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Start | US-China Trade and Economic Relationship | China's Security-Related Activities | China's Energy and Environmental Policies and Activities | China In Asia | China's Media and Information Controls Conclusions | Additional Views | Appendices

Chapter 2 China’s Security-Related Activities

Section 1: China’s Military Modernization

‘‘The Commission shall investigate and report on—

‘‘REGIONAL ECONOMIC AND SECURITY IMPACTS—The triangular economic and security relationship among the United States, [Taiwan], and the People’s Republic of China (including the military modernization and force deployments of the People’s Republic of China aimed at [Taiwan]), the national budget of the People’s Republic of China, and the fiscal strength of the People’s Republic of China in relation to internal instability in the People’s Republic of China and the likelihood of the externalization of problems arising from such internal instability.’’

U.S. Perspectives on China’s Military Modernization

Beijing’s most recent defense White Paper, China’s National Defense in 2006, outlines the objectives of China’s national defense policy and the course of its military modernization. Mr. Cortez Cooper, Director of East Asian Studies at Hicks and Associates, Incorporated, summarized these objectives in his testimony before the Commission:

1. Uphold national security and unity, and ensure the interests of national development.

2. Provide the source of strength for consolidating the rule of the Communist Party . . . and a solid security guarantee for sustaining this period of strategic opportunity for national development.

3. Guard against and resist aggression . . . defend against violation of China’s territorial sea and air space, and borders.

4. Oppose and contain the separatist forces for Taiwan independence and their activities.

5. Take precautions against and crack down on terrorism, separatism, and extremism in all forms.[1]

Although official Chinese statements and White Papers maintain that China’s security policy is purely defensive in nature, Mr. Cooper contends that the People’s Liberation Army (PLA) derives offensive missions from these objectives. Mr. Cooper further argues that the requirement to deter Taiwan from pursuing independence is the core driver for the PLA’s development of offensive missions.[2] The importance to China of this objective requires the PLA to possess the ability to launch offensive operations against Taiwan should it decide to do so, and to deter and delay the United States or other countries from assisting in Taiwan’s defense.[3]

Contingencies involving Taiwan will remain the central focus of Chinese planning and force acquisition for the near term, and according to Dr. Bernard Cole, Professor at the National War College, the ability of Taiwan’s defense forces to defend the island in the event of a Chinese attack is diminishing. In his testimony, he noted that while Taiwan’s armed forces are arguably better trained than their PRC counterparts, they also are relatively under-armed in every service.[4] Dr. Cole emphasized the importance of this by noting that if armed conflict were to break out between the two, it is unlikely that Taiwan could withstand the pressure from the PRC for more than a few weeks. He also remarked that, even with the addition of the defense systems funded by the Special Budget that was stalled in the Legislative Yuan for more than five years, Taiwan’s armed forces still would face a significant challenge to defending the island.[5] It is doubtful that the small portion of defense items finally approved by the Legislative Yuan in June 2007 will do much to decrease the strategic challenges faced by Taiwan.[6] Indeed, it has become the consistent criticism of the United States government over the past decade that Taiwan is not preparing sufficiently for its own defense and is too reliant on the potential intervention of U.S. forces. Notably, China is preparing for this potential intervention as it seeks to develop forces that can deter or effectively counter U.S. operations in and around Taiwan.

The U.S. Department of Defense’s 2007 Annual Report to Congress on the Military Power of the People’s Republic of China points out that China’s first objective in order to prevent Taiwan’s independence is to prepare its military to be able to pursue broader regional and global objectives.[7] Dr. James Holmes, Associate Professor at the Naval War College, testified that once China ‘‘secures the East, Yellow, and South China Seas to its satisfaction, Beijing will vector its nautical energies not eastward but toward the south and southwest, where its interests in energy security and economic development lie.’’[8] This mission includes protecting sea lanes that support the transport of resources vital to China’s economic growth and securing China’s territorial claims, as well as confronting regional threats of terrorism.

Components of Chinese Military Modernization Expenditures versus Capabilities

Western literature on Chinese military modernization, as well as Chinese National Defense White Papers, acknowledge that China presently is in the midst of a lengthy round of extensive military modernization with the aim of creating a professional, high-technology fighting force equal to those of the world’s best militaries.[9] To this end, according to International Monetary Fund data, China raised its defense budget at an annual average rate of 11.8 percent (inflation adjusted) per year from 1996 to 2006.[10] When that rate is compared to a GDP growth of 9.6 percent (inflation adjusted) per year during that some period, it is clear that military development is a high priority for Beijing.[11] In March 2007, the Chinese government news agency announced that China’s defense budget would increase by 17.8 percent this year to a total of $44.94 billion.[12] The Pentagon believes this figure is significantly understated and that China’s actual defense budget is closer to two or three times this amount, or $85–$125 billion.[13] Because of the opacity of Beijing’s expenditures, particularly those that are military-related, it is difficult for analysts to agree on precise figures.

In his testimony before the Commission, Defense Science Board Chairman William Schneider argued that looking at capabilities (outputs) rather than budgets (inputs) in these assessments ‘‘may in some ways be more informative than trying to calculate how the inputs are measured.’’[14]

The increasingly sophisticated capabilities purchased with such expenditures are readily demonstrated and serve as a good measure by which to judge the success of China’s military modernization endeavor. While larger defense budgets do not necessarily reflect an increase in capabilities, in the case of Beijing’s funding of the PLA’s modernization, the Commission believes there is a strong correlation. Analysts and policymakers on numerous occasions have been surprised at the pace of China’s achievements. Testifying before the Commission, Congressman J. Randy Forbes (4th District of Virginia) expressed his experience in witnessing China’s military developments:

The only thing . . . that continues to surprise me, is that our government continues to be surprised over and over again by what we find and what we see in the development of China.[15]

In its 2006 Quadrennial Defense Review Report (QDR), the Department of Defense categorized the military threats facing the United States in four groups: (1) traditional warfare; (2) disruptive warfare, which relies upon asymmetric capabilities that exploit an opponent’s weaknesses; (3) catastrophic warfare through the use of weapons of mass destruction (WMD); and (4) irregular warfare in which combat operations are carried out by dispersed, non-state actors such as terrorists.[16]

The Commission used this framework to organize its March 2007 hearing on the progress China is making in modernizing its military. The analysis in this section focuses on the impact of newly acquired capabilities within these groupings, rather than on Chinese military expenditures. Because there is no evidence of which the Commission is aware that China is engaged in sponsoring or supporting irregular warfare, this analysis will address only the other three categories.

China’s Traditional Warfare Capabilities

The PLA is improving its traditional warfare capabilities by purchasing new advanced systems and by increasing the capabilities of its indigenously produced systems. As China surveys scenarios of potential future conflict, one of the most likely is a conflict over Taiwan in which the United States and/or Japan may intervene. This understanding has guided China’s investment in its conventional military forces over the last 15 years, during which the majority of the resources for weapons acquisition has gone to the Navy and Air Force rather than to the Army. Nonetheless, the current pattern of military acquisition also suggests that China is preparing consciously for other types of and locations for armed conflict (or efforts to deter conflict with shows of force).

Testifying before the Armed Services Committee of the U.S. House of Representatives in June 2007, then-Deputy Under Secretary of Defense for Asian and Pacific Security Affairs Richard P. Lawless noted improvements China has made in its conventional weapons, including the production of second generation nuclear powered submarines, fielding of air and amphibious lift capabilities, and introduction of new amphibious armored vehicles in ground forces based opposite Taiwan.[17]

Navy

The PLA continues to modernize its Navy with an emphasis on those platforms that are best suited for littoral or ‘‘green water’’ operations. Chinese strategists are well aware of U.S. military assistance to Taiwan and are developing strategies and capabilities to deter or delay the arrival of U.S. forces in the theater. Chinese doctrine in this area stresses the use of pre-emptive, decisive strikes on forward bases and staging areas such as Guam and Okinawa, and employment of a variety of platforms to deny the operational use of the waters in the Chinese littoral.[18] Presently, the PLA Navy possesses the capabilities to maintain sea denial operations out to 400 miles from China’s coastline for a period of days.[19] By 2010 China is expected to be able to sustain such operations for a period of weeks.[20]

China has completed the acquisition of a fleet of a dozen Kiloclass submarines from Russia. It also obtained from Russia a complement of advanced SS–N–22 Sunburn and SS–N–27 Sizzler supersonic anti-ship cruise missiles,[21] the former to give its Sovremenny-class destroyers supersonic anti-ship missile capability and the latter to give its Kilo-class submarines and possibly also its Yuan-class submarines comparable anti-ship capability.[22] These low altitude, sea-skimming missiles were specifically designed for attacking U.S. aircraft carrier strike groups and to defeat the Aegis anti-missile system by employing a low cruising altitude and supersonic speed.[23] Simultaneously, the PLA Navy is launching everlarger numbers of indigenously developed Song- and Yuan-class submarines, the latter of which may be equipped with an air-independent propulsion system for improved endurance.[24]

China’s Navy may not yet have a consistently reliable means to detect and target oncoming U.S. vessels, although it has a variety of means of acquiring limited targeting information.[25] Since 1996, PLA Navy officers have been seeking to develop the capability to attack a deployed aircraft carrier battle group with ballistic missiles. Recent Chinese military publications indicate that officers believe China is now able to achieve this military objective.[26] Additionally, China may be in the process of developing anti-ship homing warheads, which would make defending against oncoming antiship cruise missiles very difficult.[27]

The PLA Navy surface fleet also has made substantial progress in raising its air defense and surface warfare capabilities. Its three newest classes of surface combatants, the Luyang II and Luzhouclass destroyers and Jiangkai II-class frigate, are equipped with sophisticated air-search and missile guidance radars and long-range, vertical launch, surface-to-air missiles.[28] However, the anti-submarine warfare capabilities of these vessels are weak—as was the case with their predecessors.[29]

In his testimony, Dr. Andrew Erickson, Professor at the U.S. Naval War College, predicted that in the near term, naval power projection will remain lower on the PLA Navy’s list of priorities than littoral operations.[30] Despite its shipyards’ latent production capacity, China has not engaged in the serial production of replenishment-at-sea ships, considered essential for the re-supply of surface action groups engaged in blue water operations. Even though its shipyards are fully capable of building replenishment vessels, they are not being built, which suggests that the PLA Navy is limiting its short-term focus to scenarios closer to the mainland.[31]

Similarly, even though China has benefited from close to two decades of aircraft carrier design study, it still has not produced a single operational carrier platform. There are indications that the PLA Navy soon may refurbish the Russian carrier Varyag that it acquired from Ukraine and place it in an operational state.[32] Development of an aircraft carrier or a replenishment fleet would indicate a significant shift in China’s naval objectives, namely the movement toward a more outward-looking force posture that would have the ability to conduct long-range missions for an extended period of time. If, as Mr. Cooper posits, China launches ten of its new nuclear-powered Shang-class submarines by the end of 2008, this development would suggest a new emphasis on blue water naval capabilities on the part of Chinese strategists.[33]

During its fact-finding trip to China in April 2007, the Commission visited the PLA Academy of Military Sciences. The officers at the Academy noted that they consider it their responsibility to defend Chinese interests in the region and around the world, and that this includes, especially, China’s sources of energy. They believe this requires a force projection capacity that, in turn, necessitates development of a blue water navy. (See Chapter 3, Section 3 for further discussion of the role of energy security in China’s determination to develop blue water naval capabilities.)

