Research Brief
Chinese technicians monitor the precision, robotic welding of aviation and industrial materials at the Atlantic Welding Industry Park in Zigong, Sichuan Province, China on November 20, 2017.

Photo by Stephen Shaver/UPI/Alamy Stock Photo

Researchers at the RAND Corporation created a repeatable methodology for assessing the strengths and weaknesses of any country's defense industrial base (DIB) across six topics:

  1. Economics
  2. Governance and Regulations
  3. Raw Materials
  4. Manufacturing
  5. Workforce, Labor, and Skills
  6. Research, Development, and Innovation

They then applied this methodology to assess the DIB of the People's Republic of China (PRC). The study was required by Section 1260C of the Fiscal Year 2021 National Defense Authorization Act. (The methodology and more detailed findings are available in the full report at www.rand.org/t/RRA930-1.)

The sheer size of China's DIB makes it opaque to outsiders and unwieldy for the Chinese government

China
$16.9 trillion
United States
$22.9 trillion

In 2021, China's gross domestic product (GDP) was $16.9 trillion, second only to that of the United States, at $22.9 trillion. China's overall economic size is a strength for supporting its DIB.[1]

Seven of the 15 Largest Defense-Related Firms in the World Are Chinese State-Owned Enterprises (SOEs).[2]

Company Country 2020 Defense Revenue (in millions) 2020 Nondefense revenue (in millions) 2020 Total Revenue (in millions)
GE U.S. $4,386.00 $75,233.00 $79,619.00
NORINCO China $15,249.27 $55,053.91 $70,303.18
AVIC China $25,468.59 $42,442.83 $67,911.42
CSSC China $13,379.35 $53,531.88 $66,911.23
Lockheed Martin U.S. $62,562.00 $2,836.00 $65,398.00
Raytheon U.S. $42,000.00 $23,000.00 $65,000.00
Boeing U.S. $32,400.00 $25,758.00 $58,158.00
Airbus Netherlands/France $12,004.28 $44,966.13 $56,970.41
CASC China $8,305.92 $30,498.53 $38,804.45
GD U.S. $29,800.00 $8,100.00 $37,900.00
CASIC China $12,060.26 $25,642.54 $37,702.80
Northrop Grumman U.S. $31,400.00 $5,399.00 $36,799.00
CSGC China $10,697.68 $23,801.61 $34,499.29
CETC China $10,465.75 $23,511.70 $33,977.45
Honeywell U.S. $5,826.00 $26,811.00 $32,637.00

In 2017, the last year for which official data are available, China reported that it exported $4 billion in arms goods and services, compared with $8.8 billion for Russia and $153.3 billion for the United States.[3]

United States
$153.3 billion
Russia
$8.8 billion
China
$4 billion

Top Chinese Military Exports in 2019[4]

Ships
622
Aircraft
359
Armored vehicles
271
Missiles
159
Sensors
42
Artillery
19

Chart shows the trend-indicator value (TIV) for each country, which is a measure used to compare weapon sales that accounts for different currencies and for discounted costs of refurbished used weapons, legacy weapons, and newer, more advanced weapons.

Tension between desire for entrepreneurial innovation while securing Party control yields uncertainty and inefficiencies

Advantages

  • The Chinese government's centralized power and decisionmaking help drive whole-of-government strategies.
  • President Xi Jinping and the Chinese Communist Party (CCP) have been working to increase their influence and even direct decisionmaking within defense firms.
  • By linking defense budget to GDP, China can reliably forecast and plan future defense spending.
  • China's military-civil fusion (MCF) allows the state to direct university-based research to prioritized science and technology areas.

Disadvantages

  • Topics not prioritized may falter without leadership's spotlight—a risk if the government bets on the wrong technology or businesses are afraid to innovate.
  • Confidence in intellectual property (IP) protections is low—China has been ranked 49th out of 129 in the world in IP protections.[5]
  • Lack of independent judicial, legislative, and media oversight requires the CCP to directly monitor, regulate, and control DIB cost or time overruns and quality deficiencies.
  • There is a lack of transparency about the true objectives in anti-corruption efforts.

Tremendous capacity for manufacturing and deliberate efforts to secure supply chain inputs necessary to manufacture military capabilities

18 of 37 Minerals Relevant to Defense Applications Are Concentrated in China

  • Only 5 defense-related minerals are concentrated in the United States, Australia, and Canada.
  • 14 more are concentrated in countries with strong diplomatic and economic relationships to China, including Russia, Brazil, and Belt and Road Initiative (BRI) countries.
  • 18 defense-related minerals are concentrated in China.

