China's military industrial complex is the largest in Asia. The country's annual defense budget, estimated to stand at US$78 billion in 2010, makes it the second largest defense spender in the world. In the decade between 1990 and 2009, the country’s defense expenditure witnessed double-digit growth and grew at a CAGR of 21.49% during 2004-09. In its bid to become a military superpower, the country will continue to improve its indigenous capabilities. The current military modernization program focuses on developments in the naval field, as well as air defense systems, missile defense systems, C4I (command, control, communications, computers and intelligence) capabilities and surveillance equipment.

Rising internal threats, alongside increased criminal activity, pose a security risk to Chinese homeland security. The figure allocated for homeland security, estimated at US$75.3 billion (RMB514 billion), is almost as much as the amount budgeted for the country’s external defense expenditure, and is hoped to reduce criminal activity, riots, illegal immigration, illicit drug trading and human trafficking. Furthermore, the authoritarian regime of the country insists on the installation of surveillance technology across a range of locations in order to control rising mass protests within the country. The market for surveillance technology in the country is estimated to reach US$40 billion in 2010.

This report offers insights into the market opportunities and entry strategies adopted by foreign OEMs (original equipment manufacturers) to gain a market share in the Chinese defense industry.

In particular, it offers in-depth analysis of the following:

• Market opportunity and attractiveness: detailed analysis of the current industry size and growth expectations during 2010–2015, including highlights of the key growth stimulators. It also benchmarks the industry against key global markets and provides detailed understanding of emerging opportunities in specific areas.
• Procurement dynamics: trend analysis of imports and exports, together with its implications and impact on the Chinese defense industry.
• Industry structure: five forces analysis to identify various power centers in the industry and how these are likely to develop in the future.
• Market entry strategy: analysis of possible ways to enter the market, together with detailed descriptions of how existing players have entered the market, including key contracts, alliances, and strategic initiatives.
• Competitive landscape and strategic insights: analysis of competitive landscape of the defense industry in China. It provides an overview of key defense companies (both domestic and foreign), together with insights such as key alliances, strategic initiatives, and a brief financial analysis.
• Business environment and country risk: a range of drivers at country level, assessing business environment and country risk. It covers historical and forecast values for a range of indicators, evaluating business confidence, economic performance, infrastructure quality and availability, labor force, demographics, and political and social risk.

TABLE OF CONTENTS

1 Introduction
1.1 About this Report
1.2 Definitions
1.3 Methodology
1.3.1 Secondary research
1.3.2 Primary research
1.3.3 Conventions

2 Executive Summary

3 Market Attractiveness and Emerging Opportunities
3.1 Defense Market Size - Historical and Forecast
3.1.1 Chinese defense expenditure to grow at a CAGR of 9.92% during 2010-15
3.1.2 Desire to emerge as a global superpower drives defense expenditure
3.1.3 Chinese defense expenditure driven by economic growth
3.2 Analysis of Defense Budget Allocation
3.2.1 Share of defense expenditure to decline marginally over medium-term
3.2.2 China’s capital expenditure expected to total US$197.3 billion from 2010-15
3.3 Homeland Security Market Size and Forecast
3.3.1 Chinese homeland security market worth US$75.3 billion in 2010
3.3.2 Political instability will drive the Chinese homeland security spending
3.4 Benchmarking with Key Global Markets
3.4.1 China will remain the world’s second largest defense spender in 2015
3.4.2 China expected to remain the largest defense spender in Asia
3.4.3 Chinese defense spending as a percentage of GDP is less than the US, the UK, France and Russia
3.4.4 China faces minimal terror threats
3.5 Market Opportunities: Key Trends and Growth Stimulators
3.5.1 Demand for missile defense system expected to increase
3.5.2 Helicopters and aircraft to witness an increased demand
3.5.3 Naval modernization to drive the demand for maritime weaponry
3.5.4 China plans to upgrade its command, control and intelligence capabilities
3.5.5 Modernization of existing defense equipment will create demand for personnel training
3.5.6 Authoritarian regime will drive the surveillance technology market in China
3.5.7 Transformation of defense companies into an industrial base hugely dependent on foreign technology

4 Defense Procurement Market Dynamics
4.1 Import Market Dynamics
4.1.1 China acquires civilian technologies with the potential for use in its defense systems from foreign OEMs
4.1.2 Russia remains China’s largest supplier of defense systems, despite a decline in the number of imports
4.2 Export Market Dynamics
4.2.1 Chinese arms sales continue to rise
4.2.2 China strengthens its hold in emerging markets by offering low-cost defense equipment

