National Security: Impact of China's Military Modernization in the Pacific Region, GAO/NSIAD-95-84
June 6, 1995
United States General Accounting Office


National Security: Impact of China's Military Modernization in the
Pacific Region (Chapter Report, 06/06/95, GAO/NSIAD-95-84).

GAO provided information on China's military modernization effort and
how it compares to other Asian nations' military modernization efforts.

GAO found that: (1) China has acquired some new advanced weapons
systems, restructured and reduced its forces, and improved its training
and equipment for a few ground units; (2) although China's military
budget has increased by 159 percent from 1985 to 1990, there has been no
real growth in China's official defense budget; (3) most of the budget
increases have been for salaries and benefits for personnel; (4) weapons
acquisitions, research and development, and profits from defense and
commercial military sales are not part of China's official military
budget; (5) China's military modernization effort is driven by China's
desire to become the leading regional power in Asia, to protect its
economic and territorial interests, and to maintain its internal
stability, and by lessons learned from the Persian Gulf War about the
obsolescence of its military equipment and doctrine; (6) China's
increasing military capability is causing regional anxieties about its
intentions, but China's increasing economic dependence on international
trade and foreign investment may temper its aggressive tendencies; (7)
many Asian nations are modernizing their militaries and are shifting
their military focus from internal to external security threats,
particularly in the face of potential U.S. military withdrawal from
numerous territorial disputes; and (8) the United States and other Asian
nations are emphasizing bilateral arrangements and multilateral dialogue
to deter aggression and prevent the proliferation of nuclear weapons.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-95-84
     TITLE:  National Security: Impact of China's Military Modernization 
             in the Pacific Region
      DATE:  06/06/95
   SUBJECT:  Foreign governments
             Military procurement
             Advanced weapons systems
             Comparative analysis
             Military aircraft
             International relations
             Military training
             Defense budgets
             Economic development
             Foreign exchange rates
IDENTIFIER:  China
             Persian Gulf War
             Su-27 Aircraft
             South China Sea
             MK-46 Torpedo
             AN/TPQ-37 Radar
             SA-10 Air Defense System
             Kilo Class Submarine
             Russia
             Israel
             Crotale Air Defense System
             International Monetary Fund
             Whitehead Antisubmarine Torpedo
             Luhu Class Destroyer
             Jiangwei Class Frigate
             Dayun Class Supply Ship
             MiG-29 Aircraft
             IL-76 Aircraft
             T-72 Tank
             Japan
             South Korea
             Taiwan
             Thailand
             Singapore
             Malaysia
             
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Cover
================================================================ COVER


Report to Congressional Committees

June 1995

NATIONAL SECURITY - IMPACT OF
CHINA'S MILITARY MODERNIZATION IN
THE PACIFIC REGION

GAO/NSIAD-95-84

National Security


Abbreviations
=============================================================== ABBREV

  ASEAN - Association of Southeast Asian Nations
  GNP - Gross National Product
  PLA - People's Liberation Army
  PRC - People's Republic of China
  TASC - The Analytical Sciences Corporation

Letter
=============================================================== LETTER


B-260323

June 6, 1995

The Honorable Benjamin A.  Gilman
Chairman
The Honorable Lee H.  Hamilton
Ranking Minority Member
Committee on International Relations
House of Representatives

We are providing information on the nature of China's military
modernization and how it compares to military modernization efforts
of other Asian nations. 

As agreed with your staff, we plan no further distribution of this
report until 5 days after its issue date.  At that time we will send
copies of this report to other interested congressional committees
and the Secretaries of State and Defense.  Copies will also be made
available to others on request. 

This report was prepared under the direction of Joseph E.  Kelley,
Director-in-Charge, International Affairs Issues, who may be reached
on (202) 512-4128 if you or your staff have any questions.  Other
major contributors to this report are listed in appendix III. 

Henry L.  Hinton, Jr.
Assistant Comptroller General


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

With the end of the Cold War, the Asia-Pacific region faces an
uncertain security environment.  China, once viewed as a
counterweight to Soviet aggression, is now viewed as a country that
aspires to fill the role of the leading regional power.  China is
pursuing long-range military modernization that emphasizes the
upgrading of its air and naval power and a realignment of its force
structure.  These actions and China's lack of openness on military
matters have raised questions about its intentions. 

GAO undertook a study of China's military modernization due to
numerous, and often conflicting, reports of a military buildup in
China.  GAO's objectives during this study were to (1) assess the
nature and purpose of China's military modernization, and (2) compare
China's military modernization efforts with those of other Asian
nations.  GAO's work is intended to assist the Congress in decisions
it faces concerning China and the region. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

China's military, known collectively as the People's Liberation Army
(PLA), is the world's largest military force.  Its weaponry, however,
consists mostly of outdated equipment, and its troops are not well
trained in the tactics of modern warfare.  Since 1975, China's four
major national goals have emphasized agricultural development,
industrial growth, enhanced research and development, and military
modernization.  Military modernization, however, appeared to be the
lowest priority as it was not until 1989 that China began to devote
more resources to this goal. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

China has begun to modernize its military by acquiring some new
weapon systems, restructuring its forces, and improving its training. 
Since 1989, the official Chinese defense budget increased annually at
a double digit pace, but our analysis revealed that when adjusted for
inflation there has been almost no real growth in the official
defense budget.  Major categories of defense spending, such as
weapons acquisitions and research and development, however, are not
part of the official budget.  To date, few new weapon systems have
been acquired, and other improvements, such as better training, have
benefited only a few units.  China's military modernization is being
driven by several factors, including a desire to be the leading
regional power in Asia, lessons learned about modern warfare from the
Gulf War, the need to protect its economic/territorial interests, and
a need to maintain internal stability. 

U.S.  and Asian officials and scholars GAO interviewed commented that
as China's military capability increases so does regional anxiety
about its intentions.  Although many Asians believe that China now
presents a limited threat to them, they are concerned that in the
future China will have greater military capability with which to
challenge them in contested areas.  Tempering the potential for
aggression is China's economic development, which relies heavily on
foreign investment and trade.  Further, many of China's neighbors are
also modernizing their militaries, some more extensively and rapidly
than China. 

U.S.  policymakers recognize that to deter aggression and combat the
proliferation of weapons of mass destruction, integration, not
isolation, of the region's powers is important.  The United States
and Asian nations are reinforcing bilateral arrangements and pursuing
multilateral dialogue, and U.S.  policymakers are trying to renew
relations with the PLA to better understand China's intentions. 
Although many experts do not consider China a security threat, China
could eventually emerge as a more formidable power. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      CHINA IS SLOWLY CHANGING ITS
      MILITARY FORCE STRUCTURE
-------------------------------------------------------- Chapter 0:4.1

China has reduced its forces, acquired modest amounts of new military
equipment, increased its defense budget, and changed its military
doctrine in an effort to modernize its military.  In addition, China
maintains a nuclear arsenal and is the only country currently
conducting nuclear tests.  However, after it completes a series of
nuclear tests by 1996, China reportedly desires to see a
comprehensive test ban treaty implemented.  The closed nature of the
PLA is an obstacle to clearly understanding China's long-range
military objectives, but actions to date indicate China has begun to
slowly, methodically modernize its military structure. 

Although China's official defense budget increased about 159 percent
between 1986 and 1994, when adjusted for inflation, it actually
increased by only 4 percent.  According to Chinese officials and many
China specialists, enhancements to the military's salaries and
standard of living have been the cause for most of the increases in
the official budget.  However, China's official defense budget does
not include its total defense expenditures.  For example, the
official budget does not include profits from defense sales and PLA
commercial activities, nor does it include costs of major weapon
acquisitions funded from other budget accounts.  Because of
uncertainty about the amounts of other defense revenues, including
profits the PLA actually earns from its commercial enterprises (such
as hotels, casinos, and mines) and how these profits are used, it is
impossible to determine total defense spending.  Estimates of China's
actual defense spending vary widely, but most estimates are about two
to three times the official budget. 

China reduced its military personnel by about one-fourth from 1985 to
1990 and plans additional reductions.  The Chinese are buying, or are
reportedly interested in buying, modern long-range bombers and
fighters, in-flight refueling capability, an airborne early warning
system, antiaircraft missile defense systems, submarines, and other
advanced equipment from Russia and other suppliers of military
equipment or military-related technology.  China is also building
several naval vessels and has its own fighter aircraft development
program.  The more modern equipment is being procured in relatively
small numbers.  For example, China has bought 26 Su-27 fighter
aircraft from Russia and has built 1 Luhu class destroyer.  Major
acquisitions are often financed through the proceeds from weapons
exports.  From 1985 to 1991, China sold about $12 billion in defense
equipment, according to the U.S.  Arms Control and Disarmament
Agency.  Defense exports have fallen since the end of the Iran-Iraq
War, during which China sold weapons to both countries. 