Chinese advancements in naval modernization have been so substantial that they are leading some experts to consider the possibility of China partnering with the U.S. Navy in protecting freedom of navigation and maritime security on the high seas, through participation in the ‘‘Thousand-Ship Navy’’ concept recently proposed by then-Chief of Naval Operations and current Chairman of the Joint Chiefs of Staff Admiral Michael Mullen.[34] French newswire Agence France-Presse reported that Admiral Mullen asked Chinese Navy leaders to consider participation in the initiative.[35] Rear Ad´ miral (Retired) Eric McVadon, former U.S. Defense Attache in Beijing, has confirmed that Admiral Mullen made the suggestion to PLA Navy leaders.[36] Testifying before the Commission, RADM McVadon said he also favors the idea.[37]

However, there are impediments to success in building such a partnership with China. According to section 1203 of the National Defense Authorization Act for Fiscal Year 2000, U.S. armed forces are restricted from engaging in certain cooperative activities with the PLA that would provide inappropriate access to advanced American technologies and capabilities.[38] This provision likely would not permit the U.S. Navy to engage in the forms of operational information sharing and strategic planning with the PLA Navy that would be required for such military-to-military collaboration.

Air Force

China has always considered air superiority over the Taiwan Strait as a precondition for successful invasion of Taiwan. With the objective of achieving this superiority, it has heavily funded the PLA Air Force over the last 15 years. In the early 1990s, China abandoned its hope of building an advanced fleet of fighter aircraft through only indigenous means and instituted a two-track system of acquiring advanced fighters from abroad while continuing to pursue domestic programs. Today, the PLA Air Force possesses close to 300 of the Russian Sukhoi family of aircraft, including fourth generation, imported Su–27s and Su–30s, and licensed, co-produced Su–27s, designated the ‘‘J–11.’’ It also is manufacturing in increasing numbers its first indigenous, light-weight, fourth-generation fighter, the J–10.[39]

China continues to rely primarily on foreign purchases to fulfill its requirements for strategic-lift and aerial-refueling aircraft, the former necessary for an invasion of Taiwan, and both necessary for effective power projection beyond China’s borders. The IL–78 still serves as the mainstay for PLA Air Force aerial refueling, though it has been supplemented by H–6 bombers reconfigured for this purpose. According to Mr. Cooper, China recently agreed to a deal to purchase additional IL–76 transport aircraft from Russia that would increase its lift capacity for airborne forces by as much as 150 percent.[40]

As evidenced by its modernization trends, the PLA Air Force understands the importance of developing a fleet with information systems that can be integrated in a theater-wide command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) system. This type of integration is needed to conduct multidimensional combat operations, and, to that end, the PLA Air Force has sought to install data links in all its advanced fighter aircraft and to build or acquire airborne early warning aircraft. China’s handful of Y–8 and KJ–2000 aircraft fulfills this latter requirement to a limited degree. Development of the KJ–2000 is China’s answer to the United States blocking China’s $1 billion deal to purchase Israel’s ‘‘Phalcon’’ early warning system in 2000. The KJ–2000 system provides a similar capability; it is based on the Russian A–50 airframe and uses indigenous phased array radar.[41]

Army

Despite the fact that China’s defense budget has favored the PLA Navy and Air Force over the last decade and a half, the modernization of China’s ground forces constitutes an important component of the overall development of China’s armed forces. The Army continues to train in combined arms warfare and to focus on improving the quality of its infantry, armor, and artillery operations. However, unlike the Air Force and Navy, the Army has developed no new major weapon systems indigenously. Most of the modernization of the Army is done by adapting new technologies to old platforms. This includes integrating better C4ISR hardware, which allows the Army to participate in joint operations with the Navy and Air Force, and to train in the types of air mobile and amphibious assault operations that it would be called upon to undertake in a potential conflict over Taiwan. According to Mr. Cooper, about a quarter of the PLA’s maneuver divisions and brigades focus on training for amphibious operations at four or more major amphibious training bases.[42]

The Army also is modernizing its doctrine and training programs. Even though training across the Army continues to lag behind that of the PLA Navy and Air Force, in recent years the U.S. Department of Defense has witnessed significant efforts dedicated to improving the professionalism and effectiveness of all PLA services. These efforts include developing a professional non-commissioned officer corps, improving the professional military education programs for officers, reforming and improving the quality of training, raising the pay of enlisted personnel, and emphasizing integration of information technology in daily operations.

Second Artillery

China’s ballistic missile force, consisting of medium- and shortrange ballistic missiles, constitutes a crucial component of the force arrayed against Taiwan and is expected to fulfill an important theater-level precision strike role for China if armed conflict should arise. Presently, the Second Artillery’s arsenal of 900 short-range ballistic missiles is being augmented at a rate of roughly 100 missiles per year.[43] Additionally, the lethality of these missiles has increased through the development of more sophisticated warheads.[44] Chinese ballistic missiles can hit U.S. bases in the Western Pacific where a large number of U.S. forces are based. Some longer range missiles such as the CSS–3 and CSS–2 are capable of targeting locations not only in Taiwan but also in Okinawa, Japan, and Guam.[45] (See the map on page 13.)

One final development in China’s conventional missile force opposite Taiwan is noteworthy. The Second Artillery is designing a variant of the DF–21 intermediate-range ballistic missile with a maneuverable reentry vehicle (MaRV).[46] This weapon could be very difficult for U.S. carrier groups to defend against due to its maneuverability and its extremely high terminal speed. In addition, according to RADM (Ret) McVadon, it appears that these missiles may incorporate advanced penetration aids. However, because the DF–21’s guidance system does not allow much flexibility in the missile’s flight trajectory, it could have difficulty striking a U.S. vessel if the vessel is moving at full navigation speed. The Aegis system used by U.S. carrier groups gives American ships enough advanced warning of incoming missiles that evasive action can be taken. Yet, even if a successful strike on a U.S. carrier cannot be achieved, the prospect of such a strike could accomplish ‘‘coercive isolation’’ of American vessels—causing U.S. carrier groups responding to a Taiwan crisis to operate further out from the Taiwan Strait combat theater,[47] thus making air operations in the Strait vicinity more difficult.[48]

Integrated Operations

The PLA’s understanding of joint operations (lianhe zuozhan) is similar to that of the United States. These operations involve the coordinated use of all the military services (Army, Navy, and Air Force) and their integrated arms and branches.[49] Recently, the PLA has expanded its military doctrine to include the concept of integrated operations (yiti zuozhan). Integrated operations are joint, and are conducted across and throughout all of what the PLA defines as the domains of war: land, maritime, air, space, cyberspace, and the electromagnetic spectrum.[50] Integrated joint operations require central command and control that direct and coordinate the missions of the full spectrum of force components. This level of integration across the service branches requires information networks to transmit battle space awareness data and joint strike commands. The infusing of information-network hardware and technology necessary for such integrated command and control into military systems and doctrine is what PLA writings refer to as informatization.[51] Dr. James Mulvenon, Director of the Center for Intelligence Research and Analysis at Defense Group, Incorporated describes the concept in the following terms:

The integration of advanced [information technology] into the PLA’s hybrid inventory of near-state-of-the-art and older systems is the heart of what the PLA calls ‘‘informatization,’’ which is a primary dynamic driving the central warfighting scenario of ‘‘local, high-tech wars under informationized conditions.[52]

According to Mr. Cooper’s testimony, China’s weapons acquisitions and training are guided by this desire to win ‘‘informationized wars,’’ or wars that are heavily reliant on computers and information systems.[53] Beijing’s strategists believe that future conflicts involving China will be limited in geographical scope, duration, and political objectives, and will be highly dependent on command, control, communications, and computer (C4) systems.[54] Thus, the ability of China’s military forces to integrate their operations, increase their awareness of the battlefield, and coordinate the execution of commands influences the direction of China’s military acquisitions and personnel training.

A more integrated architecture achieved through the use of more advanced C4ISR systems would enable the PLA to conduct joint operations and to fuse data from intelligence, surveillance, and reconnaissance (ISR) assets into a near real-time sensor-to-shooter network. Such advances have the potential to give the PLA over-the horizon strike capabilities; non-kinetic, counter-C4ISR capabilities; and ability to perform air superiority, airborne, and air-mobile operations.[55] These new capabilities not only make the PLA a more formidable opponent on the battlefield, but also will require any U.S. carrier battle group intervening in the defense of Taiwan to operate at a much greater distance from China’s coast.

China’s Disruptive Warfare Capabilities

Disruptive warfare is a form of non-traditional, asymmetric warfare that aims to undermine an opponent’s strengths by exploiting weaknesses.[56] DoD believes that China’s logical strategy is to favor asymmetric capabilities that target and exploit the weaknesses of China’s militarily superior opponents, especially the United States, increasing the potential that China can defeat them.[57]

According to Dr. Ehsan Ahrari, professor at the Asia-Pacific Center for Security Studies, China seems to have found its niche in fielding various weapon systems such as cyber weapons and antisatellite weapons that are specifically designed to wage this type of warfare.[58] The trend in China’s military modernization toward fielding disruptive capabilities is so unmistakable that the 2006 QDR stated:

Of the major and emerging powers, China has the greatest potential to compete militarily with the United States and field disruptive military technologies that could over time offset traditional U.S. military advantages absent U.S. counter strategies.[59]

Mr. James Lewis, Director of the Technology and Public Policy Program at the Center for Strategic and International Studies, explains why the development of disruptive capabilities is particularly appealing to China:

China’s military is not a peer to the U.S., but it is a challenger. The challenge comes from a combination of increased conventional capabilities and from the pursuit of asymmetric advantage—using new weapons and tactics to attack an opponent in areas where it is weak or vulnerable. Seeking asymmetric advantage is not new, nor is China the only country to seek it. What is new is the means that U.S. opponents like China and others plan to use to gain asymmetric advantage. One part of the modernization effort looks for ways to counter U.S. force projection capabilities. Other modernization efforts look for ways to erode the U.S. military advantage by attacking information and communications assets, including satellites and networks.[60]

This approach to warfare offers China a possible solution to the disparity between the capabilities of the PLA and U.S. forces, while not requiring China to build a military fully equal to that of the United States.[61]

Among the disruptive capabilities China is fielding is the ability to conduct cyber attacks. General James Cartwright, then Commander of the U.S. Strategic Command (USSTRATCOM) and currently Vice Chairman of the Joint Chiefs of Staff, testified before the Commission that China is actively engaging in cyber reconnaissance by probing the computer networks of U.S. government agencies as well as private companies.[62] The data collected from these computer reconnaissance campaigns can be used for myriad purposes, including identifying weak points in the networks; understanding how leaders in the United States think; discovering the communication patterns of American government agencies and private companies; and obtaining valuable information stored throughout the networks. General Cartwright testified that this information is akin to that which in times past had to be gathered by human intelligence over a much longer period of time. He went on to say that in today’s information environment, the intelligence exfiltration that once took years can be accomplished in a matter of minutes in a single download session.[63]

General Cartwright also addressed another type of cyber attack that disables computer systems or networks by overloading them with commands. This form of attack, known as denial of service, has the potential to cause cataclysmic harm if conducted against the United States on a large scale.[64] China currently is thought by many analysts to have the world’s largest denial-of-service capability.[65] General Cartwright presented his view of the seriousness of a large scale denial-of-service attack:

The [Chinese] capabilities that are most intriguing are their dedication to, one, bringing [cyber warfare] into their military structure; two, building schools all the way through doctrine, et cetera, and [establishing] plans to be able to use this type of capability in a military context . . . I don’t think the [United States] has gotten its head around the issue yet, but I think that we should start to consider that regret factors[66] associated with a cyber attack could, in fact, be in the magnitude of a weapon of mass destruction.[67]

A delegation of Commissioners met with officers from the PLA’s Academy of Military Sciences while in China in April 2007. When questioned about cyber attacks, officers noted that scholars hold differing opinions about whether a computer network attack may constitute an act of war. Some argued it meets that definition, but others argued that a network attack alone without corresponding conventional attacks does not constitute an act of war. However, the PLA officers acknowledged that if a cyber attack targets military capabilities of another country and does significant damage, conventional counterattacks are warranted. They also noted the frequent difficulty in accurately identifying the source of cyber attacks and argued that the source must be clearly identified before a counterattack could be responsibly launched.

