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I posted it here in case you are too lazy too check it out on the defense section.:china:
Part of a larger RAND Project AIR FORCE study on Chinese military modernization, this study examines the current and future capabilities of China’s defense industry. The goals of this study are to...

1. Assess recent trends in China’s 25-year-long effort to reform its defense-industrial operations

2. Analyze the individual strengths and weaknesses of four specific defense-industrial sectors: missile, military aircraft, shipbuilding, and information technology/defense electronics

3. Explain variations in performance among different defenseindustry sectors, with a focus on differences in institutional arrangements, incentives, and exposure to market forces

4. Evaluate the prospects for China’s defense industry and its ability to contribute to military modernization.

This is a summary only, Read Full Report Here in PDF format

Over the past 25 years, a prominent and consistent conclusion of Western research on China’s defense-industrial complex has been that it is rife with weaknesses and limitations. This study argues for an
alternative approach. From the vantage point of 2005, it is time to shift the focus of research to the gradual improvements in and the future potential of China’s defense-industrial complex, rather than
concentrating on its past and persistent weaknesses. Certain Chinese defense-industrial enterprises are designing and producing a wide range of increasingly advanced weapons that, in the short term, will enhance China’s military capabilities in a possible conflict over the xvi A New Direction for China’s Defense Industry future of Taiwan and, in the long term, China’s military position in Asia. More specifically, the following trends underscore the need to focus future research on the gradual improvements in China’s defense-industrial capabilities:

• As measured by improvements in the quality of the output of China’s defense enterprises, defense-industrial reform has not only taken hold but even accelerated in the past several years (since the late 1990s). These trends suggest a defense industry that is emerging from the doldrums of two and a half decades of systemic neglect, inefficiency, and corruption. The rates of modernization vary by sector, but a modicum of successful reform has been realized across key parts of the defense industry.

• The improvements in China’s capabilities for defense research, development, and production have been mixed within sectors and uneven across them. While sweeping conclusions about the backwardness of the defense-industrial complex are no longer accurate, similar claims about systemic reform are equally unwarranted. This study argues that the current research and development (R&D) and production capabilities of China’s defense industry must now be evaluated on a sector-by-sector basis.

• China’s senior political, industrial, and military leaders have called the next 20 years the “critical stage†(guanjian jieduan) in China’s modernization of its defense-industrial base. Thus defense-industry reform and renovation will be a gradual, deliberate, and consistent process. It is not likely part of a crash effort requiring a dramatic shift of national priorities from economic development to military modernization.

Explaining the Recent Progress in China’s Defense Industry

The recent progress in China’s defense-industry modernization can be explained by four mutually reinforcing considerations.

First, the government has consistently devoted more funds to weapon acquisition. From 1990 to 2003, the official defense-budget allocation for military equipment (zhuangbei 装备) grew from 5 billion RMB to 64.8 billion RMB. These increases are about twice the rate of growth of the official defense budget. Also, the share of the budget devoted to equipment increased from 16.3 to 34 percent in this time period. For the period 1997–2003, according to official Chinese budget figures, the amount of funding for equipment grew 153 percent, more than for the other two categories in the official defense budget. Such defense spending is bound to positively affect output; these increases likely contributed to the pace at which new systems have come online in recent years. However, the benefits of such increased spending are limited unless defense enterprises actually improve their research, development, and production capabilities.

Second, the gradual development and commercialization of some defense enterprises during the transition in China’s economy over the past 25 years have improved their research, development, and production capabilities. The robust and rational commercial business operations of select defense enterprises allowed the accumulation of “spin-on†benefits in some defense sectors. Defense enterprises with the greatest exposure to international markets have been especially effective at improving their R&D and production capabilities, through both partnerships and competition with foreign firms.

Third, the defense industry in the past decade has had consistent access to limited amounts of foreign military equipment and technical assistance, especially from Russia and Israel. This access has assisted the efforts of some defense sectors to copy-produce weapon systems, to integrate advanced technologies into China’s production lines, and to raise the technical expertise of Chinese personnel involved in defense production.

