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China on Path to Become World's Top Weapons Dealer


October 24, 2013
Edward Wong and Nicola Clark / The New York Times & CNBC

For years, Turkey's military had relied on NATO-supplied Patriot missiles, built by the US companies Raytheon and Lockheed Martin, so its decision to award a major arms contract to a little-known Chinese firm stunned America's military-industrial establishment. In the past, Chinese companies mainly supplied small arms, but that is changing. From drones to frigates to fighter jets, China now is aggressively pushing foreign sales of high-tech hardware.

http://www.cnbc.com/id/101128779

China Makes Global Inroads on Arms Sales
Edward Wong and Nicola Clark / The New York Times

BEIJING (October 21, 2013) -- From the moment Turkey announced plans two years ago to acquire a long-range missile defense system, the multibillion-dollar contract from a key NATO member appeared to be an American company's to lose.

For years, Turkey's military had relied on NATO-supplied Patriot missiles, built by the American companies Raytheon and Lockheed Martin, to defend its skies, and the system was fully compatible with the air-defense platforms operated by other members of the alliance.

There were other contenders for the deal, of course. Rival manufacturers in Russia and Europe made bids. Turkey rejected those -- but not in favor of the American companies. Its selection last month of a little-known Chinese defense company, China Precision Machinery Export-Import Corporation, stunned the military-industrial establishment in Washington and Brussels.

The sale was especially unusual because the Chinese missile defense system, known as the HQ-9, would be difficult to integrate with existing NATO equipment. China Precision is also subject to sanctions from the United States for selling technologies that the United States says could help Iran, Syria and North Korea develop unconventional weapons.

A State Department spokeswoman said this month that American officials had expressed to the Turkish government "serious concerns" about the deal, which has not yet been signed.

Industry executives and arms-sales analysts say the Chinese probably beat out their more established rivals by significantly undercutting them on price, offering their system at $3 billion. Nonetheless, Turkey's selection of a Chinese state-owned manufacturer is a breakthrough for China, a nation that has set its sights on moving up the value chain in arms technology and establishing itself as a credible competitor in the global weapons market.

"This is a remarkable win for the Chinese arms industry," said Pieter Wezeman, a senior researcher at the Stockholm International Peace Research Institute, which tracks arms sales and transfers.

In the past, Chinese companies have been known mainly as suppliers of small arms, but that is changing quickly. From drones to frigates to fighter jets, the companies are aggressively pushing foreign sales of high-tech hardware, mostly in the developing world. Russian companies are feeling the greatest pressure, but American and other Western companies are also increasingly running into the Chinese.

"China will be competing with us in many, many domains, and in the high end," said Marwan Lahoud, the head of strategy and marketing at European Aeronautic Defense and Space, Europe's largest aerospace company. "Out of 100 campaigns, that is, the commercial prospects we have, we may have the Chinese in front of us among the competitors in about three or four. They have the full range of capabilities, and they are offering them."

The Stockholm institute released a report this year on global weapons transfers that found the volume of Chinese conventional weapons exports which included high-end aircraft, missiles, ships and artillery jumped by 162 percent from 2008 to 2012, compared with the previous five years. Pakistan is the leading customer. The institute now estimates that China is the fifth-largest arms exporter in the world, ahead of Britain. From 2003 to 2007, China ranked eighth.

China's foreign arms sales are also rising fast in dollar terms. According to IHS Jane's, an industry consulting and analysis company, Chinese exports have nearly doubled over the past five years to $2.2 billion, surpassing Canada and Sweden, and making China the world's eighth-largest exporter by value.

The total global arms trade revenue in 2012 was estimated to be $73.5 billion, and the United States had a 39 percent share, according to IHS Jane's.

Xu Guangyu, a retired major general in the People's Liberation Army and director of the China Arms Control and Disarmament Association, said in an interview that the push by Chinese companies to develop and sell higher-tech arms was "a very normal phenomenon."

"In arms manufacturing, China is trying to increase the quality and reduce price," he said. "We're driven by competition."

