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The possibilities for cooperation with China in the field of defence equipment

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Document A/1989

5 December 2007

The possibilities for cooperation with China in the field of defence equipment

REPORT¹

submitted on behalf of the Technological and Aerospace Committee
by Edward O'Hara, Chairman and Rapporteur (United Kingdom, Socialist Group)

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RECOMMENDATION 815²

1. Launch a debate on the possible modalities for lifting the embargo on defence equipment exports to China with the participation of the European Commission, the Political and Security Committee (PSC), the European Defence Agency and the European defence industry, taking into consideration the following factors in particular:

2. Call on the Chinese authorities in the framework of the EU-China dialogue on human rights and on the occasion of the Olympic Games in Beijing and the Universal Exhibition in Shanghai to demonstrate a firm resolve to move forward on that issue.

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EXPLANATORY MEMORANDUM

1. Since 1998, when the European Commission published a Communication entitled "Building a Comprehensive Partnership with China", relations between the European Union and China have evolved into a strategic partnership³. In a series of publications that have appeared since, the EU has defined this partnership, in increasingly specific terms, and targeting several important policy areas such as trade, energy, the environment, security and global governance.
2. Cooperation between Europe and China has been developing continuously, with much still to be done and much to be gained by both sides. China is emerging as a major power on the world stage and is the world's fourth largest economy and third largest exporter. China's aspirations to become a world leader form the core of its foreign policy and, given its size and growth rate, it is already having a major impact on global political and economic affairs⁴.
3. The EU offers the largest market in the world, supporting a population of almost 486 million today and likely to exceed 550 million in 2020⁵. The EU consists of a solid and stable structure of states that plan and act within a single polity, addressing political, economic and social issues. Furthermore, the EU is home to a global reserve currency, is a world leader in key technologies and plays a determining role in key global issues such as the environment, energy and security⁶. In addition, the EU has proven to be capable of exerting a "progressive influence well beyond its borders and is the world's largest provider of development aid"⁷.
4. Although the Europeans and the Chinese hold different views on certain matters, there are no basic conflicts that might prevent further cooperation. Europe and China share common human values and they both have a long and rich historical, cultural and political heritage. It is therefore entirely possible for this partnership to be a fruitful one and if both sides are prepared to invest in it they will be able to rise to the future social, environmental and geopolitical challenges.
5. As underlined by the European Union Institute for Security Studies, "establishing a strategic partnership with the EU and its large member states is seen in Beijing as a move that enhances China's international status, as well as fostering the emergence of a multipolar world order"⁸.
6. In a joint declaration with Vladimir Putin in 2003, President Hu Jintao supported the idea of a "multipolar, just and democratic world order based on the commonly recognised principles of international law"⁹. The power accumulated today in China's hands is channelled on to the international stage through multilateralism, which in turn translates into non-intervention in the affairs of sovereign states (soft power)¹⁰. China's soft power is its trade, foreign investment, tourist policy, and educational exchanges¹¹, which it uses as tools to establish new ties with foreign states and penetrate their markets, particularly in developing or emerging countries¹². What differentiates the Chinese concept of becoming a world leader from the Western-style dominance that we are used to is the absence of any kind of extra pressure or strings attached to its foreign policy towards its partners. According to François Godement, Chinese policy is based on the paradox of the Taoist school, wei wu wei (action without action)¹³, where the aim is to achieve and obtain an irresistible form of "soft and invisible" power.
7. Former Foreign Minister, Li Zhaoxin, had stressed the importance of upholding China's long-term diplomatic principle which seeks a low profile in the international arena while pointing out that "the most outstanding feature of China's development is peace. We develop ourselves neither by colonialism nor by bullying others, but in peace"¹⁴. This discreet presence in the international community is also seen through China's membership of international organisations such as the UN where a dynamic presence is necessary. China is participating in 16 UN peacekeeping missions with a total of 7 000 soldiers and policemen, which means that it has more personnel taking part in UN peacekeeping forces than any other permanent UN Security Council or NATO member. However, as noted by the Centre for European Reform: "China does not participate in missions where peace is established through the use of force, as opposed to peacekeeping missions, and only deploys peacekeepers under the UN flag and with the UN blue helmets"¹⁵.
8. Nevertheless, China made a remarkable effort with impressive results in the six-party talks on the disablement of North Korea's nuclear programme. Beijing played a decisive role in planning and preparing the talks between the Democratic People's Republic of Korea (DPRK), the United States, South Korea (ROK), Russia, Japan and China itself. The second phase of the sixth round of six-party talks ended in Beijing on Wednesday 3 October 2007, with the release of a joint document whereby the DPRK agreed to disable its existing nuclear facilities and provide a declaration of all its nuclear programmes by the end of 2007. The document also stated that the DPRK and the United States would remain committed to improving their bilateral relations and move towards full diplomatic relations. Economic, energy and humanitarian assistance up to the equivalent of one million tons of heavy fuel oil is to be provided to the DPRK, with China and the ROK having each already delivered 50 000 tons. Yet Beijing's commitment to "China's peaceful rise" sometimes translates as international timidity as, for example, when Chinese policy-makers adopted an extremely discreet stance towards Iran's nuclear programme and avoided applying any kind of pressure upon the Iranian regime¹⁶. Judging from the Korean case, China is in a position to take vital initiatives in matters that concern the international community and deliver significant results that prove its commitment to the principle of a peaceful rise.
9. At a local level, China has joined all the regional organisations in east Asia, such as APEC (Asian-Pacific Economic Cooperation), the ASEAN (Association of Southeast Asian Nations) Regional Forum and CSCAP (Council for Security Cooperation in the Asia Pacific), while also establishing its own dialogue initiatives, such as the Shanghai Cooperation Organisation, with Russia and four other central Asian states. It has also established or participates in regional forums where it promotes good economic and diplomatic relations, such as the Boao Forum (the Forum is committed to promoting regional economic integration and bringing Asian countries even closer to their development goals) and the North-East Asia Cooperation Forum. In addition to all this, the Chinese military and navy participate in and organise joint military exercises with other countries such as Russia and India, and China has also made proposals for joint security initiatives, such as ensuring maritime security in the Malacca Straits¹⁷.
10. The European Union has confirmed the common grounds on which this partnership is based. Javier Solana has declared:
11. "China and the EU have the same broad agenda in seeking to address them. We are natural partners in many ways. We both prize international stability and order. We are both strong supporters of multilateralism and international law as the best means to achieve this. Consultation with each other, and other partners, is the rule for us, not the exception. We know that this brings us strength. We are also both willing to take the lead in trying to tackle international problems, including through the deployment of our military and civilian personnel. We are also consulting more on our regional policies and programmes. To my mind, this is what strategic partnership is all about"^18.
12. The European Commissioner for External Relations and European Neighbourhood Policy, Benita Ferrero-Waldner, visited Beijing at the start of this year in order to launch negotiations for a new Partnership and Cooperation Agreement (PCA) between the EU and China. During her visit, Commissioner Ferrero-Waldner stated:
13. "The EU prizes its relationship with China very highly. This strategic partnership is a key to achieving progress in our goals; from global security to addressing climate change (...) we should work together, for a safer, more stable and peaceful world (...) Twenty years ago, the EU and China were trading partners. Now we are strategic partners with a huge range of cooperation activities. I am proud to launch negotiations for a new agreement that will reflect the reality of today's partnership and provide a base for us to further deepen our relationship. China is changing with unbelievable speed; the EU is evolving too. Let's harness the dynamism of these two emerging giants in the interests of all our people. The EU is eager to get down to work quickly and start working on the substance of this new deal"^19.

