PlA Incorporated
BERNSTEIN, RICHARD & MUNRO, ROSS H.
PLA Incorporated by Richard Bernstein & Ross H. Munro You can find Spunky the dog and Princess the cat in many American toy stores. They are cute and cuddly. They are also manufactured and...
...value-added items accounted for 12 percent...
...Indeed, in August 1996, the U.S...
...The army engages in toy and frozen-fish exports to the United States to earn the foreign exchange that it needs for its military modernization program...
...We looked at the top 20 imports from China year to year from 1990 to the first half of 1996...
...In 1989, exports accounted for 12 percent of China's gross domestic product...
...Ross H. Munro is a fellow at the Foreign Policy Research Institute...
...Five years later, exports represented 23 percent of GDP...
...Boasting in late 1995 that China's exports of electrical and machinery goods were running 60 percent ahead of the previous year, he said an important part of the explanation was that a special government bank had given preferential loans to the industry...
...one way China does this is by requiring foreign companies to manufacture in China some of the components that go into the products sold there...
...Allowing Chinese military companies to do business in the U.S....is tantamount to subsidizing the modernization of the Chinese military...
...The name normally given to this is "offsetting"—transferring a portion of production work to a foreign country in order to secure sales there...
...The operations of PLA, Inc., in the United States signal the final way that China shapes its economic relationship with the United States, both to obtain technology and to earn foreign exchange...
...In June 1996, America's trade deficit with China, growing rapidly for the previous few years, for the first time exceeded its trade deficit with Japan...
...Japan's was $3.2 billion...
...They are also manufactured and imported into the United States by a branch of the Chinese People's Liberation Army or, to be precise, by a subsidiary of Norinco, the Chinese ordnance company that supplies the PLA with most of its weapons...
...Norinco has several American subsidiaries—Beta Chemical, Beta Toys, Larin, Forte Lighting, and others—that distribute its products throughout the United States...
...In the late 1980s, China began consciously to model itself on the other East Asian countries that had used export earnings to foster high-tech industries and achieve remarkably high levels of economic growth...
...Researchers at the AFL-CIO have identified 10 PLA-sponsored business groups in the United States, each of which typically has several subsidiary companies...
...Buying an already-operating American company is another method used by Chinese state-run enterprises either to increase their revenues or to engineer technology transfers...
...Still, it appears that the PLA operates most extensively in the United States for both technology and profit...
...More explicit and damning were the conclusions reached by the American Society for Industrial Security, International...
...This is one of the more direct ways in which China has learned from earlier Japanese industrial strategy...
...For example, Chinese companies sometimes buy, dismantle, and ship to China obsolete American steel mills and pulp mills that are no longer cost-effective and are often heavy polluters...
...The value of its trade was just under $16 million in 1994...
...And so, popular perception to the contrary, the share of the American trade deficit with China represented by cheap products made by cheap labor has been declining steadily since 1990...
...And the value-added imports had more than doubled, to 29 percent...
...But China is quickly becoming a master at squeezing the maximum benefit out of offsets...
...To continue doing business in China, an American company is required not only to transfer advanced manufacturing technology to China but also to train a Chinese workforce, thereby protecting profits in the short term but helping to produce an eventual competitor at the same time...
...Its bearings are part not only of civilian airliners but also of NASA's space shuttle and the Defense Department's C-17 military transport...
...one in-depth report on China's assiduous pursuit of offsets focused on the creation of a factory in Shanghai by the McDonnell Douglas Corporation, the manufacturer of passenger jets as well as of such mainstays of the American Air Force as the F-15 fighter plane...
...In exchange, McDonnell Douglas agreed to have Chinese workers assemble the planes from kits at the Shanghai factory...
...China's surplus for that month was $3.3 billion...
...Richard Bernstein is a book critic at the New York Times...
...Business Week estimates that 100 Chinese-owned companies "have employed sophisticated maneuvers to acquire listed companies in North America, gaining backdoor access to financial markets...
...No multinational, be it AT&T Corp...
...The proportion of labor-intensive imports had dropped by one-third, to 56 percent...
...Many countries, including Japan, have done this for years...
...In other words, the industry benefits from a financial subsidy...
...This surprising fact emerges from our analysis of American trade data over the past several years...
...In 1990, labor-intensive goods accounted for 79 percent of our top-20 imports from China...
...Chinese officials are secretive when it comes to their means of subsidizing value-added exports, but now and then they inadvertently disclose some information about their methods...
...By the first half of 1996, the picture had changed dramatically...
...And exporting to the United States has, since the late 1980s, become China's surest way of earning foreign exchange...
...These trends have been constant since the 1980s and, if anything, are now accelerating...