China's Manufacturing Accounts for ~25% of the World's Manufacturing Output; ~50% of That Can Be Considered Dual Use

Dual-use: 49%

Office machinery; communication equipment; medical instruments
13%
Chemical products
11%
Motor vehicles, trailers and semi-trailers
9%
Machinery and equipment
7%
Electrical equipment
7%
Other transport equipment
1%

Not defense: 51%

Basic metals
13%
Food, beverages, tobacco
10%
Textiles, wearing apparel, leather
6%
Other non-metallic mineral products, glass ceramics, stone
5%
Manufacturers of coke, refined petroleum products
5%
Fabricated metal products (not machines)
4%
Rubber and plastics products
3%
Wood products, paper products
3%
Furniture
2%
Printing, recorded media
1%

Note: numbers may not add up to 100 due to rounding

Defense-Related Minerals Concentrated Outside China[6]

Herfindahl-Hirschman Index score (higher numbers = more concentrated)

Iron and Ferro-Alloy Metals

  • Niobium
    • Brazil: 0.805
    • All other countries: 0.007
  • Cobalt
    • Congoa: 0.510
    • All other countries: 0.007
  • Chromium
    • South Africaa: 0.242
    • All other countries: 0.047
  • Tantalum
    • Congoa: 0.128
    • All other countries: 0.095

Non-Ferrous Metals

  • Beryllium
    • United States: 0.465
    • All other countries: 0.047
  • Lithium
    • Australiab: 0.367
    • All other countries: 0.051
  • Rhenium
    • South Africaa: 0.313
    • All other countries: 0.054

Precious Metals

  • Rhodium
    • South Africaa: 0.658
    • All other countries: 0.013
  • Platinum
    • South Africaa: 0.525
    • All other countries: 0.021
  • Palladium
    • Russia: 0.172
    • South Africaa: 0.130
    • All other countries: 0.187

Industrial Materials

  • Asbestos
    • Russia: 0.376
    • All other countries: 0.053
  • Boron
    • Turkeya: 0.293
    • United States: 0.057
    • All other countries: 0.012
  • Perlite
    • Turkeya: 0.160
    • All other countries: 0.121
  • Diatomite
    • United States: 0.188
    • All other countries: 0.041
  • Zircon
    • Australiab: 0.160
    • All other countries: 0.060
  • Industrial diamonds
    • Russia: 0.095
    • Australiab: 0.044
    • All other countries: 0.064

Mineral Fuels

  • Oil shales
    • Estoniaa: 0.922
    • All other countries: 0.001
  • Oil sands (part of petroleum)
    • Canadab: 0.772
    • All other countries: 0.015
  • Uranium
    • Kazakhstana: 0.154
    • All other countries: 0.053

a = Other BRI countries

b = Five Eye country

China's DIB relies on U.S. allies and partners for critical military technology inputs

China relies on imports for weapon systems, particularly for aircraft and naval engines, despite efforts to develop them domestically.

Top Weapon System Imports to China, by Country, in 2020[7]

Global weapon sales decreased during the pandemic. It would be premature to consider this decrease as a trend.

Year Russia France Ukraine UK
2020 600 98 78 20
2019 1,108 126 78 20
2018 1,696 121 78 20

Unit of measurement is TIV.

In 2019, researchers at the Center for Advanced Defense Studies (C4ADS) found that the United States—not Russia—was the largest supplier to China's DIB, at almost 20 percent of all of China's DIB imports. C4ADS also found that: [8]

  • Eight of the top ten countries supplying China's DIB were U.S. allies.
  • Some products being imported were listed on the European Union's list of export-controlled goods.
  • Many imported goods—including U.S. goods—were not export-controlled but have potential dual-use applications, including aerospace and nuclear applications.

Top Five Areas of PRC Manufacturing Import Reliance in 2019[9]

Key Suppliers
1. Electrical machinery and equipment $497 billion
  • Integrated circuits
  • Cellular and wireless network equipment
  • Diodes, transistors, semiconductor parts
Taiwan, South Korea, Vietnam
2. Machinery, mechanical appliances, nuclear reactors, boilers $190 billion
  • Computers, data processors, optical mechanical readers
  • Semiconductor fabrication tools and equipment
  • Motherboards, microprocessors
Japan, Germany, South Korea
3. Optical, photographic, cinematographic, measuring $99 billion
  • Liquid crystal displays
  • Measurement and calibration instruments
  • Chemical analysis tools: polarimeters, refractometers
Japan, Taiwan, USA
4. Vehicles other than railway $75 billion
  • Personal vehicles
  • Tractors, mass transportation vehicles
  • Chassis, engine cabs
Germany, Japan, USA
5. Pharmaceuticals $33 billion
  • Medicine, therapeutic or prophylactic
  • Blood products
  • Sterile surgical materials: sutures, adhesives
Germany, USA, Ireland