14. Judging by the official political discourse presented above, it is obvious that both sides attach great importance to the smooth continuation of their cooperation. However, to a certain extent, Europe is still concerned about developments in the area of human rights in China²⁰. This is an area the EU and China have been discussing for the last 11 years and the EU remains "committed to promote human rights in China in an active, sustained and constructive way"²¹.
15. It is true that there has been real progress in some areas, while concerns remain in others. Both sides have been meeting and discussing human rights issues in forums and talks held in Europe and China²². However, the European Council still expresses concerns that " (...) violations of human rights continue to occur, (...) including restrictions on freedom of expression, freedom of religion, freedom of assembly and association, a lack of progress in respect for the rights of persons belonging to minorities, continued widespread application of the death penalty, and the persistence of torture"²³.
16. For its part, China uses these talks and seminars to give a practical demonstration that it is moving forwards. At the 23rd round of the China-EU Human Rights Dialogue that took place this year in Beijing on 15 May, Wu Hailong, the Director-General of the Department for International Organisations and Conferences of the Foreign Ministry of China, stated:
17. "China has adopted a series of measures to enhance human rights protection by speeding up legislation on human rights, deepening judicial reform, ratifying the Property Rights Law and making government affairs public (...) the Chinese government has been striving to put into practice the outlook on development and to build up a harmonious society. It is focusing efforts on resolving problems related to people's livelihood, in the areas of medical treatment, education, housing, employment and social security, he added (...) China is also making efforts to promote the construction of a democratic legal system and political restructuring"^24.
18. Furthermore during our visit to Beijing, Mr Li Yuanzheng from the Foreign Affairs Committee of the National People's Congress stated that he shared European worries on human rights and attempted to allay concerns, noting that:
19. "One has to realise that China is still a poor and backward country and that the most important priority is the right to subsistence. China has 22 million poor people and 80 million handicapped. 120 million have less than one US dollar per day to live on. Population growth has to be controlled to prevent population from growing faster than GDP. China is making efforts to promote economic growth and improve health care and education but it still has a long way to go"^25.

20. Over the last 25 years, China has established itself as a major actor in the international economy, offering great trading potential and investment opportunities for businesses while decisions taken in China attract the attention of the international financial community and affect markets all over the world.
21. China's GDP grew at an annual average rate of 9% between 1979 and 2002 and parts of its economy have been highly integrated into the global production system²⁶. Trade between the EU and China has expanded greatly and, more specifically, since 1978 bilateral trade has increased more than 60-fold and reached approximately €254 billion in 2006²⁷. In 2006, China was the EU's second largest trading partner and displaced the United States as the largest source of EU imports. According to Chinese statistics, the EU continued in its role as China's first trading partner (ahead of both the US and Japan). Chinese imports to the EU totalled approximately €191 billion during that period, representing a year-on-year increase of almost 21%. Similarly, EU exports to China increased by 22.5% to approximately €63 billion, accounting for overall bilateral trade of upwards of €254 billion. Whereas the EU enjoyed a trade surplus with China at the beginning of the 1980s, trade relations are now characterised by a sizeable and widening EU-China deficit (approximately €128 billion in 2006). This represents the EU's largest bilateral trade deficit²⁸.
22. One of the major factors contributing to the boom in the Chinese economy is that it has a highly productive combination of unskilled labour and the capital as well as the technological and organisational know-how of a world-class economic power. With the help of foreign investors, China succeeded in identifying the range of products that it could usefully manufacture for the international market and penetrated the markets of the industrialised world.
23. However, it is very important to note that Beijing does not wish to remain the global centre for labour-intensive manufacturing. As the 2004 European Competitiveness Report states:
24. "While industries establishing labour intensive production capacities in China will be promoted in order to create jobs for China's growing population, the real focus of China's industrial policy lies on the promotion and establishment of higher value added, technology intensive industries. From the beginning, foreign investors have been courted to transfer technology intensive production facilities to China. Foreign investors introducing new technologies or establishing R&D facilities in China have been able to receive the greatest benefits in form of tax exemptions, special import/exports rights, access to the domestic market, etc."^29.
25. ^{Thus, as the present paper will show in greater detail, European defence industries are likely to encounter fertile ground for developing business and Chinese labour will profit from training and company culture transfers.}

26. By contrast with productive cooperation between the EU and China in other areas, cooperation in the defence sector is restricted to a minimum. This is because of the arms embargo imposed on China in 1989 after the Tiananmen events. In its declaration on China that year, the European Council suggested the "interruption by the member states of the community of military cooperation and an embargo on trade in arms with China"³⁰.
27. At that time the embargo was judged sufficient to show Beijing the EU's disapproval of the violent repression of the demonstration in Tiananmen Square. Nevertheless, an embargo is no more than a political commitment on the part of the EU members which is meant to be respected and enforced. Today the embargo is considered by many European leaders as outdated, since China has improved significantly in all sectors, including human rights. However, lifting the embargo is a complicated procedure, as it will not only affect bilateral relations between Europe and China but also the interests of other parties, a subject we will examine in due course in this report.
28. The EU is interested in lifting the embargo, as it would encourage further cooperation and improve relations with Beijing. Furthermore, European industries would stand to gain enormously since they would have the opportunity to enter a huge market, free of ethical restraints. The European defence industry has already been trading military technologies under the embargo since the 1990s. According to the EU's annual report on arms exports, the value of EU licences to sell arms to China totalled €416m (US$544m) in 2003 as against €210m in 2002³¹. However, these were products or technologies considered as non-lethal, such as howitzers, helicopters, fire control radars, jet engines, avionics, diesel engines for naval ships and submarines, and satellites³².
29. There also exist programmes that are clearly military in nature where European and even American companies have been caught by the embargo. The WZ-10 military helicopter programme is an example. Although the true identity of the Z-10 was not made clear for quite some time by the Chinese authorities - mostly while in pursuit of Western suppliers - the first clear public identification of its real nature was let drop at the 2004 Air Show China by the then executive chairman of EADS, Philippe Camus. The Z-10 actually constitutes the first and most explicit admission of Western involvement to date in a Chinese military programme. As Jane's International Defence Review reports, aerospace firms in Canada, Europe and the US are all involved in this programme to some degree. In 2006, Pratt & Whitney delivered the first batch of 10 PT6-67C turboshafts; the Lord Corporation (headquartered in Cary, North Carolina) produced bearings, dampers, elastomeric mounts and rod ends; Eurocopter together with Agusta Westland provided the transmission system and the latter also developed the five-bladed main rotor system³³.

