Ross: In this podcast, we are discussing China's military industrial development, the impacts of the 14th Five- Year Plan and how this will impact both industry and strategy. So to start this out, John, can you give me a quick overview of yourself and your experience working with Janes.

John: Sure thing. Thanks, Ross. Great to do this. Great opportunity. So thank you. My name is Jon Grevatt. I've been with Janes for more than 20 years now, most of that time, focused on Asia- Pacific defense markets. What that means is a variety of factors and activities that implicate the markets, including defense industrial capabilities, offsets, contracts, technologies, programs, industrial collaboration, procurement. And being in the Asia- Pacific, based in the Asia- Pacific as I am, you can't not neglect China in that regard. China isn't a traditional defense market. Obviously, exports for the West and not really something that are possible, but we still look at it very closely in terms of its defense activities, defense industrial base, technology base and its defense market as a whole, because it's such a important country, an important market, that not to focus on that wouldn't be right. So certainly that's something that's the main focus of mine, and it has been over the last 17 years or so. The important pieces of work that I've done recently in that respect is to look in detail at how China is looking to develop not only its defense industrial base and its technology base, but also its military over the next period and what China refers to as the next era, and that really is defined by China itself, actually, by it's new 14th Five- Year Plan, which runs 2021 to 2025. And President Xi Jinping has made it very clear that this Five- Year Plan for its defense and technology base is a pivotal one, is a very important one. And the reason for that is that it comes at the start of a period of 30 years really, whereby the end of those 30 years, 2049-2050, China is aiming to become the world military superpower, if you like, surpassing the U. S. That's its target... world class military by 2049. And the 14th Five- Year Plan is the first of three within the first 15 years of that to 2035, and so China is really in these next five years positioning its defense industrial base and its technology base, positioning those assets to provide the technologies and the capabilities that will eventually provide China with this world- class military status by the end of the 2040s.

Ross: Absolutely. So the older members of the audience will certainly remember way back in the Soviet Union and their five- year plans. How does China Five- Year Plan engage? So it solely related to the military industrial complex, or is it wider throughout society?

John: Yeah. I mean, that's a good point, and I think we saw... You made the point about the Soviet Union. In the 1950s, I think it was that China implemented its first Five- Year plans, and I think back then, they were detailed plans about what to make, how much of it to make, at what price, et cetera, et cetera. And as the country has evolved, and I don't think... Well, I know that they're not detailed plans so much anymore, and I think China refers to them as actually guidelines as opposed to plans, that I think State Council refer to it as" providing a direction in which to travel," as opposed to a plan, which provides a detailed route about how to get there. So that's the idea with it is it more accurately regarded as five- year guidelines as opposed to five- year detailed plans. And they're not specific to the defense industrial base. And, indeed, the developments that I've observed in terms of the defense industrial base and technology base really have emerged out of the guidelines and the objectives, and the top- level priority objectives that China wants to achieve for its military during the next five years. So that in the Five- Year Plan, there is a couple of pages really allocated towards the military, and within that, there is a lot of space handed over to the importance of technologies and industrial development. So we can see what China is trying to do through that plan. And, of course, as you said, it's not just the military, it's all parts of the economy and in industries, but obviously the military one is something that a lot of people focus down on. And, actually, it's worth pointing out that the 13th Five- Year Plan and the 14th Five- Year Plan don't differ that that much, but what's clear in the 14th Five- Year Plan is the focus really on innovation and modern technologies. I think the 13th Five- Year Plan was really a push to position the industrial and technology base to make the gains that it is looking to make during the 14th Five- Year Plan. So these are all very closely linked, Ross. There is no... These Five- Year Plans, you can't look at them in isolation. They are all, from what I've seen, all very linked with slight changes during each Five- Year Plan, gradually taking China towards this big target that it has in 2049 to achieve world- class military. So in that respect, it's ingenious, and it's very, very, very well- planned. There's nothing that's a coincidence in China's planning.

Ross: Absolutely. One of the things you mentioned there is the focus on innovation of this new Five- Year Plan. Now China's obviously had a long reputation of effectually copying of a nation's industrial successes through legal or alternate means. How much emphasis with this new plan is there on pushing for these technological developments? Because I understand elements such as they're trying to establish themselves in the 5G market, but also moving to certain other new markets in the defense industry. Would you be able to tell us more about that?

