Friday, January 21, 2011

Some thoughts about the growing US/China rivalry

As President Hu Jintao visits USA this week, I have seen a wave of articles about China vs US. They often try to explore the following the following subjects:
1) Has China surpassed USA?
2) China's unfair trade policies and currency manipulation.
3) China may seem impressive on the outside, but the communist system is hiding a lot of brewing problems.
4) What should US do about the growing PLA?
5) Is a crash imminent in China?

I will start by looking at China's current economic situation and social stability. I think that will answer what US should do about the growing Chinese military and has China surpassed US. At the current time, there are often two extremes when people look at China. The first extreme is created by look at China's impressive new infrastructure, clean energy initiatives, trade surplus and foreign exchange reserves. When you just focus of these, it will be easy to think that China has surpassed US in certain areas (especially economical strength). In the sphere of military, one can be easily impressed with PLA with the news about J-20, DF-21D and aircraft carrier programs. The other extreme is created by looking at the some substandard exports (lead paint for example), cheap knockoff products, piracy and "communist" system. In the sphere of military, one can dismiss China when looking at hundreds of J-7 fighter jets, Jianghu frigates and T-59/69 tanks that still form large parts of PLA.

We've read for the past few years that China is not playing by the rules in its current trade relationship with US and that it is doing so by keeping its currency artificially low. I do agree that China is manipulating its currency right now, but I also don't know if it's really that undervalued. When China first fixed its currency to 8.28 against USD, it was doing so achieve currency stability at a time when all major Asian currencies were dropping in value against USD in the midst of a major economic crisis in 1997-1998. It kept its currency fixed against USD until 2006 to achieve this currency stability while USD was dropping like a rock. China has since then moved between semi-floating and fixing RMB. But is RMB really kept below it's value? If we go by the amount of credit that BOC has injected in the economy and the resulting inflation rate in the past 3 years, it would be hard to argue it is. If we compare pricing of comparable items like gas, non-processed food, household items and such, they are about the same price in China after the conversion. For luxury items like high end cars, brand name beauty products and high quality alcoholic beverages, they are actually more expensive in China even after conversion. In fact, RMB has been loosing so much purchasing power recently that people having started speculate on commodity prices by buying precious metals and copper. The argument has always been that if RMB goes up, Chinese people would have money to buy more stuff from the west and that the credit injection is caused by China's desire to keep RMB low. I think even the Chinese gov't cannot manipulate the market forces in the long run. If inflation goes up, then factory workers' wages will be forced to move up even more, which would eliminate currency fixing effects. On the other hand, Chinese workers would still be making significantly lower wages than American workers even after a 20 to 30% move up. In the industries where China is competing against other low cost nations, it is unlikely that increasing conversion rate would move those jobs back to America. In the most high tech industries, Chinese products would still be quite a bit cheaper than Western ones even after increasing conversion rate. Basically, as long as Chinese companies can reach the quality/safety standard for that product class, they will most likely be the cheapest even after a 20% to 30% move up for RMB. So I think even if China did loose its capital controls and let its currency float, the effect probably will not work out the way that the politicians think they would.

However, I do think there are measures that China can take which would help balance trade between the 2 countries. First of all, China would need to take intellectual property right more seriously in the software industry (primarily in terms of software piracy). This measure would not only help American companies like Microsoft, but also help China's aspiring domestic software firms. Secondly, US and China should work on a more stringent quality control framework for exports into America. This measure would prevent substandard product like toys with lead paint from coming into America and also improve the reputation of Chinese products. Thirdly, China needs to allow greater access for American companies bidding for hi-tech projects in China. Western countries have also had this problem with Japan and South Korea, where market access are not equal on the two sides of trade. There really is no reason that Western companies that have part of their production in China should not have equal access to those projects. Fourth, I think many of the complaints from GE and other hi-tech exporters would be soothed if a framework can be worked out to prevent local Chinese companies from blatantly copying designs and claim them as their own. Part of the framework should also prevent Chinese government from enforcing caps like 70% of wind power must be produced locally. Having such an accord would reduce trade tension and possibility of trade war, which would help nobody. Fifth, I think China should provide greater access of its domestic food market to American farmers. China has shielded its farmers from international competition due to its fear over domestic unrest from this group. However, such measures have only stoked a lot of inflation in food prices for ordinary Chinese citizens. So, allowing more competitively priced international farming produce in the country would reduce inflation and public outcry over rising food prices.