30. Moreover, it is the nature of the embargo, which is open to interpretation by each European member state, that casts doubt on its present existence. In 1998, the Council of the European Union established the EU Code of Conduct on Arms Exports which acknowledged the responsibility of arms-exporting states to prevent European arms being used for "internal repression or international aggression, or contributing to regional instability"³⁴. It could be said that the code was introduced in order to enforce the embargo and ensure greater transparency of member states' arms sales.
31. In the Code of Conduct, the EU sets out a series of eight different criteria, such as human rights, security of friends and allies and regional stability, which must be met by future clients for an arms agreement to be plausible. Yet, the EU has never agreed to make the Code of Conduct legally binding. As a result, it is also open to interpretation by national governments, which in practice means that Brussels cannot stop sales from going through if a member state decides that the criteria do not apply to the systems that it proposes to sell to China³⁵.
32. In a 2005 report known as the Rueda Report, Raul Romeva Rueda calls for higher, more stringent standards for the control of arms exports. The report also calls for "the Code to become legally binding and urges the Council not to further delay its decision on the legally binding nature of the Code". It is important to note that in his report Rueda also suggests the imposition of temporary measures upon lifting an arms embargo on a country.
33. It can thus be concluded that the embargo on China is symbolic. Lifting the embargo can be presented as a gesture to show China that its European counterparts see it as a respected partner (at present, Myanmar, Zimbabwe and Sudan are also under embargo)³⁶, which has to be encouraged to take the European view of issues of global significance. The embargo can and should be replaced by a revised, strict and legally binding Code of Conduct that would at the same time appease the objectors.
34. China is of course ready to put aside past events and resume cooperation in military technology and armaments. Open access to the European arms arsenal would allow China to accelerate modernisation of its defence industry. The Chinese military budget leapt 11.7% in 2006 to US$49.5 billion and has shown an increase over the decade 1997-2006 of 195%³⁷. Of course, compared to the US defence budget (US$546 billion in 2006), this amount seems insignificant. However, it is the pace at which Chinese military spending and modernisation is growing and the fact that the US seems to believe that the figures from the Chinese Ministry of Defence are much lower than the real ones, that makes the United States really concerned about a possible lifting of the embargo³⁸.
35. The Chinese, for their part, frequently state that it is not their intention to purchase European weapons. According to the Asia Times, China is gradually moving towards buying fewer weapons as such and more technologies so that it can build its own systems. This was confirmed during the Committee's recent visit to China when Mr Wang Hongjian, Deputy Director-General of the Department of European Affairs of the Chinese Ministry of Foreign Affairs stated that "China was unlikely to import much in the way of armaments from Europe: it produces its own defence equipment and did not want to rely in such a strategic area on imports of foreign products"³⁹.Yet, it is a sector that remains sensitive, and according to David Mullholland, a business editor of Jane's Defence Weekly:
36. "Today's radar equipment is incredibly sophisticated and software driven. The technology is very closely held and the Chinese are at least 20 years behind the Europeans and Americans on this (...) but with enough will power and a massive team of scientists the Chinese could reverse-engineer almost anything sold to them"^40.
37. Finally, European governments and defence industries should both consider a deep dialogue around the issue of whether or not to trade openly with the Chinese market. A possible lifting of the embargo and further cooperation in defence equipment could avoid European industries from being controlled through possible takeover. The recently launched (27 September 2007) Chinese Investment Corporation (CIC) is "out and about" doing its shopping with a budget of US $200 billion at its disposal to spend, with Europe being possibly the most attractive place for China's technology-seeking shopping feast. As the director of the Corporation, Lou Jiwei, a Deputy-Secretary General of the State Council and former Finance Minister, remarked "there will be no geographical limits on its activities and no restrictions on where the fund could invest"⁴¹.
38. The International Security Network reports that "China is targeting Europe's IT, aerospace and defence sectors as investment opportunities, both in terms of profitable returns on its foreign reserves and in terms of acquisition of advanced technologies needed for China's industrial and military modernisation"⁴². Furthermore Chinese investments in European companies would be helped by the fact that EU-China relations are characterised by the conspicuous absence of issues that could provoke a confrontation between the two sides - such as the Taiwan question. Unlike the US and Japan, Europeans look at China almost exclusively in terms of business opportunities and not as a possible military competitor⁴³.
39. Governments, already concerned about the fact that deals could be struck to gain political advantage, started to think on possible constitutional actions that could act as a protective shield to strategic industries. The BBC reported that "the Canadian Government said last month it was reviewing its foreign takeover rules and may insert a `national security test' for would-be foreign buyers"⁴⁴. For Europe, EU Economy Commissioner Joaquin Almunia stated that "the EU might restrict investments by government funds unless they disclose more about what they invest in and why". Thus the CIC can be seen from two different angles. On the one hand, it represents a great opportunity for some industrial sectors, as it will inject fresh capital into tight markets (the European defence market) following the recent sub-prime mortgage crisis. On the other hand, the Chinese investment company with its enormous cash assets could well succeed in gaining control of Western industry and advanced technology that could be turned into military might in a situation where future tensions could arise in US-China relations, especially over Taiwan⁴⁵.

40. The EU-China strategic partnership has already made US policymakers uneasy. This fear comes from the fact that the establishing of close ties between Europe and China is seen as a challenge to the American global hegemony. According to John Mearsheimer:
41. "What makes a future Chinese threat so worrisome is that it might be far more powerful and dangerous (...) if China were to become a giant Hong Kong, it would probably have somewhere of the order of four times as much latent power as the United States does, allowing China to gain a decisive military advantage over the United States in northeast Asia. In that circumstance, it is hard to see how the United States could prevent China from becoming a peer competitor. Moreover, China would likely be a more formidable superpower than the United States in the ensuing global competition between them"^46.
42. The United States has fiercely contested the EU's intentions of lifting the arms embargo imposed on China. The US puts forward a variety of factors to support its concerns, such as China's (1) growing regional strength, (2) potential conflict over Taiwan, (3) proliferation of weapons and technology and (4) human rights violations⁴⁷. The US sees the lifting of the embargo as a security issue rather than a political one, as is the case in Europe. The economic and geopolitical rise of China threatens the regional balance of power that the US holds and the relationship with China is seen as one of strategic competition rather than partnership.
43. Over the years, the United States has developed defence arrangements with many individual European member states either by the direct sales of American defence products, services and technology or by engaging in joint cooperative ventures in the area of defence⁴⁸. All these agreements may be brought under review if the EU lifts its arms embargo. Specifically, the US House of Representatives has approved sanctions against European companies that export critical military goods or technology to China and declared that they would block the US Defense Department from doing business with European companies that sell arms to China⁴⁹. In March 2005, a Senate Resolution called for the US Government to make clear to EU leaders that "a lifting of the European Union Embargo on arms sales to the People's Republic of China would potentially adversely affect transatlantic defense cooperation, including future transfers of United States military technology, services, and equipment to European Union countries"⁵⁰.
44. The US has also put pressure on the EU to strengthen the European Code of Conduct on arms sales. Secretary of State Condoleezza Rice stated:
45. "The European Union should do nothing to contribute to a circumstance in which Chinese military modernization draws on European technology or even the political decision to suggest that it could draw on European technology when, in fact, it is the United States - not Europe - that has defended the Pacific"^51.
46. On a political level, the lifting of the EU arms embargo would seriously damage transatlantic relations and create tensions not only between the EU and the US, but also within the NATO structure, as 19 of the EU members are also NATO allies. Our US counterparts would feel that their security concerns were not shared any more by their traditional allies (as has already happened over the Iraq invasion) and it would withdraw to a protectionist position, reaching the point of considering Europeans thereafter as a non-safe partner.