John: Yeah. And I think... Actually, before we get to that, I think you mentioned about the importance that China has placed on ceasing its previous dependency on reverse engineering and imitation. And that push, actually... something the China referred to as a shift from imitation to innovation... that shift actually started in the 13th Five- Year Plan with the aim really to overcome its dependency over a couple of decades really on Russian equipment, Russian defense equipment. And, of course, China's not there yet, but I think, as I've said, these Five- Year Plans are all very much linked up. But what we saw in the 13th Five- Year Plan and over the past five years is that there's been a definite decrease in the amount of copied equipment that China is producing. Yes, there are elements, of course, but there have been has decreased in that and there has been an increase in its ability to innovate in new areas. And we've seen that certainly over the past five years, and that has been achieved, I think, really in the 13th Five- Year Plan by several priorities that were outlined at the beginning from 2016 to 2020. So the shift from invitation to innovation was one of those. And the idea with that is that China placed a lot of emphasis in the last five years on efficiencies. Traditionally, China's defense industrial base and technology base was very inefficient and a lot of duplication, extremely stove- piped in its fashion, and it wasn't really conducive to innovation. And one of the things that we've seen in the past five years was this emphasis on trying to improve efficiencies and trying to improve the competitiveness of China's defense industrial base. And, to a degree, I think that's been successful, but I would also say that certainly the PLA and the State Council would regard it as not quick enough. But we've seen we've seen quite a lot of moves towards that efficiency, towards that greater competition. And the result of that has been, or one of the results of that, has been this shift towards innovation and away from imitation. If you want now, Ross, I can talk you through some of the the goals within the 14th Five- Year Plan that stem out of the 13th Five- Year Plan. So there are a number of areas that they are looking to prioritize. Efficiencies comes back as a major priority. So China has outlined certainly a requirement in the 14th Five- Year Plan to continue the reforms that it pursued during the 13th Five- Year Plan to achieve those industrial efficiencies, to restructure its defense industrial base and technology base in order to achieve those of businesses that will bring about even greater competition. There is also the move, that's very clear in the 14th Five- Year Plan, to achieve what it states as deeper military civil fusion with the aim to achieve a shift in terms of military capabilities, a shift from what it what China refers to as mechanization towards informationization and then intelligentization. And that that terminology is very important, because it links very closely to military civil fusion. And mechanization basically is the procurement of modernized platforms, if you like... tanks, aircraft, ships. Informationization is the integration of communication technologies and enablers. And then, intelligentization, which is the other part of that aim in the 14th Five- Year Plan, is a reference to Fourth Industrial Revolution technologies, really... artificial intelligence, quantum computing and the like. And China makes reference in the 14th Five- Year Plan to these kinds of technologies as disruptive technologies to technologies that on the frontier, frontier technologies, disruptive technologies. It makes a number of these references to these technologies. And that is a reference really to that intelligentization push. Another emphasis in the Five- Year Plan that has been made very clear, unambiguous it is, is this deeper MCF... yes, deeper Military- Civil Fusion... but to enable a synchronization, really, between the civilian and military sectors. These are things that won't be achieved during the Five- Year Plan, but certainly these are areas that China wants to push during the Five- Year Plan in order to achieve its position to enable it to push on to eventually reach that 2049 target. And the idea with that synchronized military civil sectors is that it's not just about technologies, but it's about sectors... so that's companies, its industrial aspects, it's the way that they're structured. So, eventually, I can see, perhaps in another five years or in ten years, where China no longer refers to a defense industrial base, because there won't be. There'll be an industrial base, and that industrial base will be synchronized across civilian and military sectors. If you're looking, really, at the technologies and the capabilities that China wants to integrate within the PLA over the next five years, we have to say that it's all areas of weakness at the moment. You know what I mean? It's all areas that would be regarded as capability weaknesses at the moment for China's military. China's military has come a long way in the last 15 years, 20 years, but there still remains a lot of holes, a lot of gaps, in its capabilities, and some of the inferences in the 14th Five- Year Plan makes specific references to these capability gaps in terms of the shift towards informationization and then intelligentization. So areas, for instance, that are weaknesses still for China include, for instance, advanced networking systems, electro- optical systems, sensors, advanced signals intelligence, combat management systems, future infantry fighting systems... things like this, in which China this yet to really make the gains that it would like to have made, I think, at the beginning of 2016 and now are really aimed at bridging those gaps during the 14th Five- Year Plan through some of those targets and priorities that I've outlined, Ross.

