China, P. R.

According to the official data published by the National Bureau of Statistics of China, the expenditure of the country on National Defence, has been constantly rising over the period 2005-2015. More specifically, since 2005, when some 37.09 Billions of current US $ were invested in the associated directions, the country’s expenditure has more than tripled, to reach some 124.24 Billions of current US $, in 2014. This trend was further reinforced in 2015, when defence budget reached 136.2 billion of current US $. On the other hand, the percentage (%) of the overall National Expenditure allocated for National Defence purposes, has actually dropped from around the 7% figure on average over the period 2005-2009 to some 5.5%, on average, over the period 2010-2014, to 5.17% in 2015.

China’s defence industry has undergone major transformation since the late 1990s and continues to do so, as its companies and research institutes re-organize in order to improve their performance as far as military systems R&D, as well as related production capabilities. Moreover, the government continues its efforts to improve the business ‘environment’ and to eliminate bureaucracy, while the industry works on reducing development timelines and on enhancing its quality standards.

As of 1998, a comprehensive strategy for improving indigenous industrial capabilities in the defence sector has been in place. This strategy aimed to achieve modernization in key capabilities’ areas, as well as attaining greater civil-military industrial integration, so as to make better use of under development dual-use technologies, as also the acquisition of advanced foreign defence equipment and materiel. The 1998 reforms, also lead to the establishment of the new COSTIND (or SCOSTIND as is referred to by some, so as to distinguish from the previous COSTIND), i.e. the State Commission for Science, Technology and Industry for National Defence. COSTIND was to be responsible for the country’s defence industry, including related policy and objectives formulation, its restructuring, development, disciplinary management, regulations, quality control, international cooperation and R&D. In addition, the State Council, in 1999, implemented a number of structural reforms within defence industries, so as to promote competition and efficiency, and to align the defence industry’s output to the PLA’s operational requirements.

All 5 major state-controlled defence groups of that time, were split into two entities, via which, in parallel, both defence and civilian products would be produced, elevating the level of domestic competition and military production output. COSTIND was to coordinate the activities of the 10 resulting entities, namely consisting in:

  • China National Nuclear Corporation
  • China Nuclear Engineering & Construction Group Corporation
  • China Aerospace Science and Technology Corporation
  • China Aerospace Machinery and Electronics Corporation
  • China Aviation Industry Corporation-I
  • China Aviation Industry Corporation-II
  • China State Shipbuilding Corporation
  • China Shipbuilding Industry Corporation
  • China North Industries Group Corporation
  • China South Industries Group Corporation

Through this ‘radical’ approach, ‘unobstructed’ access to both defence and dual-use technologies was to be made possible, which in turn could be used to boost indigenous military production. In addition, revenues from commercial sales, could serve so as to fund defence-related activities.

In addition, COSTIND was tasked with the administration of a number of institutes of higher education, with ties to the local Aerospace and Defence industry’s activities, including:

  • The Beijing University of Aeronautics and Astronautics
  • The Beijing University of Science and Technology
  • The Nanjing University of Aeronautics and Astronautics
  • The Northwestern Polytechnical University
  • The Nanjing University of Science and Technology
  • The Harbin Institute of Technology
  • The Harbin Engineering University

In 2008, a new ‘super’ ministry, was established by the government, namely the Ministry of Industry and Information Technology (MIIT). MIIT was tasked with empowering greater civil-military integration and overseeing the development of advanced technologies. COSTIND that was integrated under the MIIT, was renamed and restructured at that time, into the State Administration for Science, Technology and Industry for National Defence (SASTIND), with much the same responsibilities as the former COSTIND.

The continued pursuit of integration between the defence and civilian sectors’ activities, was aimed at leveraging the results of the expanding science and technology base of the country, for the benefit of local defence production. To this end, a number of local defence entities, have since established research institutes with academic departments, a few of which are able to issue advanced degrees for their students. In this fashion, related scientific research can be targeted at innovative military technologies and deliver scientists and engineers who will further support and ‘fuel’ future defence-oriented R&D and production programs.

