RESOURCES FOR FORCE MODERNIZATION
> China’s announced annual military budget increase continues more than 20 years of annual defense spending increases, sustaining China’s position as the second-largest military spender in the world.
> China has mobilized vast resources in support of defense modernization, including “Made in China 2025” and other industrial development plans, as well as espionage activities to acquire sensitive, dual-use, or military-grade equipment.
China has the political will and fiscal strength to sustain a steady increase in defense spending during the next decade, which will help support PLA [Peoples Liberation Army] modernization, develop an integrated military-civilian defense industry, and explore new technologies with defense applications. China draws from diverse sources to support PLA modernization, including domestic defense investments, domestic defense-industrial development, a growing R&D and science and technology (S&T) base, dual-use technologies conveyed in part through civil-military integration, and the acquisition of foreign technology and expertise.
China’s long-term goal is creating a wholly domestic defense-industrial sector, augmented by a strong commercial sector, to meet the needs of PLA modernization and compete as a top-tier supplier in the global arms trade. However, the PLA still looks to foreign capabilities to fill some critical, near-term capability gaps and accelerate the rate of advancement. China leverages foreign investments, commercial joint ventures, mergers and acquisitions (M&A), academic exchanges, the experience that Chinese students and researchers gain from studying in foreign nations, state-sponsored industrial and technical espionage, and the manipulation of export controls for the illicit diversion of dual-use technologies to increase the level of technologies and expertise available to support military research, development, and acquisition.
MILITARY EXPENDITURES TRENDS
> China’s announced annual military budget increase sustains China’s position as the second-largest military spender in the world.
> China’s published military budget omits several major categories of expenditure; actual military-related spending is higher than its official budget.
In early 2018, China announced a 6.1-percent inflation-adjusted increase in its annual military budget, increasing it to $170.4 billion, approximately 1.3 percent of GDP. This budget continues more than 20 years of annual defense spending increases and sustains China’s position as the second-largest military spender in the world after the United States. China’s defense budget has nearly doubled during the past 10 years – data from 2009 through 2018 indicates that China’s official military budget grew at an annual average of 8 percent in inflation -adjusted terms during that period. China is positioned to support continued defense spending growth for at least the next 5 to 10 years, judging from economic data and growth projections.
China’s Estimated Military Expenditures. China’s published military budget omits several major categories of expenditures, including R&D and foreign weapons procurement. Actual military-related spending is higher than stated in the official budget, estimated at more than $200 billion in 2018. It is difficult to calculate actual military expenses, largely because of China’s poor accounting transparency.
China’s Estimated Defense Budget Growth. Over the next few years, China’s official defense budget will likely increase by an annual average of 6 percent, growing to $260 billion by 2022. This will allow the PLA to dedicate more money for training, operations, and modernization following China’s 2015 reforms, which reduced the PLA’s size by 300,000 personnel. Economic forecasters project that China’s economic growth will slow during the next 10 years, falling from 6.6 percent in 2018 to 3 percent in 2030, which could slow future defense spending growth. Assuming accurate economic projections and a steady defense burden, China will remain the largest spender in the Indo-Pacific region besides the United States.
2018 Official Defense Budget Comparison (adjusted for inflation to 2018 USD)
- China (official budget) $170.4
- India $60.8
- Japan $47.4
- Russia (national defense budget) $43.8
- South Korea $36.6
- Taiwan $10.6
DEVELOPMENTS AND TRENDS IN CHINA’S DEFENSE INDUSTRY
> China’s defense-industrial complex continues to adapt and reorganize to improve weapon system research, development, acquisition, test, evaluation, and production.
> China has realigned its S&T decision-making apparatus by establishing two advisory groups that promote a strategic approach to military modernization and enhance collaboration.
Defense Sector Reform. China’s defense-industrial complex continues to adapt and reorganize to improve weapon system research, development, acquisition, test, evaluation, and production (RDATE&P). Inherent to this effort is a realignment of China’s S&T decision-making apparatus and the establishment of two advisory groups at the highest levels of government. One group is focused on promoting a strategic approach to military modernization, and the other encourages innovation through a doctrine of increased collaboration between China’s military- and state-owned (defense) industrial sector and its private and commercial industrial enterprises. During the past four years, the CMC[Central Military Commission] and the State Council implemented organizational and policy changes to advance the PLA’s defense research and increase its capacity for innovation through market sector cooperation.