Mr. Xu said that besides pricing, Chinese companies had another advantage: they do not "make demands over other governments' status and internal policies." He added: "Our policy of noninterference applies here. Whoever is in the government, whoever has diplomatic status with us, we can talk about arms sales with them."

Chinese officials know that China's encroachment on Western-dominated military markets raises concerns. When asked about the missile-defense sale to Turkey, a Chinese Foreign Ministry spokeswoman said, "China's military exports do no harm to peace, security and stability," and do not "interfere with the internal affairs of recipient countries."

The largest Chinese arms production companies, all state-owned, declined interview requests. Their finances are opaque, though there are some statistics on their Web sites and in the state news media.

The China North Industries Group Corporation, or the Norinco Group, said on its Web site that its profits in 2012 were 9.81 billion renminbi, or about $1.6 billion, a 45 percent increase from 2010. Its revenues in 2012 were 361.6 billion renminbi, or about $59 billion, a 53 percent increase over 2010.

Another company, the China South Industries Group Corporation, or CSGC, said on its Web site that it had profits of about $1 billion in 2011, on revenue of about $45 billion, both big increases over 2008.

China's investment has been heaviest in fighter planes both traditional and stealth versions as well as in jet engines, an area in which China had until now been dependent on Western and Russian partners, said Guy Anderson, a senior military industry analyst in London with IHS Jane's.

"China has been throwing billions and billions of dollars at research and development," he said. "They also have a strategy of using the gains they get from foreign partnerships to benefit their industrial sector. So they should not have any trouble catching up with their Western competitors over the medium term, and certainly over the long term."

He estimated that China was still a decade away from competing head-to-head with Western nations on the technology itself. But Chinese equipment is priced lower and could become popular in emerging markets, including in African and Latin American nations.

"We are in an era of 'good enough' the 90 percent solution that will do the job at the best possible price," Mr. Anderson said. "In some cases, that may even mean buying commercial equipment, upgrading it slightly and painting it khaki."

New customers for Chinese equipment include Argentina, which in 2011 signed a deal with the Chinese company Avicopter to build Z-11 light helicopters under license. Mass production for the Argentine military began this year, and 40 helicopters are expected to be built over the next several years. The value of the contract has not been made public.



China Becomes World's Fifth Largest Arms Exporter
CNBC

(March 17, 2013) -- China has bypassed Britain as the world's fifth largest arms exporter, a Swedish think-tank said Monday.

The volume of Chinese weapons exports rose by 162 percent in the five years 2008-2012, compared to the previous five-year period, the Stockholm International Peace Research Institute said in its report. That means China's share of all international arms exports increased to 5 percent from 2 percent, and the country climbed to fifth from eighth in the rankings.

The largest buyer of Chinese weapons was Pakistan, which accounted for 55 percent of the country's exports, followed by Myanmar with 8 percent and Bangladesh with 7 percent, SIPRI said.

"China's rise has been driven primarily by large-scale arms acquisitions by Pakistan," said Paul Holtom, director of the SIPRI Arms Transfers Programme. "However, a number of recent deals indicate that China is establishing itself as a significant arms supplier to a growing number of important recipient states."

Such deals include the sale of three frigates to Algeria, eight transport aircraft to Venezuela and 54 tanks to Morocco, SIPRI said.

The US remains the world's top arms exporter during the 2008-2012 period, with 30 percent of the global volume. Russia is second with 26 percent, Germany third with 7 percent, and France fourth with 6 percent, SIPRI said.

China's move into the top-five means Britain (now in sixth place) dropped off the list of the top five for the first time since at least 1950, the earliest year covered by SIPRI data.

The institute said Asia dominated the global imports of weapons, with the top five importers all located in that region.

Here's SIPRI's list of the top 5 arms exporters in 2008-2012 (share of international exports in parenthesis):

1. United States (30 percent)
2. Russia (26)
3. Germany (7)
4. France (6)
5. China (5)

The top 5 arms importers in 2008-2012 (share of international imports in parenthesis):

1. India (12 percent)
2. China (6)
3. Pakistan (5).
4. South Korea (5).
5. Singapore (4)

Posted in accordance with Title 17, Section 107, US Code, for noncommercial, educational purposes.



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