Nowadays (2016), the Chinese aerospace & defence industry comprises of a highly complex ‘network’ of closely interconnected companies, which is spearheaded by the following prominent entities:


Key Facts

Main Aerospace & Defence Products and Services

China Aerospace Science and Technology Corporation (CASC)

  • State-owned
  • Formally founded in 1999
  • 8 large R&D and production complexes
  • 11 specialised subsidiary companies
  • 8 directly subordinated units
  • More than 170,000 employees
  • About 44 Billion USD in assets (2013)
  • Owns famous brands such as Shenzhou (spacecraft) and Long March (rockets family)
  • 344th place in the Fortune Top 500 list (2016)
  • Space Systems (Launch Vehicles, Satellites, Manned Spaceflight and Deep Space Exploration programmes)
  • Defence Systems (Strategic and Tactical missiles, Vehicle Air Defence Weapon Systems, Ship-to-Air and Surface-to-Air Missile Weapon Systems, Portable Missile Weapon Systems, Precision Guided Bombs, Guided and other Multiple-Launch Rocket Systems)
  • Aerospace Technology Applications (astronauts’ dietary/supplement products, Mine Explosion-proof vehicles, Special Vehicles, Carbon/Glass Fibre and related products, Industrial Control Computers, Satellite Communication Uplink Stations, Integrated Satellite Ground Stations)
  • Aerospace Services (Satellite Navigation and Remote Sensing, Launch Services, Satellite Communications, Life Cycle Management Software, Safety Database Management System Services, Space Breeding)
  • Satellites Export (of complete satellites or components thereof, including design and set-up of ground station installations)

China Aerospace Science and Industry Corporation (CASIC)

  • State-owned
  • Formally founded in 1999
  • 7 academies
  • 2 scientific research and development institutes
  • 6 public listed companies
  • Over 620 other companies and institutes (nationwide and overseas)
  • More than 120,000 employees
  • Footprint in 20 countries in Europe, America, Asia, Middle East and Africa
  • 381st place in the Fortune Top 500 list (2016)
  • Aerospace/Defence (complete missiles for defence purposes, solid rocket motors, satellite payloads and components)
  • Security Technology (Large-scale Events Security Systems, Urban Security Systems, Border Monitoring/Surveillance Systems, Emergency and Anti-terrorism Field Information Equipment System)
  • Information Technology Related Systems (Radar Equipment, Mini Satellite Ground Receiving Systems, Integrated satellite communication system, UAVs, unmanned ships and near space aircraft)
  • International Projects (Airport Design)


Aviation Industry Corporation of China (AVIC)

  • State-owned
  • Founded in 2008 through the merging of AVIC I and AVIC II
  • Over 100 subsidiaries  (including the Chengdu and Shenyang Aircraft Corporations, CATIC) and joint ventures (e.g. COMAC)
  • 27 public listed companies
  • 143th place in the Fortune Top 500 list (2016)
  • Military Aviation and Defence (fighter, trainer and transport aircraft, UAVs, avionics systems, aircraft simulators)
  • Civil Aviation (Commercial and General Aviation aircraft, helicopters, avionics systems, aviation electromechanical systems, basic and applied research, aviation flight testing and services, modifications and maintenance of aircraft, pilot training, subcontracted production)
  • Transportation (ship design, building and trading, complete special land vehicles and buses and components thereof, automotive industry testing equipment, smart transportation systems)
  • Power & Energy (gas turbine generators, batteries and super capacitors, electrical generators)
  • Electronics (electrical connectors and sensors)
  • General and Special Equipment (measurement and instrumentation equipment, machine accessories, specialised equipment)
  • Materials (special glass, composite materials, metallic materials)
  • Logistics Support Products and Services (e.g. for aircraft parts and components)
  • Capital (Aviation Investment)

China North Industries Group Corporation (NORINCO)

