fact, three-quar-ters of all minivans now apparently come frommilitary sources.42

In the area of O&M the Chinese also appear tohave achieved some degree of integration. Once

equipment is procured, its upkeep becomes the re-sponsibility of the PLA’s GLD. Although theGLD controls a few depot-level maintenance faci-lities, primarily for heavy vehicles, there is noanalogue in the PRC to the extensive depot struc-ture that provides O&M support in the U.S.Instead, maintenance is primarily the province ofthe “owning” formation, or PLA unit. Extensiverepair operations, particularly for aircraft and na-val vessels, apparently involve the manufacturers(in the case of shipbuilding, the manufacturerscontrol the primary shipbuilding and repair facili-ties).

Although the Chinese appear to have succeed-ed in integrating many of their sectors, it also ap-pears that few of the lessons they have learned aretransferable to the United States. Chinese effortsat the sector level exploit what are, at best, limitedtechnologies and capabilities within the Chinesescience-and-technology infrastructure. The Chi-nese themselves recognize this. In a recent articlein Xiandai Bingqi (Modern Weaponry) assessingthe newest domestically produced fighter plane,the author notes that “China’s manufacturingtechnology was exceedingly backward; theirstock of relevant technology was obviously inade-quate, and this had a direct impact on model devel-opment.”43 The Chinese consider the attainmentof international standards of sophistication insuch areas as aerospace as a triumph in and of it-self.44 The levels of military and commercial tech-

37Nie Zhonglin and Ma Chunlin, “First All-Army Enterprise Scientific and Technological Research Achievements Fair Opens in Beijing,”Jiefangjun Bao (Oct. 19, 1993), p. 1, in Foreign Broadcast Information Service China daily report (hereafter FBIS-CHI) 93-211, Nov. 3, 1993, p.40.

38D.J. Blasko, “Beijing’s Big Bang,” Far Eastern Economic Review, 157(8):37, 1994.

39R.D. Humble, op. cit., footnote 36, p. 6.

40Cao Huanrong and Jia Yong, Xinhua (Dec. 6, 1993), in FBIS-CHI 93-239 (Dec. 15, 1993), p. 27.

41Tai Ming Cheung, op. cit., footnote 24, p. 40.

42Cao Huangrong and Jia Yong, op. cit., footnote 40, p. 27.

43Zhang Yongqian, op. cit., footnote 32, p. 20.

44See, for example, Sun Mao-qing, “Air Force Test Base Advances to World Rank,” Renmin Ribao (June 10, 1993), p. 3, in JPRS 93-014(Aug. 17, 1993), p. 12, and Chang Ko, “China’s Largest Drone Base,” Kuang Chiao Ching (Hong Kong) 254 (16) Nov. 1993, in FBIS-CHI93-221 (Nov. 18, 1993), p. 46.


nological sophistication in the PRC, for the mostpart, are below the global average. In only a fewareas are the Chinese even maintaining parity.

The limited applicability of the Chinese situa-tion to the American case is made more so by thevery different nature of Chinese economic orga-nization. Even after a decade of economic reformand liberalization, the state continues to own andmanage the “commanding heights” of the Chineseeconomy, particularly heavy industry. The MMBseven now effectively exercise control over theirrespective sectors (e.g., shipbuilding, steel mak-ing, and electronics), a situation exploited by theirsubsidiaries. Each sector is, therefore, integrated,but only because the government controls virtual-ly all production, both commercial and military, inthat sector. Integration under such circumstancesis more akin to consolidation of the means of pro-duction and diversification of products than to thesharing of product and process technologies that istypical of Western efforts. The Chinese approachto integration, involving the participation of therelevant ministries and their attendant corpora-tions, is, therefore, probably unique to commandeconomies and of limited relevance to capitalistones.

Finally, the Chinese did not necessarily set outto integrate their CTIB and DTIB. Instead, inmany cases, they are seeking to develop capitalisteconomic relations. A report from Shaanxi Prov-ince, for example, argues that the infrastructurefor “science, technology and industry for nationaldefense” within Shaanxi should be devoted tohelping fulfill the “Shaanxi people’s wishes to getrich.” Indeed, the article goes so far as to suggestthat the military industry should be eliminated infavor of national production of “high-technologyproducts and export-oriented management.”45

The profits thus derived, presumably, would be al-

located first to Shaanxi and only then to the rest ofthe nation. Similarly, factories in Guizhou Prov-ince appear geared toward provincial rather thannational markets.46

Firm LevelAt the firm level, the Chinese also appear to havebecome “integrated,” or at least diversified. TheShanghai Aircraft Industry Corp., for example,sells everything from automobile jacks to pressur-ized tanks to refrigerators.47 Discussions withCOSTIND officials about their subordinate in-dustries revealed a product line that included shipsand cigarette-manufacturing machines at manycorporations. Similarly, much of the Chinesechemical industry’s pumps and seals are made bythe Chinese Space Industry Corp. because it is ac-customed to dealing with highly corrosive chemi-cals. By 1989, only 10 percent of defense firms re-mained committed solely to defense production;16 percent produced only commercial products,and the remaining 74 percent produced both com-mercial and military products.48

As with sector-level integration, however, Chi-nese examples of firm-level integration may notbe comparable to those in the West. In particular, ifonly firms that are actually profitable are consid-ered successful examples of firm-level integra-tion, there appear to have been more failures thansuccesses. The efficient allocation of the availabletechnological and human resources, however, ap-pears to be only one of the PRC’s criteria for suc-cessful integration.

Another important criterion for the PRC ap-pears to be the preservation of jobs and, to a lesserdegree, of industrial infrastructure, wherever pos-sible. This is very different from Western integra-tion efforts, which almost inevitably involve plantclosings and increased unemployment. A high

45Zhang Ke, “Roundup,” Zhongguo Xinwen She (Sept. 12, 1993), in FBIS-CHI 93-183 (Sept. 23, 1993), p. 39.

46Liang Fang, Beijing Review (41) Oct. 11-17, 1993, in FBIS-CHI 93-202 (Oct. 21, 1993), p. 36.

47Officials of the Shanghai Aircraft Industry Corporation, Shanghai, personal communication, December 1993.

48A.J. Alexander, op cit., footnote 24, p. 21.


priority for Chinese authorities appears to be to re-tain workers and keep equipment employed. As aresult, for example, certain enterprises that havebeen unable to find a suitable product to manufac-ture have contracted their work force to highwayconstruction and other projects.49 Similarly, theChinese DTIB has diverted several tens of thou-sands of technical facilities to light industry, in-cluding the petrol chemistry, chemical fertilizer,and chemical fiber industries.50

Although such reallocation has kept plants andpersonnel occupied, it has come at a price. In par-ticular, there are few good measures of the extentto which the plants and personnel that are con-verted to commercial production are efficientlyused. It is reported, for example, that perhaps nomore than one-third of the military industry’s ca-pacity is being used efficiently, despite strenuousefforts.51 More disappointing to the central autho-rities, only about half of Chinese defense firmshave succeeded in manufacturing civilian goodsat acceptable prices.52 Thus, according to one re-port, “two-thirds of all aerospace enterprises areunable either to produce any marketable civilianproducts or compete in the civilian market withoutstate subsidies.”53 These firms, however, appar-ently remain in business regardless of whetherthey are suceeding in actually producing market-able products.

The low efficiency of some Chinese plants andpersonnel is due to their location. As noted earlier,many of China’s largest defense-industrial facili-ties (and many smaller ones) are located in the rel-atively remote interior, constituting the so-called“third line” of production from the days of the“People’s War” doctrine. As a result, getting

goods to market is, at best, difficult, and gettingaccess to raw materials, in a commercialized econ-omy, is problematic. Corporations that rely onsuch facilities, therefore, are faced with a dauntingtask from the outset. Although they may be able tokeep their doors open (thanks to subsidies fromvarious governmental sources), that does not nec-essarily mean that their products are commercial-ly viable. Indeed, it may well be that subsidies areas important as products in ensuring the continuedutilization of Chinese DTIB resources and labor.There are indications that at least some productionis being shifted away from inland locations closerto transportation links. In some cases, entireplants are being moved.54

Facility LevelThe prospect of finding relevant lessons for theWest in the PRC’s conversion and integration ex-periences may be the most promising at the facil-ity level. Chinese military factories reputedly pro-duce commercial and military goods side by sideon the same lines. The production of equipmentthat varies primarily in the coat of paint applied isthe epitome of integration. Chinese military-ve-hicle factories have in some cases, for example,simply changed the colors available for the com-mercial market. Thus, Chinese command cars, re-sembling jeeps, may now be found in both civilianand military livery on the streets of Beijing. Chi-nese-produced motorcycles, once intended formilitary dispatch riders, are now provided primar-ily to the civilian motorcycle market.55

At a somewhat higher technological level,some Chinese aerospace products are also report-edly produced in an integrated manner. The Y-7,

49Liang Fang, op cit., footnote 46, p. 35.