Ross: You mentioned military- civil fusion. Related to it, it would actually be very interesting to a lot our subscribers, would also be the fact that if China's defense industry is moving hand in glove with the civilian industry, what impact does that expect to have on Western firms attempting to business in China? For example, Airbus is looking to set up its manufacturing for civilian helicopters within the region. Does this mean that, should the current regime of sanctions continue, there's going to be major challenges for firms operating in China, because it's going to be increasingly difficult to say where the defense industry ends and civilian industry begins?

John: That's right. And that is one of the key aims of the military- civil fusion is to completely blur those lines and to have one end of the spectrum connected to the other. The end of the Trump Administration, the U. S. announced a number of directives aimed at stemming the flow of civilian technologies towards the Chinese military through the MCF strategy. But really what those directives amounted to was really just the tip of the iceberg in terms of China's integration into advanced civilian commercial technologies in which it's collaborating very extensively with Western counterparts. And so, to some degree, you can. The scope of China's commercial base, certainly in areas such as aerospace, is enormous in terms of billions and trillions of dollars over the next 20 years. Major Western firms are not going to turn their back on that, certainly in the current climate. And so, the best that the West can do if it's serious about stopping China from gaining access to technologies that could benefit the military, there is no way that that can happen realistically, because the benefits for commercial companies to integrate with China are so huge. And it's not just in the conventional areas as well, Ross. It's not just in the areas of aero engines, which is obviously a capability gap for China. It's not just in aerospace and other areas. A major area of integration for China at the moment, and it has been for two or three years now, has been artificial intelligence. And China basically believes and structures its military civil fusion around the principal that artificial intelligence and enabling technologies will provide the Chinese military with leap over, leap frog capability. One of the other aims of the 14th Five- Year Plan is to achieve catch- up status in terms of conventional systems. But China also believes that the next generation 4IR, the 4th Industrial Revolutionary technologies, such as AI, will provide it with this leap over capability, with this capability to really become the leading player in terms of military capabilities through the integration of 4th Industrial Revolution capabilities, such as AI. And the scope of China's integration with the West and the rest of the world in terms of AI is phenomenal, has grown very rapidly over the last few years with and through many of China's biggest names in terms of commercial technologies and mobile technologies and digital technologies. All these companies are involved in... or many of these companies are involved in MCF strategy, many of the big ones at least. And they are, certainly, involved also in the commercial aspects in the U. S. and the U. K. and other countries. But that's what I've said about this one end of the spectrum feeding the other end of the spectrum, and that is what focus areas of MCF and that is one of the focus areas of China's AI plan. And that AI plan was instigated in 2017 over three phases with the distinct target of integration of entanglement with the rest of the world, and that is driven by huge investment and driven by the requirement, as I've said already, the motivation really, as China has said in the AI plan, to deeply integrate AI within its military platforms and systems to achieve, by 2035 certainly, that intelligentization capability. And that will be achieved through the integration of AI, and that will be achieved through the integration of the technologies that have come principally, at least at the beginning, through commercial sectors. And so, that is the difficulty. I mean, I've summed up there the AI plan, but that is the difficulty that Western firms, or Western governments I should say, face, if they are serious about stopping China has access to these technologies. It's pretty much impossible to do so when the volume of dollars that we're talking about in terms of some of these areas is huge, and it comes at a time of COVID when Western governments need to integrate with some of the world's biggest economies, and China is aiming to be the biggest economy in the not- too- distant future, and to not to integrate with that would be very, very difficult, almost impossible. So that's the challenge that the West faces, but China is aware of that challenge and that is why the MCF strategy is so important over the 14th Five- Year Plan, Ross.

Ross: So you mentioned with intelligentization and incorporating AI into those efforts. Could you explain exactly what intelligentization is? Because you previously mentioned mechanization and so on, and I think everybody's familiar with those development. In terms of intelligentization, is this the incorporation of automation at effectively the business end, or is it something a bit deeper?