In addition to cyber attacks, Chinese leaders are interested in developing disruptive capabilities for anti-satellite missions as well. China’s free-electron and chemical oxygen-iodine high energy lasers could be used to permanently or temporarily blind satellites, as was demonstrated when China temporarily blinded a U.S. satellite in late 2006.[68] Chinese researchers also have begun testing high power microwave weapons that could be used to jam satellite communications.[69] The successful anti-satellite test conducted by the PLA in January 2007 demonstrated the PLA’s ability to destroy satellites through the use of kinetic weapons as well. The kill vehicle was placed atop a DF–21 medium-range ballistic missile (MRBM) that reportedly was launched from a land-based mobile system.[70] The road-mobile launch capability provides built-in survivability, because such mobile systems are difficult to target, and thus make retaliatory or preemptive counterstrikes problematic. Deputy Under Secretary Lawless explained to the Commission why the Chinese leadership most likely was aware of the test:

The suggestion that the Chinese leadership . . . may not have known about the test I find rather farfetched. Hu Jintao is the Chairman of the Central Military Commission. This engagement that we have with them, albeit at an embryonic stage, is in a critically important area and the leadership of China understands the importance we assign to the weaponization of space and space activities. So it is hard to imagine that this was a surprise to the leadership of China. If it was a surprise, then we have a different problem, but I don’t believe it was.[71]

During the Commission’s April 2007 visit in China, Mr. Xie Feng, Ministry of Foreign Affairs Director General for North American Affairs, told Commissioners that President Hu was aware of the test beforehand.[72]

An Assessment of China’s Anti-Satellite and Space Warfare Programs, Policies, and Doctrines

The Commission received information through its public hearings and classified defense and intelligence briefings during 2006 concerning China’s anti-satellite and space warfare programs, policies, and doctrines, and concluded that it needed more information about China’s activities and intentions in these areas. In October 2006, the Commission commissioned research to examine Chinese military literature in the public domain for any such information. The research, drawing from nearly 100 Chinese sources, identified 30 proposals and recommendations by Chinese military leaders to the Chinese political leadership regarding the development of space and counter-space weapons and programs. Among these proposals and recommendations are:

• ensuring that development and construction of Chinese space and counter-space weapons are conducted covertly so China can maintain a positive international image
• supporting the development of civilian technologies that also can be applied to military space programs
• acquiring the ability to destroy or temporarily incapacitate every enemy space vehicle when it is located above China
• acquiring the ability to attack the American global positioning system (GPS) through various means including anti-satellite weapons, high energy weapons, high energy weather monitoring rockets, and ground attacks on earth-based stations
• developing Chinese stealth satellites
• developing a Chinese space program to provide key support for Chinese combat forces

Some of these proposals appear to have been implemented already, as evidenced by January’s kinetic anti-satellite test and earlier laser incidents involving American satellites.

China’s Catastrophic Warfare Capabilities

Catastrophic forms of warfare include the use of nuclear missiles and other WMD against an opponent. The PLA’s capacity to wage catastrophic warfare is improving, as development continues on both the nuclear and conventional components of China’s strategic missile forces under the control of the Second Artillery.

Although China officially maintains a ‘‘no first use’’ policy with respect to its nuclear weapons, it is engaged in the modernization of its nuclear arsenal to improve both the survivability and the range of its strategic nuclear missile forces.[73]

Presently, China has two different systems of land-based ballistic missiles capable of targeting substantial portions of the United States. Its land-based, solid-fuel, road-mobile DF–31A intercontinental ballistic missile constitutes its strongest means of nuclear deterrence. With an 8,000 mile range, it is capable of rapid deployment against targets throughout Asia, Europe, Africa, and North America; it is at low risk from retaliatory or preemptive strikes because of its mobility, and the rapid launch capability offered by solid fuel technology.[74] The older CSS–5 road-mobile, solid-fuel MRBM has similar characteristics, but its much shorter range limits it to regional missions.[75] The Chinese nuclear arsenal also presently includes nearly 60 nuclear-armed missiles of various ranges that rely on older liquid fuel technology—significantly increasing launch preparation time. Included in this group of missiles are approximately 20 silo-based CSS–4 ICBMs capable of reaching any target in the United States, approximately 20 CSS–3 ICBMs capable of targeting most of Asia and Europe and parts of Alaska, and between 14 and 18 CSS–2 intermediate-range ballistic missiles (IRBMs) with a much shorter range, capable of targeting only locations within Asia.[76]

With the introduction of the DF–31’s sea-launched naval counterpart, the JL–2, on the Jin-class submarine, China will possess an even more survivable nuclear deterrent that could target most locations in the United States from protected underwater locations off China’s coast.[77] The older version, the JL–1, launched from Xiaclass submarines, is capable of only regional deterrence missions much like its land-based counterpart, the CSS–5.[78]

Figure 2.1 Ranges of China's Ballistic Missiles

The Strengthening of the Chinese Defense Industrial Base

In addition to the doctrinal and operational evolution of the PLA’s forces, the Chinese military industrial complex is modernizing to provide the weapon systems and components needed to achieve PLA objectives. While China still imports a host of systems from Russia and other partners to fill critical gaps in the short term, Chinese defense manufacturers increasingly are becoming able to develop indigenous systems with new capabilities.[79]

Chinese leaders have adopted a ‘‘grand strategy’’ for the modernization of the defense industry.[80] This strategy calls for a threepronged approach to accomplish a rapid defense industrial transformation: (1) selective modernization,[81] (2) civil-military integration,[82] and (3) acquisition of advanced foreign weapons and technologies.[83] The implementation of this three-pronged strategy as well as a number of structural changes in China’s defense ministries and state-owned defense companies have continued to bring about positive developments for the Chinese defense industry.

Selective Modernization

China’s leaders have recognized that the size of China’s economy, although rapidly growing, and the general technological deficiency throughout the country, make it difficult and expensive to develop an indigenous capacity to produce advanced weapon systems across all sectors.[84] Thus, Chinese defense industries are giving priority to sectors that are critical to PLA strategic objectives.

Chinese shipyards are now building second-generation nuclear powered submarines, newly-designed frigates, and a large fleet of oil tankers to support naval operations in the event of a Taiwan conflict that would require carrying out blockade or sea lane denial missions, as well as delaying or deterring support from other countries. The shipyards also have the ability to produce replenishment vessels if they choose to do so.[85] In his testimony before the Armed Services Committee of the U.S. House of Representatives, thenDeputy Under Secretary of Defense Lawless highlighted two classes of submarines, the Jin and the Shang classes, as particularly good examples of the seriousness with which China’s leaders view the role and military utility of a modern submarine fleet.[86] The first Jin-class nuclear powered ballistic missile submarine is still undergoing testing and is expected to be commissioned in 2008.[87] The two Shang-class nuclear powered attack submarines built by Huludao Shipyard, and designed with the help of Russian experts, are reported to have begun sea trials in 2005.[88] The recent launching or current production of these advanced, Chinese-built submarines indicates a rapid modernization of Chinese shipbuilding capabilities.

Additionally, Chinese shipyards are building modern destroyers and frigates. The Luzhou-class guided missile destroyer and Jiangkai II guided missile frigate complement China’s improvements in submarine technology with enhanced anti-surface and anti-air capabilities—defense industry achievements also noted by Deputy Under Secretary Lawless.[89]

As another part of its selective modernization component, the Chinese defense industry is capitalizing on China’s strengths in the aerospace and missile industries.[90] Space and counter-space capabilities have considerable implications for carrying out disruptive missions in Taiwan Strait contingencies, as well as other possible missions involving space-dependent adversaries. The United States would lose a significant technological edge if space-based assets were not available in such a conflict. Mr. Eric Hagt, Director of the China Program at the World Security Institute, explained China’s interest in pursuing anti-satellite capabilities in his testimony before the Commission:

In the past decade, China has derived a number of key conclusions from its observations of U.S. military activities in space that have fundamentally shaped China’s own strategic posture. The first is the profound implications of space for information and high-tech wars. China witnessed with awe and alarm the power of the U.S. military using satellite communication, reconnaissance, geo-positioning, and integration capabilities for an impressive show of force beginning first with the Gulf War in 1991, to the recent campaign in Afghanistan and Iraq. The U.S. military’s almost complete dependence on space assets has not escaped the close examination of Chinese analysts. ASATs are seen by some analysts as weapons in line with China’s asymmetric military strategy to hit enemies’ vulnerable and hugely expensive assets in space with relatively cheap and easy countermeasures.[91]

In describing the importance that Chinese leaders attach to modernization of the aerospace industry, the 2007 Military Power Report of the People’s Republic of China includes the following quote from Premier Wen Jiabao:

China’s aerospace industry is standing at a new starting point and facing new situations and tasks . . . It is now necessary to implement the principle of independent innovations; leaps in key areas . . . carry out major state science and technology special projects in manned space flights and a lunar probe, and achieve new breakthroughs in research and development [of] aerospace equipment and . . . space technology.[92]

Chinese aerospace companies are now producing advanced imagery and reconnaissance satellites capable of military applications, and have plans to field satellites capable of infrared, multispectral, and synthetic aperture radar imaging.[93] Moreover, Chinese aerospace companies have developed and launched an indigenous navigation satellite constellation in which a group of carefully placed satellites working together provides a larger operational picture than any single satellite could provide. Four Beidou navigation satellites already have been launched over China and surrounding regions. The technology used in the satellites allows accuracy within 20 meters—a significant improvement in accuracy and precision over the capability of previous Chinese satellites.[94] Chinese aerospace companies also can take some credit for the success in recent years of China’s manned space program. These firms will be tasked to provide the technology and hardware that will be used in China’s first space walk in 2007–2008 and China’s first manned space station, scheduled to be launched in 2020.

In June 2007, the Commission received multiple briefings from the science and technology directorates of the Department of Defense and the military services at Wright-Patterson Air Force Base in Ohio addressing China’s recent science and technology activities and accomplishments. The Commission learned that China graduates more than triple the number of bachelor of science-level engineers the United States graduates, and that Chinese research and development (R&D) has achieved world-class expertise in energetics, electronics, nanomaterials, optical communications, and metallurgy.[95 96] (See additional material concerning China’s science and technology progress in Section 3 [‘‘China’s Science and Technology Activities and Accomplishments’’] of this Chapter.)