50China Today, op. cit., footnote 19, p. 163.

51”Making a Modern Industry,” p. 29.

52Tai Ming Cheung, op. cit., footnote 24, pp. 40-41.

53Ibid., p. 42.

54Liang Fang, op. cit., footnote 46, pp. 35-36.

55C. Hollingworth, “China’s Arms Industry,” NATO’s Sixteen Nations 32 (2): 52, 1987.


the Chinese version of the AN-24 turboprop trans-port aircraft, has been part of both the PLA AirForce and Chinese commercial flight lines sincethe early 1970s.56 The Y-8 military transport is re-portedly now also available as a civilian aircraft.Similarly, the Harbin Aircraft ManufacturingCorporation produces the Z-9, a modified versionof the Aerospatiale AS365. This aircraft is pro-vided not only to the Chinese military, but also tothe “government forestry service, and state-owned general aviation and offshore oil supportcompanies.”57

The roots of this situation, however, are againsignificantly different from those in the West. TheChinese commercial market has long been sup-pressed. A primary reason for the success of theChinese conversion effort has been the desperatedemand for consumer goods. Chinese defenseplants that engaged in commercial productionbenefited further by the absence of competition, atleast in the initial stages. Indeed, the combinationof monopolistic control in various sectors, the ab-sence of competitors, and large markets creates acommercial situation markedly different from thatof any capitalist economy.

Most Chinese facilities have not achieved in-tegration as defined by the West, however. Indeed,many of the products from the various MMBs arenot derived from defense products or even fromdefense production lines. At least during the ini-tial conversion process, Chinese defense facilities“produced whatever they could lay their hands on,such as electric fans and blankets, meat grinders,kitchen utensils, and even desks and chairs. Mostof the products were low-quality, low-grade itemswith little output value.”58 Even now, much of theproduct line of the Ministry of Ordnance is com-posed of civilian products made at facilitiesowned by the Ministry but using different equip-ment from that used for defense production. Al-

though such arrangements keep facilities andworkers engaged and may constitute successfulexamples of conversion, they are not examples ofintegration. There is little use of common technol-ogies and equipment to meet both defense andcommercial needs; instead, available personneland, to a certain extent, common facilities are usedto meet commercial demands.

JAPANWhile the PRC has focused primarily on defenseproduction for much of its postwar history, Japanhas followed an almost opposite course. At theend of World War II, the United States and the oth-er occupying powers moved to ensure that Japanhad no DTIB. They sought to dismantle the re-maining Japanese aircraft and shipbuilding indus-tries to prevent the country from becoming a threatto the region again.

The Korean War, however, pushed the UnitedStates to reconsider its attitude toward Japaneserearmament. Indeed, in 1950 and 1951, John Fos-ter Dulles sought to persuade Japan to rebuild itsmilitary as a bulwark against the PRC and theU.S.S.R. Although then-Prime Minister Yoshidaresisted this move, he ultimately agreed to the cre-ation of a Japanese military, euphemisticallytermed the Self Defense Forces (SDF) in light ofprohibitions within the American-imposed Japa-nese constitution against the possession of armedforces.

Although there was little interest in the reestab-lishment of a military capable of overseas opera-tions, the Japanese government recognized the po-tential usefulness of a military industry. TheKorean War had pumped enormous resources intothe Japanese economy. American orders for mili-tary-support equipment, including trucks andlanding craft, as well as expenditures for O&M

56Jane’s All the World’s Aircraft, 1989-1990, J.W.R. Taylor (ed.) (London, England: Jane’s Information Group Ltd., 1989), p. 45.

57P. Proctor, “Harbin Uses New Helicopter Program to Advance Global Manufacturing Role,” Aviation Week & Space Technology, Feb. 3,1992, p. 50.

58Liang Fang, op. cit., footnote 46, p. 35.


and for housing troops, had sped Japan’s econom-ic recovery. Much of the Japanese automotive in-dustry, for example, was revived by the mainte-nance and rebuilding of American equipment forthe Korean War effort. Thus, Japanese industrial-ists believed that “military production would bethe center of Japanese industrial development.”59

Unlike the Chinese, or even the United States,however, defense production was not made apriority of the defense authorities. Instead, underthe Law for Enterprises Manufacturing Aircraftand the Law for Manufacturing Weapons andMunitions, materiel production was placed underthe jurisdiction of the Ministry of InternationalTrade and Industry (MITI). These laws required“private firms to provide detailed informationabout locations, ownership, type of technologyused, capitalization, and more to MITI.”60 MITI’sAircraft and Ordnance Division was effectivelygranted (and retains) oversight for the productionof all aircraft and parts, as well as munitions andweapons. These two laws remain the primary lawsspecifically concerning defense procurement inJapan.

The Japanese could afford to avoid becoming amajor military power, in large part, because of theextension of the American security guarantee. Un-der the 1960 U.S.-Japan Treaty of Mutual Securi-ty, the United States effectively extended a unilat-eral commitment to Japan’s security. This securityumbrella allowed the Japanese, in turn, to focusmore narrowly on economic development withouthaving to worry too much about military security.

The decision not to become a major militarypower, however, did not eliminate Japan’s interestin developing the ability to produce weapons in-digenously. Indeed, with the American decision tobegin charging the Japanese for defense productsin the 1960s, the Japanese, like the Chinese,

pushed hard for local manufacture of most of theirequipment to avoid reliance on foreign suppliers.This fear of vulnerability was highlighted by theJapanese drive for kokusanka—having domesticsystems (i.e., those domestically developed anddesigned as well as produced) in preference to im-porting complete weapons. The term kokusankacarries with it nationalist overtones, and, accord-ing to some observers, is one of the most impor-tant elements in Japan’s defense-procurement de-bates.61

In addition to bureaucratic and security con-cerns, Japanese corporations were interested indefense production. Japanese business leaders didnot, however, view the Japan Defense Agency(JDA) as simply another market. Rather, the de-fense budget was considered a means of raisingJapanese business’s general level of technologicalexpertise. For example, the Japanese Federationof Economic Organizations (Keidanren) estab-lished the Defense Production Council (DPC),whose “major purpose was to create a better cli-mate of opinion between business and the SDF,”in 1965.62 The DPC was interested in the possibi-lities of technological innovation within militaryproduction, rather than military products per se.Thus, its 900 members numbered few weaponsproducers.

By the early 1970s, Japanese producers hadconcluded that commercial technology would be amore vibrant source of technological advance-ment than military technology. This shift was giv-en additional economic impetus by the formalJapanese enunciation of a policy effectively ban-ning arms exports. With the decision not to allowexports of weapons, any prospect of economies ofscale through the focused development of militaryequipment vanished. To ensure steady revenue,the Japanese defense industry focused on getting

59R. J. Samuels, Rich Nation, Strong Army (Ithaca, NY: Cornell University Press, 1994), p. 142.

60T. Kataoka and R.H. Myers, Defending An Economic Superpower (Boulder, CO: Westview Press, 1989), p. 68.

61M.W. Chinworth, Inside Japan’s Defense (New York, NY: Pergamon-Brassey’s, 1992), p. 19.

62P. Katzenstein and N. Okawara, Japan’s National Security (Ithaca, NY: Cornell University Press, 1993), p. 74.

long-term commitments from the government, in-creasing government funding for defense-relatedR&D, and, perhaps most important, raising theproportion of the content of Japanese military-equipment made domestically. At the same time,elements of the Japanese DTIB were integratedfirmly into the CTIB to ensure its continued vi-ability.

The Japanese have l i cense-p roduced many Amer icanweapons, inc lud ing the P-2J and the P-3C an t i -submar ineai rcraf t .

The process of indigenization of Japanese de-fense production continued apace over the next 20years. Japanese industry has been very successfulin expanding the range of components and sys-tems that are locally produced and used in variousweapons. By the 1980s, for example, most Japa-nese missiles were manufactured indigenously,although many were produced under license. Sim-ilarly, the Japanese Maritime Self Defense Force(JMSDF) is almost entirely equipped with locallydesigned combatants, armed in the main with do-mestically produced (and often domestically de-signed) weapon systems. Indeed, in terms of de-fense products, the Japanese DTIB, like the

The Chinese and Japanese Arms Industries 123

Chinese DTIB, produces a wide range of land, sea,and air Systems, many analgous to American sys-terns, as well as military electronics and a space-launch capability. Only in the nuclear weaponsarena, in fact, is a Japanese capability entirely ab-sent (although there are few doubts that Japan hasthe wherewithal to design and build nuclear weap-ons and delivery systems, or that Japan could con-vert its civilian nuclear and space programs to mil-itary purposes should it choose to do so).