47. Russia has different reasons for opposing a possible lifting of the European arms embargo on China. This is because Russia and China have recently stepped up cooperation on arms deals and trade.
48. As SIPRI has reported over the last five years, Russia has been the second largest exporter of major conventional weapons, exporting to 46 countries and accounting for 28% of total weapons transfers. Over the same period of time, China and India were the main customers of the Russian arms industry accounting for 45% and 25% respectively of total Russian exports⁵².
49. At a press conference at the Elysée Palace on 18 March 2005 following a four-country meeting between Russia, France, Germany and Spain, when Russian President Vladimir Putin was asked, along with the other leaders, about the prospects for the embargo on supplying arms to China being lifted, he replied:
50. "Our position is based on economic considerations. We sell a lot of arms to China. The fewer competitors on the Chinese market the better. There's no point acting the fool, I'm just saying it like it is. Overall, we are sure we will be able to reach agreements with our European partners, and, what's more, work together on the Chinese market. We even have ideas that could lead to cooperation between Russia and European countries on high-tech projects. These are interesting possibilities for cooperation"^53.
51. The two basic reasons why the Chinese market is so important for the Russian arms industry are, firstly, arms transfers are extremely rewarding and, secondly, Russia's domestic demand is insufficient to keep its defence plants open, which means that without exports they would cease to exist⁵⁴. Or in the words of Sergei Chemezov, head of Rosoboroexport, "The trade in weapons is too profitable for the world to refrain from it. Happily Russia has understood this"⁵⁵. Furthermore, notwithstanding the weak position of Russia east of the Urals, when combined with a strong partnership with China it affords the country the opportunity of challenging US policy in that area, through the creation of strong alliances⁵⁶. Mr Putin has underlined the importance in that case of trading arms "in compliance with Russia's foreign policy interests"⁵⁷.
52. Hence, in the event of the EU embargo on China being lifted there will be serious implications for Russia. Such a move will not only give China broader and greater access into the European defence and technology sector but also the option of many potential sellers whom it can manipulate in regard to specifications, prices and technology transfers thus enabling it to move forward and build its own indigenous facilities for producing weapons.
53. In that case, Russia will be under great pressure, mainly because it will have to compete with industries that offer much higher quality and services. Pavel Felgenhauer, an analyst who follows the Russian arms trade, notes:
54. "Very few weapons are being designed and more important component factories have closed for a lack of new orders (...) Soviet stockpiles were large enough to keep selling for years and years to come, but the trade is not creating employment for any long-term growth"^58.
55. ^{This will have a direct effect on Russian products, prices and terms of trade as the only way of responding to a lifting of the European embargo.}
56. It seems paradoxical that Russia is still heavily criticised by Europeans about its brutality in Chechnya and its growing assault on human and civil rights, while China is about to be exonerated by lifting sanctions against it, even though it seems to be a much greater offender in this regard. Thus, Moscow certainly has a point when it claims that lifting the embargo for the Chinese while criticising Russia epitomises hypocrisy⁵⁹. An analyst, in an article published in the Asia Times, aptly quoted the definition the Duke de la Rochefoucauld gave of hypocrisy: "L'hypocrisie est un hommage que la vice rend à la vertu" (hypocrisy is a tribute vice pays to virtue) to explain the above "paradox". Hence it is not uncommon to see double standards being applied when European or other countries allow their national industrial or financial interests to prevail in the decision-making process, even when this means ignoring sanctions.

57. Following the end of the cold war and the consequent termination of the arms race between the two superpowers, a more widespread and generalised movement for disarmament affected European defence industries in the early-mid 1990s. This was due to the fact that during the cold war European states had turned to the US for defence cooperation in order to counterbalance the USSR and improve NATO interoperability and standardisation in the event of war. However, all this changed with the break-up of the Soviet bloc when the US defence industry became a competitor rather than a partner⁶⁰. This was when the nature of defence companies changed radically. The previously state-owned and protected defence businesses started to open up to privatisation, mergers and advanced cooperation among themselves, keeping however their close ties with their national governments⁶¹.
58. Over the last decade, European defence industries have cooperated in defence projects of major importance such as the Eurofighter Typhoon ground attack combat aircraft, the A400M transport aircraft and the missiles sector, to mention but a few. In regard to space, the European Union states cooperated over the launch of the first satellite for the Galileo global navigation programme. Furthermore, the creation of the European defence firm EADS marked the peak of European cooperation and determination in a niche industry such as defence⁶². Of course it is clear that the developments and cooperation referred to concern mainly the aerospace and electronics sectors as developments have not been evenly spread over all sectors of the defence industry.

59. European governments have actively participated and embraced transnational developments as a way of overcoming some of their most pressing defence industrial policy challenges. Above all, consolidation at the European level and access to global markets has been seen by all European governments as vital to maintaining European industry's relative competitiveness in the face of the growing challenge from the US and - to the extent that it concerns China - Russian defence industries⁶³.
60. Given the existence of a secure and stable environment around the states of the European Union since the end of the cold war, defence budgets have been declining. The intra-European market has specific and limited needs. Defence industries have turned to "sustainment" - keeping existing fleets of aircraft flying far longer than was originally intended - in order to generate new sources of revenue⁶⁴. Thus, access to new global markets seems imperative for the creation of stability in the sector.
61. Globalisation has already influenced civil commercial industries in all sectors: computers, electronics, motor cars, civil aviation, telecommunications and so on. To be competitive, defence companies need to follow the example of the civil global corporations by looking for new markets everywhere in the world and suppliers from overseas countries able to provide skills and components at least cost. This way, economies of scale, and greater scope, can be achieved from supplying world markets rather than small national markets.
62. In addition, Internet technology today allows industries to identify new prime contractors, new suppliers and new opportunities for outsourcing work that would usually be undertaken at home. This lowers transaction costs and enables firms to absorb possible gaps in the market⁶⁵. Furthermore, firms can locate research and production activities in nations where the costs are much lower than in Europe, especially when consideration is taken of the rising value of the euro against the dollar, making European exports particularly expensive. Defence industries, although characterised by the particularities of their consumables, do bear the economic characteristics of traditional global industries. Hence they qualify for an extended global customer list rather than their conventional home markets and sales to their national armed forces⁶⁶.
63. A highly relevant example of such a practice is given by Mr Louis Leveque, International Expert at the Defence Directorate of EADS, Astrium, according to whom European firms finance teams in China for projects in the research and development sector that do not exist in Europe. Examples are energy generation as an alternative for the nuclear propulsion for the exploration of deep space, energy storage and solutions of autonomous robotics. This is happening through financing Chinese universities on technologies that could have potential application. In Mr Leveque's words:
64. "The industrial policy that we follow in Astrium is to support teams that we have tracked in China that work in sectors that we don't in Europe. It is obvious that the size of the investment done for a research team in China is not of the same size for a team in Europe. Creating the same kind of research in Europe would cost ten times more than what it costs in China"^67.
65. Furthermore, these teams and universities are also chosen from the perspective of their potential influence on the Chinese space policy which, as will become obvious later, is of supreme importance to Beijing. This is done through individuals, working in teams in a specific field and who have a say, through various channels, in Chinese space policy. Of course this kind of cooperation does not violate any existing restrictions as it simply involves possible future application and not existing products⁶⁸. The advantage of this practice is that when it produces results that are taken up by the Chinese Government, it offers a clear opportunity for cooperation. As Mr Levecque observes "If the embargo [were] lifted it would allow us to cooperate in a more direct way with the university (...) we have supported to develop this technology"⁶⁹.
66. In addition, the race for technology innovation with other defence industries leads to a longer term trend towards higher unit costs of production. The fact that defence budgets are declining makes governments and customers more willing to shop around to provide their armed forces with modern equipment at the best price available in the market. Hence it is reasonable that they will no longer be willing to pay the price of supporting a small-scale national defence industry⁷⁰. In that respect US defence industry companies form the major competition threat to arms industries anywhere in the world because they offer high technology equipment at competitive prices and delivery dates, all of which is very attractive to modern armed forces around the world.
67. If the EU were to lift the arms embargo on China, it is highly possible that the US defence industries would put more pressure on their government to relax its restrictions so they could compete in the very attractive Chinese market⁷¹. In this particular race, European industries would possibly have the advantage over their US competitors due to the already established Euro-Chinese strategic partnership which would allow them faster and easier penetration of the Chinese market. As Mr Xia Qulin, Deputy Director-General of the International Cooperation and Trade Department of Aviation Industry Corporation notes: "(...) China has a better cooperation with Europe than with the US. China values such cooperation and it is important that there should be no political interference to it"⁷².
68. The fact that the European defence industry has taken a non-state controlled route means that it is concerned about improving access to foreign markets. For European defence firms to have a viable development, they need to guarantee their participation in as many new defence programmes globally as possible while reducing their dependence on any national government⁷³. It is necessary for European companies to develop new strategies in order to differentiate themselves from their US and other competitors. In such a competitive market, customers are increasingly expecting contractors to offer more than mere off-sets or licensed production and companies are accepting that market access requires local presence, manufacturing and real technology transfer⁷⁴.
69. A telling example of such a case is the cooperation between Eurocopter and the Chinese AVIC II (Aviation Industries of China) for the production of the EC175 helicopter. Production is shared on a 50/50 basis with each country having its own assembly line. As Eurocopter President Fabrice Brégier states:
70. "This programme is formative for Eurocopter. It guarantees more than 30 years of activities and the creation of 2000 high-tech jobs for Eurocopter and the company's partners. The arrival of this new helicopter on the world market will insure Eurocopter's expansion in the years to come. Over 20 years, the programme will be worth close to 10 billion euros"^75.

