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China’s Technology
Modernization Program:
A Progress Report a

A Research Paper

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Directorate of
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China’s Technology
Modernization Program:
A Progress Report i

A Research Paper

cxet
NOFOR? ONT RACT:
PROPIN-OR:

Summary
Information avaitable
as of I January 1988

was used in this report.

CONTRACT

NOFOR?
PROPIN-Ol

China’s Technology
Modernization Program:
A Progress Report =

From Deng Xiaoping down, Chinese officials have identified scientific and
technological progress as a key to modernizing industry, agriculture, and
national defense, But the impact of technology on specific national
development priorities has varied considerably:

* The military has filled several key gaps in areas such as ground force
weapons, Communications, remote sensing, and tactical and strategic
missile systems by acquiring Western equipment and production technol-
ogy and through indigenous development. Although China’s defensive
position vis-a-vis the Soviet Union or the United States wil] remain
largely unchanged, China's improved capability to project power en-
hances China's role as a regional military power.

« The impact of the science and technology (S&T) reform program on the
civilian economy is harder to gauge—it is one of many factors contribut-
ing to the economic progress of this decade—but it can be seen clearly in
certain sectors. Beijing's success in improving technology in such areas as
textiles, petroleum, consumer goods, and light industry has been a major
factor in increased foreign exchange carnings from textiles, oil, and arms.
It has also begun to alter China’s imports and exports, as China has
developed domestic substitutes for foreign consumer goods and has even
begun to export production lines for black-and-white TVs and
pharmaceuticals.

The importation of production lines and military production of civilian
goods has also increased the quality and variety of consumer goods
available, contributing to the improved standard of living of the average
Chinese.

The impact on agriculture has been less but advances in plant and animal
breeding, new cultivation techniques, and increased applications of
pesticides and fertilizers hold the potential for greater gains in the future.

China has had little success in civilian applications of high-priority,
advanced-technology sectors such as semiconductors, computers, and
telecommunications. This failure will in our view hold back advancement
in other high-priority areas, such as the development of automated
production capabilities and communications networks for business and
government.

iif a. ee
EA 88-1

January 1988

« China has increased the number and skills of its S&T personnel, and is
establishing a scientific community that is more capable and responsive
to national needs, although these improvements are occuring more slowly
than Beijing would like.

The S&T modernization program that has produced these results has seven

interrelated goals that have evolved since 1978:

« Improve personnel management.

* Reform research management.

+ Change S&T funding procedures.

« Commercialize technology.

* Increase acquisition of foreign S&T.

« Break down the barriers between civilian and military research and
production.

* Promote regional development.

We believe China has made significant strides toward rebuilding its
scientific community, which was devastated by the Cultural Revolution,
reforming funding and personnel procedures, and acquiring foreign tech-
nology. Progress is less evident in breaking down the barriers between
organizations and in promoting regional development. Working conditions
tend to be poor and key skills—such as computer specialists—are still in
short supply.

We believe additional progress will depend on China’s leaders coming to

grips with a number of interrelated problems, including:

+ Differences over priorities and the allocations of resources.

* The balance between military and civilian needs.

¢ The relative priority of basic and applied research.

* Reliance on imported, versus the development of domestic, technology.

© The proper role of economic incentives and market mechanisms to boost
S&T development and use.

In addition, the S&T modernization program also suffers from infrastruc-
tural shortcomings and problems of its own making. The Chinese have
often imported advanced equipment ill suited to their needs. Compared
with the production of older clectronic goods, moreover, the use of new
electronics technologies often requires different types of knowledge, more
stringently controlled environments, and more competent managers and

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assembly line personnel. Beijing's decision at points to rely on indigenous
technology has in some cases wasted resources, delayed completion of
projects, and added to the costs—including social costs, as when China
decided to develop on its own a hepatitis vaccine when one was already
available abroad. The S&T community also has been guilty of setting
unrealistic goals and making promises it could not keep.

Despite these problems, we believe the sheer size of China’s investment in
S&T and Chinese achievements to date indicate progress in research and
commercial applications will continue. Only in the last few years have the
key elements of the reform program begun to have an impact. Only now
are students returning from overseas in sufficient numbers to improve the
educational system and research capabilities. Other long-term technology
programs that have been slow to bear fruit—such as joint projects between
research institutes and factories—should begin to raise the technological
capabilities of traditional industries. On the basis of programs already
under way, we foresce potential successes in military areas including lasers,
optics, and space launch vehicles, while commercial development in areas
such as biotechnology is promising.

