China’s Defense Innovation

For the first time in its history, the People’s Liberation Army can boast a homegrown arsenal of sophisticated, modern weaponry. The military-industrial complex of the People’s Republic of China has two fifth generation fighters in development, has demonstrated the capacity to build some of the most sophisticated ballistic missiles in the world, and has among the world’s healthiest military shipbuilding sector.

Yet for all of this success, serious questions persist. China remains dependent on access to foreign technology, with many of its most important systems stemming from Russian and Western designs. More importantly, however, China must figure out a way to manage the growing divide between its military and civilian economies. The United States and Europe have struggled mightily to harness their military-industrial complexes (MICs) to private industry, particular in the information technology sector. China’s MIC will soon face the same problems, and how it manages this obstacle will matter much more than questions about how much technology it can steal from the West.

Postwar Emergence

In 1949, the Chinese defense industry produced little in the way of sophisticated military technology. World War II and the Chinese Civil War had destroyed much of the urban industrial base, and the Soviets had confiscated much of the industrial equipment the Japanese had brought to Manchuria. The dire economic situation that faced the PRC in the wake of the revolution made for minimal investment in technological development.

As initially established, the Chinese MIC distinguished between the strategic weapons complex (nuclear weapons and their delivery systems) and the conventional weapons complex. The former would have the latitude to engage in basic research, as well as a degree of protection from the vagaries of CCP politics. The latter would concentrate on production, imitation of foreign technology, and incremental improvement. The strategic complex managed to develop nuclear weapons with minimal foreign assistance in conditions of tremendous poverty. The conventional weapons complex produced a huge number of obsolescent planes, tanks and ships, often a generation behind the industry standard. Both sides relied on state investment in large-scale, state-owned enterprises.

As China’s geopolitical situation evolved, the CCP’s priorities shifted. The conventional complex became more important after the major achievements made by the strategic complex, namely nuclear weapons and the ballistic missiles needed to deliver them. At the same time, under Deng Xiaoping, China would slash defense spending, and attempt to force wide swaths of the defense industrial complex to produce for the civilian market.

Reforms

In the late 1990s and 2000s, the CCP pushed a major set of reforms through the defense industry. The largest, most important firms remained state-owned, but were forced to reform in order to increase efficiency and responsiveness, and reduce cost. The government tried to create a competitive environment by splitting firms and setting them against one another, and by stepping up purchases from Russia. Reforms to the system of intellectual property law helped incentivize information sharing, and an across-the-board regulatory effort helped bring many firms up to international standards.

The innovative capacity of an MIC extends to more than just the military and the defense industry. It also involves the constellation of laboratories, research facilities, and universities that facilitate innovation in both the civilian and military economies. This system has existed in some form since the Maoist period. Reforms have attempted to make it more competitive, and more receptive to foreign technology (and even foreign capital). These reforms have helped make the current Chinese defense sector healthier and more innovative. Indeed, unlike the MICs of the United States and Europe, the Chinese defense sector has enjoyed consistent increases in procurement funding.

This is not to say that the Chinese defense sector is competitive with the most innovative firms in Europe, Japan and the United States. Most sectors of the Chinese defense industry have concentrated on incremental innovations, adapting newly developed and acquired technologies to old platforms in small batch construction.

China has most effectively specialized in what scholars describe as “architectural” innovation, or innovation that shifts and repurposes existing technologies in new forms, hopefully with emergent qualities. Architectural innovations can reap tremendous rewards in military technology; the world-beating battleship HMS Dreadnought, for example, represented an architectural innovation. Similarly, the DF-21 carrier-killer anti-ship ballistic missile repurposes existing technology in more deadly form.

China has enjoyed great success with its shipbuilding sector, regularly pushing out surface warships, conventional submarines, nuclear submarines, and a variety of auxiliaries. China has reportedly either already begun the construction of an aircraft carrier and a large surface combatant, or will do so shortly. It speaks volumes about the success of the shipbuilding industry that no one doubts that China has the capacity to build carriers and large cruisers; neither India nor Russia enjoy the same level of confidence. Turning the hulk of the battered Russian carrier Varyag into a useful unit was itself a triumph.