      JUSTIFICATION FOR AND
      INFLUENCES ON MILITARY
      MODERNIZATION
-------------------------------------------------------- Chapter 0:4.2

Several factors appear to be driving China's military modernization. 
The Gulf War demonstrated that Chinese equipment and military
doctrine were obsolete for the conditions of modern warfare.  Other
factors include a desire to attain military power commensurate with
China's growing economic power, the protection of sovereign
territories and economic zones, and the ability to deploy forces
quickly within China to maintain internal stability. 

China has territorial disputes with many countries in the region. 
The most prominent examples are China's claim to the South China Sea
and its resolve to use force if Taiwan declares independence from the
mainland.  Many government officials and academics believe that
Chinese military action is unlikely because it would precipitate
negative foreign reaction.  China's economic development, its first
priority, depends heavily on foreign trade, investment, and
assistance.  As a result, China has attempted to diplomatically
minimize potential problems that could result from competing
geographical claims. 


      OTHER ASIAN NATIONS ARE
      MODERNIZING THEIR DEFENSE
      FORCES
-------------------------------------------------------- Chapter 0:4.3

Economic prosperity is allowing other Asian nations to modernize
their militaries too.  With few exceptions, most Asian nations'
current military capabilities are, like China's, also limited and
based on older technologies.  Until recently, many Southeast Asian
nations faced serious internal security threats, and their military
forces were focused on counterinsurgency warfare.  As internal
security threats subsided, many Asian nations changed their focus to
external defense, including protecting their trade routes.  Economic
growth has allowed them to devote more resources to defense and take
advantage of the current buyers' market in defense equipment. 


      ENHANCING REGIONAL STABILITY
      THROUGH ENGAGEMENT WITH
      CHINA
-------------------------------------------------------- Chapter 0:4.4

China's role in regional and international security matters is
increasingly important and critical to the furtherance of arms
control and other security matters.  As a permanent member of the
United Nations Security Council, a nuclear state, a rising economic
power, and a major Asian-Pacific nation, China increasingly impacts
on U.S.  security objectives.  Accordingly, in late 1993, the United
States initiated a policy of resuming dialogue with the PLA that had
been suspended since the June 1989 Tiananmen Square massacre of
pro-democracy demonstrators.  Current U.S.  objectives include (1)
influencing China's security community on a range of issues of mutual
concern, including proliferation and regional stability, (2)
increasing mutual understanding and trust between the militaries, (3)
promoting transparency within the PLA and gaining operational
insights into the PLA that may assist in clarifying intentions, and
(4) encouraging Chinese participation in multilateral security
arrangements that promote global and regional stability.  U.S. 
security engagement policy is being carried out through high-level
dialogue, functional exchanges, and routine military activities. 
Although these meetings have been positive, establishing effective
military dialogue in the wake of Tiananmen Square will take some
time. 

Asian leaders hold the view that the United States must remain
politically, economically, and militarily engaged in the Asia-Pacific
region to ensure stability.  The most visible sign of U.S. 
commitment is the presence of U.S.  forces in the region.  Many
Asians believe, however, that the American public will ultimately
call for further reductions in the U.S.  overseas military presence. 
Concerned that a U.S.  withdrawal could lead to regional instability,
many Asians are establishing or reinforcing bilateral ties with the
United States and engaging in multilateral dialogue.  On the future
multilateral agenda are discussions of transparency in defense
planning and diplomatic resolution of territorial disputes. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5

This report contains no recommendations. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

In commenting on a draft of this report, the Departments of Defense
and State concurred with its overall content and conclusions. 


INTRODUCTION
============================================================ Chapter 1

The People's Republic of China (PRC) has expanded its role in
regional and global affairs, requiring U.S.  policymakers to focus
greater attention on U.S.-China relations and China's impact on U.S. 
security and trade interests in Asia.  China is not only a growing
military power, possessing nuclear and some advanced conventional
weapons' technologies, it also has the world's third largest economy,
according to the International Monetary Fund.  It holds a permanent
seat on the United Nations Security Council and it has the world's
largest military. 

In 1975, China adopted the policy of the "four modernizations" as the
way to ensure long-range comprehensive security.  China's plan was to
modernize its agriculture, industry, science and technology, and
defense.  Until 1989, when China began devoting more resources to its
military, economic development through the modernization of
agriculture, industry, and science and technology clearly preceded
defense modernization. 


   RELATIONS AMONG THE ASIAN
   NATIONS
---------------------------------------------------------- Chapter 1:1

China and several other Asian nations appear to be embarked on force
modernization programs that when combined with long-standing
territorial disputes, raise concerns among policymakers over the
stability of the region.  Almost every nation in the Asia-Pacific
region has territorial disputes with one or more of its neighbors. 
This is particularly true for China, which has disputes with Russia,
Japan, India, Malaysia, and Vietnam as well as an internal dispute
with Taiwan.  One of the major hot spots is the potentially oil-rich
South China Sea, particularly the Spratly Islands.  China, Taiwan,
Vietnam, Malaysia, and the Philippines all occupy islands, and both
China and Vietnam have signed oil exploration contracts with U.S. 
firms.  Figure 1.1 shows the location of and lists the various
territorial disputes within the region. 

   Figure 1.1:  Sovereignty and
   Territorial Disputes in Asia

   (See figure in printed
   edition.)



   (See figure in printed
   edition.)

Many Asian nations harbor long-standing feelings of mistrust toward
each other, and they are arming themselves with the types of systems
necessary to defend their interests militarily.  China and most Asian
countries are establishing rapid reaction forces, improving their
naval assets, and modernizing their aircraft.  As the military
capabilities of countries in the region increase, so does the
possibility of conflict because countries may feel they have the
capability to press their claims. 


   U.S.  MILITARY RELATIONS WITH
   CHINA
---------------------------------------------------------- Chapter 1:2

Historically, the U.S.-China military relationship has been limited
in scope.  The United States established diplomatic relations with
China in 1979, and in 1980, the Secretary of Defense visited China. 
In September 1983, the Secretary of Defense set in motion the U.S. 
"three pillars" approach in pursuit of a military relationship with
China--high-level visits, functional-level exchanges, and military
technology cooperation. 

>From 1983 to 1989, many high-level defense visits took place between
the U.S.  military and the People's Liberation Army (PLA). 
Working-level contacts occurred in numerous fields, including
military education and training, logistics, quality assurance,
systems analysis, and military medicine.  In June 1984, China became
eligible for Foreign Military Sales, which marked the beginning of
cooperation in the area of military technology.  By 1987, four sales
agreements were signed:  the $22-million large-caliber artillery
plant modernization program, the $8-million MK-46 Mod 2 torpedo sale,
the $62-million AN/TPQ-37 artillery-locating radar sale, and the
$500-million F-8 interceptor avionics modernization program.  There
were also a limited number of commercial sales of defense equipment. 

On June 5, 1989, immediately after the massacre of pro-democracy
demonstrators at Tiananmen Square in Beijing, the President imposed
sanctions on China to protest its actions.  The U.S.  sanctions
targeted the Chinese military by suspending visits between U.S.  and
Chinese military leaders and suspending all government-to-government
sales and commercial exports of weapons.  The prohibition on military
equipment can be waived by the President if it is important to the
national interest or if he determines that China has made specified
progress on human rights. 

Compared to U.S.  military relations with many other nations,
U.S.-China military relations were limited prior to Tiananmen, but
from June 1989 until 1993, they were virtually nonexistent.  Contacts
were limited to visits by U.S.  students from the National Defense
University in 1991 and 1992.  U.S.  actions ending military relations
raised suspicion and anger within the PLA, which above all else saw
the U.S.-China relationship in terms of prestige and respect. 
According to some officials and scholars, PLA officials believed that
they were being punished for an incident in which many did not want
to participate.  Some of the more pro-Western officers were purged
from the PLA ranks, while others lost influence.  U.S.  officials
told us that the U.S.-China working level contacts prior to 1989 may
have been instrumental in professionalizing the military and gaining
China's support on a number of issues.  According to these officials,
during the time that China and the United States had military
contact, China muted its protests over arms sales to Taiwan,
restrained from selling Silkworm missiles to Iran during the Gulf
tanker operations, and cooperated with the United States on
Afghanistan. 

For 4 years after Tiananmen, little attempt was made to reestablish
military ties.  In the past year, however, the United States and
China have reestablished a military dialogue. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:3

Our objectives during this study were to (1) assess the nature and
purpose of China's military modernization and (2) compare China's
modernization to other Asian nations' military modernization
programs. 