71. Furthermore, in the words of Mr Norbert Ducrot, Eurocopter Vice-President for Asia:
72. "Between now and 2015, it is predicted that China will need about 300 helicopters. The needs are colossal. Consider the 2008 Olympic Games in Beijing and the 2010 Universal Exhibition in Shanghai. These two events alone will require the services of a large fleet of helicopters for security, law enforcement, medical assistance, emergency medical evacuation, TV broadcasts, VIP transport, and other activities. Thanks to the strategic cooperation agreement signed (...) Eurocopter is not only set to become a privileged partner of the Chinese with respect to its global competitors, but the company will also be able to strengthen its position in a market that is enjoying an outstanding annual growth rate of 10-15%"^76.
73. European governments are, certainly, always willing to support their defence industries. Specifically, former European leaders President Chirac of France and Chancellor Schroeder of Germany repeatedly in the past openly promised to lift the arms embargo against China and exerted pressure on other European countries to support their initiative. However, there is concern that governments and industry are seeking to obtain the advantages of globalisation without addressing some of the great challenges that will arise in the longer term. A true globalised defence industry base that operates under the same rules as civil commercial industries would require governments to open up national markets to foreign competitors and allow companies to locate industrial and technological activities according to purely commercial logic rather than political requirements⁷⁷.
74. As Mr Dubovick, Director of Corporate and Institutional Affairs, Arianespace, explains: "there are sensitive industrial sectors that will not profit from any opening up of the European market and its alignment on commercial civil market rules, especially when such a process concerns the Chinese market"⁷⁸. While some European companies have the ability to cooperate openly with the Chinese industry, others are restricted from doing so because of their heavy dependence on cooperation with the United States. Through a set of regulations that control the import and export of defence-related articles and services, commonly known as ITAR (International Traffic in Arms Regulations), the US restricts companies or governments that have acquired the necessary licence from trading products under any form with countries which have not. ITAR regulations dictate that information and material pertaining to defense and military-related technologies may only be shared with "US Persons" unless approval from the Department of State is received or a special exemption is used. Thus Arianespace, which works under an ITAR licence for launching satellites that bear US components, is prohibited from doing the same for Chinese operators. The same applies to other European companies that use American components in their satellites and are thus restricted from trading these products with Chinese operators.
75. On the other hand, Thales Alenia has been active in the Chinese satellite market for over 20 years, being the prime contractor for the Sinosat 1, Apstar 6 and Chinasat 9 satellites as well as the Chinasat 6B telecommunications satellite that has recently been put into orbit (5 July 2007). Thales Alenia offer their Chinese customers products that do not violate US State Department restrictions, generally refered to as "ITAR-free". ITAR-free satellites usually cost 6% more than satellites made under ITAR, due to the lower prices offered by US companies which have higher production rates. However, this price increase is usually more than offset by the reduced costs of a Chinese rocket compared to European, Russian or American commercial launch vehicles⁷⁹.
76. An additional anomaly, in this industry's view, is the fact that the market that gives access to space does not have sufficient volume to support many suppliers. The fact that the maximum number of launches per year is restricted to 25 globally shows that new entries to the market can seriously disturb the existing market equilibrium. This is particularly so in relation to China which is able to provide services at lower prices due to its cheaper labour and production costs. Of course, Chinese satellites and launchers are not always up to the quality standards guaranteed by Western technologies but the Chinese industry manages to come up with offers that meet the expectations of some customers (for example Nigeria which had a satellite designed, built and launched by the Chinese space industry)⁸⁰.
77. In that case China, besides being a partner should also be seen as a serious and rapidly evolving competitor. Mr Dubovick's concerns are supported in an article in Jane's Defence Weekly where it is reported that China is introducing a series of defence industry reforms in order to expand financial and technical support, boost innovation and improve its competitiveness. A draft of these measures has already been approved by the Chinese State Council and is currently being written by Beijing legislators into a new policy which inter alia includes both foreign and domestic companies being allowed conditionally to invest in Chinese firms that produce products in civil and defence markets. According to an announcement made by the Commission on Science, Technology and Industry for National Defence the measures have as their objective to establish the Chinese defence industries as main players in the market⁸¹.
78. China's top defence manufacturers are already benefiting from Western commercial aviation contracts. AVIC I and AVIC II export commercial and civil aircraft parts worth hundreds of millions of dollars for companies such as Airbus and Boeing. However, in an indirect way, this kind of cooperation affects the defence sector to a large extent. These kinds of deals provide the Chinese defence industry with know-how transfer in sectors where it has long lagged behind: management, innovation and quality control.
79. According to Larry Wortzel, a member of the US-China Economic and Security Review Commission, "the Chinese management and engineering team working for the factory that makes General Electric wind-turbine generators in China have totally absorbed the culture `six sigma management'82 and leadership of the company"⁸³. This knowledge will be transferred to the electronics industry, aviation, and other areas. Thus since AVIC is active in the manufacturing both of commercial aircraft parts and military equipment, the quality and management techniques will also be transferred over into the defence sector. China has already benefited technically from Russia⁸⁴ which has been its major trading partner, yet now that China needs to take a great leap forward and become an equal competitor in the market it will turn towards European industries in a position to offer it critical technologies, highly advanced systems and Western type management that can help the Chinese not only to build their own systems but also incorporate Western company cultures to their own⁸⁵.
80. This is one major reason for China pressing to cooperate further with Europe in defence and setting the lifting of the arms embargo as a priority on its agenda. Foreign technology inputs and collaboration with European firms which are already advanced in the field will provide China with a more competitive profile in the international defence market, offering better prices and high quality. As Richard Fisher states, writing in Defense News:
81. "The Chinese Type 039 submarine is comparable to early versions of the French Agosta class, but can be had for about US $100 million less, and is being marketed to Thailand now (...) China is also promoting a version of its Type 071 LPD (Landing Platform Dock) to Malaysia which costs about one-third the price of the US San Antonio-class LPD. At about US $15 million to US $25 million, the Chengdu FC-1 supersonic multirole fighter will have no competition from new fighters in this same class from Russia or the West"^86.

