Created: 5/15/1998

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IS Miy mi

FOR: J- H. RUae

Special 'ioffict of cha iMitun a-

foe CS Salea of Dafeaaa Related EqulDMitt to China

of Defeneeorenclel MuQitlone and CowdlnCaaaa with China.

1. oalyeci have revleva tha papara -on provided on proapactlvn tranefere of aatet;lel co China and have praparad tha attached aeaorendua In keeping,our cooveraetlo* vlch Toora ocfl.tIt .analyehey irouped thaDepartment ofneo Hate Into eljheeatagorlaa and theo reviewed, in order: Chloa'a oaada for tha aaulpatenc, Chlna'a ability to pay. and anticipated ' raactlooa CO tha cranafar.



CEKTRAL IVTRVICZMCT ACCTCt National Forilgn AimiMnt 'mtir1


p<ctt For OS

Tho otmtTnl goal* of China'* laadarwhCp aro ataJhS^im&tion ofpurmvit of tht "Fournd $taHtfMOJiton domsndathat appaer*largo purehaaaa -military ooyipmnt and

toohnology ooor tha nanyadra. ooxaAt tho miliviry-tjupriority vithin tho *odorniaation program, vo oxpoet thatitomo Kill bo fov ond highly aoloetivo during Thoaa itomo that China actuallyrom tho Vnitod Statoo-'villa tiny fraotion of hor "ahopping Hat" and of tha Hata of itamatola by US oompaMiaa<

Cfrfoa'a Llnltadfor Acqulrlnn UllUiry Ttchwolour

China'siorltOCl and technology bait

applications continualafforts, juppla^otad

by nUcttd application of Untim daalfn ftaturaa and anginaarlntand by Judleloua acquisition of critical Uastara tschnolotlas for, aptclfU. appllcatlona. Thla approach'haa baan dlctatad by constraints In China's financial, taehnlcal, aad raaourca -baaas, and by tha laadarthlp'a daalra to BTOii racraafttnt that dapandtncy upon outalds povara that bound China In tha


Tha Boat recant phase of Chlna'a quest for aodernitatlon began following tha fall of tha Ceng of Four6 with aabltloua plana for rapid growth In lnduetry and agriculture. By; became apparent, that auch planaexceeded tha physical and economic resources available, and aarry prograaa were cut back or cancelled. hinaPeriod ofrlglnallv to last three, but now lengthened to five or moreto provide tiie basis uponore aeaaurad aodernltatlot program could Succeed, The goal of the readjustment la to Increase production of electric power, expand tha nuaber of coapetent technicians, and Halt spending of foreign exchange ao that critical technologies froa abroad can be acre readily absorbed and production putore cost-efficient basis by the. .

Finances always have been one of China's weakest links. Even before the readjustment period, deals under negotiation with the -eat often ware delayed or broken off try Chinese Inability to pa;*. The economists in China'seadership realized9 that even the relatively Halted purchases froa abroad could not be absorbed successfully wlfhln the economy and were depleting tha PRC's aodeet foreign exchange assets. For these reaaona, the leaderahlp hasontrol over economic activities prevlouely decentrallied and ha* Nntelled long-term projects and expensive deala that will not contribute to Chlna'a ability to produce exportable Iteaa. Moreover, the leaderahlp haa cut the Stare Budget byercent and probably reduced tha allltary'e budget1imilar or higher percentage.

We do not yet know whether the PtA's ehare of the budget cut will affect personnel, operations and msintenance, training,^conatruction, procur-eaenc, or If the cuta fqjM aoat heavily in the last category, we can expect defense aodernlsatlon toery alow pace indeed. China's leaders probably Intsnd* to invest as auch a* possible in their Industrial andj technical base over the next three to five yeara with the hope that, by the, Chinese lnduetry will be able to supply some places of new equipment to tha FLA. ^|

Despite Chlna'a continuing budgetary and financlal^ probleaa', the PRCinterest In advanced foreign technology -hat aaets leamilitary needs. Chineseowever,nota willingnessbuy. anaral framework for underatandlngand ability to pay for solitary Iteaa, we note that China

Acquiring technology rather than end-ltema.

Purchaalng ltema that have civilian aa well as ailltary use.