■ Japanese ProcurementThe Japanese economy is heavily weighted to-ward civilian production; defense production isrelatively minuscule. Japanese defense spending,for example, since the 1970s has generally beenunder 1 percent of Japanese gross national product(see figure 1). In the 1970s, Japanese defense in-dustries represented only about 0.5 percent of totalJapanese industrial output, and in the mid-1980s,that proportion had increased to about 2.0 per-cent.63 Only about 0.1 percent of the total Japa-nese work force (or about 70,000 workers) is di-rectly employed by Japanese defense industries.64

The Japanese corporations engaged in weaponsmanufacture are not preoccupied with defensework. Indeed, few Japanese defense corporationsare entirely dependent on defense contracts fortheir profits, or even for their income. For mostJapanese corporate equivalents of Americanprime contractors engaged in military work dur-ing the 1970s, defense contracts represented lessthan 10 percent of total earnings. By the 1980s,even after a decade of growth in defense spending,less than 20 percent of the revenue of Japanesefirms such as Mitsubishi Heavy Industries (MHI)and Kawasaki Heavy Industries (KHI) originatedfrom JDA contacts. Indeed, no major Japanesecorporations are purely, or even primarily, de-fense-oriented. In the case of MHI, for example,

63 U.S. Congress, Office of Technology Assessment, Arming Our Allies: Cooperation and Competition in Defense Technology (Washing-

ton, D.C.: U.S. Government Printing Office, 1990), P. 104, and P. Katzenstein and N. Okawara, op cit., footnote 62, p. 66.64 T. Aoki, “Japan’s Defence Industry,” Military Technology, July 1986, p. 49.


defense contracts represent only some 14.3 per-cent of income.65 The largest proportion of de-fense business in any major Japanese corporationis held by Japan Steel Works, and it represented nomore than 33 percent of the company’s total salesin Japan’s fiscal year 1989.66

Within such large defense contractors as MHIand KHI, moreover, the defense “exposure” islimited to certain divisions. The defense divisionwithin a major Japanese corporation may dependon military sales for up to 90 percent of its sales.67

The divisions themselves, however, are part of anintegrated firm, and the facilities under their con-trol are almost certain to be integrated as well.Thus, although MHI’s Shipbuilding & Steel andAircraft & Special Vehicles divisions are especial-ly exposed to the vagaries of defense budgeting,their total revenue represents less than half of thecompany’s income (and not all of the contracts ineither division stem entirely from the JDA).68 Thecompany as a whole remains broad-based.

The Japanese DTIB is not as central to the na-tional economy as is the Chinese DTIB, and theJapanese approach to arms procurement is differ-ent from that of the United States. In the UnitedStates, there is an emphasis on cutting-edge mili-tary performance, sometimes imposing very highcosts. In Japan, on the other hand, some analystshave indicated that military roles and missionshave been secondary to other considerations.69

The Japanese focus is not necessarily on the pro-duction of the most advanced weaponry per se,nor even on the fielding of superior defensetechnology. Rather, the Japanese procurementprocess treats production of defense equipment asan adjunct to the civilian economy. Some observ-

ers suggest that defense production serves as astable consumer base for new products, a means ofgaining (and disbursing) R&D money, and ameans of developing advanced technologies andcapabilities. Unlike the United States, Japan haschosen to forego the marginal additional cutting-edge performance in order to preserve an up-and-running indigenous base.

Although Japanese weapon systems often con-tain extremely advanced products (e.g., advancedradar technologies and new composites), theweapons themselves are not necessarily as capa-ble or as advanced as those of their Americancounterparts. Thus, it has been said that “the JDAfields neither technology nor weapons, but prod-ucts.”70 For the Japanese, initiating production ofgiven products or spurring research in a giventechnology is as important a reason to developweapon systems as the weapons themselves.

The relative weights of the players in the Japa-nese procurement process also differ from those ineither the Chinese or the American situations. Theprimary characters are JDA, MITI, the Ministry ofFinance (MOF), and the Japanese defensemanufacturers.

JDA, unlike the Chinese PLA or the AmericanDOD, is the weakest of the players. Unlike MITIor MOF, JDA is not a full-fledged ministry. Rath-er, it is an agency, a part of the Prime Minister’sOffice. Not only is it of lower bureaucratic stand-ing, therefore, but it has less control over its ownfate than do full ministries. Thus, of the 10 bureau-cratic appointments to JDA, at least four are as-signed from other ministries. This situation is theresult of a deliberate effort to ensure continued ci-vilian control and to underscore the relative unim-

65P. Finnegan, “U.S., Europe Part Paths on Defense Challenges,” Defense News, p. 6, July 20, 1992.

66”A Basis for New Growth,” Jane’s Defence Weekly, Aug. 17, 1991, p. 283.

67Fujii, “End to Long-Term Stable Growth—Defense Industry at Crossroads,” Nihon Keizai Shimbun, morning ed., June 25, 1991, p. 13., inFBIS-EAS 91-126-A (July 1, 1991), p. 6.

68”Analysis: Mitsubishi Heavy Industries,” Jane’s Defence Weekly, Nov. 18, 1989, p. 1128.

69R. Samuels, op. cit., footnote 59, p. 170.

70M. Chinworth, op. cit., footnote 61, p. 47.


portance of the military in postwar Japan. It hasalso meant in many cases, however, that consider-ations of technological development or commer-cial opportunity have had more influence on pro-curement decisions than they have in theAmerican system (see figure 3).

The definition of JDA’s strategies and missionis coordinated by the Policy Bureau, which is aslikely to be headed by an official of the police as ofMOF. The staff departments of the three services(Air, Ground, and Maritime Self Defense Forces)then draw up their budget requests in relation tothe guidance promulgated by the Policy Bureau.These requests are then forwarded to the Defense,Equipment, and Finance Bureaus. The latter twobureaus are headed permanently by officials as-signed from MITI and MOF, respectively, whilethe Defense Bureau is headed by a JDA official.The Equipment Bureau determines whether a giv-en product will be produced domestically or pur-chased abroad, and the Finance Bureau judges allrequests relative to JDA budgets. The respectivebureau heads often have no background in defenseper se, so they are more likely to view requestsfrom their own bureaucratic perspective, ratherthan from JDA’s (although they do coordinatewith the Policy Bureau).

In the budget-formulation phase, MITI pro-vides its input. MITI has tended to concentrate ontechnological development, rather than on de-fense per se. Its decisions in this regard are in-formed by its close links with the defense contrac-tors. These links are, in part, formed by its Aircraftand Ordnance Division, which keeps MITI in-formed about the current capabilities of the Japa-nese DTIB. MITI is further assisted by variousJapanese industrial associations, including the Ja-pan Defense Industry Association (sponsored byJDA and MITI) and the Japanese Aircraft andSpace Industry Association (under the jurisdic-tion of MITI).

MITI is also kept informed of developmentsand attitudes within the Japanese DTIB by theKeidanren, especially the DPC, which continuesto advocate essentially the same policies it haspursued since its inception. Since 1989, the DPChas spoken with the full authority of the Keidan-

ren. MITI’s interests in the defense area arealigned with those of the Keidanren, and particu-larly the DPC’s—namely, development of ad-vanced, dual-use technologies assisted by defenseproduction and research. MITI and Keidanren arealso interested in preserving a viable productionbase.

After the resulting differences are resolvedwithin JDA, the requests are forwarded to MOF.The Ministry has generally pursued a hard line ondefense requests, seeking to keep defense expen-ditures at a minimum. When MoF and the otherrelevant agencies have resolved their differences,the JDA budget is then forwarded as part of theGovernment Budget Proposal to the Diet and isgenerally approved without much subsequentcomment. The JDA budget is then administeredby the Central Procurement Office (CPO).

In the course of this process, Japanese defenseefforts appear to be aimed at several goals. One isthe development of technologies, with a particularemphasis on domestic production. Another is thepreservation of a viable defense base per se, and athird is the development of equipment for JDA. Tosupport these goals, the Japanese have soughtmaximum leverage from the resources committedto the DTIB and the CTIB by integrating the twoas much as possible. These efforts have been facil-itated by government policies and corporate struc-tures that draw few distinctions between commer-cial and defense efforts, particularly at thecomponent and subsystem levels.

