Decline in Revenue for China's Military Firms Amid Corruption Crackdown

Revenues at China's major military firms have experienced a significant decline, attributed to ongoing corruption purges that have slowed arms contracts and procurement processes. According to a report by the Stockholm International Peace Research Institute (SIPRI), revenues for China's top military companies fell by 10% last year, contrasting sharply with global growth in the arms sector, which saw a 5.9% increase to a record $679 billion. This downturn is particularly notable as military revenues in regions such as Japan and Germany surged by 40% and 36%, respectively.

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The decline in revenue is closely linked to a series of corruption allegations within China's arms procurement system, which have led to the postponement or cancellation of major arms contracts. SIPRI's director of Military Expenditure and Arms Production, Nan Tian, highlighted that these issues have deepened uncertainty regarding the status of China's military modernization efforts. The People's Liberation Army (PLA) has been a focal point of a broader anti-corruption campaign initiated by President Xi Jinping in 2012, which intensified in 2023 with the targeting of the PLA's Rocket Force. This campaign has resulted in the expulsion of eight high-ranking generals, including He Weidong, the second-in-command of the PLA.

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Among the state-owned military firms, Norinco reported the steepest revenue decline, plummeting by 31% to $14 billion. The report indicates that personnel changes at the top levels of Norinco and the China Aerospace Science and Technology Corporation (CASC) have triggered government reviews and project delays. Additionally, the Aviation Industry Corporation of China (AVIC) has faced slowed deliveries of military aircraft, further impacting overall revenue.

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The ongoing corruption issues and the resulting revenue decline raise questions about the PLA's ability to meet its modernization goals, particularly as it aims to enhance its capabilities by the 100th anniversary of its founding in 2027. SIPRI researcher Xiao Liang noted that the timeline for advanced systems related to the PLA's Rocket Force, which manages its ballistic and hypersonic missile arsenal, may be jeopardized. Despite these challenges, Liang emphasized that sustained investment in defense budgets and political commitment to modernization are expected to continue, albeit with potential delays and increased costs.

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The Chinese defense ministry and the affected military firms, including AVIC, Norinco, and CASC, did not provide immediate comments regarding the findings of the SIPRI report.

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• “A host of corruption allegations in Chinese arms procurement led to major arms contracts being postponed or cancelled in 2024,” — Nan Tian, Director, SIPRI Military Expenditure and Arms Production Programme

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• “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,” — Xiao Liang, SIPRI Researcher

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