China's army storms Hong Kong with goods for sale: The military is keen to sell its new civilian products, Teresa Poole writes from Hong Kong

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The Independent Online
THE People's Liberation Army marched into Hong Kong this week, brandishing not AK-47s but fur-collared leather coats, slimming treatments and an 'Underarm Odour Elimination Device'.

They were not bent on taking back the colony four years ahead of schedule. The PLA's General Logistics Department Trade Group was here on business, eager to sell its new civilian products and keen to find foreign joint-venture partners to help expand its commercial activities.

For this week, China's mighty military-industrial complex has taken over a whole floor of Hong Kong's Convention & Exhibition Centre. In one corner, the exhibition stands of the China North Industries Trade Group, one of China's best-known weapons exporters, offered everything from motorcycles and oil exploration equipment to cameras and door-locks.

All the key industrial ministries were also at the exhibition showing their wares. And China's space, aviation, shipbuilding, nuclear, machinery and electronics ministry trade groups had similarly left behind their weapons. The aviation industry section, for instance, featured a thread-spinning machine, computers, mineral-water containers, machine parts, commuter planes and an ice-cream vending machine.

China's heavy industrial factories that formerly only produced armaments have been transformed during the decade and a half of the country's economic reforms. When the PLA and the defence-related industries were told to stand on their own financial feet, that meant finding new products for new customers.

Most military factories have been partially converted to produce, in addition to their existing military range, civilian goods that rely on the same technology. Others have diversified with investments in new product lines for the civilian market.

This week's exhibition in Hong Kong has provided a showcase for the extensive array of products that China's former armaments industry now manufactures. John Frankenstein, an expert on defence conversion at the University of Hong Kong Business School, said: 'This represents the output of the entire industrial system in China. Virtually every major industrial ministry is represented here.'

Great secrecy still surrounds the size and financial performance of the civilian output of the military factories. Jin Zhude, the retired colonel who heads the China Association for Peaceful Use of Military-Industrial Technology, said 70 per cent of the factories' output was now civilian. It accounted, he said, for 7 per cent of China's annual GNP, or about 150bn renminbi (pounds 11.7bn) annually.

What no one will say is whether this huge output is profitable. Mr Jin said there was now 'a slight profit' from the civilian production, but added that it was a 'remarkable thing' to be able to support financially the huge numbers working in the industry. 'Unemployment was avoided', he said, and about 3 million people worked on the civilian production lines.

Although Chinese officials stress the civilian operations are divorced from military control, Western analysts believe otherwise. Profits, if any, from commercial activities are thought to help pay for arms purchases and keep military production lines viable.

According to Mr Jin, about 1,000 military firms are involved in civilian production, each with a number of factories. Most of them are partly-converted enterprises. 'There are very few enterprises that are totally converted. And there is none purely for defence production,' he said.

Some 400 enterprises are taking part in this week's exhibition, and 318 projects are looking for foreign partners. The trouble for many is chronic lack of experience in the commercial world.

Stockpiles of unsold civilian goods are said to be mounting in some former military factories. 'They lack the information of what to make. They lack market information and, in many instances, they lack the resources to get the information,' said Dr Frankenstein.

The military-industrial complex - which includes some of China's biggest loss-making state industries - must also contend with the central government's recently announced austerity package, which is designed to cool down the country's over-heating economy.

Just as crucial for central government is the question of how the PLA's growing involvement in business will affect the military's professionalism, particularly as involvement in commercial projects makes for stronger ties between army units and local cadres.

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