We interviewed officials and reviewed documents at the Departments of
Defense and State in Washington, D.C., and U.S.  embassies and
consulates in the PRC, Hong Kong, Japan, Australia, South Korea,
Indonesia, Malaysia, Singapore, Thailand, and India.  We also
interviewed representatives of the American Institute of Taiwan. 
Additionally, we spoke with members of the intelligence community,
reviewed the U.S.  Arms Control and Disarmament Agency's World
Military Expenditures and Arms Transfers 1991-92, and used data from
the International Monetary Fund for economic statistics.  To gain
perspective on Asian views of China's military modernization, we met
with foreign government officials, scholars, and journalists during
our fieldwork abroad.  To gain China's perspective we spoke to
Chinese academics at Fudan University in Shanghai, the Chinese
Institute for Peace and Development Studies in Shanghai, the Shanghai
Institute for International Studies, the China Institute of
International Studies in Beijing, and the China Institute of
Contemporary International Relations in Beijing.  We also spoke to
several China specialists in the United States and reviewed papers
presented at the American Enterprise Institute's conferences on the
People's Liberation Army and the National Defense University's
Pacific Symposium. 

The Analytical Sciences Corporation (TASC) provided us with
information on the military holdings of China and the other Asian
nations from its unclassified data bank, which incorporates
unclassified U.S.  government information as well as information from
publications such as Jane's International Defense Review and the
International Institute for Strategic Studies' The Military Balance. 

Data on China's defense budget and force modernization was obtained
mostly from non-Chinese sources due to China's general lack of
openness on military matters, the dearth of official government
documents, and the PLA's decision not to meet with us in China. 

We performed our work from January 1994 to January 1995 in accordance
with generally accepted government auditing standards. 


OVERVIEW OF CHINA'S FORCE
MODERNIZATION
============================================================ Chapter 2

In an effort to modernize its military forces, China has acquired
modest amounts of modern weaponry, reduced the overall size of its
forces, and changed its military doctrine.  Current and historical
spending trends, combined with known equipment acquisitions, suggest
that China is engaging in a very slow upgrading of very old
equipment, which to date has benefited only a small number of units. 
Several factors appear to drive China's force modernization efforts,
including a desire to be the preeminent regional power, lessons
learned from observing modern wars, and the need to protect what it
sees as its sovereign territory.  China's lack of openness about its
defense planning and spending and skepticism regarding China's
ability to acquire and absorb technologies needed for wholesale force
modernization make it difficult to project its future military
capabilities.  Nonetheless, its strategic nuclear capabilities make
it a global power. 


   CHINA SPENDS MORE ON DEFENSE
   THAN OFFICIAL BUDGET SHOWS
---------------------------------------------------------- Chapter 2:1

Much has been written about China's defense budget, including reports
of double-digit increases in its official defense budget and the
existence of a much larger unofficial supplementary defense budget. 
Our analysis of the official budget revealed that despite reported
increases, when adjusted for inflation, the official budget has
actually remained relatively constant.  And although we were unable
to quantify the unofficial budget, we identified a number of revenue
sources that comprise it.  Nevertheless, determining China's total
defense expenditure is not possible. 


      OFFICIAL DEFENSE BUDGET
-------------------------------------------------------- Chapter 2:1.1

The official budget of the PLA consists primarily of salaries and
personnel expenses and some operating and maintenance expenses, such
as fuel for training.  Other appropriations, including funds for
defense procurement and research and development, are located in
other budget accounts.  As seen in figure 2.1, the official defense
budget increased about 159 percent from 1986 through 1994, but when
adjusted for inflation, the budget actually increased by only 4
percent.\1

   Figure 2.1:  The PLA Defense
   Budget in Current and Constant
   1986 Renminbi (Chinese
   currency)

   (See figure in printed
   edition.)

Source:  Budget figures from "Off the Books" Analyzing and
Understanding Chinese Defense Spending, Richard Bitzinger and
Chong-Pin Lin, the inflation rate for 1986 to 1993 from the
International Monetary Fund, and the 1994 inflation rate was
estimated at 20 percent. 

Beginning in 1989 and continuing until 1994, China's official defense
budget increased annually at a double-digit pace.  By 1992, this
rapid increase in the official defense budget, coupled with lower
inflation between 1990 and 1992, allowed the official defense budget
to just exceed its 1986 level in real terms.  The large defense
budget increases in 1993 and 1994, however, have been more than
offset by inflation, which officially was 17 percent in 1993 and
estimated to be at least 20 percent in 1994.  In addition, the
percentage of China's total national resources consumed by defense
spending, based on the official budget, fell during the decade from
about 2.1 percent of the gross national product (GNP) in 1986 to
about 1.4 percent in 1993. 

According to Chinese officials and many specialists on China, most of
the increases in the official budget have been spent to enhance the
salaries and standard of living of the military.  They said that
before the increases in the official budget, the PLA's morale had
fallen low.  Several China scholars believe that official funding for
the PLA would have to increase tremendously if units are to
discontinue their commercial activities (as discussed below, revenues
from these activities make up part of China's unofficial budget) that
provide them with additional income. 


--------------------
\1 Attempts to convert renminbi into U.S.  dollars or other currency
for comparative purposes distorts and, in this case, understates
spending for two reasons.  First, the exchange rate is controlled and
therefore artificial, and second, prices for some items in China are
well below world prices.  For example, the official 1993 defense
budget of 42.5 billion renminbi is $7.45 billion using the 1993
official exchange rate.  However, because the renminbi was devalued,
the official 1994 budget of 52 billion renminbi equals $6.10 billion
at the current exchange rate.  This would leave the erroneous
appearance of a decline in defense spending. 


      UNOFFICIAL DEFENSE BUDGET
-------------------------------------------------------- Chapter 2:1.2

Although China's actual defense expenditures are extremely difficult
to measure, many analysts agree that China's total defense spending
is about two to three times its official budget.  They cited the
following additional sources of defense support and revenues: 

  Some defense spending is hidden in other parts of the state budget. 
     For example, most military research and development costs are
     not included in the defense budget but are in the budgets of
     civilian ministries. 

  The procurement of weapons, in particular arms imports, is funded
     by special appropriations not included in the official budget. 

  Defense revenues also come from the PLA's commercial activities. 
     It is estimated that the PLA has over 10,000 businesses run by
     PLA units, members, and their families.  PLA units even bid on
     major government infrastructure projects, such as the
     construction of highways, for which they are paid. 

  PLA units grow crops and raise livestock for food and as a result
     require less funding. 

  China uses profits from arms exports to subsidize the PLA's
     purchase of foreign weapon systems.\2

Because of uncertainty about the amounts of other defense revenues,
including the amount of profits the PLA actually earns from its
commercial enterprises (such as hotels, casinos, and mines) and how
these profits are used, it is impossible to determine whether total
defense spending, adjusted for inflation, has increased, decreased,
or remained the same. 

Several experts believe that the PLA itself does not know how much
money in total it generates and spends.  However, many analysts
believe that China's total defense spending is about two or three
times its official budget.\3 Since total defense spending is so
difficult to compile or ascertain, we believe it may be more useful
to look at current and proposed changes in equipment, training, and
doctrine to draw conclusions about the extent of China's military
modernization. 


--------------------
\2 China's revenues from arms sales fell from a peak of about $2
billion annually in the late 1980s to less than $1 billion in 1991. 
China is unlikely to rebound in the current market, which favors
suppliers of advanced weapons, according to the U.S.  Arms Control
and Disarmament Agency. 

\3 Estimates range from less than 2 to 12 times China's official
budget, but most are between 2 and
3 times the budget. 


   PLA IS MODERNIZING FORCES
   SLOWLY, WITH LIMITED EFFECT
---------------------------------------------------------- Chapter 2:2

Since 1985, the PLA has slowly been modernizing and changing its
military equipment, doctrine, and force structure.  Nonetheless,
these efforts have been characterized as piecemeal, with limited
effectiveness.  The PLA has put a priority on upgrading the major
weapon systems of its Air Force and Navy but has also made numerous
changes in its ground forces.  Since 1985, the PLA has reduced its
force structure from about 4 million to 3 million personnel (2.3
million in the Army, 470,000 in the Air Force, and 260,000 in the
Naval Forces).  At the same time it has replaced its outdated
"People's War" doctrine, a defensive doctrine relying on the PLA's
numerical superiority and ability to trade ground to defeat a
technologically superior enemy, with one more suited to fighting
limited regional wars under modern conditions.  PLA force
modernization has emphasized

  increasing unit mobility and training in combined arms operations;

  improving logistics, combat support, and communications, command,
     and control systems;

  introducing a limited number of imported modern weapon systems,
     such as the Russian-built Su-27 multirole fighter aircraft and
     SA-10 air defense systems; and

  developing a number of indigenously produced systems, including
     several new classes of naval vessels and a new multirole fighter
     aircraft. 