John: The defense industrial base of the moment isn't really clear about the wide possibilities in terms of AI, but what China, I think, is clear is that intelligentization and the integration of AI will provide it with capabilities across four areas, I guess... surveillance, detection, targeting and strike. We've seen that AI has an ability across all those areas to support military capability, to advance military capability. And China has not made it clear that these are the areas, but I think that it's almost certain that these are the aspirations of China's AI plans in terms of integrating it in towards the military is to achieve capability advancements in those areas like surveillance detection, targeting, strike, that will be extremely important in China's strategic military objectives to enhance anti- access area denial across the Asia- Pacific. And that, at the moment, is China's priority area in terms of military strategies and will be so for the foreseeable future. And I think that AI... certainly when you look at the vast distances on a map across the Asia- Pacific, the oceans of the Asia- Pacific... when you consider that and you consider the technological capabilities that some of these artificial could possibly provide China in terms of surveillance, in terms of detection, and targeting and strike, you can possibly see the attractiveness for China. When you integrate that with the capability that China is able to bring to bear in terms of conventional systems, which are not the most advanced, but China is able to bring a mass of capability in terms of platforms to the Asia- Pacific, because it's on its doorstep... When you integrate that with the capability advancements that China is looking to integrate in terms of AI in those areas that have already discussed, targeting and strike, for instance, then that is the attractiveness for China. The augmentation of that, alongside its conventional platforms, will provide that capability that China is looking to achieve that will provide that anti- access area and denial across the Asia- Pacific. So in that regard, the whole thing is linked very closely between the technology side, the military strategic objective side. There's a clear link between all that. And, certainly we're not there yet, but the 14th Five- Year Plan is certainly one important step towards that. We've spoken a lot about the technology base and the importance of technologies and industry within this Five Year Plan, but in terms of military development, I think it's only one aspect. The industry and technology side is really only one aspect of it, and there are other aspects. There's five or six other aspects of the military civil fusion strategy. One of which is technology and industry. And I would say as well that industry and technology is the most important of these aspects in terms of MCF, but China has made it clear in its own papers and policy papers about military- civil fusion is that there are five or six other areas, which it calls systems of systems in which MCF is intended to bring about military capability developments that together, all these systems of systems will enable China eventually to, in theory, to achieve this 2049 target of becoming a world- class military. Those other areas include: a restructuring of the innovation base; research and development; the whole aspect of research and development into achieve military civil fusion in China's innovation efforts; training and personnel cultivation... that's another area of military civil fusion to enable not just in the military, but also the skills of technical skills, training, to enable that to become one; logistics... so obviously, logistics that the civil- military fusion of logistics is certainly provides benefits for China when you look in terms of its Belt and Road Initiative, for instance; infrastructure is another important area, such as the military- civil fusion of airports, the military- civil fusion of communication networks... obviously, China's new satellite system is a good example of that of as to how that is supporting both civilian and military networks... that that is another area of the systems of systems that China aims to support through military- civil fusion; and the last one... I think that was five or six... but the last one really is what it refers to as mobilization, which is really something similar to Singapore's Total Defence strategy, in which the idea with that is that the total, the economy, the society, the culture, the industrial sectors, will all be geared towards supporting military- civil fusion, supporting military development, again with this objective of achieving world- class military status by the end of the 2040s. So we mustn't isolate technologies in industry. I would argue it's the most important part of this systems of systems strategy that China has with MCF, but it does incorporate other elements, other five or six elements that all pull together towards MCF and the target of world- class military status.

Ross: Coming from that, would you say then it MCF is a logical conclusion of the previous people's war concept that China is seeking to, not necessarily militarize, but engage its entire population industrial base towards its political and military goals and that this is, again, inaudible back to the teachings of Mao talking about how you mobilize the masses effectively to perform your goals both militarily and economically?