Civil-Military Integration

In addition to the selective modernization of key sectors, the Chinese defense industrial base also seeks to benefit from increased civil-military integration. Economic transfers in key civilian industrial sectors are contributing to the modernization of the defense industrial base and, in turn, to advances in China’s military capability. Dr. Mulvenon describes this civil-military integration phenomenon within the context of what he calls a ‘‘digital triangle.’’ In his testimony, he stated:

The pace and depth of [defense industry] advances cannot be explained by traditional Chinese defense-industrial dynamics, but instead spring from a paradigm shift known as the ‘‘digital triangle,’’ which resembles a classic techno-nationalist strategy, with high-level bureaucratic coordination and significant state funding. The three vertices of the ‘‘digital triangle’’ are (1) China’s booming commercial information technology companies, (2) the state R&D institute and funding infrastructure, and (3) the military. The linkages [among] these three vertices are longstanding, as telecommunications and information technology in China were originally under military auspices and the commercial relationships with state and military research institutes remain important.[97]

The digital triangle phenomenon is facilitated further by two technological trends in China: the increasing utilization of commercial off-the-shelf (COTS) systems in military applications, and the ascent of China as a hub for global fabless integrated circuit production.[98] The digital triangle gives the PLA access to the advanced microelectronics that make up the core of modern military sensors and weapons systems.[99]

Dr. Tai Ming Cheung, Research Fellow at the Institute for Global Conflict and Cooperation at the University of California/San Diego, identified several key advantages for both the civilian and defense sectors when they are closely connected.[100] He explained the thinking of Chinese leaders in deciding to adopt this approach:

The Chinese authorities view a strategy of embedding the defense industry within the broader civilian economy as playing a central role in supporting the long-term modernization of the country’s military capabilities, especially in technological innovation, as well as in the development of the country’s S&T establishment.[101]

Deng Xiaoping’s famous sixteen character declaration about the intertwining of civil and military spheres set this thinking in motion in the 1980s: ‘‘Combine the military and civil, combine peace and war, give priority to the military, and let the civil support the military.’’ In the early 1980s, Chinese defense industries saw their entrance into the civilian market as a way to generate profits, but today defense companies see their participation in the civilian sector as their door to dual-use technologies and manufacturing expertise that can be grafted into their military production lines.[102] Profits from commercial products manufactured by defense company subsidiaries are still seen as a valuable offset to government subsidies, and still comprise over 80 percent of defense industry aggregate output.[103] The Commission is submitting a classified report to Congress that will provide additional information on the state of China’s S&T establishment and its accomplishments.

As noted in Chapter 1, Section 2 (‘‘The Control of China’s Economy by its Government, and the Effects on the United States’’), the Chinese government is supporting certain key sectors to build up ‘‘national champions’’ and benefit from domestic economies of scale. Dr. Barry Naughton, Professor at the Graduate School of International Affairs at the University of California/San Diego, explained in his testimony before the Commission why the Chinese see civil-military integration as a favorable approach to military modernization:

In the defense industry . . . as in other aspects of technology policy, the Chinese have looked back over what they’ve done over the last couple decades and they’ve realized that many of their initiatives have failed. Moreover, in the defense industry, the record of the ’80s and early ’90s was pretty bad from their standpoint. So they have looked a lot at the U.S. and a lot at Japan, and they’ve recognized that they would be much better off with a vastly stronger civilian capacity that would strengthen their dual-use capabilities . . . [T]hey’ve recognized that a sealed off, top-down command and control defense industry structure just isn’t efficient enough to give them the kind of technological and security output that they want. So they’ve moved towards a much more open structure. There are a few important non-stateowned firms that have enough of a capability in high-tech sectors that they can start to provide dual-use items.[104]

Another area of growing cooperation between civilian and military sectors is between defense industries and civilian universities and research institutes. These partnerships provide a venue for transferring discipline-specific knowledge and educational training from civilian institutions to industry production lines. In 2002, the Commission of Science, Technology, and Industry for National Defense (COSTIND) gave several million renminbi to at least two aerospace and ship-building academies in Jiangsu Province to help cultivate their defense-related programs and to recruit students interested in defense research.[105] While partnerships in aerospace and shipbuilding sectors are common, the area of greatest industryuniversity cooperation is in the information technology sector.[106]

Acquisition of Foreign Equipment and Technology

The third prong of China’s defense industrial base modernization strategy is to acquire advanced foreign equipment and technologies. While in some cases Chinese planners have chosen to purchase entire weapon systems directly, as they have done with many of the procurement agreements China has with Russia, some Chinese and Western analysts do not see this as beneficial for the long-term modernization of China’s defense industry.[107] Direct purchases are generally used as a temporary measure to fill critical gaps that China’s indigenous defense companies are unable to fill. Some items purchased from foreign companies are dual-use components—those that can be used in military as well as civilian applications such as computers, semiconductors, software, telecommunications devices, and integrated circuits.[108]

Partnerships forged between foreign companies and Chinese civilian companies also offer Chinese defense industries access to advanced foreign technologies. The nature of the regulatory and commercial environment in China places enormous pressure on foreign companies, including those of the United States, to transfer technology to Chinese companies as a part of doing business in China and to remain competitive globally.[109] Foreign companies are willing to provide not only technology but capital and manufacturing expertise in order to secure market access in China.[110]

Even so, it is not always easy for Chinese companies to obtain some of the most advanced technologies found in industrialized nations. Export control laws in most advanced industrial nations strictly regulate the transfer of technologies identified as having national security implications, and companies in those nations are prevented from transferring the covered technologies to persons or organizations in other nations except under carefully specified conditions. In some of these cases, access to restricted foreign technology is obtained by China through industrial espionage; China operates an aggressive clandestine effort to acquire additional technologies.[111]

In recent years, this has become such a problem in the United States that U.S. Immigration and Customs Enforcement officials have rated China’s espionage and industrial theft activities as the leading threat to the security of U.S. technology.[112]

Recent Chinese Espionage Prosecutions in the United States

The first conviction under the Economic Espionage Act involved Fei Ye and Ming Zhong who were caught in 2001 attempting to transfer to China proprietary technology owned by two American companies.[113] The two men set up a company in China, which, in exchange for a percentage of profits, was to receive local and provincial funding, in addition to funding that the two men expected to receive from the National High Technology Research and Development Program of China, commonly known as the ‘‘863 Program.’’ [114]

Defense contractor employee Peter Lee was found guilty in 1997 of transferring sensitive submarine tracking technology to Chinese scientists.[115] Katrina Leung was an FBI double agent who was indicted in 2003 for transferring large quantities of classified FBI counterintelligence information to China’s intelligence service, the Ministry of State Security. The case later was dismissed for prosecutorial misconduct.[116]

A chemist, Gary Min, was found to have obtained documents containing industrial secrets from his American employer. Court documents indicated that the company feared that the information would be highly valuable to Chinese companies. Min pled guilty to charges of stealing trade secrets in 2006.[117] An engineer for an American defense contractor, Chi Mak, along with his wife, son, brother, and sister-in-law, was charged with conspiracy to export defense articles when he attempted to transfer U.S. Navy submarine engine secrets to China.[118] When Mak’s house was searched, Chinese documents were discovered listing a number of sensitive U.S. naval systems and related technologies, including the submarine propulsion design technologies that he was caught attempting to take to China on encrypted disks.[119]

Xiaodong Sheldon Meng was an employee of an American software company who was convicted of selling to the PLA embargoed software used for U.S. Air Force and Navy training, and for attempting to sell proprietary technology to China’s Navy Research Center.[120] He installed the American military software, which he altered to give the appearance that it was developed by his new Chinese employer, on PLA computers. Meng, who will face sentencing in January 2008, was the first to be convicted for exporting proprietary software under the Arms Export Control Act and the second to be convicted under the Economic Espionage Act of 1996.[121]

The box above contains key information about several prosecutions for the illicit activities of persons obtaining technological information for the PRC. Successful prosecutions, however, are the exception; scores of other instances of espionage go unprosecuted or undetected.[122] All the while, the Chinese government staunchly maintains it is not involved in espionage and denies being engaged in any intelligence gathering against the United States.[123] Mr. Joel Brenner, the top counterintelligence official in the office of the director of national intelligence, has noted that of the 140 foreign intelligence agencies continuously attempting to penetrate U.S. agencies, China is the most aggressive.[124] The FBI stepped up counterintelligence efforts against Chinese intelligence operations in the United States in July 2007, because of what FBI Director Robert Mueller called a ‘‘substantial concern’’ about those operations.[125] As Chinese espionage against the U.S. military and American businesses continues to outpace the overwhelmed U.S. counterintelligence community, critical American secrets and proprietary technologies are being transferred to the PLA and Chinese state-owned companies.[126]

Conclusions

• Several Chinese advances have surprised U.S. defense and intelligence officials, and raised questions about the quality of our assessments of China’s military capabilities.
• Chinese military strategists have embraced disruptive warfare techniques, including the use of cyber attacks, and incorporated them in China’s military doctrine. Such attacks, if carried out strategically on a large scale, could have catastrophic effects on the target country’s critical infrastructure.
• China has developed an advanced anti-satellite program consisting of an array of weapons that could destroy, damage, or temporarily incapacitate an adversary’s satellites. The use of high energy lasers to temporarily blind U.S. satellites in late 2006 and the use of a direct-ascent anti-satellite kinetic weapon to destroy an aging Chinese satellite in early 2007 demonstrate that China now has this capacity.
• The Chinese defense industry, while still lagging far behind that of the United States, has begun achieving noteworthy progress over the past years. New generations of warships, fighter aircraft, spacecraft, submarines, missiles, and other sophisticated weapon platforms are coming off production lines at an impressive pace and with impressive quality.
• The pace at which each of China’s defense industrial sectors is modernizing varies in direct proportion to its degree of integration in the globalized production and R&D chains, because such integration provides access to the most up-to-date technologies and manufacturing expertise.
• China is supplementing the technologies that its defense industry obtains through commercial transfers and direct production partnerships with an aggressive and large-scale industrial espionage campaign. Chinese espionage activities in the United States are so extensive that they comprise the single greatest risk to the security of American technologies.

Section 2: China’s Proliferation

‘‘The Commission shall investigate and report on—

‘‘PROLIFERATION PRACTICES—The role of the People’s Republic of China in the proliferation of weapons of mass destruction and other weapons (including dual-use technologies), including action the United States might take to encourage the People’s Republic of China to cease such practices.

‘‘ECONOMIC TRANSFERS—The qualitative and quantitative nature of the transfer of United States production activities to the People’s Republic of China, including the relocation of high technology, manufacturing, and research and development facilities, the impact of such transfers on United States national security, the adequacy of United States export control laws, and the effect of such transfers on United States economic security and employment.

‘‘REGIONAL ECONOMIC AND SECURITY IMPACTS—The triangular economic and security relationship among the United States, [Taiwan], and the People’s Republic of China (including the military modernization and force deployments of the People’s Republic of China aimed at [Taiwan]), the national budget of the People’s Republic of China, and the fiscal strength of the People’s Republic of China in relation to internal instability in the People’s Republic of China and the likelihood of the externalization of problems arising from such internal instability.’’