By various accounts, China is pursuing the purchase of dozens of
weapon systems and technologies from Russia, Israel, and other arms
suppliers.  However, many of these reports have proven unfounded or
are a case of Chinese window-shopping.  For example, rumors of
China's impending purchase of a nearly constructed, former Soviet
aircraft carrier caused concern throughout the Asia-Pacific.  China
does seem interested in purchasing some items but continues to pursue
a policy of self-sufficiency; that is, it prefers to purchase
technology rather than end items.  At the PLA's current pace of
modernization, the replacement of its 1950's- and 1960's-vintage
equipment with more modern equipment will take years. 


      NAVAL FORCES
-------------------------------------------------------- Chapter 2:2.1

The PLA Navy's force modernization has emphasized the addition of
new, indigenously built destroyers, frigates, supply ships, landing
ships, and other smaller vessels.  It has purchased Russian-built
Kilo-class submarines and reportedly wants to purchase associated
technology to replace its aging, obsolete diesel-electric submarine
force.\4 To increase the survivability of its surface combatants, the
Navy seeks to acquire modern antisubmarine and antiaircraft systems. 
It has had little success in developing these systems and now seeks
technical assistance from Russia and, reportedly, Israel.  In the
interim, China has purchased a few modern systems from Western
sources, such as the French-built Crotale air defense system and the
Whitehead A244S antisubmarine torpedo. 

Additionally, according to published reports, the electronic warfare
capabilities of the new vessels are a dramatic improvement over the
old vessels.  The new Luhu-class destroyers and the new
Jiangwei-class frigates represent a substantial improvement over the
Navy's current fleet of destroyers and frigates.  These new, larger,
and more specialized vessels, combined with the new Dayun-class
supply ships, will give the PLA Navy a much greater "blue water"
capability and form the basis of a more modern and expanded fleet. 

The PLA Navy has shown interest in acquiring an aircraft carrier,
according to numerous sources.  However, it will need to overcome
several large obstacles before it can field an operational aircraft
carrier and associated supporting ships.  First, the PLA Navy does
not have any carrier-capable aircraft.  Second, although
substantially improved in these areas, it still needs more and better
antisubmarine and antiaircraft capabilities to protect a carrier and
its supporting vessels.  Finally, to have adequate power projection
capabilities from the use of a carrier, it is preferable to have more
than one carrier so that a carrier is assuming the mission at sea at
all times.  Thus, many experts have concluded that an operational
aircraft carrier does not appear to be in China's near future, even
though China is funding research and development and training
officers in aircraft carrier operations. 


--------------------
\4 China has reportedly produced a new diesel-electric submarine and
has agreed to purchase four Kilo-class submarines from Russia, one of
which has been delivered. 


      AIR FORCES
-------------------------------------------------------- Chapter 2:2.2

The PLA Air Force's modernization consists of purchasing
Russian-built aircraft, engines, and surface-to-air missile systems;
developing or acquiring an air-to-air refueling system; indigenously
developing an advanced fighter aircraft, believed to be comparable to
the U.S.-built F-16; and pursuing the purchase of an airborne early
warning system. 

China purchased 26 Russian-built Su-27 multirole fighter aircraft and
may purchase more.  Although the number of aircraft is small, the
Su-27s--comparable to U.S.-built F-15s--represent a large
technological leap forward for the PLA Air Force and demonstrate its
determination to gain experience operating advanced multirole fighter
aircraft.  China has reportedly purchased or will purchase additional
Su-27s and is trying to obtain the technology to produce them
indigenously.  Additionally, China reportedly wants to co-produce the
a new-generation MiG-31.  However, Russia, although strapped for
foreign exchange, has been reluctant to provide such advanced
technology to the Chinese.  China purchased 100 RD-33 engines, which
power the MiG-29, to upgrade its indigenously produced F-7 fighter. 
The F-7s equipped with RD-33s may be exported.  Figure 2.2 shows that
China's inventory of fighter aircraft is enormous, but most represent
1950's technology. 

   Figure 2.2:  PLA Air Force
   Fighter Aircraft

   (See figure in printed
   edition.)

Source:  TASC (The Analytical Sciences Corporation). 

The 10 IL-76 medium- to long-range transportation aircraft purchased
from Russia will improve the PLA's formerly limited lift capability. 
However, some reports speculate that these aircraft will be used as
air-refueling or electronic warfare platforms.  China reportedly
bought air-refueling equipment and technology from either Iran or
Israel and is expected to achieve an operational capability in the
next few years.  It also is reportedly trying to purchase a complete,
fully operational airborne early warning system from either Russia or
Israel. 

Finally, 4 batteries of SA-10 surface-to-air missile defense systems,
with 100 missiles, are expected to improve China's antiquated air
defense system.  The SA-10--comparable to the U.S.-built Patriot
system--is designed to shoot down aircraft and has a limited ability
to intercept ballistic or cruise missiles.  It is believed that the
purchase of these systems, which have been deployed around Beijing,
was likely a direct result of China's witnessing the bombardment of
Baghdad during the Persian Gulf War. 


      GROUND FORCES
-------------------------------------------------------- Chapter 2:2.3

The PLA ground force of about 2.3 million personnel is too large to
be modernized at once; consequently, the PLA is focusing on achieving
a high level of readiness in specific rapid reaction, or "fist,"
units.  These units are the first to receive modern equipment and
additional funds for training.  Fist units include the 15th Airmobile
Army and the PLA's recently established Marine Corps units.  They are
tasked with responding to any crises on China's periphery and
developing, through training, the PLA's doctrine on combined arms
operations, such as amphibious assaults.  China reportedly purchased
a limited number of T-72 tanks from Russia and is negotiating with
Russia to obtain other advanced technologies and coproduction rights
for advanced munitions and weapons. 

PLA ground forces have received the lowest priority in the
modernization effort.  Even so, China's vast number of ground forces
compared with its neighbors' forces makes it a significant regional
power.  If only the modernized fist units are considered, China still
enjoys a substantial size advantage over most of its neighbors.  With
an emphasis on combined arms training exercises, China's fist units
will enhance China's power projection capabilities. 


   CHINA MAINTAINS NUMEROUS
   WEAPONS OF MASS DESTRUCTION
---------------------------------------------------------- Chapter 2:3

China has substantial strategic nuclear capabilities, which it
acknowledges, and, according to congressional testimony by U.S. 
officials, probably has chemical and biological capabilities, which
it does not acknowledge.  China maintains research, development, and
production capabilities for nuclear weapons and probably does so for
chemical and biological weapons as well.  China's nuclear weapons and
space (ballistic missile) programs have been described by several
China scholars as "pockets of excellence." Although China's ballistic
missiles lack the sophistication and accuracy of U.S.  or Russian
missiles, they provide China with a credible retaliatory capability. 


      NUCLEAR WEAPONS
-------------------------------------------------------- Chapter 2:3.1

China, a nuclear power with air-, land-, and sea-based warheads, has
maintained the same official nuclear policy since it first detonated
a nuclear device in 1964.  Under this policy, China pledges not to
use nuclear weapons first and not to use them against nonnuclear
nations and nuclear-free zones.  Under its nuclear strategy, China
seeks to deter other nuclear powers by maintaining strategic nuclear
forces of adequate size and range to reach a few cities in any
potential adversary's homeland.  Thus, in a crisis, an adversary
cannot use or threaten to use nuclear weapons against China without
facing the possibility of nuclear retaliation. 

According to Arms Control Today, the air-based leg of China's nuclear
triad consists of approximately 120 long-range (3,100 kilometers) B-6
bombers, 30 medium-range (1,200 kilometers) B-5 bombers, and 30
short-range (400 kilometers) A-5 attack aircraft that are nuclear
capable.  These aircraft are based on 1950's and 1960's technology
and would have limited operational capability against modern air
defense systems.  China is working to develop a new supersonic
bomber, the B-7, which first flew in 1988 but has yet to be
operationally deployed. 

The land-based leg of China's nuclear triad consists of several
different types of intermediate- and long-range land-based ballistic
missiles, most of which are liquid-fueled.  These missiles can carry
warheads with yields up to 3 megatons from about 1,800 kilometers to
over 13,000 kilometers.  However, China possesses only a handful of
missiles with sufficient range to strike targets anywhere in the
United States, according to Arms Control Today. 

China's sea-based leg of its nuclear triad consists of one Xia-class
ballistic missile submarine.  It can carry up to 12 ballistic
missiles. 

China is developing new, solid-fuel land- and sea-based ballistic
missiles with improved accuracy, according to numerous reports. 
Additionally, China appears to have developed technology for a
multiple independently targetable reentry vehicle that would allow it
to strike several targets with one missile.  Whether China maintains
tactical land-based nuclear weapons such as artillery shells or
warheads for its short-range M-9 and M-11 ballistic missiles is
uncertain, although reportedly both missiles can carry nuclear
weapons.  China's policy on the use of tactical nuclear weapons is
unclear. 

