A Model Company: CETC Celebrates 10 Years of Civil-Military Integration

This year marks the tenth anniversary of China Electronics Technology Group Corporation (zhongguo dianzi keji jituan gongsi)—known better by its acronym CETC—one of China’s ten official defense industry conglomerate-bureaucracies [1]. CETC’s operations are central to China’s push toward dual-use electronics and civil-military integration for information technology. CETC is an entirely state-owned, research and development behemoth with the professed goals of producing advanced electronics for China’s military and leveraging civilian technology in order to do so [2]. The organization combines the advantages of state research funding and government favoritism with a market-oriented business model. Far from being a dinosaur in the modern electronics business, it has managed to grow and profit in diverse economic sectors and has forged partnerships with some of the biggest names in electronics. The broad reach of CETC’s business relationships combined with its self-described “sacred mission” of “rich country, strong army” make CETC worthy of closer inspection from anyone concerned with the national defense implications of the Chinese electronics and IT industries (China Broadcasting Net, November 10, 2011).

Origin and Function

Under CETC’s organizational umbrella are 80,000 employees and myriad subsidiaries. CETC oversees 55 semi-autonomous research institutes (often referred to as RIs)—many of which predate CETC itself and have existed since Mao’s defense modernization push in the late 1950s and 1960s. CETC also includes 184 commercial subsidiary companies—most of which were created by the individual research institutes in the past 20 years. While CETC itself is a young organization, the research institutes that conduct most of its research and production are the oldest electronics research facilities in China. They are responsible for many of China’s major advances in defense electronics, including the electronics for the “Two Bombs and One Satellite” initiative that gave China its first nuclear bomb, guided missile, and geo-orbital satellite. Today, CETC produces a wide range of products for military and civilian markets—from lasers and radar arrays to washing machines and power plants.

Despite its size and its explicit role in developing tactical electronics for the People’s Liberation Army (PLA), CETC is not well known outside a small community of China defense analysts. Large private companies like Huawei and ZTE have drawn much more attention and suspicion, most recently becoming the focus of respective U.S. Commerce Department and House intelligence committee investigations (Bloomberg: “Huawei, ZTE Face Scrutiny From U.S. House Intelligence Panel” 18 Nov 2011).While it is possible and even likely that private corporations like Huawei and ZTE engage in business dealings with the PLA, they nonetheless primarily are interested in the civilian market, and any contracts with the PLA would comprise only a tiny fraction of their total business. At minimum, Huawei and ZTE deny any direct allegiance to the PLA. CETC, on the other hand, is very open with its stated purpose of leveraging civilian electronics for the gain of the PLA, and a majority of its products and services are destined for state and military customers. If there is any doubt of CETC’s relationship with the military, see the “About Us” (jituan gaikuang) page on its website, especially cached pages from 2006 or earlier, since the most jingoistic language has been toned down since that time.

Diverse Business Areas

CETC’s decentralized structure makes its behavior difficult to track, since its research institutes have widely varying technical specialties, appear to operate more or less autonomously and often operate under pseudonyms [3]. This is largely because all of CETC’s research institutes are older than CETC itself and most of them continue the same lines of research they pursued before they were amalgamated into CETC and given a common purpose in 2002. Some of these, like the 45th RI, appear to almost exclusively develop consumer electronics; others, like the 54th RI, focus heavily on military and aerospace sensors as well as communications systems. With the majority of the RI’s, however, the distinction is much less clear. Many of these research foundational technology and manufacture industrial components necessary for the advancement of both the defense and commercial electronics sectors. There are RI’s specializing in semiconductors, piezoelectronics, nanotechnology, integrated circuits and industrial control systems—to name but a few.

In turn, almost all of the individual research institutes have their own network of commercial subsidiaries and joint ventures. CETC RIs use their subsidiaries to bring their research to the commercial market and turn a profit, but also to arrange partnerships between the PLA, universities and research organizations as well as Chinese and foreign electronics firms. Some of these subsidiaries are among China’s most notable technology companies, especially in the field of information security, including Venus Software Corporation and Westone Information Industry Company—subsidiaries of 32nd and 30th RIs, respectively. Perhaps incidentally, many of these same companies benefit from government subsidies and tax breaks for their role as “key software enterprises,” including Venus and Westone.

Many of these subsidiaries also are not acknowledged officially by their parent research institutes. Venus Software and the 32nd RI do not acknowledge their connections on their websites, even though the institute is Venus’ founder and, at least previously, the majority shareholder (Shanghai Securities News, August 6, 1998). This practice, as well as the practice of using pseudonyms for the institutes, helps CETC evade notice and any negative associations with the PLA in its business dealings, especially outside of China.

Supporting the Civilian and Defense Economies with Preliminary Research

CETC’s distinguishing feature is that it straddles the line between a military technology research center, a commercial entity and an academic institution. This mixed operations strategy stems directly from a technological development policy that could exist nowhere besides China. Under this policy, CETC can access government research funding to develop commercial and military electronics while training graduate students and engineers and providing a foundation for the advancement of the Chinese technology industry.

Since at least 2002, Beijing has emphasized civil-military technological integration and the belief that a strong military can only emerge from a vigorous and technologically-advanced civilian economy—a point reiterated in last year’s authoritative PLA Day editorials (PLA Daily, August 1, 2011; People’s Daily, August 1, 2011) [4]. As the defense economy was reorganized continually at the turn of the millennium, CETC and the other defense industrial organizations were encouraged to assist both sectors to build off of one another while encouraging a marketized defense economy. This involved not just coordinating technology exchanges between industry and the military, but providing preliminary research for both sectors. When in 2006 China’s Defense Middle- and Long-Term Science and Technology Development Plan demanded all defense industrial organizations invest at least 3 percent of revenue into research and development, CETC was the only one that exceeded this figure, pledging to spend at least 5 percent [5].

