Condensed info going back a little further....
Prior to 1983 the military imported arms through Norinco and the profits stayed with them and left the PLA. Poly Technologies, Inc., was assigned a unique position in that it became the only trading corporation (at the time) authorized to buy and sell arms for the PLA. It could call up arms from the PLA inventory in order to sell them abroad if the weapons were ruled nonessential for national defense. Poly was directly financed and controlled by the Army General Staff.
Military personnel in China were strictly forbidden from dealing directly with foreigners, due to fears of breach of security. The solution to this problem was simple -- the foundation of Poly Technologies, Inc., which was formed specifically to buy and sell arms as the exclusive agent of the PLA and then to turn profits over to the General Staff for use by the army.
Organization Structure: The Central Military Commission (CMC) at the top, below that the General staff, and below that Poly Technologies.
In 1981 Poly Technologies was formed by three individuals from within the military with solid and respectable connections to both political and military leaders. The office of the company was opened in a suite in the Beijing Hotel near Tiananmen Square. The primary business of the company was arms imports on a small scale. It was not yet given a name but was recognized merely as military representatives working in the business field. The chief executives of the company, the founders, were in fact individuals who were in the military but dressed each morning in business suits rather than uniform. Poly Technologies, which began operations in 1981 and was chartered in 1983. However, 1984 in the date most commonly used but it certainly wasn't established then.
The three founders of the company were Wang Jun, He Ping, and He Pengfei. Wang Jun was a commander at the regimental level and was on the payroll of the Training Division of PLA Naval Headquarters, but actually rarely went to the office. He Pengfei at the divisional level and was equal to that of a one-star general, and he worked with the General Staff in charge of procurement. He Ping, the son-in-law of paramount leader Deng Xiaoping, served as the PRC military attaché to Washington, D. C..
Two years later a fourth individual was added to the founders, who was the Chief of Staff of the Army at the time and was closely tied to China International Trust and Investment Corporation (CITIC). CITIC was a powerful business management group that supervised international business agreements in China. Around the same time they also added a businessman to their ranks and assumed the name of Poly Technologies, Inc., and were chartered under the CITIC. But the relationship of Poly and CITIC was merely a very loose formality. Eventually Yang Li, daughter of President Yang Shangkun also joined the company.
The funds for the enterprise were initially allocated from the General Staff and came originally from the State Planning Commission. Since the allocated military budget was fixed, the money was originally taken from other accounts and assigned to the new trading company. The State Congress held meetings to decide how much would be allocated to the military but they were considered merely a rubber stamp for individuals above them in the CMC of the Communist Party chain of command. The CMC discussed how much money went into the military budget and then passed its finding and recommendations to the People's Congress, which invariably approved any requests. The money was then allocated by them to the State Planning Commission and from them to the General Staff.
The formation of the company within CITIC corresponded to a change in American policies towards technology and arms sales to the PRC (at the time). In the spring of 1983, US Secretary of Commerce Howard Malcolm Baldrige visited Beijing and notified the Chinese government that China was being assigned a new, less restrictive category of technology transfer considerations in US trade regulations. In September of the same year, Defense Secretary Caspar Weinberger visited the PRC and helped further arrange for a closer military relationship between the US and China. In June 1984, China was granted Foreign Military Sales (FMS), more than four years after Project 851 and a few other notable partnerships.
Poly Technologies was poised perfectly to take advantage of this new relationship. The General Staff wanted Poly to roll over profits from arms sales from its inventory and this was the primary reason for creating the company. But the most important consideration was that they wanted to make sure that everyone obeyed the rules, hence the hand-picked leaders. They also arranged it so that only Poly was entitled to arms imports and arms sales abroad for the PLA and that means that only Poly could spend the money for the PLA by purchasing supplies abroad. No other company at the time could do that.
More details to follow with how Keng's Firearms Specialty Inc. (David [founder] and Da Keng [president]) evolved and the relationship with PTK International.