Barakah-1, the first Arab commerical nuclear reactor, powered by a Korean APR1400 designed by KEPCO.

South Korea is one of the most important industrial economies. It is the world's second-largest semiconductor producer, championed by Samsung Electronics and SK Hynix, manufacturing chips foundational to modern civilization. Behind China and the China State Shipbuilding Corporation, its shipbuilding industry, led by Hyundai Heavy Industries, Hanwha Ocean, and Samsung Heavy Industries, is the second largest by number of new vessels. South Korea retains a competitive steel industry through POSCO, the world's eighth-largest steel producer. Underwriting this advanced and varied industrial economy is cheap and reliable electricity provided by the Korean Electric Power Corporation (KEPCO), which has developed a world-class nuclear industry, principally managed by its subsidiary Korea Hydro & Nuclear Power (KHNP). Unlike other countries, which directly subsidise nuclear-generated electricity, standardised designs, clear political support for future nuclear generation, consistent political backing, and steady construction cadence have created a system where nuclear power remains not only low cost but financially sustainable. Although sold at prices set by the state, nuclear electricity is not only cheap but profitable for KEPCO overall.

The current flagship reactor, the APR 1400, is the Western world's most cost-effective reactor, costing between $2.2 and $2.8 million per MW when built in Korea. Although the upfront cost is significant per reactor, nuclear generation averages over 90%, and the Shin Hanul Unit One ran at 99.3% in 2023. Levelised cost of electricity estimates for Korean nuclear are USD $42-50 per MWh, far cheaper than gas, coal, or hydroelectricity generation. KEPCO has successfully exported the APR 1400 to the UAE and is exploring further exports with Poland and the Czech Republic. Korean reactor components are manufactured primarily by Korean firms. In combination with its highly capable defense sector, South Korea’s civilian nuclear program could supply the material and engineering base needed for a rapid nuclear weapons breakout if strategic conditions changed. Korea's deficiencies in natural resources such as natural gas and coal, which are key motivators for a varied electricity supply, also extend to domestic uranium mining production, but it maintains a fuel stockpile for up to five years.

While Korea is not planning to greatly expand its nuclear fleet, aiming for only 35% of total electricity generated by nuclear power by 2036, its nuclear industry would be well-positioned to deliver a far larger civilian nuclear buildout. In contrast to China, Korea could generate nearly all its required power demands through nuclear generation, easing its planned transition to a low-carbon-emitting economy by 2050 without affecting global uranium supply or risking its economy, which in 2023 was 24.3% based on manufacturing, on a volatile, complex, and variable renewable-based grid. South Korea’s nuclear industry should be the envy of the Western world, but its success is legible and replicable with sufficient political will.

South Korea’s nuclear power journey.

South Korea was not always a developed, high-tech industrial economy capable of efficiently producing industries that Western countries struggle to retain. Its limited natural resources, protectorate status under Qing China, and remote location meant it was not a target for Western Imperial ambitions. But this same isolation left it unable to resist the rise of Japanese power, which had embraced Western industrial and military ideas following the Meiji Restoration. After Japan defeated both China in the First Sino-Japanese War (1894–95) and the Russian Empire in the Russo-Japanese War (1904–05), Korea was established as a protectorate before being annexed in 1910. Japanese rule did not result in development of the Korean economy, and coupled with increasingly extractive Japanese policies during the Second World War, in the post war period it was desperately poor but split between the Communist sphere of influence in the North, which became the Democratic Peoples Republic of Korea and American backed regime in the South. The bitter colonial experience of Korea, marked by repression, forced labour, sexual slavery, and cultural erasure while being ruled by Japan, still resonates to this day.

Myeongdong in central Seoul in 1950. The district is now an international shopping hub (Limb Eung-Sik/NYT.)

The South's weakness led the expansionist regime in the north under Kim Il Sung to launch an invasion in 1950, which was repelled and fought to a bloody stalemate in 1953, with an armistice but no peace treaty. After the war, South Korea remained weak, dependent on foreign aid, with little industry, and ruled by authoritarian Syngman Rhee. Due to its weakness and to defend it from North Korean aggression, in 1958 the US placed MGR-1A surface-launched missiles, capable of delivering a 20kt nuclear warhead. After the instability of his regime led to a short-lived second democratic government, a military coup by the second-in-command of the South Korean Army, Park Chung Hee, in 1961, left South Korean prospects looking bleak. Park Chung Hee, like many leaders in the 1960s, had ambitious dreams of economic development and industrialization. However, South Korea lacked natural resources, was dependent on the US for aid, and faced a then-formidable hostile country on its northern border. Remarkably, unlike other leaders of the time, he was able to create a miracle. With tight control over the business elites of South Korea, he pushed their family-controlled businesses (Chaebols) to pursue textiles, apparel, electronics assembly, and light engineering manufacturing while normalising relations with Japan, which unlocked a critical flow of grants, loans, and reparations that helped finance industrial growth. As this strategy succeeded, and South Korea's economy grew at an annual rate of 9.7%, Park moved to develop heavier industry, but also required growing electricity to power this industrial explosion.