The topic of inflation and public outcry bring us to the question of whether or not crash is imminent in China. The topic of China sometimes refer to the potential problems in the Chinese economy, while other times refer to social problems facing China. They are some what related to each other. It's often been said that the Chinese government has made an implicit pact with Chinese people where they get to control government the way they would like as long as they can continue to deliver increased prosperity. In particular, Chinese government caters to the demands of big business, banks, the wealthy and the growing middle class. This broad group has gained the most from China's existing social system and would generally be the most opposed to changes in governance (become a democracy for example) that would create instability and give more voice to the rest of the population. To get an idea of the social problems that simmers under the surface in China, one would only have to go to the city hall of any municipality. You would see a bunch of policemen standing outside the city with no apparent task to do. They are there to stop demonstrations by people that lost out as part of China's move from socialism to capitalism. Back in the socialist days, city dwellers can keep their job regardless of how productive their enterprise may be and receive welfare for life. As part of the move to capitalism, a lot of state owned enterprises were allowed to collapse in the face of competition from far more efficient private companies in the late 90s. As part of this shift toward private enterprises, there was a huge migration of jobs from the less efficient central part of the country to the export driven coastal provinces. With less job around, some people were able to adjust to this new working environment, but a lot of people were forced into early retirement while others were laid off. So now, all of the local government have the headache of dealing with angry people from loosing their jobs, health care and cheap housing. In order to alleviate all of these angry and unemployed people, they launch infrastructure projects (many wasteful) and created a lot of low tax business zone to attract investment. Sometimes these things work out, while other times they are stuck with a lot of debts, but they always end up taking land away from some unfortunate souls. China gets over 50,000 protests every year for reasons like unfair compensation for seizure of land, job loss and environmental damage. Even among most of population whose living standards have really improved in the past 30 years, there are growing resentment toward the wealthy and the connected.

Another source of growing discontentment is the shifting dynamics of the young people. I have read many articles talking about labour shortage problems in China. I don't believe there is a labour shortage problem, but rather a shortage in cheap labour. A large portion of the young people coming into the work force nowadays are the only child of their family and carry the hopes of doing better than their parents. Unlike their parents' generation, they are not willing to sweat out low paying blue collar jobs after getting college degree. As a result, a large portion of new college graduates are having trouble finding jobs while sweatshops and factories are having to constantly raise salaries due to the decline in migrant workers. As we move forward, these factories would have to raise compensation and improve work condition to attract the college grad and keep the migrant workers from going home. We are already seeing this happening in the past couple of years in big companies like FoxConn and Toyota and also in most of the low cost export factories in Guangdong. At the same time, Chinese companies have been retiring people from work force in the early 40s due to the influx of cheap young labour. As the number of young labours entering work force decline, these factories would also be forced to retire the better compensated older workers at later age. These are all factors that I think will prevent labour shortage, but will also drive up the cost of labour. Such natural economic forces will increase the cost of Chinese products in ways that no forced currency revaluation could. They will also force China to move up the value chain and face off against higher valued export nations like Japan, South Korea, Germany and Singapore.

So in short, I do believe there are a lot of social problems simmering under the surface in China. With all these potential social problems, is China also facing huge economic problems? I think the answer is yes and no. On the negative side, there is a huge real estate bubble in big Chinese cities across the country as a result of huge expansion in credit in the past 2 years. In order to stave off a short term economic decline in 2008, China ended up inflating larger bubbles across the country. A lot of speculative money went into new building in Beijing, Shanghai, Shenzhen and Chongqing. Even less developed inland cities were affected, although to a smaller degree. It's often said that a large portion of new homes are bought but vacant, because the buyer is waiting for the housing prices to go up. The housing prices are at such high level now that ordinary families simply cannot afford to buy homes. This housing bubble is no different than the ones that already burst in Ireland, Spain and Portugal or the ones that are forming in Australia and Canada. Another problem that I see is the excessive infrastructure projects by local governments funded by banks' cheap lending. As an example of wasteful spending, my hometown in China has built a city wall and a moat to try to transform itself into an historical tourist city (I'm not kidding here). Since a large number of these infrastructure projects are wasteful, the Chinese banks, who are implicitly backed by the gov't, will have to absorb the losses. These problems are similar to what has already surfaced in Iceland and Ireland and about to surface I think that once the housing bubble burst and debts problems from infrastructure projects surface, it will cause for some hard times for the Chinese economy. Unlike the PIIGS countries in Europe, the fundamentals in the Chinese economy is still very good. Even if the real estate sector and infrastructure suffer a slowdown, they still have enough productive industries around the country to keep lower level of growth. At the same time, the Chinese private sector also have very high level of savings, which creates enough capital for small businesses and new start-ups. While the public debts situation will become a problem when the government has to bail out banks, they do have enough currency reserves to deal with these losses. Most importantly, China does not have the same level of unfunded liability of public sector workers that Western countries have to deal with. For example, the current unfunded liabilities in America is greater than the total asset values of everything that America owns. This situation is well reflected in the 2 countries' fiscal deficit. While the American federal gov't has hovered around 10% in the past 2 years and many state gov't are swimming in debts, Chinese deficit has been 2.8% and 1.6% in the past 2 years after budget surplus in 2008. So when we factor in the public and private sector saving/debts, I think China is one of the few major economies that can survive the sovereign debts crisis. It will experience some pain once the credit bubble burst as part of the boom/bust cycle, but it will get out of this global economic downturn better than most countries. After all, America became the largest and most wealthy nation despite going through many downturns in the past 2 centuries.

As a whole, I think the Chinese economy is not as rosy as some economists think. I share the prognosis of economist like Andy Xie, Marc Faber and Jim Roger, that China will go through some pain once the many bubbles in the country burst. At the same time, I also disagree with doomsday scenario of noted bears like Jim Chanos and the always anti-China Gordon Chang (who predicted that Chinese gov't would collapse by 2006). The Chinese economy will recover after some pain and some more protests. I think that although the current social tensions in China are bad, most people are thankful toward government for their improved quality of life and freedom. Most of the protests would be aimed at local governments rather than the central government, because people generally regard local governments to be far more corrupt and incompetent. As long as we do not see a complete economic collapse, we should see a stable central government that moves toward more openness and accountable. For an accurate depiction of the current Chinese social/political structure, I would recommend everyone to watch youtube clips of Orville Schell.

