China’s major state-owned military firms saw a dramatic drop in revenues last year, with total earnings down by 10%. This downturn comes despite the country’s ongoing military modernization efforts, which have seen substantial investments in naval and aerial capabilities. The reality paints a picture of the fallout from recent corruption purges that have upended the bedrock of the defense sector in China.
Additionally, the Chinese Defense Ministry did not respond to multiple requests for comment on these new developments. With that in mind, many analysts are predicting a sea change in military procurement and contracts. The expulsion from the ruling Communist Party on corruption charges of eight top generals has sounded alarm bells. Such political cleansing at the upper echelons would be patently destabilizing, impeding military operations with feckless loyalty tests.
In recent years, China has made significant gains in its military capabilities. The country currently has the largest naval and coast guard fleets in the world. It’s at the leading edge of deploying a new, highly disruptive aircraft carrier. China has made significant strides in developing offensive hypersonic missiles. Furthermore, it has developed a plethora of nuclear weaponry and employs air-marine-sea drones to increase its operational envelope.
Despite this modernization, the decline in revenue from military firms starkly contrasts with the global trend of rising revenues for major arms and military services companies. Analysts attribute the slowdown in China’s defense sector to a growing strategic rivalry with the United States and rising tensions over Taiwan and the South China Sea. These global economic and geopolitical factors in aggregate have induced accelerated China’s defense budgets increases in the last thirty years.
“A host of corruption allegations in Chinese arms procurement led to major arms contracts being postponed or canceled in 2024,” stated Nan Tian, a defense analyst. At the same time, China is investing stupendous amounts of money into its military. Yet significant internal challenges may blunt the country’s ability to make the most of these new investments.
The Central Military Commission (CMC) is China’s highest military leadership body. Its role is especially vital as it leads the oversight for all defense initiatives. Xi Jinping, the preeminent member of the CMC, faces tremendous internal and external pressure. Underneath his remarks, the charming general is committed to pushing the envelope on military modernization despite the headwinds.
Liang, another defense expert, commented on the broader implications of these developments: “In the medium and longer term, sustained investment in defense budgets and political commitment behind modernization will continue, albeit with some program delays, higher costs and tighter control of procurement.” This means that although short term problems might curb growth soon, the long-term trend for China’s military spending is still clearly in the ascendance.
The emerging situation raises profound questions not only about the future direction of China’s military industrial complex, but the PRC itself. As the current wave of corruption scandals rolls into 2018, it will be ever more difficult for firms to secure lucrative contracts and enjoy consistent growth. Such a steep revenue drop would profoundly affect China’s defense strategy. It could hardly come at a more critical moment as China seeks to assert its influence and leadership role on the global stage.