McNair Paper 36, Explaining and Influencing Chinese Arms Transfers, February 1995

With the establishment of the PRC on 1 October 1949, the Chinese Communist Party assumed leadership of a country whose economy had been seriously weakened by inflation and the disruption of war. Heavy-industry output in that year was only 30% of the peak level prior to the Sino-Japanese War. (Note 6) Armaments production was limited to ammunition, small arms, and artillery. (Note 7) The People's Liberation Army (PLA) used captured Nationalist Chinese and Japanese weapons, as well as arms transferred from the USSR, to equip its forces. In 1952, however, with the creation of a Ministry of Machine Building (MMB) specializing in military items, the PRC's indigenous arms production capability began to grow.

During the course of China's First Five Year Plan (1953-1957), considerable financial and technical assistance from the Soviet Union enabled the PRC to develop production facilities for aircraft, naval vessels, electronic equipment, and land armaments. (Note 8) In the wake of serious setbacks to the nation's industrial base caused by Mao's Great Leap Forward (1958-1960) and the Soviet withdrawal of advisors and assistance (1960), the machine building industries were reorganized. By 1965, six MMBs had been formed to oversee defense production in nuclear weapons, aircraft and air-to-air missiles (AAMs), electronics, ordnance (ground force weapons), shipbuilding, and ballistic missiles. (Note 9) With a military-industrial base capable of manufacturing fighters, tanks, armored personnel carriers (APCs), artillery, and small naval vessels, mostly based upon mid-1950's Soviet models, Beijing had acquired the capacity to export conventional weapons in appreciable quantities. (Note 10) From this point on, despite the economic turbulence experienced during the Great Proletarian Cultural Revolution (1966-1976), the PRC increasingly engaged in arms transfers and trade.

From the mid-1960's until the late-1970's, the scope of Beijing's arms exports were quite limited (except to Pakistan), and provided at low cost or even as free military aid. (Note 11) As indicated in Table 1, weapons during this period were supplied to two types of clients: 1) countries, such as North Korea, North Vietnam, and Pakistan, important to China in its efforts to maintain adequate regional security, and 2) African states that the PRC sought to win over in its ideological struggle with both the United States and Soviet Union.

During the late 1970's, fundamental changes in China's domestic and strategic environments affected the scope and direction of its arms transfers. The end of the Cultural Revolution, and the subsequent reemergence of Deng Xiaoping and his "four modernizations" policy heralded increased reliance on market-oriented reforms to stimulate economic growth. It became evident following the Third Plenum of the Eleventh Party Congress in December 1978 that China's industrial production ministries were to receive reduced subsidies. Objectives were established for the arms industries that included down-sizing, technological improvement, more efficient production and use of resources, and the integration of military and civil industries. Defense industry ministries and their affiliated factories were directed to decentralize their decision-making processes, grant more autonomy to managers, use excess capacity to manufacture civilian goods, and to emphasize quality over quantity. (Note 12) Not unexpectedly, command, control, and coordinating responsibilities within the military-industrial complex shifted over the next decade. The PLA Commission of Science, Technology and Industry for National Defense (COSTIND) was established in 1982 to supervise and coordinate weapons R&D, production, and procurement. (Note 13) With the ministries and their subordinate factories under pressure to reduce the financial burden they imposed on the state budget, selling arms abroad for profit offered possible relief. Each of the MMBs, in turn, set up their own companies to promote and secure foreign sales.

The major firms created for the export of conventional armaments were China North Industries Corporation (NORINCO) for ground force combat and combat support equipment, China Shipbuilding Trading Corporation (CSTC) for naval craft, China Aviation Technology Import-Export Corporation (CATIC) for military aircraft and AAMs, China Precision Machinery Import-Export Corporation (CPMIEC) for surface-to-surface tactical missiles, and China Electronic Import-Export Corporation (CEIEC) for communications gear. (Note 14) Additionally, COSTIND formed the New Era Company, which focused on the import and export of military technologies. (Note 15) Thus, over a period of only several years (from the late-1970's to mid-1980's), the PRC had hastily put in place a marketing system for its defense industries.

The PLA, likewise, felt the impact of Deng's economic reforms, with defense given the lowest priority, after agriculture, industry, and science & technology, in the four modernizations program. (Note 16) From 1979 to 1989, defense allocations as a portion of national spending fell from 17.5% to 7.4%.(Note 17) The Chinese military, consequently, looked for opportunities to sell its hardware for monetary gain. A host of export companies were established representing many of the PLA General Staff Department's (GSD) directories, as well as the General Political Department, General Logistic Department, Navy, and Air Force. (Note 18) By far, in terms of volume of sales and profit, the most important of these firms was to become Poly Technologies, Inc., subordinate to the GSD Equipment Directory. Staffed with politically well-connected officers and able to provide quick deliveries by drawing upon the military's existing stocks of weapons, the company moved aggressively in the 1980's to compete for Third World clients. (Note 19)

The foreign exchange earned by PLA export companies proved a significant extra-budgetary source of funding for R&D and equipment procurement. (Note 20)

NOTES: a. No data available for Romania and Albania which were major recipients of PRC arms during this period of time; b. includes artillery pieces and multiple rocket launcher systems; c. exact quantities not confirmed; d. includes self-propelled howitzers; e. does not include 7 Romeo-class submarines transferred to North Korea in mid-70's; f. Type-59 medium tank transfers for '78-'79 estimated at 75 per year.