Building upon the past few paragraphs on China's current state, I can answer question 1) and 4). There are some areas that China has surpassed USA, but much more areas that it is still far behind USA. At the current time, China is in a lot of better financial position than America. As the largest creditor nation in the world, can go around the world bailing out bankrupt states, fund infrastructure projects and buy rights to natural resources. America on the other hand is the largest debtor nation and can only bail out other nations through secretive lending by Fed reserves. China still has a lot of poor people, so it will have a lot of room for growth and increasing productivity than America does. It also has a far more competitive manufacturing sector than America due to advantages such as lower wages, lower taxes, less regulations and lower financing cost. Despite being communist in name, China today has one of the world's most pro-business and capitalistic government. And finally, it is in a much better position in terms of public and private sector debts. China has huge private sector savings + low public sector debts, whereas America has huge private and public sector debts. And if state and federal government in America continue to try to pass on the debt problem by increasing taxes rather than fighting the powerful labour unions, the debt situation will simply get worse. So most of China's advantages are in the area of economy and finance, whereas USA is ahead pretty much in everything else. Despite the large number of engineers and scientists graduating from Chinese universities, they still lag far behind the high level education of top American universities. Simply put, China does not have any Harvard, Yale or Columbia. The top research labs in America are still the envy of the world. Along that line, America has an advantage in innovation due to more advanced research facilities and greater respect for IP. As a result of its advantages in innovation and research, America is likely going to stay ahead of China in technology for a while. America also is a more powerful voice around the world. Even though China has gained much influence and America has lot much respect in the past 10 years, most countries in the world still look at America for moral leadership. Most Western countries need China for its money and large market, but does not really have much respect for how the country is run. America has also been spreading its values to the world for the past century through film, music and other form of culture. Even though China has a much longer history, it is unlikely for China to ever spread its values the same way. When there are political problems and regional conflicts in different parts of the world, they look for America to come in as the mediator rather than China. And finally, America has a very large lead in its military prowess. Even though PLA has improved a lot in the past 10 years, it is still a generation or more behind America in most areas of military technology. I have read a lot of alarmist articles about J-20, Varyag and DF-21D recently, but they are nowhere near enough to tilt the balance of power in Pacific Ocean. In the best case scenario, China will have enough military prowess to deter America from entering a possibly costly Taiwan conflict in 10 years. China does not have the desire nor the ability to provide any kind of threat to America. Even if China builds 5 aircraft carriers, it would not be able to challenge US Navy in international waters. All of the political/economical objectives that China want to achieve can much easily be achieved through its financial prowess. So, when I read articles about how America needs to spend more on the military to deter a rising China, I'm often left to hang my head down and accept the higher taxes and inflation that I will be facing. USSR did not collapse because its military could no longer pose danger to USA. It collapsed because it was totally broke from spending too much money on its military and foreign adventure in Afghanistan. The British Empire did not loose its dominant place in the world because of the decline in its military. It lost its place in the world to US, because US had much stronger manufacturing and financial strength. So if US wants to maintain its leadership in the world, it needs to get its financial situation in order.

In conclusion, Hu Jintao's visit to America provides a good test for us to think about how the relationship between the 2 countries can develop and be beneficial to both side. I think that it is too simple to blame all of America's problems on China's currency. As I mentioned, China can make some other changes that will be far more helpful in balancing the trades between the two countries. In the long run, America will continue to be on the wrong side of the trade unless it can address its financial issues by having less tax burdens on everyone and save more money. China also has a lot of social and financial problems to address, but it will continue to grow in influence as its economy continues to grow. As a Chinese Canadian living in New York, I hope that people in both countries can realize the challenges facing both countries and learn to grow together in this increasingly interconnected world economy.

Saturday, January 15, 2011

J-20 had its first flight, what now?

This past week, all of the Chinese forums and aviation forums online were left buzzing with pictures and videos of the first flight of J-20. At the same time, news of Hu Jintao being surprised by Gates asking him about the first flight of J-20 were also circulated around the web. Either way, the recent news of J-20's appearance has caused a lot of headlines around the world. The question is what now? What does this mean for the Chinese aviation industry and PLAAF?

When we read the news online reporting J-20, we see a lot of different opinion. There are some that are immediately dismissive toward the plane, toward China's ability to field a 5th generation fighter jet and to weed of reliance on Russian support. I find much of these articles to be extremely misinformed on the current situation in PLAAF and Chinese aviation industry. For example, one common misconception is that China is still relying on AL-31F on J-10 and J-11 at the moment. While it is true J-10s are still using AL-31FN, it is also quite evident that J-11Bs are entering service in two different regiments (one in PLAAF and one in PLANAF) with FWS-10 as the power plant. I will get back to the issue of engine later. At the same time, there are also a lot of excited PLAAF fans online who are looking at this as the F-22 competitor and the F-35 killer. Some are even wondering about the need to continue produce more J-10 variants with the apparent arrival of J-20. While it is easy for a PLA follower like myself to get excited about J-20, it is also apparent that China has a long way to go.

