Other Approaches to Civil-Military

Integration: The Chinese and Japanese

Arms Industries

March 1995

OTA-BP-ISS-143

GPO stock #052-003-01408-4
Recommended Citation: U.S. Congress, Office of Technology Assessment, Other

Approaches to Civil-Military Integration: The Chinese and Japanese Arms Industries,

BP-ISS-143 (Washington, DC: U.S. Government Printing Office, March 1995).
Foreword

A

s part of its assessment of the potential for integrating the civil and

military industrial bases, the Office of Technology Assessment considered how the People’s Republic of China (PRC) and Japan, two

Asian states with sizable defense industries, have succeeded in

achieving significant levels of civil-military integration (CMI).

CMI involves the sharing of fixed costs by promoting the use of common

technologies, processes, labor, equipment, material, and/or facilities. CMI can

not only lower costs, but in some cases, it can also expedite the introduction of

advanced commercial products and processes to the defense sector.

The paper is divided into two sections, one on the PRC and one on Japan.

Each section describes the structure and management of the respective defense

industrial base and then compares it with its U.S. counterpart. The paper then

assesses the degree to which lessons from the PRC and Japanese cases can be

applied to the U.S. defense technology and industrial base (DTIB).

Although the political and security situations of the PRC and Japan, as well

as their CMI objectives, differ from those of the United States, several interesting observations can be made. The Japanese, for example, with a limited defense market and an American security guarantee, emphasize dual-use design

as well as the commercial aspects of many defense developments. Dual-use

design and high quality are enhanced in some instances by Japanese personnel

policies that combine design and manufacturing personnel into product groups

that understand the entire design, development, and manufacturing process.

The PRC’s experience appears to have less application to the United States

because its defense technology is far less sophisticated and large segments of

the Chinese economy, and almost all of the Chinese DTIB, remain under state

control. Still, the PRC’s CMI effort is of interest in its potential impact on economic modernization of the PRC and the potential for technology transfer into

the future PRC defense structure.

This report responds to a request from the House Armed Services Committee to investigate the potential for deriving lessons from foreign states to further American efforts at increasing integration in the American DTIB. As with

all OTA studies, the content of this background paper is solely the responsibility of the Office of Technology Assessment.

ROGER C. HERDMAN

Director

Ill
Reviewers

OTHER APPROACHES TO CIVIL-MILITARY INTEGRATION:

THE CHINESE AND JAPANESE ARMS INDUSTRIES

Arthur Alexander

Japan Economic Institute

Washington, DC

Michael Chinworth

TASC

Arlington, VA

Paul H.B. Godwin

National War College

Washington, DC

Ken Holtel Gregg Rubinstein

Office of the Secretary of Defense Nomos Corp.

The Pentagon Washington, DC

John Nixon Richard Suttmeier

Defense Intelligence Agency Pleasant Hill, OR

Washington, DC

Frank Taparro

Jonathan Pollack Office of the Secretary of Defense

RAND Corp. The Pentagon

Santa Monica, CA

James Przystup

The Heritage Foundation

Washington, DC

iv
Peter Blair PRINCIPAL STAFF

Assistant Director, OTA Jack Nunn

Industry, Commerce & Project Director

International Security Division

Alan Shaw DEAN CHENG

Analyst

Program Director

International Security and Space

Program

Project Staff

ADMINISTRATIVE STAFF

Jackie Robinson-Boy kin

Office Administrator

Ellis Lewis

Administrative Secretary

Don Gallagher

Secretary
Preface

A

merica’s national security and economic well-being have long

rested on its technological and industrial prowess. Over the

four-decade-long Cold War, the nation’s defense technology and

industrial base (DTIB) became isolated from the commercial

base. That isolation raised the cost of defense goods and services, reduced the Department of Defense’s access to commercial technologies

with potential defense application, and made it difficult for commercial

firms to exploit the results of the nation’s extensive defense science and

technology investments.

The integration of defense and commercial technology and industry

(often termed civil-military integration—CMI) is advocated as a means

to preserve the U.S. defense capability in the face of budget reductions.

Under CMI, common technologies, processes, labor, equipment, material, and/or facilities are used to meet both defense and commercial needs.

This background paper examines how the People’s Republics of

China and Japan, two countries with sizable defense industries, have

succeeded in achieving significant levels of CMI.

It is a supplement to a full report, Assessing the Potential for CivilMilitary Integration, released in September 1994, that assesses the potential for greater CMI in the United States, its benefits, and implementing steps.

Despite several previous initiatives to promote integration, much of

the U.S. DTIB remains isolated. Concerns over possible costs and risks

to modifying government acquisition to implement CMI have hindered

change. The report Assessing the Potential for Civil-Military Integration considers three broad policy areas—policies to increase commercial

purchases and practices, policies to increase integrated processes, and

policies to improve operations in that portion of the DTIB likely to remain segregated—that might lead to greater CMI.

OTA found that some technologies, industrial sectors and product

tiers are more amenable to integration than others, and indeed, integration is already occurring in many of the tiers and technologies most amenable to CMI. Increasing CMI will depend in part on the product, process, and tier involved. Prime contractors performing systems integration

are less able to integrate their products and processes with commercial

counterparts than are producers of components and subcomponents. On

the other hand, services appear particularly amenable to commercial purchases.

vii
There are clear benefits to increasing CMI. OTA’s analysis indicated

significant cost savings resulting from increased use of commercial

items and integrating R&D, production, and maintenance processes.

Even greater savings might come from changes in military systems design. Further, CMI may improve defense access to new technology in the

future.

There are, however, obstacles to further CMI. One major obstacle is

the sheer complexity involved. Inmost instances, the barriers to CMI are

sufficiently intertwined to demand a comprehensive (and complex) set

of policies if projected benefits are to accrue. Efforts to promote integration therefore carry costs and risks as well; one of the most discussed

risks is that commercial goods and services may fail in military operations. Increased CMI may also result in greater dependence on foreign

goods and services. Changes in oversight might result in increased

instances of fraud and abuse. Alternatives exist to deal with such risks,

but efforts to increase CMI must carefully balance expected benefits to

the DTIB and the economy with potential pitfalls resulting from those

same policies.

Assessing the Potential for Civil-Military Integration outlines three

strategies for consideration. A Readjustment Strategy involves the least

risk but may generate the fewest benefits. It seeks to increase CMI modestly while retaining many of the current procedures for oversight of defense expenditures. It includes increasing commercial purchases for defense needs. The Federal Acquisition Streamlining Act of 1994 (FASA),

signed in October 1994, provides the legislative basis for implementing

much of the commercial purchase portion of a Readjustment Strategy. A

Reform Strategy, building on a Readjustment Strategy, seeks to foster

CMI more actively; changing rules to promote the integration of both

R&D and production of defense and commercial products. Finally, a Restructuring Strategy that incorporates the two earlier strategies might

gain the maximum potential CMI benefits, but would demand major

changes in future military acquisition policy, system design, and force

structure. This strategy would present correspondingly greater risks.

Both the main report and this background paper found that successful

implementation of CMI requires a long-term commitment. It involves

careful design and planning of systems, components, and subcomponents, and extends to all tiers and throughout the planning and production

process. While the potential benefits are significant, they will take time

to accrue. Patience and a steady effort are paramount requirements for

successful CMI.

Copies of the full report, Assessing the Potential for Civil-Military Integration, are available from the U.S. Government Printing Office for

$13.00 (200 pp, S/N 052-003-01394-1). Call GPO at (202) 512-1800.

For congressional requests, call OTA’s Congressional and Public Affairs Office at (202) 224-9241.

Vlll
contents

Other Approaches to Civil-Military

Integration: The Chinese and

Japanese Arms Industries 1

The People’s Republic of China 5

Japan 21

Comparison of the PRC and Japan with the

United States 36

Relevance of the Chinese and Japanese experiences

to the United States 39

ix
Other Approaches to

Civil-Military Integration:

The Chinese and

Japanese Arms

Industries

he end of the Cold War has not necessarily heralded the

end of prospects for conflict for the United States, as the

Gulf War showed. It is generally recognized that a strong

American defense-industrial base should be preserved as

insurance against potential future conflicts. There is, however,

also a desire to gain a technological and industrial “peace dividend,” through the redirection of resources from defense needs to

the civilian economy. These somewhat conflicting objectives

confront not only the United States, but also other countries. Useful lessons might, therefore, be learned from examining other

countries’ approaches to defense procurement, particularly the

degree to which their defense and commercial technology and industrial bases are integrated.

In 1994, the Office of Technology Assessment (OTA) issued

its assessment report, Assessing the Potential for Civil-Military

Integration: Technologies, Processes, and Practices.1 An earlier

OTA background paper examined the French defense industry.2

This background paper addresses the People’s Republic of

China (PRC) and Japan, which are of interest for several reasons.

First, they both have extensive defense-industrial bases that allow

them to support their militaries with predominantly domestically

produced weapons (although in both cases, many of these weap1 See U.S. Congress, Office of Technology Assessment, Assessing the Potential for

Civil-Military Integration: Technologies, Processes, and Practices, OTA-ISS-611

(Washington, DC: U.S. Government Printing Office, September 1994).

2 U.S. Congress, Office of Technology Assessment, Lessons in Restructuring Defense

Industry: The French Experience, OTA-BP-ISC-96 (Washington, DC: U.S. Government

Printing Office, 1992).

| 1
2 | Other Approaches to Civil-Military Integration

ons are based on foreign designs). Second, both

states’ defense and commercial-industrial bases

are somewhat integrated. That is, in both states, at

least some defense items are produced with the

same methods, sources, equipment, and personnel

used to produce certain civil items.3 (see box A).

Because civil-military integration (CMI) has been

suggested as one way to achieve the disparate objectives of preserving a defense-industrial base

while gaining a peace dividend, some have suggested the PRC’s and Japan’s approaches may offer useful lessons for the United States.

Secretary of Defense William Perry, for example, has shown great interest in the Chinese4 conversion effort and its effect on the national technological-industrial base by initiating several

discussions with the Chinese on the subject.5 Indeed, the Chinese have been pursuing a form of

conversion and integration since Deng Xiaoping’s

ascension to the top leadership in the late 1970s.

Although this effort has been motivated by factors

considerably different from those at play in the

United States, the Chinese effort may provide

some insights into both the benefits and pitfalls of

the conversion and integration processes.

The Japanese, meanwhile, have created an advanced economy, including technological and economic leadership in several technological sectors,

with little emphasis on military production. Indeed, the United States has sought to acquire commercial Japanese technology since at least 1980.

The relatively small Japanese military (both in

terms of absolute size and relative to the Japanese

population) enjoys the support of a fairly comprehensive defense-industrial base. Tokyo is, therefore, believed by some analysts to have successfully integrated its commercial technology and

industrial base (CTIB) and its defense technology

and industrial base (DTIB) (see figure 1).

The proportions of defense and commercial industries in the Chinese, Japanese, and American

economies differ. These differences reflect several

circumstances. Each country began the postWorld War II era with a different level of overall

technological sophistication within its economy,

as well as widely disparate economic and human

resources. As of 1950, for example, the Chinese

were the poorest of the three countries, as well as

the least sophisticated. Japan had a trained work

force but was still recovering from the devastation

of World War II, and the United States had the

wealthiest economy and the most available resources, both human and technological. In the

postwar period, Beijing, Tokyo, and Washington

each placed a different degree of emphasis on the

development of military-industrial power, relative to its commercial base. Each state’s decisions

about economic and technological resources have

yielded different results.

The PRC’s top priority, until the 1980s, was developing its military capabilities. Commercial development was slighted as the best available Chinese resources were directed toward the

development of the country’s defense industries.

With the rise of Deng Xiaoping, however, the Chinese have shifted their focus toward a more broadbased industrial-development program. Part of

this effort has involved directing much of the Chinese DTIB to produce commercial products.

On the other hand, the Japanese in the postWorld War II period have focused primarily on developing commercial technologies and industries.

This has been due to several factors. The Japanese

have pursued a more pacifist foreign and defense

policy, codified in their Constitution. This has

been possible, in turn, because of the American security umbrella that allowed the Japanese to de3 In this background paper, the modifiers “civil,” “civilian,” and “commercial” are used interchangeably when discussing the portion of

the national technology and industrial base that sells non-military goods on the basis of price.

4 In this background paper, the terms Chinese and PRC are used interchangeably.

5 B. Gertz, “Perry Approves Helping China’s Defense Conversion,” Washington Times, p. 3, Feb. 1, 1994, and S. Mufson, “U.S. To Help

China Shift Arms Output to Civil Use,” Washington Post, p. 28, Oct. 18, 1994.
The Chinese and Japanese Arms Industries | 3

There is no single definition of civil-military integration (CMI), This background paper uses the definition of CMI that is in the OTA report Assessing the Potential for Civil-Military Integration: Technologies,

Processes, and Practices, 1 There, CM I is defined as:

The process of uniting the Defense Technology and Industrial Base (DTIB) and the larger Commercial

Technology and Industrial Base (CTIB) into a unified National Technology and Industrial Base (NTIB)

Under this definition, CMI Involves the sharing of fixed costs, incurred in the course of both defense

and commercial product and process development, by promoting the use of common technologies,

processes, labor, equipment, material, and/or facilities. This includes cooperation between government

and commercial facilities in research and development (R&D), manufacturing, and/or maintenance operations; combined production of similar military and commercial items, including components and

subsystems, side by side on a single production line or within a single firm or facility; and use of commercial off-the-shelf items directly within military systems,

The desire to increase economic efficiency through reductions in redundant fixed costs may lead to

CMI. Political or social goals, particularly the preservation of existing organizations or labor pools, may

also call for CMI. In pursuit of such goals, CM I can involve the alternative use of defense facilities, infrastructure, or work forces for commercial applications when past Investments in training, experience,

R&D, equipment, and structures might be useful, even if they are not economically efficient or profitable,

CMI may occur at three levels The most thorough form of integration is at the facility level. FacilityIevel Integration Involves the sharing of personnel, equipment, and materials within a single facility In

an Integrated facility, ideally, defense and commercial goods are manufactured side by side, with differences in production processes and parts dictated solely by differences in product function

Another form of integration can occur at the firm level. Firm-level integration involves the use of

corporate resources to meet both defense and commercial needs Under this scenario, defense and

commercial product lines have access to the same management, workers, research centers, equipment, stocks, and perhaps even facilities. A corporation that has integrated facilities is, by definition,

also integrated at the firm level. An integrated firm might have segregated facilities, however, because it

might separate its operating divisions along commercial and defense product lines. Within an integrated firm, however, there are, ideally, no barriers to the flow of staff, information, and product and

process technologies among the divisions.

