Since the early 1980s, a prominent and consistent conclusion of Western research on China's defense-industrial complex has been that China's defense R & D and production capabilities are rife with weaknesses and limitations. In this study, we call into question this conventional wisdom. Our research found that certain Chinese defense enterprises are designing and producing a wide range of increasingly advanced weapons that, in the short term, are relevant to the Chinese military's ability to prosecute a possible conflict over Taiwan but also to China's long-term military presence in Asia. This study puts forward an alternative approach to assessing China's defense-industrial capabilities: From the vantage point of 2005, it is time to shift the focus of research to the gradual improvements in and the future potential of China's defense-industrial complex. This report is intended to help the U.S. Air Force assess the ability of Chinese defense industries to design and produce more capable weaponry in the coming decades. The study assesses institutional changes in the operations of defense-industry enterprises in four sectors: missiles, shipbuilding, military aviation, and information technology/defense electronics. The study, sponsored by the U.S. Air Force's Director for Operational Plans and Joint Matters (AF/XOX) and the Combatant Commander of the Pacific Air Force (PACAF/CC), is part of the RAND Corporation's ongoing research on China and China's military establishment. It is a companion study to " Keith Crane, Roger Cliff, Evan Medeiros, James C. Mulvenon, and William Overholt. Modernizing China's Military: Opportunities and Constraints, MG-260-AF, 2005. The information in this report is current as of January 2005.