I have always said that I expected the 5th generation fighter jet to first achieve operational status around 2018 (meaning having at least one full regiment converted to this plane and completed basic training on it). At this point, I still expect it to be so if everything works out. The first and the biggest question is engine. I was extremely surprised to find out a particular upgraded variant of WS-10 was used for the first flight instead of AL-31F. I believe that J-11BS's first prototype was also using WS-10, but did not think it had enough thrust for J-20. I think that J-20 made its first takeoff without the need to turn on its afterburners and took off at much shorter distance than J-10S. I don't think a fighter jet with two severely underpowered engines would be able to do that, so its engines should have more power than that of standard WS-10. Right now, there are basically two plausible theories right now regarding to the engines:

1) They are a specially modified version of WS-10G (an upgraded variant of WS-10) that generates comparable thrust to 117S. This variant has been in development for a while and has already finished long endurance testing. However, due to the continued struggle of Shenyang Liming (factory 606) in mass production of the basic variant of WS-10, this variant also could not move forward in its deployment. Due to the immaturity of the design, it would have much shorter service life and MTBO than more mature engines like AL-31F or even WS-10.
2) They are a specially modified version of WS-10's basic variant. These two engines are carefully prepared with more advanced materials and are switched to operate at higher thrust level than a normal production copy. Again, the MTBO time of these engines are much shorter than the normal WS-10s, because they have to handle the wear and tear of continuously generating more thrust.

Of the two, I think the first one is more likely. What does this say about WS-10? I think that while there are problems with the design, it can be successfully deployed in service if it is produced and maintained properly. PLA would not allow one of their biggest projects to make first flight with an engine that they have no faith in. I guess that is the main problem. Shenyang Liming has become the joke of Chinese aviation industry with its recent failures. After several years of fanfare, the WP-14 (Kunlun) project was recently abandoned. I would think much of that is due to Liming's problems with project management and quality control. At the same time, WS-10 and J-11B program have been delayed by at least 2 years due to continued troubles with the quality of WS-10 produced by Liming. WS-10 has only recently been fielded on J-11B after a lot of changes. You can only discover all the little problems with an engine after it has been installed on many aircraft and flown many hours. And I hope in the coming couple of years, Shenyang AeroEngine Research Institute (SAERI, not to be mistaken with Shenyang Liming) will be able to really increase the reliability of the design and use that in its other projects like QC-280, WS-10G and WS-10-118. However, even a really well designed engine can have a lot of problems if the manufacturer does not have good production or quality control processes. I hope that Shenyang Liming can fix its current problems. Otherwise, all of the production responsibility should be shifted to Xi'an AeroEngine PLC (factory 410). XAE has been mass producing WS-9 for JH-7A without any major reported problems and is also responsible for one third of the parts on WS-10. I believe that it is also responsible for producing WS-15 and large bypass turbofan engines for Y-20 once those engines are ready for mass production. It is obviously a long way from reaching the manufacturing quality of GE, PW and RR, but it is the golden standard of Chinese AeroEngine companies. It also scored major boast recently when it formed join venture with Nexcelle to produce and assemble jet engine nacelle components of the C919 project. These things will only help the project management and quality control of XAE. At this point, you may wonder why China does not just give up on Liming and pass everything on to XAE or even any of the other AeroEngine manufacturer. I think that China is trying to keep several factories around to foster competition. It remains to be seen whether or not XAE or GuiZhou Liyang or Chengfa group (factory 420) or any other factories will get in on WS-10. So, while J-20's first flight with WS-10 is a good sign, we still need to wait a couple of years to see if Liming or XAE or anyone else can finally reliably mass produce WS-10 engines for J-10 and J-11.

Questions have also been raised about whether other parts of a 5th generation program like missiles, avionics, aerodynamics, materials and stealth can reach that level. I think what we have seen recently in Zhuhai airshow with regards to PGMs and AShM + reports of different 5th generation AAMs in advanced development show that this is not an area of concern. In fact, aviation week reported that most of the next generation missiles were all designed with the weapon bay of J-20 in mind. I also find radar and avionics to not be an area of concern. The J-10B platform will be used to test out a lot of avionics that will eventually deployed on J-20 (albeit improved in performance). From the recent CIDEX 2010, it is apparent that the Chinese electronics industry has come a long way in a short time and is more than capable of developing and producing top notch of avionics for fighter jets and other military hardware. I think aerodynamics is another area that should be quite well developed. I certainly expect J-20 to be far more maneuverable than F-35 and at least on the same level as T-50 and F-22 in flight performance. The areas that I do question are material and stealth. Does China have the ability to produce the high quality composite carbon polymer, titanium and other material needed for a 5th generation fighter jet. I think they do due to all of the work they have with airliners, which are at the cutting of material technology. For example, Harbin aviation industry group is cooperating with Airbus as a supplier for composite material on A350. At the same time, AVIC-1 is also cooperating with Hexcel and Boeing to produce composite materials for Boeing jets. SAC is in charge of the entire aluminum-lithium fuselage for Bombardier's C-Series jets. That leaves us with the biggest question of stealth. I've already heard plenty of complaints about the effect that the canards and the variable DSI-like intake would have on stealth. I think when CAC was developing J-20, they had to make compromises between its weight, aerodynamics and stealth. They definitely developed it with the intention of creating a LO-platform as we can see from internal weapon bay, the general shaping of the aircraft, the jagged edges of all the compartments and panels and the "stealthy nozzles" on the engine. However, what kind of affect would the canards or the intakes or anything else would have all the signature of the aircraft. Did they develop J-20 with full aspect stealth in mind? And what kind of results have they achieved in plasma stealth and application of radar absorption material? These are the things I don't know and we will have to wait to be answered. One of the most significant part of J-20's development is that these areas of development can be applied on J-10 and J-11 to improve their capabilities.

