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

compare favorably to 80 percent in the United States. 53
Moreover, competitive bidding as defined by the new
rules includes open bidding but it also includes other
forms of “closed bidding” (negotiation, invitation,
and single supplier) all of which are less standardized,
harder to regulate, and therefore vulnerable to irregular
activity. Thus fair and transparent bidding is likely
under 20 percent.
Furthermore, the “playing field” is tipped further
in the defense enterprises’ favor in a number of other
ways. The military was keen to open up bidding to as
many general use and nonkey weapon systems as possible,
but not at the expense of maintaining secrecy.
To participate in R&D and the production of military
related items, all nondefense enterprises must pass
three approvals: for confidentiality, quality control,
and for “product security”—the latter being a euphemism
for strict requirements to maintain a long-term
stable product line. 54 While such constraints plague
defense contracts elsewhere, China’s secretive defense
establishment makes this approval process especially
onerous. In March 2009 Inspur Company Ltd won the
approvals to produce computer security and hardening
equipment for the PLA Navy (PLAN) only after
several years of effort. 55 Many do not make the grade
even after years of effort. 56
Even more serious are the various costs to doing
business that discriminate against civilian enterprises.
Military enterprises are exempted from value-added
tax (up to 18 percent), business tax, and land-use taxes,
all of which can add up to 25 percent of the total
project value. 57 There are also intangible costs such
as the government’s decision in 2005 to do a sweeping
upgrade of the defense industry’s manufacturing
and design facilities, an investment project that was
495