  • State-owned
  • Founded in 1980
  • China's largest defence equipment producer
  • At least 46 member units, with numerous subordinate units, and operations in over 100 countries worldwide
  • More than 275,000 employees
  • 134th place in the Fortune Top 500 list (2016)
  • Defence Products (Tanks and Armoured Vehicles, Artillery Weapons, Guided Weapons, Ammunition, Air-Launched Weapons, Naval Weapons, Air Defence Systems, Coast Defence & Homeland Security weapons and surveillance systems, UAVs, Radar and Electro-Optic Equipment, Infantry weapons, Riot Control Equipment, Special Military Engineering Vehicles (mine laying, mobile bridge, etc), Military Defence Projects)
  • Heavy-duty equipment (trucks, special vehicles, etc)
  • Special Chemicals (industrial explosives and chemicals, detonating cords, electric and other detonators)
  • Opto-electronic/Information Technology (binoculars, spotters, etc)

China South Industries Group Corporation (CSGC)

  • State-owned
  • Founded in 1999
  • Owns more than 50 enterprises and R&D organizations
  • Has some 30 production bases and marketing networks around the world
  • Strategic cooperation with multinational companies like Ford, Suzuki, Mazda, Yamaha and Fuji
  • About 30 Billion USD in annual revenues
  • More than 238,000 employees
  • 102nd place in the Fortune Top 500 list (2016)
  • 6x6 Armoured Vehicles
  • Special Vehicles
  • Motorcycles and Cars (related civil products are the main source of revenue)
  • Large Industrial Transformers
  • Special materials (tempered, infrared filter and other glass, electrically insulating cloths, rubber products, special drill collars)


China State Shipbuilding Corporation (CSSC)

  • State-owned
  • Founded in 1999
  • Owns some 60 subsidiaries, R&D and design institutions
  • Has exported to more than 50 countries
  • Aimed to be the No.1 shipbuilder worldwide by 2015
  • Planed to increase output capacity to 14 (from 4) million DWT (Dead Weight Tonnage), by 2015, with the introduction of 2 new shipyards
  • More than 95,000 employees
  • 349th place in the Fortune Top 500 list (2016)
  • Warships (missile destroyers, missile frigates), submarines and auxiliary vessels
  • Naval vessels’ repairs and overhaul, large conversion/retrofit projects, repair and maintenance of on-board equipment
  • Naval ships and marine-related equipment and systems (large marine diesel engines, anchor and anchor chains, valves, deck machinery, lifeboats, centrifugal separators, diesel generators)
  • Large steel structures fabrication
  • Containers

China Shipbuilding Industry Corporation (CSIC)

  • State-owned
  • Founded in 1999
  • Owns 7 shipyards with an annual output capacity of 15 million DWT
  • Owns 6 R&D centres, 9 national laboratories and 12 technological research centres, as well as 150 large-scale laboratories
  • China's largest manufacturer of naval products
  • Has exported to more than 60 countries
  • More than 150,000 employees
  • About 63 Billion USD in assets (2013)
  • 281st place in the Fortune Top 500 list (2016)
  • Nuclear Submarines
  • Missile destroyers
  • Fleet replenishment vessels
  • Underwater weapons/torpedoes
  • Ribbon Bridges
  • Marine diesel engines
  • Auxiliary engines
  • Electronic instruments and
  • Military weapons

China National Nuclear Corporation (CNNC)

  • State-owned
  • Founded in 1955
  • Owns 23 nuclear technology research institutes
  • Owns over 100 subordinate entities
  • Owns 6 supporting institutions (including a Nuclear Industry University)
  • Has exported power units and reactors to 7 countries and is in talks with more than 40
  • More than 100,000 employees
  • Nuclear weapons
  • Nuclear power plants
  • Radioactivity detection solutions
  • Nuclear power research
  • Nuclear fuels

China Nuclear Engineering Corporation (CNEC)