China’s S&T modernization program creates both opportunities and
problems for the United States. On the one hand, China's policymakers as
well as individual scientists retain favorable attitudes toward the United
States, which in some cases translates into a preference for cooperation
with US suppliers. We expect the returned students to strengthen this bias,
although they will not necessarily prevail over those who favor non-US or
indigenous technology. On the other hand, China's desire to protect
domestic industries, diversify sources of imports, and obtain concessionary
financing will compound the difficulties of selling US equipment to China,
Moreover, Western technical assistance has increased the competitiveness
of Chinese firms in such products as textiles and small manufactured
goods,

Several aspects of China's S&T modernization program may pose more
serious threats to US interests. China’s aggressive arms marketing—as
demonstrated by the Silkworm sales to Iran—can complicate the Sino-US
relationship and undermine US foreign policy goals in other regions. The
acquisition of advanced telecommunications equipment improves Chinese
command and control, increases force projection capabilities, and compli-
cates US efforts to monitor civilian and military networks. China is

ret

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developing and should deploy by 1997 mobile missile systems that will add
to the uncertainty over the size and location of China's strategic forces, and
that could become a factor in US-Soviet arms negotiations; Moscow has
said negotiations on decp cuts—beyond 50 percent—in strategic nuclear
forces would have to consider third-country systems, And while China’s
defensive posture vis-a-vis the Soviet Union or the United States will not
change significantly, China’s growing S&T capabilities and accompanying
military improvements will increase Beijing’s ability to project power
against the nations on its periphery.

ee vi

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Contents
|
Page
Summary itt
Scope Note — 7 7 vii
China's Science and Technology Program ~T a
; Toward Meeting the Goal . -. : i a)
: . Buta Long Way ToGo 4.
National Defense: A Major Beneficiary - 2t =,
Impact on the Economy 7 : 7
Future Directions ~ B-
~~ Unsolved Problems — B
Cause for Cautious Optimism = 15 a
implications for the United States a : 16
Appendixes
A. Bibliography of Related Studies 19
: B. "Chronology of Chinese S&T 21

Reverse Blank ix t

China’s Technology
Modernization Pr
A Progress Report

China's Science and Technology Program

Although China’s leadership has identified progress in
science and technology (S&T) as a key to developing
industry, agriculture, and national defense, the scien-
tific community has had poor facilities, too few skilled
personnel, insufficient incentives for quality perfor-
mance, and heavy political interference—prablems
that were aggravated by the Cultural Revolution. In
addition, the achievements of Chinese scientists tradi-
tionally have been largely confined to military needs.
Chinese officials increasingly criticized both military
and civilian research for overemphasizing theoretical
work, duplication of effort and wasting resources, and
an inability to apply research results to improving
industrial productivity.

In 1978, Beijing announced a broad program calling
for basic and applied rescarch in these priority areas:
agriculture, cnergy resources, material sciences, com-
puters, lasers, space, high-energy physics, and genctic
engineering.’ As with China’s other reforms, the S&T
modernization program focused on broad goals rather
than specific measures. And it contained little evi-
dence that Beijing had weighed the costs—financial,
political, and social—or given great thought to the
mechanics of implementation. Much of this latter
responsibility was subsequently delegated to various
state council oversight organizations and to individual
enterprises and institutes. The 1978 National Science
Conference, which established the priority areas, de-
clared that, if China was to close the gap with the
West as quickly as possible, China would have to
rebuild its S&T establishment and refocus scientific
work to better meet national needs. Beijing called on
its scientific community to:

+ Improve personnel skills and management. Beijing
recognized that new mechanisms were needed to
upgrade and expand training, provide incentives,
improve working conditions, and more effectively
use S&T workers.

‘Appendix B is a chranology of the key decisions and developments
in China’s evalving S&T modernization progea:

RN. NOCONTRACT-
-ORCON

+ Reform research management. Beijing called for
replacing party appointees with qualified scientists,
and increasing the authority and responsibilty of
research directors for planning research.

Change funding procedures. Research institutes
‘were encouraged to seek outside support for re-
search in order to better link research to production.

Commercialize technology. Beijing defined technol-
ogy as a commodity to be bought and sold, subject
to market influences, to encourage research and
innovation.

Acquire greater amounts of foreign science and
technology. Beijing recognized that technology im-
ports were key to meeting immediate needs and to
upgrading indigenous capabilities.

Break down the barriers between civilian and mili-
tary research and production. By merging the previ-
ously isolated research systems, Beijing sought to
improve the use of advanced technology in both
sectors, and to increase the military's contribution
to the civilian economy by using excess military
production capacity to produce civilian goods.