After Park had taken power in 1961, one of his first moves was to establish the Korea Electric Company by consolidating smaller, fragmented electric utilities under state control. KECO’s purpose was to provide stable, centralised power infrastructure that could support industrialisation and national development. Over the next two decades, it became the backbone of the country’s rapidly growing manufacturing economy, expanding the transmission network, building thermal power stations, and managing energy access in both urban and rural areas. KECO was the dominant utility provider, although smaller companies still existed. Like most countries at the time, electricity generation was fundamentally based on coal, but in 1972, KECO began construction of Kori 1, a 570 megawatt reactor designed and supplied by the American company Westinghouse. During the construction of Kori 1, KOPEC (Korea Power Engineering Company) was established in 1975 and became a wholly owned subsidiary of KECO. Its role was to build domestic capability in nuclear power plant design and engineering, especially for balance-of-plant systems. A second marginally bigger reactor, Kori 2, with a 640 MW capacity, began construction in 1977 with increased Korean participation in construction. After a slight delay, Kori 1 began commercial operation in 1978, eventually running until June 2017 and generating over 148.55 TWh during its lifetime. At the time, it cost around $300 million ($2.2 billion in 2025), resulting in a per MW cost of $3.8 million per MW in 2025 dollars. In 1982, KECO was reorganised and became the Korean Electric Power Corporation (KEPCO).

Kori 1, which supplied over 148.55 TWh of power from 1978-2017.

Unlike China, which began its civilian nuclear program using designs derived from military submarine reactors, South Korea’s program relied entirely on foreign expertise and civilian sector imports. Kori 1 was the only plant built on a full turnkey basis by Westinghouse, with limited domestic participation. As new reactors were commissioned, South Korean firms gradually expanded their roles in engineering, construction, and component supply. By the time construction began on Kori 3 in 1979 and Kori 4 in 1980, KOPEC had assumed responsibility for systems engineering, Hyundai and Daewoo were managing major civil works, and Doosan (then Korea Heavy Industries) was manufacturing reactor pressure vessels and steam generators under Westinghouse’s technical supervision. These projects, along with Yonggwang 1, which began construction in 1981, and Yonggwang 2 in 1982, both using Westinghouse’s three-loop PWR 950 MW design known in Korea as the WH F, marked the point at which KEPCO stepped into the role of overall project manager. These projects, which left Korea with a nuclear generation capacity of 5 GW in 1987 (but produced 49% of South Korea's 78.89 TWh of annual electricity demand), were all based on proven Westinghouse designs. By the late 1980s, Westinghouse had either directly designed or licensed over 50 three-loop PWRs (a type of pressurised water reactor which uses three separate coolant loops to transfer heat from the reactor core to steam generators, improving thermal efficiency and enabling larger reactor outputs compared to earlier two loop designs) in the US, Japan, South Korea, Spain, and Belgium. This successful global deployment influenced thinking in Korea that nuclear reactors had to be built in fleets of similar designs to smooth out design flaws, allow learning from all participants, and recoup the costs of the original designs.

In 1989, KEPCO began the construction of the first non-Westinghouse reactor, the System 80 1400 MW PWR designed by Combustion Engineering (who were later acquired by Westinghouse after they were bought by the Swiss/Swedish firm Asea Brown Boveri). The System 80 was both a step up in generation capacity and South Korean involvement. Although firms like Hyundai and Daewoo had already been managing civil works and KOPEC had taken on systems engineering, the System 80 reactors at Yonggwang 3 and 4 marked a deeper level of Korean technical participation. Doosan Group, a heavy engineering firm, under guidance from Combustion Engineering, manufactured reactor pressure vessels, steam generators, and pressurizers, mastering critical techniques in forging, welding, and non-destructive testing years ahead of China’s own efforts. While some components, such as reactor coolant pumps and control rod drive mechanisms, continued to be sourced from foreign suppliers, Korean firms rapidly took over installation, integration, and the production of auxiliary systems. KOPEC began managing plant-wide system integration and adapting digital platforms for Korean conditions, while KEPCO adjusted plant layouts, grid compatibility, and construction sequencing to suit domestic needs. Licensing and training documentation were localised, and small yet telling adaptations, like redesigned control room interfaces, showed growing institutional confidence. This broad-based localisation effort provided Korean industry with practical experience across the full range of nuclear-grade systems, forming the technical and institutional basis for the fully domestic OPR1000, and ultimately, the APR1400. These later designs not only retained core system continuity but also embedded lessons from the System 80 phase into standardised documentation, modular construction practices, and a streamlined regulatory process.