John: Yeah. I mean, I think that China's long- term strategies also reach back a long way. There is nothing that isn't connected to several decades back. And so, yes, it's very clear that this is the strategy and, like you say, it is linked back, some decades back, towards targets and goals that were outlined many decades ago. And through that push, if you like, towards this MCF strategy... which is extremely wide reaching and complicated difficult really to get your head around, I think sometimes... but within that, if we look specifically at the industry and technology side of things, there are also many, many reforms that are underway at the moment that are linked again. So, if you like, if you have a... Just look at it in terms of this five or six of these systems of systems, and within each systems of systems, there's another, scores of reforms, that are underway within each part of that towards this one end goal. And these reforms have been going on for many decades in some cases, which again links back to that point you made about how far these plans stretch back and how well- connected these plans are. There certainly is nothing that is a coincidence or a mistake in China's planning going forward. I'll just point out some of the most important of these reforms going forward. One of the most important things that China is trying to do within its industry and technology systems of systems is this... and I've referenced it a couple of times... is this restructuring, and it's vital. This is a vital element of the 14th Five- Year Plan in order to achieve this military- civil fusion. So this restructuring really is dependent on China's ability... and this actually will bring us to some of the challenges that China faces in its 14th Five- Year Plan... but this these reforms are really focused on the ability of China to synchronize and restructure its industrial base, so that the private sector... which we haven't actually mentioned yet in our discussion... but the private sector becomes much more deeply integrated into the development of these next- generation military technologies... I shouldn't say military technologies, but next- generation technologies such as artificial intelligence. In the past five years, China has had not so much of success at restructuring its defense industrial base. There's been some, but it's not been as advanced as the PLA I would imagine would have wanted. And so, a real motivator, a real priority, in the next five years will be restructuring its defense industrial base so that the private sector is much better integrated in terms of innovation, in terms of technologies, in terms of even just a little niche technologies that the private sector can bring to bear. At the moment, it's been very limited, but that is a major push, and China believes that that will that integration will bring about some of the new technologies that China wants to develop. And the way that that integration of the private sector is being targeted is through areas such as funding and investments, consolidation and mergers and acquisitions, greater emphasis on partnerships and alliances between the state and the private sector. China's mixed ownership reform, which has encouraged the private sector to buy stakes of admittedly non- core elements of the state- owned defense industry, but those reforms have been important. But another area that is very important for China is administrative reforms in terms of procurement and contracting, because many of this is still very much favors the state- owned enterprises, and in order to integrate the private sector and in order to integrate those niche technologies such as artificial intelligence, it really does need to address some of the issues with procurement and contracting, which is still very much favor the state- owned enterprises. And that really, Ross, is one of the major challenges for China as it goes forward and to achieve those goals that it is aiming for in the 14th Five- Year Plan. China's ability over the last five years to integrate the private sector has been quite poor, really. There's been some gains, but it's been quite poor, and there remains the lack of trust in the private sector, not just the lack of trust in terms of the government but also the state- owned enterprises. So they still don't fully trust the private sector with military programs. Of course, for many, many decades, the state has owned and undertaken military programs, but now is the time where the state really does need to reform successfully its processes in order to integrate the private sector. And without that integration, then that AI plan and the program to integrate military- civil fusion is jeopardized, I believe. And so, that is a major risk for China as it goes forward and a major risk to the MCF strategy as to how well China can integrate its civilian and military industries and technologies. To date, integration has been limited. There's been some areas where the government has tried to integrate the private sector. For instance, in training and simulation systems, it's opened its doors a little bit, but there needs to be much greater embrace, really, of the private sector before it can achieve some of those games that it is looking for. And another leaked, major challenge that China faces actually is the continuing to stove pipe structure of the defense industrial base, whereby it's still very much owned and governed and dominated by these super huge industrial bases that have dominated defense industrial research and development production for so many decades. For this to really work, that needs to be restructured considerably, substantially, over the next few years. And, again, that's not been an area that China has a good record at over the last five years. It's struggled really with that restructuring. And that is another major challenge that China faces in terms of achieving some of the objectives of the 14th Five- Year Plan. So I don't think it's a plain sail towards those targets. China faces many challenges, and I suspect within the next year, we'll see more fundamental reforms that really do attempt to integrate the private sector and really do attempt to restructure the traditional defense industrial base.

Ross: As part of these reforms you've previously mentioned and moving forward as well, with the recent inaudible among certain members of the industrial complex, was that politically motivated? Was that part of this attempt to develop industry forward as part of the Five- Year Plan?

