PROSPECTS FOR US SALES OF DEFENSE RELATED EQUIPMENT TO CHINA

• Document Type: FOIA
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 0005411886
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 13
• Document Creation Date: June 23, 2015
• Document Release Date: August 20, 2009
• Case Number: F-2009-01363
• Publication Date: May 15, 1981

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CENTRAL INTELLIGENCE AGENCY
WASHINGTON. mC. 20505
MEMORANDUM FOR: J. H. Rixse
The Special Assistant
Office of the Secretary If Defense
SUBJECT Prospects foz US Sales of Defense RelFed
Equipment to China
REFERENCE Department of Defense Memorandum X13803,
Potential Munitions and Commodity Export
Cases with China, April 10,1981
1. NFAC analysts have reviewed the papers you provided on
prospective transfers of mateviel to China and have prepared
the attached memorandum in keeping with your conversation with
To provide a more yrderly analysis, they grouped the
items on the Department of Der;ense lists into eight general
categories and then reviewed, in order: China's needs for the
equipment, China's ability to pay, and anticipated Soviet reactions
to the transfer.
2. Our response is tailored to your request and
provided only to the Department of Defense.
Attachment
SR M 81=10052X
REVIEW IN MAY 2001
DERIVED FROM 9D(3.3)
APPROVED FOR RELEASED DATE:
12-Aug-2009 M rum
 CENTRAL INTELLIGENCE AGENCY
National foreign assessment Center
12 May 1981
The central goals of China's leadereh'p are stabilization of the economy
and pursuit of the "four Modernizations," and stabilization demands an
austerity that appears to rule out large purchases of military equipment and
technology over the next few years. Moreover, because the military has the
lowest priority within the modernization program, we expect that purchases of
military-related items will be few and highly se-ective during the early
1980s. Those items that China actually buys `ror. the United States will be
only a tinny fraction of her "shopping list" and of the lists of items proposed
for sale by US companies.
Cbine's Limited Objectives for Acquiring Military Technology
China's strategy for developing a science and technology base for
military applications continues to emphasize indigenous efforts, supple-dented
by selected application of Western design features and engineering practices
and by Judicious acquisition of critical Western technologies for, speciric
applications. This approach has been dictated by constraints in China's
financial, technical, and resource bases, and by the leadership's, desire to
avoid recreating that dependency upon outside powers that bound China in the
1950s.
REVIEW IN MAY.2001
DERIVED FROM 9D(3.3)
 The mpst recent phase of China's quest for modernization began following
the fall of the Gang of Four in 1976 with ambitious plans for rapid growth in
industry and agriculture. 5y late 1978, it became apparent that such plans
exceeded the physical and economic resources available, and many programs were
cut back or cancelled. In 1979, China entered a "Period of Readjustment"--
originally to last three, but now lengthened to five or more years--intended
to provide the basis upon which a more measured modernization pr9gram could
succeed. The goal of the readjustment is to increase production of electric
power, expand the number of competent technicians, and limit spending of
foreign exchange so that critical technologies from abroad can be more readily
absorbed and production put on a more test-efficient basis by the mid-1980s,
Finances always have been one of China's weakest links. Even before the
readjustment period, deals under negotiation with the West often were delayed
or broken off by Chinese inability to pay. The, economists in China's top
leadership realized in 1979 that even the relatively limited purchases from
abroad could not be absorbed successfully within the economy and were
depleting the PRC's modest foreign exchange assets. For these reasons, the
leadership has tightened its control over economic activities previously
decentralized and has cancelled long-term projects and expensive deals that
will not contribute to China's ability to produce exportable items. Moreover,
reduced the military's budget for 1981 by a similar or higher percentage.