After the first wave of Westinghouse designs began construction and KEPCO concentrated on completing them, there was a six-year break in new reactor starts from 1983 until the Yonggwang/Hanbit 3 System 80 reactor was approved and began construction in 1989. A further pause from 1990 to 1993 as KEPCO coordinated the design of the OPR1000 units, while the South Korean economy continued to grow and required further power to fuel it, led to KEPCO expanding coal-fired generation, as well as opening new gas-fired plants. Although Korean nuclear plants were cheap and completed swiftly by international standards, as Korean energy demand grew by 8% annually from 1987, nuclear could not keep up the pace demanded. The Seoincheon Combined Cycle Power Plant, a 1800MW gas-fired power station that began construction in 1990, was completed in just two years for about one fifth of the cost of a nuclear plant. Although KEPCO was the central utilities provider, it operated through subsidiaries such as KHNP for nuclear energy and Korea Western Power (KOWEPO) for coal and gas generation, who lobbied for increasing expansion of their own generation.

The South Korean government began developing five-year Basic Rational Energy Utilization Plans starting in 1993 to address the growing energy demand and promote efficient energy use, and concluded that with South Korea's minimal natural resources, exposure to any single form of generation was too risky. In the context of the early 1990s as the shadow of Chernobyl lingered, although nuclear fuel could be stockpiled for more than five years, their future OPR1000 rollout might not be as successful as the previous generation of foreign designs and securing a diverse electricity supply that could match electricity demand growth was more important than lowering carbon emissions.

By the time the first OPR1000, South Korea’s domestically standardised reactor, entered operation in 1995 at Ulchin Unit 3, the country had already completed nine reactors using foreign designs from Westinghouse and Combustion Engineering. The OPR1000, also known as the Korean Standard Nuclear Power Plant, was Korea’s first fully sovereign design, an accomplishment only matched at the time by the US, Russia, France, Japan, and the UK. Being owned by KEPCO, it could have been sold without requiring foreign approval for export, but it never was, at an odd point in history when, despite increasing awareness of the downside of carbon-emitting electricity generation, there were not enough countries in a position to purchase it.

OPR 1000/Korean Standard Nuclear Power Plant

As part of continuous development, the eventual per-MW cost of the 12 units built settled around $2.5 million. However, revenue from selling nuclear-generated power and past successes meant that the development of the next-generation reactor, the APR1400, could begin in 1992. OPR1000 reactors continued to be built until 2008, when unit 2 at Shin-Wolsong started construction, and KEPCO began the rollout of the APR1400, which had been approved six years earlier. Continuing to construct OPR1000 units meant that costs were lowered for the overall fleet, component supply would continue for longer, and KEPCO had maximised the design costs.

The APR1400 was an evolution of the OPR1000, retaining the same core reactor technology as the OPR1000 but increased capacity to 1400 MW, added digital instrumentation and control, upgraded seismic resistance, and extended design life to 60 years. By maintaining consistency in the reactor core, documentation structure, and construction sequence, KEPCO and KHNP facilitated efficient regulatory review, shorter build times, and smoother supply chain coordination. Modular construction techniques, reduced field welding, and the ability to plan and build reactors in series helped Korea avoid the delays and cost inflation that plagued comparable Western projects, such as the AP1000 or EPR. The first APR1400 unit, Shin Kori 3, began construction in 2008. However, after the second unit started in 2009, there was a pause in nuclear reactor construction to assess whether the APR1000 would be as efficiently produced as previous designs.

