China's military firms struggle as corruption purge bites, report says

By Greg Torode

HONG KONG, Dec 1 (Reuters) - Revenues at China's giant military firms fell last year as corruption purges slowed arms contracts and procurement, according to a study released on Monday by a leading conflict think tank.

The Chinese declines contrast with strong revenue growth globally for big arms and military-services companies, fuelled by wars in Ukraine and Gaza, and global and regional tensions, the research by the Stockholm International Peace Research Institute found.

"A host of corruption allegations in Chinese arms procurement led to major arms contracts being postponed or cancelled in 2024," said Nan Tian, director of SIPRI's Military Expenditure and Arms Production Programme.

"This deepens uncertainty around the status of China's military modernisation efforts and when new capabilities will materialise."

CHINA'S REVENUES DOWN 10%, JAPAN'S UP 40%

The People's Liberation Army was one of the main targets of a broader corruption crackdown ordered by President Xi Jinping in 2012, reaching the upper levels of the military in 2023 when its Rocket Force was targeted.

Eight top generals were expelled from the ruling Communist Party on graft charges in October, including the country's number two general, He Weidong. He had served under Xi on the Central Military Commission, China's supreme military command organisation.

Asian and Western diplomats say they are still trying to gauge the impact of the crackdown on China's ongoing military rise and how far down it reaches through the command chain.

Revenues of China's top military firms fell 10% last year, while those in Japan surged 40%, Germany 36% and U.S. revenues rose 3.8%, SIPRI data shows.

Revenues of the world's 100 largest arms firms rose 5.9% to a record $679 billion, the report said, while China's fall was enough to make Asia-Oceania the only region to post a revenue decline among its top arms firms.

China's weapons revenue fell despite three decades of rising defence budgets in Beijing's growing strategic rivalry with the United States, Asia's traditional military power, and tensions over Taiwan and the hotly disputed South China Sea.

MID-, LONG-TERM INVESTMENT, MODERNISATION TO CONTINUE

The buildup is bearing fruit as China deploys the world's largest naval and coast guard fleets - including a potentially advanced new aircraft carrier - a host of new hypersonic missiles, nuclear weapons and air and sea drones.

Revenue fell at AVIC, China's largest arms maker, land-systems producer Norinco and aerospace and missile manufacturer CASC, all state-owned, according to the SIPRI research. Norinco experienced the steepest revenue decline, falling 31% to $14 billion.

Corruption-related personnel changes at the top of Norinco and CASC sparked government reviews and project delays, while deliveries of AVIC's military aircraft slowed, the research found.

The timeline of advanced systems for the People's Liberation Army's Rocket Force, which handles its growing arsenal of ballistic, hypersonic and cruise missiles, could be exposed, along with aerospace and cyber programmes, said SIPRI researcher Xiao Liang.

This adds to uncertainties over the PLA's target of getting key capabilities and war-fighting readiness in place for its 100th anniversary, Liang said. The PLA's forerunner, Mao Zedong's Red Army, was founded in 1927.

"However, in the medium and longer term, sustained investment in defence budgets and political commitment behind modernisation will continue, albeit with some programme delays, higher costs and tighter control of procurement," Liang said.

(Reporting by Greg Torode in Hong Kong; Editing by William Mallard)