Introduction

In his testimony before the Commission, Ambassador Donald Mahley, Acting Deputy Assistant Secretary of State for Threat Reduction, Export Controls, and Negotiations, defined proliferation as ‘‘the spreading or transfer of capabilities or the technology and knowledge to support capabilities of the production of weapons of mass destruction, but also of the enhancement of military capabilities to areas that did not previously possess [them] and particularly in which we do not have a clear indication [they] will be responsibly used once . . . acquired.’’ [127] In this sense, China’s relationships with and military sales to several states, notably including Iran, North Korea, Burma, and Sudan, raise fears not only about the spread of weapons of mass destruction (WMD) but also about the continued proliferation of advanced conventional weapons and technology that could destabilize regions throughout the world. Additionally, given China’s willingness to use weapons and force against its own populace, China’s close relationships with and arms sales to governments that are willing to do the same against their populations are sources of concern.

In the 1990s, China actively proliferated weapons and technology related to WMD and their delivery systems. While most experts acknowledge that China’s overt state-to-state proliferation has diminished, Administration officials testified before the Commission that China’s nonproliferation record is ‘‘mixed,’’ noting that some Chinese businesses and individuals continue to seek opportunities to proliferate.[128] Deputy Assistant Secretary of Defense for East Asia David Sedney stated, ‘‘Chinese businesses, including state-owned enterprises, those that have close relations to PRC officials, and those without government ties, continue to supply items and technology useful in weapons of mass destruction, their means of delivery, and advanced conventional weapons programs, often when these items are not explicitly on international [export control] lists.’’ [129] The continued imposition of U.S. sanctions on Chinese companies underscores this claim. In addition, officials noted that China’s often unbridled proliferation of conventional weapons—not governed by multilateral or bilateral commitments made by China—does not support China’s bid to be recognized as a responsible stakeholder and promoter of peace and stability in the international community.[130]

China’s Nonproliferation Policies and Commitments

Since the 1990s, China has adjusted its policy regarding proliferation. It has signed and ratified a number of international nonproliferation agreements, and also has taken a number of steps to institutionalize a system of export controls to monitor and limit the transfer of weapons and weapons technology.

Most, if not all, Chinese companies that have been sanctioned by the United States are state-owned. Nonetheless, when Chinese state-owned companies are caught proliferating, the central government routinely claims that these companies are operating without government authorization or knowledge. There are more than 30,000 officers in China assigned to police the Internet for ideological purity.[131] In contrast, a training program is being completed for only 5,000 export control and border security officials whose work is key to preventing Chinese proliferation.[132]

China’s current official policy toward proliferation is stated in its White Paper, China’s National Defense in 2006:

China is firmly opposed to the proliferation of weapons of mass destruction and their means of delivery. It supports the United Nations in playing its due role in non-proliferation. China is a party to all international treaties on nonproliferation and related international organizations. It has established a complete legal regime for controlling the export of nuclear, biological, and chemical weapons, missiles and other related sensitive items and technologies, and all defense items. China follows strict procedures in approving exports, to ensure effective export control.[133]

Additionally, the Beijing government ‘‘. . . believes that countries may cooperate in the peaceful use of nuclear energy under the premise of observing their international obligations and that relevant cooperation should help safeguard and strengthen the principles and effectiveness of the international nonproliferation mechanism.’’ [134]

China’s ratification of multilateral nonproliferation treaties has created obligations for China not to employ weapons of mass destruction (WMD) and to engage in efforts to prevent the spread of WMD technology, materials, and delivery systems. Below is a summary of China’s participation in multilateral regimes and the principal commitments China consequently has or has not made:

Ambassador Mahley noted that while China has applied for membership in the Missile Technology Control Regime (MTCR) and the Australia Group, those groups are not yet convinced that China has established sufficiently extensive and rigorous nonproliferation commitments and controls, and the means to enforce these, to merit its acceptance as a member.[142]

China’s Proliferation-related Laws and Regulations

To meet the international nonproliferation commitments it has made, China has promulgated proliferation-related laws and regulations—primarily addressing the design of China’s export control system and enforcement of its restrictions. In the wake of the September 11, 2001 attacks and the rising threat that rogue states and non-state actors will obtain WMD, China issued new export control regulations in 2002. These regulations require companies that sell controlled items to obtain a license and government approval for each sale, along with a guarantee from the purchaser that the item or technology will not be misused.[143] Within the government, the Ministry of Commerce holds primary responsibility for licensing and regulating the sale of sensitive items and technologies, including dual-use items and technologies. However in cases applying to PLA sales, the General Armament Department, responsible for military equipment and production of armaments, holds responsibility and controls access to these materials.[144] In some cases, companies are permitted to sell surplus arms from PLA depots, but cannot contract with brokers to sell weapons directly from the production line.[145] The final authority on export control enforcement is the State Council.[146]

In an attempt to strengthen public and industry awareness of prohibited items and technologies, in January 2004, China issued an export-licensing catalog—a list of sensitive items and technologies prohibited from export, including missile technologies and equipment.[147] In November and December 2006, the State Council approved two sets of revised export control regulations that harmonized export controls related to nuclear exports with Nuclear Suppliers Group standards, and increased punishments for violations.[148] These controls include software contained in the multilateral control list that pertains to nuclear weapons development and manufacture. These regulations also require that a commitment be obtained from the entity importing these items that it will neither reproduce the nuclear goods or technologies it receives for export nor transfer them to a third party.[149] Also, the State Council introduced ‘‘ ‘permanent measures’ on licensing dual-use items and technology trade that specifically contain language that could be viewed as expansion of ‘catch all’ controls in China.’’ [150]

A University of Georgia Center for International Trade and Security report concludes, ‘‘The promulgation of new legal authorities for export control in 2002, recent institutional reforms and improvements, and increasing integration with the multilateral export regimes have gone a long way toward closing what once seemed a persistent gap between Chinese and international export control standards.’’ [151] In May 2004, the Ministry of Commerce fined two Chinese companies for violations.[152]

China’s Implementation of Its Domestic Laws Is Insufficient to Meet Its International Nonproliferation Commitments

Ambassador Mahley testified that China has included items on export ban lists that parallel those specified by international nonproliferation regimes. However, it remains unclear the extent to which China will implement and enforce these laws and regulations.[153] Deputy Assistant Secretary Sedney noted in his testimony that China has not demonstrated the national level commitment required to achieve the changes it has promised.[154] Chinese agencies tasked with customs and export control responsibilities are understaffed.[155] Furthermore, Dr. Brad Roberts of the Institute for Defense Analyses testified that, ‘‘. . . it’s clear that different parts of the Chinese government and state apparatus bring different levels of enthusiasm to the policing of the behaviors of state entities with regard to China’s commitments.’’ [156]

China provides insufficient training for its customs and export control officials, its capacity to regulate border traffic is weak, and problems in its judicial system make it difficult to prosecute violations successfully.[157]

One successful example in China’s enforcement of its domestic laws is the arrest of four men from Hunan province for attempting to sell ‘‘yellowcake’’ uranium[158] acquired through an illegal mining operation. They were apprehended during a sting operation conducted by Chinese authorities, and currently are on trial.[159]

China’s Approach to its Nonproliferation Commitments

In his testimony, Dr. Roberts stated that China’s approach to proliferation has changed in recent years to align more closely with international norms and U.S. expectations. However, he noted that a significant gap remains.[160] Dr. Roberts testified that this gap stems from a different interpretation of what multilateral and bilateral agreements require, and explained that the Chinese government thinks the United States has asked it to go beyond the literal requirements of the treaty regimes to which it is a party.[161] China views the United States as asking China to address its proliferation problems according to the ‘‘spirit of the law,’’ which addresses intent to abide by the commitment to halt proliferation, in addition to fulfilling the actual provisions of the agreements. China takes a legalistic approach that acknowledges the literal requirements of its commitments—that is, the ‘‘letter of the law.’’ It has not adopted a fundamental change in perspective toward the issue of proliferation and a determination to recognize and halt its harmful consequences.[162]

On the issue of conventional weapons transfers, the United States is concerned that China’s sales to Iran and other nations will have a destabilizing effect on global security and are not in the interests of either the United States or China. However, China has made no bilateral or multilateral legal commitment to restrict such transfers and no prohibition pertains.[163] Deputy Assistant Secretary Sedney told the Commission that China’s legalistic approach, which requires the minimum amount of effort, does not support China’s claim to be a responsible world power. In fact, ‘‘the standard [the Chinese] have set for themselves by those claims [that China is a responsible stakeholder] are called into question by the activities that they carry on in the conventional sphere with Iran.’’ [164]

Moreover, two of the world’s most troubling nuclear threats— North Korea and Iran—received technology and equipment from China either directly or indirectly that aided their efforts to develop nuclear weapons and weapons technology. Questions remain about the extent of China’s knowledge of, and assistance to, North Korea’s nuclear weapons program, but the U.S. government has disclosed that North Korea received most of its equipment and technology from Pakistan, a country to which China directly supplied nuclear technology.[165]

After acceding in 1992 to the Nuclear Nonproliferation Treaty (NPT)—which obligates signatories to prevent the spread of nuclear weapons to non-nuclear states but does not define violative acts— China continued to assist Iran to develop nuclear reactors and enrich uranium despite concerns that Iran may be developing nuclear weapons.[166] China does not appear to have violated its commitments under the NPT.[167] It is unclear, however, whether China has fulfilled its obligations under recent U.N. Security Council Resolutions directed against Iran that prohibit transfers of militaryand nuclear-related items.[168]

China also has been aiding Pakistan in the construction of its second nuclear power plant. According to Mr. Chaim Braun, a Science Fellow at the Center for International Security and Cooperation at Stanford University,

China [became] a member of the [Nuclear Suppliers Group] in 2004, and as a member is forbidden by NSG Guidelines from supplying nuclear equipment to countries that did not sign the NPT and did not accept full scope safeguards. However, China claims that its contract negotiations with Pakistan regarding [this] construction have been ongoing even before its accession to NSG membership, and are thus ‘grandfathered’ [and therefore exempt] from its NSG obligations.[169]Understanding China’s approach to nonproliferation, and specifically to the legal commitments of its nonproliferation agreements, is important for understanding the utility of nonproliferation agreements with China. Ambassador Mahley testified, ‘‘What you’re trying to do is to put in place a framework by which [China] can find . . . means to operate in an acceptable fashion for the international community and for joint interests . . . So, in that sense, another agreement is useful because it gives the Chinese something in language which they’ve agreed to . . . which they can now use as a means of dictating their behavior.’’ [170] According to this view, if China joins another nonproliferation regime such as the MTCR, the very least the international community can expect is for China to abide by the letter of that agreement, and perhaps, as Ambassador Mahley indicated in his testimony, this may be an improvement on China’s past behavior.[171] Another option is placing language in such agreements that broadens China’s commitment, and therefore requires an expansion of its efforts. For example, including requirements in future nonproliferation agreements with China that it establish ‘‘catch-all’’ provisions in its domestic laws potentially would produce a ban on transfers by China to a particular place of concern, even if China has not included particular items of concern on its control list.[172]

China’s Proliferation Practices

In his testimony before the Commission, Mr. Joseph Cirincione, Vice President for National Security at the Center for American Progress, argued that ‘‘. . . while there are serious issues with China’s commitment to the international nonproliferation regimes, in general the trends are positive. [Its] performance has improved dramatically in recent decades, and . . . the issues that we have are manageable and can be worked out by a policy of constructive engagement with China.’’ [173]

Ambassador Mahley also acknowledged some positive developments.[174] China ‘‘has acknowledged that the acquisition of nuclear weapons by Iran and North Korea is not in [its] interest,’’ [175] and has supported U.N. resolutions to sanction Iran and North Korea for their illicit nuclear activities. (Each resolution was the subject of intense debate, and China supported them only after Chinese representatives worked successfully to weaken their punitive measures.)