> One of the most influential reforms to help improve RDATE&P occurred in 2015 with the establishment of the Strategic Committee of Science, Technology, and Industry Development for National Defense, a high-level advisory group chaired by the State Administration for Science, Technology, and Industry for National Defense. The committee, comprising military and civilian industrial, government, and technical leaders and experts, advises China’s military and defense-industrial leaders on military modernization issues and on opportunities to develop emerging technologies.
> The CMC, in 2016, established the S&T Commission, a high-level defense research body, as an independent organization under the high command. It also emphasized Civil-Military Integration (CMI), a phrase used in part to refer to the defense and commercial industrial sectors sharing or combining resources to develop dual-use technologies, policies, and organizations for mutual benefit but with a particular emphasis on assimilating private sector innovation into the defense industrial base. The 2017 establishment of a Central Commission for Integrated Military and Civilian Development, responsible for overseeing CMI efforts, underscores the importance China assigns to this initiative.
> In early 2017, the PLA set up a Scientific Research Steering Committee, which falls directly under the CMC, consisting of scientists and engineers that have experience with cutting-edge technologies. Along with the CMC S&T Commission, the committee will spearhead S&T innovation by advising the CMC on early-stage research projects.
> In July 2017, China reorganized the three top PLA academic institutes – the PLA Academy of Military Science (AMS), the National Defense University, and the National University of Defense Technology – as part of its PLA reform initiative. With the new structure, the AMS will focus on scientific research related to military affairs, facilitating closer ties between military theory and S&T development.
In 2016, China adopted its 13th Five-Year Plan (2016–2020) which, among other things, sets focus areas for R&D and innovation. Many of the focus areas featured have defense implications, such as aerospace engines – including turbofan technology – and gas turbines; quantum communications and
computing; innovative electronics and software; automation and robotics; special materials and applications; nanotechnology; neuroscience, neural research, and AI; and deep space exploration and on-orbit servicing and maintenance systems. China also is concentrating substantial R&D resources on nuclear fusion, hypersonic technology, and the deployment and hardening of an expanding constellation of multipurpose satellites.
Two of the most influential proponents in promoting and enforcing China’s RDATE&P, S&T, and CMI initiatives are the State Administration for Science, Technology and Industry for National Defense and the CMC’s Equipment Development Department (EDD), which work together to monitor and guide the state and military sides of China’s defense-industrial apparatus, respectively. The EDD and its military service counterparts cooperate with China’s 10 state-owned defense industrial corporations through a network of military representative bureaus and offices to supervise quality control and defense contract compliance. In 2018, the United States announced sanctions against the EDD related to purchases of military equipment from Russia and imposed pursuant to the Countering America’s Adversaries Through Sanctions Act (CAATSA).
The National Science Foundation of China (NSFC), the China Academy of Sciences (CAS), and the Ministry of Science and Technology (MOST) are key to S&T decision-making, funding and promoting basic and applied research, scientific innovation, and high-tech integration throughout China’s scientific, engineering, and civil-military industrial complex. CAS, working closely with NSFC, is the highest academic institution for comprehensive R&D in the natural and applied sciences in China and reports directly to the State Council in an advisory capacity, with much of its work contributing to products for military use. The NSFC and CMC S&T Commission, key advisors on emerging and disruptive technologies, signed a five-year strategic cooperation agreement in August 2016 to collaborate on civil-military co-innovation and basic research for national defense.
MILITARY EQUIPMENT MODERNIZATION TRENDS
> Many of China’s missile programs are comparable to other top-tier producers, and China can use aspects of the S-400 SAM system it began receiving from Russia in 2018 to reverse-engineer capabilities it lacks.
> China is the top ship-producing nation in the world by tonnage, with the capability to domestically produce naval gas turbine and diesel engines as well as shipboard weapons and electronic systems, making it nearly self-sufficient for all shipbuilding components.
Missile and Space Industry. Most of China’s missile programs, including its ballistic and cruise missile systems, are comparable in quality to other international top-tier producers. China produces a wide range of ballistic, cruise, air-to-air, and surface-to-air missiles (SAMs) for the PLA and for export, which has enhanced its primary assembly and solid-propellant rocket motor production facilities.