5 Industry Dynamics
5.1 Five Forces Analysis
5.1.1 Bargaining power of supplier: low to high
5.1.2 Bargaining power of buyer: medium to high
5.1.3 Barrier to entry: high
5.1.4 Intensity of rivalry: low
5.1.5 Threat of substitution: low

6 Market Entry Strategy
6.1 Market Regulation
6.1.1 The Chinese military industrial complex opens up to private sector participation
6.1.2 Defense sector remains closed to direct foreign investment
6.2 Market Entry Route
6.2.1 Foreign technology finds its way into the Chinese defense sector through dual base economy
6.3 Key Challenges
6.3.1 Lack of competition, cooperation among firms and barriers to innovation continue to hamper the Chinese defense sector's performance
6.3.2 Arms embargo imposed by the US and European countries

7 Competitive Landscape and Strategic Insights
7.1 Competitive Landscape: Overview
7.1.1 State-owned enterprises are the only major players in China’s defense industry
7.1.2 Foreign technology enters the Chinese defense market by supplying civil use products
7.2 Key Public Sector Companies
7.2.1 Aviation Industry Corporation: overview
7.2.2 Aviation Industry Corporation: defense products
7.2.3 Aviation Industry Corporation: recent announcements and strategic initiatives
7.2.4 Aviation Industry Corporation: alliances
7.2.5 Aviation Industry Corporation: recent contract wins
7.2.6 Aviation Industry Corporation: financial analysis
7.2.7 China Electronics Technology Corporation (CETC): overview
7.2.8 China Electronics Technology Corporation (CETC): defense products
7.2.9 China Electronics Technology Corporation (CETC): recent announcements and strategic initiatives
7.2.10 China Electronics Technology Corporation (CETC): alliances
7.2.11 China Electronics Technology Corporation (CETC): recent contract wins
7.2.12 China Electronics Technology Corporation (CETC): financial analysis
7.2.13 China National Nuclear Corporation (CNNC): overview
7.2.14 China National Nuclear Corporation (CNNC): defense products
7.2.15 China National Nuclear Corporation (CNNC): recent announcements and strategic initiatives
7.2.16 China National Nuclear Corporation (CNNC): alliances
7.2.17 China National Nuclear Corporation (CNNC):  recent contract wins
7.2.18 China National Nuclear Corporation (CNNC): financial analysis
7.2.19 China Xinshidai Company: overview
7.2.20 China Xinshidai Company: defense products
7.2.21 China Xinshidai Company: recent announcements and strategic initiatives
7.2.22 China Xinshidai Company: alliances
7.2.23 China Xinshidai Company: recent contract wins
7.2.24 China Xinshidai Company: financial analysis
7.2.25 China Nuclear Energy and Construction Group Corporation: overview
7.2.26 China Nuclear Energy and Construction Group Corporation: defense products
7.2.27 China Nuclear Energy and Construction Group Corporation: recent announcements and strategic initiatives
7.2.28 China Nuclear Energy and Construction Group Corporation: alliances
7.2.29 China Nuclear Energy and Construction Group Corporation: recent contract wins
7.2.30 China Nuclear Energy and Construction Group Corporation: financial analysis
7.2.31 China North Industries Corporation (NORINCO): overview
7.2.32 China North Industries Corporation (NORINCO): defense products
7.2.33 China North Industries Corporation (NORINCO): recent announcements and strategic initiatives
7.2.34 China North Industries Corporation (NORINCO): alliances
7.2.35 China North Industries Corporation (NORINCO): recent contract wins
7.2.36 China North Industries Corporation (NORINCO): financial analysis
7.2.37 China Aerospace Science and Industry Corporation (CASIC): overview
7.2.38 China Aerospace Science and Industry Corporation (CASIC): defense products
7.2.39 China Aerospace Science and Industry Corporation (CASIC): recent announcements and strategic initiatives
7.2.40 China Aerospace Science and Industry Corporation (CASIC): alliances
7.2.41 China Aerospace Science and Industry Corporation (CASIC): recent contract wins
7.2.42 China Aerospace Science and Industry Corporation (CASIC): financial analysis
7.2.43 China Aerospace Science and Technology Corporation (CASC): overview
7.2.44 China Aerospace Science and Technology Corporation (CASC): defense products
7.2.45 China Aerospace Science and Technology Corporation (CASC): recent announcements and strategic initiatives
7.2.46 China Aerospace Science and Technology Corporation (CASC): alliances
7.2.47 China Aerospace Science and Technology Corporation (CASC): recent contract wins
7.2.48 China Aerospace Science and Technology Corporation (CASC): financial analysis
7.2.49 China North Industries Group Corporation (CNGC): overview
7.2.50 China North Industries Group Corporation (CNGC): defense products
7.2.51 China North Industries Group Corporation (CNGC): recent announcements and strategic initiatives
7.2.52 China North Industries Group Corporation (CNGC): alliances
7.2.53 China North Industries Group Corporation (CNGC): recent contract wins
7.2.54 China North Industries Group Corporation (CNGC): financial analysis
7.2.55 China State Shipbuilding Corporation: overview
7.2.56 China State Shipbuilding Corporation: defense products
7.2.57 China State Shipbuilding Corporation: recent announcements and strategic initiatives
7.2.58 China State Shipbuilding Corporation: alliances
7.2.59 China State Shipbuilding Corporation: recent contract wins
7.2.60 China State Shipbuilding Corporation: financial analysis
7.2.61 China National Electronics Import and Export Corporation (CEIEC): overview
7.2.62 China National Electronics Import and Export Corporation (CEIEC): defense products
7.2.63 China National Electronics Import and Export Corporation (CEIEC): recent announcements and strategic initiatives
7.2.64 China National Electronics Import and Export Corporation (CEIEC): alliances
7.2.65 China National Electronics Import and Export Corporation (CEIEC): recent contract wins
7.2.66 China National Electronics Import and Export Corporation (CEIEC): financial analysis
7.2.67 China National Aero-Technology Import and Export Corporation: overview
7.2.68 China National Aero-Technology Import and Export Corporation: defense products
7.2.69 China National Aero-Technology Import and Export Corporation: recent announcements and strategic initiatives
7.2.70 China National Aero-Technology Import and Export Corporation: alliances
7.2.71 China National Aero-Technology Import and Export Corporation: recent contract wins
7.2.72 China National Aero-Technology Import and Export Corporation: financial analysis