What does J-20 mean for the aircraft makers of AVIC-1? It appears to all of us that CAC/611 Institute has overtaken SAC/601 Institute as the top dog of AVIC-1. After all, CAC beat SAC in the competition for the 5th generation jet and the 4th generation jet (J-10). It also scored many export contract with J-7s and JF17s, while SAC has not done anything. From this, SAC has taken a lot of heat for its inability to produce anything new, while continuing to develop new variants of J-8. I do think that a lot of it is unwarranted. It probably does not have the ability to innovate like CAC, but it has done a lot of good things with flankers. China made the decision to locally produce Su-27s, because it could not at that time develop a comparable fighter jet. While CAC was given resources to develop J-10 (and it did a great job), SAC was forced to learn something as complex as Su-27 and produce it. Sukhoi has been very surprised to find out that SAC was able to learn enough about su-27s so shortly to be able to develop (or copy as the Russians call it) and completely locally produce J-11B and J-11BS. With its experience in developing J-11B/S and studying T-10K prototype, it was able to fast track and quickly develop J-15 fighter jet. Even though CAC is the main contractor for the J-20 project, SAC's experience in heavy fighter and high quality titanium and aluminum alloy with J-11 project has been extremely important in J-20's development. So as we move forward, CAC and SAC are both very important in the future of Chinese military aviation. As SAC has shown in its ability to land major supplier contracts with Boeing, Cessna and Bombardier. I also hope that Xi'an AC and Shaanxi AC will continue to advance in RnD and production through future transport and bomber projects. It is important to continue to foster competition within AVIC-1 and compete in international aerospace industry.

The other big question is what J-20 will mean for PLAAF. In the current time, J-10 and J-11 form a good light-heavy fighter jet combination with JH-7A as the main strike bomber and H-6 as strategic bomber. PLAAF still has a large number of J-7 and J-8 regiments that will need to be replaced in the coming years. In spite of what some may think, PLAAF does not have endless amount of cash that it can spend on new weapons procurement. It is important to spend an increasingly amount of budget on recruiting the best pilots and putting them through the best training programs. Even if PLAAF is somehow handed the entire F-22 inventory of USAF today, it would not have enough budget to operate and maintain them while also maintaining all of its other aircraft divisions. Even in 10 years when J-20 first enters PLAAF in meaningful number, PLAAF will not have enough budget to field it in large number. You may ask at this point why they do not just shrink the size of its air force like what most other air forces are doing. They have actually shrunk their air force quite a bit already when J-6s were put out of commission and will probably shrink a little more when J-7s retire. However, China has a very large airspace and cannot shrink past a certain point. As a result, PLAAF will likely be made up of a combination of the very hi (J-20), the middle (J-10s, J-11B+), the lo (early flankers variants, J-7/8s) and non-fighter jets (JH-7A, AWACs, K-8, L-15, Y-8/9...) by 2020-2025. Over the next 10 years, J-7 and J-8 regiments will slowly retire out of service. At the moment, J-7s are replaced by J-10s while J-8s are replaced by flankers and newer variants of J-8s. Flankers are likely to remain in service with PLAAF for a long time, because they will be very useful in the roles of fighter-bomber and strike aircraft even after the proliferation of stealth aircraft. If XAC does not develop a replacement for JH-7, then J-11BS could eventually be used to replace JH-7 regiments. Some people have wondered about the role of J-10 in PLAAF after J-20's induction. Some have even questioned the need for J-10B or future variants of J-10s. I think that J-10B or a future variant of J-10 will form a hi-lo combination with J-20 as the backbone of PLAAF's air superiority fighter jets. Some of the technologies tested on J-10B can then also be used on J-10A to improve its performance. Either way, I think J-10s will continue to replace J-7 regiments around the country and become the work horse of PLAAF. It is important to watch out the engine situation of J-10s. I'm hoping that WS-10 series will soon become reliable enough to be used on J-10s. Aside from J-10s and J-11s, it seems that PLAAF also wants to use a cheaper 4th generation option to replace some of the remote J-7 regiments. After all, you don't really need J-10s to protect the airspace against Kazakhstan or Mongolia.

