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Chinese Army Moves Into Business

May 2, 1992

SHENZHEN, China (AP) _ Want a piece of the world’s largest standing army? Then buy into China Southern Glass, the first Chinese company to sell stock to foreigners since the communists took over in 1949.

Southern Glass is 26 percent owned by North Industries Co., the biggest weapons maker controlled by the People’s Liberation Army.

North Industries is one of thousands of businesses, partially or wholly owned by the military, that have embraced market reforms in a desperate effort to modernize the Chinese military machine.

Faced with shrinking arms exports and a huge technology gap with the West, China’s military hopes its 50,000 companies can generate enough profits to finance weapons purchases and development of advanced technology.

Factories are being retooled to churn out, along with tanks, consumer products from refrigerators to rucksacks. Industries that were moved to the interior 25 years ago, to protect against a world war that never came, are being returned to transportation hubs.

Army industries aggressively seek markets abroad and joint ventures with Western partners.

Western military analysts generally deride the perception that the military’s transformation is part of a ″peace dividend.″ China is turning guns into butter, they say, to buy and develop better guns.

″The goal is a stronger army,″ said Li Ngok, an expert on the Chinese military at the International Institute for Strategic Studies in London.

China’s official Economic Daily concurred last year. It said the transformation was necessary so the military-industrial complex could make itself ″highly adaptable for war.″

The change has taken many forms, some of them bizarre.

Army units have opened shooting ranges, renting their weapons to thrill seekers.

They run the gamut from a rifle range outside Nanning, in the south, to the China North International Shooting Range on Beijing’s outskirts, where a customer can plow a missile into a mountain or waste a hut with an anti-tank weapon.

Throughout China, the military operates gas stations and driving schools, selling army fuel and time in army trucks to civilians.

A school in coastal Fujian province used so many trucks recently that Western military analysts said they thought the army was conducting maneuvers to threaten Taiwan, 100 miles away.

Night life is a favorite for investment because of the rapid growth in urban China’s disposable income. Normal 100, an army-owned nightclub in Canton, has a wallpaper motif of lips, breasts and buttocks.

Beijing’s best hotel is the Palace, a 578-room tower on Goldfish Lane jointly owned by the Peninsula Group of Hong Kong and the army’s General Staff Department. Han Brouwers, the Dutch general manager, has three army officers on his staff.

″The chief of the General Staff Department treats the Palace like his personal canteen,″ Brouwers said. ″It is extremely strange.″

In many cases, the army gets Western help.

When Southern Glass, listed on the stock exchange in this southern city, issued $11 million worth of shares to foreigners in December, it had legal assistance from Baker and MacKenzie, a New York law firm. Citicorp is a clearing house for the shares.

Boeing, Mercedes-Benz and Terex, an American mining company, are among many Western companies that have joint ventures with the military, according to official Chinese reports.

Although the ventures have civilian purposes, profits go to the military, which raises the question of whether Western businesses should help strengthen an army that might threaten Western interests in Asia.

In late February, for example, China passed a law reserving the right to use force to take three disputed groups of islands that straddle shipping lanes off its coast.

The military’s desire for change stems from the realization that the old way of fighting no longer wins. Two lessons brought the point home: China’s border conflict with Vietnam in 1979 and the success of high-tech weapons in the Gulf War.

In the 1980s, Chinese strategists abandoned the Maoist concept of ″people’s war,″ which envisaged China being defended by a large, lightly armed infantry. Instead, they embraced the strategy of ″local war″ - small, intense conflicts between modern, highly professional forces.

Starting in 1985, the army reduced its ranks by more than 1 million, to 3.2 million soldiers. More cuts have been predicted.

China began a global search for high technology with military applications. The FBI calls Beijing the greatest security risk in the world and advertises in American Chinese-language newspapers for information about Chinese spies.

In the 1980s, China’s military saw arms exports as the best way to finance its transformation. It sold an estimated $10 billion in weapons during the 1980s, according to the Stockholm Peace Research Institute, but most analysts believe secret deals made the total much higher.

The proceeds helped China develop its advanced T80 tank and the M9 and M11 missiles, which have ranges of 370 and 180 miles respectively.

Arms sales have declined since the Iran-Iraq war ended in 1988, to $1 billion last year from the 1986 peak of $2 billion, and retooling has increased.

In 1979, civilian goods were only 8.1 percent of the military’s industrial output. The figure reached 65 percent in 1990 and the goal for 1995 is 70 percent, the official China Daily reported.

North Industries makes more than half of China’s motorcycles and 30 percent of its minivans, said Tian Ruizhang, the deputy general manager.

Its 1992 export catalogue is a glossy affair with nine sections and color photos of products ranging from motorcycles to oil-drilling machines, eyeglasses to eggs.

The weapons section opens with a rustic shot of three rifles, a dead owl, a pack of Peony cigarettes and a canteen. Also available are sport rifles, a copy of the American M16 and pistols with inlaid grips.

″We have dozens of offices and subsidiaries abroad,″ the catalogue boasts. ″Norinco has established trade relations with more than 70 countries.″

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