Sector-level integration IS somewhat more abstract than the other levels. An Industrial sector IS considered to be integrated if defense and commercial goods and services are developed from the same

pool of technologies, specialized assets, and processes. In particular, a sector IS considered integrated

if the same standards and manufacturing processes are used for both defense and commercial product

and service Iines, Sector-level integration, however, does not necessarily imply that the resulting products and services are Identical or that they are produced at the same firms or facilities

1 U S Congress, Office of Technology Assessment, Assessing the Potential for Civil-Military Integration: Technologies, Processes, and Practices, OTA-ISS-611 (Washington, DC U S Government Printing Office, September 1991),

p. 5

SOURCES: A Alexander, Japan Economic Institute, August 1994; Office of Technology Assessment, 1994
4 I Other Approaches to Civil-Military Integration

6,000 ,

1

4,000

2,000

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

400

b

100

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

PRC, Japanese, and U S GNP 1981-1991

PRC, Japanese, and U S Military Expenditures 1981-1991

PRC, Japanese, and U S Military Expenditures as Percent of GNP, 1981-1991

SOURCE Arms Control And Disarmament Agency, World Military Expenditures And Arms Transfers 1997-1992, 1994
The Chinese and Japanese Arms Industries | 5

vote more resources to commercial development

without endangering Japanese national security.

The constrained size of the Japanese Self Defense

Forces (SDF), coupled with a decision not to export arms, has also limited sales opportunities for

the Japanese DTIB. Therefore, although the Japanese have a DTIB that produces a wide variety of

products, it is neither a substantial portion of the

Japanese national technological-industrial base

(relative to its CTIB) nor the primary focus of Japanese technological development.

The United States followed a third path between these two extremes. Over the course of the

Cold War, extensive U.S. security considerations

required a large, robust DTIB. Domestic political

considerations and security doctrine emphasized

technological sophistication over sheer mass and

led to the development of advanced, and expensive, weapons. Commercial interests and the

American political structure, meanwhile, ensured

that the defense sector would not dominate the

economy. As a result, although the American

DTIB is ahead of the CTIB in some areas of

technology, the opposite is true in other areas. A

further consequence was that portions of the DTIB

became segregated from the CTIB (see box B).

This background paper focuses on integration

in the PRC and Japan. It begins by outlining the

Chinese and Japanese defense procurement systems. It then assesses the extent to which they are

affected by the same obstacles that shaped the

American system, particularly those factors that

led to segregation of the American DTIB from the

CTIB: acquisition laws and requirements, military specifications, militarily unique technologies, and emphasis on military performance. The

extent of integration at each level of production—

sector, firm, and facility—is then considered. The

paper concludes by assessing the relevance of the

Chinese and Japanese experiences to the American CMI effort.

THE PEOPLE’S REPUBLIC OF CHINA

A fundamental aspect of the Chinese People’s

Liberation Army’s (PLA) ideology is that “the

Army and the People are one.” The PLA has,

therefore, long been integrated into the general development of the Chinese economy. PLA

construction troops, for example, were responsible for developing much of the Chinese transportation infrastructure in the first decades of the

People’s Republic.6 Similarly, most Chinese amphibious forces have been integral to Chinese riverine trade on a day-to-day basis. “Typical employment of the [military] ships includes haulage

of cement for civilian construction projects, imported foodstuffs from one region to another and

bulk cargoes not easily handled by other haulage

means.”7

Such integration, however, did not initially extend to the Chinese DTIB. At the time of the

founding of the PRC, the Chinese had only a minimal defense-industrial base. This was due, in part,

to the predominantly agrarian nature of the Chinese economy in 1949, coupled with the devastation of both World War II and the subsequent Chinese Civil War. The PLA was primarily equipped

with weapons captured from either the Imperial

Japanese Army or the Nationalist Army.

With the signing of the Sino-Soviet Treaty in

1950, the Soviet Union became the primary arms

supplier of the Chinese military. Soviet aid included not only the provision of complete weapons, but also involved the transfer of Soviet-designed arms factories, among them those for

“aircraft, naval vessels, electronic equipment, and

6From 997,600 km of highway and 22,512 km of railroads in 1950 to 6,500,000 km and 40,000 km, respectively, in 1970. M.D. Eiland,

“Military Modernization and China’s Economy,” Asian Survey17(12): p. 1148, 1977.

7G. Jacobs, “China’s Amphibious Capabilities,” Asian Defence Journal, p. 64, January 1990.
6 I Other Approaches to Civil-Military Integration

As the OTA report Assessing the Potential for Civil-Military Integration: Technologies, Processes, and

Practices Indicated, the American defense technology and industrial base (DTIB) and commercial

technology and industrial base (CTIB) exhibit signs of segregation. That is, there are clearly limits to the

extent to which common technologies, processes, labor, equipment, material, and/or facilities can be

used to meet both defense and commercial needs.

Several factors have led to the segregation of the American DTIB from the CTIB. The factors that are

most relevant to this background paper are discussed below.

Acquisition Laws, Regulations, and Culture. In the four decades of the Cold War, an acquisition

culture arose in the American defense procurement system, marked by special accounting rules and

regulations. Many of these rules and regulations are the results of past acquisition abuses and scandals. The resulting network of rules and regulations has separated the DTIB from the CTIB by imposing

additional reporting burdens on any venture interested in providing defense products or services In

some cases, these reporting requirements have included demands for details (e g., technical data

rights) that are central to a firm’s competitive advantage.

Military Specifications and Standards. In pursuit of standardization after various logistical difficulties experienced in World War 11, and to ensure interoperability and uniform quality of components and

systems from diverse sources, the Department of Defense (DOD) created a plethora of military specifications and standards. The resulting system of military specifications and standards allowed the American DTIB to support a globally deployed military, operating in environments ranging from the Arctic to

the tropics. However, the system eventually came to dictate methods of production as well as performance standards, however, as it grew more bureaucratized over the subsequent 40 years. Significant

divergences between military and commercial specifications and standards developed, particularly as

commercial quality control and production processes evolved, which led to segregation of the DTIB

from the CTIB.

Militarily Unique Technologies. In some cases, segregation IS due to the militarily unique nature of

a given technology. Items are militarily unique where there is no commercial demand for a technology,

either because the technology is classified, as with weapons of mass destruction, or because the relevant systems and technologies have no commercial market, as with military explosives, missiles, and

armored fighting vehicles. In many cases where the final product may be militarily unique, however, and

particularly with advanced weapon systems, although the final product may not have a commercial

market, its components and subsystems and production technologies and processes might have commercial applications. Moreover, in the course of product and process evolution, technologies that were

once militarily unique may become integrated.

Emphasis on Military Performance. American military equipment has tended to emphasize high

performance; in particular, it has sought to gain the greatest possible performance margin. Not only is

this additional performance not necessarily sought in commercial products (e.g., commercial engines

have little need for an afterburner), it often imposes an additional cost. This additional cost was often

considered acceptable during the Cold War because the United States sought to gain military advantage through superior quality rather than through superior quantity. It is unclear the degree to which that

will remain true in the post-Cold War environment.

SOURCES: U S Congress, Office of Technology Assessment, Assessing the Potenial for Civil/Military Integration: Technologies,

Processes, and Practices, OTA-ISS-611 (Washington, D.C.: U. S. Government Printing Office, 1994), Office of Technology Assessment, 1994
Most Chinese military equipment, including tanks, is derived

from earlier Soviet designs.

land armaments. . . .”8The Soviets also trained

large numbers of Chinese engineers, designers,

and other members of the intellectual infrastructure (including those involved in the Chinese nuclear program). As a result, the Chinese defenseindustrial base was organized and managed along

lines similar to those of the Soviet DTIB.

In the wake of the Sine-Soviet split in the early

1960s, the Chinese were forced to rely on their

own efforts. Chinese leaders decided to develop a

wholly indigenous arms industry to ensure that

they would never again be as dependent or as vulnerable as they felt they had been during the

heyday of the Sine-Soviet relationship. This decision was strengthened by concerns over Soviet

and U.S. military intentions.

Thus, the Chinese began-a major expansion of

the DTIB in the mid-1960s. This effort was overseen by a newly expanded group of eight Ministries of Machine Industry (MMI), which were responsible for the development of heavy industry

The Chinese and Japanese Arms Industries | 7

in all sectors. Of the group, only one was responsible for civilian economic development; the rest

were devoted to development for national (and

primarily military) purposes of such sectors as

electronics, aerospace, shipbuilding, nuclear

weapons, and energy. During this period, Chinese

defense production is believed to have constituted

at least 10 percent of overall national industrial

production (by volume).9

Chinese efforts during the 1960s included the

construction of “hundreds—possibly thousands-of small, medium and large-scale [defense] industrial projects in every region of the

country, including the remote interior.”1° Such

dispersion, however, coupled with the limited

Chinese technological, financial, and trained-personnel base, meant that the available resources

were not necessarily exploited efficiently. Instead,

Chinese weapon systems, particularly relatively

sophisticated ones, were often only available in

very limited quantities. Indeed, “the total output

of the more complicated pieces [of equipment]

can be traced to a single industrial complex and in

some cases a single factory.”ll

Furthermore, the DTIB was not very sophisticated. For example, although the Chinese developed a substantial machine-tool industry, it was

primarily weighted toward the low- and mediumgrade end, rather than toward the precision tools

needed for production of sophisticated items,

whether military or civil. The level of sophistication did not improve significantly during the

1960s and 1970s.

The lack of sophistication in the technological,

financial, and trained-personnel base was exacerbated further by the isolation of the Chinese DTIB

from its CTIB. This isolation was due, in part, to

8 D. Shambaugh, "China's Defense Industries: Indigenous and Foreign Procurement,” The Chinese Defense Establishment, P.H.B. Godwin

(cd.) (Boulder, CO: estview Press, 1983), p. 44. 9 S. James, "Military Industry," Chinese Defence Policy, G. Segal and W.T. Tow (eds.) (Chicago,l: Univesity of Illinois Press, 1984), p.

121.

10 Ibid., p. 118.

1l J.R. Blaker, "The Proc\duction of Conventional Weapons," The Military and Political Power in China in the 1970s, W.W. Whitson (ed.)

(New York, NY: Praeger Publishers, 1972), pp. 223-224.
8 I Other Approaches to Civil-Military Integration

the secrecy associated with the Chinese arms industry, which restricted information flow and

technological developments within the DTIB and

kept the DTIB separate from the larger commercial economy. During the 1960s and 1970s, the

Chinese did not express significant interest in developing a consumer economy. Indeed, the political chaos of the Cultural Revolution during the

late 1960s and early 1970s further strengthened

the isolation of the military-industrial base (some

of which was deliberately insulated by the PLA

and the highest echelons of the Chinese Communist Party from rampaging Red Guards). From the

Sine-Soviet split to the end of the Cultural Revolution, the PRC’s CTIB and DTIB were also isolated from global technological developments,

due to Beijing’s isolated stance and deliberate pursuit of autarky.

That isolation was not necessarily considered a

problem at the time, however. In the first place,

given the pervasive Soviet influence, the Chinese

DTIB resembled the Soviets’. Practicing “vertical

integration, . . . each plant was composed of as

many departments as the whole manufacturing

process required.”12 The Chinese DTIB was,

therefore, in many ways autonomous, depending

on neither the CTIB nor the general economy to

function.

The demands on the DTIB were limited. The

PLA at this time was focused on the Maoist doctrine of “People’s War," which was the result of

lessons learned from the War of Resistance

against Japan (1937-1945). It emphasized the

preparation of masses of foot soldiers and militia

(which China had in abundance) to engage in prolonged guerrilla warfare in China’s interior. The

focus was on basic, infantry-oriented equipment,

which the Chinese DTIB was well-suited to provide. Indeed, the doctrine essentially made a virtue of the relatively primitive state of the Chinese

DTIB. “People’s War” as a doctrine, therefore,

provided both customers for the DTIB’s products

and a rationale for their continued production.

Chinese strategy until the 1980s relied on massed forces

wielding basic weapons.

“People’s War” also emphasized the continuation of war even in the wake of Soviet (or American) nuclear strikes. This view of prolonged warfare, coupled with the need to support and sustain

forces even if Chinese industrial centers were occupied or devastated, exploited the vertically integrated nature of Chinese defense production facilities by ensuring that production did not depend

on provision of parts, components, or other supplies from facilities that might be destroyed or

otherwise isolated. Much of the Chinese DTIB

was deliberately located in the (relatively) inaccessible Chinese interior. This deployment, despite the absence of transportation links, was

deemed a defensive measure, enabling the militia

to always have access to at least basic weapons

even in a protracted war. Such a view, again, also

made a virtue of a preexisting condition because

sophisticated weapons presumably would be difficult to produce, much less maintain, in the absence of an intact logistical and support structure.

After the death of Mao, however, and in the

wake of the subsequent power struggle that

brought Deng Xiaoping to power, Chinese policymaking hewed to a less ideological line. At the national level, this was marked by Deng’s reiteration
The Chinese and Japanese Arms Industries | 9

of the “Four Modernizations”: to modernize agriculture, industry, science and technology, and national defense, in that order. The Chinese economy would no longer be autarkic, but would

instead establish links with the outside world to

gain access to global technological and economic

developments. Only through such efforts could

the Chinese avoid becoming completely irrelevant in the political, economic, and technological

realms.

As part of this national modernization effort,

resources were shifted from military to commercial economic development through both conversion and outright diversions away from the military.13 To make this shift palatable to the PLA, the

national authorities essentially proposed a longterm bargain. The strengthening of the national

economy and the technological base by the shortterm transfer of funds, resources, and personnel

from the DTIB to the CTIB would ultimately

benefit defense by establishing a more sophisticated national technological, industrial, and

scientific base from which to develop future defense capabilities.

The PLA embraced the shift. The poor performance of the PLA in the 1979 “pedagogical war”

with Vietnam had demonstrated the primitive nature of the Chinese military’s doctrine and equipment. The subsequent organizational restructuring resulted in a reduction of the role of ideology

in the PLA’s thinking. This triumph of “expert”

military thinkers (i.e., military professionals) over

the more ideological, or “red,” elements, in turn,

brought to the fore PLA officers who were interested in gaining access to more sophisticated

weapons and in developing a doctrine with more

nuance.

To acquire more sophisticated weapons, the

PLA recognized that national economic and technological development was necessary. Essentially, the PLA was prepared to tolerate short-term

pain, including lower budgets and reductions in

numbers of forces and dedicated industrial assets,

on the premise that it would eventually recoup

those losses through improved equipment in future years.

This combination of changes, including the

short-term deemphasis on military production and

modernization, implied a radical alteration of the

Chinese approach toward not only military acquisition and procurement, but the relative importance of the Chinese DTIB and CTIB. Rather than

single-mindedly pursuing an improved DTIB to

the exclusion of the CTIB, the Chinese would

seek to develop their overall technological sophistication, with an emphasis on the CTIB, in order

ultimately to improve the DTIB’s capabilities.