Promote regional development. Beijing sought to
speed development of rural and remote areas
through the dissemination of additional technologi-

cal support aay

Toward Meeting the Goal . . .

Progress toward realizing these goals has been un-
even, but in our judgment China has made significant
strides in the last 10 years. We cannot quantify the
progress, nor is it all due to the S&T program—other
reforms and China’s broader political ties to the West
are important factors—but examples of China's im-
proved S&T capabilities abound. Since 1978, China

EEE eee

Examining China’s S&T Claims

Our analysis of China's S&T modernization program
incorporates information from the Chinese press,
statements by Chinese officals, information from
reliable reparting, and our knowledge af Chinese
political behavior and technological and industrial
development. In our judgment, public statements are
useful sources of information, but—like other report-
ing—they must be carefully scrutinized. Chinese
public statements serve many purposes, from record-
ing a scientific contribution for worldwide knowledge
and seeking enhanced international prestige, to per-
suading domestic critics of the value of S&T reforms
or encouraging further indigenous technology devel-
opment, Thus, some Chinese statements on S&T
achievements are remarkably candid about progress
and remaining problems, and most reflect Chinese
intentions for technological development in particular

fields faz

Some statements, however, are slanted—overstating
capabilities or ignoring foreign assistance—to achieve
certain goals

has deployed a nuclear-powered submarine, offered
satellite launch services to other countries, and pro-
duced civilian aircraft. China has developed more
advanced products in areas such as computers, con-
«c, and telecommunications,

sumer electronics, medi
and knowledgeable foreign observers report research
progress in biotechnology, composite materials, and
other fields. Chinese researchers have submitted over
45,000 patent applications since China instituted a
patent law in 1985 (see inset “Examining China's

S&T Claims” and figure |)

We believe China's S&T reforms are also rebuilding
the scientific community into one that is more capable
and more responsive to national needs (see inset “A
Profile of China’s S&T Community”). By rebuilding
the domestic educational system and using overseas
training, China is improving both the number and
skills of scientists. Students and scholars returning
from study abroad are working in every field C

Figure 1
Cc

a’s Technology Gap*

© Gup Steady
4 Gap Increasing
> Gap Nor

Microcomputers

|_Minicomputers

15 w 10

- Supercomputers <
Telecommanications | Switching
| Fiber optics ||
Satellites:
Automated T >
ee a Ee 4—_
‘Special strwcteral ;
materials j
Biotechnol i_
jolechwology __t +—
TranspertaGon |e t

has designated as a priority-—-many of which are
important for military purposes—and many have been
promoted to pasitions where they will have a signifi-
cant impact on China's future capabilities through
both teaching and research, The Chinese press re-
ports, for example, that, at the Chinese University of
Science and Technology, returned students have in-
troduced over 100 new courses and 74 returnees now
head departments. Similarly, to revitalize research
management China has removed many unqualified
party cadre from scientific work, and replaced over 70
Chinese Academy of Sciences (CAS) institute direc-
tors with younger, more qualified persons. China also
established a new basic science research foundation
that seeks to improve research quality by choosing

By on a competitive basis after peer review.

The introduction of funding changes, incentives, and
commercial mechanisms are stimulating technology
development and transfer, according to Chinese and
foreign observers (sce figure 5). ‘To prompt research
institutes to work more closely with enterprises, Beij-
ing is requiring that institutes involved in technology
development become self-supporting and is gradually
reducing their state funding; many institutes will be
required to merge with businesses by 1990. To provide
further incentives, collectives and individuals have
been permitted to set up scientific or technical service
organizations for profit. Even the prestigious Chinese
Academy of Sciences, long a bastion of basic science
advocates, has set up some 80 technical companies,
with more than 1,000 personnel of high and middle
rank engaged in technology development and transfer
activities. Beijing is also setting up information ser-
vices to make buyers aware of available technology,
offering patent protection for inventions, and drafting
other legislation to govern sales.

These activities have been complemented by China’s
acquisition of foreign technology. Since 1978, China
has acquired more than $13 billion worth of foreign
equipment and technical assistance through pur-
chases, joint ventures, and some illegal acquisitions. It

A Profile of China's Scientific Community

The size of China's S&T contingent has doubled in
eight years, according to Chinese statistics, Between
1985 and 1986 alone, S&T personnel increased from
7.82 million to 8.67 million, including scientific
researchers, mathematicians, and agricultural, hy-
giene, and engineering technicians. In 1985, China
had 2,529 secondary technical schools (compared
with 1,714 in 1978), 1,016 institutes of higher educa-
tion {up from 598), and 740 institutes offering post-
graduate training (compared with 0)