Gaining bn ability to produce Itema that can be esported to earn hard currency or reduce dependence on laports.

to row VOTrrruCT ctro

7h* (MniM will eot buy least of solelymaim*they:

fill one of China'**aajor defanaa'gaps.

' Par exceed Chlna'a ability to aanufacture or develop, or

d aa prototype* for later aerial production. I

Priority of Chloaae Seeds Andgpon*t*

China'* military deflclencle* are aany and lea need for rev and laproved equlpaaat la treat, but civilian economise* top leaderahlp eaphaalie the needifor belt-tightening In th* procurement of weapon* and equipment tocre balanced econoay. Accordingly, the Chlnea* high comma tv)oncentrating on filling only thaerlou* gap* In PLA capabili

The Soviet* would engage In "woretanalyal* of *ny allltary-related aalea to China and would Interpret any US aove, however aodeat, to help China atrengthan it** further "proof*e facto 'alliance' between Washington and Beijing. Th* degree of outrage in the Kremlin would depend onfactor*:

* The *iie of the aala.

The' nature of the equipment or technology to be' transferred, aad

5ovlet option* In rcaponaa to transfer* are, however. Halted ao long aa US-Sovlet relation* remain strained and the Soviet* consider military action against China unacceptable undrv any but th* aoat pressing clrcuaatetice*-

The tela of any equipmentth* Sovietbe used by theo upgrade theirlcould be of the greatest concern to tha Kramllc. ang* from component- that could conceivably be need In

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an ICRM guidance ijiih to equipment that, might enhance Chinese ASW capabilitles-and thus allow China to better protect Its SSWs. To attemptorestall DS salee to Chins, the Soviets will warn of "dire consequences" and encourage media coverage characterizing euch salts as dertebllUing. Tha intent will be to Induce USof whoa ara unssty about the budding SIdoHJS sacurltrdissuade us frost engaging la such transactions. Hoeeow alao will claim that tha Unltei" States has such more te gain by cooperating with tha USSR than by sailing ansa and defenae-relatad


If any major sale'occurs. the-Sovlete will choose one of two broad options: to redouble their Initiatives for ana coitrol talks with thaor co increase their defense efforts and militancy on the assumptiono-US "alliance" Is unavoidable. Tha USSR eight wallore truculent attitude toward the Chinese while pressing harder for eras control agreements with the Uest, hoping that such Initiatives would complicate US efforts to workloser relatlonehlp with China and make ling unhappy with the .lalted results of Its opening to the Weat. Tha Soviets preeuaably would issltate-to cloae out options for bargaining on anis control, particularly In view of their strained sconoay snd preeent preoccupstlon with events In Poland and Afghanistan. In any event, the Krealln'a primary interest .will be tt prevent the Sino-US relationship from deepeningignificant ailltary collaboration directed against-tha USSR but to avoid. Ifupturela relations with tha Vest.

The Sovleta are. most likely to take strong negativehan merely tothay believe that .the US Is assisting In China's^-atratagle weapons development. Tha most likely" response la thisarder Una In atratagle armsclaiming that Soviet* conaldaratlona are now greater due to the enhancedurther buildup of the USSR'a strategic forces facing both East a'ne> Vast. ore extreme action would be to threaten to break offWi control-Negotiations with tha US, including an unwillingness to rtsuaanegotiations. Though somewhat less likely, tha Soviets could declare previous US-Soviet agreements.on arms controlexample, tha AM treaty signed inand void under thacuaatancea. Then, loa. ths* Soviets -might conclude that they now had laaa rsason to avoid direct conflict with, the United Stataa, and "step op their aid to revolutionaryfte?i

especially If Centra*'Aearlci

Second oo tha Hat of Soviet eoncema would be CS saiea of any materiel that the Chlneee could uea to significantly of feet tha I'SSR'a advantages gained through strengthening Its conventional foreee opposite China over the paetsara. Many of the lteae beingnot already approved-coma under this heading. Tht most ominous examples from tha Soviet point of