CETC benefits from both government funds and corporate revenue to fund its research. The organization is home to 15 state key laboratories—the designated breeding grounds for technologies the Chinese government deems central to national economic and military strategy. Many of the research institutes also host graduate student technical training programs and recognized national “senior scientists.” These resources provide further funding and expert personnel to CETC’s research institutes and allow them to leverage them for either military or civilian projects. CETC’s relationship with the PLA is demonstrated further by awards it receives from the General Armaments Department, which is responsible for commissioning PLA weapons systems [6].

The PLA’s Matchmaker

Since one of CETC’s expressed objectives is civil-military integration in the electronics sector, it should be no surprise that CETC and its research institutes pride themselves on their partnerships with large Chinese and international corporations. CETC and its subsidiaries have entered into joint ventures and supplier arrangements with some of the world’s largest electronics companies, including IBM, Sun, HP, Cisco, Oracle and, unsurprisingly, Huawei. They also supply their products to a growing list of foreign governments.

CETC operates in many ways like a civilian commercial entity and appears eager to start profitable joint ventures that offer access to the Chinese market, helped by CETC’s status as one of China’s state-authorized investment institutions. CETC’s subsidiaries conduct a diverse range of business with foreign firms and governments, including manufacturing parts for export electronics, providing software outsourcing solutions, engineering radar arrays for foreign governments and marketing advanced foreign electronics in China [7].

In many cases, CETC appears to be the middleman that allows these private companies to do business with the PLA. The CETC 15th RI advertises itself on job-seeking websites, such as Zhaopin.com, as the commercial representative of Huawei and Emerson Electric Company to the PLA, and the 15th RI may not be alone in this role. If this is true for even a few of CETC’s subsidiaries, then any company doing business with CETC would suggest tacit abetment of PLA modernization.

Through its subsidiaries, CETC has even managed to establish partnerships with western military technology firms, bringing their products to the Chinese market. Through its subsidiary group Hebei Far East, the 54th RI has partnered with the U.S. defense contractor Harris Corporation, which, according to its website, provides tactical communications, intelligence and satellite services to the U.S. military, National Security Agency and National Geospatial-Intelligence Agency. The joint venture, Hebei Far East Harris Communications Company, manufactures a wide range of communications products, including military-grade communications field switches and private mobile radio systems—which it markets in China and the Russian Federation—according to the joint venture’s website.

CETC International (CETCI), yet another subsidiary, also is designated as an official Chinese arms export company and markets its products abroad through international branches in Venezuela, Peru, Ecuador, Algeria, Egypt, Morocco, Angola, Sudan, Saudi Arabia, Pakistan, Thailand, Myanmar and Syria. The CETCI catalog appears to be more limited than that of the collective research institutes, but still openly markets products like mobile signal jammers, microelectronics systems and laser products.

Conclusion

CETC is the crux of China’s effort to support the PLA with dual-use electronics and information technology. As a research organization, CETC has access to favorable government policies, science grants, and top technicians. As a business, it can actively attract partners in the private sector and leverage their technology. Finally, as a state-run organization, it uses these resources to openly support the PLA and its modernization program. CETC’s decentralized structure and use of unacknowledged subsidies allow it to stay off of the public radar to a large extent even when private and/or profit-driven companies like Huawei and ZTE cannot. Its partners comprise Chinese and international technology giants, including at least one U.S. intelligence contractor. Additionally, its supplier relationships with major international electronics companies may mean that CETC-designed software and electronics components are more ubiquitous in our everyday electronics than most observers realize.

Notes:

1. Other notable Chinese defense companies include the following: China North Industries Corporation (NORINCO), China Aerospace Science & Industry Corp (CASIC), and China State Shipbuilding Corporation (CSSC), government-run corporations that develop the PLA’s physical weapons systems. Inevitably these receive more attention than CETC, just as missiles tend to receive more attention than their guidance systems.
2. “Basing the military among the people” or “combining military efforts with civilian support” (junmin jiehe, yu jun yu min) has become a common slogan since 2006 and the Report to the 17th Party Congress. This part and others, unless otherwise noted, is drawn from the CETC and subordinate organizations’ websites.
3. For example, the 15th Research Institute refers to itself as the “North China Research Institute of Computing Technology,” the 44th Research Institute is the “Chongqing Optoelectronics Research Institute” and the 29th Research Institute is “Siwi Electronics Corporation.”
4. The majority of government defense S&T documents published since 2002 have stressed the importance civil-military integration. See for example the “National Mid-long-range S&T Development Plan” (guojia zhongchangqi kexue he jishu fazhan guihua gangyao): https://www.gov.cn/jrzg/2006-02/09/content_183787.htm.
5. Tai Ming Cheung, “The Chinese defense economy’s long march from imitation to innovation.” Journal of Strategic Studies, Vol. 34, No. 3, June 2011, p. 335.
6. The 15th Research Institute, for example, recently received a GAD research award: www.nci.ac.cn/intro.htm, January 18, 2012.
7. For example, the CETC 54th Research Institute won the contract to supply antennas for Australia’s enormous ASKAP Radio Telescope Array for astronomy research. See, Australian Telescope National Facility News, No. 66, April 2009.