We do not yet know whether the PLA's share of the budget cut will affect
Spersonnel, operations and maintenance, training, construction, procurement, or
RDT&E. If the cuts fall most heavily in the last category, we can expect
defense modernization to assume a very slow pace indeed. China's leaders
probably intend to invest as much as possible-in their industrial and
technical base over the next three to five years with the hope that, by the
late 1960s, Chinese indus will be able to supply some pieces of new
equipment to the PLA. 77
Despite China's continuing budgetary and financial problems, the PRC will
maintain interest in advanced foreign technology Iliac meets its highest
priority military needs. Chinese "interest," however, does not necessarily
indicate a willingness to buy. As a general framework for understanding PRC
needs and ability to pay for military items, we note that China generally
prefers:
? Acq firing technology rather than end-items.
? Purchasing items that have civilian as well as military use.
Gaining an ability to produce items that can be exported to earn
hard currency or reduce dependence on imports.
 The Chinese will not buy items of solely milita' ' value unless they:
? Help fill one of China's major defense gaps.
? Far exceed China's ability to manufacture or develop, or
Can be used as prototypes for later serial production. F
Priority of Chinese Needs And Potential Soviet Responses
China's military deficiencies are many and its need for new and improved
equipment is great, but civilian economists in China's top leadership
emphasize the need for belt-,tightening in the procurement of weapons and
equipment to achieve a more balanced economy. Accordingly, the Chinese high
comm4nd is concentrating on felling only the most serious gaps in PLA
capabilit,es.
The Soviets would engage in "worst case" analysis of any military-related
sales to China and would interpret any US move, however modest, to help China
strengthen its defense as further "proof" of a de facto "alliance" between
Washington and Beijing. The degree of outrage in the Kremlin would depend on
The site of the sale.
? The nature of the equipment or technology to be transferred. and
Soviet options in response to transfers are, however, limited so long as US-
Soviet relations remain strained and the Soviets consider military action
The sale of any equipment that--to the Soviet mind--could be used by the
Chinese to upgrade their strategic forces would be of the greatest concern to
the Kremlin. Examples range from components that could conceivably be used in
 an ICBM guibance system to equipment that might enhance Chinese ASW '
capabilities an& thus allow China to better protect its SSBNs. To attempt to
forestall US wles to China, the Soviets will warn of "dire consequences" and
encourage media coverage characterizing such sales as destabilizing. The
intent will be to induce US allies--some of whom are uneasy about the budding
Sino-US security relationship--to dissuade us from engaging in such
transactions." Moscow also will claim that thq United States has much more to
gain by cooperating with the USSR than by selling arms and defense-related
technology to China.
If any major sale occurs, the Soviets will choose one of two broad
options: to redouble. their initiatives for arms control talks with the West,
,or to increase their 'defense effortsand militancy on the assumption that a
S.ino-US "alliance" isI unavoidable. The USSR might well adopt amore truculent
attitude toward the Chinese while pressing harder for arms cont*ol agreements
with the West, hoping that such initiatives would complicate US efforts to
work outa closer relationship with China and make Beijing unhappy w{th the
limited results of itt opening to the West. The Soviets presumably w,iuld
iesitate h close out options for bargaining on arms control, particularly in
view of their strained economy and present preoccupation with events in Poland --?~
and Afghanistan.. In any event, the Kremlin's primary interest will be tc
prevent the sl o-i.S real:1J's, fr;c :.. A
collaboration directed agaigst~'neUSSR but to avoid, if possible, a rupture
in relations with the West,
The Soviets are most likely to take strong negative action--rather than
merely to protest-if they believe that the ::5 is assisting :r z..ina's ?,. -
strategic, weapons development. The most likely response in this case wouAd'be
a harder line in strategic arms negotiations--claiming that Soviet
considerations are nod greater due to the enhanced Chinese threat--accompani?1&
by a further buildup of the USSR's strategic forces facing both East and
West. A.more extreme action would be to threaten to'break.off existiagrarm"s
control negotiations with the US, including an unwillingness to resume SSALT
negotiations. Though somewhat less likely, the Soviets could declare previous
?US-Soviet agreements on arms control issues--for exampl@, the ABM treaty
signed in }972-null and void under the present circumstances. Then, to,), the
Soviets mht conclude, that they? now had less reason to avoid direct conflict
with the nited States, and stamp their aldto revolitibnary forces--
especially in Centrpl America.
