Chinese Army's 'Private' Business

Step into China Aerospace Corp.'s complex in Beijing and you might see Chinese business executives in Western-style suits selling spacecraft components or satellite launchers.

In some offices, however, green-uniformed officers of the People's Liberation Army (PLA) can be found offering prospective buyers such items as remotely piloted vehicles or defense missiles.

China Aerospace, now at the center of at least two US probes into questionable campaign contributions and the possible transfer of American missile technology to Beijing, is just one of the tens of thousands of seemingly civilian companies under the control of China's military.

The business empire of "PLA Inc.," as its critics call it, is vast. "Most experts agree the PLA owns 25,000 to 30,000 companies," says a Western official in Beijing.

The Army's hand in its enterprises is often camouflaged. "Some of these guys have two name cards - one says Mr. So and So and the other says Colonel So and So," the official says. One result: American consumers buy millions of PLA-made products unknowingly (story, Page 8).

China Aerospace bills itself as the Boeing of China, even though it is a core part of a massive PLA-controlled industrial complex, according to a 1995 report issued by the US Defense Intelligence Agency.

"In addition to selling military equipment ... PLA-operated import and export organizations market services and products - many of them civil - from the large network of PLA-run factories and businesses," the report says.

"Defense-industrial corporations and ministries concentrate on newly manufactured products and technology transfers - both to and from China ... and many have offices overseas," the agency adds.

Even the most diversified corporations in the United States would pale in comparison with the scope of products sold on the global market by the Communist-run PLA.

The US Defense Intelligence Agency says subsidiaries of the Chinese Army include:

* China Zhihua Corp Ltd, under the Army's general staff department, sells computers, image processing equipment, and navigational devices.

* The Chinese air force runs its own civilian airline, China United, and the navy operates a sideline shipping fleet.

* The PLA's general political department sells communications equipment through its Kaili Corp. and textiles via its China Tiancheng (Group) Corp.

* The ministry-level China Aerospace sells satellites, guidance systems, rocket engines, missiles, and household electrical appliances.

The rationale for the PLA's worldwide trading network is simple.

"With 3 million troops, China has the largest standing Army in the world, and it's very expensive to sustain that," says the Western official. "About 15 years ago, China's leadership told the Army it had to pay some of its own expenses by converting military factories into profitmaking firms," he adds.

Yet the PLA's capitalist-style business empire actually has its roots in the 1949 Communist revolution.

Like the American revolution for independence, the Communist victory brought its commander in chief, Mao Zedong, to power. But here, leaders of the Communist Party and Red Army divided the spoils of war and anti-wealth campaigns largely among themselves.

Communist and military elites, while publicly proclaiming an egalitarian paradise, actually seized the best factories and residences of China's defeated capitalists.

The party and military each created its headquarters by occupying sections of Beijing's Forbidden City, the rich palace complex from which generations of emperors ruled China, and their concentration of wealth may have surpassed that of their imperial predecessors, say many Chinese scholars.

Since launching market-oriented reforms 20 years ago, the party's riches have skyrocketed, and many of China's biggest PLA-affiliated companies are run by the sons and daughters of communist revolutionaries, says Gao Xin, a Chinese scholar who lives in exile in Cambridge, Mass.

The elite, capitalist-minded offspring of China's communist founders, collectively known as the "princeling faction," "is one of the richest and most influential groups in the country today," adds Mr. Gao, who has published several books on China's leaders and their entrepeneurial progeny.

China Aerospace executive Liu Chaoying, who is at the center of one American official investigation, is a good example of how the Chinese princelings have attempted to form bridges between Army-run firms and American businesses.

Ms. Liu channeled some $300,000 to Democratic fund-raiser Johnny Chung, but it remains unclear whether the money was earmarked for the Democrats or for a joint business venture with Mr. Chung.

At the time that Liu transferred the funds to Chung, her father, Liu Huaqing, controlled China's entire military-industrial complex as the top uniformed officer in the PLA, says the Western official.

Yet foreign scholars and other Western officials have cast serious doubts on allegations that the Chinese Army and government have begun forging ties with the US in a massive conspiracy to obtain American defense technology and influence US politics.

"The US itself once agreed to form a joint defense conversion Commission" with China, says the Western official.

"The idea was for the American military and business to work with the Chinese Army to transform swords into plowshares," he says. Conservatives in the Chinese Army and party opposed the idea. "Their core business is to fight wars and kill people - not to sell toys," the Western official adds.

Congress is now reviewing legislation aimed at banning sales in the US by Chinese Army-affiliated firms and barring American satellite makers from using China's cheap launchers.

But those bills, if enacted, would destroy an increasingly successful effort to reward China's moves toward nonproliferation with easier access to the global launch market, he says. The American legislation also could stop the liberalizing effect that foreign trade is having on Beijing's military leaders, he adds. "Americans see the Chinese Army as the force behind the 1989 massacre [of pro-democracy protesters] at Tiananmen," and therefore might back sanctions targeted at the PLA.

But forging US ties with the Chinese military is likely to strengthen moderate Army leaders here who opposed the crackdown and favor improved relations with the West, he adds.

Tai Ming Cheung, an expert on the Chinese military at the International Institute for Strategic Studies in London, agrees.

"The Chinese authorities have learned their lessons from the June 4 [1989] crackdown, and they don't want it to happen again," says Mr. Cheung.

The West has gained a measure of leverage over the PLA through increased economic ties, and "another June 4 would severely hurt the Chinese Army"s foreign trade with Western countries," he says.