China appears determined to upgrade its strategic nuclear
capabilities, despite the end of the Cold War.  It has been the only
country to continue nuclear testing during the past 2 years, while an
unofficial worldwide moratorium has been in place.  China justifies
this testing by pointing out that it has conducted far fewer nuclear
tests than either the United States or Russia (including those
conducted by the former Soviet Union).  However, after it completes a
series of nuclear tests by 1996, China reportedly desires to see a
comprehensive test ban treaty implemented. 


      CHEMICAL AND BIOLOGICAL
      WEAPONS
-------------------------------------------------------- Chapter 2:3.2

China has signed the Convention on Prohibition of the Development,
Production, Stockpiling and the Use of Chemical Weapons, and has
acceded to the Convention on the Prohibition of Biological Weapons. 
Nevertheless, China is suspected of having offensive chemical weapons
and a biological weapons program.  U.S.  officials have testified
before the Congress that China probably possesses both chemical and
biological capabilities.  Little is known about its suspected
stockpile of weapons. 


   REASONS FOR CHINA'S FORCE
   MODERNIZATION
---------------------------------------------------------- Chapter 2:4

China has several reasons for modernizing its forces.  The secrecy of
this defense planning, however, hinders analysis of China's
intentions.  Foreign and U.S.  government officials and China
specialists most often cite five reasons for China's military
modernization.  First and foremost, the vast majority of weapons and
equipment in the PLA's current inventory reflect 1950's and 1960's
technology, and modernization efforts are therefore expected,
especially since China's economic growth provides greater means with
which to modernize.  Other reasons cited are

  a desire to have military power commensurate to its growing
     economic power, allowing it to be a greater regional and global
     power;

  the ability to defend what it defines as its sovereign territory,
     which includes territories disputed with almost all its
     neighbors;

  lessons learned about modern warfare and high-technology weapon
     systems from the Persian Gulf War and other recent conflicts;
     and

  the PLA's role in maintaining internal stability and providing
     legitimacy to the communist regime. 


      MANY FACTORS INFLUENCE THE
      PACE OF CHINA'S FORCE
      MODERNIZATION
-------------------------------------------------------- Chapter 2:4.1

According to the officials we interviewed and reports we reviewed,
several factors will influence how quickly China is able to continue
to modernize its military.  The most important factor is the pace of
economic development, which determines the funding available to the
government for defense and other spending.  Other demands will
compete for funding, however.  Economic growth resulting in greater
prosperity may result in demands for improved living conditions,
which will place greater demands on the government to provide social
services, education, and environmental safeguards. 

China's indigenous research and development efforts, as well as its
ability to absorb new technologies, will determine how quickly China
can effectively field more modern weapon systems.  China has had both
successes and failures in its military research and development
efforts.  China has been successful in using indigenously developed
technologies in conjunction with foreign technologies in its space
and nuclear programs; however, despite technological assistance from
both Russia and Israel, China has had trouble developing an
indigenous fighter aircraft.  Additionally, China's ability to absorb
new technology has been questioned and may be a roadblock to the
PLA's modernization.  The PLA may have to significantly enhance the
quality, education level, and training of its personnel to field
increasingly sophisticated weapon systems. 

The internal political environment will also affect how quickly the
PLA's modernization program will proceed.  Greater instability could
increase the dependence of the Chinese Communist Party on the PLA to
maintain order, which could in turn mean that China would devote a
greater share of resources to the PLA.  Furthermore, the PLA will
play a role in determining the successor to Deng Xiaoping, and those
vying to become the new leaders may increase funding for the PLA to
elicit its support. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 2:5

To date, China's force modernization efforts have been characterized
as "piecemeal." High inflation has resulted in little real increases
in the official defense budget, and the defense budget has decreased
as a percentage of China's GNP.  China's unofficial defense spending
is very difficult to gauge because expenditures and revenues are
hidden in other budgets.  Acquisition of major weapon systems, for
example, falls under unofficial spending.  Although few new weapon
systems have been procured, these systems, primarily for the Air
Force and the Navy, provide capabilities for more sustained,
longer-range military operations.  This small amount of modern
weapons combined with better training, the formation of rapid
reaction units, and better command, control, and communication, and
logistics has benefited only a few military units.  Additionally,
China continues to conduct nuclear tests as part of its effort to
modernize its nuclear forces.  There are doubts about China's ability
to absorb, operate, and maintain the new technologies and weapons
needed to modernize its armed forces.  Further, the mere possession
of modern weapons, platforms, and sensors (radars, night vision
devices, etc.) does not necessarily create combat effectiveness. 
These new, but limited, capabilities could be used to stop internal
strife or to conduct limited operations in areas such as the South
China Sea.  However, it is not clear that either of these
possibilities, alone, is driving China's current modernization
effort. 


REGIONAL DEFENSE SPENDING,
MODERNIZATION, AND DIALOGUE
============================================================ Chapter 3

For more than a decade, most Asian nations have increased their
defense spending and embarked on significant force modernization
programs.  This trend has continued in recent years, despite a
generally less-threatening post-Cold War regional security
environment.  Annual defense spending in the region rose
substantially between 1987 and 1993.  At the same time, however,
defense spending as a percentage of GNP fell or remained constant for
most of these nations as a result of their remarkable economic
growth.  Most force modernization programs in the region have
emphasized the acquisition of (1) communication, intelligence, and
electronic warfare systems; (2) multirole fighter aircraft, maritime
patrol aircraft, and modern naval surface combatants, all armed with
antiship missiles; (3) modern diesel-electric submarines; and (4)
rapid deployment forces.  The net result of these modernization
programs has been a substantial enhancement of some Asian nations'
formerly quite limited power projection capabilities. 

Multiple factors interact to influence Asian nations' increased
defense spending and force modernization, according to Asian
officials we met with.  These factors include (1) concerns about the
diminishing U.S.  military presence in the region, which has created
uncertainty about the emerging regional security structure; (2)
unresolved international sovereignty and territorial disputes; (3)
increased emphasis on future security issues, specifically the
protection of maritime resources; (4) the acquisition of advanced
military technologies for industrial development; (5) the increased
availability and low prices of advanced weapons on the international
arms market; and (6) sustained economic prosperity, which provides
increased budgetary resources for modernization.  Although many Asian
nations are uneasy about China's increasing military power and its
strategic intentions, most regional force modernization programs
predate China's recent increases in defense spending.  Moreover, many
Asian nations view China's increasing military power as threatening
only in the context of a diminishing U.S.  military presence.\1 For
now, concerns about China's increasing military power appear
secondary to other, more immediate regional concerns about China--for
example, the potential that millions of Chinese refugees will flood
across their borders if China's economic reforms fail.  Multilateral
dialogue and the reopening of military talks between China and the
United States may enhance regional stability. 


--------------------
\1 In 1990, 135,000 military personnel were stationed in the region
compared to 109,440 in the region in 1993. 


   ASIAN NATIONS' DEFENSE SPENDING
   HAS INCREASED
---------------------------------------------------------- Chapter 3:1

Regional defense spending rose substantially between 1987 and 1993. 
However, as figures 3.1 and 3.2 show, the current levels and recent
rates of increase in official defense spending vary widely within the
region.  At $39.7 billion, Japan's 1993 defense budget was over three
times as large as Korea's, the second largest regional defense budget
at $12.1 billion.  At $7.5 billion, China's official defense budget
was fourth largest, just behind Taiwan's $10.5 billion budget. 
Although Thailand, Singapore, Malaysia, Indonesia, and Pakistan had
the lowest defense budgets in 1993, their budgets increased in real
terms by 34.5, 53.6, 89.6, 10.6, and 27.1 percent, respectively,
compared to 1987.  Comparing the same periods, Taiwan, South Korea,
and Japan also showed substantial increases in their defense budgets
of 24.1, 35.9, and 16.8 percent, respectively.  Meanwhile, the
defense budgets of India and the United States fell by about 10 and
28 percent, respectively (the 1993 U.S.  defense budget was $259
billion).  In conjunction with declining defense spending in the
United States, Europe, and the former Soviet Union since 1989, these
increases in Asian defense spending have doubled the region's share
of world military expenditures over the decade. 

   Figure 3.1:  1993 Official
   Defense Budgets of Selected
   Asian Nations Compared to China

   (See figure in printed
   edition.)

   Figure 3.2:  Percent Changes in
   the Official Defense Budgets of
   Selected Nations Compared to
   China Adjusted for Inflation,
   1987 versus 1993

   (See figure in printed
   edition.)

