Like so much in Washington these days, this year’s Top 100 list is all about China.

For the first time since 2001, it includes Chinese defense firms, with six cracking the overall top 15, a major upheaval of the top defense companies in the world, Defense News reported.

Unlike most Western defense firms, there are no public statements about defense revenue from the Chinese companies. To calculate their rank, Defense News teamed with the London-based International Institute for Strategic Studies, whose Lucie Béraud-Sudreau and Meia Nouwens have extensively studied the Chinese defense industry for several years.

The duo tracked primary sources such as company or government reports, secondary Chinese-language sources (like financial media outlets), and non-Chinese-language news sources to come up with total revenue figures for eight Chinese state-owned enterprise, or SOE, conglomerates with defense-industrial concerns, the Defense News report said.

The trickiest part was determining defense revenue versus commercial revenue for each SOE conglomerate. To do that, the IISS team looked at hundreds of small subsidiary companies for each SOE, narrowing those down to 460 mid-level subsidiaries. The researchers then determined whether the subsidiaries’ activities were primarily military or commercial.

The assumption was that if 50% of a group’s subsidiaries were military-focused, then the assumption was that 50%t of the group’s revenue comes from defense.

This method was substantiated in part by the China North Industries Group Corporation Limited, otherwise known as Norinco, the only one of the eight companies that reported a distinction between its civilian and military activities, the Defense News report said.

According to Norinco, 80.8% of its revenue comes from civilian activities, which essentially matches the estimate for the company that IISS came up with. That Norinco’s official figures lined up so well with the estimates gave “confidence” for the researchers, Beraud-Sudreau said. “We got pretty close to their official number. So we think this methodology is viable.”

The China Shipbuilding Industry Corporation was ranked 14th overall at US$9.8 billion. Handout.

Overall, those eight firms totaled approximately US$97 billion in defense revenue for 2018, putting China’s defense market behind only the US; that amount is also just shy of the approximately US$100 billion in defense revenue from the European countries on the list.

But while Chinese firms are clearly major players in terms of revenue, Nouwens questioned how much of a global player they are likely to be in the near term.

“The buzzwords of this year are ‘great power competition,’ and countries will have to make a major decision to align with the U.S. or China on arms sales,” she said. “And countries now aligned with the US won’t want to give that up.”

While there have been a few notable reports of Gulf states buying Chinese-made UAVs, Chinese firms actually have limited exports overall, the Defense News report said.

The vast majority of revenue flowing into those firms comes directly from Beijing, with exports largely limited to Bangladesh, Algeria, Myanmar and Pakistan. The latter accounts for 36% of Chinese defense exports. China exports high-end combat aircraft to Pakistan, thanks to the co-production deal of the JF-17 Thunder aircraft, and more recently to Myanmar.

“European or Russian companies have to export to survive. Chinese and American companies don’t need that — they have a sufficiently large domestic customer that they can survive without external markets,” Beraud-Sudreau said. “Given the restrictions from the US, and American pressure on other countries to limit their connections to China, expect a focus on domestic production in the near future.”

Chinese firms do have weaknesses. The researchers identified three key areas — aircraft engines, naval propulsion systems and combat-management systems — where Chinese industry lags behind. However, there appears to be a concerted effort from Beijing to close those gaps, either through technology creation at newly formed innovation centers, or through partnerships, such as one with Ukrainian company Motor Sich to work on aircraft engines.

There is also a long-running expectation that China State Shipbuilding Corporation and China Shipbuilding Industry Corporation will merge, which would create a single major shipbuilder in China, with a combined defense revenue of about US$14.7 billion. That would boost it to ninth place on the Top 100 list.

China also launched 11 ships for the People’s Liberation Army Navy in the first half of 2019 alone. This figure is made up mainly of Type 056A corvettes, but also includes four Type 052D destroyers and another Type 071 landing platform dock.

It is also building two more aircraft carriers in addition to Liaoning, a refurbished ex-Soviet carrier.

The top Chinese firms by fiscal 2018 defense revenue are:

Aviation Industry Corporation of China (US$24.9 billion, 5th overall); China North Industries Group Corporation Limited (US$14.8 billion, 8th overall); China Aerospace Science and Industry Corporation (US$12.1 billion, 10th overall; China South Industries Group Corporation (US$12 billion, 11th overall); China Electronics Technology Group (US$10.3 billion, 12th overall); China Shipbuilding Industry Corporation ($9.8 billion, 14th overall); China Aerospace Science and Technology Corporation (US$8.1 billion, 19th overall); China State Shipbuilding Corporation (US$5 billion, 22nd overall).