According to Ambassador Mahley, China has demonstrated in some ways a new willingness to address nonproliferation concerns[176]—for example, playing a positive role in securing North Korea’s participation in the Six-Party Talks to obtain a suitable resolution to that nation’s nuclear program and weapons. After North Korea test fired missiles in July 2006, the U.N. Security Council responded with Resolution 1695 imposing targeted punitive sanctions against North Korea and requiring states, in a manner consistent with their own laws, to prevent transfers of materials, goods, technology, and financial resources in relation to North Korea’s missile or WMD programs.[177] China voted in favor of the resolution only after it worked successfully to obtain removal of language that imposed the sanctions under the authority of the Security Council.[178]

When North Korea announced in October 2006 that it had conducted a nuclear test, and the U.N. Security Council considered Resolution 1718 that included a provision calling on states to take ‘‘cooperative action including thorough inspection of cargo to and from the DPRK as necessary,’’ [179] China voted to approve that resolution as well. Throughout the diplomatic process, China’s support was contingent upon weakening the enforcement mechanisms and criticisms contained in the resolutions proposed by the United States and Japan.[180] Deputy Assistant Secretary Sedney testified that North Korea’s nuclear and missile tests called to China’s attention that its past tolerance of North Korea’s provocative behavior had ‘‘eroded the very stability [in the region and on China’s borders that China] claims to seek.’’ [181] While China and the United States had some very different motivations for negotiating with North Korea in the Six-Party Talks, the two nations share sufficient common ground to try to work together to address North Korea’s nuclear activities.

The Six-Party Talks and North Korea’s Nuclear Program

It appears possible as this report is being finalized that the year 2007 will be seen as an important year in the Six-Party effort to obtain an agreement from North Korea to halt its nuclear program and dispose of its nuclear weapons, and then to fulfill that agreement. On February 13, 2007, the six parties signed an Initial Action Agreement that intends to fulfill the requirements of the September 2005 Agreement that was dormant for more than a year. In announcing the agreement, Secretary of State Condoleezza Rice specifically thanked China for its role in the negotiations,[182] and later in that same month, Ambassador Christopher Hill, the U.S. lead negotiator for the Talks, expressed the view that China has been a vital partner for the United States in this process. Furthermore, in his testimony to the Commission, Ambassador Mahley testified that Chinese support is ‘‘absolutely essential’’ to the fulfillment of those February 13 commitments.[183] However, these laudatory statements may have been made more to serve diplomatic purposes than to clarify the historical record. Mr. Sedney testified that although China has taken concrete steps in pursuit of denuclearizing North Korea, there are more steps that China can and should take.[184]

Despite 30-day and 60-day action timelines specified by the February 13 agreement, North Korea stalled on fulfilling its commitments by asserting it would not implement the agreement until the United States released funds the U.S. Department of Treasury froze in September 2005 based on charges they were associated with illicit activities. In March 2007, the Department of Treasury announced that the United States and North Korea had reached an agreement on the frozen funds.[185] This agreement required communication and coordination of policies with Macanese and Chinese authorities. In June, North Korea announced it was ready to begin shutting down its Yongbyon reactor, and International Atomic Energy Agency (IAEA) inspectors arrived to begin negotiating those processes.[186] In September, China delivered its first shipment of fuel oil to North Korea as part of its commitments.[187]

In December 2006 and March 2007, China voted to approve U.N. resolutions 1737 and 1747, respectively, addressing Iran’s nuclear activities. Resolution 1737 imposed sanctions on Iran for failing to halt its uranium enrichment program following the adoption of Resolution 1696 in July 2006. Specific sanctions included banning supply of nuclear-related materials and technology to Iran, and freezing the assets of key individuals and companies related to the enrichment program.[188] Resolution 1747 tightened the sanctions that had been placed on Iran for failing to halt its nuclear enrichment program. The resolution strictly prohibited procurement of arms from Iran by U.N. member nations and their nationals, and selling or transferring to Iran military-related equipment and other materials that would aid Iran in the accumulation of arms.[189] The resolution also expanded a preexisting freeze of assets related to the enrichment program. Additionally, the resolution encouraged state and international financial institutions not to provide funds to Iran, except for humanitarian or development aid.[190]

Continued Proliferation in Violation of China’s Policy and Commitments

Concern about China’s proliferation activities remains. The Administration has labeled China’s nonproliferation record ‘‘mixed,’’ noting that some Chinese businesses and individuals continue to seek opportunities to proliferate and sell items that are contrary to the government’s official commitments.[191]

With regard to North Korea, China has adopted a risk-averse strategy that appears to place a greater value on maintaining stability on the Korean peninsula than on aggressively pursuing denuclearization.[192] China has been the leading provider of food, fuel, and trade outside the provisions of the February 13 agreement, and this lessens the impact of international pressure on North Korea through the Six-Party process.[193] China has not implemented a ban on exporting luxury goods to North Korea as Resolution 1718 requires.[194] Deputy Assistant Secretary Sedney testified that Chinese firms are the sources of dual-use items for North Korea that can be used by North Korea’s missile-related programs.[195] Ambassador Mahley noted that China generally accepts without question or skepticism end-use guarantees from North Korea; this enables China to sell arms to North Korea while complying with China’s export control requirements for such sales.[196] This practice could result in the transfer of weapons or technology to North Korea that could destabilize the military balance on the Korean peninsula and further entrench that regime’s dictatorship. Additionally, China has allowed North Korea to use its ports and airfields for transshipment of military-related items to Iran and other countries of concern.[197]

China has continued to sell weapons to Iran, notwithstanding evidence Iran is supplying and funding terrorist groups in Iraq, Lebanon, and Afghanistan, and is seeking to destabilize the Middle East.[198] Deputy Assistant Secretary Sedney testified,

We have repeatedly asked China to stop its transfers to Iran of conventional weapons and technologies. China’s response that these transfers are not governed by any international regime or treaty and therefore are ‘‘allowed,’’ is irresponsible and is at odds with the statements by Chinese leaders that China is prepared to be responsible and seeks a cooperative partnership with the United States. Partners do not provide weapons to people who support those who kill our troops and those of our allies.[199]

Ambassador Mahley testified that since the passage of U.N. Resolutions 1737 and 1747, China has made some unspecified transfers that the United States believes violated the terms of those resolutions and aided Iran’s nuclear program. China acknowledges that the transfers took place, but offers as justification its view that the United States is wrong in its assertion that the U.N. resolutions ban these items.[200] China also has helped Iran establish self-sufficient production of ballistic missiles. The United States has communicated to China that China could much more effectively support the objectives of the international efforts opposed to Iran’s nuclear program if it suspends its investments in Iran’s oil and gas sectors in order to bring more financial pressure on the Iranian government.[201]

China also continues to transfer conventional arms and dual-use technologies to Sudan,202 despite U.N. resolutions prohibiting the sale or supply of weapons and military equipment to belligerents in the Darfur conflict.[203] These sales suggest that China places greater emphasis on its commercial and energy supply interests than on concerns about human rights or international opprobrium.[204] Deputy Assistant Secretary Sedney stated,

China is a major supplier of arms to Sudan, weapons that are important to a Sudanese military that supports actions in Darfur that are causing immense human suffering and threaten the stability of that region of Africa. China is seen as Khartoum’s primary patron and benefactor. While China has declared its intent to restrict arms sales to uses outside Darfur and appointed an envoy for Darfur, we are concerned that China is not using the full weight of its relationship with Sudan to stop the suffering in Darfur and bring Khartoum into compliance with international norms.[205]

Ambassador Mahley acknowledged that the appointment of a special Chinese envoy to Sudan may hold some promise that China will begin to use its influence there to push the Khartoum government to resolve the conflicts in that country and comport its actions responsibly.[206] China’s contribution of troops to the U.N.’s peacekeeping force in Sudan raises new but limited expectations for China’s participation in addressing international humanitarian crises.[207]

Limits to Chinese Implementation and Compliance

In spite of China’s multilateral and bilateral nonproliferation commitments, and its own domestic laws, there have been repeated episodes of Chinese proliferation. Because of the opacity of China’s government, it generally is difficult or impossible to know whether (1) the government objects to such transactions but is either unaware of them or powerless to stop them; (2) the transactions result from government acquiescence fostered by entrenched corruption; or (3) the government approves of the transactions in direct contravention of its official policy and commitments. There is evidence that many illicit transactions are not accidental. Ambassador Mahley told the Commission that Chinese companies have developed more complex front organizations to disguise transfers that are contrary to official policy.[208]

Dr. Roberts noted that enforcement of export restrictions may differ depending on the political influence a particular company is able to exert.[209] Dr. Jing-dong Yuan of the James Martin Center for Nonproliferation Studies testified that because of the structure of many Chinese companies that produce weapons and technology for export and their current or past relationship with the People’s Liberation Army (PLA) as state-owned entities, it is difficult for export control officers to challenge export decisions that appear to be approved by company leaders or government or PLA officials.[210]

Indeed, in any export control system, companies necessarily play a critical role. As Dr. Gary Bertsch, university professor, and founder and Director of the Center for International Trade and Security at the University of Georgia/Athens, told the Commission, ‘‘Industry is the first line of defense in restraining proliferation.’’ [211] Export controls cannot be effectively implemented, administered, and enforced without knowledgeable commitment by a nation’s manufacturers and traders.

China has lagged in this dimension. Some suggest that China has recognized this problem and is taking steps to address it—motivated in part by international opprobrium, and by the economic costs of sanctions imposed by the United States and others. A case in point is the China North Industries Corporation (NORINCO) that has been designated ‘‘one of the greatest serial proliferators in China.’’ [212] Recently, NORINCO has claimed it is undergoing a transformation brought about by the realization that ‘‘responsible export control behavior, informed corporate officials, and an effective internal compliance program can be thought of as trade-enabling,’’ according to Dr. Bertsch,[213] with whose organization NORINCO has contracted for export control training for its employees and assistance in developing an internal compliance program.[214] Dr. Bertsch maintains NORINCO’s transformation is real, and stems from the company’s desire to avoid stigma and U.S. sanctions, and to open new opportunities for trade with U.S. companies. The jury is out, however. Ambassador Mahley agreed this change in rhetoric demonstrates that sanctions create economic incentives to change negative behavior, but also said that it is yet to be determined whether NORINCO actually has changed its behavior or simply is seeking to mask harmful behavior behind positive rhetoric.[215]

Because of China’s inadequate proliferation record, Congress has required the executive branch to report on China’s nonproliferation treaty compliance and to sanction firms and individuals who violate U.S. nonproliferation laws.[216] For example, the Iran and Syria Nonproliferation Act was amended in 2006 to include sanctions against persons or companies who transfer weapons and technology to North Korea.[217] The continued imposition by the U.S. government of sanctions against Chinese firms offers stark evidence that Chinese political will to enforce export control restrictions satisfying international norms, or its technical enforcement apparatus, is deficient.[218] Ambassador Mahley told the Commission that he is not satisfied that the sanctions in current law inflict sufficient pain on proliferating entities, and that in the case of entities that do little or no business with or in the United States, the sanctions have little or no effect. However, some experts believe that as Chinese firms extend their activities around the globe, they likely will want increased access to U.S. markets, and therefore will conform to nonproliferation norms in order to gain new economic opportunities and avoid sanctions. Indeed, this is the motivation NORINCO cites for its purported proliferation reversal.[219]