Such an approach, though, presented two enormous problems, as Chinese defense planners

themselves recognized. The first was how to modernize an industry that for two decades had produced few new weapons but that had relied instead

on designs provided by the former Soviet Union in

the 1950s, designs that themselves dated from

World War II. The second was how to cut or cancel

existing production lines and retain the work

force, and still generate arms-export orders in order to allow some production plants to remain

open in the event of hostilities.14

As the Chinese defense budget subsequently

shrank, it became imperative to both the Chinese

government in general and the PLA leadership in

particular that the resources available to them be

used more efficiently. One of the first signs of this

effort involved the replacement in the late 1970s

of the leadership of the MMIs, up to then composed of senior military personnel, with civilian

administrators.15 This was followed by the estab13 “Conversion” involves commercial application of defense facilities; it occurs when the fixed costs are paid for by the military.

14G. Jacobs, “The PLA—From Doctrine to Organizations,” Jane’s Intelligence Review, p. 373, August 1993.

15H.W. Jencks, “The Chinese ‘Military-Industrial Complex’ and Defense Modernization,” Asian Survey 20 (10): p. 987, 1980.
10 | Other Approaches to Civil-Military Integration

lishment of a commission to “tighten central supervision of the machine-building industries and

to coordinate their production.”16 In 1983, in an

apparent move to “erase special treatment of the

military in the allotment of scarce resources,” the

various Chinese organizations and committees

charged with oversight of defense production

were merged into a single body, the Commission

for Science, Technology and Industry for National

Defense (COSTIND).17 Concomitant with this,

the Chinese military was cut by some million

people, from 4 million to 3 million.

In the early 1980s, Beijing also began to convert many of the available defense-oriented plants

into commercially oriented ones. Industries that

were not producing critical hardware or that were

unable to attract export markets were targeted for

conversion to civilian production. This effort was

aided by the release, in the course of economic liberalization, of massive, pent-up demand for various consumer (and later, light-industrial) goods.

This massive demand ensured that at least an initial market existed for many of the commercial

goods produced by the DTIB during this transition.

The conversion of redundant defense-industrial plants was further facilitated by the Chinese

government’s promulgation of several guidelines

aimed at furthering integration of the civilian and

military economies. These included the mandate

that “civilian goods manufactured by their defense industry must use production technologies

similar to military products, and must be goods

which are in short supply and have market potential.”18 This ensured that the manufacture of commercial goods would involve minimal changes to

the current plant (requiring, in turn, minimal capital and technological investments). It also meant

that those goods that were produced would be

goods that were desired (i.e., a market existed for

them). To further assist the shift toward civilian

production by military industry, the China Industrial and Commercial Bank set aside money for

loans aimed at transferring military technology to

civilian purposes.19 This shift soon began to bear

fruit. Between 1978 and 1983, civilian production

on military lines rose 90 percent, until it amounted

to nearly 20 percent of the defense industry’s total

output (by volume).20 By the early 1990s, civilian

production had risen to over 70 percent of Chinese

defense-industrial production (by volume).21

❚ PLA Procurement

The current Chinese military procurement process

is oriented toward two specific goals: improving

the PLA’s combat capabilities and using the defense base to generate income. Although the Chinese defense budget has risen by over 10 percent

annually for the past several years (see figure 1),

Chinese resources for military modernization remain badly constrained. Much of the increased

spending has gone toward salaries (a substantial

outlay in a military still numbering over 3 million), rather than acquisitions. Furthermore, the

heated state of the Chinese economy has meant a

high inflation rate, further minimizing the real effect of defense-budget increases. Consequently,

the primary focus of the Chinese military has generally involved upgrading available equipment,

rather than purchasing new or additional items.

Overall PLA equipment holdings have improved only slowly. The slow pace of improvements is exacerbated by the need for hard currency

16E. Joffe, The Chinese Army After Mao (Cambridge, MA: Harvard University Press, 1987), p. 101.

17S. Jammes, op. cit., footnote 8, p. 125.

18E. Joffe, op. cit., footnote 15, p. 102.

19China Today: Defense Science and Technology, Volume 1 (Beijing: National Defence Industry Press, 1993), p. 160.

20E. Joffe, op. cit., footnote 15, p. 102.

21Chong-Pin Lin, “The Stealthy Advance of China’s People’s Liberation Army,” The American Enterprise, p. 33, January/February, 1994.
The Chinese and Japanese Arms Industries | 11

because most Chinese equipment upgrades have

required foreign assistance. The upgrade of the

A-5 aircraft, for example, centers on the addition

of French inertial guidance and attack systems, including a heads-up display and laser range-finder.22 Similarly, the new Luhu-class destroyers

have extensive foreign equipment, including American gas turbines (for dash power) and French surface-to-air missiles (to remedy the dearth of air defense within the Chinese surface navy).23

The Chinese goal of using the defense base to

generate income applies not only to the PLA as a

whole (through such means as arms exports), but

also to individual factories, units, and commands

(which usually involve commercial production of

some sort). These groups are further motivated to

generate income by the bureaucratic competition

within the Chinese procurement system. All of the

major players of the Chinese procurement process

sponsor their own firms, which in some cases now

have competing product lines (discussed below).

The PRC’s current procurement structure comprises several players (figure 2). The important

ones are the PLA, the MMBs (the Ministries of

Machine-Building, formerly the MMIs), and the

Committee on Science, Technology and Industry

for National Defense (COSTIND). Each player is

not only involved in procurement for the PLA as a

whole, but also heads up commercial organizations aimed at generating income, especially hard

currency.

The PLA is the most important player of all,

both due to the prominent role of the military in

Chinese politics and because the PLA is charged

with developing requirements for new equipment,

thereby setting the agenda to some extent. The

PLA answers to the Central Military Commission

(CMC). The most important of the three elements

within the PLA is the General Staff Department’s

Equipment Department (GSD/ED). The GSD/ED

draws up operational parameters for PLA equipment acquisitions and coordinates demands from

the three services. The PLA’s General Logistics

Department (GLD) is responsible for logistics and

quartermaster duties, primarily food and uniforms. The third element, the General Political

Department, has no direct influence on PLA

weapons procurement.

Both the GSD/ED and the GLD control their

own private corporations, which use the defense

factories under their jurisdiction to produce not

only weapons for the PLA, but also goods for export, including weapons and commercial items.

The GSD/ED controls Poly Technologies Inc., a

major corporation at least loosely affiliated with

the China International Trade and Investment

Corp. (CITIC), one of the first corporations established under Deng Xiaoping’s reforms and still

one of the largest and most well-connected. The

GLD controls China Xinxing Corp., which numbers among its products food, clothing, and

construction materials.24

Although it is the PLA that sets requirements, it

is the MMBs that fulfill them. The six “defenseindustrial ministries” answer to the State Council:

the Ministry of Nuclear Industry, the Ministry of

Aviation Industry, the Ministry of Electronics Industry, the China State Shipbuilding Corporation,

the Ministry of Space (Astronautics) Industry, and

the Ministry of Ordnance Industry. Each of these,

in turn, controls at least one corporation. Thus, for

example, China North Industries Corp. (NORINCO) is affiliated with the Ministry of Ordnance Industry, while the Great Wall Corp. and China Precision Machinery Import/Export Corp. (CPMIEC)

are associated with the Ministryof Space Industry.

The ministries and their subordinate corporations

22Mao Jingli, “Replacing the Old with the New—on Upgrading China’s Qiang (A)-5 II Aircraft,” Xiandai Bingqi [Beijing] 7, pp. 4-5, July 8,

1993, in Joint Publication Research Service report (hereafter JPRS) 93-075 (Oct. 12, 1993) p. 36.

23”New Ships for the PLAN,” Jane’s Defence Weekly, p. 88, Jan. 18, 1992.

24Tai Ming Cheung, “On Civvy Street,” Far Eastern Economic Review, 155:41, Feb. 6, 1992.
“own” China’s DTIB, except for the portion that is GSD/ED officers were also often unfamiliar

under the control of the PLA and COSTIND.

In the past, the GSD/ED and the MMBs have

often failed to see eye to eye. In particular, the

GSD/ED’s officers were not necessarily concerned with budgets because production costs

were frequently the responsibility of the state,

rather than the military per se. Nominally, this allowed military users to set requirements without

having to worry about budgetary stresses. 2 5

with the production process. At the same time, the MMBs often did not necessarily understand operational requirements. As a result, the MMBs

paid little attention to either potential combat needs

or maintenance requirements. Instead, equipment

was produced according to MMB capabilities,

rather than to a plan for greater sophistication

(with its ideological implications). This was most

evident with aircraft production. The Ministry of

25 A.J. Alexander, “National Experiences: A Comparative Analysis,” Disarmament, Topical Papers #5, Conversion: Economic Adjustments in an Era of Arms Reduction, Vol. 2 (New York, NY: United Nations, 1991), p. 19.
The Chinese and Japanese Arms Industries 113

SOURCE Defense Intelligence Agency, 1990

Aviation produced thousands of combat aircraft,

most of which were obsolescent, if not obsolete,

rather than attempt to develop better designs. With the commercialization of the Chinese

economy over the past 15 years, however, the Chinese procurement process has changed somewhat.

The PLA now has greater responsibility for the

budgetary aspects of acquisition, and the PLA’s

requests for more sophisticated arms must now be

reconciled with other demands. At the same time,

the MMBs now have a far greater incentive to procure and develop more sophisticated technologies. This does not mean that the MMBs are necessarily more responsive to the demands of the

military, however. Instead, the “ministries tend to

seek out technology that will directly affect industrial modernization.”26 They have, therefore,

often subordinated military production to com26 J. P. Gallagher, “China’s Military Industrial Complex,” Asian Survey 28(9):998, 1987.
14 | Other Approaches to Civil-Military Integration

mercial requirements. COSTIND’s role is to

mediate between the PLA and the MMBs.

COSTIND combines research and development (R&D) functions. In some ways, it resembles the Director of Defense Research and Engineering (DDR&E) office within the Office of

the Secretary of Defense in the United States. It is,

however, granted a much wider purview. COSTIND is responsible for the specification, assessment, and application of all advanced technologies within the Chinese military and DTIB. The

political power of COSTIND, moreover, is far

greater than that of DDR&E. Several of COSTIND’s members sit on both the State Council and

the CMC.

Like both of the other players, COSTIND also

controls its own corporations. These include China Xinshidai Corp. and Xiaofeng Technology and

Equipment Corp.. The former is primarily oriented toward advanced technologies generally,

whereas the latter is more narrowly focused, with

special interests in computers, testing equipment,

and robotics.

❚ Comparison of the PRC with the United

States

The Chinese DTIB differs in several important respects from its American counterpart. Initially,

starting in 1949, the Chinese DTIB—indeed, the

entire Chinese economy—was state-run. The Chinese economy was also heavily militarized. For

decades, the DTIB had priority for receiving the

highest-quality raw materials, trained personnel,

and advanced technology. Although the Chinese

economy has changed drastically since the advent

of Deng Xiaoping and the introduction of economic reform and liberalization measures, significant portions, particularly the heavy-industrial

sectors, remain centrally planned. Such differences clearly limit the relevance of the Chinese

experience for the United States.

In the past decade, however, the Chinese have

striven to liberalize their economy and to increase

its sophistication. This has involved the acquisition of more sophisticated technology from

abroad. At the same time, the Chinese have sought

to make greater use of their current work force and

available industrial plant. As a poor country, the

PRC seeks to maximize its use of available labor

and resources. Thus, there is a great emphasis on

transferring DTIB resources to the CTIB (hence

the Chinese emphasis on conversion). Those efforts, particularly in the areas of conversion and

increasing the use of the same production lines for

both civilian and military items, may offer some

useful comparisons with the American case.

Acquisition Laws and Procedures

One of the most important obstacles to integrating

civil and military procurement in the United

States involves acquisition law.27 The myriad requirements for reporting various costs have discouraged integration by imposing additional expenses on firms that seek to produce goods for the

military. Even highly successful commercial

firms are, therefore, frequently reluctant to undertake military production for fear of incurring these

costs.

One aspect of the acquisition-law problem is

technical data rights. The Department of Defense

(DOD) frequently demands extensive rights to

technical data to ensure that a given system can

continue to be produced even if the original contracting corporation goes out of business. Thus,

DOD may request not only data about the system

itself, but also information on the manufacturing

processes, which the company may well have developed on its own, often at significant expense.

The Chinese suffer from fewer such problems.

In the past, this may have been due to state ownership of the bulk of the means of production. Indeed, within the Chinese DTIB, the State con27U.S. Congress, Office of Technology Assessment, Assessing the Potential for Civil-Military Integration: Technologies, Processes, and

Practices (Washington, DC: U.S. Government Printing Office, 1994).
The Chinese and Japanese Arms Industries | 15

trolled and supplied all of the relevant industrial

elements. As long as the DTIB was ahead of the

CTIB, therefore, technical data rights were hardly

a problem because the government possessed

most technical data rights from the outset and was

under no pressure to share them with the CTIB.

Furthermore, the Chinese DTIB was shrouded

in secrecy. Thus, there was only a limited flow, if

any, of technical data rights to the CTIB. Because

the Chinese emphasized the military sectors over

their commercial sectors, technical data, especially for relatively advanced processes, rested in the

DTIB.

Military Specifications and Standards

In the PRC, although operational parameters are

set by the PLA, the standards involved in actual

production have been, and still are, set by the

MMBs. This is due, in part, to the different backgrounds of PLA officers and MMB officials. The

latter are far more versed in engineering, whereas

the former have generally been capable only of

setting out operational requirements without necessarily understanding the industrial demands involved. Thus, production standards have been the

responsibility of the producers, rather than the

users.

Chinese manufacturers set fairly high standards for the manufacture of their weapon systems

within the capabilities of the Chinese DTIB. As

was true for their Soviet counterparts, quality has

generally been higher on military than on commercial production lines. The difference has been

due, in part, to the Chinese DTIB receiving the

best raw materials and facilities and the besttrained labor force. In addition, the priority accorded the DTIB by political authorities for material and political support may have obviated

somewhat the need for extensive military specification. The government expected that only the

highest-quality items would be provided for military production lines and that only the highestquality products would be made.

Questions have been raised about the quality of

Chinese military items, however. There have been

reports, for example, that Chinese aircraft

manufacturers’ quality control has tended to be

uneven. Entire Chinese aircraft types were recalled to their factories in 1975. In the 1980s, Chinese combat aircraft were reported to have serious

problems that involved contamination of their hydraulic systems.28 In the wake of joint ventures

with the United States and Europe in the area of

civilian aircraft (particularly the MD-80 and

MD-90 at Shanghai Aircraft Industries Corp.

(SAIC)), though, the general level of Chinese aircraft workmanship has apparently risen. Indeed,

the certification by the U.S. Federal Aviation Administration of Chinese-manufactured components for McDonnell-Douglas aircraft, including

fuselages and nose cones, for sale in the United

States would seem to suggest that the Chinese

work force at SAIC is now capable of meeting

Western commercial standards. Because Western

commercial standards are more stringent than previous Chinese specifications, the overall level of

Chinese quality control, at least at this facility,

would appear to have improved.

At the same time, Chinese combat aircraft are

now reported to have a much smoother surface, or

skin, than before.29 This suggests that there is a

flow of personnel and expertise from civilian to

military production lines, at least in situations

where the former had become more advanced than

the latter. Such a flow would amount to “spin-on”

of (relatively) more advanced techniques and capabilities from the commercial to the military

side.

