The US State Department released its annual Country Terrorism Report last week. Dealing with South Asia the Report stated: 'In anticipation of asset seizures by the Pakistan government, the Jaish-e-Mohammed (JeM) withdrew funds from bank accounts and invested in legal businesses, such as commodity trading, real estate and production of consumer goods.' This confirmed National Security Advisor MK Narayanan's earlier disclosure, that terrorist funds had penetrated the Indian stock market and legitimate businesses. An Indian newspaper report expressed surprise over how 'regressive and primitive' terrorist mindsets could harness modern technology and modern market instruments.

To appreciate why and how they do this, the anatomy of terrorism needs to be understood.

This column had drawn attention earlier to the silent cooperation between terrorist groups with diverse aims. The inference was that these groups loosely functioned under a central command.

Broadly, there are three kinds of terrorists:
    

• The dupes who believe in a cause and are the cannon fodder for terrorism;
• The criminals who take to extortion, murder and rape under protection of a political banner;
  
• Finally, there are the few moles that are aware of the hidden agenda of their masters.
  
  

The efforts to fight terrorism are complicated by the past links that governments have with terrorism. Embarrassing links of the past often inhibit governments from taking decisive steps. Over the years almost all governments used terrorism as an instrument of state policy.

For example, America created Osama bin Laden, Pakistan created the Kashmiri jihadis, and India created the LTTE.

It was after 9/11 that official perceptions began to alter. The possibility of big terrorist strikes became real. The progress terrorists were making to acquire weapons of mass destruction appeared unstoppable. Terrorism became unacceptable as state policy for any government. But how can the genie be bottled again? Terrorism has acquired now a global structure.

So, where is its fountainhead? Here is one surmise.

The industrial-military complex as a powerful lobby has attracted attention in the west. Armament industries developed vested interests in policy making. International tensions, leading to increased defence spending, were allegedly welcomed by this lobby. The same rationale applied in China too. But there was a big difference. In China, the military did not follow the corporate world. The corporate world followed the military. This happened because of the special place that the People's Liberation Army (PLA) occupied in China. It was the PLA that liberated China and created the communist government.

After Deng Xiaoping's rise the US-China commercial nexus grew exponentially. Low tech Chinese goods flooded US markets to create a five to one trade balance favoring China. Bribed American politicians of both the Republican and Democratic parties allowed this, unmindful of security implications. Former New York Times editor Abe Rosenthal wrote despairingly in 1996: 'Wake up America! Wake up to the truth that the Republican leadership is partners with the Democratic leadership in building up the Chinese communist leadership and its armed forces. [It is] one more lesson to add to Nazi Germany.'

Most Chinese firms exporting to the US were owned by the PLA. The PLA tended to act independently of the Chinese government. The role of General Liu Huaqing is instructive. It was under him that the notorious Chinese fund-raising for the Democratic Party occurred during the Clinton era. Johnny Chung was the American conduit for the PLA money advanced to facilitate China's theft of military-related technology. Chung was bankrolled by the Chinese military intelligence chief, General Ji Shengde. The military technology was to be acquired by General Liu's daughter, Colonel Liu Chaoying, who was also in the US.

Deng Xiaoping appointed General Liu, 80, as head of the PLA in 1993. Liu was instructed to insulate the PLA from over-ambitious politicians and to protect Jiang Zemin who succeeded Deng. Significantly, General Liu who served as Vice- Chairman of China's powerful Central Military Commission (CMC) under Deng, refused to serve under Jiang's Chairmanship. He appointed a junior in his place. The PLA's mindset was revealed by its book, Unrestricted Warfare, authored by two Chinese colonels. The book outlines how multi-pronged subversion can weaken and destroy enemy nations. General Zhu Chenghui's open threat last year of a nuclear strike against the US severely embarrassed the Chinese government, which could however only mildly reprimand the General.

At the end of Liu's tenure a power struggle, not policy differences, distanced him from Jiang. Deng was the last Chinese leader to have participated in the Long March, and extracted obedience from PLA generals. Neither Jiang nor Hu ever served in the Chinese military. They lacked the authority to control the PLA. Unlike Jiang, Hu seems to have policy differences with the PLA. The PLA's recent anti-missile strike caught the Chinese government unaware. North Korea's latest nuclear test did likewise. Both were inspired by PLA generals. The overall strategy of aiding insurgencies abroad, including Islamist terrorism, was directed by the PLA. So, has PLA, which acts like a government within a government, lost power? There are no signs of this.

Instead, PLA tentacles have spread in South Asia to control the Pakistan army, ISI and terrorists. The British created the Pakistan army. The Indian and Pakistan armies had a similar ethos in 1959 when President Ayub proposed joint defence. Now Pakistan's army is a PLA clone. Author Asha Siddiqa's recent book,Military Inc ' Inside Pakistan's Military Economy, reveals this. The author coined a new word, 'milbus', to describe the deep nexus between the military and business in Pakistan. President Musharraf seems incapable of containing his army and the ISI. Is President Hu Jintao more successful in controlling the PLA? This question has gained urgency after terrorist organizations started to adopt the PLA strategy of entering legitimate business for acquiring financial clout and operational autonomy.

Unless and until President Musharraf prevails over Pakistan's army, and President Hu overpowers the PLA, terrorism to destabilize and weaken India will continue. It seems doubtful if either Musharraf or Hu can achieve success in this without unleashing major domestic upheaval.