❚ Comparison of Japan with the UnitedStates

The Japanese have clearly undertaken a very dif-ferent approach toward the defense-acquisitionprocess than either their Chinese or their Ameri-can counterparts. This is due, in part, to the rela-tively unique Japanese defense situation. Japa-nese defense considerations, for the most part, aredominated by the United States. Japanese forcesneed only concern themselves with self-defense inthe most local sense, that is, defense of the HomeIslands. Even that role is supported by significantU.S. forces. In the nuclear arena, for example, the


Cabinet

Security Councilof Japan

(Internal Bureau)I I

Prime Minister I

Director General of the Defense Agency(Minister of State for Defense)

ParliamentaryVice Minister

Joint Staff Council Chief of Staff, GSDF

(Joint Organs)

SDF Physical Training SchoolI

SDF Central Hospital

SDF District HospitalsI

Prefectural Liaison Offices

I National Defense Academy

National Defense Medical CollegeI

SOURCE Japan Defense Agency, Defense Of Japan, 1993, 1993


Japanese are wholly dependent on Americanforces. Similarly, Japan relies on the United Statesfor guarding Japan’s sea lines and for some logisti-cal support.

Japan’s approach toward its arms industry is re-inforced by the international situation around Ja-pan. Few states directly threaten the Home Is-lands. Although the post-World War II era hadseen both Beijing and Moscow characterized asthe primary threats to Japanese sovereignty, thiswas in the context of the ideological confrontationof the Cold War. Even then, in neither case wasthere likely to be an invasion of the Home Islands,at least absent a wider, global conflict. With thepassing of the Cold War, even the nominal threatsposed by the Soviet Union and the PRC have re-ceded.

Japanese planners have had the luxury of focus-ing primarily on economic, rather than defense,concerns. They have been able to make actual war-fighting capabilities a lower priority than buildinga technological and industrial base that strength-ens the economy and ensures the existence of a de-fense base. This approach has been reinforced bythe development of very strong links between Ja-pan’s corporate and government segments. TheJapanese DTIB has, therefore, avoided some ofthe aspects of segregation that hinder the Ameri-can DTIB.

Acquisition Laws and ProceduresThe United States and Japan have developed dif-ferent bodies of acquisition law. The United Stateshas sought to ensure accountability of defensedollars through extensive, and often unique, ac-counting requirements. These regulations, inmany cases the consequences of past efforts tolimit waste, fraud, and abuse, frequently imposea criminal penalty for failure to delineate andabide by the separation of commercial and defenseinvestments, equipment purchases, and other ex-penditures. As a result, they serve to segregate the

DTIB and CTIB by imposing on defense firmsadditional costs for doing business.

Japan has taken a different approach. Althoughthe Japanese government has nominally insistedon separating defense and commercial projectswithin corporations, the barriers between the twoelements are often very porous. This situation hasbeen possible, in part, because of the intimate rela-tionship between Japanese government and Japa-nese industry. Indeed, the greatest example of Jap-anese integration involves the interaction betweenthe public and private sectors, rather than betweenthe DTIB and CTIB.

In some cases, JDA (with the acquiescence ofMITI and MOF) actually purchases items to fosterthe development of aspects of a given industry.Thus, for example, the National Defense Acade-my commissioned a “shock wind tunnel” fromIshikawajima-Harima Heavy Industries (IHI) fortesting ultra-hypersonic vehicles at high Machnumbers. The tunnel has been useful both in de-veloping Japanese space launch vehicles and, forIHI, in obtaining valuable experience in develop-ing basic technologies.71 This experience willpresumably benefit IHI’s commercial as much asits military business.

Such cooperation is also evident in JDA-funded R&D. Although JDA funding is supposedto be restricted to military-related items, it often isnot. As a recent director-general of JDA’s Techni-cal Research and Development Institute (TRDI)acknowledged, “We tend to let the firm. . . usethe information and technology as they wish.Sometimes firms will use the jigs and test equip-ment provided by our funding at the productionstage (or for other activities), but it is not usuallyso easy to do this.”72

Another example of close Japanese corporate-government relations involves production con-tracts. By value, 85 percent of Japanese procure-ment contracts are sole-source awards. Another14 percent is awarded through limited competi-

71IHI Engineering Review, April 1993, in JPRS-JST-93-070-L, Sept. 13, 1993, p. 42.



tion, in which all the designated companies usual-ly win some portion of the final production runs.Only 0.21 percent, by value, of contracts areawarded in unrestricted competition.73

With both sole-source and limited competition,prices and bids can be based on market costs whencomparable products are available from whichcost data can be drawn. In light of the pervasive-ness of dual-use technology in the Japanese DTIBand CTIB and the relative separation of R&Dfrom production in the costing phase, it is not sur-prising that procurement contracts based on mar-ket costs are possible even in instances where thecontract is for a military program. When there isno commercial cost counterpart, the contracts have aprofit margin that peaks at 6.5 to 10 percent, andcosts are calculated on a cost-plus basis in which acombination of elements is used. These include:

� materials costs,� direct labor costs,� other direct costs,� indirect manufacturing costs,� general managerial and sales expenses,� direct sales costs,� interest payments,� profits,� packing costs, and� transportation costs.74

The Japanese do not require extensive, sepa-rate, special documentation of costs incurred forany of these procurement contracts. Rather, theyapparently rely on “generally accepted accountingpractices” or on Japanese cost-accounting stan-dards. Moreover, the Japanese Central Procure-ment Office follows a very liberal depreciationpolicy, which includes a tendency to allow accel-erated depreciation on facilities involved in the

production of defense-related items even whenthose facilities may also be involved in productionof the same items for commercial purposes. Pro-duction contracts nonetheless apparently offerone means for the DTIB to recoup costs incurredby R&D.

Despite the opportunities offered by defenseproduction contracts, competition for them byJapanese corporations is not necessarily cutthroat.As one Japanese executive noted, the Japaneseand American approaches toward awarding primecontractorship are very different. In the Japanesecase, “Battles between businesses to win [produc-tion] contracts are almost unheard of.”75 This ishardly surprising because defense contracts are al-most never awarded in a “winner-take-all” fash-ion. “Even firms losing out on bids as prime con-tractors for major programs often end up with asignificant piece of business as subcontractors,”according to one analyst.76 Because these con-tracts tend to be for extended periods of time, eventhe loser is likely to recoup initial investments.

Another difference between Japanese andAmerican acquisition procedures, which allowsgreater integration in the Japanese case, involvesJapanese R&D. Unlike in the United States, theprimary source of JDA power is through the al-location of R&D, rather than production, contracts.Administered by TRDI, R&D contract awards aredirectly related to weapons-production contracts;winning the former almost guarantees the latter, ifthe weapon system is approved for purchase.Thus, the most intense competition in the Japa-nese DTIB is usually for R&D contracts. As withproduction contracts, however, JDA “often desig-nates a few firms to submit proposals at the devel-opment stage for new projects.” (See figure 4).77


74M. Chinworth, op. cit., footnote 61, pp. 55-56.

75”In Self Defense,” Business Tokyo, February 1988, p. 52.


77A. Alexander, Of Tanks and Toyotas: An Assessment of Japan’s Defense Industry, RAND Report N-3542-AF (Santa Monica, CA: RAND,1993), p. 20.

DivisionTechnical

Department2nd TechnicalDivision

Sapporo Test CenterDepartment of Ground SystemsDevelopment

I

ShimokitaTest Center

Technical Advisors

Department of Naval SystemsDevelopment

Department of Air SystemsDevelopment

Department of Guided WeaponSystems Development

Tsuchiura Test Center

Niijima Test Center

Gifu Test Center

SOURCE: Japan Defense Agency 1993


These R&D contracts, however, only rarelycover the entire cost of R&D; they represent seedmoney. An R&D contract is usually targeted on agiven area of interest, such as electronics or aero-space. For JDA, this provides an opportunity toexert some influence over what technologies areexplored and developed, with more of an empha-sis on militarily useful capabilities. For MITI andother elements of the Japanese DTIB and CTIB,though, the emphasis is on developing dual-use,high-level technologies, with an emphasis oncommercially remunerative possibilities. Thus, incontrast to the United States, “TRDI focuses onbasic research and development up to prototypestage whereas the private sector either continuesthe R&D process up to production or is involvedin deriving a military application from civiliantechnology.”78 The objective with defense con-tracts in both R&D and production is as much toestablish a technological niche or a productionline for eventual supply of the Japanese CTIB (andbeyond) as it is to produce for JDA. Japanesefirms have a correspondingly greater interest inseeking out commercial applications for productsand processes than do their American counter-parts.