The Chinese modernization program currently

focuses on the acquisition of more-advanced foreign weapons technology, such as the Su-27 fighter. Right now, these efforts do not involve any

28R. J. Latham and K.W. Allen, “Defense Reform in China: The PLA Air Force,” Problems of Communism, p. 46, May-June 1991.

29Professor P. Godwin, National Defense University, Washington, DC, personal communication, March 1994.
16 | Other Approaches to Civil-Military Integration

Chinese manufacturing, nor have the most recent

acquisitions yet led to either production of reverse-engineered equipment or purchase of production facilities. Mastering the production of

such equipment, by either method, will undoubtedly take several years. Because current Chinese

efforts are aimed at producing much more sophisticated equipment, with higher tolerances, than

the country had previously manufactured, it is

likely that better quality control will be necessary.

If requirements exceed current Chinese standards,

new specifications, essentially military specifications and military standards, may be necessary.

Militarily Unique Technologies

Another obstacle to U.S. civil-military integration

involves militarily unique technologies, which

necessarily limit the degree of commonality between commercial and military goods and services. Although militarily unique technologies

usually have no direct civilian applications in the

United States (e.g., ballistic missiles and electronic warfare programming), in the PRC military

technologies have tended to be rendered “unique”

because certain resources have been in limited

supply. That is, the PLA had priority for receiving

many of the more advanced and expensive

technologies and facilities (e.g., computers and

wind tunnels) until Deng Xiaoping’s economic

liberalization raised the Chinese CTIB’s status. It

is likely, for example, that the Chinese air-defense

network has a more advanced set of air-trafficcontrol capabilities than does the Chinese civilian

air-traffic net.30 Similarly, until the liberalization

program commenced, one-half to two-thirds, if

not more, of all Chinese-produced electronics

were dedicated to military use.31

The decision to promote defense-industrial

participation in the commercial market, however,

would suggest that those items and qualities once

reserved for the PLA, such as high-quality steel

and better-trained workers, may now be seeping

into the CTIB. Even now, however, the MMBs

have sole control over many areas of Chinese

technology that were once primarily military.

Thus, the means of producing communications

equipment remain concentrated in the hands of the

DTIB, although the products are being dispersed

into the CTIB at large. The arrival of Western telecommunications corporations in China may alter

that situation further in the coming decade, although Chinese demands for co-production suggest that the MMBs may retain a large degree of

control over any technologies and processes transferred from the West.

Emphasis on Military Performance

Since the beginning of the Cold War, the United

States has placed a greater emphasis on militaryproduct performance than on cost, whereas in the

commercial sector, quality and performance were

balanced against the likely costs incurred. The

emphasis on high performance not only raised

costs, but in some cases, minimized the commonality between functionally similar military

and commercial goods.

In the PRC, significant effort does not seem to

have been made to acquire or develop state-of-theart weapons technologies. This is due, in part, to

the relatively primitive state of the Chinese DTIB

and, in part, to political and bureaucratic pressures, particularly within the MMBs. As a result, despite the Chinese DTIB’s favored status compared

with the Chinese CTIB’s, for high-quality raw

materials and tools, Chinese defense products

have generally not been significantly more advanced than products of the Chinese CTIB as a

whole, particularly in such areas as electronics

and communications. According to one Chinese

assessment, “In the realm of firepower and control

30Chinese aviation officials noted in conversations that only one Chinese civilian airport has the more advanced Type 2 instrument landing

rules (ILR) equipment. All others are equipped with only Type 1 ILR equipment. December 1993.

31D. Shambaugh, op. cit., footnote 8, p. 58.
The Chinese and Japanese Arms Industries | 17

systems, the Chinese fighters are lagging some 15

years behind advanced foreign levels.”32 The

electronics in the most sophisticated domestically

produced fighter aircraft, the J-8II, are comparable to American 1970s-level technology. Although the DTIB has tended to have priority for

receiving higher-quality items (e.g., higher-quality machine tools), the quantities available have

been so limited that they have had little effect on

the overall quality of the DTIB, much less the

CTIB.

The situation has been exacerbated by the

PLA’s own lack of interest in technologically advanced weapon systems. Only relatively recently

has the PLA leadership demanded access to hightech weaponry and advanced capabilities for its

nonnuclear forces. These demands were then rapidly preempted by the Four Modernizations. As a

result, it is only in the past four years that the PLA

has had both the interest in and the wherewithal to

obtain more sophisticated weapon systems. These

have, in turn, primarily involved acquiring foreign technology. Thus, the Chinese DTIB’s stateof-the-art weapon systems still lag behind Russia’s, and even further behind the West’s.

❚ Integration of Levels of Production

In light of the circumstances enumerated above,

what is the degree of integration between the Chinese DTIB and CTIB? As noted earlier, the PLA

has played an important role in the economic development of the PRC. Conversely, the PLA also

relies on the civilian infrastructure. The Chinese

military, for example, evidently continues to use

the national communications network, including

the telephone system, microwave radio, telex, and

multiplex wireless.33 The PLA’s Tibetan garrison

is supported by China Southwest Airlines, which

has ferried rotating formations of troops in and out

of the region.34 Thus, at a minimum, it appears

that the Chinese military and popular economies

are closely linked.

With economic liberalization, however, the

additional impetus of making money has arisen,

pushing all the ministries, corporations, and subsidiaries into seeking and exploiting commercial

opportunities. Consequently, the output of civilian goods made on military production lines has

risen sharply since economic liberalization began

in the late 1970s and early 1980s. Indeed, according to some estimates, “profits generated in 1992

by more than 20,000 military-run companies

[alone] totaled around 30 billion yuan [renminbi]—. . . with just six billion yuan given to the

central military authorities.”35 The result has been

a form of integration at all three levels (sector,

firm, and facility; see box A). The Chinese version

of integration, however, does not necessarily correspond with that in the United States.

Sector Level

At the sector level, most industrial sectors are integrated, insofar as they are involved in both military and commercial R&D, production, and operations and maintenance (O&M). The Chinese

have emphasized the exploitation of their defense

R&D facilities and resources in pursuit of overall

national economic growth. One government effort aimed at facilitating this shift is the Torch Program, which promotes the shift of scientists and

engineers from traditional research institutes and

projects to those with greater commercial potential.36

The PLA itself is pressuring such centrally directed programs to promote R&D in a more commercial direction. In particular, given the semiau32Zhang Yongqian, “Brief Look at China’s Fighter Aircraft Development Level,” Xiandai Bingqi [Beijing], Oct. 10, 1993, in JPRS 94-008,

Jan. 31, 1994, p. 21.

33D. Shambaugh, op. cit., footnote 8, p. 60.

34”Making a Modern Industry,” Jane’s Defence Weekly, Feb. 19, 1994, p.27.

35”Balancing the Books,” Jane’s Defence Weekly, Feb. 19, 1994, p.35.

36R.D. Humble, “Science, Technology and China’s Defence Industrial Base,” Jane’s Intelligence Review, January 1992, p. 8.
18 | Other Approaches to Civil-Military Integration

tonomous nature of many PLA units, there is an

almost grass-roots quality to some of the PLA’s

R&D projects, which tend to emphasize commercially profitable ventures. Thus, the Liberation

Army Daily reported on an “All-Army Enterprise

Scientific and Technological Research Achievements Fair” in Beijing. At the fair, over 2,000

projects and experiments, few of which were for

military customers, were displayed.37

In the heavy-industry sectors, it is reported that

68.8 percent of the output from Ministry of Ordnance Industry facilities and 80 percent of shipbuilding and repair activities are now for nonmilitary use.38 In Chinese shipbuilding, integration of

the military and commercial sides is quite explicit: the China State Shipbuilding Corp. owns all

Chinese shipyards and shipbuilding and marineequipment firms.39 Thus, shipyards that once

built warships are now turning their expertise and

facilities to the construction of freighters and other vessels for commercial purposes.40 Similarly,

in the automotive sector, NORINCO, the largest

Chinese arms corporation, which produces much

of the PLA’s heavy equipment including tanks and

self-propelled guns, is also responsible for some

50 percent of Chinese motorcycle production and

30 percent of all minivans.41 In fact, three-quarters of all minivans now apparently come from

military sources.42

In the area of O&M the Chinese also appear to

have achieved some degree of integration. Once

equipment is procured, its upkeep becomes the responsibility of the PLA’s GLD. Although the

GLD controls a few depot-level maintenance facilities, primarily for heavy vehicles, there is no

analogue in the PRC to the extensive depot structure that provides O&M support in the U.S.

Instead, maintenance is primarily the province of

the “owning” formation, or PLA unit. Extensive

repair operations, particularly for aircraft and naval vessels, apparently involve the manufacturers

(in the case of shipbuilding, the manufacturers

control the primary shipbuilding and repair facilities).

Although the Chinese appear to have succeeded in integrating many of their sectors, it also appears that few of the lessons they have learned are

transferable to the United States. Chinese efforts

at the sector level exploit what are, at best, limited

technologies and capabilities within the Chinese

science-and-technology infrastructure. The Chinese themselves recognize this. In a recent article

in Xiandai Bingqi (Modern Weaponry) assessing

the newest domestically produced fighter plane,

the author notes that “China’s manufacturing

technology was exceedingly backward; their

stock of relevant technology was obviously inadequate, and this had a direct impact on model development.”43 The Chinese consider the attainment

of international standards of sophistication in

such areas as aerospace as a triumph in and of itself.44 The levels of military and commercial tech37Nie Zhonglin and Ma Chunlin, “First All-Army Enterprise Scientific and Technological Research Achievements Fair Opens in Beijing,”

Jiefangjun Bao (Oct. 19, 1993), p. 1, in Foreign Broadcast Information Service China daily report (hereafter FBIS-CHI) 93-211, Nov. 3, 1993, p.

40.

38D.J. Blasko, “Beijing’s Big Bang,” Far Eastern Economic Review, 157(8):37, 1994.

39R.D. Humble, op. cit., footnote 36, p. 6.

40Cao Huanrong and Jia Yong, Xinhua (Dec. 6, 1993), in FBIS-CHI 93-239 (Dec. 15, 1993), p. 27.

41Tai Ming Cheung, op. cit., footnote 24, p. 40.

42Cao Huangrong and Jia Yong, op. cit., footnote 40, p. 27.

43Zhang Yongqian, op. cit., footnote 32, p. 20.

44See, for example, Sun Mao-qing, “Air Force Test Base Advances to World Rank,” Renmin Ribao (June 10, 1993), p. 3, in JPRS 93-014

(Aug. 17, 1993), p. 12, and Chang Ko, “China’s Largest Drone Base,” Kuang Chiao Ching (Hong Kong) 254 (16) Nov. 1993, in FBIS-CHI

93-221 (Nov. 18, 1993), p. 46.
The Chinese and Japanese Arms Industries | 19

nological sophistication in the PRC, for the most

part, are below the global average. In only a few

areas are the Chinese even maintaining parity.

The limited applicability of the Chinese situation to the American case is made more so by the

very different nature of Chinese economic organization. Even after a decade of economic reform

and liberalization, the state continues to own and

manage the “commanding heights” of the Chinese

economy, particularly heavy industry. The MMBs

even now effectively exercise control over their

respective sectors (e.g., shipbuilding, steel making, and electronics), a situation exploited by their

subsidiaries. Each sector is, therefore, integrated,

but only because the government controls virtually all production, both commercial and military, in

that sector. Integration under such circumstances

is more akin to consolidation of the means of production and diversification of products than to the

sharing of product and process technologies that is

typical of Western efforts. The Chinese approach

to integration, involving the participation of the

relevant ministries and their attendant corporations, is, therefore, probably unique to command

economies and of limited relevance to capitalist

ones.

Finally, the Chinese did not necessarily set out

to integrate their CTIB and DTIB. Instead, in

many cases, they are seeking to develop capitalist

economic relations. A report from Shaanxi Province, for example, argues that the infrastructure

for “science, technology and industry for national

defense” within Shaanxi should be devoted to

helping fulfill the “Shaanxi people’s wishes to get

rich.” Indeed, the article goes so far as to suggest

that the military industry should be eliminated in

favor of national production of “high-technology

products and export-oriented management.”45

The profits thus derived, presumably, would be allocated first to Shaanxi and only then to the rest of

the nation. Similarly, factories in Guizhou Province appear geared toward provincial rather than

national markets.46

Firm Level

At the firm level, the Chinese also appear to have

become “integrated,” or at least diversified. The

Shanghai Aircraft Industry Corp., for example,

sells everything from automobile jacks to pressurized tanks to refrigerators.47 Discussions with

COSTIND officials about their subordinate industries revealed a product line that included ships

and cigarette-manufacturing machines at many

corporations. Similarly, much of the Chinese

chemical industry’s pumps and seals are made by

the Chinese Space Industry Corp. because it is accustomed to dealing with highly corrosive chemicals. By 1989, only 10 percent of defense firms remained committed solely to defense production;

16 percent produced only commercial products,

and the remaining 74 percent produced both commercial and military products.48

As with sector-level integration, however, Chinese examples of firm-level integration may not

be comparable to those in the West. In particular, if

only firms that are actually profitable are considered successful examples of firm-level integration, there appear to have been more failures than

successes. The efficient allocation of the available

technological and human resources, however, appears to be only one of the PRC’s criteria for successful integration.

Another important criterion for the PRC appears to be the preservation of jobs and, to a lesser

degree, of industrial infrastructure, wherever possible. This is very different from Western integration efforts, which almost inevitably involve plant

closings and increased unemployment. A high

45Zhang Ke, “Roundup,” Zhongguo Xinwen She (Sept. 12, 1993), in FBIS-CHI 93-183 (Sept. 23, 1993), p. 39.

46Liang Fang, Beijing Review (41) Oct. 11-17, 1993, in FBIS-CHI 93-202 (Oct. 21, 1993), p. 36.

47Officials of the Shanghai Aircraft Industry Corporation, Shanghai, personal communication, December 1993.

48A.J. Alexander, op cit., footnote 24, p. 21.
20 | Other Approaches to Civil-Military Integration

priority for Chinese authorities appears to be to retain workers and keep equipment employed. As a

result, for example, certain enterprises that have

been unable to find a suitable product to manufacture have contracted their work force to highway

construction and other projects.49 Similarly, the

Chinese DTIB has diverted several tens of thousands of technical facilities to light industry, including the petrol chemistry, chemical fertilizer,

and chemical fiber industries.50

Although such reallocation has kept plants and

personnel occupied, it has come at a price. In particular, there are few good measures of the extent

to which the plants and personnel that are converted to commercial production are efficiently

used. It is reported, for example, that perhaps no

more than one-third of the military industry’s capacity is being used efficiently, despite strenuous

efforts.51 More disappointing to the central authorities, only about half of Chinese defense firms

have succeeded in manufacturing civilian goods

at acceptable prices.52 Thus, according to one report, “two-thirds of all aerospace enterprises are

unable either to produce any marketable civilian

products or compete in the civilian market without

state subsidies.”53 These firms, however, apparently remain in business regardless of whether

they are suceeding in actually producing marketable products.

