In 1987 China adopted a new contractual system for weapons research, development, and production. It was not clear from available information how this contract system would affect the role of the NDSTIC as the coordinating body for defense science and industry. Previously, the NDSTIC controlled procurement funding, reviewed proposals for weapons requirements funneled through the General Staff Department's Equipment Subdepartment, and coordinated with defense industries to produce the needed equipment. Under the new system, the state divided defense research and development funds into three categories: military equipment research, basic and applied sciences research, and unidentified technological services. The first type of appropriation went to military arms and services, which signed contracts with research institutes or enterprises to develop and manufacture the required weapons. The contract system involved the PLA, which had been removed to a large extent from such activities, in the development and manufacture of the weapons it would use. The second category of funds was devoted to basic research and applied science to help modernize the defense industry. The third category went to technological services necessary for research programs. This reform was another measure designed to integrate military and civilian industry by placing the military production of defense industries within the framework of the planned-commodity economy. The new system further sought to provide the military with better equipment at a minimum cost, to force the defense industry to upgrade weapons designs and improve production, to improve the management of weapons research and development through state application of economic levers, to promote cooperation between research institutes and factories, and to increase the decision-making powers of the enterprises.

Procurement of weapons and equipment represented 45 percent of the defense budget during the 1967 to 1983 period. This figure included 25 percent for aircraft, 15 percent for ground forces weapons, and about 10 percent each for naval and missile systems. China's military-industrial complex, the third largest in the world, produced a wide variety of weapons, including light arms and ammunition, armor, artillery, combat aircraft, fast-attack craft, frigates, destroyers, conventional and nuclear submarines, electronic equipment, tactical missiles, and ballistic missiles. With the notable exception of China's indigenously produced nuclear submarines, nuclear missiles, and satellites, most Chinese weaponry was based on Soviet designs of the 1950s and 1960s. Much of this equipment was obsolete or obsolescent, and beginning in the late 1970s China made great efforts to upgrade the equipment by changing indigenous design or by incorporating Western technology. The greatest weaknesses were in conventional arms, precision-guided munitions, electronic warfare, and command, control, communications, and intelligence. China attempted to address these weaknesses by focusing military research on electronics--essential to progress in the previously mentioned ar16a areas--and by selectively importing key systems or technologies.

Data as of July 1987