SOURCES: Michael Brzoska and Thomas Ohlson, Arms Transfers to the Third World, 1971-1985 (Oxford: Oxford University Press, 1987), pp.138-280; and Stockholm International Peace Research Institute, SIPRI Yearbook 1991: World Armaments and Disarmament (New York: Oxford University Press, 1991), p.265.

The diversity and capabilities of arms offered for sale grew steadily, although not spectacularly, in the years following the adoption of an export promotion policy by the PLA and China's defense industries. Most equipment was based upon the core designs of late-1950's Soviet systems, but was modified and upgraded incrementally to improve combat performance. For example, the F-7M fighter (the export model of the PLA Air Force's F-7 fighter series) is modeled after the Soviet MiG-21, first fielded in 1958. (Note 21) The Type-69 main battle tank (MBT) traces its origin to the Soviet T-54 tank of the mid-1950's, although considerable improvements have been made on the armaments, fire-control, and optics. (Note 22) Similarly, Chinese naval architecture finds its roots in the Soviet Riga-class frigate, Romeo-class diesel submarine, and Osa- and Komar- fast attack craft (FAC), all from the 1950's. (Note 23) New to the inventory of weapons stocked on the shelf for export in the 1980's, however, were missiles. These included not only antitank guided missiles (ATGMs), surface-to-air missiles (SAMs), and AAMs, but antishipping and tactical surface-to-surface missiles as well. In general, Chinese conventional weapons became widely-regarded as rugged, simple to operate and maintain, and cheap. On the other hand, inconsistent quality and technological inferiority to Western and Soviet equipment have made PRC arms unattractive to any purchaser seeking world-class war fighting capabilities. (Note 24)

At the same time they were implementing the new economic line, Beijing's leaders were reappraising the international balance of power and concluding the dangers posed by the Soviet Union mandated the formation of a countervailing bloc. Vietnam's Treaty of Friendship with the USSR and subsequent invasion of Cambodia in December 1978, the Soviet invasion of Afghanistan in 1979, the perceived intimacy of ties between Moscow and New Dehli, and concern that the United States was still in retreat following its setback in Indochina, all contributed to China's growing fear of encirclement. (Note25) In response, arms shipments to Hanoi were terminated, while, beginning in late-1979, military aid was funneled to the Khmer Rouge forces battling Vietnamese forces in Cambodia. (Note 26) The Thai military, concerned by the presence of Hanoi's army along its eastern borders, developed closer ties with the PLA. Weapons transfers to Bangkok followed. In addition, Pakistan, seen as a front line state contending with the Soviet occupation of Afghanistan, and as an ally against the Moscow-New Dehli axis, remained a major recipient of PRC arms exports. Although by the mid-1980's, Beijing adopted a more independent foreign policy less dominated by anti-Soviet rhetoric, it continued to send arms to those countries and guerilla organizations whose efforts helped improve its regional security.

Throughout the 1980's, China also transferred very modest quantities of arms at concessionary rates or as military aid to mostly African states in its attempt to counter Soviet influence, and to add to its credentials as a Third World champion. However, it was the commercial sale of weapons in response to a burgeoning demand among Middle East countries that made up the majority of PRC arms exports during the decade. The Iran-Iraq War and general sense of insecurity among states threatened by the conflict created a lucrative market for Chinese military and defense industry arms merchants at just the time PRC economic policy was encouraging them to seek profit abroad. Weapons sales to the region soon outdistanced the combined total to all other areas in the world. For example, from 1984-87, the value of PRC arms deliveries to Middle East countries represented 89% of all of its global transactions, and from 1988-91, the proportion was 76%.(Note 27) The size of different regional market shares for PRC arms sales in recent years can be seen in Table 2 below.

