-Caveat Lector- STRATFOR.COM Global Intelligence Update September 3, 1999 Jiang Struggles to Maintain Grip on PLA Summary: In an attempt to consolidate control over the People's Liberation Army (PLA) by enhancing its dependence on Beijing, Chinese President Jiang Zemin, in July 1998, ordered the PLA to divest itself of its many businesses. This plan has backfired, with officers looting the businesses before turning the indebted and overstaffed shells over to the government. Now with the PLA demanding the compensation it was promised for divestiture, Jiang is struggling to maintain control of a brewing crisis fraught with both domestic and international implications. Analysis: China's Central Military Commission (CMC), headed by President Jiang Zemin, issued a directive on September 1 reasserting the Chinese Communist Party's (CCP) leadership over the People's Liberation Army (PLA). The directive insisted that the PLA "is the people's army under the absolute leadership of the party, and embodies an important force of the political superiority of the party and state government." The directive outlined how the PLA had adapted to the past 20 years of reform and "opening up," but urged the PLA leadership to develop an ideology that allowed modernization within a socialist market economy and complete obedience to the CCP. Jiang's insistence on strengthening the PLA's obedience to the CCP begs the question, "Wasn't it already obedient?" And the dictum, "If it isn't broken, don't fix it," applies here doubly, as Jiang is focusing first and foremost on domestic political stability in the run-up to the October 1 celebrations of the 50th anniversary of communist China. One month from the anniversary, with tensions brewing across the Taiwan Strait, the Chinese economy quietly melting down and security forces rounding up everyone who could vaguely be described as dissident, Jiang has very publicly suggested that the PLA could be a bit more loyal. A serious rift has surfaced between the military and Jiang, sparked by the backfire of his 1998 initiative to bring it under his control. In July 1998, Jiang ordered the PLA to divest itself of its business empire, estimated to number some 15,000 enterprises with estimated combined annual revenues of $25 billion - well in excess of the official US$9.7 billion annual military budget. Under Chairman Mao, the PLA had orders to establish its own farms and textile mills so as not to burden the government budget and, by extension, the peasantry. Under the economic reforms of Deng Xiaoping, the PLA was allowed to expand even further to relieve the national budget, increase employment and speed industrial growth and business development. The trouble is, as the PLA's business empire grew, so did corruption in the ranks and, more ominously, independence from Beijing's control. With economic trouble - and the inevitable accompanying unrest - on China's horizon, Jiang wanted to strip the regional military commanders of their financial independence. The roughly 3 million- strong PLA would be dependent on Beijing for its budget - supposedly bolstered by revenues from the PLA's former enterprises - thereby avoiding the rise of powerful, regional generals. China's history is a series of central administrations asserting power only to have it ripped away by regional warlords. The plan backfired. Jiang underestimated the corruption and avarice that had permeated the PLA. He was rudely made aware of the extent of the problem when, in early April of this year, the CCP and PLA commissions, tasked with auditing PLA enterprises, reported wanton and systematic embezzlement, false accounting and bad debts. Moreover, since receiving the divestiture order, the PLA engaged in full scale asset-stripping, hiding the proceeds abroad and extensively borrowing on the expectation that they would never have to repay the debts. The government was left with deeply indebted, overstaffed shells of businesses, many committed to extensive and costly social welfare programs. The PLA, having relinquished its business empire as ordered, then had the gall to demand compensation for the businesses as well as the promised, and now necessary, increases in the defense budget. Jiang's attempt to gain control fell victim to the PLA's corruption and decay, and he is now faced with a worse situation than before he ordered the divestiture. Jiang must now pay off the commanders for their "losses," while funding the PLA at a higher level and injecting funds into remaining enterprises in order to stave off massive unemployment. It is no wonder Jiang is concerned about PLA loyalty. Jiang's first response has been to hand over the problem and a fair share of the blame to Prime Minister Zhu Rongji. Ironically, according to diplomatic and military sources cited by the South China Morning Post in July 1998, Zhu adamantly opposed Jiang's decision to strip the PLA of its businesses. Zhu had reportedly argued that China could not spare the hundreds of billions of yuan promised to the PLA for closing down its enterprises. He could not have expected how badly the situation would evolve. Now Zhu is negotiating with PLA generals over their demands for budget increases and new, high-tech weapons. The generals are reportedly also asking to be allowed back into business - one would expect new enterprises founded with their ill-gotten gains, rather than the derelicts they left the central government. The generals, remembering that the last cross-Strait crisis won them prestige and healthy budget increases, are also reportedly beating the drum with regard to the current crisis and seeking a greater role in future cross-Strait relations. Zhu has reportedly balked at this, deeming increased tensions a threat to continued Taiwan investment in China - a position derided by the generals as unpatriotic. The PLA's battle over Taiwan policy may go far in explaining the recent oscillations in that policy. According to the South China Morning Post, Jiang has refrained from mediating between Zhu and the military. He is letting Zhu take the heat. However, even if Zhu takes the blame for the problem and is unseated, an altogether likely outcome considering the pressure he faces for China's poor economic performance, the problem will not disappear. Jiang cannot shirk responsibility for long, nor can he easily solve the problem. His own position may be in jeopardy. Jiang's attempt to rein in the PLA has only made the military more assertive, threatening not only to unseat Jiang and others, but also to unhinge Beijing's management of the Taiwan crisis. The battle between Jiang's conservatives and Zhu's reformers is paling in comparison to Beijing's struggle with the PLA. **COPYRIGHT NOTICE** In accordance with Title 17 U. S. C. 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