In response to a requirement in the National Defense Authorization Act for Fiscal Year 2021, the authors examine the strengths and vulnerabilities of China's defense industrial base (DIB) by designing and applying a comparative analytic structure that could be used to assess any country's DIB. They assess six areas: economics; governance and regulations; research, development, and innovation; workforce, labor, and skills; manufacturing; and raw materials.

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Assessing Systemic Strengths and Vulnerabilities of China's Defense Industrial Base

With a Repeatable Methodology for Other Countries

by Cortney Weinbaum, Caolionn O'Connell, Steven W. Popper, M. Scott Bond, Hannah Jane Byrne, Christian Curriden, Gregory Weider Fauerbach, Sale Lilly, Jared Mondschein, Jon Schmid

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Research Questions

  1. What are the strengths and vulnerabilities of China's DIB?
  2. In what ways is China's DIB dependent on the United States and other countries?
  3. How can analysts assess the DIB of any country in a structured, repeatable manner and without a team of regional experts?
  4. What intelligence and other information requirements might help address foreign DIB strengths and weaknesses generally and for China in particular?

In response to a requirement set in the National Defense Authorization Act for Fiscal Year 2021, the authors examine the strengths and vulnerabilities of China's defense industrial base (DIB) by designing and applying a comparative analytic structure that could be used to assess any country's DIB.

This assessment of China's DIB applies the new methodology's focus on six fundamental topics: economics; governance and regulations; research, development, and innovation; workforce, labor, and skills; manufacturing; and raw materials. The methodology was designed as a comparative systems analysis to reveal systemic strengths and vulnerabilities of a country's DIB, and, in doing so for China, the authors have further identified several areas in which China is reliant on the United States and U.S. allies. Coalescing the report's findings into an integrated analysis will provide input to U.S. and other nations' policymakers in an era of renewed strategic competition. The authors also identify information requirements that would improve the assessment of China's and other countries' DIBs in the future.

Key Findings

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

  • Even China's central government lacks transparency into its state-owned enterprises and other DIB suppliers.

China's DIB both benefits and suffers from the effects of single-party dominance of government

  • The centralization of power supports the ability to drive whole-of-government strategies, but the ability of the Chinese government to lead with one voice creates a weakness when the entire DIB pivots toward new priorities to the detriment of others.

China is a global science and technology power, but its defense innovation system has weaknesses

  • China has a quantitative advantage relative to the United States in patented military technology, even after adjusting for quality.
  • China's defense innovation system does not effectively transmit knowledge and information between its constituent components; China remains dependent on foreign countries in many areas, including material imports, technology innovation, and education.

Despite its manufacturing capacity, China has foreign dependences

  • China runs large trade deficits with East Asia and Europe in manufacturing.
  • Integrated circuits are among China's largest manufacturing import categories and a major component of its economic engine.
  • China's DIB remains dependent on Russia, Ukraine, and France for aircraft and naval engines, despite efforts to develop the capability domestically.

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

  • China's labor force will shrink as fertility rates continue to drop.
  • China's DIB might struggle to attract and retain trained talent in the future.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Economics

  • Chapter Three

    Governance and Regulations

  • Chapter Four

    Research, Development, and Innovation

  • Chapter Five

    Workforce, Labor, and Skills

  • Chapter Six

    Manufacturing

  • Chapter Seven

    Raw Materials

  • Chapter Eight

    Conclusions

  • Appendix A

    Fiscal Year 2021 National Defense Authorization Act, Section 1260C

  • Appendix B

    Assessment Methodology for a Foreign DIB

  • Appendix C

    Our Study Approach

Research conducted by

This research was sponsored by Foreign Investment Review, within the Office of Industrial Policy under the Office of the Under Secretary of Defense for Acquisition and Sustainment, and conducted within the Acquisition and Technology Policy Center of the RAND National Security Research Division.

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