Defense spending as a percentage of GNP fell for most Asian nations
during the decade, even as total defense spending rose substantially. 
In Asia, defense spending as a percentage of GNP fell from an average
of about
8.4 percent to about 6.2 percent.  As a matter of policy, Japan's
defense spending remained around 1 percent of GNP over this period,
but rose from $21.9 billion to $32.6 billion because of Japan's rapid
economic growth.  The same is true for Singapore, where government
policy fixes defense spending at about 5 percent of the GNP. 


   ASIAN NATIONS ARE MODERNIZING
   MILITARY FORCES TO RESPOND TO
   POTENTIAL REGIONAL CONFLICT
---------------------------------------------------------- Chapter 3:2

Force modernization is underway in many countries in the region,
along with economic and political progress.  Asian nations have
concluded that the current (uncertain) world situation requires
greater preparation for limited local wars and unanticipated low
intensity conflicts, and that these contemporary wars and conflicts
require quick-reaction forces structured around high technology arms
and equipment.  The conduct and outcome of the last Arab-Israeli,
Falkland Islands, and Persian Gulf wars significantly influenced
Asian nations' military thinking in this regard.  As a consequence of
this influence, regional conventional force modernization has
emphasized, with few exceptions, the acquisition of the following
items: 

  national command, control, and communication systems, including the
     construction of national command centers and headquarters,\2 and
     the development of national defense planning staffs, independent
     operations concepts and doctrines, and national communication
     systems and facilities;

  national technical intelligence systems, including electronic and
     signal intelligence capabilities to provide real-time
     intelligence for enhanced maritime surveillance and for
     deploying appropriate electronic warfare capabilities against
     hostile forces;

  electronic warfare capabilities, particularly for modern naval
     surface combatants, with Japan leading the trend;

  multirole fighter aircraft, such as U.S.-built F-16 Falcons and
     F/A-18 Hornets, French-built Mirages, and Russian-built MiG-29
     Fulcrums;

  maritime reconnaissance/surveillance aircraft, such as U.S.-built
     P-3 Orions, E-2C Hawkeyes, and C-130Hs; German-built F-50 and
     F-27 Maritime Enforcers; and French-built Dornier-228s;

  modern naval surface combatants, including a light aircraft carrier
     for Thailand, Aegis-equipped destroyers for Japan, over 100 new
     frigates, and over 100 new corvettes and patrol vessels;

  antiship missiles, such as U.S.-built Harpoons or Penguins,
     French-built Exocets, Chinese-built C-801s, and Taiwan-built
     Hsiung Feng IIs, deployed on aircraft and surface combatants;

  diesel-electric submarines, including Australia's Collins-class and
     German-type 209s; and

  rapid deployment forces (fully mobile, especially adapted for
     movements by air, equipped with the necessary firepower and the
     latest technology) and the cargo/transport aircraft to move
     them. 

The net result of this force modernization has been a considerable
enhancement of Asian nations' potential power projection
capabilities, which formerly were quite limited.  As in the case of
China, the mere possession of modern systems does not necessarily
mean they can be used effectively.  For the most part, this force
modernization appears to be consistent with regional countries'
defense needs and emphasis on self-reliance.  Figure 3.3 shows the
size of several Asian nations' militaries, inventories of some types
of weapons, and an indication of how many of those systems are
considered advanced. 

   Figure 3.3:  1994 Military
   Holdings in Select Asian
   Nations

   (See figure in printed
   edition.)

\a Advanced systems are at least mid-1960's design with advanced
technologies, such as laser range finders for tanks. 

Source:  TASC (The Analytical Sciences Corporation). 


--------------------
\2 For example, the Japan Self-Defense Force is building a new
headquarters in Tokyo, South Korea is building a new military
headquarters in the center of the country at Taejon City, and
Singapore has built a new Ministry of Defense headquarters. 


   MULTIPLE FACTORS INFLUENCE
   ASIAN NATIONS' DEFENSE SPENDING
   AND MODERNIZATION
---------------------------------------------------------- Chapter 3:3

Multiple factors shape Asian nations' defense spending and force
modernization efforts.  Underpinning the regional force modernization
is the sustained high rates of economic growth in many Asian
countries, which substantially increased budgetary resources.  Other
factors include perceptions of diminished U.S.  military commitment
to the region, which has created uncertainty about the emerging
regional security structure; unresolved international sovereignty and
territorial disputes involving most regional states; increased
emphasis on external security issues, specifically protection of
exclusive economic zones and their maritime resources; the
acquisition of advanced military technologies to speed civilian and
military industrial development; the increased availability and low
prices of advanced weapons in the international arms market; and
improving national or military prestige.  Due to Asia's diversity of
cultures, different levels of political and economic development, and
lack of a common perception of military threat, some factors are more
salient than others in each country. 


      PERCEPTION OF DIMINISHED
      U.S.  MILITARY PRESENCE
-------------------------------------------------------- Chapter 3:3.1

Asian nations' perception of a slow, but continuous, decrease of U.S. 
military commitment creates uncertainty within the region about the
nature of the emerging, post-Cold War security structure.  Asian
nations are concerned that the current, generally favorable regional
security environment will prove transitory.  Major security crises
could spring from North Korea's nuclear aspirations, social unrest in
China, hostilities in the South China Sea, renewed civil war in
Cambodia, or other intraregional tensions. 

The perception of a reduced U.S.  military commitment has created a
heightened awareness among Asian nations of the need for
self-reliance or national resiliency in security matters.  For most
regional countries, increasing self-reliance involves a primary
emphasis on defense of maritime approaches and a redirection of
defense planning away from internal counterinsurgency warfare. 
Self-reliance for many of these nations translates into independent
surveillance, warning, and intelligence capabilities to monitor
regional developments, especially in the maritime approaches.  These
requirements for self-reliance are reflected in Asian nations'
current force modernization programs. 

The Asians' perception of a reduced U.S.  commitment to the region
originated with President Nixon's 1969 Guam Doctrine, which states
that the United States will look to Asian nations to be primarily
responsible for their own defenses.  These perceptions were
reinforced by a number of events, including

  the subsequent U.S.  pullout from Vietnam and Indochina;

  President Carter's decision (later reversed) to withdraw U.S. 
     ground forces from South Korea;

  U.S.  requests for Japan and South Korea to assume a greater role
     in their own defense;

  the 1992 U.S.  East Asian Strategic Initiative, which called for a
     phased reduction in U.S.  forces in the Pacific;\3

  the closure of U.S.  bases in the Philippines\4 ;

  post-Cold War cuts in U.S.  defense spending and military
     capabilities worldwide; and

  U.S.  reluctance to commit forces to peacekeeping operations in
     Cambodia. 

Despite U.S.  pledges to maintain a military presence in Asia, these
events have created the general regional perception of a declining
U.S.  military commitment to the region.  Many Asians harbor doubts
about the willingness of the U.S.  government--faced with decreasing
congressional and public support for foreign interventions--to commit
forces to the region in circumstances of future tension or conflict. 
Asian nations are convinced that U.S.  military presence will
continue to diminish, creating a power vacuum that China and Japan,
or perhaps India or Russia, will attempt to fill. 

In the view of many Asian officials and scholars we interviewed, the
U.S.  military presence in Asia has

  greatly reduced regional uncertainty and prevented any dramatic
     escalation of regional security tensions;

  provided a guarantee of ultimate security against major threats to
     the region; and

  fostered a relatively benign security environment with high levels
     of local confidence, which has facilitated the region's rapid
     economic and social development. 

The end of the Cold War has not substantially changed the perceived
role or value of the U.S.  military presence in the region.  Asian
nations conclude that efforts to solve security problems in Asia
continue to depend heavily on U.S.  political will and military
capabilities. 

Officials and others we interviewed throughout Asia are concerned by
the prospect of either China or Japan emerging as an independent
maritime power to replace the United States.  Their concerns about
Japan are based on its history of militarism and what many perceived
as a cultural tendency toward aggression.  Asian nations view the
U.S.  military presence and the U.S.-Japan security alliance as a
check on Japanese militarism and will accept a major regional role
for Japan only within the framework of that alliance.  Asian nations
are concerned that Japan's defense of its sea lanes out to 1,000
nautical miles from Tokyo might initiate a process leading to the
development of an independent Japanese defense capability.  In
general, Asian nations fear that Japan might add military muscle to
its economic domination of the region, and they will not accept a
condition where Japan's regional military role becomes commensurate
with its economic role. 