Organizations involved in S&T planning and over-
sight also have proliferated in recent years. To
improve coordination between China's five previously
isolated research systems, Beijing established supra-
ministerial leading groups that bring together policy-
makers, researchers, and technology users (see figure
2). Polictes encouraging joint projects, such as requir-
ing research institutes to look to industry for funding,
are reducing the barriers between research organiza-
tions, and between research and development (R&D)
organizations and production enterprises

The 8.67 million figure for scientific personnel in-
cludes persons with minimal or no training, but
whose jobs nevertheless have a research or technology
component. The number of skilled scientists and
researchers is far fewer. Within China's 4,690 civilian
R&D organizations above the county level, for exam-
ple, there are only 231,000 scientists and engineers
according to Chinese statistics. Moreover, Beijing
defines scientists and engineers as persons who have
the equivalent of a college undergraduate degree or
higher as well as those with a senior middle school
education. China particularly lacks technical person-
nel in sectors designated as priorities under the
Seventh Five-Year Plan—energy, transportation, and
communications. Agricultural technicians are in
short supply as well; on the average, af every 10,000
agricultural workers, only nine are scientists or tech-

nicians (see figures 3 and 4), iz

+ This number excludes research groups subordinate to education-
al institutes, factories. and the defense establishment. China does
not publish information om research in tts defense industrial
aestem. We estimate thar there are more thar 200 research
facilities under national defense establishments, inctuding some af
the most advanced facitistes im China.

“Sret_

has greatly expanded its S&T cooperation with other .
nations, invited almost 20,000 foreign experts to visit
China, and sent over 40,000 students and scholars
abroad for training. Almost two-thirds have come to

the United States.

More numerous contacts between military and civil-
ian organizations, and between universities and re-
search institites, are, in our judgment, helping break
down barriers between segments of China’s S&T
community, thereby eliminating some of the duplica-
tion of effort, wasted resources, and isolation that
have long characterized the science sector. Military
enterprises have slowly begun transferring technol-
ogies to the civil sector. We also see increased indica-
tions that greater cooperation between the military
and civil sectors is contributing to technical education.
For example, the Beijing Industrial University in
1980 was a secretive military college without a sign
marking its existence. By 1986, according to Chinese
press reports, it was operating a night college, a
correspondence school with 63 stations in 17 prov-
inces, and three branch academies in Beijing for
training technical personne! needed by industry. And
miltary production of civilian goods—slated to reach
80 percent of total military production by 1990—has
increased considerably. For example, 40 percent of
nuclear industry production was for civilian use in
1986, according to press reports

.., But a Long Way To Go. Significant personne)
management problems remain, however. Although
the growing number of trained personnel is diminish-
ing S&T personnel shortages, visitors and China's
own scientific community point out:

* Specific skills—such as those of computer special-
ists-—continue to be in short supply.

+ Low wages discourage scientists. Although opportu-
nities to increase incomes through consulting and
other outside activities have increased, some scien-
tists are not given permission to engage in such

Figure 2
Elements of China’s S&T Establishment

Policy

‘Other Leading Groups
-inclading: Job Titles,
Te

Academy of Provincial S&T Educational Defense istry
Sciences M Institutes Organizations Institutes.

@ 122 institutes © Over 560 R&D groups | @ Over 4,000 RAD '@ 1,250 R&D groups © Over 200 research
© 32,000 scientistsand = @ 93,000 SAE Browps (#howe the © 2,300 S&E institutes
engineers (SRE) county level) @ SAE figures
© 106,000 SAE unavailable
Ead-users

* This figuee shows the major government S&T organizations under
the State Council. The party also influences S&T activities through
the party Central Committee, the Central Military Commission,
and party cadres in each institution

= lt~t~tO” EE

activities, and in some cases focal administrators suggests that returned scholars are functioning as a
take a cut of their earnings-—despite regulations to pressure group for forcing better working”
the contrary, conditions.

* Poor working facilities and lack of equipment hinder
research, despite some equipment imports and ef-
forts to develop indigenous equipment, Evidence

Figure 3
Distribution of Science and Technology
Personnel by Sector, 1985

Percent
Other sectors
8 10
Agriculture and |
Education, Focestry
Culture, and Scientific Research
Brand aad Polytechnical Service |
202
Public Health, 325

