Poet Allan Ginsberg once said that ‘War is a business’, and in 2015, we can say without any shadow of a doubt that business is booming. Although a lull was seen after the end of the Cold War due to western budget cuts (SIPRI, 2015), for the last couple of years we have observed a significant increase in defence spending due to rising global tensions and the Wars on drugs and terror (SIPRI, 2015). For examining the future of the market, this has been driven by a change in regional defence spending- a shift has been observed from the old world powers to emerging regional players such as India and China and, resulting from this, increased tensions and defence spending in regions such as south-east Asia and the Gulf (Shah, 2013), with nations that formerly fought with Kalashnikovs and RPG-3s now looking for 4th generation aircraft and stealth frigates- and, unlike the proxy powers of the Cold War, are becoming increasingly indifferent as to where they source them from, with many looking eastwards to fuel their demand for defence. Can China step into the breach and become the arms baron of the future?
Current trends in the market are showing that the demand for arms is increasing. In 2014, the world spent a total of $1776bn dollars on defence. It comes as no surprise that the United States remains at the top at $610bn, but the meaning stems from the changes in expenditure. The western nations on the graph have all decreased theirs, the US by 0.4% and Italy having lost 27%. Meanwhile, emerging regional powers like Saudi Arabia and China have all increased, with the PRC more than doubling at 167%, pushing them to challenge US dominance. Relevant to exports, this jump is due to the ambitious modernisation that the PLA is undergoing (The Economist, 2010). Thus, although the order is largely maintained, these changes show that the market in 2020 and 2030 is likely to be very different, with an MoD report in Figure 2 expecting China and the US to be at similar expenditure levels by 2045, with India and Russia taking the places of the former world powers on an increasingly chaotic planet (MoD, 2014). In other words, what must be established before the supplier is considered is that not only is demand rising, but there is now an unprecedented variety of buyers.
The presence of China in the world defence market is certainly nothing new, but it would still have seemed remarkable no more than six decades ago. When the PLA was founded as a formal armed force in 1947, it did so at the material behest of the USSR. The Korean War demonstrated that the PLA was incapable of fighting a technologically competent force. (Stokesbury, 2009, p190). During the 50’s and early 60’s, the PLAAF began to use China’s prodigious manufactory capabilities to produce licence-built Soviet aircraft such as the Mig-17 and -19 (Taylor, 1989) in the Shenyang Aviation Factory, demonstrating the ability to manufacture, although not design, advanced aircraft projects. The PLAGF began producing the Type 59 MBT in 1959, a license-built Soviet T-55, although by the mid-60’s they had begun to make their own improvements on the design, something of a spark of innovation (Foss, 2005).
In the 1960’s, the burgeoning Chinese defence industry underwent its first fundamental shift. In 1961, Chinese government denounced the USSR over the dead Stalin’s ideology, starting what is known as the Sino-Soviet shift, where relationships between the two countries rapidly deteriorated to the point of border clashes (Ford, 1962). This meant that China’s sole arms supplier was now its greatest enemy, and they would now have to innovate on their own- and Mao ran into the same problem as Stalin did in the Second World War: a nation of automatons is not in a position to innovate due to the lack of a free market. At that time the PLA, despite having tested an atomic device, still had a primitive army that had just lost its supply of Soviet armour, an air force that now had no way of replacing combat air capability or even parts, and a navy that was practically non-existent. It was this situation that led to the start of Chinese procurement. At the time of the split the PLAAF had been in the process of receiving the design for the Soviet Mig-21, a multirole air superiority fighter that fitted with the ‘people’s fighter’ philosophy. However, in 1960, Mikoyan withdrew advisers and the project was postponed. In 1962, Khrushchev delivered the technology, but SAC found that the documents supplied were sorely lacking in information. Here, the Chinese design bureaus took their first step on the road to independent procurement: they successfully reverse-engineered the design, putting in over 249 components that were missing based on their studies of the airframe (Vasconcelos, 2000). The finished product, J-7, represented a significant achievement for the PLA: they had reverse-engineered a design that they were now able to mass-produce and market, with the purpose-built export ‘F-7’ variants competing with the Mig-21 and being successfully sold to a number of nations from Namibia to Iran to the USA, with a total of 2400 flying today (Airforce Technology, 2015). One particularly telling part of the F-7’s marketing was that Chengdu actually designed it to be fitted with open-market weapons and avionics to sell it to nations that bought from western suppliers, including the F-7III and the F-7M. The J-7 project can be seen as China’s first defence export milestone as it represented a major product on the global market, sold in a variety of variants around the world, displaying an advance in Chinese aerospace innovation, while highlighting future pathways of joint development such as the program implemented with Pakistan with the F-7P from 1990 (Dunnigan, 2013). It was in many ways a sign of things to come.