82. Finally in the space sector, besides private industry initiatives for cooperation, there is also cooperation at European institutional level between the European Space Agency (ESA) and China on various projects, such as Double Star, Dragon and Galileo. China has published a White Paper setting out its ambition of becoming a space superpower within the next three decades⁸⁷. Close cooperation in this sector could bring benefits to both sides and especially to European industries. Although China is vigorously advancing its technologies, it will take time before it reaches the point of mastery of most of those needed for the indigenous development for example of a satellite navigation and positioning system. As Mr Oosterlinck, ESA's Director of Legal Affairs and External Relations points out, "the Chinese are still nowhere near being self-sustaining in the space sector. They still need the support of European know-how and technology"⁸⁸. China's eagerness to participate in the Galileo satellite navigation and positioning project, for example, is an implicit recognition on the part of the Chinese Government that the independent development of these technologies will be difficult. In February 2006, the China Astronautics Association Satellite Application Work Committee held a "China Beidou Navigation System Application Forum" that advised the government to develop a new generation of navigation and positioning satellites by replacing the "made in China" concept with the concept of "innovated in China," replacing foreign components with domestic components.
83. However, China appears to have far to go before it reaches such an advanced manufacturing technology level as that required to produce its own navigation system in its entirety. China Brief reports that:
84. "(...) a critical component of navigation and positioning satellites is timing technology. GPS, for example, uses very precise atomic clocks to perform its calculations [NB. a clock with an error of 1 second gives a position with an error of 300 000 km]. China, on the other hand, lacks atomic clock technology that can survive the harsh space environment. To compensate, China has purchased rubidium atomic clocks from a Swiss company. These clocks are three times less accurate than the clocks to be used on the Galileo satellites" ^89.
85. According to Peter B. de Selding of Space News, China has some 80 scientists that have been working on atomic clock technology for the past five or six years, having produced products with some deficiencies, but within three to four years they are likely to reach the same stage as European technology⁹⁰. But even when they manage to catch up, it would be in Europe's interest that they did so using the same standards and processes used in Europe. If the Chinese build their space-structure foundations on European know-how, ongoing cooperation between the two is guaranteed that can later be transformed into a market dependent on "mother" Europe. As Mr Oosterlinck notes, "what we transfer to the Chinese is the way that we work (...) we pass them on our standards (...) in management, in quality control etc. Our advantage is that if our standards become the Chinese standards or the global standards, it will then be much easier for us to sell our products and work with their industries. We create a market where they will purchase our products because they will know how to use them"⁹¹.
86. The importance given by Beijing to its defence industry and space policy is also highlighted by the recent appointments of career space professionals to positions of importance in China's weapons development bureaucracy. In fact, a career space professional will now occupy the senior position at the Commission on Science, Technology, and Industry for National Defense (COSTIND) as well as four out of the eight top positions at the General Armaments Department (GAD⁹²). The promotion of career space professionals to positions of importance in China's military industrial complex can be interpreted as the programme acquiring increased influence in Chinese decision-making on weapons development. The recent Anti-Satellite (ASAT) tests and the special and mounting attention being given to the development of space-based C4ISR (Command, Control, Communication, Computers, Intelligence, Surveillance and Reconnaissance) assets and China's space programme overall might be explained as the result of such influence. For the future, the rise of China's career space professionals to national-level decision-making positions could help China expand its position as a major space power⁹³.

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MEMBERS OF THE COMMITTEE

Chairman
Mr	O'HARA Edward		British
Vice-Chairmen
MM	EVANS Nigel		British
	FISCHER Axel		German
Members of the Committee				Alternates
Mrs	ABURTO BASELGA Fatima		Spanish	MM	ARIAS CAÑETE Miguel
MM	AZZOLINI Claudio		Italian		MORSELLI Stefano
	BARBATO Tommaso		Italian		MELE Giorgio
	BODEWIG Kurt		German	Mrs	BARNETT Doris
Mrs	DE MELO Manuela		Portuguese	Mrs	DE BELEM ROSEIRA Maria
MM	COUSIN Alain		French	MM	BRANGER Jean-Guy
	ETHERINGTON Bill		British		VIS Rudolf
	EVANS Nigel		British		BOSWELL Tim
Mrs	FERNÁNDEZ CAPEL Blanca		Spanish		PUCHE RODRÍGUEZ Gabino
MM	FISCHER Axel		German		FRANKENHAUSER Herbert
	HAUPERT Norbert		Luxembourg		HUSS Jean
	HÖRSTER Joachim		German		DEITTERT Hubert
Mrs	KATSELI Eleonora		Greek		ALEVRAS Athanassios
MM	KUCHEIDA Jean-Pierre		French	Mrs	DURRIEU Josette
	LE GRAND Jean-François		French	MM	POZZO DI BORGO Yves
	LINTNER Eduard		German		HEYNEMANN Bernd
	MARONI Roberto		Italian		VALENTINO Giuseppe
	MEALE Alan		British		MARSHALL David
	MENDES BOTA José		Portuguese		MACHADO Jorge
	MONFILS Philippe		Belgian		LAMBERT Geert
	O'HARA Eward		British		ROWEN Paul
	PEIRO Germinal		French	Mrs	GREFF Claude
Mrs	QUESADA BRAVO Adoración		Spanish	Mrs	CORTAJARENA Elvira
MM	REYMANN Marc		French	MM	BRANGER Jean-Guy
	SINISI Giannicola		Italian		LIVI BACCI Massimo
	SKANDALAKIS Panagiotis		Greek		DENDIAS Nikolaos
	VAN DEN BRANDT Luc		Belgian		...
	WAALKENS Harm-Evert		Dutch		KOX Tiny
To be nominated: Netherlands, (1)
Affiliate Members				Alternates
MM	BALGARINOV Borislav		Bulgarian	MM	IVANOV Ivan
	BRAUN Marton		Hungarian	...	...
	CZINEGE Imre		Hungarian	...	...
	HOJDA Pavel		Czech		PADERA Milos
	KASAL Jan		Czech		KOCHAN Jozef
	KRACZKOWSKI Maks		Polish		WIKINSKI Marek
	MIKUS Tibor		Slovak		LIPSIC Daniel
	PETAN Rudolf		Slovenian	...	...
	PIKORSKI Matheuz		Polish		WOJCIK Michal
Mrs	SENYSZYN Joanna		Polish		GALAZEWSKI Andrzej
MM	SOOÄÄR Imre		Estonian		...
	STRAZDINS Janis		Latvian		...
	SZABÓ Károly		Romanian		SZEKELY Levente Csaba
	TILVAR Angel		Romanian		CHELARU Ioan
Mrs	VERTELIENÈ Vilija		Latvian		SUBACIUS Mindaugas
To be nominated: Bulgaria (1)
Associate Members				Alternates
MM		CEBECI Erol Aslan	Turkish		...
		COSKUNOGLU Osman	Turkish		...
Mrs		KRISTOFFERSEN Gerd Janne	Norwegian		...
		...	Turkish	Mr	ÖZCAN Zekai
To be nominated: Iceland (1), Norway (1), Turkey (1)
Permanent Observer members				Alternates
MM		LAAKSO Jaakko	Finnish	... ...
		O'KEEFFE Ned	Irish	Mr WALL Jack
To be nominated: Finland (1), Sweden (2), Denmark (2), Austria (2)
Affiliate Permanent Observer Members				Alternates
To be nominated: Cyprus (1), Malta (1)
Affiliate Associate Partners				Alternates
Mr		ALITI Rafis	Former Yugoslav Republic of Macedonia	Mrs	SEKULOVSKA Mirjana
Mr		KOVACEVIC Pero	Croatian	Mrs	PESIC BUKOVAC Dorotea
Secretary to the Committee: Mr José Manuel PEDREGOSA
Committee assistant: Mrs Carmela ROBERT

---

¹ Adopted unanimously by the Committee on 8 November 2007.

² Adopted by the Assembly on 5 December 2007 at the 9^th sitting.

³ In September 2003, the Commission released a policy paper entitled "A Maturing Partnership: Shared Interests and Challenges in EU-China Relations" where the term "strategic partnership" crops up time and again: "The EU and China have an ever greater interest to work together as strategic partners to safeguard and promote sustainable development, peace and stability". Com (2003) 533 Final, p. 3.

⁴ Commission of the European Communities, Communication from the Commission to the Council and the European Parliament: "EU-China: Closer partners, growing responsibilities", 24 October 2006, p. 2.

⁵ Mark Leonard "A new European approach to China", Centre for European Reform, CER Bulletin, Issue 47, April/May 2006. http://www.cer.org.uk

⁶ " EU-China: Closer partners, growing responsibilities", p. 2.