The low efficiency of some Chinese plants and

personnel is due to their location. As noted earlier,

many of China’s largest defense-industrial facilities (and many smaller ones) are located in the relatively remote interior, constituting the so-called

“third line” of production from the days of the

“People’s War” doctrine. As a result, getting

goods to market is, at best, difficult, and getting

access to raw materials, in a commercialized economy, is problematic. Corporations that rely on

such facilities, therefore, are faced with a daunting

task from the outset. Although they may be able to

keep their doors open (thanks to subsidies from

various governmental sources), that does not necessarily mean that their products are commercially viable. Indeed, it may well be that subsidies are

as important as products in ensuring the continued

utilization of Chinese DTIB resources and labor.

There are indications that at least some production

is being shifted away from inland locations closer

to transportation links. In some cases, entire

plants are being moved.54

Facility Level

The prospect of finding relevant lessons for the

West in the PRC’s conversion and integration experiences may be the most promising at the facility level. Chinese military factories reputedly produce commercial and military goods side by side

on the same lines. The production of equipment

that varies primarily in the coat of paint applied is

the epitome of integration. Chinese military-vehicle factories have in some cases, for example,

simply changed the colors available for the commercial market. Thus, Chinese command cars, resembling jeeps, may now be found in both civilian

and military livery on the streets of Beijing. Chinese-produced motorcycles, once intended for

military dispatch riders, are now provided primarily to the civilian motorcycle market.55

At a somewhat higher technological level,

some Chinese aerospace products are also reportedly produced in an integrated manner. The Y-7,

49Liang Fang, op cit., footnote 46, p. 35.

50China Today, op. cit., footnote 19, p. 163.

51”Making a Modern Industry,” p. 29.

52Tai Ming Cheung, op. cit., footnote 24, pp. 40-41.

53Ibid., p. 42.

54Liang Fang, op. cit., footnote 46, pp. 35-36.

55C. Hollingworth, “China’s Arms Industry,” NATO’s Sixteen Nations 32 (2): 52, 1987.
The Chinese and Japanese Arms Industries | 21

the Chinese version of the AN-24 turboprop transport aircraft, has been part of both the PLA Air

Force and Chinese commercial flight lines since

the early 1970s.56 The Y-8 military transport is reportedly now also available as a civilian aircraft.

Similarly, the Harbin Aircraft Manufacturing

Corporation produces the Z-9, a modified version

of the Aerospatiale AS365. This aircraft is provided not only to the Chinese military, but also to

the “government forestry service, and stateowned general aviation and offshore oil support

companies.”57

The roots of this situation, however, are again

significantly different from those in the West. The

Chinese commercial market has long been suppressed. A primary reason for the success of the

Chinese conversion effort has been the desperate

demand for consumer goods. Chinese defense

plants that engaged in commercial production

benefited further by the absence of competition, at

least in the initial stages. Indeed, the combination

of monopolistic control in various sectors, the absence of competitors, and large markets creates a

commercial situation markedly different from that

of any capitalist economy.

Most Chinese facilities have not achieved integration as defined by the West, however. Indeed,

many of the products from the various MMBs are

not derived from defense products or even from

defense production lines. At least during the initial conversion process, Chinese defense facilities

“produced whatever they could lay their hands on,

such as electric fans and blankets, meat grinders,

kitchen utensils, and even desks and chairs. Most

of the products were low-quality, low-grade items

with little output value.”58 Even now, much of the

product line of the Ministry of Ordnance is composed of civilian products made at facilities

owned by the Ministry but using different equipment from that used for defense production. Although such arrangements keep facilities and

workers engaged and may constitute successful

examples of conversion, they are not examples of

integration. There is little use of common technologies and equipment to meet both defense and

commercial needs; instead, available personnel

and, to a certain extent, common facilities are used

to meet commercial demands.

JAPAN

While the PRC has focused primarily on defense

production for much of its postwar history, Japan

has followed an almost opposite course. At the

end of World War II, the United States and the other occupying powers moved to ensure that Japan

had no DTIB. They sought to dismantle the remaining Japanese aircraft and shipbuilding industries to prevent the country from becoming a threat

to the region again.

The Korean War, however, pushed the United

States to reconsider its attitude toward Japanese

rearmament. Indeed, in 1950 and 1951, John Foster Dulles sought to persuade Japan to rebuild its

military as a bulwark against the PRC and the

U.S.S.R. Although then-Prime Minister Yoshida

resisted this move, he ultimately agreed to the creation of a Japanese military, euphemistically

termed the Self Defense Forces (SDF) in light of

prohibitions within the American-imposed Japanese constitution against the possession of armed

forces.

Although there was little interest in the reestablishment of a military capable of overseas operations, the Japanese government recognized the potential usefulness of a military industry. The

Korean War had pumped enormous resources into

the Japanese economy. American orders for military-support equipment, including trucks and

landing craft, as well as expenditures for O&M

56Jane’s All the World’s Aircraft, 1989-1990, J.W.R. Taylor (ed.) (London, England: Jane’s Information Group Ltd., 1989), p. 45.

57P. Proctor, “Harbin Uses New Helicopter Program to Advance Global Manufacturing Role,” Aviation Week & Space Technology, Feb. 3,

1992, p. 50.

58Liang Fang, op. cit., footnote 46, p. 35.
22 | Other Approaches to Civil-Military Integration

and for housing troops, had sped Japan’s economic recovery. Much of the Japanese automotive industry, for example, was revived by the maintenance and rebuilding of American equipment for

the Korean War effort. Thus, Japanese industrialists believed that “military production would be

the center of Japanese industrial development.”59

Unlike the Chinese, or even the United States,

however, defense production was not made a

priority of the defense authorities. Instead, under

the Law for Enterprises Manufacturing Aircraft

and the Law for Manufacturing Weapons and

Munitions, materiel production was placed under

the jurisdiction of the Ministry of International

Trade and Industry (MITI). These laws required

“private firms to provide detailed information

about locations, ownership, type of technology

used, capitalization, and more to MITI.”60 MITI’s

Aircraft and Ordnance Division was effectively

granted (and retains) oversight for the production

of all aircraft and parts, as well as munitions and

weapons. These two laws remain the primary laws

specifically concerning defense procurement in

Japan.

The Japanese could afford to avoid becoming a

major military power, in large part, because of the

extension of the American security guarantee. Under the 1960 U.S.-Japan Treaty of Mutual Security, the United States effectively extended a unilateral commitment to Japan’s security. This security

umbrella allowed the Japanese, in turn, to focus

more narrowly on economic development without

having to worry too much about military security.

The decision not to become a major military

power, however, did not eliminate Japan’s interest

in developing the ability to produce weapons indigenously. Indeed, with the American decision to

begin charging the Japanese for defense products

in the 1960s, the Japanese, like the Chinese,

pushed hard for local manufacture of most of their

equipment to avoid reliance on foreign suppliers.

This fear of vulnerability was highlighted by the

Japanese drive for kokusanka—having domestic

systems (i.e., those domestically developed and

designed as well as produced) in preference to importing complete weapons. The term kokusanka

carries with it nationalist overtones, and, according to some observers, is one of the most important elements in Japan’s defense-procurement debates.61

In addition to bureaucratic and security concerns, Japanese corporations were interested in

defense production. Japanese business leaders did

not, however, view the Japan Defense Agency

(JDA) as simply another market. Rather, the defense budget was considered a means of raising

Japanese business’s general level of technological

expertise. For example, the Japanese Federation

of Economic Organizations (Keidanren) established the Defense Production Council (DPC),

whose “major purpose was to create a better climate of opinion between business and the SDF,”

in 1965.62 The DPC was interested in the possibilities of technological innovation within military

production, rather than military products per se.

Thus, its 900 members numbered few weapons

producers.

By the early 1970s, Japanese producers had

concluded that commercial technology would be a

more vibrant source of technological advancement than military technology. This shift was given additional economic impetus by the formal

Japanese enunciation of a policy effectively banning arms exports. With the decision not to allow

exports of weapons, any prospect of economies of

scale through the focused development of military

equipment vanished. To ensure steady revenue,

the Japanese defense industry focused on getting

59R. J. Samuels, Rich Nation, Strong Army (Ithaca, NY: Cornell University Press, 1994), p. 142.

60T. Kataoka and R.H. Myers, Defending An Economic Superpower (Boulder, CO: Westview Press, 1989), p. 68.

61M.W. Chinworth, Inside Japan’s Defense (New York, NY: Pergamon-Brassey’s, 1992), p. 19.

62P. Katzenstein and N. Okawara, Japan’s National Security (Ithaca, NY: Cornell University Press, 1993), p. 74.
long-term commitments from the government, increasing government funding for defense-related

R&D, and, perhaps most important, raising the

proportion of the content of Japanese military

-equipment made domestically. At the same time,

elements of the Japanese DTIB were integrated

firmly into the CTIB to ensure its continued viability.

The Japanese have license-produced many American

weapons, including the P-2J and the P-3C anti-submarine

aircraft.

The process of indigenization of Japanese defense production continued apace over the next 20

years. Japanese industry has been very successful

in expanding the range of components and systems that are locally produced and used in various

weapons. By the 1980s, for example, most Japanese missiles were manufactured indigenously,

although many were produced under license. Similarly, the Japanese Maritime Self Defense Force

(JMSDF) is almost entirely equipped with locally

designed combatants, armed in the main with domestically produced (and often domestically designed) weapon systems. Indeed, in terms of defense products, the Japanese DTIB, like the

The Chinese and Japanese Arms Industries 123

Chinese DTIB, produces a wide range of land, sea,

and air Systems, many analgous to American systerns, as well as military electronics and a spacelaunch capability. Only in the nuclear weapons

arena, in fact, is a Japanese capability entirely absent (although there are few doubts that Japan has

the wherewithal to design and build nuclear weapons and delivery systems, or that Japan could convert its civilian nuclear and space programs to military purposes should it choose to do so).

■ Japanese Procurement

The Japanese economy is heavily weighted toward civilian production; defense production is

relatively minuscule. Japanese defense spending,

for example, since the 1970s has generally been

under 1 percent of Japanese gross national product

(see figure 1). In the 1970s, Japanese defense industries represented only about 0.5 percent of total

Japanese industrial output, and in the mid-1980s,

that proportion had increased to about 2.0 percent. 63 Only about 0.1 percent of the total Japanese work force (or about 70,000 workers) is directly employed by Japanese defense industries. 64

The Japanese corporations engaged in weapons

manufacture are not preoccupied with defense

work. Indeed, few Japanese defense corporations

are entirely dependent on defense contracts for

their profits, or even for their income. For most

Japanese corporate equivalents of American

prime contractors engaged in military work during the 1970s, defense contracts represented less

than 10 percent of total earnings. By the 1980s,

even after a decade of growth in defense spending,

less than 20 percent of the revenue of Japanese

firms such as Mitsubishi Heavy Industries (MHI)

and Kawasaki Heavy Industries (KHI) originated

from JDA contacts. Indeed, no major Japanese

corporations are purely, or even primarily, defense-oriented. In the case of MHI, for example,

63 U.S. Congress, Office of Technology Assessment, Arming Our Allies: Cooperation and Competition in Defense Technology (Washington, D.C.: U.S. Government Printing Office, 1990), P. 104, and P. Katzenstein and N. Okawara, op cit., footnote 62, p. 66.

64 T. Aoki, “Japan’s Defence Industry,” Military Technology, July 1986, p. 49.
24 | Other Approaches to Civil-Military Integration

defense contracts represent only some 14.3 percent of income.65 The largest proportion of defense business in any major Japanese corporation

is held by Japan Steel Works, and it represented no

more than 33 percent of the company’s total sales

in Japan’s fiscal year 1989.66

Within such large defense contractors as MHI

and KHI, moreover, the defense “exposure” is

limited to certain divisions. The defense division

within a major Japanese corporation may depend

on military sales for up to 90 percent of its sales.67

The divisions themselves, however, are part of an

integrated firm, and the facilities under their control are almost certain to be integrated as well.

Thus, although MHI’s Shipbuilding & Steel and

Aircraft & Special Vehicles divisions are especially exposed to the vagaries of defense budgeting,

their total revenue represents less than half of the

company’s income (and not all of the contracts in

either division stem entirely from the JDA).68 The

company as a whole remains broad-based.

The Japanese DTIB is not as central to the national economy as is the Chinese DTIB, and the

Japanese approach to arms procurement is different from that of the United States. In the United

States, there is an emphasis on cutting-edge military performance, sometimes imposing very high

costs. In Japan, on the other hand, some analysts

have indicated that military roles and missions

have been secondary to other considerations.69

The Japanese focus is not necessarily on the production of the most advanced weaponry per se,

nor even on the fielding of superior defense

technology. Rather, the Japanese procurement

process treats production of defense equipment as

an adjunct to the civilian economy. Some observers suggest that defense production serves as a

stable consumer base for new products, a means of

gaining (and disbursing) R&D money, and a

means of developing advanced technologies and

capabilities. Unlike the United States, Japan has

chosen to forego the marginal additional cuttingedge performance in order to preserve an up-andrunning indigenous base.

Although Japanese weapon systems often contain extremely advanced products (e.g., advanced

radar technologies and new composites), the

weapons themselves are not necessarily as capable or as advanced as those of their American

counterparts. Thus, it has been said that “the JDA

fields neither technology nor weapons, but products.”70 For the Japanese, initiating production of

given products or spurring research in a given

technology is as important a reason to develop

weapon systems as the weapons themselves.

The relative weights of the players in the Japanese procurement process also differ from those in

either the Chinese or the American situations. The

primary characters are JDA, MITI, the Ministry of

Finance (MOF), and the Japanese defense

manufacturers.

JDA, unlike the Chinese PLA or the American

DOD, is the weakest of the players. Unlike MITI

or MOF, JDA is not a full-fledged ministry. Rather, it is an agency, a part of the Prime Minister’s

Office. Not only is it of lower bureaucratic standing, therefore, but it has less control over its own

fate than do full ministries. Thus, of the 10 bureaucratic appointments to JDA, at least four are assigned from other ministries. This situation is the

result of a deliberate effort to ensure continued civilian control and to underscore the relative unim65P. Finnegan, “U.S., Europe Part Paths on Defense Challenges,” Defense News, p. 6, July 20, 1992.

66”A Basis for New Growth,” Jane’s Defence Weekly, Aug. 17, 1991, p. 283.

67Fujii, “End to Long-Term Stable Growth—Defense Industry at Crossroads,” Nihon Keizai Shimbun, morning ed., June 25, 1991, p. 13., in

FBIS-EAS 91-126-A (July 1, 1991), p. 6.

68”Analysis: Mitsubishi Heavy Industries,” Jane’s Defence Weekly, Nov. 18, 1989, p. 1128.

69R. Samuels, op. cit., footnote 59, p. 170.

