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OPINION: Impact of European Governments and Industries Courting Chinese Defense Markets: There May Be Trouble Ahead: |
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(Source: Frost & Sullivan; issued Feb. 1, 2005)
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By Michel Merluzeau, Global Director Airborne Systems, Frost & Sullivan
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The resumption of European military hardware sales to communist China is a hot topic of discussion inside the beltway these days. There is a certain air of near-inevitability and frustration about it, and it is certain that this item will figure high on President George W. Bush’s list of "things to remind the Europeans about" when he tours the place next month.
Needless to say that much is at stake here. European governments are all about making openings to the US administration in these post inaugural days, somewhat hoping to bring President Bush "back in line", when in fact it will most likely prove to be the other way around. They also hope that better relations with the US will translate into growing opportunities for European defense suppliers in the lucrative US defense market.
A word of caution: not so fast people in Berlin and Paris (and Toulouse); what happens in China will have a substantial impact on the US fortunes of European companies that may choose to supply Beijing with items that have raised justifiable concerns in Washington DC.
US Options
The European Commission has indeed planned to end the arms embargo it placed on China following the June 1989 student uprising in Beijing and other major Chinese cities. The European goal is to open a new strategic partnership with the emerging Asian superpower that could lead to very lucrative orders for some of the leading EU defense suppliers.
Convincing the newer EU and NATO members to abstain from providing weapon systems to China should not prove too difficult for the US administration, as negotiations for the relocation of US bases from Germany to Bulgaria and Poland are well under way and will significantly, amongst other financial benefits, boost the local economies. However, the most serious problems reside particularly with the French and German governments who have been lobbying on the issue and have courted Beijing for quite sometime now.
Some would also argue that the United States has long been a supplier of aerospace equipment to China. The US was indeed a key partner to Beijing in the development of some of its current fighter programs such as the J-8II in the 1980s. However, the collapse of the Soviet Union and the emerging expansionist views of China have transformed this country from "strategic partner" of the United States to a more likely "strategic competitor" and eventually, a potential adversary.
That argument, if used by Europeans to rebuff Washington, will run out of steam relatively quickly. It almost sounds like the argument used by some of the terrorist apologists that have often stated , wrongly, that the Central Intelligence Agency armed, trained and created Osama Bin Laden.
Chinese Shopping list
Systems that are very high on the Chinese shopping list include Battlefield surveillance systems, datalinks, UAVs, avionics, aircraft engines and targeting systems. France’s Thales and EADS are in a strong position to assume the lead for the supply of those systems if so requested by Beijing. Where the PLAAF (Air Force) is lacking most significantly is in the area of targeting systems. Supplying them with such equipment would greatly enhance the strike capabilities of aircraft such as the J-11, J-10 and J-8. However, it is believed that weapons systems are unlikely to be supplied to China at this point. Another PLA area of weakness is in its C4ISR capabilities, assistance from European companies could again tilt the balance in favor of China in the event of an engagement over Taiwan.
Most of the equipment supplied will likely turn up as individual equipment sales, possibly navigation systems, head up display and/or communications systems. Aircraft engines are also a possible item of interest for Beijing , since the development of the J-10 engine has suffered multiple setbacks over the years. Export versions of the M-53P2 or even the M-88 engines are not to be discounted entirely albeit unlikely. Not to be excluded also are the supply of militarized versions of the Airbus A-330 and the Airbus A-400M.
The Chinese air force is facing an airlift capability deficit and could use an advanced aircraft such as the A-400M to project forces and equipment in support of battlefield operations. This is rather speculative, but based on our knowledge of the PLA’s emerging needs; it is not completely implausible within the next 10 years.
It is also in the area of training and simulation that China would greatly benefit from European support and expertise. Even though the PLA has recently acquired advanced equipment from Russia, attrition rates remain high, and training needs to be improved to limit losses and better integrate and optimize the operational value of such advanced systems.
For European companies, the financial gains could be substantial, on the order of $4 to $5 billion based on very conservative estimates.
Consequences
EADS has announced its intention to bid for the supply of Airbus A-330 tanker to the United States Air Force. Such as move will most likely lead to nothing if the embargo is lifted, and EADS equipment begins to ship to China. It is also certain that the US congress will retaliate quickly, and that opponents of the EADS participation to the USAF tanker program will have found new ammunition to terminate this prospect once and for all. The Chinese option may look attractive to European companies at the moment, but the penalties experienced in the US market will also need to be weighed before decisions become final.
To moderate US concerns, the European Union will have to place strict export controls on some categories of weapon systems. However, there appears to be little movement from Brussels on this very issue at the moment.
A more worrisome development that seems to indicate that the Europeans, and Paris in particular, have yielded to Chinese demands is the announcement by Air China that it would buy 20 A-330s and would most likely acquire the new Airbus A-380 in the future. This is a sign, or a reward, for French and German efforts to end the embargo, which was firmed up during last October’s visit of French President Chirac in Beijing with a French capitulation to Chinese demands.
To succeed in stalling the lifting of the embargo, Washington needs also to demonstrate that the human right situation did not get better at all in China since 1989, that Chinese weapon systems represent a direct threat to the security of the United States and NATO, and that the stability of the entire region could be critically affected if France were to sell critical systems to the PLA that would improve its command and control capabilities over the Taiwan straight for example.
Such systems would inevitably be used against US air and naval forces involved in the defense of Taiwan. As it appears to be the case with energy markets globally, has Beijing been able to tilt the European balance in its favor at the expense of the United States and the safety of Taiwan?
-ends-
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