The seven Chinese state-owned enterprises included in the Defense News Top 100 saw mixed results in 2023. The two largest companies performed well, with double-digit growth in their defense-related revenues between 2022 and 2023. Two other companies maintained steady revenue growth; however, of the remaining three, two in the ground and aerospace sector saw declining profits and another failed to report results at all.
Overall, companies sought to deepen their innovation investments, and some benefited from stronger civilian sector market demand as well as continued People’s Liberation Army modernization developments.
However, allegations of corruption within China’s defense industrial base in 2023 led to leadership change and renewed calls for political loyalty among industry chiefs.
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AVIC
Between 2022 and 2023, AVIC’s defense production-related revenue increased by 52.6% (45% in U.S. dollars, given the weaker yuan). Though the company ranks first in defense-related profitability from all Chinese defense-related, state-owned enterprises (SOEs) for the fifth year in a row, it also ranks second in this year’s Top 100 company ranking, coming in behind Lockheed Martin.
The company’s strong growth in 2023 was attributed to its main subsidiaries — Chengdu Aircraft Industrial Group Co. Ltd., Xi’an Aircraft Industry Group Company Ltd. and Shenyang Aircraft Company Ltd. — having exceeded targets in their annual batch production and delivery missions.
In addition to producing new technologies, the PLA continues to replace legacy aircraft, such as the J-7 fighter jets, with new ones. New production lines are also being implemented to improve production and quality.
CSSC Group
Ranking second in this year’s list of Chinese SOEs, the China State Shipbuilding Corporation Ltd. Group’s defense-related revenue grew by 25.7% year-on-year (19% in U.S. dollars).
The group’s results have been the largest year-on-year growth since the merger of China’s two largest shipbuilding conglomerates in 2018, and reflect the continued strength of China’s shipbuilding sector within the global market. In particular, the company refers to growing demand for “green” ship orders in the civilian shipbuilding sector.
In addition to strong demand, CSSC reports having benefited from “relatively friendly” global market improvements, such as ship and steel prices, as well as exchange rates.
At its 2024 annual company work conference in January, priorities for the company in 2024 were outlined as: focusing on the primary responsibility of military industry; strengthening and improving international competitiveness; increasing volume and improving quality; accelerating S&T self-reliance; and accelerating labor productivity of all employees, deepening the governance of loss-making enterprises and disposing of inefficient ones.
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NORINCO
Though NORINCO still ranks third in the Chinese defense SOEs list and 9th in Defense News’ Top 100, the company’s year-on-year defense-related revenue dipped by 2.6% (8% in U.S. dollars).
In 2023, the company acquired two Chinese subsidiaries linked to universities: Xi’an Jiaotong University Aisheng Group and Beijing Beihang University’s Tianyu Changying UAV Technology Co. Ltd.
Both companies specialize in unmanned aerial vehicle research and development, and NORINCO hopes they will in turn increase the company’s “new war industries” offering — in addition to its current supply — to the PLA’s ground forces.
For example, in 2023 the PLA deployed NORINCO’s PHL-16 Multiple Launch Rocket System in the 73rd Group Army of the Eastern Theatre Command.
CSGC
Further in the land domain, China South Industries Group fared slightly better, with a 7.6% year-on-year growth (2% in U.S. dollars) result for its defense-related revenue.
The company reported a significant improvement in production quality following internal reforms focused on optimizing industrial layout and strengthening the military ecosystem, though no details were provided.
CSGC highlighted that its combat equipment in particular had a 100% pass rate for the first inspection of major products. A total of 208 institutes and its Jianshe Group have passed third-level maturity evaluations. The company’s growth was driven by its civilian automobile sector, particularly in electronic vehicles.
As noted by other defense-related SOEs, CSGC has invested heavily in innovation, including adding three new innovation centers. As a result, the company reports “breakthroughs” in more than 30 key technologies, including light alloy multi-field pressure casting systems and wire-controlled chassis.
In addition to developing its own R&D capabilities, CSGC has also partnered with other Chinese firms such as Huawei, Horizon Robotics and CATL.
CETC
CETC came in fourth in China’s defense-related SOE rankings for a third consecutive year, reporting 5.6% year-on-year growth (0% in U.S. dollars) despite being added to the U.S. Commerce Department’s Entity List for supporting China’s military modernization and PLA aerospace programs following the 2023 Chinese balloon incident in the United States.
In order to withstand U.S. pressures, CETC absorbed state-owned digital services provider China Hualu Group — its second takeover in two and a half years.
China’s state-owned Assets Supervision and Administration Commission has promoted the merging of SOEs in critical sectors in order to boost efficiency, competitiveness and innovation.
In CETC’s case, results have been mixed. Some of CETC’s other parent company subsidiaries noted small losses in the first three quarters of 2023, such as Chips Technology Inc. and the recently acquired Potevio Co. Ltd.
Others, however, such as CETC’s Cyberspace Security Technology Co. Ltd, which predominantly focuses on data security and cryptography technology, reported increases throughout the first three quarters of 2023.
Overall competitiveness has reportedly been improved in recent years due to integration between industrial chains and a focus on R&D investment, though the latter has also come at a financial cost. The company spends roughly 11.8% of its profits on R&D investment, which is expected to grow in the future.
Nevertheless, the company’s dominant position in providing military electronics — at a time when the PLA continues to focus on achieving informatization and intelligentization — means CETC’s revenue has further room to grow.
CASC & CASIC
China’s Aerospace Science and Technology Corporation (CASC) reported a surprising 77% year-on-year loss (79% in U.S. dollars) in 2023. The company’s defense-related revenue represented less than 5% of AVIC’s 2023 defense revenue. CASC ranked 52nd in this year’s Defense News Top 100, a drop of 37 places.
The company reported that its business was affected by floods in North China, which resulted in asset losses, equipment and infrastructure maintenance requirements and other related expenses.
Some contracts were delayed in delivery. And larger market factors, such as intensified market competition and rising production costs, also played a role.
Elsewhere in the aerospace sector, CASIC has not yet published its annual report.
China’s space sector and the PLA Rocket Force experienced political challenges in 2023.
The PLA Rocket Force and Equipment Development Department were at the center of a corruption investigation, in which multiple high-level officials were implicated.
China’s defense industrial base has similarly been investigated. CASC’s former Chairman Wu Yansheng’s membership in the Chinese People’s Political Consultative Conference (CPPCC) National Committee — China’s top political advisory body — was revoked at the end of 2023. He was replaced by Chen Mingbo.
CASIC’s chairman Yuan Jie also stepped down in 2024 after the company’s Vice President Wang Changqing was removed from the CPPCC National Committee.
Liu Shiquan, chair of NORINCO, was also stripped of his CPPCC seat.
Though these industry leaders have not been officially implicated in the corruption investigation, the decisions to strip them of their CPPCC seats is a sign that Beijing is increasing its scrutiny of a sector that is of key importance to its defense missions.
Meia Nouwens is a senior analyst specializing on Chinese security and defense policy at the International Institute for Strategic Studies.
