In the past two decades, China has invested heavily in its naval modernization program with the objective of building a blue-water navy. Crucial to that goal was the China Shipbuilding Industry Corporation (CSIC), China’s leading military shipbuilding state-owned enterprise from 1999 to 2019. Yet the recent arrest of former CSIC Chairman Hu Wenming highlights the fact that serious corruption exists among China’s military shipbuilders, in spite of sustained graft fighting efforts.
In the past few years, important individuals of CSIC have been nabbed under corruption charges. Now, the man who once stood at the pinnacle of Chinese military shipbuilding has fallen to the same allegation. This development shows that China’s naval modernization is much more complex than simple growth. Likewise, corruption among China’s military shipbuilders is sure to have consequences for the People’s Liberation Army Navy (PLAN).
Arrest of Hu Wenming
Hu Wenming, 63, enjoyed a long career in China’s defense industrial complex, spanning numerous enterprises supplying equipment to the PLA Army, Navy, and Air Force. Hu oversaw sensitive projects such as the J-10 fighter jet, the Comac C919 airliner, the Xian MA60 airliner, and, most importantly, he commanded the development of aircraft carriers Liaoning and Shandong.
From 2012 to 2015, Hu was the chairman of China State Shipbuilding Corporation (CSSC), the competitor of CSIC that manages shipbuilding in China’s eastern and southeastern provinces. In March 2015, Hu was transferred to CSIC as chairman and Party group secretary. During his tenure, Hu reorganized CSIC assets, expanded the number of publicly listed subsidiaries, initiated market-oriented debt-to-equity swaps, and increased CSIC asset securitization. Over the years, Hu became an outspoken advocate of a CSSC-CSIC merger, which ultimately occurred on November 26, 2019.
Yet Hu did not preside over the historic event. In August 2019, he suddenly retired from his post as CSIC chairman and disappeared from public view until May 12, 2020, when China’s anti-corruption watchdog, the Central Commission for Discipline Inspection (CCDI), announced his arrest for “serious violation of discipline and law.” Hu thus became the most high-profile corruption suspect from China’s defense sector in recent years. However, China’s military shipbuilding sector, particularly CSIC, had already had a number of run-ins with graft busters over the years.
The Former CSIC and Military Shipbuilding
Until November 2019, China’s shipbuilding industry was divided between CSSC and CSIC. The division occurred in July 1999, with the intent to increase competition between state-owned shipbuilders. Divided along geographical regions, both CSSC and CSIC engaged in commercial and military shipbuilding. When faced with global shipbuilding overcapacity, the Chinese government decided to merge CSSC and CSIC into one China State Shipbuilding Corporation to reduce overlap and focus competitive energy outward.
CSIC played a crucial role in the past two decades, which witnessed the significant growth of Chinese naval power. As the main force for PLAN equipment research and development, design, production, testing, and maintenance, CSIC handled programs relating to aircraft carriers, nuclear submarines, conventional submarines, surface vessels, and naval weapons development. Prior to merging with CSSC, CSIC had 46 industrial subsidiaries, 28 research institutes, 140,000 employees, and 190 billion yuan ($27 billion) in total assets.
Endemic Corruption in Former CSIC
However, as the Chinese government invested more resources in military shipbuilding, more opportunities for corruption emerged. From 2015 to 2019, CCDI inspection teams paid three visits to CSIC, each time finding the same persistent problems.
In 2015, CCDI inspectors sent to CSIC discovered issues such as lack of oversight by Party and discipline inspection organizations, violation of regulations among research institutes, incomplete financial records, exchanging bribes for research funding, redirecting research projects to private companies, sale of company resources and technology for personal gain, using one’s position to benefit businesses of family and friends, violation of party rules, and incomplete regulations on personnel selection and appointment.