Asians' concerns about China are based on its military modernization,
its issuing of the Territorial Waters Law in 1992 declaring its
sovereignty over the South China Sea and other disputed areas, and
its continued unwillingness to renounce the use of force against
Taiwan.  According to some Asian officials and studies, China remains
a self-contained, inward-looking nation, often more reluctant than
other nations to accept constraints on its own actions in the
interest of wider regional community.  It retains a rigid and highly
centralized political system that is less subject than most others in
the region to the popular pressures that can modify a government's
international conduct.  Uncertainties about China's future
international posture are amplified by uncertainties about its future
internal affairs, particularly the outcome of its impending
leadership transition.  However, according to other Asian officials
and studies, China's strong emphasis on economic development and
international trade, positive attitude toward foreign investment, and
the free flow of capital and people in and out of China provide
substantial evidence that it will develop as a peaceful and
constructive member of the region.  According to these more
optimistic sources, China's evident determination to become a fully
integrated member of the region's dynamic economy requires it to
become equally cooperative on security matters.  Also, they believe
that China's economic interest in trade and investment will act as a
strong incentive to cooperate with other nations to keep the peace
and maintain stability. 


--------------------
\3 Recognizing that the 1992 report was viewed as a plan of
reduction, the 1995 report stated a clear commitment to maintain
100,000 military personnel in Asia for the foreseeable future. 

\4 Until 1992, under the Military Bases Agreement of 1947, as
amended, the United States maintained and operated major facilities
at Clark Air Base, the Subic Bay naval complex, and several small
subsidiary installations.  About 15,000 military personnel were
stationed in the Philippines (not including the Seventh Fleet
personnel temporarily ashore). 


      UNRESOLVED SOVEREIGNTY AND
      TERRITORIAL DISPUTES
-------------------------------------------------------- Chapter 3:3.2

According to numerous sources, while the end of the Cold War reduced
the likelihood of global war, this development probably increased the
likelihood of local wars and conflicts because it removed the
tempering mechanism that often served to keep regional tensions under
control.  Asian nations face numerous sources of tension involving
competing sovereignty claims, unresolved territorial disputes, and
challenges to government legitimacy.  The contentious sovereignty and
territorial disputes in the South China Sea have lately received much
attention, but numerous other disputes exist in other parts of Asia,
as discussed in chapter 1.  The perception of a diminishing U.S. 
military commitment also increases the likelihood that regional
tensions could erupt into open conflict. 


      INCREASED EMPHASIS ON
      EXTERNAL SECURITY ISSUES
-------------------------------------------------------- Chapter 3:3.3

As a result of increased economic prosperity and effective
counterinsurgency programs, many Southeast Asian nations face
diminished internal threats to their security and legitimacy.  At the
same time, these nations find their continuing and future economic
prosperity increasingly tied to the safety of navigation and the
maritime resources contained in their exclusive economic zones,\5
which are often much larger than their land areas.  Diminished
internal threats have allowed many Southeast Asian nations to
restructure their military forces to focus on monitoring and policing
their exclusive economic zones against piracy, poaching, smuggling,
environmental damage, and other threats.  Thus, a focus on modern
maritime and air forces to support new economic and security
interests in the surrounding seas has replaced an earlier emphasis on
ground forces oriented to internal security. 

As maritime resources, territories, and sea lanes have become more
important, Asian nations have sought to protect them from potential
harassment from air or sea.  As a result, they have sought to acquire
maritime patrol and response capabilities needed to intercept
intrusions into areas of interests, to help protect offshore
territories and resources, to keep hostile forces away from their
territories, and to prevent resupply.  For example, in December 1993,
the Philippine Navy announced that it would deploy more forces to the
country's major fishing grounds to deter poaching, piracy, and
illegal fishing. 

In addition to acquiring new forces, some regional states are
exploring ways to cooperate to protect their joint interests in the
region.  Such efforts include proposals for joint
Indonesia-Malaysia-Singapore patrols in the Straits of Malacca to
deter piracy and environmental damage.  Another effort is Australia's
proposal for military cooperation arrangements for sea-lane security
in Southeast Asian waters. 


--------------------
\5 These economic and security interests took on additional
importance with the implementation of the 1982 United Nations Law of
the Sea Convention, which for the first time defined the concept of
an archipelagic state (such as Indonesia and Malaysia) and allowed
many regional states to claim 200-nautical-mile exclusive economic
zones in the regional seas. 


      ACQUISITION OF ADVANCED
      MILITARY TECHNOLOGIES FOR
      INDUSTRIAL DEVELOPMENT
-------------------------------------------------------- Chapter 3:3.4

According to some U.S.  and Asian officials and academics, some Asian
nations desire to acquire advanced military technologies to
facilitate the development of indigenous military and civilian
production capabilities.  As we reported in 1994, military and
civilian manufacturing activities in some Asian nations are closely
connected.\6 A 1988 study of Sino-Japanese-U.S.  military technology
relations noted that Japanese officials often elected to produce
sophisticated U.S.  weapon systems in Japan instead of buying them
from U.S.  sources even though the unit- cost of such items produced
in Japan was driven higher because Japan gained more than it lost
over time by procuring greater access to U.S.  military technology
and by significantly reducing its research and development (or
"learning curve") expenditures in the process.\7

Many of the recent acquisitions of advanced weapon systems in Asia
have a clear technology transfer component, for example, Malaysia's
widely publicized purchases of F/A-18s and MiG-29s.  For both sales,
Malaysian officials negotiated technology transfer agreements,
including the development of a MiG-29 maintenance facility in
Malaysia.  Indonesia's widely publicized purchase of 39 ships from
the former East German Navy was driven by the Minister of Research
and Technology's plans to establish a modern ship repair facility at
Surabaya, not by military requirements.  In fact, many high-level
Indonesian military officers opposed the purchase because, in their
opinion, the country would have received better value for the money
by purchasing new modern naval surface combatants from a Western
European source. 


--------------------
\6 Asian Aeronautics:  Technology Acquisition Drives Industry
Development (GAO/NSIAD-94-140, May 4, 1994). 

\7 Tow, William T., Sino-Japanese-US Military Technology Relations,
Institute of Strategic and International Studies (ISIS) Malaysia. 


      INCREASED AVAILABILITY AND
      LOW PRICES OF ADVANCED
      WEAPON SYSTEMS
-------------------------------------------------------- Chapter 3:3.5

The glut of weapons on the current world arms market facilitates
regional force modernization.  With the end of the Cold War, the
defense industries of Russia, the United States, Europe, and other
nations are competing to supply military items to buyers throughout
Asia, specifically air, naval, and communications technologies. 
Russia, with its economy in difficulty and in need of foreign
exchange and imports, has been especially willing to lower prices and
accept barter trade for modern weapon systems.  Even regional arms
manufacturers are competing for arms export business.  For example,
leading Australian defense electronics contractors have formed a
joint working group to promote exports of command, control,
communications, and intelligence equipment to Southeast Asia.  China
is also competing in the regional arms market, having sold ships to
Thailand and aircraft to Pakistan.  In short, the increased
availability and low cost of advanced weapon systems will result in
the acquisition of a greater number of such systems in the region
than would otherwise be the case. 


      IMPROVING NATIONAL OR
      MILITARY PRESTIGE
-------------------------------------------------------- Chapter 3:3.6

In some Southeast Asian nations--notably Indonesia and Thailand--the
armed forces play a significant political role.  In such an
environment, the purchase of advanced military equipment is seen as
enhancing national prestige.  For example, prestige is reportedly a
major factor in the Royal Thai Navy's proposed purchase of
diesel-electric submarines and an aircraft carrier.  Likewise,
prestige is believed to be a major factor in Indonesia's purchase of
F-16 aircraft. 


   ASIAN NATIONS' CONCERNS ABOUT
   CHINA
---------------------------------------------------------- Chapter 3:4

For many Asian nations, the potential threat of Chinese military
action (spawned by increasing military power) is of small immediate
concern.  More important issues seem to be the potential for large
numbers of Chinese refugees, economic competition from China, and
political intervention by overseas Chinese communities. 


      MILLIONS OF CHINESE REFUGEES
      MAY FLEE TO NEIGHBORING
      COUNTRIES
-------------------------------------------------------- Chapter 3:4.1

A concern for many Asian nations is the possibility that China's
economic reforms will fail or that the stress of its impending
leadership transition will lead to internal fighting that could
result in a flood of millions of Chinese refugees to neighboring
countries.  Such migration would raise urgent and perhaps acute
economic and social problems for many of China's neighbors.  In
support of their concerns, some Asian officials point to signs of
instability caused by China's rapid and uneven economic growth. 
Several Asian officials and a study of the current situation in China
noted a growing surplus of unemployed workers, including a large
number of economic- and opportunity-seeking migrants from China's
depressed rural or inland areas. 

In general, many Asian officials are sensitive about the problem of
large-scale unplanned population movements in the region.  Recent
experience gives them the sense of a continuing problem with large
numbers of displaced people, many of whom cannot or will not be
repatriated to their homelands.  For example, after the fall of
Vietnam, Laos, and Cambodia to communist forces, waves of Indochinese
refugees crossed the border into Thailand or took to boats in the
South China Sea and the Gulf of Thailand, creating social and
economic problems for many Southeast Asian nations. 


