China’s defence conglomerates: temporary troubles?

International Institute for Strategic Studies | Lucie Béraud-Sudreau, Meia Nouwens

Chinese defence state-owned enterprises NORINCO, CASC, CASIC, and CSGC experienced real-terms revenue drops between 4% and 16% over recent multi-year periods, despite Beijing expanding national defence spending by 32% between 2021 and 2025. This widening divergence highlights a sharp structural tension between top-line military budget expansion and actual revenue collection across state defense conglomerates.

While national defense spending reached USD273 billion in 2026—with over 40% earmarked for research, procurement, and maintenance—institutional inefficiencies and structural reorganisations hampered corporate financial performance. Meanwhile, American competitors like Lockheed Martin widened their revenue advantage over top Chinese contractors like AVIC, which generated USD32.2 billion in 2025 compared to Boeing's USD35.7 billion. Revenue results remained highly uneven. Nevertheless, aerospace firm AVIC and shipbuilder CSSC recorded revenue gains of 18% and 5% respectively, demonstrating that modern air and naval modernization programs continue to yield select financial growth despite broader sector turbulence.

Comment

The divergence between top-line military budget growth and enterprise-level defence revenues reveals systemic friction in China's state-managed procurement pipeline. While macro-level allocations for research and acquisition expanded, internal anti-corruption audits and organizational restructurings across entities like NORINCO disrupted long-term contracting efficiency. This institutional bottleneck limits the speed at which central capital injections convert into delivered materiel for the People's Liberation Army.

The procurement delay stems directly from state audit mechanisms introduced to scrutinize pricing models and supply chain redundancies within state conglomerates. When auditing procedures freeze contract disbursements, defense enterprises face capital constraints that temporarily depress reportable turnover. Consequently, the Chinese Ministry of National Defense experiences delays in executing serial production contracts for land systems like NORINCO's Type 15 light tank.

Strategic Question for Discussion

Which factor will exert greater influence on the People's Liberation Army's modernization timeline: the structural friction caused by state audit scrutiny within conglomerates like NORINCO, or the accelerated revenue growth seen in naval and aerospace sectors?

The available evidence points toward internal audit friction as the more immediate bottleneck, particularly for land-domain procurement where contractors like NORINCO face sustained restructuring. While naval and aerospace enterprises maintain strong turnover through priority platform orders, administrative delays in land systems contracting directly slow unit-level mechanization schedules across ground formations. Consequently, budget expansion will likely struggle to translate into uniform combat readiness across all service branches in the near term.

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