  • State-owned
  • Founded in 1999
  • Export sales to Pakistan of nuclear reactors
  • 5 wholly-owned subsidiaries
  • 6 Billion USD in revenues (2015)
  • More than 33,000 employees
  • Nuclear power plants
  • Various types of nuclear reactors
  • R&D in relation to nuclear energy applications/projects
  • Specialised software solutions
  • Military construction works

China Electronics Technology Group Corporation (CETC)

  • State-owned
  • Founded in 2002
  • Controls 58 subordinate units and 8 listed companies
  • Owns 15 defence laboratories, 6 defence application centres, 7 research centres, and 27 postdoctoral research stations
  • More than 140,000 employees
  • 408th place in the Fortune Top 500 list (2016)
  • C4ISR systems (Army, Navy, Air Force, Joint Command)
  • Various types of radars (Land-based Air, Battlefield/Ground Surveillance, Weapon location/Missile Control, Airborne Warning/Fire Control, Coastal Defence/Surveillance, Ship-borne Searching and Tracking, IFF and Air Traffic Control, Weather Radar, Radar Upgradation)
  • Electronic Warfare solutions (Radar Electronic Warfare System, Communications Electronic Warfare System, E-O Electronic Warfare System, Network Warfare System, Protection Solutions, Integrated Electronic Warfare System Solutions)
  • Communication Systems (Data Links, HF/VHF/UHF/VLF Tactical Communication Equipment, Microwave Communication Systems,  Troposphere Scatter Communication Systems, Fibre Optic Communication Systems, Integrated Communication Networks, Regional Communication Networks, Satellite Communication Systems, Broadcast and Television Systems, City Emergency Response Communication Systems, Transmission and Switching Equipment, Programmable Automatic Branch Exchange (PABX), Communication Security and Encryption Systems, All Types of Communication Terminals)
  • Military acoustic equipment (Artillery Acoustic Detection Systems, Low Altitude Target Positioning Systems, Multi-sensor Early Warning Detection Systems, Sniper Acoustic Detection Systems, Acoustic Weapons, Special Language Communications, Underwater Communication and Navigation Positioning Devices)
  • Security & Secrecy solutions (Radio Spectrum Surveillance Systems, Network Surveillance and Control Systems, Network Protection Systems,  National and/or Regional Intelligence System Solutions)
  • Software (Operating SystemsDatabasesOffice SoftwareGeographical Information Systems, MiddlewareCompilers)
  • Hardware (Network EquipmentComputersServers, Storage Devices,)
  • IT Components (Microwave Power Devices, MEMS Devices, Photo-Electronic DevicesLarge-scale Integrated Circuits, System-on-a-Chip (SoC), Storage devices, Processors)
  • Air traffic control automation systems
  • Satellite communication antennas and earth stations, Ku band FDMA/MCPC portable stations
  • Vehicle electronics
  • Highway law and order information systems
  • Smart transportation products
  • Lighting products, LED chips and packages, photovoltaic cells, electronic devices comprising LED drive power, high power pulse elements, switching power supply products

It is further understood that major Chinese information technology companies, operating in the civil sector, such as Huawei Technologies Co., Datang Telecom Technology & Industry Group and ZTE (Zhong Xing Telecommunication Equipment) Co., maintain close ties with the PLA and collaborate with its various branches, on associated R&D programmes.

Another organisation that plays a ‘pivotal’ role in the development of innovative technologies for use by the domestic defence industry, is China’s Academy of Sciences (CAS). More specifically, the CAS’s Institute of Mechanics, established with the aim to pursue innovation and advanced-technologies’ integration in the aerospace, oceanic, environmental, and energy domains, focusses amongst other items, on nano/micro-scale mechanics, microsystems, high temperature gas dynamics and supersonic flight technologies, as well as advanced manufacturing. The institute further operates as of March 2014, the reportedly largest worldwide hypersonic wind tunnel (the JF-12). This wind tunnel allows the simulation of flying conditions at speeds from Mach 5, up to Mach 9.