High Margins, Low Friction, Global Reach

Although planning for new reactors continued at Shin Kori and Shin-Hanul, the 2011 Fukushima incident led to a pause in new reactors being brought online and a reduction in the plan to produce 65% of South Korea’s energy from nuclear power by 2035. The energy debate in legislative elections in 2012 and 2016, as well as in presidential elections in 2012 and 2017, centered on nuclear safety and the potential viability of variable renewable energy sources. Although President Moon Jae-in campaigned on a platform of phasing out nuclear in 2016, he decided to establish a citizens jury of 471 randomly selected South Koreans to vote on whether to restart construction of nuclear reactors at Shin Kori. Convened through the Prime Minister's office (Lee Nak-yon was selected for the office by Moon and had no particular links with the Korean nuclear industry) the citizens jury voted 59.5% voting in favor of restarting construction, while also endorsing a phase out of nuclear power over the longer term.

With the Fukushima incident significantly impacting nuclear construction in the 2010s, if KHNP had relied only on domestic construction, it might have suffered from staff attrition, loss of tacit knowledge, and a decline in institutional competence. However, as the APR1400 was a fully domestic design capable of export, it had won a contract for a nuclear power station in the UAE in 2009, beating rivals out on KHNP’s successful track record of completing projects on time and budget, and also promising to build up domestic Emirati skills and knowledge. Although the UAE has significant amounts of oil and gas, the then Crown Prince of Abu Dhabi, Sheikh Mohamed bin Zayed Al Nahyan, sought to diversify the economy and its electricity generation needs in addition to building up greater scientific, technical and civil engineering capacity. The Barakah nuclear power plant is now the UAE’s largest electricity generation source, costing approximately $18 billion for four APR1400 reactors, totaling 5.6 GW of capacity. Unit 4 started commercial generation in September 2024, so as of May 2025, annual figures for UAE electricity consumption show that in 2023, the 3-unit Bararkah plant supplied 24.5% of the Gulf nations' annual electricity. As the plants were completed on time and budget, and the UAE has signed deals with the United States to allow the UAE to import 500,000 of Nvidia’s most advanced AI chips annually and build data centers as large as those in the US, its continued power demand will likely lead to future reactors being built by KHNP in addition to the four existing plants and a further two announced in 2024.

KHNP’s Barakah project has been an undeniable success for both the company and the UAE. Although a prolonged pause in domestic reactor construction could have led to attrition in institutional capability, Barakah allowed KHNP to maintain its workforce, supply chain relationships, and engineering depth. Yet, as a subsidiary of KEPCO, KHNP’s international work was never financially existential to Korea’s nuclear industry. In fact, unlike every other national nuclear program, Korea’s nuclear sector is so cost-effective that KHNP routinely cross-subsidises more expensive fossil and renewable generation within the KEPCO system. Unlike China, which inflates the price of nuclear-generated electricity to help finance CNNC and CGN, the US where tax credits subsidise nuclear, and the UK which has set strike prices at rates up to $171.10 MWh (2025 prices, although contract-for-difference prices are nominally set in 2012 values, which in pounds is £92.50/MWh), Korean nuclear energy can make substantial profits for KHNP.

KHNP helps offset losses for KEPCO from coal, natural gas, and variable renewable generation by producing electricity from nuclear power cheaper than it is sold on the market. Electricity prices for consumers in Korea are set by the Ministry of Industry, Energy, and Trade. In 2025, the rate for industrial users was approximately 182.7 won per kilowatt-hour, or $0.13. Industrial electricity costs in Korea compare extremely favourably to Western European nations: in the UK, they were around $0.22 per kWh, and in Germany, $0.25 per kWh. These countries have opted for variable renewable-heavy grids with backup capacity supplied by gas, whose cost is exposed to global market volatility. In the United States, industrial power averaged $0.13 per kWh in 2024. In Asia, Korea compares favourably to Japan, where prices were $0.205 per kWh, although China maintains lower industrial tariffs at around $0.088 per kWh.

On a levelized cost of energy basis, which is suitable for technologies with stable and predictable generation over decades, KHNP’s nuclear fleet has an LCOE ranging from $44 to $63 per MWh. With Korean industrial electricity prices set at $130 per MWh, even the most expensive reactors in the fleet generate a gross margin of $67 per MWh, or 51.5%. At the low end, KHNP earns $86 per MWh, corresponding to a 66.2% margin. This extraordinary level of profitability is almost unheard of in global energy markets and helps explain why Korean nuclear generation is capable of cross-subsidising fossil and renewable generation within the KEPCO system, despite electricity prices being set by the state.

