Business Monitor International


China Defence & Security Report

Published 25 February 2014

  • 104 pages
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China Defence & Security Report

China's establishment of an Air Defense Identification Zone (ADIZ) in November 2013 (discussed at length separately in this report) has significantly raised geopolitical tensions in the Asia-Pacific region, and risks creating a major backlash against Beijing. Tensions over the disputed Diaoyu/Senkaku Islands with Japan also remain a concern.

China's military modernisation programme is continuing unabated and it is pursuing export orders with countries in and out of NATO, although political pressure can close some avenues for Chinese materiel. For example, in Q214 Turkey was debating about whether to continue with a US$3.44bn contract for the Chinese HQ-9 air-defences ballistics from China Precision Machinery Import-Export Corp, which is on a US sanctions list. The win had signalled that Chinese companies are becoming competitive in the world market for advanced military systems (they have previously only dominated in the low end of the market). However, China's competitiveness is still very much based on being able to provide arms and equipment at lower costs than higher-quality, Western-sourced suppliers.

In addition, there has also been an overall decline in exports from Russia amid long-standing tensions over Chinese replication of Russian arms technology. That the Chinese defence industry is becoming increasingly self-sufficient is evidence of this adaptability and new structural reforms within the aerospace and shipbuilding sectors should drive further improvements.

A territorial dispute with the Philippines continues to simmer. The ITLOS tribunal process could yet prove a major international embarrassment for China, but the hearings now look set to continue well into 2014. This gives China a window of opportunity to improve its image in Southeast Asia ahead of a possibly damaging verdict, especially if it drives meaningful progress towards the establishment of a new Code of Conduct for the South China Sea.

Beijing and Tokyo have continued to trade barbs over...

Table of Contents

BMI Industry View
7
SWOT Analysis
8
China Security SWOT
8
China Defence & Security SWOT
11
Political
14
Economic
15
Business Environment
16
Industry Forecast
17
Defence Budget
17
Table: China's Defence Expenditure, 2011-2018
17
Table: China's Defence Expenditure Scenario - Changing % Of GDP, 2011-2018 (US$mn)
18
Armed Forces
19
Table: China's Armed Forces 2001-2011 ('000 personnel, unless otherwise stated)
20
Table: China's Manpower Available For Military Service, 2010-2017 (aged 16-49, unless otherwise stated)
20
Table: China's Defence Exports, 2011-2018 (US$mn)
21
Table: China's Defence Imports, 2011-2018 (US$mn)
22
Table: China's Defence Trade Balance, 2010-2017 (US$mn)
23
Key Risks To BMI's Forecast Scenario
23
Macroeconomic Forecasts
24
Economic Analysis
24
Table: China - Economic Activity
28
Industry Risk Reward Ratings
29
Asia Security Risk Ratings
29
Table: Asia Pacific Regional Security Ratings
29
Table: Asia Pacific State Vulnerability To Terrorism Index
30
China Security Risk Reward Ratings
30
Market Overview
32
China Defence Market Overview
32
Armed Forces
32
Domestic Industries
33
Procurement
38
Weapons Of Mass Destruction
41
China Security Overview
44
Domestic Threats
45
Regional Threats
49
International Threats
57
Political Risk Analysis
67
Company Profile
71
Chengdu Aircraft Company
71
China Aviation Industry Corporation
72
China National Nuclear Corporation
74
China Shipbuilding Industry Corporation
76
China South Industries Group Corporation (CSG)
78
Regional Overview
79
North East Asia Security Overview
79
Global Industry Overview
90
Global Political Outlook
90
Table: Election Timetable, 2014
95
Methodology
100
Industry Forecast Methodology
100
Sector-Specific Methodology
101
Sources
102
Risk/Reward Rating Methodology
102
Sector-Specific Methodology
102
Table: Security Risk/Reward Ratings Indicators
103
Table: Weighting Of Indicators
104

The China Defence & Security Report features Business Monitor International (BMI)'s independent forecasts for national and international security, the defence industry, military expenditure, employment in arms production, and arms imports and exports, as well as examining industry trends and prospects, national and multinational arms producers and the regulatory environment.

BMI's China Defence & Security Report provides professionals, consultancies, government departments, regulatory bodies and researchers with independent forecasts and regional competitive intelligence on the Chinese defence and security industry.

Key Benefits

  • Benchmark BMI's independent defence and security industry forecasts on China to test other views - a key input for successful budgetary and strategic business planning in the Chinese defence and security market.
  • Target business opportunities and risks in the Chinese defence and security sector through reviews of latest industry trends, regulatory changes and major deals, projects and investments in China.
  • Assess the activities, strategy and market position of your competitors, partners and clients via our Company Profiles (inc. KPIs and latest activity).

Coverage

Global and Regional Political Outlooks

A strategic overview of the world's major political risks, identifying countries facing leadership successions and nations at risk of upheaval, inter-state conflict or separatism and insurgencies, plus a summary of the world's 'wild card' low-probability high-impact risks.

SWOT Analysis

Snapshot evaluation of the major issues affecting the defence and security sectors, economy and politics, with issues subdivided into 'Strengths', 'Weaknesses', 'Opportunities' and 'Threats'.

Political Risk Assessment

Drawing on BMI's heritage of more than 25 years of Country Risk analysis, this comprehensively evaluates the key risks to domestic politics and foreign relations, focusing on issues most likely to affect either domestic security or the defence sector.

Security Risk Analysis

BMI's proprietary Security Risk Ratings provide a reliable - and country comparable - guide to conflict, terrorism and criminal risk, backed up by our analyst's latest assessment of each component. Furthermore, drawing on our country risk expertise, we assess the state's vulnerability to a serious - or prolonged - terrorist campaign.

Armed Forces Spending/Expenditure

The reports contain a detailed breakdown of areas of expenditure by the armed forces, these include spending on international deployments, WMDs and missile defence systems as well as individual breakdowns of the cost-per-soldier.

Domestic Security Overview

The domestic security overview lists the various potential internal security threats facing a country, ranging from internal security issues such as terrorism, cyber terrorism, crime and drugs, to external security issues including general defence procedures and potential threats from specific countries.

BMI Industry Forecast Scenario

Historic data series and forecasts to end-2018 for key industry indicators supported by explicit assumptions, plus analysis of key downside risks to the main forecast.

Budgets & Expenditure: Defence expenditure (local currency and US$bn); defence expenditure (% of total budget); defence expenditure (% of GDP); defence expenditure per capita, US$; defence budget (local currency and US$bn).

Employment: Employment in arms production (`000s); employment in arms production (% of labour force).

Macroeconomic: BMI's forecasts and analysis of all headline macroeconomic indicators, including real GDP growth, inflation, fiscal balance, trade balance, current account and external debt.

Company Profiles

Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI's industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.

Domestic Security Overview

The reports also provide a regional overview which details specific issues and flashpoints affecting , along with potential risks in the coming year.

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Testimonials

'An essential, multi-faceted research tool. BMI’s thorough understanding of the major market players enables an informed – and informative – review of the sector’s actual performance, together with useful insights into current industry issues, which are topped-off with detailed and invaluable forecasts of industry and macroeconomic trends.’

Senior Research Analyst, ABC International Bank plc