8 Business Environment and Country Risk
8.1 Business Confidence
8.1.1 Business confidence index
8.1.2 Market capitalization trend - Shanghai Stock Exchange, China
8.1.3 FDI inflows by sector
8.1.4 Deployment of credit by sector
8.2 Economic Performance
8.2.1 GDP at constant prices
8.2.2 GDP per capita at constant prices
8.2.3 GDP at current prices
8.2.4 GDP per capita at current prices
8.2.5 GDP split by key segments
8.2.6 Agriculture - agriculture output value at current prices
8.2.7 Agriculture - agriculture net output value at current prices
8.2.8 Agriculture - agriculture output at current prices as a percentage of GDP
8.2.9 Manufacturing - manufacturing output at current prices
8.2.10 Manufacturing - manufacturing output at current prices
8.2.11 Manufacturing - manufacturing output at current prices as percentage of GDP
8.2.12 Manufacturing - mining, manufacturing and utilities at current prices
8.2.13 Manufacturing - mining, manufacturing and utilities at current prices
8.2.14 Manufacturing - mining, manufacturing and utilities at current prices, as percentage of GDP
8.2.15 Construction - construction output at current prices
8.2.16 Construction - construction output at current prices
8.2.17 Construction - construction output-current prices as a % of GDP
8.2.18 Industry - crude steel production
8.2.19 Industry - crude oil consumption
8.2.20 Inflation rate
8.2.21 Fiscal deficit as a percentage of GDP
8.2.22 Trade balance as a percentage of GDP
8.2.23 Exports as a percentage of GDP
8.2.24 Imports as a percentage of GDP
8.2.25 Exports growth
8.2.26 Imports growth
8.2.27 External debt as percentage of GDP
8.2.28 Exchange rate US$-CNY (annual average)
8.2.29 Debt service ratio
8.3 Infrastructure Quality and Availability
8.3.1 Transport - total airports and ports
8.3.2 Transport - highways and railways
8.3.3 Transport - passenger vehicle production volume
8.3.4 Transport - commercial vehicle production volume
8.3.5 Transport - automotive components export trend
8.3.6 Transport - automotive components import trend
8.3.7 Transport - passenger car penetration
8.3.8 Utilities - total installed capacity for electricity generation
8.3.9 Utilities - installed capacity for conventional thermal electricity generation
8.3.10 Utilities - electricity production
8.3.11 Utilities - installed capacity for hydroelectricity generation
8.3.12 Utilities - installed capacity for renewable electricity generation
8.3.13 Utilities - electric power consumption
8.3.14 Utilities - electricity exports
8.3.15 Utilities - electricity imports
8.3.16 Healthcare - healthcare expenditure
8.3.17 Healthcare - healthcare expenditure as % GDP
8.3.18 Healthcare - healthcare expenditure Per Capita
8.3.19 Communication - total internet subscribers
8.3.20 Communication - broadband internet subscribers
8.3.21 Communication - personal computer penetration
8.3.22 Communication - mobile phone penetration rate
8.3.23 Technology - research and development expenditure as a percentage of GDP
8.4 Labor Force
8.4.1 Labor force
8.4.2 Unemployment rate
8.5 Demographics
8.5.1 Annual disposable income
8.5.2 Annual per capita disposable income
8.5.3 Annual consumer expenditure on food
8.5.4 Annual per capita consumer expenditure on food
8.5.5 Urban and rural population
8.5.6 Number of females as percentage of population
8.5.7 Number of males as percentage of population
8.5.8 Mean age of population
8.5.9 Median age of population
8.5.10 Population density
8.5.11 Age distribution - total population
8.5.12 Age distribution-male population
8.5.13 Age distribution-female population
8.5.14 Number of households
8.6 Political and Social Risk
8.6.1 Political stability
8.6.2 Terrorism index
8.6.3 Transparency index