Japanese firms are aided in developing com-mercial applications for technologies by Tokyo’sacquisition and accounting policies, particularlyin the area of technical data rights. Although someacquisition regulations are nominally counter-parts of the American Federal Acquisition Regu-lations (FAR), several analysts have noted thatthere are few restrictions, either imposed by thegovernment or by corporations, on the flow of in-formation and personnel between divisions withina company. Although all data and patents pro-duced from government-funded research are nom-

inally the property of the Japanese government,they are almost always left in the hands of the de-veloping corporation. Indeed, unlike MITI, JDAdoes not attempt to determine the state of a givencontractor’s technological base in order to deter-mine JDA’s portion of ownership. In fact, TRDIalone has less than one-quarter of nearly 2,000patent applications resulting from TRDI-sup-ported research. In many cases, firms will not eveninform JDA of potential commercial applicationsresulting from TRDI-sponsored or -supported re-search, nor does JDA try to determine what the ap-plications could be.79

The Japanese accounting requirements appearto have exerted far fewer pressures on segregatingtheir DTIB from their CTIB than have the Ameri-can requirements on segregating the U.S. DTIBand CTIB. In the area of data rights in Japan, it ap-pears that there has, in fact, been significant com-mingling of R&D resources and personnel at theworkbench level. Toward this end, JDA has notpursued ownership of technical and intellectu-al information, even in cases where it hashelped fund development. Instead, it has al-lowed the corporations to profit from both the de-velopment of such technologies and their subse-quent sales. This approach is similar in somerespects to the kind of industrial-governmentcooperation currently sought in the United Statesby the Department of Energy, the Advanced Re-search Projects Agency, and the National Instituteof Standards and Technology.80

Military Specifications and StandardsMilitary specifications and standards also appearto be less of a barrier to integration in Japan thanin the United States. For the Japanese, the primaryconcern is with the product itself, rather than with

78R. Drifte, Arms Production in Japan (Boulder, CO: Westview Press, 1985), p. 35.


80For further discussion of American efforts such as the Cooperative Research and Development Program and the Advanced TechnologyProgram, see U.S. Congress, Office of Technology Assessment, Assessing the Potential for Civil-Military Integration: Technologies, Proc-esses, and Practices, op.cit., footnote 1.

the means of its production. Japan has thereforenot developed an extensive body of military speci-fications and standards dictating how defensegoods and services are produced. Rather thancreating a separate set of military specifications,JDA is apparently comfortable with using thestandards promulgated by the International Orga-nization of Standards and will accept them orcompliance with DOD military specifications andstandards as sufficient.81

The Japanese have often succeeded in produc-ing American-designed equipment to Americanstandards even though they have not specified pre-cisely how that equipment is to be produced. Ofcourse, having a previously established standardrather than a domestically set one maybe a factorin obviating the need for a domestic military spec-ification. It may also be, however, that Japanesequality control on the civilian side is sufficient tofulfill military requirements, at least for sometechnologies, products, and services. Japanesecarbon-fiber composites manufactured by Toray,for example, appear to meet both commercial andmilitary requirements. The composites are pro-duced on a single line, according to one observer,“without distinguishing commercial from mili-tary applications. Only quality assurance proce-dures are different.”82 This is apparently true formuch of the Japanese DTIB: separate testing andquality-control facilities but common productionlines for commercial and military goods and ser-vices.

Militarily Unique TechnologiesThe Japanese have little interest in militarilyunique technologies. They have chosen instead toemphasize the development of more dual-use-ca-pable technologies. The financial incentives arecertainly weighted in that direction, particularly inlight of the Japanese ban on exporting weaponsystems. At the same time, Japanese definitions ofmilitarily unique technologies seem to be fairly

The Chinese and Japanese Arms lndustries | 31

The Japanese Maritime Self Defense Force’s ships are built todomes t i c des igns .

narrow, that is, the Japanese do not consider manytechnologies to be militarily unique.

For Japan, pursuing technologies that haveboth military and commercial uses makes greaterfinancial sense than pursuing technologies that areprimarily military in application. In the absence ofa major military establishment, development ofmilitarily unique technologies would impose pro-hibitively high costs. Avoiding excessive devel-opment of militarily unique technologies alsobenefits commercial establishments because thereare fewer barriers between commercial and de-fense contracts. Defense contracts may, therefore,serve to tide corporations over during lulls in com-mercial demand. Available facilities and workforces in the Japanese shipbuilding industry, forexample, have been kept busy with JMSDF orderswhen their order books have not been filled bycommercial demand.

Finally, the Japanese perspective that there arefew militarily unique technologies, coupled withthe structure of government subsidies of militarytechnological research, allows Japan to use weap-ons research programs as one way to provide ex-perience in important areas, such as systems in-tegration, or to provide an initial demand for

81 C. M. Aquino and C. D. Vollmer, Japan’s Defense Market, UP001RDI (Logistics Management Institute Report), p. 20.82 R.J. Samuels, op. cit., footnote 59, p. 306.


future commercial technologies, as with gallium-arsenide chips. Both of these considerations weremotivating factors for Japan’s FS-X and variousmissile programs. In the view of some analysts,disseminating the subsequent experiences gainedfrom such programs through both the commercialand defense sectors is facilitated by the interlock-ing structure of Japanese conglomerates.

Emphasis on Military PerformanceMilitary performance, in the sense of cutting-edgemilitary capabilities, has been less important forTokyo decisionmakers than has ensuring that aJapanese DTIB remains in existence. Toward thisend, Japan has been prepared to accept high costsfor indigenously manufactured weapons, evenwhen cheaper counterparts are available fromabroad. The Type 90 tank, for example, costs sev-eral times that of an American M-1A1, due at leastin part to its much smaller production run.

In general, Japanese weapons show little evi-dence of being superior to foreign systems interms of their performance. The Japanese F-1fighter of the 1960s, for example, despite highcosts, showed no performance advantage over theF-104 or the F-4, both of which entered the AirSelf Defense Force (ASDF) at approximately thesame time as the F-1, or the Anglo-French Jaguar,upon which the F-1 is modeled.

Higher weapons costs are accepted because ofthe incentives under which the Japanese DTIB andthe overall defense structure are operating. TheJapanese rank production of cutting-edge militaryequipment, with a preponderance of militarilyunique technologies, relatively lower than doesthe United States. The primary Japanese interest,instead, is the development of dual-use technolo-gies, particularly those that might have great fi-nancial rewards as well as potential military ap-plications. The F-1 gave the Japanese at leastsome experience in the design of an aircraft, par-ticularly systems integration. The American secu-

rity guarantee has allowed the Japanese to focuson the development of the commercial aspect ofadvanced product and process technologies, par-ticularly their efficient production, rather than onthe military aspects. MITI, for example, placesmuch greater emphasis on developing superiortechnologies than on building better weapons.

❚ Integration of Levels of ProductionThere is much more interplay between the com-mercial and defense sectors in Japan than there isin the United States. Indeed, it is probably safe tosay that the Japanese DTIB is firmly embeddedwithin the CTIB. This would seem to be the case,moreover, at all three levels of analysis—the sec-tor, firm, and facility levels.

The degree of integration of Japan’s civilianand military efforts is not necessarily solely the re-sult of deliberate policy choices, but rather is thefunction of several factors, including, as notedpreviously, the presence of American supportthroughout the postwar period, limited militarybudgets, political discomfort with military ex-ports, and a different perception of the nature ofthe government-industry interaction. The result isa different DTIB from that found in either theUnited States or the PRC.

Sector LevelAt the sector level, the Japanese have pursued a defacto integrated approach, as industrial sectorsemphasize dual-use. For most sectors, defenserepresents less than 1 percent of total sales, andonly the ammunition and aircraft manufacturingsectors have sales to JDA exceeding 5 percent oftotal sales. In contrast, in the United States, majorportions of certain industries’ sales are made toDOD, such as radio and TV communicationsequipment (42 percent of sales), industrial trucksand tractors (45 percent), and shipbuilding and re-pair (77 percent).83

83U.S. Department of Commerce, Economics and Statistics Administration, Bureau of Economic Analysis, National Income and Wealth

Division and Government Division , “National Income and Product Account Tables,” Survey of Current Business, August 1993, pp. 52-119.


Japan’s interest in dual-use technologies, bothin products and processes, is not new. In the1950s, IHI obtained a vacuum heat-transfer fur-nace for high-precision forging for the J-47 mili-tary engine. Other Japanese corporations subse-quently purchased license-built copies of thefurnace (manufactured by IHI) for automotive andmachinery manufacture. Thus, high-precisionforgings became pervasive in Japanese industry,rather than being restricted to military-enginemanufacturing. In other defense-related industrialsectors, TRDI’s R&D and contract-award proc-esses (as described previously) were designedspecifically to provide incentives for the develop-ment of commercial as well as defense applica-tions. For example, Japanese producers of carboncomposites manufacture them not only for the FS-X, but also for fishing rods and golf club shafts.84

By providing seed money but no guarantee of de-fense production, the Japanese government has ef-fectively channeled corporations into developingin a commercial manner certain advanced technol-ogies that MITI and JDA jointly believe areworthy of interest.

