The regulation, signed by generals Zhang Wannian, Yu Yongbo and Fu Quanyou - respectively the Chief of the General Staff, Chief Political Commissar and Chief of Logistics - became effective on January 1.

Xinhua (the New China News Agency) quoted officials as saying the regulation was aimed at 'ensuring that various levels of the leadership would strictly abide by financial and economic laws and rules; raising their capacity for economic management; and maintaining probity and freedom from corruption'.

Under it, officers and cadres with the rank of the head of a regiment or its equivalent will be subjected to 'auditing and supervision'.

Details have not been released, but PLA sources said a key objective was to combat corruption.

Xinhua disclosed that the regulation would enable PLA auditors and disciplinary staff to investigate and assess 'whether funds belonging to a unit or coming from superior departments have been used for army construction; and whether they have been invested and put to use in a reasonable manner'.

Officers under investigation or whose books are being audited have to satisfy their superiors on 'whether they are clean and self-disciplined; and whether they have made strict demands on and provided support for their subordinates in upholding principles and doing things by the rules'.

The PLA sources said that the policy-setting Central Military Commission (CMC) and the Army's Commission for Disciplinary Inspection had called repeated meetings last year on curbing corruption and cutting down on irregular business.

Recommendations made included closing down PLA-run business units under the level of group armies as well as subsuming the bulk of army corporations under the General Logistics Department.

President Jiang Zemin, who is also CMC chairman, has reportedly reversed his 1993 decision that the PLA could engage in business in order to make up for its relatively slim official budget of 52 billion yuan (HK$47.6 billion).

It is understood that as a result of pressure from foreign and domestic quarters, Mr Jiang decided that the shortfall in the PLA budget should mainly be covered by 'contributions'.

Domestic opponents of the PLA's business ventures include government departments and civilian companies which have complained about the Army's exemption from taxes and its use of military facilities for commercial operations.

The regulation is intended to combat such irregularities as the misuse of army funds, equipment and land, particularly for speculative business.

It also targets the abuse or loss of military material.

As well as tackling corruption, the leadership is anxious to halt sloppy decision-making.