China's defense companies are currently grappling with significant challenges, reporting their lowest revenue growth in four years amid a broader economic slowdown. According to a recent report by the Stockholm International Peace Research Institute (SIPRI), these firms experienced only a 0.7% increase in revenue in 2023, while global arms sales surged to US$632 billion, a 4.2% rise from the previous year [bf1b812a]. This decline in growth is particularly concerning as five of the nine major Chinese defense firms reported revenue drops, with the Aviation Industry Corporation of China (AVIC) being the largest producer at US$20.9 billion and the China Aerospace Science and Industry Corporation (CASIC) suffering a significant 21% decline [2357e502].
In light of these challenges, there is a concerted effort within the industry to eliminate the so-called 'lying flat' mentality, which refers to a passive approach to work and productivity. Cities in China have implemented 'snail awards' to incentivize workers to engage more actively in their roles, reflecting a shift in workplace culture aimed at boosting productivity [2357e502].
Amidst these struggles in the defense sector, China's 'little giant' firms are experiencing a remarkable growth spurt. The country has fostered 14,600 of these small enterprises, surpassing the 2025 goal of 10,000. These firms focus on strategic industries, including artificial intelligence and commercial drones, with over 80% operating in emerging sectors like semiconductors [d4c4562f]. The average R&D investment for these companies is around 7% of their operating income, showcasing a commitment to innovation despite broader economic challenges.
Meanwhile, South Korea's arms exports are on the rise, reaching US$14 billion in 2023 and projected to hit US$20 billion by 2024. This growth is fueled by geopolitical tensions and increased demand for advanced military technology, as showcased at the recent Korea Army International Defence Industry Exhibition (Kadex) [5d6e17ac].
The SIPRI report highlights that the U.S. arms industry generated US$317 billion, accounting for half of total global revenues, while Chinese firms collectively brought in US$103 billion. The stark contrast in growth rates between South Korean and Chinese defense industries raises questions about the future competitiveness of Chinese firms in the global arms market [bf1b812a].
As the global landscape shifts, with conflicts in Ukraine and the Middle East driving arms sales, Chinese defense firms must navigate these economic challenges while adapting to a more competitive environment. At the same time, the Chinese government aims to expand support for little giants until 2026, with central government funds set aside for over 1,000 enterprises this year, indicating a strategic focus on bolstering innovation and manufacturing capabilities [d4c4562f].