The skills and technologies involved in suchhigh-technology areas as composite materials andaerospace are considered to be of such potentialusefulness to the overall Japanese economy, andparticularly the CTIB, that they must be devel-oped domestically. Development of a domesticaerospace industry, for example, has long been aJapanese objective. The FS-X was originally con-ceived as a way to facilitate this development,with particular emphasis on systems-integrationcapabilities. Foreign components would be usedonly after Japanese sources had been exhausted.The originally planned aircraft would have beenmuch more expensive than the current design(based on the F-16), but only marginally more ca-pable than modified F-16 fighter aircraft pur-

chased directly from the United States. The acqui-sition of the relevant skills, however, was believedto be sufficiently important to justify the enor-mous cost differential.

Similarly, the Japanese have sought to designand build their own missiles. Domestic develop-ment of an autonomously guided air-to-air mis-sile, a Japanese version of the American Ad-vanced Medium-Range Air-to-Air Missile(AMRAAM), has been accorded high priority byMITI and JDA. Successful domestic design andproduction of this air-to-air missile, according toone source, is considered “absolutely necessaryeven if the product is not used by the Air Self De-fense Force.”85

In the R&D process, Japanese corporationsfind it in their own interest to pursue an integratedapproach. In particular, given that even successfulmilitary R&D programs may not guarantee a saleto JDA, a corporation will have great incentives tofind additional uses for products from R&D pro-grams in order to recoup the initial investment. In-deed, one analyst reported that “business practicesin commercial development figure prominently indefense-related R&D. Many of the practices evi-dent in commercial business are carried over intodefense research, development and production aswell.”86 One aim of Japanese defense R&D is theproduction of commercial products. TRDI, in es-sence, hopes to promote the use of private sectorexpertise in order to conduct R&D in advancedareas of technology. At the same time, corpora-tions hope to use TRDI funds as a subsidy for theirresearch.

Such efforts are further supported by the Japa-nese system of O&M. The Japanese, like the Chi-nese, have not developed the elaborate depotstructure that the United States has, in part be-cause of the small equipment holdings of the SelfDefense Forces. It would be uneconomical for the

84Takashi Hata, “Will FS-X Take Off?” Air World (Tokyo) (January 1993), in JPRS-JST 93-068-L (Aug. 30, 1993), p. 20.

85Nikkei Sangyo Shimbun, Aug. 14, 1993, p. 1, in JPRS-JST-93-071L, Sept. 21, 1993, p. 34.

86M.W. Chinworth, op. cit., footnote 61, p. 39.

34 I Other Approaches to Civil-Military lntegration

SDF to spend scarce resources on creating art elab-orate depot structure to support its relatively lim-ited forces. Powerful elements of the Japanese bu-reaucracy have opposed the creation of such a

. structure. MOF, which has begrudged every yenspent on defense, has had little interest in seeingadditional budgetary line items dedicated to theSDF. MITI, too, has opposed the development ofan independent maintenance capability because ithas not wished to see the development of a sepa-rate authority for defense production or mainte-nance in light of its responsibilities under the twoweapons-manufacturing laws. This combinationof factors has served to block the creation of anelaborate depot structure.87

Responsibility for the maintenance of mostmilitary equipment is divided between the mili-tary units and the manufacturer. Units are primari-ly responsible for basic upkeep and relatively mi-nor repairs. All Japanese depot-level O&M, on theother hand, is the responsibility of the various

Japanese prime contractors upgrade and rebuild the engineson the A) Self-Defense Force’s F-4Js.

87 R. Samuels, op. Cit., footnote 59, p. 147.

8 8Ibid., p. 313.

manufacturers. Indeed, this is a primary source ofprofit for certain defense contracts; the prime con-tractor, in one case, won all the overhaul and repairwork. 88 Japanese corporations are happy to con-duct maintenance operations because of the addedopportunity to recoup initial costs that such opera-tions provide.

The prime contractors for various engines, forexample, are responsible for the engines’ upgrad-ing and rebuilding. The ASDF’S J-79s, for exam-ple, which power Japan’s F-4 Phantoms, are re-built by IHI, their manufacturer.89 Similarly, thenew Ground Self Defense Force Command Sys-tem is expected to provide a steady income of sev-eral billion yen annually for many years to comefor the primary and subsidiary contractors, basedon both production and upkeep, including subse-quent upgrades.

This situation, however, has not necessarilyproven completely satisfactory from JDA’s per-spective. Inventory control, for example, appearsto be a problem.90 At the same time, JDA appar-ently lets contracts for the purchase of such low-technology items as automobile tires and otheritems, rather than purchasing them directly fromthe commercial sector. To resolve these situations,however, it was suggested that more maintenance-related work be assigned to the private sector, ef-fectively making it even more integrated.91

Finn LevelAt the firm level, Japanese corporations engagedin defense work are mostly integrated, insofar asthey seek both defense and commercial work, andtry to use their resources to meet both commercial

89 "JDA Defense Research, Contracts Outlined," in Foreign Broadcast Information Service East Asia daily report (hereafter FBIS-EAS)

92-098-A, May 20,1992, p. 25.90 Naoski Usui, “Japan Will Streamline Acquisition Process,’’ Defense News, August 19,1991, p. 3.91Ibid.


and defense needs. As noted previously, no majorJapanese defense corporations are entirely depen-dent on defense contracts for their profits, or evenfor their income. Even the divisions within themajor defense contractors seek to diversify theircustomer base, which can include commercialareas. Thus, Kawasaki Heavy Industries is seek-ing to apply the technology involved in aircraftproduction, especially in reducing wind resis-tance, to the production of linear railcars.92 Simi-larly, MHI’s Nagoya Controlled Propulsion Sys-tem Laboratory, responsible for license pro-duction of the Patriot system, “is now seekingmarkets for jet engines and hydraulic systemsused in aircraft doors.”93 Such efforts are not lim-ited to aerospace and other high-tech areas; otherJapanese weapons makers have also sought to ex-pand their product lines. The ammunitionmanufacturer Asahi Seiki Industries Co. hopes todevelop a market for its advanced-press technolo-gy, which it derived from the production of car-tridges and bullets. Such efforts are facilitated bythe absence of imposed barriers, which would sep-arate commercial and defense operations.

Conversely, Japanese manufacturers of civiliangoods often apply their technology to the produc-tion of military items. The primary producers ofJapanese rocket fuel, for example, are the largeJapanese paint manufacturers, including NipponOil & Fats, Asahi Chemical Industry, and NissanPaint. The reason for this conjunction is that theirproduct line already contained nitrocellulose.Thus, “the paint industry achieved a break-through. . . on rocketry.”94 Indeed, virtually ev-ery major Japanese corporation does some de-fense manufacturing, although, as notedpreviously, in only a few cases is the income gen-

erated a significant portion of corporate reve-nue.95

Firm-level integration involves more thanproducts, facilities, and equipment. Japanese per-sonnel, too, are trained to have an expertise that isapplication-specific, encompassing all relevantportions of the field. In this manner, they canmove from defense to commercial projects withminimal retraining. Engineers, for example, areexposed to all aspects of a given sector—aeronau-tical engineering, design, and electronics. Theywill then be moved as project requirements de-mand. According to one analyst, “In 1981, for ex-ample, the top officials of the MHI Nagoya WorksSecond Technology Department (former design-ers of the T-2 trainer) supervised eleven divisionsand projects that included all structure and designfor civilian and military projects.”96 Similarly,when MELCO was developing its active phased-array radar system, it dispatched engineers fromits radar group to its semiconductor division sothat they could gain the skills involved in gallium-arsenide chip fabrication, then returned them tothe radar section with their new-found knowledge.

This is not to suggest that the Japanese have de-liberately chosen to pursue a more integrated ap-proach, or that they have necessarily done so pure-ly based on commercial considerations. As someanalysts have noted, because the Japanese appar-ently consider that few of their technologies aremilitarily unique, free flow of information andpersonnel makes a great deal of economic sense.Many Japanese corporations have the view thatmost technologies offer at least some potentialcommercial opportunities. This viewpoint is fur-ther reinforced by the generally tightknit nature of

92Nonichi, “Changing Defense Industry,” in FBIS-EAS, p. 7.

93Keisuke Sawada, “Defense Industry Perplexed by Post-Cold War Budget Cuts,” Tokyo Shimbun, morning ed., June 25, 1992, p. 3, inFBIS-EAS-92-127-A, July 1, 1992, p. 5.

94Kokubo, private translation, November 1986.

95P. Katzenstein and N. Okawara, op. cit., footnote 62, p. 67.