Second on the list of Soviet concerns would be US sales of any materiel
that-the Chinese could use to significantly offset the USSR's advantages
gained through strengthening its conventional forces opposite China over the
past 15 years. Many of the items being considered--if not already approved--
come under this heading. The most ominous examples from the Soviet point of
 view are among ground forces eouipment--such us an infantry fighting ve!:itle
and armored personnel carrier--but the USSR prdoably woald.be almost as upset
over the sale of radars, communications geat.for improving China's battlefield
management capabilities, or materiel that enhanced its ability to collect
int?.lligence by technical means. Moscow would vehemently protest the sale of
such major items to China, and it probably would both take enhanced Chinese
military capability into account in future force deployments in Siberia and
seek to ?strengthen its military relatit.ship with Hanoi. The Kremlin also
would redouble its efforts to convince China, Japan, ar.d other interested
parties to adopt the Soviet proposal on confidence-building mers-res for the
Far East, though the Soviets would not want to be seen as barrajning from a
The Soviets would be less concerned about other sales--of general
industrial items or equipment that, while having some indirect military value,
would have no immediate, direct impact on the Sino-Soviet military balance.
Nonetheless, Moscow would be apprehensive about the cumulative effect of such
sales, particularly those that eroded its technological edge over Beijing, and
about how general modernization might add to the threat that China could pose
by the year 2000. Consequently,. the Soviets would protest e*en sales of
general dual-use items, if only to dissuade other Western countries from
proceeding with similar transactions. The Soviets also might invoke
sanctions against US companies--provided that the USSR had access to a%ernate?
sources of supply and markets elsewhere in the world--to make the US more (
aware of the economic and political cost of selling arms and defense-related
technology to Ch..na. Finally, Most iw probably would be more upset by grants
Anal is of Export Cases on Lists "A"I and
'We have grouped the items on the Department of Defense lists "A" and "B
into eight general categories. These are, in order, aircraft and avionics,
computers, radars, communications gear, ground forces equipment, earth data
from those on the "A" list We did not consider items
that had been disapproved, tnoug in some cases we examined items that have
The costs of items and extent of Chinese interest appear to differ widely
among the several categories. Aside from the industrial items-H
 are unclear. China's interest in purchasing listed ground force equipment
seems relatively small, and we believe that sales will be few. We judge that
China's interest in purchasing US space technology also is slight.
Aircraft and Avionics
From the "B" list. From ~hina's perspective, the most advantageous deal
is McDonnell's offer to coproduce the PC-9/80. In addition to developing an
ability to produce a modern and urgently needed transport aircraft for
domestic use, China would acquire an FAA-certified production facility and
much new technical and managerial expertise in the production of aircraft.
The, deal evidently has been approved by the highest officials in China but.is
being held in abeyance due to lack of funds. If and when the necessary $300
million becomes available, we believe that China will proceed with this
program. F--]
Other deals in the "approved" column include technical data,
specifications, and turboshaft engines for use in helicopters. China needs
turbine-engine helicopters--it can produce only the piston- n ne Soviet
MI-4--for both commercial and military purposes.
Helicopters are not as urgently needed as?are fixed-win r rt
a rcra , so we believe that the PC-9/80 will take precedence.
From the_"A" list. This list includes additional helicopter and
transport aircraft, as well as proposals for simulators, doppler navigation
systems, and light aircraft.
interest in Boeing sjCH-s Chi or Hughes' 500MD helicopters. Lockheed
probably is eager to sell ite.Cj30.'trtnsport, and such an aircraft would be
useful to the Chinese. As we'?ilndarstand they proposal, however, Lockheed is
 ,r.:bably Will not buy.
Moscow would be upset about sales of most of the aircraft and avionics
items. It would worry about the long-term impact of the DC-9/80 deal but
would be even more apprehensive about the implications of a few of the other
items in this category, such as helicopter engines, C-130 aircraft, and CH-47
or 500}O helicopters, because of their piny nilal contribution to China's
only to a long-term improvement in pilot skills.