China received the first S-400 SAM system it purchased from Russia in April 2018. China can use aspects of the S-400 to reverse-engineer capabilities it lacks. China’s space industry is rapidly expanding its ISR, navigation, and communication satellite constellations and making substantial strides in its space lift capabilities, human spaceflight, and lunar exploration programs. China is looking to expand its space launch vehicle industry to support commercial launches and make rapid satellite launch services available to foreign customers. China is planning to launch, assemble in-orbit, and operate a crewed Chinese space station before 2025.
Naval and Shipbuilding Industry. China is the top ship-producing nation in the world by tonnage, increasing its shipbuilding capacity and capability for all naval classes, including submarines and surface combatants as well as lift and amphibious ships. China’s two largest state-owned shipbuilders – the China State Shipbuilding Corporation and the China Shipbuilding Industry Corporation – collaborate on ship designs and construction to increase shipbuilding efficiency. China produces its naval gas turbine and diesel engines domestically – as well as almost all shipboard weapons and electronic systems – making it nearly self-sufficient for all shipbuilding components.
Armaments Industry. China’s production capacity is advancing in nearly every category of PLA ground systems, including armored personnel carriers, assault vehicles, air defense artillery systems, artillery systems and pieces, and main and light battle tanks. Notably, China began testing unmanned Type-59 tanks in November 2018. China can produce ground weapon systems at or near world-class standards; however, quality deficiencies persist with some exported equipment, which is limiting China’s ability to broadly expand export markets.
Aviation Industry. China’s aviation industry has produced large transport aircraft, modern fourth- and fifth-generation fighters incorporating low-observable technologies, modern reconnaissance and attack UAVs, and attack helicopters. China’s commercial aircraft industry has invested in high-tech machine tooling and production processes to develop avionics and other components needed to produce military aircraft. However, even with heavy investment in its aero-engine industry, China’s military and commercial aircraft industry remains reliant on foreign-sourced components for dependable, proven, and high-performance aircraft engines as exemplified in China’s decision in May 2018 to build its commercial C919 airliner with France’s CFM International Leap 1C engine. China is developing the CJ-1000AX high-bypass turbofan to power the C919 and aims to have it enter service in 2021. China’s ability to produce commercial and military aircraft is improving because of China’s ongoing investment in the domestic ARJ21, C919, and CR929 wide-body commercial airliners and the Y-20 large transport program.
SCIENCE AND TECHNOLOGY GOALS IN SUPPORT OF MILITARY MODERNIZATION
> China’s 13th Five-Year Plan calls for accelerating research on “majorly influential disruptive technologies” and the pursuit of “leapfrog” S&T developments in order to win “a competitive advantage in the new round of industry transformation.”
> China has mobilized vast resources to fund research and subsidize companies involved in strategic S&T fields while pressing private firms, universities, and provincial governments to cooperate with the military in developing advanced technologies.
> China is pursuing a number of advanced military capabilities with disruptive potential such as hypersonic weapons, electromagnetic railguns, directed energy weapons, and counterspace capabilities.
State Plans. China has issued an array of major national plans over the last decade that stress indigenous innovation and the rapid development of strategic S&T sectors, such as information and communications technology, high-end manufacturing, alternative energy, and biotechnology. China’s 13th Five-Year Plan calls for accelerating research on “majorly influential disruptive technologies” and the pursuit of “leapfrog” S&T developments in order to win “a competitive advantage in the new round of industry transformation.” China has increasingly funded basic research and made comprehensive efforts to grow the country’s inventive capabilities over the last decade.
> The 2017 National Artificial Intelligence Plan describes steps for China to become the “world’s major AI innovation center” by 2030 and calls for the country to accelerate the integration of AI with the economy, society, and national defense. The plan foresees a great expansion in the “breadth and depth of AI applications in… national defense construction.”
> Other plans address the development of various sectors of China’s robust Internet ecosystem to include cloud computing, the big data industry, e-commerce, and next-
generation broadband wireless communications networks, including fifth-generation (5G) wireless networks. Due to information-sharing requirements with Chinese security services as stipulated in Chinese laws, worldwide expansion of Chinese-made equipment in 5G networks will challenge the security and resiliency of other countries’ networks.
