Commercial Interests
Until the mid-1990s the PLA had extensive commercial enterprise holdings in non-military areas, particularly real estate. Almost all of these holdings were supposedly spun off in the mid-1990s. In most cases, the management of the companies remained unchanged, with the PLA officers running the companies simply retiring from the PLA to run the newly formed private holding companies.
The history of PLA involvement in commercial enterprises began in the 1950s and 1960s. Because of the socialist state-owned system and from a desire for military self-sufficiency, the PLA created a network of enterprises such as farms, guest houses, and factories intended to financially support its own needs. One unintended side effect of the Deng-era economic reforms was that many of these enterprises became very profitable. For example, a military guest house intended for soldier recreation could be easily converted into a profitable hotel for civilian use. There were two main factors which increased PLA commercial involvement in the 1990s. One was that running profitable companies decreased the need for the state to fund the military from the government budget. The second was that in an environment where legal rules were unclear and political connections were important, PLA influence was very useful.
By the early 1990s party officials and high military officials were becoming increasingly alarmed at the military's commercial involvement for a number of reasons. The military's involvement in commerce was seen to adversely affect military readiness and spread corruption. Further, there was great concern that having an independent source of funding would lead to decreased loyalty to the party. The result of this was an effort to spin off the PLA's commercial enterprises into private companies managed by former PLA officers, and to reform military procurement from a system in which the PLA directly controls its sources of supply to a contracting system more akin to those of Western countries. The separation of the PLA from its commercial interests was largely complete by the year 2000. It was met with very little resistance, as the spinoff was arranged in such a way that few lost out.
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