The dominant position among Chinese arms transfer recipients occupied by regional allies and leading Middle East clients, and the increasing diversity of the types of weapons exported by Beijing are evident from Table 3. Beyond these transactions, the PRC in 1987 sold about 36 CSS-2 intermediate-range ballistic missiles (IRBMs) with ranges of 2,800 kilometers to Saudi Arabia for an estimated $3-3.5 billion. It is likely, as well, that during the late 1980's and early 1990's, China also transferred some short-range ballistic missile system components and technology to Pakistan. (Note 28)

The conclusion of the Iran-Iraq War, the 1990 imposition of a comprehensive embargo upon Baghdad by the United Nations, the displacement of the PRC by Russia as Iran's preferred arms supplier, and the reduced purchasing power of Middle East and Persian Gulf states, all led to a precipitous decline in the amount of weapons Beijing exported to that region. Furthermore, no major new contracts were signed with key clients, such as Pakistan and Thailand. (Note 29) Even a reported late-1989 arms deal with Burma valued at more than $1.2 billion did little to reverse the downward trend in the volume of Chinese arms transfers worldwide. (Note 30) This is reflected in Table 4:

NOTES: a. Middle East includes Persian Gulf states; b. $10 million discrepancy between total and subtotals for 1974-78.

SOURCE: Gordon Adams, Arms Exports and the International Arms Industry: Data and Methodological Problems (Washington, D.C.: Defense Budget Project, 1991), tables 1-3.

NOTES: I. Categories of Weapons: MBT = main battle tank; Light Tank = light or reconnaissance tank, or armored assault vehicle; APC = armored personnel carrier (mechanized infantry vehicle); ATGM = antitank guided missile; Arty = artillery piece or multiple rocket launcher system; F'gtr Acft = jet fighter, ground attack, or trainer aircraft; FAC/Frig/Sub = fast attack naval patrol craft/frigate/diesel-powered attack submarine; AshM = antishipping missile (both shore and sea-based); SAM = handheld portable and crew-served surface-to-air missile (types distinguished in below notes). II. Explanations: a. No data available for Romania which maintained an arms transfer relationship with the PRC until the fall of the Ceaucescu regime; b. handheld portable SAMs; c. includes self-propelled artillery; d. deliveries not all confirmed; e. includes some local assembly and/or coproduction of components; f. two frigates and one destroyer (delivery of destroyer not confirmed); g. crew-served SAMs; h. transfers to all Kampuchean guerilla groups, although majority to Khmer Rouge; i. minimum number- total may be 560.

SOURCES: Michael Brzoska and Thomas Ohlson, Arms Transfers to the Third World, 1971-1985 (Oxford: Oxford University Press, 1987), pp.138-280; and Stockholm International Peace Research Institute, SIPRI Yearbooks 1987-1992: World Armaments and Disarmament (New York: Oxford University Press, 1987-1992), from the chapters "Trade in Major Conventional Weapons."

SOURCE: Richard F. Grimmett, Conventional Arms Transfers to the Third World, 1984-1991 (Washington, D.C.: Congressional Research Service, Jul.20, 1992), pp.50 and 60.

When examining the growth in the volume and diversity of Chinese weapons exports, it is also worthwhile to compare them on an international basis. Using global, or even regional market share as a standard, the PRC has had only modest success as an arms salesman. For example, excluding those years when it enjoyed significant earnings through transfers to belligerents in the Middle East, the value of PRC deliveries of weapons have never exceeded 4% of totals worldwide, ranking far below the United States and former-Soviet Union whose own portions have varied between 18% and 52% between 1963 and 1991. (Note 31) And even though the amount of contracts signed with Iran and Iraq during their war were impressive, again, on a comparative basis the results were less spectacular. From 1984 to 1991 the former purchased 23% of its weapons from China, while the latter only 8%.(Note 32) This is not to say the PRC has not become an important second-tier global supplier of armaments, comparable in quantity (but not quality) of exports with France, the United Kingdom, and Germany. A comparison of arms deliveries to Third World countries in recent years, shown in Table 5, makes this clear*:

SOURCE: Richard F. Grimmett, Conventional Arms Transfers to the Third World, 1984-1991 (Washington, D.C.: Congressional Research Service, Jul.20, 1992), p.61.

From this brief historical overview, we can characterize various aspects of and trends in Chinese arms transfers over the past some forty years as follows:

(1) Quantitative Growth: From nominal levels in the 1950's, the value of PRC arms exports have risen to between $1-$2 billion annually in the past decade.

(2) Global Market Share: In terms of value, the PRC has ranked as the fifth largest exporter of arms to the Third World over the past decade, with a market share of very roughly 5%.

(3) Product Diversification and Quality: The steady development of China's military-industrial base has made available for export a wide range of ground, air, and naval weapon systems, albeit technologically lagging one or two generations behind state of the art Western and Russian equipment.

(4) Clientele: Recipients of Chinese arms have exclusively been developing countries and guerrilla organizations. Almost all major transfers have been to either regional friends or allies on a concessionary or aid basis, or to certain Middle East states (especially Iran and Iraq) on a commercial basis.

With the foregoing provided as background, we will now discuss some of the key factors influencing state decisions on arms transfers and purchases, and relate these to the Chinese experience.

* China does not yet export weapons to the developed world. Since the early 1980's, on an annual basis, aggregate arms imports of industrialized states have varied in value between 43% and 79% of Third World totals (see SIPRI Yearbook 1992: World Armaments and Disarmament, p.308.