...At the other extreme are activities that are against American law...
...In its March 1996 report, Trends in Intellectual Property Loss, it named China as the most likely thief of "sensitive economic information...
...This article is adapted from their new book, The Coming Conflict with China (Alfred A. Knopf...
...Now China is becoming increasingly sophisticated in focusing its subsidies on higher-value-added exports, which are then priced artificially low in the American market, unfairly undercutting what would otherwise have been competitive American-made products...
...The overall profits of Norinco in 1994 were approximately $31 million...
...The largest PLA company appears to be an entity owned by the General Logistics Department called the Xinxing Corp., which acts as export agent for goods produced by its own plants in China, and also as an import agent for other military-run enterprises...
...Zhang Ji is the deputy director of the State Mechanical and Electrical Products Import and Export office...
...China assured the company a major share of the sales of narrow-body aircraft...
...Technology transfer" has come to sound ominous, but it is, in fact, a term that covers a wide variety of activities...
...Moreover, the McDonnell Douglas venture became a model for China's deals with other high-tech companies...
...But the gap for August was bigger by far—a $4.7 billion deficit with China, almost $1 billion more than with Japan...
...In this same period, China began running overall trade surpluses, lapsing back into deficit only once, and by a small amount...
...It was also during these few years that China's trade surplus with the United States increased tenfold...
...These figures, suggesting that the total 1996 American trade deficit with China would probably exceed $40 billion, indicated that the American operations of PLA, Inc., were only one aspect of the Sino-American trade relationship, the fastest growing in the world...
...We divided these imports into labor-intensive products, like garments and toys, on the one side and, on the other, products involving increases in value because of technology— telecommunications equipment, electrical machinery, and computers...
...Sunbase executives make no secret of the fact that the intention is to transfer technology from California to the Harbin bearings company, an operation that would be perfectly legal under American law...
...The arrangement, as the Wall Street Journal put it in an investigation of McDonnell Douglas's strenuous efforts to make money in China, involved "one of the largest technology transfers in history...
...Southwest was purchased by Sunbase Asia, Inc., a NASDAQ-listed company controlled by a Chinese-Hong Kong group that has direct, cross-ownership links with a bearings company in China's northeast...
...In the early 1980s, eager for a share of the China passenger-plane business, McDonnell Douglas went into a cooperative venture with China's state-owned Shanghai Aviation Industrial Corporation...
...one example is Southwest Products Company, which makes specialized bearings for all the major aircraft manufacturers in the United States...
...Many Americans will be surprised to learn that the Chinese military-industrial complex, with the People's Liberation Army at its center, has incorporated many companies in the United States to sell products and obtain technology...
...A study carried out by the AFL-CIO, largely by examining shipping records of companies with direct export rights, found: "Not only are the larger Departments and Military Regions involved in trade, but the PLA Navy, Air Force, the 2nd Artillery, all of the military districts [there are 28 of them], and many of the Group Armies [there are 24] also manage their own import/export entities...
...It is not certain, in fact, exactly how many Chinese-owned companies have been established in the United States, but it's generally agreed that they already number in the thousands...
...Using a policy of mostly indirect state subsidies and other types of favored treatment for local industries, China achieved a huge and rapid increase in exports...
...The company, the newspaper said, "provided enough technical data to fill a library...
...or General Motors Corp., can expect an entry pass without divulging technology early and often," the Journal reported...
...Most technology transfers to China fall in the gray area between those two poles...
...Recently the Central Intelligence Agency named China as one of the three top countries "extensively engaged in economic espionage...
...The trend shown in the resulting figures is strong and unambiguous...
...China's overall economic strategy is not aimed merely at a kind of mercantilist accumulation of foreign exchange via trade practices weighted in China's favor...
...It is also aimed at enhancing the acquisition of the most advanced Western technology, including "dual use" technology that can be used for both civilian and military purposes...
...China began with a crude and partial form of export-driven growth...
...In fact, the armed forces are not the only Chinese institution that controls an American branch operation...
...The method has produced a rapid shift in the nature of Chinese exports, away from low-wage, labor-intensive activities and toward more high-tech, value-added ones...
...Commerce Department announced a kind of milestone in Sino-American relations...
...Some transfers are open, legal, and on balance good for the American economy...
...Jeffrey Fiedler, an official of the AFL-CIO, put the situation succinctly to the Senate Foreign Relations Committee in June 1996: "I don't think any member of the House or Senate would say we should support Most Favored Nation status for the PLA...
...But a considerable portion of Chinese efforts in this country to transfer high technology back home are unambiguously illegal...
Vol. 2 • February 1997 • No. 23
