Where do these profits go and what are they used for? Most analysts belive that military enterprises are permitted to keep a substantial proportion of their earnings. According to Tai Ming Cheung, the amount retained varies according to the type of military enterprises and the profitability of the operation, but they are generally able to retain 20-40 percent of their profits for reinvestment and other uses. The remaining moneies are divided between the General Logistics Department (40-60%), regional and provincial military authorities (10-20%) and the local PLA unit that owns the enterprise (10-20%). The profits passed to the local PLA unit, in turn, are divierted to two general areas. Some of the money is used for training, as well as to improve the living standards of the troops, including barracks construction and repair, food subsidies, and medical coverage. Other funds, however, are used for more corrupt purposes, such as paying for lavish meals, expensive foreign luxury automobiles, and Swiss bank accounts.
For those who oppose any subsidization of the PLA, there is thus ample evidence that profits from PLA-affiliated enterprises directly benefit the main-line forces of the Chinese military, although the actual amount is not very substantial in the context of the overall budget.
American companies in China sometimes seek to transfer dual-use technology to their Chinese partners, some of who have military connections.
The Chinese have even enlisted former government officials to help them. Retired General Richard Secord, a member of the Reagan national security team, helped COSTIND's Yuanwang Corporation to create Technology Selection Inc. in Mountain View, California, which plans to acquire dual use technology and ship it to China.
The most well known example involves a McDonnell-Douglas joint venture relationship with China National Aero-Technology Import and Export Corporation (CATIC). In late 1996, a GAO investigation concluded that sophisticated machine tools, sold to the Chinese for use in the production of commercial aircraft parts, had been illegally transferred to AVIC's Nanchang Aircraft Factory, a defense-industrial factory which produces fightere aircraft and cruise missile for the PLA as well as a variety of civilian products. According to knowledgeable technical officials, this equipment, which had been used in a Columbus, Ohio plant to assemble Titan and MX missiles, would have significantly upgrade the capacity fo the Chinese aircraft or missile industry to produce high-tolerlance components.
The most notorious was the sale of broadband telecommunications technology to HuaMei Communications Ltd., a joint venture between SCM Brooks Telecommunications, a limited U.S. partnership, and Galaxy New Technology, a Chinese company whose primary shareholder was COSTIND.
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