The PLA at Home and Abroad - Strategic Studies Institute - U.S. Army

is so, why has China still produced many technological
breakthroughs over the past decade? To see why
this may be we turn to a brief review of past reforms.
REDUCING THE GAP: PAST REFORMS
In the mid-1990s, China’s defense economy was in
a perilous state. It reached its nadir in 1998, over 60
percent of the defense industry was in deficit, totaling
6.4 billion in losses, 9 and it was producing outmoded
equipment nearly across the board. 10 The defense sector
has long been a bloated and inefficient military
production system that was largely based on an outdated
Soviet model. 11 But the effects resulting from
opening up and reform have also taken a toll. Under a
relatively benign international security environment,
Deng Xiaoping decided to focus on rebuilding the
economy. Defense development was subordinated to
national economic development and placed last of the
“Four Modernizations.” The defense industry’s forays
into commercial enterprises and military conversion
business helped offset a decrease in funding, which
plummeted to a mere 1.74 percent of the gross domestic
product (GDP) in 1987. 12
A number of factors triggered the far-reaching reforms
to the military-industry complex beginning in
the mid-1990s. China’s national security conditions
had changed dramatically. China saw the Gulf War in
1991 as the “the first modern information war,” a war
waged and won on the strength of U.S. technological
superiority. This event led to a period of self-reflection
and military audit that lasted into the mid-1990s and
concluded that China was falling dangerously behind
in RMA and had to rapidly catch up since future
wars would likely be high-tech, fast-paced, of short
484