Search Follow us
3 November 2016 · 4 min read

China shows its air power

Stealth fighters take to the skies at Zhuhai air show

On Tuesday, China showcased its long awaited J-20 stealth fighter jet for the first time in public at the Zhuhai air show. Yet again an impeccably timed show of force with the US Presidential Election next week. The first test flight of the aircraft in 2011 coincided with the then US Defense Secretary Robert Gates’ visit to Beijing. With other new military aircraft expected to be unveiled throughout the week we look at the changing shape of China’s military arsenal, and question how does Chinese defence spending affect Western budgets.

China’s Air Force used to be the poor relation to the Army, relying on cast off soviet aircraft. However, over the past decade, double-digit growth in China’s defence budget has allowed for modernization of the fleet, on a par with the development of land vehicles and the US Pentagon’s 2016 report on China’s military stated that the People’s Liberation Army Air Force (PLAAF) is “rapidly closing the gap with western air forces across a broad spectrum of capabilities. Although it still operates a large number of older second and third generation fighters, it will probably become a majority fourth-generation force within the next several years.” 

It has however been pursuing fifth generation fighter technology since 2009, and is the only country other than the US to have two concurrent stealth fighter programs; the J-20 and the FC-31. The J-20 has drawn comparisons with the Lockheed Martin’s F-22 Raptor which remains in service with the US Air Force (USAF) but is no longer in production. The J-20’s capabilities are expected to be someway behind the new Join Strike Fighter (JSF) F-35, but it represents a step change in capability for the PLAAF. China wants to use the aircraft to project its regional power and to strengthen its ability to strike regional airbases and facilities.  The PLAAF sees the use of stealth aircraft as a core capability in its transformation from a predominantly territorial air forces to one capable of conducting offensive and defensive operations. The FC-31 has not yet flown publically but is being marketed as a fifth generation multi-role fighter that will be able to compete with the F-35 for export sales. Interestingly, in 2009 it was reported by the Pentagon that unknown cyber attackers, appearing to originate from China, had compromised information about the F-35.

The Y-20, China’s first heavy transporter aircraft was unveiled yesterday. Also set to be showcased this week are the AG-600 seaplane for search and rescue missions, a Zian H-6K bomber and the new Changhe Z-10K attack helicopter. Away from the airshow the People’s Liberation Army (PLA) is focusing on its ability to operate as a modern, networked force, with a focus on Electronic warfare, Information operations and Cyber capability. The People’s Liberation Army Navy (PLAN) is modernizing its submarine fleet and is currently building is first domestic aircraft carrier, with more expected in the future.

The modernisation and development of China’s military over the last decade means that the PLA is increasingly able to project power during peacetime and to contest US military superiority in the event of a regional conflict. Therefore the Chinese defence budget is effectively a driver of the US defence budget. Whilst China still only spends a quarter of what the US spends per year (as shown by the graph below), the Chinese defence budget is estimated to have a compound annual growth rate of 31% between 2000 – 2015, compared to the equivalent US rate of 9%.

US and Chinese defence spending 2000 – 2015 (constant 2014 US$ millions) (source: SIPRI military expenditure database)

Whilst China’s defence budget growth is expected to slow to between 7-8% this year due to lower overall economic growth, the Chinese are still spending enough for Obama to justify the ‘pivot to Asia’. Whoever becomes the next US President should find it hard to refute the importance of countering Chinese defence capabilities, especially as there is a strong belief amongst analysts that China’s actual military spending is significantly higher than is officially published.

The Western defence companies are under tight controls about what they can export to China. Even Russia has had an informal ban on selling advanced military systems to China since 2004. Interestingly though, the announcement at the Air Show that Russia will deliver four Su-35 fighter jets to Beijing later this year, along with an agreement to sell the S-400 surface-to-air missile (SAM) represents a lifting of the ban. The US is likely to be highly concerned by Russia providing technological support to China as it boosts China’s air defence capability in the western Pacific. Russia is also taking another step in complicating its relationship with the West.

The Stockholm International Peace Research Institute (SIPRI) ranks China as the fifth largest arms exporter after the US, Russia, Germany and France (the UK is seventh). International sales are primarily conducted to support broader foreign policy goals such as securing access to natural resources or promoting its political influence. China’s defence products are less expensive than those offered by Western arms suppliers, and also lack the same guarantee of security and through life support. Therefore China’s customers are mostly developing countries, predominantly in Africa and the Middle East.

The export situation with the J-20 and other military aircraft is likely to look similar to the market for the civil C919 aircraft. It will remain the preserve of the domestic market, for at least the next decade until its technology is proven. Whilst price is undoubtedly a factor for customers, it only comes into play once certain safety and performance standards can be guaranteed. The Chinese government is unlikely to be worried by this though; all it wants is for the PLAAF to have its own stealth fighter jet.


Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.