      ECONOMIC COMPETITION FROM
      CHINA
-------------------------------------------------------- Chapter 3:4.2

Another concern of several Southeast Asian nations is the possibility
that China's rapid economic development will undermine their
prosperity by diverting critical foreign investment and firms seeking
low-cost, semiskilled labor.  Officials from several Southeast Asian
nations noted that their nations' economies are still very dependent
on foreign investment for their continued growth and prosperity,
specifically investment by Japanese and Western firms seeking
low-cost, semiskilled workers.  Officials from these countries argue
that any significant diversion of foreign investment to China would
significantly reduce their potential economic growth.  Indeed,
various sources show that the overseas Chinese community accounts for
a considerable portion of the foreign investment pouring into China
in recent years.  In addition, one report expressed concerns that
Southeast Asia's lucrative, but increasingly competitive, markets
have been flooded with Chinese-made consumer goods, many produced in
China's state-subsidized defense sector factories. 


      OVERSEAS ETHNIC CHINESE
      COMMUNITIES
-------------------------------------------------------- Chapter 3:4.3

An additional concern of some Southeast Asian officials and others we
interviewed was the possibility that China might intervene in their
domestic affairs through the cultural and nationalistic movements of
overseas Chinese communities.  This concern is based in part on these
communities' support for PRC-supported communist insurgencies,
although there has been no recent evidence of this kind of activity. 
Burma, Cambodia, Indonesia, Malaysia, the Philippines, Thailand, and
Vietnam have large ethnic Chinese minorities, both immigrant and
native born.\8 In most cases, these ethnic Chinese communities
maintain a cultural separateness and language.  In part as a result
of these factors and racial tensions, ethnic Chinese communities have
often been the focus of deep-rooted suspicions of the majority in
many Asian nations, which were intensified during the Cold War when
ethnic Chinese communities were the focus of Chinese-sponsored
communist insurgencies. 

While these insurgencies have been defeated, many Southeast Asian
officials remain suspicious of overseas Chinese and concerned that
China could intervene in their domestic affairs through these
communities.  China's diplomatic interventions, while legitimate
under international practice according to State Department officials,
have increased the worries of some of its neighbors.  For example,
China demanded that the Indonesian government take appropriate steps
to protect the ethnic Chinese community after recent worker riots in
Sumatra that were largely directed at ethnic Chinese factory owners. 


--------------------
\8 Singapore, which has a substantial Chinese majority, is the only
Southeast Asian nation that does not fit this demographic pattern. 


   ASIAN NATIONS' SUPPORT DIALOGUE
   ON SECURITY ISSUES
---------------------------------------------------------- Chapter 3:5

Although the view among many Asians is that China does not appear to
have hostile intentions toward its neighbors, there is concern that
China's behavior could change as its military capabilities change. 
To help diffuse tensions that could escalate or be exacerbated by the
modernization of regional forces, Asian nations are moving toward
more multilateral dialogue. 

Regional security dialogue commenced with the Manila meeting of the
Association of Southeast Asian Nations (ASEAN) Ministerial in July
1992 and since then has gained wide acceptance beyond the subregion
to include China and the United States.  Historically, Asian nations
have relied on bilateral, rather than multilateral approaches to
protect their security interests.  The community is diverse with no
common enemy, and nations harbor long-term apprehensions about each
other.  The dialogue is essentially preventive diplomacy designed to
bring together potential adversaries to ease tensions and eliminate
misconceptions.  Thus, some Asian experts envision that future
discussion may focus on territorial claims and military budgets. 
China, which was invited to participate in the 1994 ASEAN Regional
Forum held in Bangkok, made it clear that while it supports a
regional security mechanism, it would not participate in a forum that
would be used to "gang up" on it. 


   THE UNITED STATES IS TAKING
   STEPS TO ENGAGE CHINA
---------------------------------------------------------- Chapter 3:6

In addition to the multilateral discussions, the U.S.  government
took steps in 1993 to reengage China in bilateral military dialogue
as part of its Asia-Pacific strategy.  The U.S.  strategy for a "new
Pacific community" recognized the growing importance of Asia in U.S. 
security and prosperity by linking security requirements with
economic realities and U.S.  concerns for democracy and human rights. 
The strategy called for, among other things, stronger efforts to
combat the proliferation of weapons of mass destruction on the Korean
Peninsula and in South Asia, and the development of new arrangements
to meet multiple threats and opportunities.  U.S.  officials
recognized that reopening military dialogue with China was key to
enlisting China's cooperation on security issues pertaining to North
Korea, arms control, and the disputed Spratly Islands. 

The best way for the United States to influence Chinese behavior on
several issues may be through the PLA, according to U.S.  government
officials and others we interviewed.  They pointed out that the PLA
is a major player within several areas of great concern--regional
stability, nuclear proliferation, and arms control and the PLA
clearly has influence in controlling Chinese military exports.  Some
defense analysts believe that some defense exports may even occur
without foreign ministry approval.  They indicated that the PLA must
be convinced its interests are served by providing greater insight
into its defense budget and policies. 

According to U.S.  officials, severing military dialogue with China
has been costly to both sides.  China lost prestige and access to
U.S.  training and technology.  But the United States lost the
opportunity to influence and gain the assistance of the PLA on a
number of issues of concern to the United States, such as the
proliferation of nuclear weapons. 

>From November 1993 through October 1994, several high-level defense
meetings between the United States and China took place.  Dialogue
began when the Assistant Secretary of Defense for International
Security Affairs proposed several specific initiatives to lay the
foundation of a new program of military contacts with the PLA,
including academic exchanges, high-level visits, attendance at
conferences, and peacekeeping-related activities.  In March 1994,
senior PLA leaders in Beijing met with the Under Secretary of Defense
for Policy to discuss greater military cooperation, including port
calls and joint training exercises for U.N.-sponsored humanitarian
rescue missions.  But talk of whether or not to renew China's Most
Favored Nation status, in light of limited progress in human rights,
remained in the forefront, delaying further military contact. 

Historically, the U.S.  military relationship with China has never
been allowed to proceed ahead of the political one.  No further
action was taken until mid-1994, shortly after the de-linking of
human rights from the decision to approve Most Favored Nation trading
status.  Meetings in August and October between the Secretary of
Defense and senior PLA leaders continued to emphasize common security
concerns (for example, a nuclear-free Korean Peninsula), and both
sides agreed to continue to hold meetings on a number of military
issues, including defense strategies.  Contact at a lower level with
the younger PLA officers through exchanges and educational programs
are beginning to take place.  It will take time to build a mutually
trusting relationship, but dialogue between the two sides indicates
steady progress is being made.  One U.S.  official commented that the
benefits of military dialogue are already emerging.  He cited as an
example the PLA's restraint in criticizing the United States on
recent changes in U.S.-Taiwan policy.\9


--------------------
\9 For example, Taiwan's office in the United States will be renamed
from Coordination Council for North American Affairs to the Taipei
Economic and Cultural Representative Office, and higher-level U.S. 
government visits to Taiwan will be allowed. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 3:7

Most regional defense spending and force modernization is not focused
on or in direct response to China's current force modernization.  In
most cases, regional spending and modernization predates or occurs
simultaneously with China's recent efforts.  Moreover, the defense
modernization of some of China's neighboring countries is proceeding
more rapidly than China's defense modernization.  Although regional
states remain wary of China's military modernization, their most
immediate concerns regarding China center on the possibility for
millions of Chinese refugees fleeing economic or political chaos in
China, potential economic competition from China that would slow
their own economic growth, and the possibility that China might use
their ethnic Chinese communities to intervene in their domestic
affairs. 

Although many experts do not currently consider China a security
threat, in the next decade or two, China could emerge as a more
formidable power.  According to U.S.  and Asian officials, U.S. 
military-to-military dialogue with the PLA could provide important
opportunities to influence China's policies on issues where the PLA
plays a key role and usual diplomatic channels may be ineffective. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 3:8

In commenting on a draft of this report, the Departments of Defense
and State concurred with its overall content and conclusions.  Their
respective comments are presented in their entirety in appendixes I
and II. 




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================ Chapter 3




(See figure in printed edition.)Appendix II
COMMENTS FROM THE DEPARTMENT OF
STATE
============================================================ Chapter 3


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III


   NATIONAL SECURITY AND
   INTERNATIONAL AFFAIRS DIVISION,
   WASHINGTON, D.C. 
------------------------------------------------------- Appendix III:1

Joseph E.  Kelley, Director-in-Charge
F.  James Shafer, Assistant Director
Diana Glod, Evaluator-in-Charge
Hynek Kalkus, Evaluator


   FAR EAST OFFICE
------------------------------------------------------- Appendix III:2

Michael D.  Rohrback, Senior Evaluator
Michael C.  Zola, Senior Evaluator


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