Sports, and
Social Welfare
m5

‘Construction

Tramspartation, Posts

‘as and Telecommunications
Industry 26.8

Geological Survey

2 4 6
Government, Political
Other Party, and Social Ageacies |

Total: 7.816 million pervennel and Prospecting

‘

Source: Statistical Yearbook
of China, 1985

+ There is an uneven geographic and sectoral distribu-
tion of S&T and plans by the reformers to increase
transfers have encountered resistance from individ-
uals reluctant to relocate and organizations unwill-

ing to lose skilled workers

Chinese newspaper accounts and reliable reporting
also indicate that much of the technology transfer in
China involves low-level, relatively inefficient technol-
ogy that offers only minimal improvements in produc-
tivity. Both buyer and seller apparently look for
technology that can be applied quickly and with little
effort. They tend to avoid more complicated equip-
ment and techniques that can generate more growth

in the long ui

The S&T community has only recently turned its
attention to regional development programs. Projects
such as the Spark Plan and the Bumper Harvest Plan

a 6

Figure 4
Skill Levels of Science and
Technology Personnel, 1985+

Percent

HB Senior tevet

WB teiow secondary
level

[7] Secondary level

Engineering
Aaricultere

Public Health
Sciemtific Research
Teaching

Total

* Job titles based on a combination of education

and experience.

1985. +

Source: Statistical Yearbook of ¢

have been developed to provide funding and know
how to rural areas to improve agricultural production,
develop equipment for rural commodity production,
and improve the skills of rurat workers. Problems in
funding and choosing projects, however, are hamper-

ing implementation |

National Defense: A Major Beneficiary
In our judgment, the impact of the S&T moderniza-
tion program is most clearly seen in the national
defense sector (sce figure 7). Our analyses of Chinese
military capabilities indicate substantial improve-
ments in such areas as ground force weapons, commu-
nications, remote sensing, and tactical and strategic
missile systems during the last nine years as China
has acquired Western technology and filled key gaps
through indigenous developments, The table lists sig-
nificant improvements to specific weapon sys

The military is also benefiting from its expanded S&T
ties to the civilian sector, principally in greater access
to civilian S&T expertise. Although we believe the
most important military projects and facilities have
always had aocess to the best S&T resources, report-
ing now suggests that less prestigious military projects
also are benefiting. The Chinese press reports, for
example, that the Lanzhou Military Region has hired
50 experts and specialized technicians as S&T advis-
ers—including the chairman of the Chinese Optics
Association~~in fields such as computers, telecom-
munications, chemistry, optics, and cartography

Impact on the Economy

The impact of the S&T modernization program on the
economy is more difficult 10 gauge, largely because it
is one of many factors—the broader economic re:
forms, a relatively stable political leadership, good
weather, a comparatively peaceful international envi-
ronment—that account for the demonstrable improve-
ment in the quality of life for mast Chinese. More-
over, progress varies considerably by sector. Beijing
claims that $13 billion spent to import technology
during the Sixth Five-Ycar Plan (1981-85) increased
output by more than $19.4 billion, and increased taxes
and profits by $9 billion. We believe such claims for a

Figure 5
Technology Development and Transfer
Activities, Selected Indicators

Miltary Techoolegy Transfer to Civil Sector Techaology Market Sales

Namber af ives im thousands Billion yuan
6 2 4 6 3 10
| i
vee | |
i
i985 BS i
|
1986 |
he A |
Patent Applications New Techuolegy Outreach Mechanisans, 1980-86
Percent Number in thousands
Domestic
WB Foreign
Private S&T Institutes
sas 1986

Technology Exchange
Centers

Technology Service and
Comsolting Organizations

Research: Production
Cooperative Links

Total: 14,372 Total: 18.999

high rate of return on investment are exaggerated, but more than 30 percent of China's electronics products,

we do not doubt Chinese statements that investment and 10 percent of Chinese machinery products, now

in technology—both domestic and foreign—has in- mect international standards of the late 1970s or the

creased production significantly coil carly 1980s-—a statement that reflects both how far
they have come and how far China has yet to go.

Perhaps as important for the average Chinese is the ieee tl

increased quality and variety of consumer goods

available (see figure 6). Some of this is attributable to

imported production lines and to increased military

production of civilian goods. Chinese officials say that

# Antarctic station, establithed in early 1985, pro
anne ind a basis far Chinese parti

inal discussions ow the furure of Antarctica,

China clearly has had far less success with civilian
application of higher technologies.