China continues to execute “Made in China 2025,” an ambitious industrial masterplan centered around “smart manufacturing,” that aims to create a vanguard of Chinese corporations that are global leaders in these 10 strategic industries: new generation information technology, high-grade machine tooling and robotics; aerospace equipment; marine engineering equipment and high-tech ships; advanced rail transportation equipment; new-energy automobiles; electric power equipment; agricultural equipment; new materials; and biomedicine and high-tech medical devices. The plan stresses the need to replace imported technology with domestically produced technology, a goal that corresponds with China’s desire to reduce its reliance on other nations and develop a fully indigenous defense sector. In addition to presenting an economic challenge to nations that export high-tech products, the plan directly supports China’s military modernization goals by stressing proprietary mastery of advanced dual-use technologies. China’s leaders have softened their rhetoric regarding “Made in China 2025” in response to concerns that advanced industrial countries have regarding Chinese licit and illicit acquisition of sensitive intellectual property pursuant to that policy.
Heavy Government and Corporate Sector Investment. China has mobilized vast resources to fund research and subsidize companies involved in strategic S&T fields while pressing private firms, universities, and provincial governments to cooperate with the military in developing advanced technologies. Although China remains reliant on certain types of foreign technology, the country’s decades-long execution of a strategy of advancing domestic S&T R&D through large-scale technology transfer has deepened the expertise of Chinese scientists and engineers and placed them at, or near, the forefront of many scientific fields.
> Chinese state investment funds established to support priority industries have marshalled an estimated hundreds of billions of dollars in capital.
> China expects to field an exascale computer based on domestically produced technology by 2020, ahead of the United States, the European Union, and Japan.
> China conducted the first quantum-secured intercontinental videoconference in September 2017 and plans to have a satellite-enabled, global quantum-encrypted communications capability operational by 2030. China is also reportedly building the world’s largest quantum research facility slated to open in the city of Hefei in 2020.
> In January 2018, scientists from CAS reported they had broken a technological barrier by successfully cloning primates.
China’s private sector, led by Internet companies Baidu, Alibaba, and Tencent (BATs) and telecommunications equipment manufacturers Huawei and ZTE, is driving the development of emerging technologies, such as facial recognition and 5G, by establishing innovation centers and funding technology startups, or in the case of 5G, competing to build the world’s next-generation networks. Chinese technology companies are also expanding into overseas markets, in some cases, by offering smart-city technologies, a development that could increase their access to foreign talent and data.
> In 2018, Tencent and Alibaba made intensive investments in the Chinese robotics start-up UBTech and the AI startup Sensetime, respectively.
> In November 2017, the Chinese start-up Yitu won a U.S. government-sponsored competition involving facial recognition technology. Yitu, along with other Chinese AI and facial recognition firms like SenseTime, Megvii, and Deepglint, reportedly received hundreds of millions of dollars in investments in 2017. China is the world’s largest market for video surveillance technologies.
> The 2017 National Intelligence Law requires Chinese companies, such as Huawei and ZTE, to support, provide assistance, and cooperate in China’s national intelligence work, wherever they operate.
Potential Military Applications. China is pursuing a number of advanced military capabilities with disruptive potential such as hypersonic weapons, electromagnetic railguns, directed energy weapons, and counterspace capabilities. The country’s effort to build national corporate champions that achieve rapid market dominance across a range of frontier technologies directly complements the PLA’s modernization efforts and carries serious military implications. Given China’s willingness to deploy emerging technologies rapidly and at massive scale as well as China’s focus on CMI, the PLA would likely quickly benefit from any Chinese scientific breakthroughs with military utility. Potential military applications of some emerging technologies include:
> AI and Advanced Robotics: enhanced forecasting, manufacturing, C4ISR, and surveillance technology, unmanned systems, human-machine teaming, swarming technology, and lethal autonomous weapons.
> Semiconductors and Advanced Computing: enhanced cyber operations and weapons design, and shortened R&D cycles.
> Quantum Technologies: secure global communications, enhanced computing and decryption capabilities, detection of stealth platforms, and enhanced submarine navigation.
> Hypersonic and Directed Energy Weapons: global strike and defeat of missile defense systems, and anti-satellite, anti-missile, and anti-unmanned aircraft system capabilities.
> Advanced Materials and Alternative Energy: improved military equipment and weapon systems.
> China is investing in the critical technologies that will be foundational for future innovations, both for commercial and military applications.
> In 2018, Chinese espionage efforts to acquire sensitive, dual-use, or military-grade equipment included dynamic random access memory, aviation technologies, and anti-submarine warfare technologies.