⁷ "EU-China: Closer partners, growing responsibilities", p. 2.

⁸ Nicola Casarini, "The evolution of the EU-China relationship: from constructive engagement to strategic partnership", ISS, Occasional Paper, no 64, October 2006, p. 24.

⁹ Patrick Goodenough, "We Need a `Multipolar' World, Russian, Chinese Leaders Say", 28 May 2003, CNSNews.com. http://www.cnsnews.com

¹⁰ Francois Godement, "Neither hegemon nor soft power: China's rise at the gates of the West", ISS, Chaillot Paper, no 94, December 2006, p. 57.

¹¹ The enrolment of foreign students in China has tripled from 36 000 to 110 000 over the past decade and the number of foreign tourists also increased dramatically to 17 million last year. China has created 26 Confucius Institutes around the world to teach its language and culture, and China Radio International now broadcasts in English 24 hours a day. Joseph Nye, "The rise of China's Soft Power", Wall Street Journal Asia, 29 December 2005.

¹² Godement, Chaillot Paper, no 94, p. 58.

¹³ Godement, Chaillot Paper, no 94, p. 61.

¹⁴ "China denounces unilateralism, external interference in its internal affairs" People's Daily Online.

http://english.people.com.cn

¹⁵ Godement, Chaillot Paper, no 94, p. 57.

¹⁶ Leonard, "A new European Approach".

¹⁷ Godement, Chaillot Paper, no 94, p. 64.

¹⁸ Javier Solana, "Driving Forwards the EU-China Strategic Partnership", speech given in China, Europe International Business School, Shanghai, 6 September 2005. http://www.delchn.cec.eu.int

¹⁹ Press Release, "Commissioner Ferrero-Waldner to visit China 16-18 January", Reference: IP/07/41, 15 January 2007. http://europa.eu

²⁰ Europeans and more specifically the Nordic countries have consistently put the issue of human rights high on their agenda, as the public in these countries sets great store by these issues. Furthermore, many human rights groups point out that China is still far from fulfilling its promises in the human rights sector. In its 2007 Annual Report, Amnesty International brings up several specific examples of violations of human rights in China and in its ten-point programme for the Portuguese Presidency, it calls for the "use of all available high level discussions to pressurise China, Russia, India and the USA to confront their internal rights deficiencies and to fulfill their responsibilities as international actors". See ISS Occasional Paper, no 64, p. 19. See also Amnesty International 2007 Annual Report and "The ambitions and ambivalence of EU human rights policy, Amnesty International's ten-point programme for the Portuguese Presidency of the European Union".

²¹ Council of the European Union, EU Annual Report on Human Rights, 2006, p. 80.

²² In the period covered by the 2006 EU Annual Report on Human Rights, two rounds of talks and two seminars took place, in Beijing on 24 October 2005, in Vienna on 25 May 2006, in London on 12 December 2005 and in Vienna on 22 May 2006.

²³ EU Annual Report on Human Rights 2006, p. 17.

²⁴ "Chinese, EU officials meet to discuss human rights", People's Daily Online, 18 May 2007. http://english.people.com.cn

²⁵ Briefing given by Mr Li Yuanzheng, Foreign Affairs Committee of the National People's Congress, during the Technological and Aerospace Committee visit to Beijing and Shanghai.

²⁶ In December 2001, China formally joined the WTO, proving its integration into the global economic order. WTO membership also accelerated China's own efforts to promote transparency, fairness and openness more widely throughout its trade regime. Finally, WTO accession gave foreign companies access to key service sectors such as insurance and telecommunications, which up to that point had been closely monitored and restricted, if not completely prohibited. WTO membership supported and accelerated China's domestic processes of economic reform and development process. European Commission, European Competitiveness Report 2004, "The challenge to the EU of a Rising Chinese Economy", p. 235. See also: European Commission, Trade Issues, Bilateral Trade. http://ec.europa.eu/trade/issues/bilateral/countries/china/index_en.htm

²⁷ http://ec.europa.eu/trade/issues/bilateral/countries/china/index_en.htm

²⁸ http://ec.europa.eu/trade/issues/bilateral/countries/china/index_en.htm

²⁹ European Competitiveness Report 2004, p. 237

³⁰ EU Declaration on China, European Council, Madrid 26-27 June 1989. http://www.sipri.org

³¹ Daniel Dombey and James Blitz, "EU arms sales to China double", Financial Times, 18 January 2005. http://www.ft.com

³² The UK company Racal Electronics reportedly sold a Searchwater maritime reconnaissance radar for the PLA Navy's Y-8 airborne early warning aircraft, based on a 1996 contract for six to eight radars. Rolls Royce of the UK reportedly sold Spey engines for China's JH-7 naval strike fighters. Germany's MTU reportedly sold diesel engines for the PLA Navy's Luhai-class destroyer and Song-class submarines. Italy's Finmeccanica reportedly sold Grifo air combat radars for China's F-7 fighter that was also developed for Pakistan. France's S.E.M.T. Pielstick sold diesel engines for the PLA Navy's Type 054-class frigates, with a licence for co-production. Alcatel of France sold China the Chinasat-9 communications satellite, and Surrey Satellite Technology of the UK agreed to work on micro-satellites for China. See: CRS Report for Congress, "EU's Arms Embargo on China: Implications and Options for US Policy", 15 April 2005. http://www.fas.org

³³ Robert Hewson, "Chinese airpower reaps benefits of long road to self-sufficiency", Jane's International Defence Review, October 2007.

³⁴ EU Code of Conduct on Arms Exports, British Foreign and Commonwealth Office. http://www.fco.gov.uk

³⁵ Stephen Blank, "The EU's arms sanctions triangle", Asia Times Online, 27 April, 2004.

³⁶ Lora Saalman, "Lifting the European Union's embargo: Geopolitical wins and losses", PINR, 8 April 2005. http://www.pinr.com

³⁷ China has the third highest level of defence spending in the world after the US and Russia and the highest in Asia followed by Japan. SIPRI Military Expenditure Database. http://first.sipri.org

³⁸ BBC News Asia-Pacific, "China's military spending jumps 14%", 8 May 2006. http://news.bbc.co.uk

³⁹ Briefing given by Mr Wang Hongjian during the Technological and Aerospace Committee's visit to Beijing and Shanghai.

⁴⁰ Daryl Lindsey, "A Trans-Atlantic crisis foretold", Spiegel Online, March 18, 2005. http://www.spiegel.de

⁴¹ BBC News, "China Investment Fund goes global", 16 October, 2007. www.bbc.co.uk

⁴² Nicola Casarini, "China flexes Global Investment Muscles" International Security Network, Security Watch, 16 October 2007.

⁴³ Nicola Casarini, "China flexes Global Investment Muscles".

⁴⁴ China Investment Fund goes global, 16 October, 2007. www.bbc.co.uk

⁴⁵ Nicola Casarini, "China flexes Global Investment Muscles".

⁴⁶ John Mearsheimer, "The Tragedy of Great Power Politics", London, W.W. Norton & Company Ltd, 2003 p. 401.

⁴⁷ (1) We have already commented on China's rising strength. (2) On 14 March 2005, China adopted its Anti-Succession law, declaring in Article 8 that "in the event that the `Taiwan independence' secessionist forces should act under any name or by any means to cause the fact of Taiwan's secession from China, or that major incidents entailing Taiwan's secession from China should occur, or that possibilities for a peaceful reunification should be completely exhausted, the state shall employ non-peaceful means and other necessary measures to protect China's sovereignty and territorial integrity". (3) China is accused by the US of weapons proliferation in unstable areas (in the Middle East, Asia and Africa). (4) the US sees no improvement in human rights in China.