On the aerospace front, China is producing several internationally competitive fighters, including the J-10, the JF-17, and three varieties of Su-27 clone (the J-11, J-15, and J-16). China is also working on a pair of fifth generation stealth fighters, the J-20 and J-31.

Chinese missile systems have received the most attention. China now fields a bewildering array of cruise and ballistic missiles, as part of its larger anti-access/area denial system. Again, many of these systems involve architectural and incremental innovation, but this has nonetheless resulted in a large group of dangerous weapons.

Import-Export

China has long exported military equipment to the world, but for most of the postwar period this has involved second-rate, low technology weapons. Aging Chinese fighters dot the air forces of African and Middle Eastern states, usually in disrepair. China has also maintained a presence in the export markets for combat vehicles, missiles, small patrol craft, and helicopters.

The increasing sophistication of the Chinese MIC could make it more competitive for higher tech equipment, but China has had trouble breaking into more lucrative markets. China may be on the verge of some success with the JF-17 fighter, although as this aircraft strongly resembles an updated MiG-21, it doesn’t quite demonstrate cutting-edge technological innovation. Thus far the only customer for the JF-21 is Pakistan, but rumors suggest that Nigeria, Egypt, and Argentina may all have some interest.

The biggest question mark is the J-31 stealth fighter. Reports have emerged that the PLAAF is unhappy with the fighter, and that Shenyang will try to find a place for it in the export market. Conceivably, the J-31 could provide a low-cost alternative to the F-35 or the PAK FA in Asia, the Middle East, and Latin America, although much remains to be seen about its actual effectiveness and affordability.

Foreign

How much does the Chinese MIC depend on foreign technology? Opinions differ, but most analysts say “a lot.” 

Just on the aerospace side, the influence of foreign technology is clear. The J-10 was based on the IAI Lavi, itself based on the General Dynamics F-16; the J-11 is a clone of the Su-27; the JF-17 is a modern development of the MiG-21; and finally, the J-31 is widely reputed to rely heavily on technology associated with the Lockheed Martin F-35.

China acquires foreign technology through various means, both above and below board. On the private side, Chinese firms operating abroad, and in partnership with foreign firms domestically, have access to an array of foreign technologies and production methods. Chinese students study in Europe, Australia and the United States, becoming familiar with techniques developed in the world’s most advanced research universities.

And then there are the PLA attacks on U.S. and European intellectual property, targeting advanced technology. However, we don’t yet have a sense of how stolen intellectual property finds its way into the Chinese MIC. Industrial espionage sounds intriguing, but there are many practical obstacles to the successful theft of technology. Individual bits of data, even sophisticated data associated with patents and trade secrets, mean little out of context. Would-be thieves need to know a lot about their target, as well as a great deal about the subject matter involved in order to gather the right pieces into a coherent whole.

To acquire useful innovation, the cyber-soldiers of the PLA need to know where to direct their efforts, and what they need to look for. This necessitates close collaboration between the MIC (which knows what it needs) and the cyber teams (which know where to look). We don’t know how responsive the PLA is to requests for information from the MIC, or from private industry. We also don’t know how stolen information finds its way into the MIC, either on the public or the private side.

Thus far, we have considerable evidence that the PLA steals military-oriented technology from the United States and Europe, but we don’t have much evidence that the Chinese MIC has gained access to this technology, or put it to effective industrial use. A successful industrial espionage effort requires tremendous coordination in order to get the right information to the right people at the right time. Chinese industry has struggled to effectively reproduce foreign technology even when it has direct access to foreign equipment, industrial kits, and expertise (even now, China cannot match Russian-built engines, despite having all the relevant information about their assembly). 

Successful Chinese projects have required either significant production data (as was the case with the J-10), or export models (the Su-27). There is little to indicate, thus far, that Chinese intelligence can provide data to the Chinese MIC that would enable it to develop sophisticated systems, much less to manage the difficulties of assembly.