In 2018, China continued to supplement indigenous military modernization efforts through the acquisition of foreign technologies and know-how. China is actively pursuing an intensive campaign to obtain foreign technology through imports, foreign direct investment, industrial and cyberespionage, and establishment of foreign R&D centers. China is investing in the critical technologies that will be foundational for future innovations both for commercial and military applications: AI, robotics, autonomous vehicles, quantum information sciences, augmented and virtual reality, financial technology, and gene editing. The line demarcating products designed for commercial versus military purposes is blurring with these new technologies. China’s legal acquisition efforts supplement its military-industrial base through methods and practices, which include:
> Imports: China acquires dual-use, export controlled technology by applying for licenses through the U.S. Department of Commerce. The majority of China’s imports have traditionally been electronic and materials processing and test, inspection, and production equipment.
> Foreign Direct Investment: China actively invests in or outright purchases foreign companies that have technology, facilities, and people working in key technology areas.
> Talent Recruitment: China uses various incentive strategies to attract foreign personnel to work on and manage strategic programs and fill technical knowledge gaps, including the “Thousand Talents Program,” which prioritizes recruiting people of Chinese descent or recent Chinese emigrants whose recruitment the Chinese government views as necessary to Chinese scientific and technical modernization, especially with regard to defense technology.
> Research and Development Centers: China actively seeks partnerships with private, government, and academic research labs to gain exposure to cutting-edge technology and researchers. These partnerships also provide the technical know-how to run, manage, and organize such facilities.
ESPIONAGE ACTIVITIES SUPPORTING CHINA’S MILITARY MODERNIZATION.
Multiple U.S. criminal indictments since 2015 involve Chinese nationals, non-ethnic Chinese U.S. citizens, and naturalized Chinese U.S. citizens or permanent resident aliens procuring and exporting controlled items to China, according to a U.S. Department of Justice summary of major U.S. export enforcement, economic espionage, and sanctions-related criminal cases. Chinese efforts to acquire sensitive, dual-use, or military-grade equipment included radiation hardened integrated circuits, monolithic microwave integrated circuits, accelerometers, gyroscopes, naval and marine technologies, syntactic foam trade secrets, space communications, military communication jamming equipment, dynamic random access memory, aviation technologies, and anti-submarine warfare.
> In November 2018, a Chinese national residing in the United States was charged with conspiring to export devices with military applications to Chinese government and military actors. The Chinese national fulfilled instructions from the Chinese military to obtain dual-use technology used for anti-submarine warfare and other advanced military capabilities. This included remotely operated side scan sonar systems, hydrophones, robotic boats, unmanned underwater vehicles, and unmanned surface vehicles.
> In October 2018, a group of Chinese Ministry of State Security (MSS) intelligence officers, associated cyber actors, and other co-conspirators were indicted on charges of conspiring to steal sensitive technological information related to turbofan engines used in commercial airliners. At the time of the intrusions, a Chinese state-owned enterprise was developing a comparable engine for use in commercial aircraft manufactured in China and elsewhere.
> In October 2018, a Chinese MSS officer was arrested and charged with economic espionage involving the theft of trade secrets for civilian and military aircraft technology related to engineering services and signature material, advanced communication systems, jet engines and aircraft propulsion, and engine containment structures from leading U.S. aviation firms. In addition, the officer targeted industry experts for recruitment by facilitating travel to China under the guise of delivering university presentations.
The intelligence officer also provided monetary compensation and other forms of reimbursement to these experts.
> In September 2018, a Chinese state-owned enterprise was implicated in a conspiracy to commit economic espionage through the theft, conveyance, and possession of stolen trade secrets from a U.S. semiconductor company. The U.S. company is a global leader in the semiconductor industry and specializes in dynamic random-access memory (DRAM). China identifies DRAM development as a national priority.
Also in September 2018, a Chinese national was charged for acting within the United States as an illegal agent of the Chinese government. The MSS tasked the Chinese national with providing biographical data on individuals for recruitment, including Chinese nationals working in the United States as engineers and scientists (some as defense contractors). The Chinese national entered the United States on a student visa to study electrical engineering and enlisted in the U.S. Army Reserves under the Military Accessions Vital to the National Interest program.
Source: Annual Report to Congress-Military and Security Developments Involving the People’s Republic of China