Chinese Army's Business Empire: Breaking It Up Is Hard to Do

After martial-law troops backed by tanks shot their way into student-occupied Tiananmen Square in 1989, central Beijing looked like an urban battlefield, with burned-out buses and bullet-cratered buildings left as signposts of the Army's advance.

Yet, as if at the eye of a hurricane, two complexes here survived unscathed: the Communist Party headquarters opposite Tiananmen Square, and the nearby five-star Palace Hotel.

The protective force field around the Palace turned out to be the same power that wrought destruction in Beijing: The hotel is one of thousands of flourishing businesses owned by the People's Liberation Army. Yet the ultra- swank hotel, with its marble staircases and gold-plated Rolls-Royce, is under a cloud now that China's leadership has ordered the Army to divest itself of a vast business empire.

President Jiang Zemin, the first civilian to head the PLA since the 1949 Communist revolution, recently launched a campaign to strip the Army of its multibillion-dollar commercial operations. But Chinese and American analysts say that Mr. Jiang may be creating a political minefield by confronting the Army, and that he is likely to encounter strong pockets of resistance. "The Army is a very strong political-interest group, and anyone who challenges it faces tremendous risks," says Hu Angang, a researcher at the Chinese Academy of Social Sciences.

The president launched an offensive on the PLA Inc., as many critics call China's entrepreneurial Army, in part to combat a web of corruption entangling growing swaths of soldiers. China's military engages in everything from smuggling to operating discos, from making pirated compact discs to exporting submachine guns to the United States, says a Western official. Shrouded in secrecy, the PLA is believed to own up to 30,000 companies that produce an estimated $6 billion in profits yearly. "Public resentment is mounting against the Army's flexing its power in the business sphere and its being above the law," says the official, who asked not to be identified.

Yet many Chinese were shocked when Jiang, flanked by the military's high command, publicly accused unnamed Army officers, along with members of the judiciary, police, and paramilitary, of aiding or shielding massive smuggling rings. Jiang, who rose to power through the bureaucracy rather than on the battlefield, "has been courting the PLA for years," says the Western official. "Because Jiang relies on the Army to rule China and has no military experience, many analysts believed he would pretty much let the PLA do whatever it wanted."

Researcher Hu, who several years ago presented a five-point anticorruption plan to the leadership, says he was surprised that most elements of the plan have since been adopted. Jiang has been wise to use national television and the state-run press to publicize the campaign, Hu says. "There is great public support for the anticorruption drive, and that could help convince the army to follow the [divestment] orders."

Yet Jiang, who also heads the 58 million-strong Communist Party, faces a tough battle in trying to end military involvement in high-profit businesses, according to Tai Ming Cheung, a scholar in Hong Kong who is writing a book on the subject. "This will be a massive undertaking" that is unlikely to completely succeed, he says. Other experts say the PLA has carefully hidden parts of its extensive network, even from political authorities in Beijing, and the Army is likely to attempt to play a massive shell game if party police search for banned businesses.

While most of the Army's investments are believed to be in legitimate businesses, some PLA entrepreneurs "shove out commercial competitors" by using "Mafia-like tactics and elements of violence," says David Shambaugh of the Sigur Center for Asian studies at George Washington University in Washington, D.C. Hu says Jiang's clampdown is part of a wide-ranging "political-stabilization drive" that includes cutting the government bureaucracy, reducing the state's role in the economy, and banning party leaders from operating companies.

Structural reforms are aimed at creating efficient and clean institutions to govern the country, says Hu, who compares China's current changes to the decades after the American Revolution, when the founders of the US helped shape a new governing order.

Yet in seeking to transform simultaneously the economy, the government, and the military, Jiang and his pro-reform allies may be moving on too many fronts at once, says Michael Swaine, an expert on the Chinese Army at the RAND think tank in Santa Monica, Calif. "Jiang wants to place his stamp on the Army" 1-1/2 years after the death of his mentor, Deng Xiaoping, Mr. Swaine says. His moves are not just part of an anticorruption drive, but also "a bold and risky challenge to assert civilian leadership over the Army." The president wants to remove real and potential rivals from the Army's ranks while replacing them with his own protgs. "Jiang is making a power play, and you can expect a great deal of resistance," Swaine adds.