Another similar entity, is the Chinese Academy of Engineering (CAE). This organisation is tasked with conducting strategic studies, providing consultancy services to support governmental decision-making with respect to ‘key’ matters in the engineering and technological sciences fields, as well as to promote the development and take-up of associated research results.

With China projected to become the largest civil aviation market in the coming decades, the major aircraft manufacturers are all heavily investing in the country, with the aim to grab a ‘bigger slice of the pie’.
Airbus has established an A320 Family Final Assembly Line in Tianjin, since 2008, as part of a joint venture with the Tianjin Free Trade Zone (TJFTZ) and the Chinese Aviation Industry Corporation (AVIC). In 2016, the set-up of a further A330 Family Final Assembly Line, on the same site, was underway. In terms of helicopter production, likewise, Airbus Helicopters (and its predecessors) had/have established several cooperation agreements for the licensed production in China of the AS365 Dauphin/Z-9, the EC120/HC120 Colibri, the H175/AC352, and most recently, the H135 helicopters. In June 2016, a Chinese consortium ordered 100 H135 helicopters, becoming the first customer from China for the helicopter, resulting in the formation of an industrial partnership for the launch of an H135 Final Assembly Line, in Qingdao. This historic agreement followed the production contract for the development of the H175 signed in 2014, covering more than 1,000 units over 20 years. The H175 (known as the AC352 in China), is being developed as part of a cooperation between Airbus Helicopters and Chinese manufacturer Avicopter.

In addition, Airbus has established within the country, in cooperation with local partners, the following facilities:

  • A Customer Support Centre in Beijing, which can dispatch any of some 25,000 spare parts, to airlines in the Asia-Pacific region.
  • A Logistics Centre in Tianjin, so as to improve related supply chain management.
  • A Training Centre in Beijing, which operates 5 Full Flight Simulators (FFS), 3 for the A320 Family, 1 for the A330/A340 Family and 1 for H225 helicopters.
  • An Engineering Centre in Beijing and a Composite Manufacturing Centre in Harbin.

On the other hand, Boeing is to follow in the steps of Airbus, as was agreed in September of 2015, with the set-up of a plant in China (location to be determined), to be responsible for the completion (install interiors and paint exteriors) of the B737 aircraft destined for the Chinese market, in compensation for a major deal signed with 3 Chinese entities, to procure some 300 B737 aircraft. In addition, prior to this agreement, Boeing activities in China, contributed some 800 million to 1 billion USD on an annual basis to the nation’s economy, through the sourcing of parts, components and assemblies for its various aircraft models, through joint venture revenues, related operations, training and R&D investment. Specifically, Chinese companies build horizontal stabilizers, vertical fins, aft tail sections, doors, wing panels, wire harnesses and other parts for the Next-Generation 737 aircraft, the rudder for the 737 MAX, trailing edge wing ribs, horizontal stabilizers, vertical fins, ailerons, spoilers and inboard flaps for the 747-8, the rudder, wing-to-body fairing panels, leading edge and panels for the vertical fin, as well as other composite parts for the Boeing 787 aircraft.

Furthermore, the US light aircraft manufacturer Cessna and the Brazilian regional and business jet manufacturer Embraer, have both enjoyed leading positions in China in their respective market segments, after launching associated manufacturing activities in China (for the Cessna 162 and 208, and the ERJ 145 and the Legacy 650, respectively), in collaboration with AVIC subsidiaries.

In addition to this very auspicious business ‘environment’ created through major foreign investments in the local economy, as well as the rapid indigenous capabilities’ development, the local government continues its efforts to remove related political and bureaucratic obstacles, for example by opening up bidding for state-funded military R&D work, for private domestic firms also, since August of 2016. All the above are expected to further boost the growth of the Aerospace & Defence market in China, as well as the level and the extent of the corresponding domestic manufacturing capabilities, over a horizon of at least the next couple of decades (i.e. up to 2040).