Defense Industry Restructuring

1999 Restructuring

In 1999 the State Council approved the restructuring of China's defense and technology industry. Each of the five largest defense-related state-owned enterprises (SOEs) was divided into two new enterprises, resulting in ten new corporations:

NUCLEAR
China National Nuclear Corporation (CNNC) was divided into China National Nuclear Corporation (CNNC) and China Nuclear Engineering and Construction Corporation (CNEC);

AEROSPACE
China Aerospace Corporation was divided into China Aerospace Science and Technology Corporation (CASC) and China Aerospace Machinery and Electronics Corporation (CAMEC);

AVIATION
China Aviation Industry Corporation (AVIC) was divided into China Aviation Industry Corporation I (AVIC I) and China Aviation Industry Corporation II (AVIC II);

SHIPBUILDING
China State Shipbuilding Corporation (CSCC) was divided into China State Shipbuilding Corporation (CSSC) and China Shipbuilding Industry Corporation (CSIC);

ORDNANCE
China Ordnance Industry Corporation (OIC) was divided into China North Industries Group Corporation (CNGC or Norinco) and China South Industries Group Corporation (CSG).

Restructuring Patterns and Goals

The corporations were generally reorganized so that defense-oriented subsidiaries were consolidated within one of the new enterprises and commercial/civilian subsidiaries within the other. In some cases, the administrative or regulatory portion of an original corporation was split off to form a separate government body under the authority of the new Commission of Science, Technology and Industry for National Defense (COSTIND). The new COSTIND, which retained the name and many of the responsibilities of the former COSTIND, was removed from the control of the Central Military Commission and placed under the State Council.

There were several motivations behind the 1999 restructuring. One central goal was to improve the efficiency of state-owned enterprises (SOEs) by reducing government controls, thereby forcing the firms to become more responsive to market forces. Another aim of the reforms was to separate government and commercial functions in order to limit potential conflicts of interest. Prior to restructuring, many of the largest defense corporations were responsible for regulating their own industries, as well as representing the country in an official capacity. Finally, the reforms were also intended to improve the quality of weaponry produced for the military.

Zhu Rongji outlined these goals in his five main purposes of restructuring. These were to: (1) separate government from businesses; (2) set up a mechanism of fair competition; (3) concentrate scientific research on ensuring production and development of weaponry and equipment; (4) promote better military-industrial layout and restructuring; and (5) create a good environment for enterprises to free themselves from difficulties and get reinvigorated.

Nomenclature

Some of the new corporations that emerged after restructuring were given the same name and/or acronym as their predecessor, even though they are regarded as new entities. This has caused a certain amount of confusion among analysts. In addition, many companies are known by a number of different names, and in some cases an official Chinese name is rendered into several different English translations. In the interest of minimizing confusion, each entry in this primer provides the official Chinese title and most commonly used official English translation as a heading, then includes any other frequently used names below.

Updated 11/03/2003

This material is produced independently for NTI by the James Martin Center for Nonproliferation Studies at the Monterey Institute of International Studies and does not necessarily reflect the opinions of and has not been independently verified by NTI or its directors, officers, employees, agents. Copyright © 2007 by MIIS.