Engaging China to Strengthen Its Nonproliferation Efforts Multilateral Efforts

Experts appearing before the Commission expressed different views on the benefits of working to expand China’s participation in multilateral nonproliferation regimes and programs. Dr. Roberts suggested that it is a ‘‘chicken-and-egg’’ problem to decide whether regimes whose member nations share views on objectives and methods and have achieved a reasonable level of proficiency in application should accept China as a member first and then try to obtain its agreement to the objectives and methods and facilitate its proficiency, or instead should demand demonstrated agreement and proficiency before granting membership. He testified that China’s general practice when joining nonproliferation activities is to comply with the letter of the law—if that—but often not the broader spirit. He suggested that complying with only the letter of the law frequently is insufficient, and that China’s shortcomings in this respect are harmful to U.S. nonproliferation efforts.[224] Dr. Yuan suggested that greater consultation with multilateral regimes in which China is seeking membership, such as the Australia Group, can inform China of what is expected of members, and once China moves close enough to meeting those expectations, the regime can accept China and expect further improvements.[225] This position parallels that of Deputy Assistant Secretary Sedney, who said that China must improve its enforcement of nonproliferation controls and its transparency about those activities so as to engender trust, at which point the United States would be more comfortable supporting China’s membership in organizations like the MTCR.[226]

One method to expand the appeal of multilateral controls is to work to establish and gain acceptance of and adherence to ‘‘no undercut’’ policies: An exporting nation notifies its allies, or other nations participating in a multilateral export control regime, of its disapproval of a request to export an item to a particular nation or end-user, and requests its partners also to deny similar requests from the same nation or end-user, so as not to ‘‘undercut’’ the original nation’s denial of the export. This policy advances the interests of nonproliferation—making it less likely the end-user seeking the denied item will obtain it elsewhere—and the interests of the company from which the purchasing organization originally sought to purchase the item because it does not lose the sale to a company in another nation.

China and the Proliferation Security Initiative

The United States founded the Proliferation Security Initiative (PSI) in 2003 to organize nations concerned about shipments of WMD and their delivery mechanisms to identify suspected shipments and interdict them. Although China was invited to participate, it has not done so, citing concerns that international law does not permit seizure of ships, even those suspected of carrying WMD or their components or delivery systems, on the open seas.[227] [228] Ambassador Mahley testified, ‘‘China’s commitment and participation in this program would be invaluable and we have been seeking to address Beijing’s concerns, emphasizing that PSI actions are taken in accordance with states’ domestic authorities and international law.’’ [229]

Bilateral Efforts

Nonproliferation is a very important matter for the United States, and it has engaged in repeated discussions with China on this topic at levels ranging from summits to the working level.[230] The topic was addressed during President Hu Jintao’s visit to the United States in April 2006. There is a periodic Nonproliferation Dialogue conducted at the Assistant Secretary level.[231] The U.S. Department of Energy has engaged China on nuclear security issues,[232] and China participates in the U.S. Container Security Initiative (CSI).

China, Hong Kong, and the Container Security Initiative (CSI)

Background

The CSI was initiated in 2001 after the September 11 attacks to reduce the risk that a terrorist could use a shipping container to transport weapons of mass destruction (WMD) or weapons of mass effect (WME) directly into the United States.[233] In this program, participating ports work with officals of Customs and Border Protection of the U.S. Department of Homeland Security to identify containers determined to pose a high risk of containing WMD or WME, prescreen them before the ships carrying them depart for the United States, and, in some cases, physically examine their contents. Participation in the program is negotiated through voluntary bilateral agreements.[234] Prior to initiating the program at a port, U.S. Customs and Border Protection, the U.S. Department of Energy, the U.S. Department of State, and the U.S. Coast Guard conduct a capacity assessment to determine any weakness in controlling the flow of shipping and preventing the port from being used to transfer weapons undetected. China’s Participation in the CSI In September 2007, CSI officers in Washington, DC provided a briefing to the Commission on China’s participation in CSI. As of October 2007, the mainland ports of Shanghai and Shenzhen are participating in the CSI. The Declaration of Principles that established U.S.-China CSI cooperation allows for scanning only containers determined to be possibly related to an imminent terrorist threat. Scanning containers for other transgressions—such as possible intellectual property infringements—is not part of the CSI program, and is not allowed by Chinese customs officials.

There have been some areas of friction in the program’s operation. In some instances, the U.S. and Chinese determinations of the risk posed by a container have been different, but Chinese customs officials generally have been willing to permit the CSI team to scan containers it has identified as risky and to participate in the scanning process. When a physical inspection has been indicated, U.S. CSI personnel have received good cooperation from their Chinese counterparts. China permits U.S. customs officers working in the program to reside and work in China for only one year.

The U.S. government’s overall assessment of China’s participation in the CSI program is positive, and that the program’s operation in Shanghai and Shenzhen materially contributes to the security of the United States.

China, Hong Kong, and the Container Security Initiative (CSI)

Hong Kong’s Participation in the CSI

In June 2006, when a Commission delegation visited Hong Kong, it met with U.S. and Hong Kong customs officials who work on the CSI program at the Hong Kong Port. Hong Kong’s customs operations, including those pertaining to CSI, are not controlled by the PRC, and its officials work with the U.S. government on the CSI under a separate agreement. U.S. CSI officials can reside and work in Hong Kong indefinitely, unlike in China. According to U.S. CSI personnel, Hong Kong is considered to be one of the program’s best success stories.

Export Control Technical Assistance to China

In April 2006, the U.S. Department of Commerce and China’s Ministry of Commerce formed the ‘‘U.S.-China High Technology and Strategic Trade Working Group’’ under the auspices of the Joint Commission on Commerce and Trade (JCCT), which is a Ministerial-level bilateral working group. Among the topics the Working Group has addressed is export control cooperation, including U.S. sponsorship of technical assistance to China to assist it to strengthen and increase the effectiveness of its export control program. In 2004, the Department of Commerce and the Ministry of Commerce also signed an agreement on end-use verification of adherence to export control license conditions. The first such agreement on end-use verification was established in 1998, after 15 years of negotiation.[235] Ambassador Mahley told the Commission:

Beyond discussing our shared interest in preventing proliferation, there are a number of instances where the Chinese have expressed an interest in export control cooperation, including technical exchanges and training. To the extent that it is permissible within the law, we have endeavored to provide such assistance. One such example of cooperation is found in the State Department’s Export Control and Related Border Security (EXBS) Program, which has supported training for Chinese licensing and enforcement officials. The EXBS effort is designed to help key source, transit, and transshipment countries to establish or enhance strategic trade control systems, including border control capabilities, that meet international standards for controlling items on the control lists of the nonproliferation export control regimes, prevent the authorization of transfers to end-uses and end-users of proliferation concern, and detect and interdict illicit transfers at the border. Our EXBS cooperation with China is funded from [appropriations] for the Nonproliferation and Disarmament Fund (NDF). In addition, in coordination with the EXBS program, the Department of Energy conducts Commodity Identification Training aimed at training Chinese frontline Customs enforcement officials and technical experts responsible for assessing exports of shipments for nuclear proliferation concerns. [236]

Helping China to Be A Responsible Stakeholder Regarding Proliferation

Ambassador Mahley concluded in his testimony, ‘‘We have no realistic option but to continue to work with China to improve transparency, to strengthen enforcement, and to root out increasingly sophisticated proliferation networks and proliferation activities.’’ [237] The combination of multilateral and bilateral efforts, including the use of U.S. sanctions, is to encourage improved enforcement of China’s international treaty obligations, as well as its own domestic laws and regulations. Deputy Assistant Secretary Sedney noted that this is the stated goal of the Chinese leadership:

China’s leaders state that they have set their nation on the path of being a ‘responsible stakeholder’ in the international system and that they want a ‘cooperative partnership’ with the United States. These are laudable goals. China’s success or lack thereof in working with the United States and other nations to prevent the proliferation of WMD and missile technology and in preventing Iran and North Korea from behaving in irresponsible and dangerous ways is a key test of how well China’s government is meeting the goals its leaders have set.[238]

Conclusions

• Since the 1990s, China’s nonproliferation record has improved, especially after it established and expanded the reach of its domestic export control system. However, serious concerns remain about the continued transfer of weapons and technology to nations of concern and nonstate actors by Chinese state-controlled and private companies.
• Because of the opacity of China’s government, when incidents of proliferation occur, it generally is difficult or impossible to know whether (1) the government objects to the incidents but is either unaware of them or powerless to stop them; (2) the transactions result from government acquiescence fostered by entrenched corruption; or (3) the government approves of the transactions in direct contravention of its official policy and commitments. Regardless, there is evidence that many illicit transactions are not accidental, and that all three of these explanations may have some validity in various cases.
• It is vital for U.S. national security that China ensure it is not the source of proliferation that is contrary to its commitments, and it is equally vital for other nations committed to nonproliferation to monitor China’s adherence to its commitments and insist that China honor them.
• If China wants to be perceived as a responsible stakeholder, it must stop providing trade and diplomatic cover to countries such as North Korea and Iran that are under international pressure to end their WMD programs.
• Continued United States cooperation with China, and U.S. technical assistance to China, on export controls, border security, customs procedures, and port and shipping security can contribute significantly to China’s capacity to play a positive role in reducing proliferation and consequently to increasing the world’s security from terrorism and the destructive acts of irresponsible states.
• In order for China to eliminate its proliferating activity, it must couple sufficient technical capacity with strong and unmistakable political commitment, and ensure that its government, its military, and its state-controlled companies and other organizations adhere to both the letter and the spirit of China’s multilateral and bilateral nonproliferation commitments.

Section 3: China’s Science and Technology Activities and Accomplishments

‘‘The Commission shall investigate and report on—

‘‘ECONOMIC TRANSFERS—The qualitative and quantitative nature of the transfer of United States production activities to the People’s Republic of China, including the relocation of high technology, manufacturing, and research and development facilities, the impact of such transfers on United States national security, the adequacy of United States export control laws, and the effect of such transfers on United States economic security and employment.

‘‘REGIONAL ECONOMIC AND SECURITY IMPACTS—The triangular economic and security relationship among the United States, [Taiwan], and the People’s Republic of China (including the military modernization and force deployments of the People’s Republic of China aimed at [Taiwan]), the national budget of the People’s Republic of China, and the fiscal strength of the People’s Republic of China in relation to internal instability in the People’s Republic of China and the likelihood of the externalization of problems arising from such internal instability.

‘‘UNITED STATES-CHINA BILATERAL PROGRAMS—Science and technology programs, the degree of non-compliance by the People’s Republic of China with agreements between the United States and the People’s Republic of China on prison labor imports and intellectual property rights, and United States enforcement policies with respect to such agreements.’’

