China has gradually confirmed that they were indeed surprised and shocked by what happened to the Iraqi Army during the 1991 Gulf War. That was a conflict in which the Iraqis were equipped with similar, and often superior, Russian type equipment the Chinese had. But watching the Iraqi armed forces demolished in a few weeks of air attacks followed by five days of ground combat was demoralizing. It has now become clear that the lessons the Chinese learned from studying the 1991 Gulf War were what led to the massive reorganization and reequipping of the Chinese military since the early 1990s. Not only did the Chinese shrink the size of their army by nearly half but they expanded the navy and radically reorganized and modernized the air forces.
These moves were long suspected because even though this assessment of the 1991 war was a secret the details of the reforms were not. Moreover China likes to publish a lot of stories in the state controlled mass media about their modern military. This is partly propaganda and partly to reassure the military and the population that the massive changes in the military since the 1980s are a good thing and not just another opportunity for corruption. There are also a lot of military publications put out for military professionals. While much of this material doesn’t get translated from Chinese it is openly available and confirms a lot of the trends illustrated in the mass media articles.
One of the things the Americans used successfully in 1990 was wargames. So China had also revived the use of military staff analysis capabilities in the early 1990s and one of the first things studied was the 1991 Gulf War. The results of that study made it obvious that the West had used modern technology, new training techniques and wargaming to create armed forces of unprecedented capabilities. From this point on China decided to reform their armed forces to be able to do what the Westerners did in 1991. One of the more obvious results of that are Chinese troops wearing combat uniforms similar to those of Western troops and Chinese made weapons that were also similar to Western designs.
There were less dramatic but equally important signs of all these changes in 2009 when Chinese media ran stories, with photos, of Chinese developed professional wargames in action. The photos and text included enough detail for Western military wargamers to discern what was going on. The wargame shown was the TCCST (Tactical Command and Control Simulation Training System), and it was being used by members of the 6th Armored Division for a training exercise. It's a typical "blue versus red" (where "red" is the good guys and "blue" is the enemy) type game but few in the West expected China to be developing and producing stuff like this on their own. Over the next few years more Chinese wargames for media attention, if only because these were now widely used in the Chinese military and there was no point in trying to keep them secret.
One thing the Chinese have not yet been able to change is the quality of their officers. In part this is because the pre-1990 officer selection and training was based on the Russian model that put more emphasis on loyalty (to the Communist Party) than professional skills. China did try adding more officers selected for skills rather than loyalty but since 2010 have shifted back to the “loyalty first” model. This was necessary because of problems eliminating the corruption in the military and the realization that the military would more likely be needed to deal with an internal threat rather than an external one. It is easier to fake combat competence with new uniforms and weapons than to assure political loyalty when it is needed the most. The Chinese discovered that they had more in common with Iraq than their analysis revealed. The dictatorship that had run Iraq since the late 1950s learned to put a priority on loyalty when recruiting officers and avoid fighting an external foe.