That seems to be where JF-17s come into play. From what I'm gathering on Chinese bbs, it seems that PLAAF wants an ultra cheap option under $15 million to replace some of the J-7 regiments. You may think it is crazy that PLAAF regards the $25-30 million price tag of a J-10 to be too expensive, but that is the case. If PLAAF does pick JF-17 (or a new cheap 4th generation) design, it will not be as fancy as the one prepared for PAF. It would have to be using a domestic engine like WS-13 to lower the cost. It would probably not be required to have more than 7 hard points or have any significant multi-role capability. Its radar will probably be similar to KLJ-7 and not required to have greater concurrent engagement capability. Basically, you can think of it as a low cost, bare bone JF-17 that can fire BVR weapons and have reasonable range. At this point, we will have to wait for pictures from CFTE to see when or if this cheap 4th generation fighter jet theory will come to fruition. Either way, I think PLAAF will continue to stay within its budget and not go after too many expensive options and retain quantity to counter all of its perceived threats.

J-20's first flight is a significant turning point in the history of PLAAF and Chinese aviation industry. It shows the progress that Chinese military aviation industry has made in the past 15 years. It really shows that CAC has turned out a young and energized generation of engineers capable of designing advanced military aircraft. We will likely see continued progress of J-20, J-10, JF-17 and different UAVs from CAC in the coming years. We should also not overlook the many challenges, like engine and stealth technology, that China faces in its development. J-20's unveiling does not mean China has caught up with the west, but rather it has learnt a lot from everyone and has gained a lot from cooperating with everyone. And the Chinese aviation industry can only grow from continuing to cooperate with Western companies in C919 and other aircraft programs.

Friday, January 7, 2011

China's conventional submarine fleet

In the past few months, we have seen renewed activity around WuChang shipyard with the launching of numerous new conventional submarines. That got me interested in spending more time looking at China's diesel submarine fleet and how they are deployed. This blog entry will devote most of its energy on the 039 series, since that is currently the main work horse of PLAN. At this point, I really cannot answer questions like how quiet these submarines are, since I do not have that kind of classified data or have experience in signal management to give good estimates.

As you guys know, PLA Navy contains three fleet: North Sea Fleet, East Sea Fleet and South Sea Fleet. There seems to be 2 flotilla of submarines in each fleet. At the moment, we have some 033s, 035s, 039s, 039As and kilos serving at these flotilla.

The Type 033 class submarines are basically the domestic productions of Romeo Class submarines from USSR. The production of 033s went on through the 60s and 70s before finally stopping in 1984. It is obviously an extremely old submarine class and have mostly retired from service. Currently, they are still serving at some flotilla in training roles.

The Type 035 Ming class submarines were the first domestically designed submarine. They were developed based on Romeo class and had a lot of problems early on. The original variant of 035s were error-prone and retired from the service by the 80s. Following that, a 035G variant was developed. This variant started production in 1987, a full 18 years after the first 035 started production, because Chinese military development basically paused in those years. The 035G and the subsequent 035G1 variant continued production until 1996. This class is currently in service in much of the NSF flotilla with the 2nd and 12th submarine flotilla. A following class 035B (also known as 035G2 in some circles) were produced between 1997 and 2001. About 8 of these boats were produced for the SSF and they are currently serving in the 72nd submarine flotilla. These boats were built after the first 039, so they adopted a lot of technologies from Song class like Anechoic tiles, more advanced fire control systems and the ability to fire more advanced weaponry. In fact, a recent article has shown that 035B submarines are capable of OTH strikes (through YJ-82 I assume). Ming class also has the dubious honour as the submarine that caused the deaths of its entire crew. So even though it is still serviceable for coastal patrols, this class is not fit for front line duty.

In the early 90s, PLA took advantage of the low Russian defense funding to import large quantity of highly capable former Soviet weapon systems. One of the most recent imports is the Kilo class. As early as 1995, China received two units of project 877EKM (kilo class) from the Russians. These two were followed by two units of the improved kilos (project 636) in the late 90s. These were highly capable systems that were more than one generation ahead of anything in service with PLAN. They were also capable of firing heavy Russian torpedoes that were a generation ahead of what was available at that time for 035 class. In response to possible Taiwanese import of submarines from US, PLAN ordered 8 more improved kilo class (project 636M) in 2002. These boats had new fire control system, French Sonar and the ability to launch the supersonic Klub-S AShM. Eight of the Kilo submarines were assigned to the 42nd Submarine flotilla of East Sea Fleet (No. 364 to 371) and the other four were assigned to the 32nd Submarine flotilla of the South Sea Fleet (No. 372 to 375). In the recent years, the Kilo class have lost some luster with PLAN. We hear about several early failures with launching Klub-S missiles and only see pictures of Kilo submarines at the dockside or in shipyards for repairs). I don't know if it has become paper tiger, but PLAN does not seem to be using its capabilities fully.

As China imported Kilo submarines in the 90s, they also started the construction of a new generation of submarine (aka the Type 039 Song class). The first boat had a lot of problems after its launching in 1995 and did not join service until 1998. Even then, it seemed to be quite outdated design compared to the Kilo class. Major redesign was done during that time and an improved variant, the 039G variant, came out between 2001 and 2003. The easiest way to tell from the original 039 boat (No. 320) and remaining 039 variants is the removal of the stepped sail structure. PLAN only ordered 3 039G submarines (No. 321 to 323) before making further changes and starting mass production of 039G1 variant. Here are some of the changes courtesy of Crobato:
  • The G1 has only a single line of sink holes near the front bow. The G has three lines.
  • The G has a continuous sink hole line behind the sail. In the G1 it is staggered.
  • The back of the G model where the sail meets the hull is webbed and shaped with a curve. The back of the G1 model where the sail meets the hull is just plain straight.