As China continued to establish its military power, it continued to develop its tools. The motive was clearly present for the Politburo to be able to defend its borders- as relationships with the USSR went from cold to hostile, a land war began to become likely, while the 1962 Sino-Indian war over Nepal demonstrated the need for the PLAGF to be able to manoeuver and fight in a modern battlespace (Tharoor, 2012). In 1964, Premier Zhou Enlai set forward his Four Modernisations. Part of these was the modernisation of the PLA, started in 1978 (Chandra, 1987). This modernisation kickstarted the Chinese defence industry from the 1980’s into producing advanced products, which instead of being Soviet designed were now developed independently in order to compete with western designs, such as the Shenyang J-8, a clear counter to fast movers such as the B-58 and the F-105 (Stewart, 2000), demonstrating how China was maturing as a military-industrial power- although that program was siginficant in being interrupted both by the Cultural Revolution and by inefficiencies in the design committee. Meanwhile, Chinese export development continued apace, and although that was not a priority, indigenous projects started to meet with success, such as the Nanchang Q-5 which was built with export variants and was bought by lower-tier air forces such as Bangladesh and Pakistan. A theme was beginning to develop here that, as Shwarck mentioned in his interview, is significant today: two-tier production. On the ground, meanwhile, the PLA continued to export their armour such as the Type 59, developing off-the-shelf and tailor-made variants and working with Marconi for electronics (Cooke, 2007). The modernisation of the PLA was accelerated by the 1991 Gulf War, showing the balance between numbers and technology had shifted (Moise, 1998). It was this final modernisation program that put the PLA into its current position.
So where does China stand in the market today? In order to answer that question, we must once again recognise the relationship between a nations own power, and its exports- and so we can argue that the modernisation that the PLA was concluding around the turn of the century is still progressing in its export capability. China is now accepted as a top-level player on the international stage in terms of military power, but it has not yet attained that position in terms of military exports. In their interviews, Foss, Taylor and Schwarck (among others contacted) all agreed on the fact that China’s primary market share is in lower-tier production that they have done for decades. However, they disagreed on the degree to which China has been able to step out of that rut and export at top-tier- which, as Schwarck stated, is no easy thing, with nations considering a far wider variety of issues than price or technology which, Taylor argued, is their main barrier.
To understand the good and bad points of the Chinese export outlook, their own particular situation must be considered. China has the advantage of huge production capability, colossal development funding as a result of the PLA’s budget, and a lack of political constraints. Currently, former European exporters are suffering because due to a lack of funding, development is limited. Moreover, the demands that these nations make in terms of specifications limit what can be exported due to cost and sensitivity. Perhaps the reason that the GTK Boxer, the best wheeled APC chassis on the market, has been unable to be exported is due to the fact that it is too advanced for the open market to be willing to pay for it. Similar but far cheaper options like the Chinese Type 90 have been far more popular for the fact that a second- or third-tier military nation will be unwilling to pay for MBT technology in a wheeled APC. Thus, we can safely say that cost is still a major selling point of the Chinese export game.
Moreover, there are also considerations of the type that Foss and others picked up on in their interviews: that of political considerations. The arms trade is unique as it is conducted between nations, meaning that geopolitics will be relevant. A problem that western suppliers are encountering is the fact that they are unable or unwilling to supply to nations due to ethical concerns. As the maps show in Figures 3 and 4, China has in the past and continues to sell to nations with awkward human rights or aggression, such as Iran. Indeed, Iran is becoming a sales contest, with Russia having recently sold S-300 SAMs (France-Presse, 2015) and China offering to include ballistic and cruise missile technology in the Norinco packages that are offered (Mustafa, 2015). Chinese missile technology has entered the area with Iran’s ASMs, a major part of their defence against US Carrier Groups. China, also a nation that prioritises ASM development, has sold Iran the licence to produce missiles such as the Kowasar series which, given the sensitivity regarding the US, no other nation would have sold (Williams, 2015). Like the cost, the sensitivity market is nothing new for China. However, the fact that they are now able to combine it with far better quality technology is not only beneficial for their market share, but will also change the challenges in those areas in years to come.
So where can China go now? They are selling increasingly modern technology across the world, capitalising on their cost thresholds and selling to unpopular nations. Now, as they move onto the top level of development, they are beginning to take on the mantle of such a position- co-operation. The CAC/PAC JF-17 is currently being delivered to the PAF and PLAAF by a consortium between Chengdu and PAC (Military Today, 2015) with the aircraft an advanced 4th Generation multirole fighter that, while it may resemble western designs and has a Russian engine, is still important. What is noteworthy is that the PAF passed over Western offers for Chengdu, demonstrating that this was a political program (Flight, 1995). That this program has been developed for interoperability means that the JF-17 can use US munitions so that the JF-17 will be a competitor with the Eurofighter, Rafale, and JSF- it emerged only a few weeks ago that Sri Lanka has stepped forward (Gady, 2015), and in a region of large-import militaries like the Thai, more will follow. The JF-17 is a milestone of Chinese exports, and proves the sky really is the limit.
In conclusion, the most important point to realise about the world defence stage is that nothing is predictable. The rise of China has demonstrated the fact that they are now true players on the world arms stage, and only the most conservative of analysts would be able to argue otherwise- and they are rapidly having to admit defeat. There is no doubt about the fact that China has been struggling to remove its costume of being a second-rate producer, but remove it they will, and in the meantime, they will continue to benefit from it, but they must continue to innovate– although, as Foss mentioned, something more underhand will never be far away. Now, however, with programs such as the DF-21 coming into the world’s arms fairs, the US is starting to have to rethink its strategy- meaning that China has truly begun to achieve the aim of the arms market: to complement thier own interests. The time has come that servicemen across the world will see the letters Made in China on the side of their tank, frigate or aircraft- and not feel nervous.