China is a global S&T power and is capable of world-leading military technology innovation, but inter-relationships within China's innovation system are inefficient

China's quality-adjusted military patent output grew at an average annual rate of 16 percent between 2015 and 2019. In contrast, the United States' average annual growth decreased by roughly 6 percent per year over the same period.[10]

2015 2016 2017 2018 2019
China, military tech patents 474 563 574 621 675
China, military tech patents (adjusted) 306 385 410 481 544
United States, military tech patents 346 408 347 302 220
United States, military tech patents (adjusted) 480 549 483 463 369

Linkages among research institutions in China are weak

In 2020, China had only 1,946 university-firm co-authorships between firms and universities on scientific publications; the United States had 8,162.

Linkages between the government and research institutions are weak

China had one government agency linked to 70 percent of government-funded scientific publications, whereas the United States' largest government agency was responsible for funding only 25 percent of scientific publications.

China will be vulnerable to significant workforce upheaval over the next ten years

The DIB and other sectors will face labor shortages and lower profits because of wage hikes and other trends, including

  • China faces a low fertility rate and an aging workforce.
  • Chinese university classes generally lack academic rigor;[11] the system incentivizes professors to publish while slighting education outcomes.
  • China's STEM workforce is insufficient in both quantity and quality to meet demand.
  • Pervasive gender inequality might exacerbate potential labor shortages.
Factory workers in China producing LED technology

Photo by Artwell/Adobe Stock

China relies on U.S. and its allies and partners for training, But China is investing in "talent programs" to improve quality and quantity of the S&T workforce

In 2019, 1 million Chinese students were studying abroad, including more than 300,000 in the United States. Many will not return to China.[12]

United States
333,935
Australia
143,323
UK
107,813
Japan
84,101
Canada
70,877
  • 33% quit their first job within 6 months of graduation because of unmet career expectations.[13]
  • But more educated workers means higher workplace and income expectations and a smaller pool of manufacturing labor.

Additional intelligence can improve future analyses

Raw materials

The RAND team was unable to assess the size of China's stockpiles and the rate at which China uses a material, preventing an assessment of how lack of access would affect the PRC.

Services

There is a lack of information on companies that provide services to the People's Liberation Army, including ongoing support of major military systems, information systems, cyber services, and others.

Software

The RAND team was unable to find data or analyses on the size and quality of the DIB software industry. A notable gap is an understanding of firms that provide software for command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) systems.

Talent

The RAND team found no systematic analysis of the flow of Chinese students and researchers back to China from foreign universities.

Notes

  • [1] International Institute for Strategic Studies, Military Balance+ (online database), 2021, "China (PRC) and United States Defence Economics." Amounts are reported in current-year dollars using market exchange rates.
  • [2] Defense News, "Top 100 for 2021," 2021.
  • [3] U.S. Department of State, World Military Expenditures and Arms Transfers 2019, 2019, Table IIe.
  • [4] Stockholm International Peace Research Institute (SIPRI), SIPRI Arms Transfers Database, 2020.
  • [5] Property Rights Alliance, International Property Rights Index 2020, 2020.
  • [6] RAND analysis of World Mining Data 2020 (Christian Reichl and M. Schatz, World Mining Data 2020, Republic of Australia Federal Ministry of Agriculture, Regions and Tourism, 2020).
  • [7] Stockholm International Peace Research Institute (SIPRI), SIPRI Arms Transfers Database, 2020.
  • [8] Center for Advanced Defense Studies, Open Arms: Evaluating Global Exposure to China's Defense-Industrial Base, 2019.
  • [9] International Trade Center, website, undated; United Nations, UN Comtrade Database, undated.
  • [10] RAND analysis of Web of Science: Derwent Innovation Index data (Clarivate, 2020).
  • [11] Javier C. Hernandez, "Study Finds Chinese Students Excel in Critical Thinking. Until College," New York Times, July 31, 2016a.
  • [12] United Nations Educational, Scientific and Cultural Organization (UNESCO), Institute for Statistics database, undated.
  • [13] Fudan University, Tsinghua University, and J.P. Morgan, Skills Shortages in the Chinese Labor Market: Executive Summary, October 2016.

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