China’s slow progress in these high-priority areas has
held back advancement in other high-priority areas.
For example, development of an automated produc-
tion capability depends on the use of electronics and

computers, and a limited
hampers data networking plans for research, business,

clecommunications system

Upgrading Chinese Weapon Systems and Exports:
Sources of Technology (continued)

and government. The inability to achieve self-suffi-
ciency in key components forced factories dependent
on imported chips to halt production when China ran
into foreign exchange problems in 1956

On the brighter side, Beijing has been more successful
in adapting and absorbing technology in less advanced
industries, such as textiles and light industry, as
indicated by China’s national invention awards, Of
976 awards since 1979 for discoveries that “have
proved useful in practice,” nearly two-thirds were
related to textiles and light industry? Oil, food pro-
cessing, shipbuilding, and chemical! sectors have also
had noticeable success in adopting technological ad
vances. Largely as a result of foreign technology
acquisitions, for example, China currently is the
world’s fifth-largest builder of commercial ships.

China’s growing capabilities in these areas have be-
gun to alter its imports and exports. Imports of
consumer electronic goods and production equipment,
for example, dwindled as domestic firms became
better able to meet consumer needs, and as Beijing
instituted import controls in 1985 to protect Chinese
producers from competition. China recently

? Almost one-fourth of the awards were related to defense
industries

announced, for example, that imports of 17 products,
including electronic calculators, tape recorders, and
refrigerators, decreased by almost 42 percent during
the first half of 1987, compared with the previous
year. According to the Chinese press, the growing
domestic technology market is also contributing to
reduced forcign exchange expenditures as factories
discover domestically available technologies and can-
cel import plans. The Ministry of Machine Building,
for example, canceled 88 import projects in 1986, in
part because similar technology was available in
China.

China has also begun to export production lines for
consumer goods—such as black and white TVs—and
pharmaceuticals. In addition, technological improve-
ments have contributed significantly to earnings of
much-needed foreign exchange in several key areas:

+ Foreign textile plant purchases, supplemented by
transfers of indigenous technology, were key factors
in increasing exports; in 1986 this industry became
China’s leading foreign exchange carner.

Figure 6
Durable Consumer Goods per 100 Households

Rarai
19a
Bocycles
Felevistons—
black and white I.
Radios 2

Sewing machines a.

me .

Wrist watches

t.
Washing machines® |; i
{
Electric fans is f :
"3
seat oR

+ Represents less than one per 10) houscholds.
© Rural figures out available

Source; Statistical Yearbook of China, 1985,

=

Discovery of new oilfields and the introduction of
enhanced recovery techniques by both foreign and
Chinese experts helped China increase its oil pro-
duction. Over 80 percent of the additional oil was
exported, reinforcing oil's role as China's second-

leading foreign exchange earner.

Arms sales, although small in comparison with
textiles and oil exports, are a major source of funds
for China's military, We estimate that, since 1980,

Beijing has sold beammearcmec a Me abroad and

is aggressively pursuing new sales by offering weap-

‘ons -_ with Western technology
The S&T program's contribution to agriculture is

clearly less important than government economic
policies and several years of good weather. But

advances in plant and animal breeding, the introduc-
tion of new agricultural technology, and increased
production of fertilizers and pesticides as a result of
technology imports in the chemical industry have
contributed, in the judgment of foreign experts, and
may have significant long-term impact. According to
Chinese statistics, for example, the introduction of
327 separate crop strains over the last five years has
increased annual grain output by 10 million tons. The
rural sector has also benefited from improved live-
stock breeds and breeding techniques; fine-wool sheep
are now competing on international markets, and

peasants are increasing production and profits by
raising leaner livestock more we

Figure 7
Relative Sectoral Impacts of S&T
Modernization Programs, 1978-87

Future Directions

Unsolved Problems. A\though China's leaders gener-
ally agree on the need to upgrade S&T to meet
national needs, we belicve they differ on what c hina’ 's
needs are and how best to meet them. G
limited resources, competition between civilian and
military leaders, heavy and light industry, and nation-
al and regional enterprises is intense. For example,

Beijing called for closer coordination of military and
civilian S&T resources as carly as 1978, but resistance
from the national defense sector prevented implemen-
tation of such reforms for several years. Criticism
from the military sector diminished after Beijing

“Sia

assured military leaders that defense programs would
continue to be given a high, if not the highest, priority
in decisions regarding resource allocation and access

to technology acquired for the civilian sector}

Disagreements over whether to develop technology
indigenously or purchase it abroad have also slowed
key projects. In the mid-1980s, for example, bickering
between the projected users of a direct broadcast
satellite system over whether to develop independent-
ly, jointly develop, or buy the satellite was a major
factor in the decision to suspend negotiations with
foreign suppliers. Indigenous development, in some
cases, exacts high costs from military and civilian
users. We believe, for example, that overconfidence in
the ability of Chinese designers has been a major

es

impediment to modernizing a number of weapon
systems. Similarly, the Ministry of Public Health
reportedly decided China would develop its own hepa-
titis B vaccine rather than license or buy the vaccine
from a US supplier

