majority of russian weapon system purchased by China were either decade or 2 decade behind west of US.
I suspect China may decided to wait until better equipment emerge.
unfortunately for the Russians, they haven't done anything in the past 2 decades worth talking about, so those outdated equipment was actually as good as what they have in their inventory.
anyway, more on this story
CHINA: Defence industry
EVENT: China was the world's biggest arms importer in 2003-07,
Stockholm International Peace Research Institute figures show
today.
SIGNIFICANCE: However, the pace of imports is slowing, with sales
from Russia alone down 62% last year. Russia will have concerns
about technology transfers to China, but modernisation within
China's defence industry could be playing its part in reducing the
People's Liberation Army's dependence on foreign suppliers.
ANALYSIS: China's arms manufacturers are posting record profits at
a time of strong domestic demand for the latest generations of
weapons and robust output of civilian goods. However, the
Commission for Science, Technology and Industry for National
Defence (COSTIND), the government agency responsible for
overseeing the defence industry, has been placed under a new
industrial 'super-ministry', a move unveiled at the National
People's Congress in mid-March (see APDB, March 18, 2008, I.).
Lines of authority. On the surface, the merger of COSTIND into
the new Ministry of Industry and Information (MII) appears to
herald the demise of this conservative and autonomous institution,
a long-time holdover of a Maoist-era central planning system. If
the appointment of the MII's new head, Li Yizhong, is a pointer,
defence industry affairs are unlikely to be at the top of the
ministry's priorities. (Li is a petroleum expert with no
background in defence industry affairs.)
There was a significant silence from COSTIND about its
reorganisation and redesignation as the State Defence Science and
Technology Bureau (SDSTB), which represented a major downgrade in
its government ranking. The event went unreported on its website
and its leaders did not comment publicly about the change.
The SDSTB has lost some areas of responsibilities, most notably
control over nuclear power management, which has been handed over
to a new National Energy Commission. However, COSTIND has had a
long and distinguished history of fighting and winning tough
bureaucratic wars, and it may yet retain much of its autonomy and
clout. This latest government reform is being touted as a trial
experiment, subject to review.
Strategic industries. Two of the primary missions of the new MII
are:
-- playing a leading role in the nurturing of key strategic
industries; and
-- supporting the integration of the civilian and defence
economies, which are areas of central importance for the
defence industry.
A top state priority over the next decade is the building from
scratch of a 150-seat airliner-cum-transport aircraft that China
hopes will become a competitor to Airbus of Europe and Boeing of
the United States (see APDB, November 12, 2007, I.; and see APDB,
April 12, 2007, I.). China so far has only had experience in
developing mid-sized passenger and transport aircraft, such as the
90-seat ARJ21 regional airliner.
This ambitious, high-risk project has been entrusted to the
country's two leading defence aerospace companies, Aviation
Industries of China Corp (AVIC) I and AVIC II. To set the
programme in motion, a new aviation industrial entity -- the China
Large Aircraft Project Joint Investment Stock Co -- was
established over the past month, with the two AVIC firms as major
shareholders along with other leading state-owned firms.
Raising capital. This new company will probably list on the
country's stock markets to raise capital to fund its development
costs. Tapping into financial markets is a new approach for the
once-secretive defence industry, which had until a few years ago
relied almost exclusively on state funding. The central
authorities are now encouraging defence firms engaged in
non-weapons related projects to use the capital markets and even
to seek foreign investment:
-- A senior COSTIND official has forecast that China's defence
industry will raise between 50 and 60 billion renminbi (7.1
and 8.5 billion dollars) from the public listing of defence
enterprises by the end of this decade.
-- By the end of 2007, 62 defence industrial enterprises had
listed on the country's two local stock markets.
The space industry, which is also under defence industry control,
is another strategic sector receiving high priority in state
funding and leadership support:
-- The Shenzhou manned space programme and the Chang'e lunar
exploration project have become important symbols of
national pride.
-- The development of an anti-satellite capability could allow
the People's Liberation Army (PLA) seriously to threaten the
United States (see APDB, February 21, 2007, II.).
-- Domestic demand is soaring for telecommunications,
meteorological and other satellites to sustain China's march
into the information age.
Civil-military integration. The formation of an integrated
civil-military economy, especially focusing on high and
information technologies, is another long-term policy goal, and
the creation of the MII is intended to push this process forward
(see APDB, March 10, 2008, II.). Besides COSTIND, other
government entities that were subsumed into this super-ministry
included the Ministry of Information Industries and the State
Council Informatisation Office.
The central government has been actively encouraging military
firms to leverage the technology, know-how and business practices
of the increasingly more advanced civilian economy ever since it
gave the green light to establish this dual-use civil-military
economic base in 2003. Key initiatives include the opening up of
the defence industry to non-state and even foreign companies to
become subcontractors.
Defence industry turnaround. Access to new sources of capital,
combined with serious cost-cutting measures, debt restructuring
and most importantly a robust increase in weapons orders from the
Chinese military over the past decade, has led to a remarkable
turnaround in the business operations of the country's eleven
designated state-owned defence conglomerates:
-- After suffering huge and consecutive losses throughout the
1990s, the defence industry broke even in 2002.
-- In the past five years it has posted double-digit increases
in revenues and earnings.
-- In 2007, total profits for the defence industry are
estimated to have totaled 43 billion renminbi, the highest
in its history and a 78% jump over the previous year.
New generation weapons. The PLA has been keen to acquire a new
generation of indigenously developed and closely copied foreign
weapons coming from the country's defence factories in the past
few years and representing a major improvement over the current,
outdated arsenal. This includes the fourth generation Chengdu
F-10 multirole combat aircraft, the WS-10 turbo-fan engine, new
Luyang and Luzhou class destroyers and Song-class submarines.
The defence industry has also been furtively engaged in creatively
adapting Russian weapons systems and indigenising them through a
combination of unauthorised reverse engineering and substitution
of Russian components with Chinese parts. The Sukhoi Su-27
fighter and advanced defence electronic systems such as the radar
and data-link systems for the second generation Sovremenny II 956E
destroyer, and the Fregat M2EM 3D and Mineral-ME radar systems
have all been successfully copied by China, much to the
consternation of Russian suppliers.
The Chinese defence industry appears to have made this creative
adaptation strategy a central tenet of its near-term development
approach, and this has caused a major slowdown in Russian arms
sales to China since the middle of this decade. Figures from the
Stockholm International Peace Research Institute today show a 62%
decline last year alone.
Future trends. This renaissance in China's defence industry is
set to continue over the next few years as long as military orders
remain robust and defence conglomerates plough a sizeable portion
of earnings into research and development, which they appear to be
doing. Defence industry policymakers want to catch up with such
countries as France and Russia by the end of the next decade. A
wide gulf in technological levels makes this difficult, but China
is likely significantly to close this gap.
