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EU Council on Foreign Relations: The Reform of China's Defense Economy

Author: François Godement
June 2013

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"[The] country's defense experts and policy makers are now addressing systemic reform and modernization issues, and are talking about breaking down barriers to cooperation with civilian industry and market-driven management."

China's defense budget, which stands at $115 billion and growing, is more often considered in relation to acquiring new hardware than for the opportunity it offers for process modernization and improving operational capacity. The People's Liberation Army (PLA) is racing to develop command, control, communication, computerization, information, surveillance and recognition (C4ISR) capacities and improve its logistical chain. And China's mobilization model allows the country's defense industries and procurement bodies to interact with the civilian sector. This issue of China Analysis shows that the country's defense experts and policy makers are now addressing systemic reform and modernization issues, and are talking about breaking down barriers to cooperation with civilian industry and market-driven management.

Historically, the defense sector's interaction with civilian industries has been a function of political developments. Since the Cultural Revolution, the PLA has acquired civilian industries, which it has helped to protect in stormy times, and which have become a source of profits for the military. Beginning in the 1980s, streamlining the arms industry entailed converting some military firms to civilian production, spinning off mostly second-grade sectors and technologies. Dual sector development has also provided an indirect way to acquire foreign technologies, which could eventually be transferred to weapons production.

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