About 12 boat of 039G1 variant (No. 314 to 319 and 324 to 329) were produced at JiangNan shipyard and Wuchang shipyard from 2004 to 2006. Please note that I am guessing with some of the number of these submarines, because the number of the boats are almost never on the released photos. At the moment, the 22nd Submarine Flotilla of the East Sea Fleet is made entirely of Song class. I believe they have No. 320-323, 314, 317-319. Here is a photo of that flotilla:

Four of the 039G1 variant joined with 4 636M in the 32nd Submarine Flotilla of the South Sea Fleet. Please note that 324 and 325 were originally in the 22nd Flotilla, so some sources still have them listed in that flotilla. Here is an image of 2 039G1 and 4 636M from this year.

And finally, 4 039G1 boats (No. 315, 316, 327, 328) joined 4 035G boats in the 2nd Submarine Flotilla of the North Sea Fleet. Here are some pictures of those boats together. Fortunately, we can actually see the number on these submarines, but I've had no such luck with other Song class photos.

At this point, Song submarine have become the work horse of PLAN. We constantly see pictures of one or more Song submarine out in the sea. The famous incident a few years ago involved a Song class submarine surfacing next to Kitty Hawk. That incident shows that Song submarines are venturing further and further away from the home base. This storyline forms an interesting contrast to the pictures of Kilo submarines sitting by the dockside. It also probably explains why China has not been interested in purchasing more Russian submarines.

In 2004, the lead boat of the 039A Yuan class (No. 330) was launched in WuChang shipyard while Song class was in the middle of mass production. This boat showed some Kilo influence with the hump, but also retained much of the features of 039 class. It is apparently also the first PLAN class using AIP system. It took a couple of years for this new class of submarine to sort out all of the problems. Similar to 039 class, a new variant of 039A came out a few years later with some changes from the first boat. Please see the photo below for the differences between the lead boat and the second boat:

I think that the trial period for 039A class was shorter and changes from first boat to second boat were fewer, because the leap from 039 to 039A was much less than the leap from 035 to 039 class. A total of 3 new 039A boats were produced from 2007 to 2008 to join the original 039A in a new flotilla. The picture below shows a flotilla with 3 Yuan class and 1 Song class.

I believe this was taken before the 4th Yuan was delivered to PLAN. I do not know where this flotilla is located, although I suspect it is a new flotilla established for East Sea Fleet. The Yuan class seemed to have followed Song class of one lead ship, 3 following variant and then more mass production. After a gap of 2 years, we recently have seen 2 new Yuan submarines launched in WuChang shipyard as shown in the photos below.

I cannot easily tell the difference between these boats and the previous 3 due to lack of more quality photos, but I did read that the interior had changed a lot in the new boats. As we move forward, I would expect that many new Yuan submarines will come out of WuChang and JiangNan shipyard in the coming 2 years. The production of this final variant of Yuan will probably be either 8 or 12 units based on the production path of the Song class. They will probably be assigned to the East Sea Fleet and the South Sea Fleet. At which point, the 035B submarines could be transferred to North Sea Fleet to replace the older 035G boats. By that time, 039/G and 039A class submarines will form most of the conventional submarine fleet.

And finally, a new class of submarine was launched in WuChang shipyard near the end of last year. There have been some discussions on this blog regarding to this new class when the lead boat first came out. Here is probably the most up close and detailed photo of this submarine.

Based on this photo and side by side comparisons with Yuan submarine, we can see that this is quite a large submarine (near the displacement of Soryu class). It seems to be designed to operate further offshore than Song and Yuan class. I guess this is part of PLAN's move to operate further and longer away from the shore. In the next couple of years, we will find out more about this class and its purpose. I would think that if this is a successful design, it will follow the production path of Song and Yuan class. By sometimes late this decade, it is possible that PLAN submarine force will have moved on completely from 60s Soviet era designs. That would make submarine the first type of large weaponry in PLA to do so. I think this truly shows the emphasis that PLAN has placed on conventional submarine fleet.

Sunday, January 2, 2011


The last week has really been an exciting time for PLAAF fans, because real photos of J-20 started appearing on various Chinese military forums online. I think it is also time for me to butt in with some little thoughts I have on anything J-20 related.

First of all, I would not characterize myself as knowledgeable in stealth technology or aerodynamics. When I look at J-20, I certainly see something designed to compete against other 5th generation aircraft out there. But if you were to ask me whether I think this is more stealthy than PAK-FA or more maneuverable than F-22, I simply would not be able to give you an answer on that.