70M. Chinworth, op. cit., footnote 61, p. 47.
The Chinese and Japanese Arms Industries | 25

portance of the military in postwar Japan. It has

also meant in many cases, however, that considerations of technological development or commercial opportunity have had more influence on procurement decisions than they have in the

American system (see figure 3).

The definition of JDA’s strategies and mission

is coordinated by the Policy Bureau, which is as

likely to be headed by an official of the police as of

MOF. The staff departments of the three services

(Air, Ground, and Maritime Self Defense Forces)

then draw up their budget requests in relation to

the guidance promulgated by the Policy Bureau.

These requests are then forwarded to the Defense,

Equipment, and Finance Bureaus. The latter two

bureaus are headed permanently by officials assigned from MITI and MOF, respectively, while

the Defense Bureau is headed by a JDA official.

The Equipment Bureau determines whether a given product will be produced domestically or purchased abroad, and the Finance Bureau judges all

requests relative to JDA budgets. The respective

bureau heads often have no background in defense

per se, so they are more likely to view requests

from their own bureaucratic perspective, rather

than from JDA’s (although they do coordinate

with the Policy Bureau).

In the budget-formulation phase, MITI provides its input. MITI has tended to concentrate on

technological development, rather than on defense per se. Its decisions in this regard are informed by its close links with the defense contractors. These links are, in part, formed by its Aircraft

and Ordnance Division, which keeps MITI informed about the current capabilities of the Japanese DTIB. MITI is further assisted by various

Japanese industrial associations, including the Japan Defense Industry Association (sponsored by

JDA and MITI) and the Japanese Aircraft and

Space Industry Association (under the jurisdiction of MITI). 

MITI is also kept informed of developments

and attitudes within the Japanese DTIB by the

Keidanren, especially the DPC, which continues

to advocate essentially the same policies it has

pursued since its inception. Since 1989, the DPC

has spoken with the full authority of the Keidanren. MITI’s interests in the defense area are

aligned with those of the Keidanren, and particularly the DPC’s—namely, development of advanced, dual-use technologies assisted by defense

production and research. MITI and Keidanren are

also interested in preserving a viable production

base.

After the resulting differences are resolved

within JDA, the requests are forwarded to MOF.

The Ministry has generally pursued a hard line on

defense requests, seeking to keep defense expenditures at a minimum. When MoF and the other

relevant agencies have resolved their differences,

the JDA budget is then forwarded as part of the

Government Budget Proposal to the Diet and is

generally approved without much subsequent

comment. The JDA budget is then administered

by the Central Procurement Office (CPO).

In the course of this process, Japanese defense

efforts appear to be aimed at several goals. One is

the development of technologies, with a particular

emphasis on domestic production. Another is the

preservation of a viable defense base per se, and a

third is the development of equipment for JDA. To

support these goals, the Japanese have sought

maximum leverage from the resources committed

to the DTIB and the CTIB by integrating the two

as much as possible. These efforts have been facilitated by government policies and corporate structures that draw few distinctions between commercial and defense efforts, particularly at the

component and subsystem levels.

❚ Comparison of Japan with the United

States

The Japanese have clearly undertaken a very different approach toward the defense-acquisition

process than either their Chinese or their American counterparts. This is due, in part, to the relatively unique Japanese defense situation. Japanese defense considerations, for the most part, are

dominated by the United States. Japanese forces

need only concern themselves with self-defense in

the most local sense, that is, defense of the Home

Islands. Even that role is supported by significant

U.S. forces. In the nuclear arena, for example, the
26 I Other Approaches to Civil-Military Integration

Cabinet

Security Council

of Japan

(Internal Bureau)

I I

Prime Minister I

Director General of the Defense Agency

(Minister of State for Defense)

Parliamentary

Vice Minister

Joint Staff Council Chief of Staff, GSDF

(Joint Organs)

SDF Physical Training School

I

SDF Central Hospital

SDF District Hospitals

I

Prefectural Liaison Offices

I

National Defense Academy

National Defense Medical College

I

SOURCE Japan Defense Agency, Defense Of Japan, 1993, 1993
The Chinese and Japanese Arms Industries | 27

Japanese are wholly dependent on American

forces. Similarly, Japan relies on the United States

for guarding Japan’s sea lines and for some logistical support.

Japan’s approach toward its arms industry is reinforced by the international situation around Japan. Few states directly threaten the Home Islands. Although the post-World War II era had

seen both Beijing and Moscow characterized as

the primary threats to Japanese sovereignty, this

was in the context of the ideological confrontation

of the Cold War. Even then, in neither case was

there likely to be an invasion of the Home Islands,

at least absent a wider, global conflict. With the

passing of the Cold War, even the nominal threats

posed by the Soviet Union and the PRC have receded.

Japanese planners have had the luxury of focusing primarily on economic, rather than defense,

concerns. They have been able to make actual warfighting capabilities a lower priority than building

a technological and industrial base that strengthens the economy and ensures the existence of a defense base. This approach has been reinforced by

the development of very strong links between Japan’s corporate and government segments. The

Japanese DTIB has, therefore, avoided some of

the aspects of segregation that hinder the American DTIB.

Acquisition Laws and Procedures

The United States and Japan have developed different bodies of acquisition law. The United States

has sought to ensure accountability of defense

dollars through extensive, and often unique, accounting requirements. These regulations, in

many cases the consequences of past efforts to

limit waste, fraud, and abuse, frequently impose

a criminal penalty for failure to delineate and

abide by the separation of commercial and defense

investments, equipment purchases, and other expenditures. As a result, they serve to segregate the

DTIB and CTIB by imposing on defense firms

additional costs for doing business.

Japan has taken a different approach. Although

the Japanese government has nominally insisted

on separating defense and commercial projects

within corporations, the barriers between the two

elements are often very porous. This situation has

been possible, in part, because of the intimate relationship between Japanese government and Japanese industry. Indeed, the greatest example of Japanese integration involves the interaction between

the public and private sectors, rather than between

the DTIB and CTIB.

In some cases, JDA (with the acquiescence of

MITI and MOF) actually purchases items to foster

the development of aspects of a given industry.

Thus, for example, the National Defense Academy commissioned a “shock wind tunnel” from

Ishikawajima-Harima Heavy Industries (IHI) for

testing ultra-hypersonic vehicles at high Mach

numbers. The tunnel has been useful both in developing Japanese space launch vehicles and, for

IHI, in obtaining valuable experience in developing basic technologies.71 This experience will

presumably benefit IHI’s commercial as much as

its military business.

Such cooperation is also evident in JDAfunded R&D. Although JDA funding is supposed

to be restricted to military-related items, it often is

not. As a recent director-general of JDA’s Technical Research and Development Institute (TRDI)

acknowledged, “We tend to let the firm . . . use

the information and technology as they wish.

Sometimes firms will use the jigs and test equipment provided by our funding at the production

stage (or for other activities), but it is not usually

so easy to do this.”72

Another example of close Japanese corporategovernment relations involves production contracts. By value, 85 percent of Japanese procurement contracts are sole-source awards. Another

14 percent is awarded through limited competi71IHI Engineering Review, April 1993, in JPRS-JST-93-070-L, Sept. 13, 1993, p. 42.

72R. Samuels, op. cit., footnote 59, p. 194.
28 | Other Approaches to Civil-Military Integration

tion, in which all the designated companies usually win some portion of the final production runs.

Only 0.21 percent, by value, of contracts are

awarded in unrestricted competition.73

With both sole-source and limited competition,

prices and bids can be based on market costs when

comparable products are available from which

cost data can be drawn. In light of the pervasiveness of dual-use technology in the Japanese DTIB

and CTIB and the relative separation of R&D

from production in the costing phase, it is not surprising that procurement contracts based on market costs are possible even in instances where the

contract is for a military program. When there is

no commercial cost counterpart, the contracts have a

profit margin that peaks at 6.5 to 10 percent, and

costs are calculated on a cost-plus basis in which a

combination of elements is used. These include:

 materials costs,

 direct labor costs,

 other direct costs,

 indirect manufacturing costs,

 general managerial and sales expenses,

 direct sales costs,

 interest payments,

 profits,

 packing costs, and

 transportation costs.74

The Japanese do not require extensive, separate, special documentation of costs incurred for

any of these procurement contracts. Rather, they

apparently rely on “generally accepted accounting

practices” or on Japanese cost-accounting standards. Moreover, the Japanese Central Procurement Office follows a very liberal depreciation

policy, which includes a tendency to allow accelerated depreciation on facilities involved in the

production of defense-related items even when

those facilities may also be involved in production

of the same items for commercial purposes. Production contracts nonetheless apparently offer

one means for the DTIB to recoup costs incurred

by R&D.

Despite the opportunities offered by defense

production contracts, competition for them by

Japanese corporations is not necessarily cutthroat.

As one Japanese executive noted, the Japanese

and American approaches toward awarding prime

contractorship are very different. In the Japanese

case, “Battles between businesses to win [production] contracts are almost unheard of.”75 This is

hardly surprising because defense contracts are almost never awarded in a “winner-take-all” fashion. “Even firms losing out on bids as prime contractors for major programs often end up with a

significant piece of business as subcontractors,”

according to one analyst.76 Because these contracts tend to be for extended periods of time, even

the loser is likely to recoup initial investments.

Another difference between Japanese and

American acquisition procedures, which allows

greater integration in the Japanese case, involves

Japanese R&D. Unlike in the United States, the

primary source of JDA power is through the allocation of R&D, rather than production, contracts.

Administered by TRDI, R&D contract awards are

directly related to weapons-production contracts;

winning the former almost guarantees the latter, if

the weapon system is approved for purchase.

Thus, the most intense competition in the Japanese DTIB is usually for R&D contracts. As with

production contracts, however, JDA “often designates a few firms to submit proposals at the development stage for new projects.” (See figure 4).77

73M. Chinworth, op. cit., footnote 61, p. 56.

74M. Chinworth, op. cit., footnote 61, pp. 55-56.

75”In Self Defense,” Business Tokyo, February 1988, p. 52.

76M. Chinworth, op. cit., footnote 61, p. 57.

77A. Alexander, Of Tanks and Toyotas: An Assessment of Japan’s Defense Industry, RAND Report N-3542-AF (Santa Monica, CA: RAND,

1993), p. 20.
Division

Technical

Department

2nd Technical

Division

Sapporo Test Center Department of Ground Systems

Development

I

ShimokitaTest Center

Technical Advisors

Department of Naval Systems

Development

Department of Air Systems

Development

Department of Guided Weapon

Systems Development

Tsuchiura Test Center

Niijima Test Center

Gifu Test Center

SOURCE: Japan Defense Agency 1993
30 | Other Approaches to Civil-Military Integration

These R&D contracts, however, only rarely

cover the entire cost of R&D; they represent seed

money. An R&D contract is usually targeted on a

given area of interest, such as electronics or aerospace. For JDA, this provides an opportunity to

exert some influence over what technologies are

explored and developed, with more of an emphasis on militarily useful capabilities. For MITI and

other elements of the Japanese DTIB and CTIB,

though, the emphasis is on developing dual-use,

high-level technologies, with an emphasis on

commercially remunerative possibilities. Thus, in

contrast to the United States, “TRDI focuses on

basic research and development up to prototype

stage whereas the private sector either continues

the R&D process up to production or is involved

in deriving a military application from civilian

technology.”78 The objective with defense contracts in both R&D and production is as much to

establish a technological niche or a production

line for eventual supply of the Japanese CTIB (and

beyond) as it is to produce for JDA. Japanese

firms have a correspondingly greater interest in

seeking out commercial applications for products

and processes than do their American counterparts.

Japanese firms are aided in developing commercial applications for technologies by Tokyo’s

acquisition and accounting policies, particularly

in the area of technical data rights. Although some

acquisition regulations are nominally counterparts of the American Federal Acquisition Regulations (FAR), several analysts have noted that

there are few restrictions, either imposed by the

government or by corporations, on the flow of information and personnel between divisions within

a company. Although all data and patents produced from government-funded research are nominally the property of the Japanese government,

they are almost always left in the hands of the developing corporation. Indeed, unlike MITI, JDA

does not attempt to determine the state of a given

contractor’s technological base in order to determine JDA’s portion of ownership. In fact, TRDI

alone has less than one-quarter of nearly 2,000

patent applications resulting from TRDI-supported research. In many cases, firms will not even

inform JDA of potential commercial applications

resulting from TRDI-sponsored or -supported research, nor does JDA try to determine what the applications could be.79

The Japanese accounting requirements appear

to have exerted far fewer pressures on segregating

their DTIB from their CTIB than have the American requirements on segregating the U.S. DTIB

and CTIB. In the area of data rights in Japan, it appears that there has, in fact, been significant commingling of R&D resources and personnel at the

workbench level. Toward this end, JDA has not

pursued ownership of technical and intellectual information, even in cases where it has

helped fund development. Instead, it has allowed the corporations to profit from both the development of such technologies and their subsequent sales. This approach is similar in some

respects to the kind of industrial-government

cooperation currently sought in the United States

by the Department of Energy, the Advanced Research Projects Agency, and the National Institute

of Standards and Technology.80

Military Specifications and Standards

Military specifications and standards also appear

to be less of a barrier to integration in Japan than

in the United States. For the Japanese, the primary

concern is with the product itself, rather than with

78R. Drifte, Arms Production in Japan (Boulder, CO: Westview Press, 1985), p. 35.

79R. Samuels, op. cit., footnote 59, p. 194.

80For further discussion of American efforts such as the Cooperative Research and Development Program and the Advanced Technology

Program, see U.S. Congress, Office of Technology Assessment, Assessing the Potential for Civil-Military Integration: Technologies, Processes, and Practices, op.cit., footnote 1.
the means of its production. Japan has therefore

not developed an extensive body of military specifications and standards dictating how defense

goods and services are produced. Rather than

creating a separate set of military specifications,

JDA is apparently comfortable with using the

standards promulgated by the International Organization of Standards and will accept them or

compliance with DOD military specifications and

standards as sufficient.81

The Japanese have often succeeded in producing American-designed equipment to American

standards even though they have not specified precisely how that equipment is to be produced. Of

course, having a previously established standard

rather than a domestically set one maybe a factor

in obviating the need for a domestic military specification. It may also be, however, that Japanese

quality control on the civilian side is sufficient to

fulfill military requirements, at least for some

technologies, products, and services. Japanese

carbon-fiber composites manufactured by Toray,

for example, appear to meet both commercial and

military requirements. The composites are produced on a single line, according to one observer,

“without distinguishing commercial from military applications. Only quality assurance procedures are different.”82 This is apparently true for

much of the Japanese DTIB: separate testing and

quality-control facilities but common production

lines for commercial and military goods and services.

Militarily Unique Technologies

The Japanese have little interest in militarily

unique technologies. They have chosen instead to

emphasize the development of more dual-use-capable technologies. The financial incentives are

certainly weighted in that direction, particularly in

light of the Japanese ban on exporting weapon

systems. At the same time, Japanese definitions of

militarily unique technologies seem to be fairly

The Chinese and Japanese Arms lndustries | 31

The Japanese Maritime Self Defense Force’s ships are built to

domestic designs.

narrow, that is, the Japanese do not consider many

technologies to be militarily unique.