LIST OF TABLES

Table 1: ICD Research Terrorism Index
Table 2: Chinese Military Industrial Complex - Competitive Landscape
Table 3: Aviation Industry Corporation - Alliances
Table 4: CETC - Alliances
Table 5: CETC - Recent Contract Wins
Table 6: CNNC - Alliances
Table 7: CNNC - Recent Contract Wins
Table 8: China Xinshidai Company - Alliances
Table 9: CNEC - Alliances
Table 10: NORINCO - Alliances
Table 11: NORINCO - Recent Contract Wins
Table 12: CASC - Alliances

LIST OF FIGURES

Figure 1: Chinese Defense Market Size - Historical and Forecast, 2004-2015
Figure 2: Chinese Defense Expenditure and GDP Growth Rate, 2005-15
Figure 3: China Defense Expenditure as a Percentage of GDP, 2004-15
Figure 4: Chinese Defense Budget Split between Revenue and Capital Expenditure, 2004-15
Figure 5: China Defense Spending Breakup - Historical and Forecast, 2004-15
Figure 6: Chinese Homeland Security Market Size, 2008-10
Figure 7: ICD Research Terrorism Heat Map
Figure 8: ICD Research Terrorism Index
Figure 9: Benchmarking with Key Global Markets - 2004-09 vs. 2010-15
Figure 10: Defense Expenditure of Largest Military Spenders in 2009 and 2015
Figure 11:  Defense Expenditure of Largest Military Spenders in 2009 (% of GDP)
Figure 12: Chinese Arms Imports by Country, 2004-09*
Figure 13: Chinese Arms Exports by Category,  2004-09*
Figure 14: Chinese Arms Exports by Country, 2004-09 Vs 2009*
Figure 15: Industry Dynamics - Porter’s Five Forces Analysis
Figure 16: Chinese Business Confidence Index, 2007-10
Figure 17: Shanghai Stock Exchange Market Capitalization (US$ billion), 2003-09
Figure 18: Chinese FDI Inflows by Sector (US$ billion), 2003-09
Figure 19: Chinese Deployment of Credit by Sector (US$ billion), 2003-09
Figure 20: China GDP Value at Constant Prices, 2003-15F
Figure 21: China GDP Per Capita at Constant Prices (US$), 2003-15F
Figure 22: China GDP at Current Prices (US$ billion), 2003-15F
Figure 23: China GDP Per Capita at Current Prices (US$), 2003-15F
Figure 24: China GDP Split by Key Segments 2003 vs. 2009
Figure 25: China Agriculture Output Value at Current Prices (CNY billion), 2003-15F
Figure 26: China Agriculture Output Value at Current Prices (US$ billion), 2003-15F
Figure 27: China Agriculture Output at Current Prices (% of GDP), 2003-15F
Figure 28: China Manufacturing Output at Current Prices (CNY billion), 2003-15F
Figure 29: China Manufacturing Output at Current Prices (US$ billion), 2003-15F
Figure 30: China Manufacturing Output at Current Prices(% of GDP), 2003-15F
Figure 31: China Mining, Manufacturing, Utilities Output, at Current Prices (CNY billion), 2003-15F
Figure 32: China Mining, Manufacturing and Utilities Output, at Current Prices (US$ billion), 2003-15F
Figure 33: China Mining, Manufacturing and Utilities Output, at Current Prices (% of GDP), 2003-15F
Figure 34: China Construction Output, at Current Prices (CNY billion), 2003-15F
Figure 35: China Construction Output, at Current Prices (US$ billion), 2003-15F
Figure 36: China Construction Output, at Current Prices as a percentage of GDP, 2003-15F
Figure 37: China Crude Steel Production (‘000 metric tons), 2003-15F
Figure 38: China Crude Oil Consumption (million tons), 2003-15F
Figure 39: China Inflation Rate (%), 2003-15F
