RAND CORPORATION REPORT
CHINESE MILITARY COMMERCE AND U.S.
NATIONAL SECURITY


JOHN KERRY'S PRIVATE TRADE TRIP TO BEIJING
CLICK HERE TO READ THE STORY ON INSIGHTMAG.COM



PLA DONG FENG 21 ADVANCED MISSILE



ALL DOCUMENTS OBTAINED BY FEDERAL COURT ACTION SMITH V. COMMERCE 398CV716




SNIPS FROM THE RAND REPORT
According to one informed observer, a large percentage of the foreign earnings of defense-industrial companies are repatriated back to the factory or group of factories in China, in order to reinvest at the firm level, purchase new technology or alleviate some of the socials pressures currently drowing these factories in red ink, such as raising worker's wages and subsidzing other security burdens. The second major recipients are the traders themselves, who must pay for the foreign operations base and often reward themselves with large official and unofficial commissions from the transactions. The final group of recipients, the superior ministry and/or COSTIND, may extract a tax from the factories, although this money is generally assumed to be a relatively small percentage of the overall pie. In the case of the ministry level receipts, these funds are believed to be used for a wide variety of legitimate and illegitimate purposes, ranging from modernization of industrial plant to the padding of the Swiss bank accounts of top ministry officials. For COSTIND, the case is much the same, although the funds might also be used to fund defense conversion activities, technology purchases, or R&D. With all these "taxes," "commissions," and bureaucratic handouts along the way, it is very unlikely that any significant sums of money are transferred to the military side of the system.

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.















SELLING OUT TO THE CHINESE ARMY - INSIGHT MAGAZINE!
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DIA REPORT ON CHINESE DEFENSE INDUSTRY



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