John: Yeah. I mean, I don't think... As I said before, there are coincidences when it comes to China's planning of its defense industrial base and MCF. So there are no mistakes. There are no coincidences. Nothing is taken in isolation. So in my view, it's all connected, and certainly, China is aware that the that it needs to make some large gains in terms of the challenges it faces, it needs to... It looks very much at the U. S., at what the U. S. has been achieving over the last few years in terms of its integration of the civil- military sectors, and that's something that China looks at certainly. And it does appreciate that it needs to really accelerate this effort towards the MCF program, which necessitates deep restructuring, not just in terms of industrial structuring, but also in terms of administration and the way that the defense sector is administered by China. So it faces big challenges in that regard.

Ross: Related to this, actually, we've talked a lot about how this affects China internally, how they're moving forward on that. Thinking externally, especially as the Chinese industry is trying to make its way into the global defense market, do we expect Significant changes in this respect from this Five- Year Plan or is this something we're going to see further down the line?

John: It's an interesting point in terms of exports. Now I mentioned, I think, briefly, China's Belt and Road initiative, which is aimed really at expanding China's strategic influence across much of the world, and that has been dented by COVID- 19. There's no doubt. But that certainly is a major priority for China within the 14 Five- Year Plan. In terms of the defense industry, there is no real hard links between the industrial base and the Belt and Road initiative. But I would say that another important part of China's strategies over the next five years in terms of developing technologies and in terms of the military- civil fusion policy is something that China refers to as Going Out. And Going Out basically means the encouraging its defense companies... When I say defense companies, I mean the traditional defense companies. It encourages its traditional defense companies to go out into the international markets and be competitive and to acquire local companies and to be successful in defense exports and to expand its influence in foreign defense markets. And that expansion of the industrial base's influence in those international markets is part of the Belt and Road Initiative, is part of China's efforts to expand its wider strategic influence across the world, much like the United States regards defense exports as part of its strategy to expand its influence. So China, again, has looked at the U. S. strategy in terms of defense exports and seen a policy there that it wants to pursue, and China is pursuing that through the Belt and Road Initiative and through the Going Out Initiative, through which defense exports are part. And over the past five to ten years, China has had success in defense exports. Certainly in developing markets in Asia and the Middle East, China has been successful in expanding its share of the market in these countries. I don't think China is out to become the world's top exporter. Revenues are not driving China's defense export. Revenues are not driving it. It's the Going Out and the Belt and Road Initiatives that are driving this, which is part of this tradition objectives of China. But exports certainly provide China with a route to foreign markets, with a route through which it can pursue mergers and acquisitions, with the route through which it can acquire foreign technologies and engage with foreign customers, understand new trends in technologies and new requirements. And we've seen China certainly expand its strategies in terms of defense exports over the past five years, and I would suggest that defense exports will continue to be a priority area over the coming five years as part of its wider strategic objectives.

Ross: So that now we've covered most of the inaudible effects of the current Five- Year Plan coming up, what's happening going forward? What's the next Five- Year Plan going to look like? Is it going to be a continuation of what we're seeing now, or are we going to see a rapid acceleration of these plans, of course, depending on how it all goes?

John: So you're talking about the 15th Five- Year Plan in five years. Yeah. I mean, there will be... It's difficult to say at the moment, but I'm sure that there will be links to the 14th Five- Year Plan but slightly honed in a way that would be the next stepping stone, that would then be the second Five- Year Plan out of the next up to 2035. So that would be another important stepping stone towards the 2049 target. So, as I said at the beginning, Ross, I think all the Five- Year Plans are very closely linked, slight differences between them, but all regarded as a stepping stone towards modernization.

Ross: Okay. I think that's us more or less coming to the end of our podcast. In a couple quick sentences, can you give us an overview of what it means about the current Five- Year Plan?

John: Yes. I think the next Five- Year Plan is one in which China is looking to push forward with its... in terms of military technologies, to push forward and advance some of the priority areas that it's identified. It's not a stop- start process, these Five- Year Plans, and there is no clear success markers, but what I think China is aspiring to in the next five year plans is to make significant strides towards some of its priorities, which include artificial intelligence and 4th Industrial Revolution technologies and military- civil fusion, defense industrial reforms and other areas of military- civil fusion, such as infrastructure and innovation, through which it aims to take another step towards the world- class military objective that it has in the late 2040s.

Ross: Brilliant. Thank you very much, Jon. It's been a pleasure having such a consummate professional join us on the podcast. We look forward to hearing from you again in the future.

John: It's been great. I've really enjoyed it. Thanks, Ross.