Chinese Army's Business Empire: Breaking It Up Is Hard to Do President Jiang's Order Is Intended to Rebalance Power, Assert Leadership, and Rout out Corruption

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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. …