In 2021, Chinese defense-related revenue grew for each of the seven state-owned enterprises involved in Chinese defense production. Growth was variable between the seven enterprises, but all have benefited from relative economic growth in 2021, as well as the People’s Liberation Army’s continued modernization and procurement of naval, aerospace and ground-based capabilities.
Companies in the shipbuilding and electronics industries saw particularly high growth between 2020 and 2021. Chinese state-owned enterprises, or SOE, have reportedly also made significant progress toward fully implementing the State Council’s three-year SOE reform plan, due to be completed prior to the 20th Party Congress in the autumn this year.
In 2021, the Aviation Industry Corporation of China — otherwise known as AVIC — remained the top defense-related state-owned enterprise in China for a fourth year in a row, according to analysis by the International Institute for Strategic Studies.
Per the Defense News Top 100 lists, AVIC’s total revenue grew from $67.9 billion in 2020 to $80.4 billion in 2021, while its defense-related revenue grew by 18%, from $25.5 billion in 2020 to $30.2 billion.
In line with requirements in the 14th Five-Year Plan as well as PLA Air Force and PLA Navy requirements, Chinese securities firms expect continued growth for AVIC’s defense-related and civilian business. Owing to this strong rate of growth, AVIC held its position as the sixth-largest defense company in the world on the Top 100.
However, it was not the fastest rate of growth among Chinese SOEs. Between 2020 and 2021, defense-related revenues for China Electronics Technology Group (CETC) and China South Industries Group Corporation (CSGC) is estimated to have increased by 40% and 28%, respectively.
The uplift in CETC’s revenue was due to the June 2021 acquisition of telecommunications rival China Putian Information Industry Group, also known as Potevio, whose 2019 revenues came to 116 billion yuan (U.S. $17 billion). The acquisition means CETC’s total revenue in 2021 reached $58 billion, of which IISS estimates that $14.7 billion is for defense-related activities, which sees the company jump from 15th to 11th place on this year’s Top 100.
Potevio’s activities primarily focus on the commercial sector, although one major subsidiary, Eastern Communications, does supply telecommunications systems to the Chinese military. The acquisition is in line with the “independent innovation” goal of China’s 14th Five-Year Plan, which also includes a requirement for national defense entities to expand collaboration efforts — both among themselves and with the commercial sector — in order to bolster domestic defense-industrial capabilities and innovation.
CSGC’s estimated defense-related revenue grew by roughly 28% from $10.7 billion in 2020 to $13.7 billion in 2021; from 2019 to 2020, it grew 21%. Despite internal restructuring and streamlining reforms appearing to bolster performance over the last two years, CSGC revenues are still well below 2016 peak levels owing to annual declines of 25% annually between 2017 and 2019. Overall company revenue growth in 2021 can be attributed to growth in the automobile (including electric vehicle) sector, the optics industry, and the electronics and energy industries.
For the second year, shipbuilding giant China State Shipbuilding Corporation Limited, or CSSC Group, reported official numbers following the merger of China Shipbuilding Industry Corporation and China State Shipbuilding Corporation in 2019. Following global economic recovery in 2021, China’s shipbuilding industry maintained a global lead in 2021 in terms of volume of ships built, new shipbuilding orders and holding order volumes.
In defense, too, Chinese shipbuilders had an active year supplying the PLA Navy. In 2021, the PLAN commissioned eight guided-missile destroyers, two amphibious assault ships and one nuclear-powered ballistic missile submarine. Construction was ongoing on PLAN ships that were commissioned by July 2022, including two more Type 052D destroyers, three Type 055 destroyers, a Type 075 amphibious assault ship and the PLA’s third aircraft carrier — the Fujian. IISS estimates that CSSC Group’s defense-related revenues increased by 16% from 2020 to 2021.
The defense-related revenue of NORINCO — or China North Industries Group Corporation Limited — grew by 16% from 2020, reaching $18 billion in 2021, nearly doubling the annual year-on-year growth seen by the company in the previous three years. According to NORINCO’s annual work report, this reflects a “good start to the 14th Five-Year Plan,” with the company reporting successful completion of delivery tasks for the PLA’s participation in the International Military Competition and for civilian use in the Beijing Science and Technology Winter Olympics.
The company also continues to play a leading role in application development research and construction of the BeiDou navigation satellite system. Internationally, the work report points to the company’s activity “rising against the trend,” with construction of major projects along the Belt and Road Initiative — a Chinese economic and investment program.
The China Aerospace Science and Technology Corporation saw defense-related revenue growth of 12% from 2020 to 2021, leading the company to hold steady in 18th place on the Top 100. At its 2022 annual work conference, the company highlighted success in “construction of national defense weapon models” as well as progress on space development with 48 launch missions and the first Mars exploration mission completed.
However, the company did note that the challenges in the “economic environment have increased significantly” while the task of enterprise reform is “still arduous.”
For the China Aerospace Science and Industry Corporation, revenue growth was relatively muted for the third consecutive year, at just 9% from 2020 to 2021, causing the company to fall in rank from 11th to 14th place on the Top 100. Nonetheless, the company has managed to maintain overall company revenues in recent years, despite supply chain difficulties and significant exposure to commercial aviation, where performance is constrained by ongoing lockdowns over COVID-19.
In May 2022, Hao Peng, director of the State Council’s Office of State-owned Enterprise Reform Leading Group and the council’s State-owned Assets Supervision and Administration Commission, announced that more than 90% of enterprises have completed almost all of the necessary reforms according to the three-year SOE reform plan — 2020 through 2022.
Last year was seemingly an important one in achieving this level of progress, as 70% of reform tasks were completed in 2021 at central and local SOE levels. These reforms focus on improving governance structures and party leadership; improving efficiency and encouraging market-based measures; creating incentives for scientific and technological innovation; achieving technological advancements; slimming down and reducing risk; and improving capital oversight, among other objectives.
Though Chinese reports suggest that full achievement of these reforms is on track for the 20th Party Congress deadline, it is uncertain to what extent they may have played a role in the revenue growth seen across all defense-related SOEs in 2021.
Factors such as China’s wider economic context after the outbreak of COVID-19, the country’s civilian industry and the PLA’s procurement in line with 14th Five-Year Plan objectives are likely explanations.
However, following the Chinese government’s adherence to its so-called dynamic zero-COVID policy, a crisis in the property sector, a rural bank scandal and concerns about overseas debt repayments, China’s economic malaise thus far in 2022 could paint a different picture for next year’s results.
Fenella McGerty is a senior fellow for defense economics at the International Institute for Strategic Studies, where Meia Nouwens is a senior fellow for Chinese defense policy and military modernization.