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:
Economics
Governance and Regulations
Raw Materials
Manufacturing
Workforce, Labor, and Skills
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]
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
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]
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.
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.
[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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Citation
Format:
Weinbaum, Cortney, Caolionn O'Connell, Steven W. Popper, M. Scott Bond, Hannah Jane Byrne, Christian Curriden, Gregory Weider Fauerbach, Sale Lilly, Jared Mondschein, and Jon Schmid, Assessing Systemic Strengths and Vulnerabilities of China's Defense Industrial Base. Santa Monica, CA: RAND Corporation, 2022. https://www.rand.org/pubs/research_briefs/RBA930-1.html.
Weinbaum, Cortney, Caolionn O'Connell, Steven W. Popper, M. Scott Bond, Hannah Jane Byrne, Christian Curriden, Gregory Weider Fauerbach, Sale Lilly, Jared Mondschein, and Jon Schmid, Assessing Systemic Strengths and Vulnerabilities of China's Defense Industrial Base, RAND Corporation, RB-A930-1, 2022. As of May 30, 2023: https://www.rand.org/pubs/research_briefs/RBA930-1.html