The Chinese appear to have an insatiable appetite--arising from a great
need--for US compbters and computer technology. Many US manufacturers have
 China has a high priority for acquiring turnkey plants, equipment, and
processes for producing integrated circuits (iCs). The low yields of Chinese-
madie ICs hinder progress in the computer field and adversely affect. China's
ability ass produce critical, military-related microelectronics
items.
Moscow almost certainly suspects that China will use some of the
computers obtained from the United States to improve the command and control
of its strategic missile force and ocher. elements of the military arsenal.
Soviet "worst case" analysis, presumably would not allow the Kremlin to be
"misled" by the relatively. small size of the deals under consideration or by
US references to the limited capabilities of the items in question. Even if
the Soviets accept such statements, they will worry that China will find a way
to upgrade the computers and use them to support the strategic weapons
Ra dares
Provision of radars to the Chinese would help to improve their air
defense capabilities, which now are seriously deficient. Low altitude air
surveillance within China is spotty, and coverage beyond the northern border
 by the radars and speed it. to weapons controllers, China's weak air defenses
would be improved markedly. Needed quantities could cost up to several
billion dollars, however, and would be prohibitively expensive at this time..
products are as much as can be hoped for now. If Beijing purchased in
quantity both radars and data handling systems to process information acquired
Also on the "offered" list were several sets of ground surveillance
radars (GSRs). The Chinese do possess an early model Soviet GSR--the PORK
TROUGH--which can detect vehicles at several thousand meters and is used
mainly as a spotting device for artillery units. The PORK TROUGH is only
sparsely deployed,
US sales of radars to China would provoke an intense protest from Moscow,
because the Soviets know that such equipment will offset some of the progress
that the Soviets have made over the past 15 years in improving their ability
to strike China from the air. Ground surveillance radars might draw a more
subdued response, although the Soviets will be concerned that such equipment
would help improve China's readiness against a conventional ground attack.
The Soviets will protest vehemently if the US sells China any EW equipment,
because the Soviets wouldceive-such equipment as enhancing China's overall
Weee strong prospects for a PRC attempt to arrange a licensing or
coproduction deal in communications equipment.
 Moscow would be very udhappy about the sale of military communications
gear to China because, such sales would help the PLA improve its battle
management capabilities significantly. Although such sales might not, by
themselves, make, the Soviets more apprehensive about the danger of a Chinese
attack in the Soviet Far East, they would add to concern. about a second
Chinese attack on Vietnam, which could--in turn--involve the USSR in an
Ground Forces Equipment
Serious, Chinese attempts to purchase--at least in quantity--items listed
in this category seem unlikely. We note that the only approved ("B" list)
items for China include infrared detection equipment and presumably some
technology,
significantly mechanizing its huge (3.5 million) ground forces, China almost
certainly will show greater interest in heavy trucks--for moving troops,
,,nn nltinn eunnliec. and casualties--than in tracked carriers.
 The Chinese may seek to buy some affordable, specialized or dual-use
equipment that could support the ground forces.
counter superior Soviet armored units. The Soviets might respond. by further
strengthening their military forces in Siberia and the Soviet Far East.
 Space Technology and General Industrial Items
China's interest in, and ability to pay for, these two categories of
items are mixed. Although the Chinese may have a genuine interest in advanced
space technology for applications beyond communications or intelligence
collection, Beijing recently announced that China's manned space program will
have to wait until the.1990s.
,
Despite the recently-announced cancellations of whole-plant purchases and
related tilt away from heavy industries and metallurgy toward light industries
and export activities, we see most items on the General Industrial list as
remaining attractive to the Chinese.
Major Soviet concern will stem from Moscow's view that any sales
involving space technology probably will help China develop a reconnaissance
satellite system. General industrial items, however, will be viewed as having
no direct impact on the present military balance in East Asia and thus
probably draw only mild complaints. However, even sales of general items will
cause some apprehension in Moscow, mainly concerning the cumulative
contribution to helping China develop its economy so that it eventually could
support. a thorough modernization of the armed forces. Moreover, Moscow's
eagerness to dissuade other-countries from following the-US lead in sales to
China probably will motivate it to threaten trade sanctions against U5