The big exception to this could be the J-31, which very much looks like a modification of the F-35. However, we have little solid indication that industrial espionage, as opposed to parallel development, is the source of these similarities. Given that the Chinese appear to be unhappy with the plane (although perhaps not as unhappy as the Americans are with the F-35), the effort to steal technology may have gone for naught.

Public-Private

Historically, China’s defense-industrial base (like its Soviet model) relied on large, state-owned industry to shoulder the burden of innovation and production. The Soviet-style industrial system tends to support incremental innovation, but struggles to develop new, novel technology. Both the Chinese and the Soviets before them have relied on injections of foreign technology, either through espionage or purchase, to invigorate their defense industries.

The reforms of the 1980s and 1990s pushed the defense industry into the civilian economy, often unwillingly. Firms often had to restructure in order to produce goods for the civilian market, which sometimes reduced efficiency and innovative capacity. However, this restructuring also tended to improve the internal operation of firms, familiarizing them with the prospects of the civilian market. 

These reforms came as the relationship between the military and civilian markets underwent a global shift. The relevance of civilian, private firms to the defense economy has increased worldwide over the past fifteen years. The civilian sector has witnessed huge leaps in computing and communications technology, threatening to leave the military side behind. Setting aside touchy questions about the Revolution in Military Affairs (RMA), it’s undoubtedly true that the modern military has become what amounts to a reconnaissance-strike complex, with information technology bridging the gap between hyper-sophisticated sensors and hyper-accurate weapons. 

Given the lengthy lead time now associated with major military projects, we can virtually assume that any military system developed will include information and computing technology that will quickly fall behind civilian industry standard. While major military projects progress slowly through the MIC, civilian technological innovation rushes ahead unhindered. This makes it imperative for a modern MIC to develop good relations with the innovative sectors of the civilian economy. 

The United States has struggled with its own difficulties in managing relations between big defense firms, the Pentagon, and small civilian-oriented businesses. Traditional suppliers retain some critical advantages, including a mastery of the Department of Defense contract system, an understanding of military needs, and a tolerance for the vagaries of government work. And yet the Pentagon has repeatedly called for aggressive moves to improve the position of small providers, especially in the tech field. 

China suffers from an additional problem, as its defense industries remain cut off from much of the global arms market. This limits the access of Chinese defense firms to the latest products, technologies, and manufacturing systems. Chinese firms still have some access to the Russian defense industry, but Russia has limited this access after a series of controversies over stolen technology, and in any case the Chinese have already learned most of what they can from the Russians. 

This means that, like its American counterpart, the Chinese MIC needs to develop the methods and means for taking advantage of the dynamism of the Chinese private sector. The Chinese civilian economy, spurred by private capital and with access to foreign technology, has proven competitive across several technological fronts. But even more so than in the United States, creating a framework in which innovative private, civilian-oriented firms have an incentive to work with their huge, state-owned counterparts will be a struggle. 

Conclusion

We have every indication that the PRC’s military-industrial complex is healthy, growing, and capable of producing sophisticated, capable weapons. However, as yet it has not introduced any weapon that the most advanced states could not themselves produce. The J-20 notwithstanding, China has yet to create a stealth fighter equivalent to the F-22 Raptor, and the J-20 isn’t expected to enter service until nearly 2020, fifteen years after the F-22. Chinese submarines remain behind their Western counterparts on both the conventional and the nuclear side. Despite its advances, China has yet to field an air defense system competitive with Aegis.

The question for the future is less “how much can China steal from the United States?” and more “how well can China integrate its MIC into the civilian tech economy?” Industrial espionage and foreign acquisition are important, but they will never fulfill more than a fraction of the innovation needs of the Chinese military. Beijing needs to concentrate on making its domestic civilian economy as innovative as possible, and then creating a framework through which its traditional defense providers can most effectively access and absorb the fruits of civilian innovation.