China’s defense industry itself has also undergone extraordinary changes since the mid-1990s. Originally established as industrial ministries in 1950, over the course of four decades of bureaucratic and political turmoil, China’s defense industries emerged in 1993 as five overarching defense manufacturing conglomerates, each supervising hundreds of subsidiary defense factories, shipyards, research institutes, and laboratories. In 1999, the State Council decided to introduce Western corporate structures and management concepts in order to provide “moderate competition” to the defense sector. Each defense conglomerate was split into two organizations, one ostensibly catering to military customers and the other to the commercial market. Combined with large-scale labor downsizing and plant closures, the intent of this policy was to create a nucleus of dedicated defense enterprises, served by a large external network of secondary suppliers and contractors.
That was from an interesting 2011 report, China’s Program for Science and Technology Modernization. HT: Matt. I wonder whether that corporate split between military and civilian customers led to a divergence in productivity. Here’s another good part:
In the aviation sector, a 1999 Science and Technology Daily editorial summarized a system where design engineers, “bear the heavy burden of continually breaking new ground, but have nothing to do with the subsequent harvest,” because ownership and subsequent revenues of the project were transferred to the production units once the designs were handed over. Such disregard for intellectual property, the author opined, “[resulted] in the loss of a large number of talented people” and prevented the creation of a virtuous cycle of design and product development. Successful R&D programs, such as in space and launch vehicles, were often driven by elite leadership attention and resources, rather than from bottom-up R&D innovation.
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