However, I do find this to be an extremely interesting development. Here are some things that I find really interesting:

  1. Transparency - It is really shocking to me that the photos for J-20 came out this early. Looking back, the first real photos of J-10 came out 3 or 4 years after the first flight. Even after the first photos came out, most photos that we saw were PS'd photos or CGs. The much less hyped J-10B's first photo came out 3 months after the first flight. Now, we see J-20's first photos coming out before the first flight even happened. I think it is a combination of modern technology and increased transparency from PLA. We see many people lining up with their cameras outside of CAC taking photos with no sighting of security around them. At the same time, we see the Chinese military forums allowing these photos to be published as soon as they are available. I think this shows PLA is more willing to allow high profile projects to be unveiled earlier on. The mysterious new conventional submarine in WuChang shipyard was unveiled as soon as it got launched. Maybe PLA will become as transparent as US military in the future. But until then, they seem to just be comfortable releasing details of their new projects through internet forums and camera phones.

  2. Size - I think one thing that really shocked a lot of people is how large J-20 is or at least how large it appears to be. The original photos lead certain people like Bill Sweetman to conclude that J-20 has "overall length of 75 ft. and a wingspan of 45 ft. or more, which would suggest a takeoff weight in the 75,000-80,000-lb. class with no external load". With those assumptions, many concluded this to be designed in the role of fighter-bomber as F-111. However, recent analysis on Chinese bbs of the size of J-20 vs truck beside it compared to the size of J-10 vs the same truck yielded the conclusion that J-20 is more likely around 19 to 20 m long, which would make it shorter than flankers. Even when we factor in what appears to be greater fuel load and internal weapon bay, it should still be about the same size as flankers. Personally, I kind of see J-20 as replacing the role of flankers in PLAAF in the future. It would have to be capable of handling more long range strike missions than flankers, but it would most likely serve as the heavy fighter jet in hi-lo combination.

  3. Prototype or technology demonstrator - Another question that some have raised is whether this is a prototype or a technology demonstrator. Back in 2009 on a CCTV interview, He Weirong, deputy commander of the People’s Liberation Army Air Force, said that J-20 would be flown in 2010-11 and be operational in 2017-19. I would say from that interview that this is the first couple of prototypes. However, I would also say that the final production version could have a lot of changes from this original prototype. After all, this is China's first attempt at developing a 5th generation fighter jet. They will have a lot to figure out and make fixes to initial design issues before the production version is settled down. More than anything, the first flight will clearly be conducted with something other than WS-15. If WS-15 is intended to be the engine for J-20, then some more changes + test flights will need to be done with WS-15 fitted J-20 before that version achieves operational status.

  4. Engine - This is probably one of the biggest mysteries surrounding J-20. What is the engine that it is using right now? We know that WS-15 is still years away from being ready. We know that AL-31F and FWS-10 would be vastly underpowered options for J-20. So, I would think the most obvious solution in the early stages of testing would either be 117S or some upgraded variants of FWS-10. Since upgraded variants of FWS-10 are not ready yet, 117S is most likely the engine on the first prototype. There has been a lot of talks about worsening China/Russia military relationships due to cloning issues, but I do think turbofan engine is one area where the cooperation is still quite beneficial for both sides. As we move forward, I think it will be interesting to see how the engine situation will change over time. Will 117S be the engine for J-20 until WS-15 becomes available? Will the initial production J-20s use upgraded variants of FWS-10? When will WS-15 be ready and how long will it take to do so? These are all important things to look forward to.

  5. Industrial impact - A lot of people have called J-10 program the "Apollo program" of China's aviation industry. I have a feeling that the J-20 program will become that way too. In order to have a successful 5th generation design, J-20 will have to yield advances in stealth technology, aerodynamics, materialogy, avionics, missiles and propulsion. The J-10 program brought about an entire new generation of aerospace engineers for Chengdu Aircraft Corp (CAC) that are the driving forces behind all of the recent CAC projects. Many of the engineers are in their 30s and already have worked on many high priority programs. They should have the best years of development ahead of them. At the same time, producers of J-10's subsystems across the country also became more capable. The RnD for J-20 project should do the same thing for CAC and other suppliers.

  6. Help from civilian programs? - In many ways, China's current civilian programs will help J-20 and vice versa. In the area of electronics, the most recent CIDEX 2010 exhibition clearly showed that the advances in civilian electronics in manufacturing and design have carried over to the military side. We have also seen similar improvements in avionics/radar for recent Chinese aircraft projects. At the same time, I think the C919 will also be very helpful toward J-20 program. As part of C919 program's involvement with Western suppliers, they will learn modern project management methods, purchase/develop more advanced production tooling and manufacturing process. These are all knowledge that can be transferred to J-20. Just as importantly, the suppliers for C919 will also work with local Chinese manufacturers to produce subsystems. This will produce a whole new network of suppliers that would be able to produce high quality subsystems for J-20. And of course, the advances in J-20 program will also be able to make these suppliers more competitive in civilian programs. Problems for the FWS-10 program have often been attributed to not enough testing in the development phase and production line problems. I would think that experience working with MTU and GE in producing propulsion units for C919 could also be transferred to allow the development and production of more reliable WS-15 engines. I can go on and on here, but there are plenty of examples where civilian programs could help out J-20 and vice versa. We have seen in recent year that successes in civilian shipbuilding have really been instrumental in the mass production of naval ships. I believe that successes in civilian aviation program can do the same for J-20 and WS-15 programs.