By Eva Cheng
The last time — in January 1995 — that Beijing endeavoured to shake the vested interests of the military, a harmless "temporary regulation on economic accountability" was issued for "leading army cadres" in the name of the military's three top generals. But Chinese President Jiang Zemin's July 22 order that all armed forces units must completely sever all commercial ties is dynamite.
Jiang didn't have a significant power base in the military in 1995. Lacking even a casual military background, he wasn't helped much by his official position as chairperson of the Central Military Commission.
Deng Xiaoping's February 1997 death left him with even less support, particularly on the military front. His move now to bypass the top generals while attacking the deep-seated interests of the military is nothing short of a showdown.
In the tradition of the Chinese Communist Party, it is now the turn of the generals and key military regions to reveal their positions on Jiang's order. Open, usually lavishly phrased, declarations of support are a sign of loyalty while silence, let alone critical response, would be seen as opposition.
What determines the military's responses is the extent to which the interests of its different factions will be affected and the clout of their power base — or their reading of it — vis-a-vis Jiang's. Jiang's bold move indicates he assessed his position optimistically.
Compensation
If carried out in full, there is no doubt that Jiang's order will deal a serious blow to widespread interests in the military. The critical factor is the size of the compensation, if any. A common speculation in the western media is that it can be done by increasing the military budget.
But with a defence expenditure of 80.57 billion yuan (US$9.7 billion) last year (up from 72 billion in 1996) and a 1996 budget deficit of 103.7 billion yuan (1.6% of GNP), there is not much scope for a substantially bigger military outlay.
China's budget has been continuously in the red since 1985, the deficits jumping from 4.1 billion yuan that year to 36.7 billion yuan in 1990 and 97.7 billion in 1995. The gaps were plugged mainly by borrowing, of which the foreign outstanding portion reached US$118.1 billion and the domestic part 474.63 billion yuan in 1995.
Any foreseeable amount of official compensation could be dwarfed by the total commercial revenue that the military is likely to lose.
The exact scale of the latter is anyone's guess — the military has been absolutely secretive about it. Even the size of the military business empire is guesswork, with western estimates of the number of the commercial units it comprises ranging from 10,000 to 50,000.
Yet some of the empire's key outfits are hard to miss: Poly Investment Holdings, Continental Mariner and Hong Kong Macau International Holdings are listed on the Hong Kong stock exchange, while HMH China Investment is listed in Canada and HMH Gold Mining in Australia.
The first two are controlled by the People's Liberation Army's General Staff Department (GSD), and the remaining three by its General Political Department (GPD). Together with the General Logistics Department (GLD), they form the three main power factions at the military's Beijing headquarters.
China Xinxing (in warehouses and depots), controlled by the GLD, has listed a subsidiary, Xinxing Steel Pipes, in Shenzhen, China.
Military regions
The seven geographically based military regions also constitute distinctive power blocs. Their business outfits listed in China include Songliao Automobile, which produces passenger cars and jeeps, and is 53% controlled by the Shenyang Military Region, and Hunan Huatia Great Hotel, controlled by Hunan Military Region.
According to the July 24 edition of the Hong Kong daily South China Morning Post, other key business outfits of the GSD are: Bureau of Military Equipment and Technology Cooperation, China Poly (its general investment arm, weapons dealing, telecommunications and real estate), Poly Technologies, China Full, China Huitong, Pinghe Electronics, China Electronics Systems Engineering, China Great Wall Mobile Telecom and China Zhihua (computers and navigational devices).
Also under the GPD are: Kaili Enterprises (engineering and audiovisual products), Ark Holdings and China Tiancheng (textiles). Those under the GLD are: Sanding, Sunwin, Sanjiu (or 999) Enterprise (pharmaceuticals) and Nanfang Pharmaceutical.
The June 6, 1996, edition of the Far East Economic Review reported that PLA hospitals were forging joint profit-making ventures with foreign interests including: a haemodialysis centre (under discussion), between Baxter Healthcare (US) and Nanjing PLA hospital; an eye surgery clinic, between Shooting Star Technologies (Canada) and PLA Air Force Hospital, Beijing; a dialysis clinic (operating), between National Medical Care (US) and Nanfang PLA Hospital, Guangzhou; liver-supporting drug production (operating), between Exten Industries (US) and PLA First Military Hospital; HIV screening facilities (on hold), between Surgimetrics International (US) and PLA Health Department; CT scanners for MPH and PLA hospitals (operating), between General Electric Medical Systems (US) and Second Academy of Ministry of Aerospace and Ministry of Public Health; and tele-medicine for PLA hospitals (planned), between Brooks Telecommunications, SC & M International (US) and Commission of Science, Technology and Industry for National Defence.
The Asian Wall Street Journal speculated on July 23, 1998, that China United Airlines was under the PLA's control and reported on July 30 the military's ownership of Beijing's five-star Palace Hotel.
The defence-related outfits also manufacture products of possible civilian use, for example aircraft by Aviation Industries of China, satellites and computers by China Aerospace Industry Corporation, motorcycles by China Ordnance Industry General Corporation and autos and chemicals by China North Industries Group (or Norinco).
The above lists give a flavour of the military's broad business areas. A 1994 crackdown on the military in Guangdong province revealed that it was heavily involved in nightclubs, karaoke bars, sauna houses and hair salons, apart from hotels. Nationally, the military is also heavily involved in mining.
Conglomerates
Various estimates suggest that 95% of these businesses are of small and medium size. But the big ones include conglomerates with wide interests. China Poly, for example, has more than 100 subsidiaries, with assets totalling 10 billion yuan, and earned more than US$500 million a year in foreign trade in recent years.
Stock broker J&A, in which the PLA has a majority interest and which Jiang ordered on July 20 to merge with another firm, reported a net profit of 711 million yuan for 1997, based on 17.5 billion yuan worth of assets. The Xinxing Group reportedly employs 200,000 workers.
The PLA runs about 500 hospitals, including 150 on the top rung; in 1988 these were treating twice as many fee-paying civilians as soldiers.
The super-profitability of the PLA outfits is not hard to understand, given the military's clout and its extended monopolies. Its control, for example, of the 800-megahertz frequencies, the same range that US telecommunications carriers use, placed it well with other Chinese competitors.
While the profits thrive on PLA connections, the gain does not necessarily go evenly, or even mainly, into the PLA collective pocket. Individuals derive varying interests from it. While their interests do contradict sometimes, they have a common interest vis-a-vis other parts of the ruling bureaucracy, including the capitalist interests that they seek to protect.
Business competition apart, the PLA's heavy involvement in smuggling cuts directly into the receipts of the central government. Xinhua news agency reported that the loss in tariffs and other customs collections due to smuggling amounted to US$12 billion a year.
Most smuggled items are not easily concealed, including the tens of thousands of cars every year coming from South Korea and Hong Kong. More than 1 million TV sets and 500,000 VCRs were reportedly smuggled in 1992 from Japan.
Many cases of military involvement in smuggling were reported in a 1993 national conference in China. They included a 1990 case in which a navy patrol boat escorting a smuggling vessel opened fire on an anti-smuggling patrol boat of the local public security forces off the southern coast of Shantou.
In 1992, 38 ex-service gunboats, torpedo boats, escort vessels and submarine chasers were captured in Jiazi, Guangdong. The military's special immunity, which bars the customs from investigating it without specific approval from Beijing, makes it harder to crack down.
Even if Jiang's order is carried out, it is highly unlikely to mean a closing down of the military's extended businesses. A sale to other business interests, including foreign ones, is most likely. Such a move will do nothing to delay the capitalist transformation of China.