Figure 40: China Fiscal Deficit (% of GDP), 2003-15F
Figure 41: China Trade Balance(% of GDP), 2003-09
Figure 42: China Exports (% of GDP), 2003-15F
Figure 43: China Imports as a Percentage of GDP, 2003-15F
Figure 44: China Exports Growth (%), 2003-15F
Figure 45: China Imports Growth (%), 2003-15F
Figure 46: China External Debt (% of GDP) 2003-09
Figure 47: China Exchange Rate US$-CNY (Annual Average), 2003-09
Figure 48: China Debt Service Ratio, 2003-09
Figure 49: China Airports and Ports, 2009
Figure 50: China Highways and Railways, 2009
Figure 51: China Passenger Vehicle Production (Volume - ‘000), 2003-15F
Figure 52: China Commercial Vehicle Production (Volume - ‘000), 2003-15F
Figure 53: China Automotive Components Exports (US$ billion), 2003-15F
Figure 54: China Automotive Components Imports (US$ billion), 2003-15F
Figure 55: China Passenger Car Penetration (per 1000 people), 2003-15F
Figure 56: China Total Installed Capacity for Electricity Generation (million kilowatts), 2003-15F
Figure 57: China Installed Capacity for Conventional Thermal Electricity Generation (million kilowatts), 2003-15F
Figure 58: China Electricity Production (billion KWh), 2003-15
Figure 59: China Installed Capacity for Hydro-electricity Generation (million kilowatts), 2003-15F
Figure 60: China Installed Capacity for Renewable Electricity Generation (million kilowatts), 2003-15F
Figure 61: China Electric Power Consumption, 2003-15F
Figure 62: China Electricity Exports (million KWh), 2003-15F
Figure 63: China Electricity Imports (KWh), 2003-15F
Figure 64: China Healthcare Expenditure (US$ billion), 2003-15F
Figure 65: China Healthcare Expenditure (% of GDP), 2003-15F
Figure 66: China Per Capita Healthcare Expenditure (US$ ), 2003-15F
Figure 67: China Internet Subscribers (million), 2003-15F
Figure 68: China Broadband Internet Subscribers (million), 2003-15F
Figure 69: China Personal Computer Usage (per 100 people), 2003-15F
Figure 70: China Mobile Phone Penetration, 2003-15F
Figure 71: China Research and Development Expenditure (% of GDP), 2003-15F
Figure 72: China Size of Labor Force (in 15-59 age group), 2003-15F
Figure 73: China Unemployment Rate (%), 2003-15F
Figure 74: China Annual Disposable Income (US$ billion), 2003-15F
Figure 75: China Annual Per Capita Disposable Income (US$), 2003-15F
Figure 76: China Annual Consumer Expenditure on Food (US$ billion), 2003-15F
Figure 77: China Annual Per Capita Consumer Expenditure on Food, 2003-15F
Figure 78: China Urban and Rural Population (%), 2003-09
Figure 79: Number of Females in China (% of population), 2003-15F
Figure 80: Number of Males in China (% of population), 2003-15F
Figure 81: China Mean Age of Population, 2003-15F
Figure 82: China Median Age of Population, 2003-15F
Figure 83: China Population Density (per sq. km), 2003-15F
Figure 84: Age Distribution of the Chinese Population, 2003-15F
Figure 85: Age Distribution of Males in the Chinese Population (% of male population), 2003-15F
Figure 86: Age Distribution of Females in the Chinese Population (% of female population), 2003-15F
Figure 87: China Number of Households (million), 2003-15F
Figure 88: Global Terrorism Heat Map, 2009
Figure 89: China Transparency  Index, 2003-09