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la pob iiocoirnLACT


view art aaong ground forcaaas an Infantry fighting vehicle and armored peroonnal carrler--but the USSR probably woold-be almost aa upset ovar tha sale of radara, communications for Improving China'a battlefield management capabllltlaa, or materiel that cnhancad lta ability to collect intelligence by technical aaana. Moscow would vehemently proteet tha sale of euch major items to China, and It probably would both take, enhanced Cblnaa*capability into account in future force deployments In Siberia and aaek to strengthen lta allltary relatltMhlp with Hanoi. The Kremlin alao would redoubleefforta to convince China, Japan, srd ather Interested partlea to adopt the Soviet proposal on confidence-buildingee for the Farhough the Soviets would not want to be aeon aa bargaining lreakened position on thia lease. aBBBB^pj

The Soviets would,be leas concerned1 about other aales--of gentrel industrisl Iteas or eouibaent thet, while having some Indirect military value, would have no lamedlete, direct lapact on the Sino-Soviet allltary balance. Nonetheless, Moscow would be apprehensive ebout the cumulative effect of such aalea, particularly thoaa that eroded Its technological edge over Beijing, and about, how general aodernliatlon alght add to the threat that China could pose hy the Consequently, the Sovleto would protest even aalea of general dual-usef only to dlsiuade other Western countries froa proceeding with similar tranaactlona. The Soviats alao eight InvokeagalneV. US conpenlee--provlded thst ths USSR had acceaa to a'ternate aourcaa of aupply and aarketa alaewhere ln tha world-*to aake the US aore aware of the economic and political coat of oalllng ansa and defense-related technology to Ch;.na. rinally,tobably would be aore upaet by graota or IS lei Of liberel ccedlta than cash traniac;iona.

Analysis of Export Case's on Lilts "A*

haws grouped the item* on the Department of Defense lists "A" snd "B" into eight genersl categorlee. Theoe are, in order, aircraft and avlonlce,

computers, radars, communication! giar, ground forces equlpoent, earth data .

collection equipment, space technology, and general lnduatrlal Items. Where appropriate, we dlstlogulahed between Items onist

froa those on the "A" Ust We not coi

ad been disapproved. fWmmmWm}^ma9}mrmK easmlns'd name that bean voluntarily withdrawn froa considers tion. WmmmWWMM

tha two costliest categorlee are aircraft and computers

The costs of lteaa and extent of Chinese Interest appear to differthe aeveral categories. Aside from the >



sC single deal.^HaBammBamammmmmmmi

ere notable icr -heir nuaber and variety. Baden end coaaunications gearhe next largest block of potentialhough the coats are unclear. ereat In purchasing listed ground force equipment seeas relatively snail, end ve believe that Bales will be few. We Chlna'e Interest in purchasing US space technologylight.

the most advantageoua deal addition to developing an

ability toodern and urgently needed tranaport aircraft for

domestic ose. China would acquire an FAA-certlfled production facility andnew technical and managerial expertlae In the production ofh* deal evidently has been approved by the higheet official* In China-but Is being held In abeyance due to lack of funda. If and when the necesaary SJOO allllon becomes, available, we believe that China will proceed with this program.

Other deal* in the "approved" column Include technical data,nd turboahaftfor ua* In hallcoptara. China need* tutbine-enginecan produce only the plston-cnglnt- Soviet-.both commercial and ailltary purpoae*.

are not as urgently needed aa are flxcd-wlng transport ao we boHtv* that th*O will take precedened.

Moaeow would be -upaat aboul sales of moat of th* aircraft and avlonlca lteae. tt would worry about th* long-term lapact of th*eal but would be even more epprehenelve about the lapllcetlonaew of the other ltea* In thlewch a* helicopterO aircraft, andecause of their potential contribution to Chin*'* illltery capabilities against the CSS*.

In contrsst, the Soviets probably wouldelatively allc reaction to tha aal* of flight training simulators, which would contribute onlyont-tera laproveaent In pilot akllle.

