China’s reliance on hi-tech imports and potential workforce shortages in the next decade are two big looming vulnerabilities for its defence industry, according to a new report by a US think tank. In the report released last week, researchers at the Rand Corporation said other weaknesses included a lack of transparency in the massive state-owned conglomerates and – despite some advantages – single-party control over the enterprises. The report – “Assessing Systemic Strengths and Vulnerabilities of China’s Defence Industrial Base” – was commissioned by the US Congress and completed in October, 2021. The report said China was reliant on the United States and US allies in several areas, including education, raw materials, advanced components, and intellectual property. “China’s defence innovation system does not effectively transmit knowledge and information between its constituent components,” it said. “The sheer scale of China’s practices for gathering these resources – education and IP – from foreign countries indicates the country’s own view of these areas as domestic vulnerabilities.” As the “world’s workshop”, China has greater manufacturing capacity than any other country, but it also relies on foreign supplies – both bulk commodities and hi-tech components, it said. The report said China was reliant on the US and its allies for five minerals needed in the defence industry. China is also dependent on Russia, Ukraine, and, to some degree, France, for aircraft and naval engines, which represented the largest share of all Chinese arms imports between 2015 and 2020, according to the report. But the most important import category was integrated circuits – one that exceeded imports of fuel and ore in significance to China’s economic engine. The report likened the technology to the “petroleum of the 20th century and the coal of the 19th century”, and said the advanced IC supply chain was in the hands of the US and its allies and partners – South Korea, Taiwan and Japan. But Chinese commentator Song Zhongping said China’s heavy reliance on US-controlled IC chips did not translate into the arena because military applications did not evolve as fast as market-driven commercial electronic products. “In IC chips and core components and devices, the Chinese have generally realised supply chain independence and domestic production,” Song said. “The efforts to develop high-performance aircraft engines at home have also gradually come to fruition.” The report also predicted that falling birth rates and a shrinking workforce in the next 10 years could affect the growth of China’s economy as well as the defence sector, with signs that the defence industry might struggle to attract and retain trained talent. However, Song argued that while China’s population could fall, the pool of trained science and technology talent would still be larger than that in the US, and enough to maintain the talent pool needed for the defence industry. “That would in fact become a disadvantage for the US,” he said. One of the mixed factors was the Communist Party’s dominance of power and decision-making. The researchers said the centralised approach helped to drive whole-of-government strategies, provided long-term planning, and encouraged military-civil fusion. But it also risked betting on the wrong technology, resulted in poor intellectual property protection, and meant a lack of transparency. In addition, it led to deficiencies in costs, time and quality controls and corruption. “Even China’s central government lacks transparency into its state-owned enterprises and other [defence industry] suppliers,” it said.