Japanese conglomerates, which allows for cross-fertilization in nondefense areas as well as defenseareas.

Facility LevelAt the facility level, Japanese integration is oftenfar beyond that exhibited within the United States.Japanese firms are encouraged to use a facility forboth defense and commercial production. In thecase of aircraft parts, for example, Fuji Heavy In-dustries manufactures F-15 landing gear, P-3main wing spars, Boeing 767 main wing cowl-ings, and the whole UH-1B helicopter in the samefacility.97

In some cases, integration is the result of lim-ited defense demand. At MHI’s tank-productionfacility, for example, the Type 90 tank’s produc-tion equipment is shared with the manufacture offorklift trucks and heavy-construction equipment.The same test and measuring equipment and tools,including jigs, are used on the commercial andmilitary sides.98 This approach is to be expected,however, in light of the limited orders for the Type90. Such integration allows MHI to leverage itsinvestments in heavy equipment. The result is amuch more integrated production line.

Some Japanese high-technology military itemsare also purportedly obtained from dual-use pro-duction lines. This is, to a certain extent, facili-tated by the absence of military specifications thatimpose different manufacturing processes. Thus,the active phased-array radar developed by Mitsu-bishi Electric (MELCO) for JASDF is “made en-tirely of commercial components.”99 In the ab-sence of military specifications, there was never aseparation of the commercial and military produc-tion processes. The radar components were, there-

fore, of commercial origin. Similarly, MHI’s Na-goya facility contains a giant autoclave designedto cure composite materials that works on bothmilitary and commercial projects. Mitsubishi’sMU-300 aircraft apparently uses many of thesame component-fabrication methods and lines asdoes the company’s F-15Js. Only the final assem-bly lines are separated.100

In this regard, the Japanese fully recognize thatintegration is a bottom-up, rather than a top-down,process. Dual-use technology, as the chief engi-neer for MELCO noted, occurs primarily at thecomponent level, rather than at the system level. Itis more likely that opportunities for dual-usetechnology will “share much commonality at thecomponent level but that at the system level, theinterflow between the civilian and defense sectorsis not easy.”101 This will, of course, vary bytechnology. As one Japanese observer noted, “Inthe field of electronics technology, the wall of mil-itary and civilian conversion is comparativelylow, and the development of various civilian op-erations is also possible.”102 Nonetheless, the Jap-anese emphasize cross-fertilization at the compo-nent level first and foremost. Japanese designers,regardless of the nature of their projects, are inter-ested in applying technology to the issue at hand,without paying undue attention to whether thetechnology is “commercial” or “military.” This, inturn, facilitates facility-level integration.

COMPARISON OF THE PRC AND JAPANWITH THE UNITED STATESHaving examined the Chinese and Japanese cases,what lessons, if any, can the United States drawfrom them for the integration of its own DTIB andCTIB? Both the Chinese and Japanese cases clear-


98Ibid., p. 296.

99Ibid., p. 195.

100Drifte, p. 62.

101T. Tamama, Defense Research Center (III, 2, August 1, 1993), in JPRS-JST-93-083L, Oct. 29, 1993, p. 34.

102Nikkei Sangyo Shimbun (August 14, 1993), p. 1, in JPRS-JST-93-071L, Sept. 21, 1993, p. 35.


ly differ greatly from the American one; in partic-ular, both Asian states have a history of very inti-mate relations between their commercial andgovernmental sectors, to a degree that is not gen-erally present in the American economy. In thePRC, this is due, at least in part, to the state owner-ship of the means of heavy-industrial production,whereas in Japan, this is primarily a matter ofpolicy and history, rather than ideology.

Both states’ assessment of their security situa-tions differ from that of the United States. BothBeijing and Tokyo believe that they currently facea relatively benign security situation, especially inthe wake of the collapse of the Soviet Union. Atthe same time, there has been less pressure on ei-ther state to emphasize the development of mili-tarily unique capabilities over either dual-use ca-pabilities or the application of commercialtechnologies and processes to military products.Indeed, development of indigenous defense in-dustries in both Asian states is much more the re-sult of conscious, planned choices on the part ofcentral authorities to develop a DTIB for explicitdefense and commercial purposes, rather than theevolution of DTIBs in response to external securi-ty developments.

Both states also have a very different perspec-tive on the public good from that of the UnitedStates. There are few signs that socioeconomicgoals, as understood in the American context(e.g., assisting small or minority-owned busi-nesses), exert influence on the structure of theChinese or Japanese acquisition processes. In thePRC, the focus is primarily on raising the level oftechnological sophistication within the overallChinese economy. In Japan, a higher priority isplaced on furthering technological goals than onensuring equal access for corporations to JDA’sbudgets.

This combination of considerations has pro-duced in both China and Japan relations betweentheir respective DTIBs and CTIBs that are verydifferent from the American situation. That, inturn, has affected the development of integrationpolicies. In China, for example, the emphasis, un-til the advent of Deng Xiaoping, was so heavilyweighted toward development of their DTIB that

the Chinese CTIB was neglected. Indeed, the Chi-nese DTIB and CTIB were almost completelysegregated until the Four Modernizations shiftedhuman and material resources from defense tocommercial and civilian economic development.

As a result, however, Chinese efforts at integra-tion are distinct from those occurring in the Japa-nese or American economies. In particular, thePRC’s efforts are taking place in the context ofstate-run industrial sectors that are moving into animpoverished commercial sector. The Chinese de-fense industrial sectors thus have a “captive audi-ence” of consumers, as well as financial and polit-ical support from the state, to facilitate the processof integration. Both of these considerations limitthe applicability of Chinese experiences to theAmerican case, although some lessons might bedrawn for public sector facilities.

Although the Japanese case is more akin to theAmerican situation, there are also significant dif-ferences between the Japanese and AmericanDTIBs and, therefore, between their respective in-tegration policies. The Japanese DTIB developedin the shadow of the American security commit-ment and thus was never expected to be the solesource of military equipment and resources. In-deed, throughout the postwar period, the Japanesehave relied upon the United States not only formilitary support but also for provision of manyweapons and component designs.

As with the Chinese DTIB, therefore, the Japa-nese DTIB is the product of explicit governmentefforts to create a domestic defense industrial andtechnological capability. In the Japanese case,however, the primary emphasis was on develop-ing high-technology industrial capabilities in cer-tain sectors, rather than on the supply of weaponsper se to the Japanese SDF. Thus, while the Japa-nese have a very robust DTIB and domestic armsindustry, it is uneven; in some areas, the Japanesehave pursued kokusanka, while in others theyhave been satisfied with licensed production offoreign (primarily American) designs.

This selective approach, wherein the Japanesechose to focus on only certain defense technolo-gies and capabilities, has facilitated the Japaneseeffort at integrating their DTIB and CTIB. By


picking and choosing which products and proc-esses to pursue, the Japanese could, from the out-set, design for dual-use. This process was furtherencouraged by the Japanese decisions to limit thesize of their armed forces and to prohibit armssales. These factors constrained the developmentof any economies of scale for the Japanese armsindustry and gave further incentive to develop-ment of dual-use, rather than militarily unique,technologies and processes. MITI and JDA could,and did, agree to seek weapons that would utilizecommercial technologies, as well as promotecommercial processes that would have defensebenefits (i.e., both spin-on and spin-off technolo-gies). Japanese corporations, recognizing the lu-crative potential of high technology and the limitsof the restricted Japanese defense market, in turn,learned to pursue de facto integration, particularlyat the firm and facility level. They extended thisnot only to components and subcomponents, butalso to personnel training and quality control.

In the course of developing its DTIB, theUnited States responded to very different pressur-es and policies. The result was the creation or de-velopment of practices that have tended to pro-mote segregation and the development ofweapons that are more specialized and, in mostcases, more advanced than those fielded by eitherthe PLA or the SDF. These practices include ac-quisition laws, militarily unique technologies,and military specifications and standards.

❚ Acquisition Laws and RegulationsAcquisition laws, regulations, and culture are amajor contributing factor in the segregation of theAmerican DTIB from the CTIB. In both Japan andthe PRC, integration appears to have been facili-tated by the absence of a discrete acquisition cul-ture of the extent developed in the United States.The absence of a more bureaucratized acquisitionstructure allows for greater common use of facili-ties and personnel, that is, sector-level integration.

In both the PRC and Japan, the history of cor-porate-government relations has been less adver-sarial than it has been in the United States. In bothAsian states, there is a willingness to accept great-

er commingling of defense and commercial busi-ness, at sector, firm, and facility levels. The conse-quent blurring of the lines between private andpublic use of facilities and resources is accepted asan acceptable price, if not a subsidy, for techno-logical innovation and economic development.