⁴⁸ Between 2000-2003, the US concluded government-to-government arms sales agreements with Poland for US $3.7 billion, with Greece for US $3.3 billion, with the UK for US $1.8 billion and Italy for US $1.3 billion, CRS Report for Congress. http://www.fas.org

⁴⁹ William Mathews, "US tries to hold Europe to China Arms Ban", Defense News, 4 October 2004.

⁵⁰ 109^th Congress, 1^st session, Senate Resolution 91, "Urging the European Union to maintain its arms export embargo on the People's Republic of China", 17 March 2005.

⁵¹ CRS Report for Congress. http://www.fas.org

⁵² Siemon Wezeman, Mark Bromley, Damien Fruchart, Paul Holtom, Pieter Wezeman, "International arms Transfers", SIPRI Yearbook 2007: Armaments, Disarmaments and International Security, Oxford University Press, p. 392.

⁵³ Press Conference, Elysée Palace, Paris, 18 March 2005. http://www.kremlin.ru

⁵⁴ The export of arms plays an important role for the Russian defence industry. It allowed the upkeep and continued development of part of its major activity and lent significance to defence industry organisations. It is important to note that at its lowest point the percentage of arms exports in total military production accounted for 41.3% in 1994 and, at its highest, 80.7% in 2000. Antonio Sanchez-Andres, "Arms Exports and Restructuring in the Russian Defence Industry", Europe-Asia Studies, Vol.56, No.5, July 2004. p. 689.

⁵⁵ Oliver Bullough, "Russian arms sales: A rising worry", International Herald Tribune, 21 June, 2006. http://www.iht.com

⁵⁶ Björn Hagelin, "Armament and Disarmament in the Caucasus and Central Asia". http://editors.sipri.se/ For an extensive analysis see: Robert Donaldson, John Donaldson, "The Arms Trade in Russian-Chinese Relations: Identity, Domestic Politics, and Geopolitical Positioning", International Studies Quarterly (2003) 47, 709-732.

⁵⁷ Aleksandar Golts, "Russian Arms Trade", 24 February 2005. http://www.special-operations-technology.com

⁵⁸ Oliver Bullough, "Russian arms sales".

⁵⁹ Stephen Blank, "EU's arms sanctions triangle". www.atimes.com

⁶⁰ The percentage of intra-European projects increased from 42% and 43% in the 1970s and the 1980s respectively to 57% in the 1990s. The percentage of intra-European mergers and acquisitions increased from 43% in the 1980s to 55% in the 1990s, and European-American M&As decreased from 55% in the 1980s to 32% in the 1990s. See Seth Jones "The Rise of European Security Cooperation", 2007, Cambridge University Press, pp. 159-160.

⁶¹ Seth Jones, "The Rise of European Security Cooperation", p. 136.

⁶² Seth Jones, "The Rise of European Security Cooperation", p. 137

⁶³ Andrew James, "Comparing European Responses to Defence Industry Globalisation", Defence and Security Analysis, Vol.18, No.2, p. 130.

⁶⁴ Nick Cook, "Aerospace industry restructures to face an innovative future", The Wall Street Journal, 18 June, 2007.

⁶⁵ Keith Hartley, "Defence Economics and the Industrial Base", Centre for Defence Economics, University of York, p.9.

⁶⁶ Keith Hartley, p.7.

⁶⁷ Interview with Mr Leveque, 11 July 2007.

⁶⁸ Interview with Mr Leveque.

⁶⁹ Interview with Mr Leveque.

⁷⁰ Keith Hartley, "Defence Economics", p.8.

⁷¹ Axel Berkofsky, "EU unlikely to lift China arms embargo soon", Asia Times, 1 May 2004. www.atimes.com

⁷² Briefing by Mr Xia Qulin, Deputy Director-General of the International Cooperation and Trade Department of Aviation Industry Corporation during the Technological and Aerospace Committee visit to Beijing and Shanghai.

⁷³ Andrew James, "Defence Industry Globalisation", p. 135.

⁷⁴ Andrew James, "Defence Industry Globalisation", p. 135.

⁷⁵ "Eurocopter Creates a New Helicopter in a Cooperative Venture with China", 5 December 2005. www.eads.net

⁷⁶ "Eurocopter Creates a New Helicopter", 5 December 2005. www.eads.net

⁷⁷ Andrew James, "Defence Industry Globalisation", p. 132.

⁷⁸ Interview with Mr Dubovick, Director of Corporate and Institutional Affairs, Arianespace, 5 September 2007.

⁷⁹ "China Launches Satellite Built by Thales Alenia", Space News, 9 July 2007.

⁸⁰ China launches communications satellite for Nigeria. http://english.cri.cn/2906/2007/05/14/198@226525.htm

⁸¹ John Grevatt, "China draws up industry reforms in bid to raise competitiveness", Jane's Defence Weeky, 4 July 2005.

⁸² Six Sigma is a system for achieving, supporting, and maximising business profits. It is a methodology driven by understanding customer needs, and the disciplined use of data, facts, and statistical analysis to improve and reinvent organisational processes.

⁸³ Wendell Minnick, "China's Defense Industry Benefits From Foreign Commercial Deals", Defense News, 16 July 2007.

⁸⁴ Russia has made a huge contribution both to China's aircraft industry and technology. Russia supplies China's most potent combat aircraft such as the Su-30MKK. Also it has made a major contribution in terms of design input, engineering and assistance to systems such as the J-10 aircraft fighter, the SD-10 active-radar missile, and the Chengdu FC-1/JF17 Thunder lightweight aircraft whose roots are entirely Russian, based on a MIG design. See Hewson Robert, "Chinese airpower reaps benefits of long road to self-sufficiency", Jane's International Defence Review, October 2007.

⁸⁵ Wendell Minnick, "China's Defense Industry", Defense News, 16 July 2007.

⁸⁶ Wendell Minnick, "China's Defense Industry", Defense News, July 16 2007.

⁸⁷ http://www.cnsa.gov.cn/n615709/cindex.html

⁸⁸ Interview with Mr René Oosterlinck, Director of Legal Affairs and External Relations, also Head of the ESA Security Office and Head of the HQ Establishment in Paris, 30 October 2007.

⁸⁹ Kevin Pollpeter, "To Be More Precise: The Beidou Satellite Navigation and Positioning System", China Brief, Vol. 7, Is. 10, 16 May 2007.

⁹⁰ Peter B. de Selding, "EU likely to Bar China from Gallileo Supervisory Authority", Space News, 19 June 2006.

⁹¹ Interview with Mr Oosterlinck.

⁹² On 30 August, Zhang Qingwei, General Manager of the China Aerospace Science and Technology Corporation (CASC), was promoted to the post of minister of the COSTIND. Mr Zhang, at 46, is one of the youngest ministers to have ever been appointed in the People's Republic of China. In 2006, another career space insider, Huang Zuoxing, was promoted to the position of deputy political commissar of the GAD. Huang's promotion was preceded in 2002 by the appointment of the former deputy political commissar of the Taiyuan Satellite Launch Center, Chi Wanchun, to the position of political commissar of the GAD. Two other deputy commanders of the GAD also have space careers. Zhang Jianqi, appointed to the GAD in 2004, has served most of his career at China's launch facilities and Zhu Fazhong, appointed to the GAD in 2002, appears to have spent the majority of his career in the missile and radar fields. Zhang Qingwei, Chi Wanchun, Zhang Jianqi, and Zhu Fazhong are also members of the important Central Committee of the Chinese Communist Party. Kevin Pollpeter, "The Stars of China's Space Program: The Rise of a `Space Gang'?, China Brief, Vol.7 Issue 17 19 September 2007.

⁹³ Kevin Pollpeter, "The Stars of China's Space Program".