Fourth, in past decades, Beijing largely avoided implementing the type of fundamental reforms, such as rationalization and consolidation, which were needed to revitalize the defense industry. However, beginning in spring 1998, China’s leadership adopted a new series of policies to revamp the structure and operations of the defense procurement system and to reform the operations of defense enterprises. At a minimum, these reforms importantly signaled recognition of the depth of the problems in China’s defense-industrial system. More importantly, these policies initiated institutional changes in the management of China’s defense industry in ways that outstripped past efforts in both scope and depth. Specifically, China’s leaders aimed to inject into China’s defense-industrial system the principles of “competition, evaluation, supervision and encouragement,†known as the “Four Mechanisms†(sige jizhi 四个机制). The new reforms were intended to alter both the structure and operation of China’s defense industry. Reforms are occurring both at the central-government level and at the enterprise level. In general terms, the reforms aimed to centralize and standardize weaponprocurement decisions at the central-government level of operations while decentralizing defense-enterprise operations in order to increase incentives for efficiency, higher-quality production, and, eventually, innovation (see pages 22–24).

Sector-by-Sector Analysis

The changes in the structure, operation, and production capabilities of China’s defense-industrial complex are most evident at the level of the individual defense-industrial sectors. This study includes four case-study chapters, which examine in detail the capabilities of China’s missile, shipbuilding, military aviation, and information technology/defense electronics sectors. These sectors were chosen because they all contribute to the Chinese military’s future powerprojection capability. As indicated in these case studies, reform of the defense industry has been uneven. We find that in each of these sectors the capabilities of manufacturers to design and produce key systems are improving, but weaknesses and limitations persist depending on the sector. Some have been more successful than others: Improvements in information
technology and shipbuilding have been extensive, while those in aviation have lagged.

Missile Sector
Partly a legacy of its position as one of China’s strategic weapon programs that received preferential treatment, China’s missile sector has historically been one of the brightest stars in China’s defense
industry. While technological progress since the 1980s has been slow, it has accelerated since 2000. Missile-production enterprises continued to develop and produce new and increasingly advanced ballistic and cruise missiles—including serial production of some of these systems, such as the new variants of the DF-11 (CSS-7) and DF-15 (CSS-6) short-range ballistic missiles. China may soon begin deploying land-attack cruise missiles, fast and highly accurate anti-ship cruise missiles, modern long-range surface-to-air missiles, and anti-radiation missiles. China’s ability to produce and deploy increasingly high-quality systems in a timely manner will serve as an indicator of continued reform of the missile sector (see pages 51–108).

Shipbuilding Sector
China’s shipbuilding industry has gradually modernized since Deng Xiaopings’s reform and openness policies. It rapidly engaged international markets in the 1980s and, as a consequence, gained consistent access to foreign shipbuilding equipment, capital, and know-how. China is now the world’s third-largest shipbuilder. As its commercialshipbuilding business expanded, its naval-production capabilities benefited as well. China’s shipbuilding industry now produces a wide range of increasingly sophisticated naval platforms using modern design methods, production techniques, and management practices. China’s shipyards are now producing more-advanced naval vessels more quickly and efficiently than in the past. These improvements are best reflected in the serial output of several new classes of military ships in recent years. These innovations and heightened production rates are a first for China’s shipbuilding sector and are likely to continue in the coming years (see pages 109–154).

Military-Aviation Sector
For years, China’s aviation industry suffered under the weight of a large, bloated, technologically unsophisticated, and highly inefficient collection of R&D institutes and factories that failed to produce modern military aircraft in a timely manner. In the past five years, limited signs of increasing progress in this sector have begun to emerge. China’s first indigenously designed and produced combat aircraft (JH-7/FBC-1) has recently entered service, and China is on the verge of producing a domestically developed, fourth-generation aircraft (known as the J-10/F-10), albeit with substantial foreign design assistance. It has also made significant progress toward producing turbofan engines for its newest fighters. Important gaps in China’s aviation design and production capabilities remain, however. China has not yet mastered serial production of such complex aviation platforms as fourth-generation fighters, nor is it able to produce heavy bombers or large transport aircraft. And it has yet to field an indigenously designed helicopter (see pages 155–204).