❚ Military SpecificationsIf the Chinese and Japanese are somewhat lessconcerned with tracking every renminbi and yen,they are apparently also somewhat less concernedwith specialized specifications and standards. In-deed, the evidence is unclear as to whether eitherstate has imposed a set of military specificationsand standards—dictating not only operational pa-rameters but also methods of manufacture—as ex-tensive as those of the United States.

In Japan, the objective appears to be to meld thecommercial and military segments of a wholemarket for a given technology or item. Thus, Japa-nese quality control is structured to fulfill veryhigh standards, standards sufficiently stringent tosatisfy military as well as commercial require-ments. In some cases, there may be additionalchecks and inspections for certain items intendedfor military end-users. These additional quality-control measures are more easily accommodatedin the context of integration, however, than in anentirely separate system of military specificationsand standards.

The same approach applies to Japanese person-nel policies. Japanese designers are familiarizedwith the entire spectrum of applications withintheir specialty, ensuring that those processes thatare successful in the defense realm will be appliedto the commercial side and vice versa. A singlebaseline of standards is applied to many technolo-gies, products, and processes, further facilitatingcross-fertilization and integration.

❚ Militarily Unique TechnologiesMilitarily unique technologies exist in the arse-nals of both Japan and the PRC. Neither the PLAnor the SDF, however, has the same requirementsfor, or the ability to provide, the unique militarycapabilities that the American Armed Forces do.


This is due, in part, to Japan’s and the PRC’s dif-ferent expectations of their armed forces’ mis-sions and roles. As a result, cutting-edge techno-logical capabilities within their defenseestablishments are accorded lower priority thanthey are in the U.S. military.

The PRC simply does not have the wherewithalto provide the PLA with cutting-edge technology,either in terms of the necessary scientific and tech-nological expertise or the financial resources tosupport it. Indeed, Chinese resources are strainedsimply by the effort to mechanize and standardizetheir current force structure. Instead, the Chinesemilitary has shown a propensity to rely uponavailable technologies, within both the CTIB andthe DTIB, to fulfill military missions.

The Japanese have chosen to emphasize, asnoted previously, development of dual-usetechnologies, rather than militarily specializedones. Purely military research offers limited mar-ket potential. Furthermore, Japan restricts the saleof weapons abroad; it prohibits sales of completedweapons and allows weapons technology to besold only to the United States. Purely militarytechnologies have, for the most part, a marketcomprising solely the SDF. The Japanese appearcontent, instead, to develop technologies that, al-though perhaps oriented toward military mis-sions, will nonetheless also have commercial ap-plications.

Whether or not Japanese national security hasnecessarily been served by such a policy remainsto be seen, however. Japanese weapons have notbeen tested in combat since World War II.

❚ Emphasis on Military PerformanceNeither Japan nor China has introduced militarytechnology that is significantly more advancedthan its commercial technology. Until the 1980s,for the PRC, this was a doctrinal issue, with “red”and its emphasis on simple weapons in vast quan-tities taking precedent over “expert” and its em-phasis on sophisticated weapons. As the PRC tiltstoward “expert,” it has become evident that theChinese DTIB, as currently constituted, is not ca-pable of producing cutting-edge weapon systems.

Where the PLA emphasizes performance overcosts, this has generally involved the acquisitionfrom abroad of technologies—both military andnonmilitary—that are more advanced than thosewithin the Chinese DTIB.

Japan, on the other hand, has a national technol-ogy base that is fully capable of producing veryadvanced systems and components. Rarely, how-ever, are such systems demanded solely for mili-tary production. Indeed, both the Japanese de-fense procurement system and Japanesecorporations are oriented toward the commercialexploitation of advanced technologies, includingthose that might be developed for military pur-poses. Where cutting-edge performance is de-manded, it is sometimes for the sake of develop-ing dual-use technologies and skills. As withmilitarily unique technologies, however, it is un-clear, at best, how well the Japanese Self-DefenseForces would fare in any confrontation.

RELEVANCE OF THE CHINESE ANDJAPANESE EXPERIENCES TO THEUNITED STATESIn light of the differences between the Chinese,Japanese, and American cases in their defense ac-quisition structures and degrees of integration be-tween their DTIBs and CTIBs, the potential for di-rect application of Asian experiences to theAmerican situation is limited. Nonetheless, someobservations are possible. For example, the ab-sence in Japan of the extensive use of militaryspecifications and standards that have marked theAmerican DTIB suggests that a reliance on high-quality production from the commercial sectoris possible.

The Asian cases also suggest that greater in-tegration of the research, development, andmanufacturing of defense and commercial goodsis possible. In particular, the more fundamentalthe technology, the easier it is to integrate. TheChinese appear to have generally succeeded attheir attempts at integration because they havebeen integrating low-level technology (and be-cause of enormous demand).


The Japanese experience reinforces the ob-servation made in the U.S. base that it is easier tointegrate the manufacturing of components andsubcomponents (e.g., composites and computerchips) than it is to integrate the assembly of sys-tems (e.g., commercial and high-performance air-craft). Manufacturing components and subsys-tems would, therefore, seem to be very amenableto integration where artificial barriers are not im-posed between commercial and military produc-tion.

Along these lines, too, the more basic proc-esses may be more amenable to integration.This involves not only the production of compo-nents, but also their initial design. It is evidentlypossible to exploit the common backgrounds andtraining among designers and engineers for bothcommercial and military ends. With this in mind,the design as well as the assembly of even techno-logically advanced military equipment might beintegratable with commercial counterparts if ac-counting rules allowed such measures. This ame-nability to integration is likely to be most success-ful at dual-use production facilities. The Japanesecase suggests that there are few inherent reasonsthat dual-use equipment, embodying technologiescommon to both the DTIB and the CTIB, couldnot be produced on a single production line and as-sembled, or even simply inspected, on separatelines in light of the different quality-assurance re-quirements. Such integration, however, presumesthat commercial-quality standards are sufficientto support military requirements. Thus, an implic-it lesson is that integration demands stringent de-grees of quality control, regardless of the end user.

Both Asian states are clearly interested in in-tegration at the workbench level, that is, in inte-grating their commercial and defense research ef-forts. This would appear to be a logical pursuitbecause the results of research efforts, both de-fense and commercial, might benefit both com-mercial and defense efforts. Moreover, it allows

more efficient use of scarce, and usually expen-sive, personnel, equipment, and facilities.

The Japanese case suggests that there aremany component technologies and processesthat are not truly militarily unique . Too often,militarily unique technologies are cited as a rea-son for military specifications, and military speci-fications are considered necessary for the produc-tion of militarily unique technologies. However,as seen in Japan and the PRC, regardless of thelevel of technological sophistication, manytechnologies, particularly those at the lower tiers,have dual-use potential. In addition, it is not nec-essary to organize or manage production of suchcomponents differently for commercial and mili-tary end users. Were performance specifications(i.e., those relating to form, fit, and function) topredominate, rather than manufacturing and otherspecifications detailing how an item is to bemanufactured and assembled, it is likely that therewould be far fewer militarily unique technologiesat the lower tiers.

Militarily unique technologies certainly do ex-ist. Those related to the design, development, andproduction of weapons of mass destruction, forexample, are almost certainly militarily unique.Similarly, there may be some technologies (e.g.,those behind radar-absorbent materials and elec-tronic-warfare programming) whose dissemina-tion to the CTIB might be detrimental to nationalsecurity. These would tend to be the exception,rather than the rule, however.

Finally, both Asian cases indicate that CMI isnot cost-free. Although the Chinese and Japaneseeconomies are more integrated than the Americaneconomy, this is achieved at a price. In particular,there are questions about the quality of the weap-ons produced by both the Japanese and ChineseDTIBs. There is reason to suspect, at least, thatAmerican equipment performs better than eithertheir Chinese or Japanese counterparts. The extentto which the high quality of American equipment


is due to the structure of the American DTIB, andwhether the same level of quality could be main-tained in an integrated environment, is unclear.103

The Chinese and Japanese structures of govern-ment-industrial relations are very different fromthat of the United States. Replicating in the UnitedStates the degree of integration in the PRC or Ja-pan would probably impose political and econom-

ic costs that are absent, minimal, or acceptable inthe PRC and Japan but that would not be accepta-ble in the United States. In particular, it is unlikelythat the American system would support the ambi-guity inherent in the commercial use of public fa-cilities and, more importantly, of public resources.The slighting of socioeconomic goals would alsobe unlikely to be acceptable to Americans.

103 U.S. Congress, Office of Technology Assessment, Assessing the Potential for Civil-Military Integration: Technologies, Processes, andPractices, op.cit., footnote 1, especially ch. 2.

other approaches to civil-military integration: the

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