Chinese Arms Industry Ranks Second Behind U.S., Report Says

(WSJ) China has boasted the world’s second-largest arms-manufacturing industry for the past five years, ranking behind the U.S. in sales but outstripping Russia and the top European nations, according to a report released Sunday by a Swedish think tank.

In its annual study of arms sales, the Stockholm International Peace Research Institute (SIPRI) for the first time released figures for individual Chinese defense firms.

The study found that sales of arms and military services by the global sector’s 25 largest companies for which data are available totaled $361 billion last year, an 8.5% increase over 2018. SIPRI is an independent arms-trade analyst.

Among those companies, four are Chinese and 12 are American. Those Chinese companies had combined sales of $56.7 billion in 2019, compared with $221.2 billion from the U.S. companies. Two of the top 25 firms are Russian, with combined sales of $13.9 billion.

SIPRI figures showed that revenues for Chinese defense manufacturers have failed to keep pace with the global growth, with the top four Chinese firms growing by 4.8% last year. However, SIPRI’s data on Chinese firms excludes inaccessible sales figures from major companies in missile manufacturing and shipbuilding.

“Those with access to additional data likely see even greater [People’s Republic of China] arms-sales activity,” said Andrew Erickson, a professor at the China Maritime Studies Institute at the U.S. Naval War College. “After all, China already enjoys the world’s second-largest defense spending by any measure and is pursuing rapid military development and expansion of influence.”

The China Electronics Technology Group Corp., which has been caught in China’s trade war with the U.S., saw its sales increase 11% last year, attributable to Beijing’s effort to limit its dependence on foreign suppliers of electronics, said Lucie Béraud-Sudreau, the study’s lead researcher.

Sales for China’s top-ranked defense manufacturer for the last four years, aerospace firm Aviation Industry Corp. of China, increased by 0.8% in 2019, while China North Industries Group Corp., China’s largest producer of tanks and armored vehicles, had a 0.3% decrease.

“This is in line with the Chinese government’s military priorities,” Ms. Béraud-Sudreau said. “They are developing their aerospace and maritime programs, and tanks and military vehicles are less of a priority.”

While the Chinese state is the top client of the Chinese defense industry, Chinese defense exports rose 38% between 2008 and 2017, second only to Israel, according to an earlier SIPRI report, despite its inability to offer a Western standard of sophistication and aftermarket servicing, Mr. Erickson said.

Internationally, China tends to compete on price, while taking advantage of market irregularities—providing aerial drones, for example, to countries to which Western countries have agreed not to sell, said Mr. Erickson.

Vasily Kashin, a military expert at the Higher School of Economics, in Moscow, noted that the study appeared to exclude major Russian defense corporations such as Roscosmos, a space-related firm that also manufactures ballistic missiles. Nevertheless, Mr. Kashin said the figures that the study includes for Russian companies are “reflective of major industry trends.”

The revenues of the two largest Russian defense firms on the SIPRI rankings, Almaz-Antey and United Shipbuilding, decreased by a combined total of $634 million. Sales for the Russian company United Aircraft decreased by $1.3 billion, dropping the firm from SIPRI’s top 25.

“What they show can be extrapolated in line with the general state of the Russian defense industry now,” Mr. Kashin said. “They are experiencing a certain decline of domestic sales, with their external sales more or less stable.”

The Russian Defense Ministry’s spike in procurement during the initial years of the war in Ukraine leveled off in 2017, with state expenditures pegged to between 2.5% and 2.8% of gross domestic product, Mr. Kashin said.

“There is a rebalancing in Russian defense procurement, but not a dramatic one,” Mr. Kashin said. “There is a shift of more resources to ground forces from other areas. The procurement of aircraft is gradually decreasing.”

The SIPRI study showed that in 2019, the top five overall arms companies by sales— Lockheed Martin Corp. , Boeing Co. , Northrop Grumman Corp. , Raytheon Technologies Corp. and General Dynamics Corp. —were based in the U.S. and accounted for $166 billion in sales. A dozen U.S. defense firms ranked among the top 21 companies and represented 61% of the combined arms sales of the top 25.

Lockheed Martin registered the largest one-year increase in sales, 12.6%, to $53.2 billion from $47.3 billion in 2018.

EDGE Group, a United Arab Emirates company formed last year in a merger of more than 25 smaller companies, became the first Middle Eastern firm to make the list, entering at number 22.

“We are gradually moving into a new arms-race period,” Mr. Kashin said. “The sector is growing. Defense budgets are also growing. We are living in an increasingly militarized environment. It’s a very long-term trend already.”

Source: Wall Street Journal by Brett Forrest

Chinese Arms Industry Ranks Second Behind U.S., Report Says Chinese Arms Industry Ranks Second Behind U.S., Report Says Reviewed by TechCO on 12/08/2020 Rating: 5

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