"a *




Chinaigh priority for- acquiring turnkey planta. equipment, .

far producing integrated'circuits (ICa). Tha low yields of Chlaaa* asde ICa hlndar progress In tha coaputar field and adveraelt affect Chlna'e abllltT to aaaa produce critical, military-related alcroelectronlca lteaa. aMgeaj

slaost certainly suspects that China will use soae of the computers obtained froa the United Sfatea to improve the command end control of lta strsteglc missile force end other elements of the military arasnal. Soviet "woret eaae" analysis presumably would not allow the Kremlin to be "aisled" by the relatively small alia of the deela under coneIderatIon or bv US raferencee to the limited capabilities of the iterne in question. if the Sovlsts sccept such etatcmenta, they will worry that China willav to upgrade the computers snd uss them to support the strategic weepona program.

of radara to,the Chinese would help to improve their air defenaa capabilities, whlch'-now are aetlously dsflclent. Low sltltudesurvelllence within Chins is spotty, snd covsrsge beyond the northern border Is weak. The FLA'e treeking radara are Inaccurate, and Its data hamdliag systems are moatly manual and alow

seeIlls in

produce such radars, but they probably reallce thet ealee of finished


rroduete are aa muchcannow. If Beijing -purcmsad in

Quantity both radara and data handling ayate-tta to procaaa Information acquiredtha radaraa ad it to weapons eontroilara. Chlna'a weak air defenses would ba laproved taarhedly. Needed quantltlaa could coat up to eeveral billion dollars, however, and would ba prohibitively expansive at thla tla*.

Alao on tha "offered" Hat wtra eeveral aata of ground surveillance radara (CSRa). Tha Chlnea* do poaaaaa aa aarly model tha FORIcan datact vthlcloa at several thdueend aetara and la uead aainlypottlng device for artillary unite. Tha FORKnly aperaaly

Although the eoita limited number

of CSla probably would be moderate (no prleee werehe Chlneae might look upon tvieft equipment ea "luxury lteae* and paea them up.

US ealea of radara to China would provoke an Intense protest from Moscow, beeauee the Soviets know that euch equipment will offset soma of the progress that tha Sovleta have aade over the pest IS years In laprovlng their ability to strike China from the air. Cround surveillance redars alghtore subdued raiponee, although the Soviets will be concerned that such equipment would help improve Chlna'a reedineeeonventional ground attack. The Soviets will proteot vehemently if tha US sella China any EU equipment, because the Sovleta would perceive euch equipment ea enhancing China's overall ailltary capability.

Comaunlcatlonai Gear

spectsRC attempt toicensing er coproduCtlon deal in communications equipment.

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Moscow would bo vary unhappy sbout tha aala of military communications gear to'China because. iuch sales would help the PU improve Its battle management capabilities slgnlflcently. Although such sales might not, by themselves, meke the Soviets more eoprehenilve about the dangerhinese attack In the Soviet Far Eaat, they would add to Concernecond Chinese sttsck on Vlstnaa, whichthe USSR In an unwelcome war.

Crpund Tercel Equipment

Serloue. Chinese attempta to purchaaa--at leaat Inthle cetegory seem unlikely. Ue note, thet the oitlyor Chins Include infrared detection equipment end presumable

TiTI' renumbererns wejr. v>

fttle lntereat to the Chlneae, except poeaibly aa prototypea


mechanlilng lta) million) ground forcea, China almost certainly will show greater interest in heavymoving troops, jn, supplies, snd essualtin tracked carriers.

Chlneae need for US small arms or ammunition.

Space Technology

otereei ln, and for, -ir two categorise of

lteaa ere alsed. Although the Chinesehove . genuine Interest lnechnology for epplleetione beyond comaunleetlone or Intelligence collection, Beijing recently announced that Chlna'a manned apaca program will. to wait until tha fjfj

Dssplte tha recently-announced cancallatlona 'of whola-plant purehaasa and rtlatad tilt away froa> heavy induitrlss and metellurgy toward light laduitrlaa

Major Soviet concern willfroa Moaeow'a view that anv aalaa Involving apaca technology probably will help Chinaeeofloaiesaviea aatalllte ayatea. General Industrial items, however, will be viewed aa having no direct Impact en tha present military balance In Eaat Asia and thue probably draw only alld coaplslnts. Howemdr, even aalea*of general lteaa will, ceuee eoaa epprehenelon In Hoecow. aalflly concerning the cuawlatlve contribution to helping China develop Its ecoaoay so that It eventually comldhorough modernisation of the ermmd forcea. Moreover. Moscow's ssgsmeee to dissuade other*couotrlee froa following tne. US lead ln sslss to China pTObably will aotlvete It to threaten trade eanctlona against US companies.



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