For Japan, pursuing technologies that have

both military and commercial uses makes greater

financial sense than pursuing technologies that are

primarily military in application. In the absence of

a major military establishment, development of

militarily unique technologies would impose prohibitively high costs. Avoiding excessive development of militarily unique technologies also

benefits commercial establishments because there

are fewer barriers between commercial and defense contracts. Defense contracts may, therefore,

serve to tide corporations over during lulls in commercial demand. Available facilities and work

forces in the Japanese shipbuilding industry, for

example, have been kept busy with JMSDF orders

when their order books have not been filled by

commercial demand.

Finally, the Japanese perspective that there are

few militarily unique technologies, coupled with

the structure of government subsidies of military

technological research, allows Japan to use weapons research programs as one way to provide experience in important areas, such as systems integration, or to provide an initial demand for

81 C. M. Aquino and C. D. Vollmer, Japan’s Defense Market, UP001RDI (Logistics Management Institute Report), p. 20.

82 R.J. Samuels, op. cit., footnote 59, p. 306.
32 | Other Approaches to Civil-Military Integration

future commercial technologies, as with galliumarsenide chips. Both of these considerations were

motivating factors for Japan’s FS-X and various

missile programs. In the view of some analysts,

disseminating the subsequent experiences gained

from such programs through both the commercial

and defense sectors is facilitated by the interlocking structure of Japanese conglomerates.

Emphasis on Military Performance

Military performance, in the sense of cutting-edge

military capabilities, has been less important for

Tokyo decisionmakers than has ensuring that a

Japanese DTIB remains in existence. Toward this

end, Japan has been prepared to accept high costs

for indigenously manufactured weapons, even

when cheaper counterparts are available from

abroad. The Type 90 tank, for example, costs several times that of an American M-1A1, due at least

in part to its much smaller production run.

In general, Japanese weapons show little evidence of being superior to foreign systems in

terms of their performance. The Japanese F-1

fighter of the 1960s, for example, despite high

costs, showed no performance advantage over the

F-104 or the F-4, both of which entered the Air

Self Defense Force (ASDF) at approximately the

same time as the F-1, or the Anglo-French Jaguar,

upon which the F-1 is modeled.

Higher weapons costs are accepted because of

the incentives under which the Japanese DTIB and

the overall defense structure are operating. The

Japanese rank production of cutting-edge military

equipment, with a preponderance of militarily

unique technologies, relatively lower than does

the United States. The primary Japanese interest,

instead, is the development of dual-use technologies, particularly those that might have great financial rewards as well as potential military applications. The F-1 gave the Japanese at least

some experience in the design of an aircraft, particularly systems integration. The American security guarantee has allowed the Japanese to focus

on the development of the commercial aspect of

advanced product and process technologies, particularly their efficient production, rather than on

the military aspects. MITI, for example, places

much greater emphasis on developing superior

technologies than on building better weapons.

❚ Integration of Levels of Production

There is much more interplay between the commercial and defense sectors in Japan than there is

in the United States. Indeed, it is probably safe to

say that the Japanese DTIB is firmly embedded

within the CTIB. This would seem to be the case,

moreover, at all three levels of analysis—the sector, firm, and facility levels.

The degree of integration of Japan’s civilian

and military efforts is not necessarily solely the result of deliberate policy choices, but rather is the

function of several factors, including, as noted

previously, the presence of American support

throughout the postwar period, limited military

budgets, political discomfort with military exports, and a different perception of the nature of

the government-industry interaction. The result is

a different DTIB from that found in either the

United States or the PRC.

Sector Level

At the sector level, the Japanese have pursued a de

facto integrated approach, as industrial sectors

emphasize dual-use. For most sectors, defense

represents less than 1 percent of total sales, and

only the ammunition and aircraft manufacturing

sectors have sales to JDA exceeding 5 percent of

total sales. In contrast, in the United States, major

portions of certain industries’ sales are made to

DOD, such as radio and TV communications

equipment (42 percent of sales), industrial trucks

and tractors (45 percent), and shipbuilding and repair (77 percent).83

83U.S. Department of Commerce, Economics and Statistics Administration, Bureau of Economic Analysis, National Income and Wealth

Division and Government Division , “National Income and Product Account Tables,” Survey of Current Business, August 1993, pp. 52-119.
The Chinese and Japanese Arms Industries | 33

Japan’s interest in dual-use technologies, both

in products and processes, is not new. In the

1950s, IHI obtained a vacuum heat-transfer furnace for high-precision forging for the J-47 military engine. Other Japanese corporations subsequently purchased license-built copies of the

furnace (manufactured by IHI) for automotive and

machinery manufacture. Thus, high-precision

forgings became pervasive in Japanese industry,

rather than being restricted to military-engine

manufacturing. In other defense-related industrial

sectors, TRDI’s R&D and contract-award processes (as described previously) were designed

specifically to provide incentives for the development of commercial as well as defense applications. For example, Japanese producers of carbon

composites manufacture them not only for the FSX, but also for fishing rods and golf club shafts.84

By providing seed money but no guarantee of defense production, the Japanese government has effectively channeled corporations into developing

in a commercial manner certain advanced technologies that MITI and JDA jointly believe are

worthy of interest.

The skills and technologies involved in such

high-technology areas as composite materials and

aerospace are considered to be of such potential

usefulness to the overall Japanese economy, and

particularly the CTIB, that they must be developed domestically. Development of a domestic

aerospace industry, for example, has long been a

Japanese objective. The FS-X was originally conceived as a way to facilitate this development,

with particular emphasis on systems-integration

capabilities. Foreign components would be used

only after Japanese sources had been exhausted.

The originally planned aircraft would have been

much more expensive than the current design

(based on the F-16), but only marginally more capable than modified F-16 fighter aircraft purchased directly from the United States. The acquisition of the relevant skills, however, was believed

to be sufficiently important to justify the enormous cost differential.

Similarly, the Japanese have sought to design

and build their own missiles. Domestic development of an autonomously guided air-to-air missile, a Japanese version of the American Advanced Medium-Range Air-to-Air Missile

(AMRAAM), has been accorded high priority by

MITI and JDA. Successful domestic design and

production of this air-to-air missile, according to

one source, is considered “absolutely necessary

even if the product is not used by the Air Self Defense Force.”85

In the R&D process, Japanese corporations

find it in their own interest to pursue an integrated

approach. In particular, given that even successful

military R&D programs may not guarantee a sale

to JDA, a corporation will have great incentives to

find additional uses for products from R&D programs in order to recoup the initial investment. Indeed, one analyst reported that “business practices

in commercial development figure prominently in

defense-related R&D. Many of the practices evident in commercial business are carried over into

defense research, development and production as

well.”86 One aim of Japanese defense R&D is the

production of commercial products. TRDI, in essence, hopes to promote the use of private sector

expertise in order to conduct R&D in advanced

areas of technology. At the same time, corporations hope to use TRDI funds as a subsidy for their

research.

Such efforts are further supported by the Japanese system of O&M. The Japanese, like the Chinese, have not developed the elaborate depot

structure that the United States has, in part because of the small equipment holdings of the Self

Defense Forces. It would be uneconomical for the

84Takashi Hata, “Will FS-X Take Off?” Air World (Tokyo) (January 1993), in JPRS-JST 93-068-L (Aug. 30, 1993), p. 20.

85Nikkei Sangyo Shimbun, Aug. 14, 1993, p. 1, in JPRS-JST-93-071L, Sept. 21, 1993, p. 34.

86M.W. Chinworth, op. cit., footnote 61, p. 39.
34 I Other Approaches to Civil-Military lntegration

SDF to spend scarce resources on creating art elaborate depot structure to support its relatively limited forces. Powerful elements of the Japanese bureaucracy have opposed the creation of such a

. structure. MOF, which has begrudged every yen

spent on defense, has had little interest in seeing

additional budgetary line items dedicated to the

SDF. MITI, too, has opposed the development of

an independent maintenance capability because it

has not wished to see the development of a separate authority for defense production or maintenance in light of its responsibilities under the two

weapons-manufacturing laws. This combination

of factors has served to block the creation of an

elaborate depot structure.87

Responsibility for the maintenance of most

military equipment is divided between the military units and the manufacturer. Units are primarily responsible for basic upkeep and relatively minor repairs. All Japanese depot-level O&M, on the

other hand, is the responsibility of the various

Japanese prime contractors upgrade and rebuild the engines

on the A) Self-Defense Force’s F-4Js.

87 R. Samuels, op. Cit., footnote 59, p. 147.

8 8 Ibid., p. 313.

manufacturers. Indeed, this is a primary source of

profit for certain defense contracts; the prime contractor, in one case, won all the overhaul and repair

work. 88 Japanese corporations are happy to conduct maintenance operations because of the added

opportunity to recoup initial costs that such operations provide.

The prime contractors for various engines, for

example, are responsible for the engines’ upgrading and rebuilding. The ASDF’S J-79s, for example, which power Japan’s F-4 Phantoms, are rebuilt by IHI, their manufacturer.89 Similarly, the

new Ground Self Defense Force Command System is expected to provide a steady income of several billion yen annually for many years to come

for the primary and subsidiary contractors, based

on both production and upkeep, including subsequent upgrades.

This situation, however, has not necessarily

proven completely satisfactory from JDA’s perspective. Inventory control, for example, appears

to be a problem.90 At the same time, JDA apparently lets contracts for the purchase of such lowtechnology items as automobile tires and other

items, rather than purchasing them directly from

the commercial sector. To resolve these situations,

however, it was suggested that more maintenancerelated work be assigned to the private sector, effectively making it even more integrated. 91

Finn Level

At the firm level, Japanese corporations engaged

in defense work are mostly integrated, insofar as

they seek both defense and commercial work, and

try to use their resources to meet both commercial

89 "JDA Defense Research, Contracts Outlined," in Foreign Broadcast Information Service East Asia daily report (hereafter FBIS-EAS)

92-098-A, May 20,1992, p. 25.

90 Naoski Usui, “Japan Will Streamline Acquisition Process,’’ Defense News, August 19,1991, p. 3.

91Ibid.
The Chinese and Japanese Arms Industries | 35

and defense needs. As noted previously, no major

Japanese defense corporations are entirely dependent on defense contracts for their profits, or even

for their income. Even the divisions within the

major defense contractors seek to diversify their

customer base, which can include commercial

areas. Thus, Kawasaki Heavy Industries is seeking to apply the technology involved in aircraft

production, especially in reducing wind resistance, to the production of linear railcars.92 Similarly, MHI’s Nagoya Controlled Propulsion System Laboratory, responsible for license production of the Patriot system, “is now seeking

markets for jet engines and hydraulic systems

used in aircraft doors.”93 Such efforts are not limited to aerospace and other high-tech areas; other

Japanese weapons makers have also sought to expand their product lines. The ammunition

manufacturer Asahi Seiki Industries Co. hopes to

develop a market for its advanced-press technology, which it derived from the production of cartridges and bullets. Such efforts are facilitated by

the absence of imposed barriers, which would separate commercial and defense operations.

Conversely, Japanese manufacturers of civilian

goods often apply their technology to the production of military items. The primary producers of

Japanese rocket fuel, for example, are the large

Japanese paint manufacturers, including Nippon

Oil & Fats, Asahi Chemical Industry, and Nissan

Paint. The reason for this conjunction is that their

product line already contained nitrocellulose.

Thus, “the paint industry achieved a breakthrough . . . on rocketry.”94 Indeed, virtually every major Japanese corporation does some defense manufacturing, although, as noted

previously, in only a few cases is the income generated a significant portion of corporate revenue.95

Firm-level integration involves more than

products, facilities, and equipment. Japanese personnel, too, are trained to have an expertise that is

application-specific, encompassing all relevant

portions of the field. In this manner, they can

move from defense to commercial projects with

minimal retraining. Engineers, for example, are

exposed to all aspects of a given sector—aeronautical engineering, design, and electronics. They

will then be moved as project requirements demand. According to one analyst, “In 1981, for example, the top officials of the MHI Nagoya Works

Second Technology Department (former designers of the T-2 trainer) supervised eleven divisions

and projects that included all structure and design

for civilian and military projects.”96 Similarly,

when MELCO was developing its active phasedarray radar system, it dispatched engineers from

its radar group to its semiconductor division so

that they could gain the skills involved in galliumarsenide chip fabrication, then returned them to

the radar section with their new-found knowledge.

This is not to suggest that the Japanese have deliberately chosen to pursue a more integrated approach, or that they have necessarily done so purely based on commercial considerations. As some

analysts have noted, because the Japanese apparently consider that few of their technologies are

militarily unique, free flow of information and

personnel makes a great deal of economic sense.

Many Japanese corporations have the view that

most technologies offer at least some potential

commercial opportunities. This viewpoint is further reinforced by the generally tightknit nature of

92Nonichi, “Changing Defense Industry,” in FBIS-EAS, p. 7.

93Keisuke Sawada, “Defense Industry Perplexed by Post-Cold War Budget Cuts,” Tokyo Shimbun, morning ed., June 25, 1992, p. 3, in

FBIS-EAS-92-127-A, July 1, 1992, p. 5.

94Kokubo, private translation, November 1986.

95P. Katzenstein and N. Okawara, op. cit., footnote 62, p. 67.

96R. Samuels, op. cit., footnote 59, p. 291.
36 | Other Approaches to Civil-Military Integration

Japanese conglomerates, which allows for crossfertilization in nondefense areas as well as defense

areas.

Facility Level

At the facility level, Japanese integration is often

far beyond that exhibited within the United States.

Japanese firms are encouraged to use a facility for

both defense and commercial production. In the

case of aircraft parts, for example, Fuji Heavy Industries manufactures F-15 landing gear, P-3

main wing spars, Boeing 767 main wing cowlings, and the whole UH-1B helicopter in the same

facility.97

In some cases, integration is the result of limited defense demand. At MHI’s tank-production

facility, for example, the Type 90 tank’s production equipment is shared with the manufacture of

forklift trucks and heavy-construction equipment.

The same test and measuring equipment and tools,

including jigs, are used on the commercial and

military sides.98 This approach is to be expected,

however, in light of the limited orders for the Type

90. Such integration allows MHI to leverage its

investments in heavy equipment. The result is a

much more integrated production line.