There had been little improvement when CCDI inspectors returned in 2017. On March 6 that year a CCDI team showed up at CSIC for a surprise, month-long inspection tour. In the end, the team concluded that CSIC’s Party group had not fixed all the problems from the 2015 report; there was a lack of focus on key responsibilities; and the Party group did not fully implement the Party Central Committee’s political and strategic demands. The CCDI team also reported that there was a lack of democratic centralism in the company’s practices and some company leaders did not truthfully report personal conduct. Promotion and hiring practices were not rigorous and reports of cronyism and irregular personnel appointments were frequent. Some company leaders were indifferent to Party discipline, and knowingly violated the Central Committee’s regulations on proper official conduct, i.e. using company position for private gains.
CCDI inspectors again found little improvement when they returned for the third time in March 2019. Despite warnings, there were continued violations of Central Committee regulations on proper official conduct. Corruption was still ongoing and laws were regularly broken. The Party’s influence had been weakened and problems in unrigorous hiring and personnel appointment continued unabated.
The substandard results from each tour led to arrests. First to fall was Liu Changhong, the CSIC anti-corruption czar. Fired, expelled from the party, and arrested in September 2017, Liu was accused of accepting bribes and using the convenience of his position to “seek benefits for others in business operations as well as personnel selection and appointment.”
In 2018, CCDI delivered additional blows, arresting CSIC’s general manager Sun Bo in June, the director of the 712 research institute and deputy director of the 704 research institute Jin Tao in September, and director of the 718 research institute, Bu Jianjie, in December.
Sun, a deputy of CSIC Chairman Hu Wenming, was found guilty of accepting bribes totaling 8.64 million yuan and abuse of power that caused very serious damage to China’s national interests. In July 2019, Sun was sentenced to 12 years imprisonment. (One earlier report alleged Sun gave confidential information about China’s Liaoning aircraft carrier to foreign intelligence agents and may face the death penalty. But this allegation was not mentioned during Sun’s sentencing hearing.)
Jin, in charge of the CSIC 712 research institute (specializing in ship propulsion systems and specialty batteries) while simultaneously serving as deputy head of the 704 research institute (specializing in shipboard systems and equipment), was accused of extravagant spending, practicing cronyism, illegally running a private business, using his position to benefit the interests of others, accepting a large amount of bribes, and abuse of power that caused significant damage to national interest.
Bu, head of the CSIC 718 research institute (specializing in chemical engineering, energy, specialty gases, radiation monitoring, nuclear power, air purification, and medical oxygen production), was slapped with charges of violating organizational discipline, illegal acquisition of Canadian citizenship, failure to truthfully report personal conduct, failure to properly document research institute income, theft of public funds, accepting bribes, and practicing cronyism.
Problems for the PLAN
Looking back, CSIC seemed an organization unable to deal with corruption within its ranks. While CSIC has merged with CSSC, the CCDI continues to levy charges against former CSIC administrators such as Chairman Hu Wenming. Still, arrests so far are likely just the tip of the iceberg. The real extent of corruption in CSIC is potentially much deeper, with practices carried over to China’s newly created shipbuilding conglomerate.
The cost of corruption among China’s military shipbuilders is certainly a detriment to PLAN effectiveness. First of all, the quality of equipment delivered to the PLAN would be affected by endemic corruption as administrators stole company funds and technology for personal benefits. To address potential shortfalls, the PLAN has stepped up its quality control regime. Yet the risk of inferior equipment slipping by remains.
Second, as incompetent individuals bribed their way into positions of importance, it undoubtedly influenced the company’s culture, morale, and ability to support the PLAN. For instance, reviews on Chinese job sites have indicated employee disappointment over mismanagement and cronyism at numerous CSIC subsidiaries and research institutes.
Finally, the existence of corrupt individuals and networks in China’s military shipbuilding industry pose a clear security risk to the PLAN. Given their disregard for the law and repeated offenses that damaged national interests, the potential of confidential information leaks is high. In other words, corruption among China’s military shipbuilders opens the door to foreign intelligence penetration — a sure threat to PLAN operational success.
Zi Yang is a senior analyst at the China Programme, S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore. Follow him on Twitter @ZiYangResearch.