Chinese Role Evolves In Defense Exports

When it comes to future military export markets, the rise of China remains one of the big variables. Even though the nation ranks as the second biggest military spender globally, it is not among the top 10 ­exporters or importers of military equipment. The latter situation stems partly from an arms embargo imposed by the West after the 1989 Tiananmen Square uprising. But there is clear market potential. The U.K., for example, saw 15% of its security-related exports in 2009 go to China, the second biggest single market after the U.S. (Security exports are not affected by the embargo.) As an exporter, China may also be a growing force. It previously tried to challenge the likes of Russia, France, the U.K. and U.S. in the export market, but those attempts failed largely because of inferior equipment and lackluster commercial strategies. Chinese combat aircraft exports in 2005-09 represented only 4% of the global total, according to the Stockholm International Peace Research Institute (Sipri). Nevertheless, there is growing momentum behind Beijing’s activities, as evidenced by recent sales of radar equipment to Venezuela and Ecuador, where Chinese companies defeated offerings from Russia, notes Siemon T. Wezeman, Sipri’s senior fellow for arms transfers. The offerings “were technically attractive enough” to best the competition, he says. The Pentagon also points out that China sold a communications satellite to Nigeria and is trying to woo customers in Pakistan, Bolivia, Laos and Vietnam. But China’s ambitions still face roadblocks. Take the case of the JF-17 fighter. Despite its breakthrough order with Pakistan—the first batch of single-engine fighters has been delivered—dependence on Russian engines is a problem. Wezeman notes that in Egypt, where Russia wants to sell MiG‑29s, the powerplant issue has been a handicap in trying to sell the JF-17. Consequently, China is now working on a domestically developed turbojet. “The more Russia puts a hold on equipment transfer, the more the Chinese are pushing” to develop their own offerings, Wezeman says. Industry observers, meanwhile, expect Beijing to try to capitalize on its growing foreign-policy reach into new markets such as Africa, particularly since the price of many Chinese offerings may be attractive to those buyers. The JF-17 is marketed at less than $25 million, and China is also offering an impressive array of air-to-air and air-to-ground weapons to arm the fighter. A breakout order for the J-10 also has been in the works with Pakistan, although no firm delivery plans for the $40-million aircraft have been disclosed. Playing the offset game—essential for success in the global arms market—is another area where China is likely to become more sophisticated. One export offering China is betting on is the L-15 jet trainer. Catic officials see Ukraine as a potential buyer and signal that they may offer offshore assembly. However, Western industry officials are still skeptical that Chinese equipment can compete with their offerings in terms of technical sophistication. But in the missile domain, the country is starting to gain traction, experts concede. Whereas China poses a potential threat as an arms exporter to rival manufacturers, it has enormous potential as a buyer if the current arms embargo is lifted. One European industry official speculates that with European coffers shrinking and companies looking increasingly to exports to sustain their revenues and workforces, pressure will mount to back off from the blanket ban on weapon exports. Companies’ eagerness to court China was underscored recently by Italy’s Finmeccanica. After the U.S. government issued a waiver to allow Lockheed Martin C-130s to land in China to help in combating potential oil spills, CEO Pier Francesco Guarguaglini signaled he would want to sell C-27Js to Beijing if the U.S. eased its arms export ban. The move drew a quick response. Italian officials were called to the Pentagon to hear U.S. misgivings about a C-27J sale. (In the past, China was a strong market for Italy, with deals including defense electronics and torpedoes.) Companies also have found other workarounds, such as selling advanced helicopters as commercial equipment. For example, Eurocopter and Avic are co-developing the EC175 (called the Z-15 in China). But Wezeman believes the embargo will likely stand for some time, and Washington’s pressure on allies will prevent a flood of equipment from entering the Chinese inventory.