Some Japanese high-technology military items

are also purportedly obtained from dual-use production lines. This is, to a certain extent, facilitated by the absence of military specifications that

impose different manufacturing processes. Thus,

the active phased-array radar developed by Mitsubishi Electric (MELCO) for JASDF is “made entirely of commercial components.”99 In the absence of military specifications, there was never a

separation of the commercial and military production processes. The radar components were, therefore, of commercial origin. Similarly, MHI’s Nagoya facility contains a giant autoclave designed

to cure composite materials that works on both

military and commercial projects. Mitsubishi’s

MU-300 aircraft apparently uses many of the

same component-fabrication methods and lines as

does the company’s F-15Js. Only the final assembly lines are separated.100

In this regard, the Japanese fully recognize that

integration is a bottom-up, rather than a top-down,

process. Dual-use technology, as the chief engineer for MELCO noted, occurs primarily at the

component level, rather than at the system level. It

is more likely that opportunities for dual-use

technology will “share much commonality at the

component level but that at the system level, the

interflow between the civilian and defense sectors

is not easy.”101 This will, of course, vary by

technology. As one Japanese observer noted, “In

the field of electronics technology, the wall of military and civilian conversion is comparatively

low, and the development of various civilian operations is also possible.”102 Nonetheless, the Japanese emphasize cross-fertilization at the component level first and foremost. Japanese designers,

regardless of the nature of their projects, are interested in applying technology to the issue at hand,

without paying undue attention to whether the

technology is “commercial” or “military.” This, in

turn, facilitates facility-level integration.

COMPARISON OF THE PRC AND JAPAN

WITH THE UNITED STATES

Having examined the Chinese and Japanese cases,

what lessons, if any, can the United States draw

from them for the integration of its own DTIB and

CTIB? Both the Chinese and Japanese cases clear97R. Samuels, op. cit., footnote 59, p. 295.

98Ibid., p. 296.

99Ibid., p. 195.

100Drifte, p. 62.

101T. Tamama, Defense Research Center (III, 2, August 1, 1993), in JPRS-JST-93-083L, Oct. 29, 1993, p. 34.

102Nikkei Sangyo Shimbun (August 14, 1993), p. 1, in JPRS-JST-93-071L, Sept. 21, 1993, p. 35.
The Chinese and Japanese Arms Industries | 37

ly differ greatly from the American one; in particular, both Asian states have a history of very intimate relations between their commercial and

governmental sectors, to a degree that is not generally present in the American economy. In the

PRC, this is due, at least in part, to the state ownership of the means of heavy-industrial production,

whereas in Japan, this is primarily a matter of

policy and history, rather than ideology.

Both states’ assessment of their security situations differ from that of the United States. Both

Beijing and Tokyo believe that they currently face

a relatively benign security situation, especially in

the wake of the collapse of the Soviet Union. At

the same time, there has been less pressure on either state to emphasize the development of militarily unique capabilities over either dual-use capabilities or the application of commercial

technologies and processes to military products.

Indeed, development of indigenous defense industries in both Asian states is much more the result of conscious, planned choices on the part of

central authorities to develop a DTIB for explicit

defense and commercial purposes, rather than the

evolution of DTIBs in response to external security developments. 

Both states also have a very different perspective on the public good from that of the United

States. There are few signs that socioeconomic

goals, as understood in the American context

(e.g., assisting small or minority-owned businesses), exert influence on the structure of the

Chinese or Japanese acquisition processes. In the

PRC, the focus is primarily on raising the level of

technological sophistication within the overall

Chinese economy. In Japan, a higher priority is

placed on furthering technological goals than on

ensuring equal access for corporations to JDA’s

budgets.

This combination of considerations has produced in both China and Japan relations between

their respective DTIBs and CTIBs that are very

different from the American situation. That, in

turn, has affected the development of integration

policies. In China, for example, the emphasis, until the advent of Deng Xiaoping, was so heavily

weighted toward development of their DTIB that

the Chinese CTIB was neglected. Indeed, the Chinese DTIB and CTIB were almost completely

segregated until the Four Modernizations shifted

human and material resources from defense to

commercial and civilian economic development.

As a result, however, Chinese efforts at integration are distinct from those occurring in the Japanese or American economies. In particular, the

PRC’s efforts are taking place in the context of

state-run industrial sectors that are moving into an

impoverished commercial sector. The Chinese defense industrial sectors thus have a “captive audience” of consumers, as well as financial and political support from the state, to facilitate the process

of integration. Both of these considerations limit

the applicability of Chinese experiences to the

American case, although some lessons might be

drawn for public sector facilities.

Although the Japanese case is more akin to the

American situation, there are also significant differences between the Japanese and American

DTIBs and, therefore, between their respective integration policies. The Japanese DTIB developed

in the shadow of the American security commitment and thus was never expected to be the sole

source of military equipment and resources. Indeed, throughout the postwar period, the Japanese

have relied upon the United States not only for

military support but also for provision of many

weapons and component designs.

As with the Chinese DTIB, therefore, the Japanese DTIB is the product of explicit government

efforts to create a domestic defense industrial and

technological capability. In the Japanese case,

however, the primary emphasis was on developing high-technology industrial capabilities in certain sectors, rather than on the supply of weapons

per se to the Japanese SDF. Thus, while the Japanese have a very robust DTIB and domestic arms

industry, it is uneven; in some areas, the Japanese

have pursued kokusanka, while in others they

have been satisfied with licensed production of

foreign (primarily American) designs.

This selective approach, wherein the Japanese

chose to focus on only certain defense technologies and capabilities, has facilitated the Japanese

effort at integrating their DTIB and CTIB. By
38 | Other Approaches to Civil-Military Integration

picking and choosing which products and processes to pursue, the Japanese could, from the outset, design for dual-use. This process was further

encouraged by the Japanese decisions to limit the

size of their armed forces and to prohibit arms

sales. These factors constrained the development

of any economies of scale for the Japanese arms

industry and gave further incentive to development of dual-use, rather than militarily unique,

technologies and processes. MITI and JDA could,

and did, agree to seek weapons that would utilize

commercial technologies, as well as promote

commercial processes that would have defense

benefits (i.e., both spin-on and spin-off technologies). Japanese corporations, recognizing the lucrative potential of high technology and the limits

of the restricted Japanese defense market, in turn,

learned to pursue de facto integration, particularly

at the firm and facility level. They extended this

not only to components and subcomponents, but

also to personnel training and quality control.

In the course of developing its DTIB, the

United States responded to very different pressures and policies. The result was the creation or development of practices that have tended to promote segregation and the development of

weapons that are more specialized and, in most

cases, more advanced than those fielded by either

the PLA or the SDF. These practices include acquisition laws, militarily unique technologies,

and military specifications and standards.

❚ Acquisition Laws and Regulations

Acquisition laws, regulations, and culture are a

major contributing factor in the segregation of the

American DTIB from the CTIB. In both Japan and

the PRC, integration appears to have been facilitated by the absence of a discrete acquisition culture of the extent developed in the United States.

The absence of a more bureaucratized acquisition

structure allows for greater common use of facilities and personnel, that is, sector-level integration.

In both the PRC and Japan, the history of corporate-government relations has been less adversarial than it has been in the United States. In both

Asian states, there is a willingness to accept greater commingling of defense and commercial business, at sector, firm, and facility levels. The consequent blurring of the lines between private and

public use of facilities and resources is accepted as

an acceptable price, if not a subsidy, for technological innovation and economic development.

❚ Military Specifications

If the Chinese and Japanese are somewhat less

concerned with tracking every renminbi and yen,

they are apparently also somewhat less concerned

with specialized specifications and standards. Indeed, the evidence is unclear as to whether either

state has imposed a set of military specifications

and standards—dictating not only operational parameters but also methods of manufacture—as extensive as those of the United States.

In Japan, the objective appears to be to meld the

commercial and military segments of a whole

market for a given technology or item. Thus, Japanese quality control is structured to fulfill very

high standards, standards sufficiently stringent to

satisfy military as well as commercial requirements. In some cases, there may be additional

checks and inspections for certain items intended

for military end-users. These additional qualitycontrol measures are more easily accommodated

in the context of integration, however, than in an

entirely separate system of military specifications

and standards.

The same approach applies to Japanese personnel policies. Japanese designers are familiarized

with the entire spectrum of applications within

their specialty, ensuring that those processes that

are successful in the defense realm will be applied

to the commercial side and vice versa. A single

baseline of standards is applied to many technologies, products, and processes, further facilitating

cross-fertilization and integration.

❚ Militarily Unique Technologies

Militarily unique technologies exist in the arsenals of both Japan and the PRC. Neither the PLA

nor the SDF, however, has the same requirements

for, or the ability to provide, the unique military

capabilities that the American Armed Forces do.
The Chinese and Japanese Arms Industries | 39

This is due, in part, to Japan’s and the PRC’s different expectations of their armed forces’ missions and roles. As a result, cutting-edge technological capabilities within their defense

establishments are accorded lower priority than

they are in the U.S. military.

The PRC simply does not have the wherewithal

to provide the PLA with cutting-edge technology,

either in terms of the necessary scientific and technological expertise or the financial resources to

support it. Indeed, Chinese resources are strained

simply by the effort to mechanize and standardize

their current force structure. Instead, the Chinese

military has shown a propensity to rely upon

available technologies, within both the CTIB and

the DTIB, to fulfill military missions.

The Japanese have chosen to emphasize, as

noted previously, development of dual-use

technologies, rather than militarily specialized

ones. Purely military research offers limited market potential. Furthermore, Japan restricts the sale

of weapons abroad; it prohibits sales of completed

weapons and allows weapons technology to be

sold only to the United States. Purely military

technologies have, for the most part, a market

comprising solely the SDF. The Japanese appear

content, instead, to develop technologies that, although perhaps oriented toward military missions, will nonetheless also have commercial applications.

Whether or not Japanese national security has

necessarily been served by such a policy remains

to be seen, however. Japanese weapons have not

been tested in combat since World War II.

❚ Emphasis on Military Performance

Neither Japan nor China has introduced military

technology that is significantly more advanced

than its commercial technology. Until the 1980s,

for the PRC, this was a doctrinal issue, with “red”

and its emphasis on simple weapons in vast quantities taking precedent over “expert” and its emphasis on sophisticated weapons. As the PRC tilts

toward “expert,” it has become evident that the

Chinese DTIB, as currently constituted, is not capable of producing cutting-edge weapon systems.

Where the PLA emphasizes performance over

costs, this has generally involved the acquisition

from abroad of technologies—both military and

nonmilitary—that are more advanced than those

within the Chinese DTIB.

Japan, on the other hand, has a national technology base that is fully capable of producing very

advanced systems and components. Rarely, however, are such systems demanded solely for military production. Indeed, both the Japanese defense procurement system and Japanese

corporations are oriented toward the commercial

exploitation of advanced technologies, including

those that might be developed for military purposes. Where cutting-edge performance is demanded, it is sometimes for the sake of developing dual-use technologies and skills. As with

militarily unique technologies, however, it is unclear, at best, how well the Japanese Self-Defense

Forces would fare in any confrontation.

RELEVANCE OF THE CHINESE AND

JAPANESE EXPERIENCES TO THE

UNITED STATES

In light of the differences between the Chinese,

Japanese, and American cases in their defense acquisition structures and degrees of integration between their DTIBs and CTIBs, the potential for direct application of Asian experiences to the

American situation is limited. Nonetheless, some

observations are possible. For example, the absence in Japan of the extensive use of military

specifications and standards that have marked the

American DTIB suggests that a reliance on highquality production from the commercial sector

is possible.

The Asian cases also suggest that greater integration of the research, development, and

manufacturing of defense and commercial goods

is possible. In particular, the more fundamental

the technology, the easier it is to integrate. The

Chinese appear to have generally succeeded at

their attempts at integration because they have

been integrating low-level technology (and because of enormous demand).
40 | Other Approaches to Civil-Military Integration

The Japanese experience reinforces the observation made in the U.S. base that it is easier to

integrate the manufacturing of components and

subcomponents (e.g., composites and computer

chips) than it is to integrate the assembly of systems (e.g., commercial and high-performance aircraft). Manufacturing components and subsystems would, therefore, seem to be very amenable

to integration where artificial barriers are not imposed between commercial and military production.

Along these lines, too, the more basic processes may be more amenable to integration.

This involves not only the production of components, but also their initial design. It is evidently

possible to exploit the common backgrounds and

training among designers and engineers for both

commercial and military ends. With this in mind,

the design as well as the assembly of even technologically advanced military equipment might be

integratable with commercial counterparts if accounting rules allowed such measures. This amenability to integration is likely to be most successful at dual-use production facilities. The Japanese

case suggests that there are few inherent reasons

that dual-use equipment, embodying technologies

common to both the DTIB and the CTIB, could

not be produced on a single production line and assembled, or even simply inspected, on separate

lines in light of the different quality-assurance requirements. Such integration, however, presumes

that commercial-quality standards are sufficient

to support military requirements. Thus, an implicit lesson is that integration demands stringent degrees of quality control, regardless of the end user.

Both Asian states are clearly interested in integration at the workbench level, that is, in integrating their commercial and defense research efforts. This would appear to be a logical pursuit

because the results of research efforts, both defense and commercial, might benefit both commercial and defense efforts. Moreover, it allows

more efficient use of scarce, and usually expensive, personnel, equipment, and facilities.

The Japanese case suggests that there are

many component technologies and processes

that are not truly militarily unique. Too often,

militarily unique technologies are cited as a reason for military specifications, and military specifications are considered necessary for the production of militarily unique technologies. However,

as seen in Japan and the PRC, regardless of the

level of technological sophistication, many

technologies, particularly those at the lower tiers,

have dual-use potential. In addition, it is not necessary to organize or manage production of such

components differently for commercial and military end users. Were performance specifications

(i.e., those relating to form, fit, and function) to

predominate, rather than manufacturing and other

specifications detailing how an item is to be

manufactured and assembled, it is likely that there

would be far fewer militarily unique technologies

at the lower tiers.

Militarily unique technologies certainly do exist. Those related to the design, development, and

production of weapons of mass destruction, for

example, are almost certainly militarily unique.

Similarly, there may be some technologies (e.g.,

those behind radar-absorbent materials and electronic-warfare programming) whose dissemination to the CTIB might be detrimental to national

security. These would tend to be the exception,

rather than the rule, however.

Finally, both Asian cases indicate that CMI is

not cost-free. Although the Chinese and Japanese

economies are more integrated than the American

economy, this is achieved at a price. In particular,

there are questions about the quality of the weapons produced by both the Japanese and Chinese

DTIBs. There is reason to suspect, at least, that

American equipment performs better than either

their Chinese or Japanese counterparts. The extent

to which the high quality of American equipment
The Chinese and Japanese Arms Industries | 41

is due to the structure of the American DTIB, and

whether the same level of quality could be maintained in an integrated environment, is unclear.103

The Chinese and Japanese structures of government-industrial relations are very different from

that of the United States. Replicating in the United

States the degree of integration in the PRC or Japan would probably impose political and economic costs that are absent, minimal, or acceptable in

the PRC and Japan but that would not be acceptable in the United States. In particular, it is unlikely

that the American system would support the ambiguity inherent in the commercial use of public facilities and, more importantly, of public resources.

The slighting of socioeconomic goals would also

be unlikely to be acceptable to Americans.

103 U.S. Congress, Office of Technology Assessment, Assessing the Potential for Civil-Military Integration: Technologies, Processes, and

Practices, op.cit., footnote 1, especially ch. 2.