August 17, 2020 | International, Aerospace, Naval, Land, C4ISR, Security
China’s industry reaps the benefits of political connections, international trade
By: Mike Yeo MELBOURNE, Australia — China's defense companies continue their strong showing in the Defense News Top 100 list, with two of its companies in this year's top 10. The Aviation Industry Corporation of China, or AVIC (landing in 6th place), and China North Industries Group Corporation Limited, also known as NORINCO (8th place), reported defense-related revenue figures of $25.07 billion and $14.77 billion respectively. A third Chinese company in last years top 10, China Aerospace and Science Industry Corporation, or CASIC, dropped one place to 11th in this year's list. Overall, eight Chinese state-owned defense companies made it into this year's Top 100 ranking of defense companies around the world, including China's two largest shipbuilding conglomerates — China Shipbuilding Industry Corporation and China State Shipbuilding Corporation — which merged in November 2019 to create China State Shipbuilding Corporation Limited, or CSSC. Signs of growth China's industrial base has been the beneficiary of the country's economic reform efforts and globalization since the 1970s. The state of Chinese industry took a quantum leap with the end of the Cold War; the Asian economic powerhouse reaped the benefit of an exposure to advanced technology and modern manufacturing methods. These advances have transferred over to its defense industry, partly as a result of the transfer of civilian technologies, which are not restricted by Western sanctions on arms sales, implemented in response to China's human rights record, or obtained from countries that are not a party to those sanctions, like Russia and Ukraine. As a result, China's defense industry is today virtually unrecognizable from its early days when it mostly made both licensed and unlicensed copies of Soviet-era equipment. The most obvious of this is the continuing acquisition by China of the Russian Sukhoi Flanker family of fighter jets, which has subsequently seen the Asian country churn out increasingly capable analogs of their Russian counterparts. Beginning in the early 1990s with the acquisition and license production of the Su-27 interceptor, which has since morphed into the Shenyang J-11B equipped with indigenous avionics and weapons, China has subsequently imported the multirole Su-30 and Su-35 interceptors. The former has formed the basis of the Shenyang J-16, and it is likely both Russian types may form the technological basis for continued upgrades to the J-11 design. The unprecedented modernization of the People's Liberation Army over the past two decades in lockstep with China's economic development has also meant that the defense industry has been lavishly funded to equip a captive home market. Meia Nouwens, research fellow for Chinese defense policy and military modernization at the London-based International Institute of Strategic Studies, which helped Defense News compile the Top 100 data for Chinese defense companies, noted that President Xi Jinping is prioritizing defense at a national level as part of an effort to simultaneously pursue geostrategic goals and economic development. The national leadership's political will to transform China into a global power “should not be overlooked,” she said. She added that China's defense industry is capable of producing high-quality, high-tech defense products, although companies “still seeks to cooperate with international counterparts in academia and industry to gain access to cutting-edge know-how, skills and technology.” This has taken place alongside a large investment in domestic research and development, which Nouwens said has led to breakthroughs, specifically in the development of China's air-to-air missiles and quantum technology. For his part, Xi has promoted “the slimming down of large conglomerates, increased coordination with the [People's Liberation Army], enhanced effectiveness and sought to reduce the duplication of efforts,” she added. Export potential China's ongoing military modernization efforts means the local defense industry doesn't need to rely on the export market to sustain itself. Nevertheless, Nouwens said, Chinese defense conglomerates may be encouraged to increase exports given that Xi wants them to become increasingly self-sufficient and globally competitive. She added that the trend of defense exports and transfers being a cornerstone of Chinese diplomacy is likely to continue. The most obvious manifestation of this is China's continued export of materiel to Pakistan as well as the assistance Beijing has provided to developing the South Asian country's own defense industrial base. A side effect of this support included wedging China's geostrategic rival India, who is also frequently at odds with Pakistan. Nouwens also touched on the two-tier policy when it comes to China's defense exports, with its top-of-the-line equipment unavailable for export. However, she noted, China has improved the capabilities of defense articles available for export, including submarine technology, more modern frigates and collaboration with Pakistan in developing the JF-17 fighter jet. The latter has also been exported to Myanmar and Nigeria. One of China's most prominent exports remains its unmanned aircraft, with Nouwens noting that this market segment provided China with a “perfect combination of a capability that addressed a certain gap at a cost significantly cheaper than competitors on the market.” The window of opportunity has narrowed, however, with the U.S. having relaxed its own UAV export regulations. Countries like Jordan, the United Arab Emirates and Saudi Arabia, which have all acquired Chinese unmanned aircraft, may now turn to American designs instead; Jordan has already put up its Chinese-built CH-4 drones for sale. Despite reforms, Nouwens said, China's defense industry is bloated and, in some cases, requires further streamlining, with several of the industry's conglomerates involved in sectors as varied as hospitals and schools. https://www.defensenews.com/top-100/2020/08/17/chinas-industry-reaps-the-benefits-of-political-connections-international-trade/