The Impact of COVID-19 on China’s Arms Industry

The opinions expressed by authors in these commentaries do not necessarily represent the views of the China Institute or the University of Alberta.

While the Coronavirus (COVID-19) has not met the People’s Republic of China’s (PRC) military forces on the battlefield, it has impacted the PRC’s arms industry ever since the first case was detected in Wuhan in early December, 2019. Approximately two months after initial reports of COVID-19 from the PRC’s central Hubei Province, the prevalence of the disease has claimed the lives of 2,596 people in country and infected 77,269 people globally, as per data from China’s National Health Commission (NHC, 国家卫生健康委员会), as of February 24, 2020. The WHO also recently stated that the disease has or could reach beyond the severity of previous and deep-impacted disease like MERS-CoV (2012-ongoing), A/H1N1 (2009-2010) Ebola (2013-2016), and SARS (2002-2003), which originated from Guangdong Province and infected more than 8,000 people globally – most of them in the PRC.

Rising security concerns in the Asia-Pacific region, with ongoing territorial disputes, and the need to continue to meet military deployment demands in spite of the potentially-debilitating COVID-19 outbreak and spread has led to the partial and total quarantine of more than 500 million Chinese citizens. Some of the country’s key military arms manufacturers reported serious disturbances in their production lines due to the shortage of people working in factories. The CCP’s Aviation Industry Corporation of China (AVID 中国航空工业集团), a company that employs over half a million people, was one of several key players in the PRC’s arms industry that reported falls in production with subsequent reports of full-scale production having resumed on February 10, 2020. Jiangnan Shipyard (江南造船厂), which is currently building the PRC’s third aircraft carrier – a key component of a blue-water navy – and Shenyang Aircraft Corporation (沈阳飞机公司), have reported implementing precautionary measures against the spread of COVID-19 that will have an effect on production. One can only speculate over the overall effect on production as the course of the disease cannot be predicted, but accounts between officials of key industries and state leaders reveal some discrepancies.

The arms industry in the PRC, as in any other country, relies on the support of other areas of production within the state to sustain and drive the PRC’s integrative export-oriented arms and defense industry. While the weapons industry and market remain integral components of the PRC’s national security, it can suffer as a result of a decrease in the supply of components from other areas of the state’s internal industry network in the face of COVID-19 such as a lack of steel, aluminum and other vital metal products: computers, communications materials, communications equipment, chemicals, machinery and electrical equipment, and other materials essential for the production of military equipment. While there is sufficient data to show that long-term economic impacts of pandemics can be significant, political tensions and unrest can also stem from both the outbreak and immediate direct impacts of a disease, as well as from the resulting security measures put into place by a state to curb disease spread. Responsive and preventive measures such as (partial or full) quarantines and lockdowns that could lead to violence and disorder even within states known to have strong institutions are relevant in this case. Backlash effects of this nature have the potential for further debilitating effects on, among others, the arms industry.

In his 2019 address to the Central Military Commission (CMC, 中央军事委员会), Xi said that, “[a]ll military units must correctly understand major national security and development trends, and strengthen their sense of unexpected hardship, crisis and battle … The world is facing a period of major changes never seen in a century, and the PRC is still in an important period of strategic opportunity for development.” While weapons manufacturing is a major source of economic gains for the PRC, increased spending tends to slow economic growth for any state. According to the Stockholm International Peace Research institute (SIPRI), the PRC spent USD $216 billion on its military in 2016, $227 billion in 2017, and $250 billion in 2018 – actual spending is higher than the PRC’s official budget indicates (official budget for 2018 is $170.4 billion). Rising expenditures can be coupled with the soaring costs of COVID-19 to the PRC’s businesses and industries. Dips can be observed in every major industry and the Chinese state is estimated to have lost some $196 billion for the months of January and February, based on data from the PRC’s National Bureau of Statistics (NBS, 国家统计局).

The PRC’s vast resources can accommodate immediate financial and possibly prolonged economic setbacks,  in order to facilitate the continuation of military production and the arms industry to meet goals set as part of its force modernization and force amplification. Taking into account the Taiwan Strait military balance (in terms of ground forces, naval forces, and air forces), as a case in point, numbers overwhelmingly favor the PRC. While unlikely to change and the PRC almost certain to maintain its numerical superiority over its immediate neighbours and in contested areas, the US has planned to deploy several hundred advanced, fifth-generation multipurpose aircraft over the next several years. Washington has already sent more than a dozen advanced aircraft, including its F-35 to Japan. Such military feed applies further pressure on the PRC to meet its targets and possibly readjust its current military deployment goals. There is sufficient scope to question whether the transfer of fighter jets in this quantity will be capable of disrupting the PRC’s military deployment objectives.

Similar to the PLA’s ability to dip into reserve forces, subsidiaries of the PRC’s key arms industries, those under the umbrella China State Shipbuilding Corporation (CSSC, 中国船舶集团有限公司) have extensive human resource reserves from which they can draw in an effort to counter worker deficits created by COVID-19 and state responses to contain the disease. Despite an obvious and understandable lack of reporting transparency on its military production and impact on its arms industry, the PRC almost certainly has the capacity to sustain its military production, meet its deployment quotas, and continue as the world’s second largest defense-spender as well as a major global arms-exporter. However, the lengthy period of disruption by COVID-19 could have a significant impact on both defense production and operations.

Tobias Burgers is an assistant professor at the Cyber Civilization Research Center, Keio University.