China’s defense industry is in trouble

For years, the West has worried about China’s military capabilities.

Tests of high-tech lethal weapons, bombing parades and continued saber-rattling against Taiwan have fueled fears that Xi Jinping’s pursuit of dominance in the South China Sea could lead to all-out war.

The global race for supremacy has prompted rivals Japan and the US to increase their defense spending and boost domestic arms industries to counter the potential threat from Beijing.

But Mr Xi’s arms factories are struggling, and he is the man in charge.

According to a report by the Stockholm International Peace Research Institute (SIPRI), China’s defense industry shrank by 10 percent last year.

Over the past 10 years, dozens of people have been purged as part of the Chinese leader’s far-reaching anti-corruption campaign, including those in his inner circle.

It has affected China’s preparations for an invasion of Taiwan – Mr Xi’s main objective – and could now affect Beijing’s defense industry more broadly.

While China has the world’s largest military, and is increasingly rivaling the US for the title of strongest military, declining defense revenues call into question whether this projection will continue or slow.

Japanese firms topped the chart, recording a huge increase of 40 percent, followed by Germany at 36 percent and South Korea at 31 percent.

In the US and the UK, there was an increase of four and seven percent respectively.

Overall, revenue for the world’s 100 largest arms firms rose by 5.9 per cent to a record $679bn (£513bn), the SIPRI report said.

However, China’s dip was substantial enough for Asia-Oceania, the only region to experience a drop in revenue among top arms firms, and this may be directly linked to Xi’s ongoing anti-corruption purge.

“A host of allegations of corruption in Chinese arms procurement led to the postponement or cancellation of major arms deals in 2024,” said Dr Nan Tian, ​​director of SIPRI’s Military Expenditure and Arms Production Programme.

“This deepens uncertainty about the status of China’s military modernization efforts and when new capabilities will materialize.”

The anti-corruption campaign has dismantled branches of China’s military and political branches.

In 2014 and 2015, two former vice-chairmen of the Central Military Commission, China’s main military body, were removed.

Then, earlier this year, a current vice president of the commission and the second-highest-ranking officer in China’s military were also fired, becoming the most senior officer ever.

Dozens of officers from the navy, land force, rocket force and air force have also been sacked, along with senior figures in the arms industry.

In 2023, the heads of three major defense manufacturers were fired, including Liu Shiquan, chairman of China North Industries Corporation (NORINCO), one of China’s top defense firms.

Norinco recorded a 31 percent drop in revenue in 2024, the biggest drop in revenue of any Chinese firm.

Wu Yansheng, chairman of China Aerospace Science and Technology Corporation (CASC), and Wang Changqing, deputy manager of China Aerospace Science and Industry Corporation, were also removed along with Mr. Liu.

CASC, which is China’s main aerospace and missile maker, also saw a 16 percent drop in revenue, according to the SIPRI report.

The report noted that the decline was “due to the suspension of military satellite and launch vehicle projects” after Mr Wu’s dismissal.

Another major military firm, China Electronics Technology Group Corp. (CETC), experienced a 10 percent decline, while the country’s top arms supplier, Aviation Industry Corporation of China, fell by one percent.

China State Shipbuilding Corporation and Aero Engine Corporation of China were the only two Chinese companies to increase revenue.

These numbers may worry Mr. C.

The Chinese president has made military expansion a key goal as he pushes for greater territorial control in the South China Sea and threatens the forceful “reunification” of Taiwan.

SIPRI researcher Xiao Liang unveiled a timeline of advanced systems for the People’s Liberation Army Rocket Force, which will handle a growing arsenal of ballistic, hypersonic and cruise missiles, along with aerospace and cyber programs.

Beijing now also has to contend with growing militarization in nearby Japan, as tensions between the two countries rose after Prime Minister Sane Takaichi’s comments that a Taiwan emergency could prompt a military response.

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