The S&T community continues to debate the proper
balance between applied and basic research. China's
leaders have pressed for greater emphasis on applied
topics—a decision made when economic problems in
1981-82 forced China to reassess its priorities—but
according to a variety of reports, some scientists
continue to resist working on applied topics. By
emphasizing market-oriented, quick-turnaround in-
ventions, in our opinion, China risks shortchanging
the development of more complex technology that
may be more difficult to introduce, but offers more
growth opportunities in the long run =

Moreover, despite Beijing's efforts to reduce the role
of the party in scientific affairs, the S&T moderniza-
tion program remains subject to political consider-
ations. In January 1987, for example, the President
and Vice President of the Chinese University of S&T
were fired for their handling of student riots. The
riots, which then spread to other universities, ulti-
mately served as a pretext for the ouster of party
Secretary Hu Yaobang and the kickoff of a national
campaign against “bourgeois liberalism.” Zhao
Ziyang and other leaders specifically and publicly
reaffirmed the importance of science and technology,
but we suspect that the political debate may make
some scientists hesitant to take advantage of market-
oriented reforms; critics have charged that letting
scientists “get wealthy” ahead of others is unsuitable
in a socialist society. The recent program of sending
students to rural areas during their vacations—on the
one hand, part of China’s transfer of technology to the
countryside; on the other, reminiscent of the banish-
ment of intellectuals to rural areas during the Cultur-
al Revolution—may reinforce their hesitation iz

Trying To Improve Technology Use

China has been hampered by the low level of its
indigenous technology. Compared with production of
older electronic goods, for example, the acquisition of
new electronics technologies often requires different
types of knowledge, more stringently controlled envi-
ronments, and more competent managers and assem-
bly line personnel. Imported semiconductor or com-
puter lines have been more difficult to put into
operation than, for example, whole plant imports in
the textile industry. Restrictions on sales af Western
technology to China also obviously affected indus-
tries such as electronics more heavily than other
industries. Factories expended—and in same cases
wasted-—considerable time and effort trying to im-
port the most advanced technologies, which were
often subject to delays caused by COCOM review.

China has recognized these problems and begun to
tackle them by:

+ Improving technology choices. The technology mar-
ket and new technology information systems are
providing more information to enterprises about
what technologies are available. Both Chinese

sources and foreign observers note that managers
have become more interested in doing feasibility
studies.

Providing technical support for using technology.
Government regulations now require foreign equip-
ment purchases to be accompanied by transfers of
know-how and technical support. Also, research
institutes are providing help to Chinese factories by
installing, integrating, and maintaining both foreign
and domestic equipment.

Creating a supportive environment for using tech-
nology. Beijing is adjusting tax and investment
policies to encourage efficient use of equipment
China also is introducing more training to improve
conditions within the factory for organizing and
using technology and is adopting Western quality-
control techniques, including @ nationwide quality

inspection network | |

The advocates of the S&T modernization program
must also come to grips with legitimate criticism. The
reformers have been guilty of wasting resources by
importing technology that could not be used (see inset
“Trying To Improve Technology Use”). Also, Chinese
officials promoting S&T programs have often made
promises they could not keep, raised expectations, and
exacerbated existing problems. For example, official
statements about one program—the Spark Plan for
rural technological development—have promised to
improve the quality of life in China’s rural arcas, but
the benefits of technology accrue unevenly across
sectors and geographic locations with the richer areas
getting richer, according to the Chinese press. Pro-
grams such as the Spark Plan may even perpetuate
disparities, and contribute to existing tensions be-
tween rich, coastal provinces that have the infrastruc-
ture and the poorer, interior ones.

Cause for Cautious Optimism. These problems not-
withstanding, we believe the impact of the S&T
reform program is only beginning to be felt, and is
likely to increase. Only in the last two or three years
has the bulk of the scientific community really begun
redirecting resources toward helping industry. Many

recent research successes-—for example, in fiber op-
tics, composites, and space—were achieved in the old
way, through marshaling resources under military

With solar power bringing heat and electricity for
15, television, and consumer appliances 10
note arent —afien far the first time—prospee

tive brides in Inner Mongotia have begun de-
ianding solar cetts as part of their doweies tammy

oversight to meet military needs, with foreign technol-
ogy being used when available. Only now are joint
research projects between factories and research insti-
tutes and between military and civilian institutes
beginning to bear fruit. Other means of diffusing
scientific information, such as networks set up by
returning students to facilitate the exchange of re-
search results, are also in the early stages of develop-
ment. The full impact of the returned students is vet
to be felt and, in addition to improving rescarch
capabilities, we expect them to contribute to educa-
tional improvements and the training of a new genera-

tion of S&T personnel

On the basis of programs now under way, we believe
progress is probable in a number of areas. Military
research in lasers, optics, and space are likely to
produce commercial spinoffs, as the military's contrt-
bution to civilian industry increases. Development of
biotechnology products is a potential growth area,