China’s Fifteen-Year Plan for Science and Technology

In February 2006, the State Council, China’s highest executive body, publicly announced its first long-term plan for the twentyfirst century, which intends to bolster China’s science and technology (S&T) progress through 2020.[239] This Fifteen-Year Plan also is China’s first long-term plan since its accession to the World Trade Organization (WTO).[240]

Premier Wen Jiabao served as chair of the committee representing several government ministries that developed the new S&T plan.[241] In contrast to the process by which previous S&T plans and programs were developed, preparations for the 2006– 2020 plan occurred, at least in the early stages, in a remarkably open environment, with foreign scholars among the 2,000 researchers contributing to the policy development process.[242] However, the environment later changed as bureaucrats, attempting to strike compromises with each other over controversial portions of the plan, made revisions in secret until the final version was released.[243]

Since 1956, technological research and development (R&D) in China has been guided by Five-Year Plans.[244] Technology transfers from the Soviet Union in the early years of the People’s Republic of China (PRC) aided China in its development of some of its strategic weapons. However, centralized S&T planning—epitomized by the Five-Year Plans—hampered overall technological and scientific development and innovation.[245] In addition, the Cultural Revolution (1966–1976) hurt Chinese S&T development, as universities were closed, and professors and students were killed, jailed, or sent to the countryside to work on farms. An entire generation of Chinese researchers and expertise was lost.[246]

When Deng Xiaoping came to power in 1978, he initiated a number of policies that would advance China’s S&T capabilities. Science and technology composed one of Deng’s well-known ‘‘four modernizations.’’ [247] One of Deng’s mottos, ‘‘science is the first productive force,’’ remains a guiding principle for Chinese development today.[248]

In the 1980s and 1990s, macro-level research and development efforts such as the ‘‘863 Program’’ and the ‘‘973 Program’’ were initiated.[249] Funds allocated to these programs are directed toward various high-tech projects, particularly defense-related research institutes under the China Electronic Technology Group Corporation (CETGC), the PLA General Staff Department, and other defense industrial entities.[250] The 863 and 973 Programs, known officially as ‘‘High Tech Research and Development Program of China’’ and ‘‘National Basic Research Program of China,’’ respectively, were both designed to aid China’s scientific and technological advancement.[251] Each program takes a slightly different approach. The goals of the 863 program are broad, aiming to obtain technology, sometimes through international sources, to close the gap between China and developed countries. This program covers civilian technologies, but gives emphasis to military and dual-use technologies. The 973 program is specifically designed to provide funding to small and medium-sized companies in China, with the goal of fostering a more technologically advanced indigenous scientific and manufacturing base. Both programs give particular attention to international outreach and cooperation in exchanging expertise.[252]

The new Fifteen-Year Plan builds on past plans and policy initiatives, and incorporates them in a single, coherent approach to S&T. It differs from some older initiatives, such as the 863 Program, in that it no longer seeks only to attain parity with western S&T, but instead seeks to surpass the technological prowess of the West.[253] Previously, imports from foreign suppliers were central to China’s S&T modernization. This new plan focuses on promoting indigenous innovation and creating an innovation-oriented society. It also promotes ‘‘leapfrogging,’’ whereby the development of Chinese technologies improves established foreign technologies, and bypasses intermediate domestic R&D steps. This speeds product development and saves China the time and cost of accomplishing the intermediate steps.[254]

S&T Areas and Programs for Development Identified in China’s Fifteen-Year Science Plan [255]
                Key Areas
Agriculture                       National defense
Energy                            Population and health
Environment                       Public securities
Information technology industry   Transportation
  and modern services             Urbanization and urban
Manufacturing                       development
Water and mineral
resources

              Frontier Technology
Advanced energy                 Information
Advanced manufacturing          Laser
Aerospace and aeronautics       New materials
Biotechnology                   Ocean

              Engineering Megaprojects
Advanced numeric-controlled       Large-scale oil and gas
  machinery and basic manu-         exploration
  facturing technology            High-definition earth
Control and treatment of AIDS,      observation systems
  hepatitis, and other major      Core electronic components,
  diseases                          high-end generic chips,
Drug innovation and development     and basic software
Extra large scale integrated cir- Genetically modified new-
cuit manufacturing techniques     organism variety breeding
Large advanced nuclear reactors   New-generation broadband
Manned aerospace and Moon           wireless mobile
  exploration                       telecommunications
Large aircraft
Water pollution control and
  treatment

              Science Megaprojects
Development and reproductive   Nanotechnology
  biology                      Quantum research
Protein science

Experts vary in their assessment of the plan and its potential to transform China’s S&T capabilities. Some experts, such as Mr. Cong Cao, researcher at the University of Oregon; Dr. Richard P. Suttmeier, professor of political science at the University of Oregon; and Dr. Denis Simon, provost and vice president for academic affairs at the State University of New York’s Levin Institute, writing in Physics Today, expressed their assessment that China’s Fifteen-Year Plan for S&T will have a major effect on Chinese capabilities in the future. They predict that, if China reaches its R&D spending goals, it will become a global scientific center.[256] Some view the plan as a sort of grand experiment, in which the plan’s architects take into account the significance of institutional and cultural reforms. However, experts also believe the plan has flaws, including that it gives little attention to the role of market forces and instead assumes that innovation can be decreed ‘‘from above.’’[257]

The extent to which Chinese science and technology may benefit from the policies set forth in the new S&T plan has yet to be determined. It certainly is possible, and is China’s intent, that increases in R&D funding and an emphasis on indigenous innovation will bring Chinese S&T into a new era that is less reliant on foreign technology, and one in which China can contribute more significantly to international S&T efforts. The plan, however, still upholds high-level political control over R&D decisions by ministries such as the Ministry of Science and Technology (MOST). Some scientists in China think these decisions should be in the hands of researchers.[258] In addition, accountability and government oversight continue to be problems for Chinese S&T, and frequent allegations of fraud and scientific misconduct continue to plague China’s S&T administrators.[259] Nonetheless, the new Fifteen-Year S&T Plan represents a strategy to overcome many of these obstacles and to ensure China’s long-term competitiveness in the rapidly changing world of science and technology.

China’s S&T Progress and Accomplishments

The National Science Foundation recently reported that China’s S&T activities, along with those of other East Asian nations, are gaining strength and capability, and that China is emerging as a regional S&T leader. The report further indicates that the S&T investment and effort of these nations are beginning to produce commercial victories for them in the marketplace, where they are wresting high-technology product market share away from the United States and other nations:

A range of indicators traces a trend that shows growing competitive strength in the Asian region outside. . . . Japan, chiefly in China, South Korea, Malaysia, Singapore, and Taiwan. Scientists based in those countries produce a growing share of the S&T articles appearing in the world’s leading journals, and development of regional scientific collaboration (centered on China) is apparent. These Asian economies have an expanding world market share of high-technology production. In exports of high-technology products, they are gaining market share on all major industrial nations including the United States.[260]

Chinese Expenditures on Research and Development

According to its new S&T plan, China’s R&D expenditures will increase to 2.5 percent of gross domestic product (GDP) by 2025— up from 1.34 percent in 2005.[261] Yet, even before initiation of this plan, R&D expenditures had been rising.[262] In 2006, China’s R&D expenditures surpassed those of Japan for the first time,[263] and now are second only to those of the United States. Even though other top R&D countries have been increasing R&D expenditures, the rapid pace at which Chinese R&D is growing has caused other countries, including the United States, to see declines in their global shares of R&D spending. (This phenomenon is discussed in more detail in Chapter 1, Section 3, ‘‘The Impact of Trade with China on the U.S. Defense Industrial Base.’’)

Figure 2.2 China’s Gross Expenditures on R&D 1998–2005

Dr. James Mulvenon, Deputy Director of the Center for Intelligence Research and Analysis at Defense Group, Incorporated, testified to the Commission that R&D plays an important role as one of the three vertices of what he described as the ‘‘digital triangle.’’ [264] The digital triangle is a paradigm shift in which Chinese military modernization is facilitated by cooperation among the military, commercial civilian information technology (IT) companies, and R&D institutes and funding sources.[265] Therefore, it is not surprising that the rise in R&D expenditures in China’s S&T plan corresponds with China’s military modernization goals, particularly indigenous innovation and civil-military integration. As the quality, sophistication, and ambition of China’s R&D activities increase, both the PLA and Chinese IT companies gain access to more advanced technologies.

From 1994 to 2004, the share of business investment in China’s R&D funding increased from 30 percent to 64 percent.[266] This change indicates a dramatic shift in thinking about who should bear R&D responsibility and the role that the market can play in developing new technologies. This shift also has been beneficial for the development of military platforms and for China’s ‘‘national champions,’’ as Dr. Mulvenon explains:

[T]he Chinese IT sector, backed by state R&D funding and national labs, has moved beyond the mere importation of Western technology to co-development with foreign firms and even indigenous development of near state-of-the-art technology. The result is significant levels of military access to cutting edge [commercial off-the-shelf] information technology, fueling a [command, control, communications, computers, and intelligence] revolution in the armed forces. Moreover, these IT ‘‘national champions’’ are now aggressively pursuing markets abroad, particularly in the third world regions such as Africa that have been conspicuously avoided by Western firms.[267]

Accompanying this shift in funding, China’s state-led research institute sector, which for so long was predominant in China’s S&T pursuits, has been shrinking. In 1991, nearly 6,000 research institutes employed approximately one million employees. By 2004 approximately 4,000 research institutes employed 560,000 employeesrepresenting a loss of nearly half the workforce among such institutes over a 13-year period.[268] The shift in approaches appears to have produced significant positive dividends for China. During approximately the same period, Chinese worldwide patent applications increased sharply over the same period, from about 15,000 in 1991 to over 150,000 in 2004. These applications represent a mix of Chinese and non-Chinese companies and individuals filing from China. Between 1995 and 2005, applications submitted from China by Chinese companies and individuals increased 834 percent; and applications submitted from China by non-Chinese companies and individuals increased 819 percent.[269]

Universities also have been taking responsibility for a larger percentage of R&D in China. While research institutes continue to enjoy greater R&D funding than universities, this gap is closing as both graduate and undergraduate enrollments swell.[270]

Figure 2.3 Student Enrollment in Chinese Higher Education 1998–2005

Ensuring the Availability of Qualified Scientists and Engineers

China is now home to about one million scientists and engineers, second in the world only to the United States.[271] China boasts of world-class R&D in several fields, including life sciences, nano science, and space technology. Chinese scientists increasingly are being published in international scientific journals and Chinese cities are chosen more frequently as locations for international science and technology (S&T) conferences and exhibitions.[272] As China pursues S&T growth, it must ensure that qualified scientists and engineers will be available both in the near term and also in the more distant future. In the 1990s, China relied on foreign scientists and engineers for technical and consulting advice on weapons development projects. It tapped their expertise via academic exchanges and professional conferences in order to obtain data and information needed by the Chinese defense industry.[273] Even today, China must recruit foreign scientists, in part because many of China’s own best scientists and engineers pursue career opportunities abroad. China would prefer to meet its needs for scientists and engineers with its own population.

Among the reasons why China has been forced to import scientific and technological expertise in the past is that, for many years, the quality of the education available from most of China’s top universities lagged behind what was available from top universities in leading Western nations, such as the United States and the United Kingdom. Chinese leaders realized that to remain competitive, especially in fields related to science and engineering, China must enable its best students to study in universities of the highest quality. The problem was different for the second tier of Chinese college students, who would not qualify to attend or be able to arrange financing to attend the top Western schools. Chinese post-secondary educational facilities had insufficient capacity to meet the demand, so China arranged for many of these students, as well, to attend other colleges and universities around the world.

Many students who studied abroad chose not to return to China, and sought and obtained employment in the nations where they had studied. Particularly the brightest and most skilled Chinese students usually found it easy to do this. They were joined abroad by some scientists and engineers who had obtained their advanced degrees in China but found the work and living situations in Western nations more appealing. In China, the absence of an effective patents system and intellectual property rights culture has meant that researchers and their in