Seqet

given the improved skills of China’s foreign-trained
biotechnology researchers, their research progress,
and China's determined efforts to acquire production
technology. China's space industry illustrates that
China, given suitable market conditions, can compete
even if its technology is less advanced. China's space
industry is 10 to 15 years behind that of the United
States, Europe, and Japan in technology, but it has
the capacity to launch more satellites than Beijing
will need for its own programs. Moreover, China's
launch program is functioning at a time when the us.
and French programs have suffered serious setbacks;
we believe China's sales of space launch services alone
could generate foreign currency earnings of $100
million in 1988 and $500 million per year by the mid-

>:

The relatively small impact so far of technological
modernization on the composition of China's trade is
likely to increase, in our opinion. The Chinese press
reports a number of instances in which individual
factories and ministries have canceled imports after
finding a technology available locally. The State
Machine Building Commission just published a list of
50 domestically produced products—engines, genera-
tors, tractors—recommended as import substitutions.
Forcign equipment and technical assistance will re-
main critical, however, for the development of certain
high-technology sectors such as large computers.”

Implications for the United States

Chinese policymakers as well as individual scientists
retain favorable attitudes toward the United States,
which in at least some cases translates into a prefer-
ence for cooperation with or equipment purchases
from US suppliers. Evidence suggests that scholars
returning from study in the United States, for in-
stance, have tended to favor US suppliers. Neverthe-
less, they do not necessarily prevail over those who

' We believe illegal acquisitions and diversions—always a sitll
portion of total technotogy acquisitions—will be even smaller in the
future as a result of increasing liberalization af Western export
controls, We have no doubt, however, that China will continue to
use illegs! methods to try to get technologies for priority military
programs that remain restricted by the West mm

prefer indigenous or non-US technology. And China's
desire to protect domestic industries and to diversify
sources of technology imports, coupled with the ten-
dency of West European and Japanese suppliers to
offer concessionary financing, compound the difficul-
ties US liers will have in selling equipment to
Chine lll

Western technical assistance has created economic
competition for the United States in several sectors,
and compctition is likely to grow. For example, the
late Commerce Secretary Baldridge in April 1987
said the biggest issue in US-China trade is textiles.

to compete commercially with the United States
include biotechnology products and small nuclear
plants.

In addition, China's military modernization, in at
least a couple of cases, may run counter to specific US
interests. China's Silkworm sales to Iran have demon
strated how its aggressive arms marketing can compli-
cate the Sino-US relationship and affect the achieve-
ment of US foreign policy goals in other regions.
Similarly, China has offered for export other missiles
that may prove destabilizing in regional conflicts,
including the M-9 mobile solid-propellant missile
armed with a conventional warhead, the HQ-2 sur-
face-to-uir missile, the HN-S and HN-3A shoulder-
fired surface-to-air missiles, and the C-801 missile—
China’s version of the Exocet, Sales of missile systems
still under development, such as the M-9, allow China
to obtain foreign funding to help underwrite develop-
ment, and provide an opportunity for battlefield test-
ing before deployment to Chinese force:

In addition, the transfer of high-capacity, high-speed,
secure telecommunications equipment allows China to
develop improved command, control, and communica-
tions networks. These systems can enhance China's

xe

military force projection capabilities and complicate
US efforts to monitor military and civilian communi-

Although China’s defensive posture vis-a-vis the
Soviet Union or the United States will remain largely
unchanged, Chinese acquisition of weapons technol
ogy will improve China's ability to project power
against weaker nations on its periphery. Taiwan will
feel especially threatened as Beijing's currently limit-
ed capacity to blockade the island improves over the
next 10 years as the Chinese Navy builds new war-
in part through the

ships and upgrades its technology

import of Western naval technologies. Neither Ma-
laysia nor Indonesia is confident of the ultimate
loyalties of their large ethnic Chinese populations and
are certain to grow nervous over China's higher
regional profile. At the same time, Malaysia and
other Southeast Asian countries are concerned about-
China's naval activity in the Spratly Islands. As these
nations become increasingly sensitive to Beijing's
enhanced military capabilities, they will probably seek
closer ties to the United States, pressing the United
States to sell them more advanced US military equip-

ment and to limit technology transfers to Chine