Korea’s success in low costs for nuclear generation is not because of the relatively uninterrupted cadence of construction. Although fleet designs spread the cost of component construction, South Korea’s approval, licensing, and planning processes minimize costs while maintaining stringent safety regulations. Compared to the arduous, multi-agency, and often sequential approval process that defines new nuclear development in Britain, South Korea’s system is significantly more streamlined, centralised, and policy-aligned. When KHNP seeks to build a new reactor, the approval process is comparatively streamlined and coordinated. It involves a small number of core regulatory steps managed by institutions with aligned policy objectives.

Reactor design approval is handled by the Korea Institute of Nuclear Safety (KINS), which assesses safety systems, containment, fuel integrity, and radiation control. For standardised reactors such as the APR1400, which have already received domestic certification, this step can be completed swiftly. In parallel, the Ministry of Trade, Industry and Energy (MOTIE) manages the construction permit and development approval, ensuring that licensing is integrated with national electricity policy and energy planning.

Environmental scrutiny is delivered through a single Environmental Impact Assessment (EIA), overseen by the Ministry of Environment. Unlike in the UK, where environmental review is split across multiple agencies and stretched across a sequence of stages, Korea’s EIA is specific to the project and typically proceeds in parallel with other approvals. It examines ecological effects, seismic risk, water use, and radiological protection, and is coordinated with both MOTIE and KINS to prevent regulatory duplication and delays.

The UK process is markedly more fragmented and protracted. Developers must undergo three separate tracks: a Generic Design Assessment (GDA) by the Office for Nuclear Regulation (ONR) and the Environment Agency (EA), a Development Consent Order (DCO) process led by the Planning Inspectorate, and a series of environmental permits issued by the EA for emissions, waste, and water use. Each stage has its own public consultation requirements and is rarely coordinated with the others. The GDA alone can take four to five years and is not site-specific, requiring repetition when a project proceeds to location-specific planning. Sizewell C, a two-reactor 3.2 GW plant under construction in the UK, required more than 43,000 pages of environmental documentation to be submitted in only one of these processes. Importantly, the ONR does not have a statutory mandate to deliver new nuclear capacity and is focused solely on safety regulation. Oddly, it does not sit within the British Energy department (DESNZ) but is the responsibility of the Work and Pensions Ministry. By contrast, Korea’s Nuclear Safety and Security Commission (NSSC) plays an explicit policy-aligned role in nuclear expansion as part of national strategy.

The result is a stark difference in delivery timelines. Hinkley Point C will take roughly 22 years from initial regulatory engagement to first power. In South Korea, KHNP can license, construct, and commission an APR1400 reactor in less than half that time, owing to standardisation, political coordination, and institutional alignment.

The installation of Shin Kori 5's reactor vessel in 2019.

The future of KEPCO.

In 2025, South Korea’s nuclear capacity stands at approximately 25.6 GW, with plans to increase this to 28.9 GW by 2030 and 31.7 GW by 2036. The election of President Yoon Suk-yeol in 2022 marked a significant policy shift, abandoning former President Moon Jae-in’s ambition to phase out nuclear power. However, Korea’s longer-term plans still limit the expansion of nuclear power to 35% of electricity generation by 2038, despite its low cost, reliability, and potential to hedge against supply disruptions as Korea still regards it too risky to totally rely on a single generation source and the legacy of the 2013 policy shift to reduce nuclear generations. To limit carbon emissions, Korea currently plans to phase out coal and gas by 2050 (it still expects to generate 10% from coal and 10% from gas in 2038), expand variable renewable generation to 77.2 GW of solar and 40.7 GW of wind by 2038, and, similar to Japan, anticipates the emergence of commercially viable hydrogen generation technologies, despite its dubious prospects.

In addition to 117.9 GW of variable renewable (VRE) generation ($54.6 billion in new investment for solar, $202.2 billion for wind based on on South Korean LCOE estimates of $113 per MWh for solar and $189 per MWh for wind), the South Korean government has also proposed installing 138 GWh of battery energy storage systems (BESS) costing an estimated $22.8 billion. In addition to grid infrastructure expansion, upgrades, smart grid investments, and solar and wind installation costs, this would require $23.83 billion annually until 2038. While some of these costs may decrease, particularly battery costs, which are manufactured by South Korean firms LG Energy Solution, Samsung SDI, and SK On, the likelihood of wind turbine costs falling substantially after mainly European countries have piled hundreds of billions in subsidies for wind turbine development is limited. While KEPCO still dominates the electricity market in South Korea, the vast majority of South Korea's 29 GW of solar generation is not provided by KEPCO but by independent power producers (IPPs) who are subsidised with fixed prices and state targets for renewable-sourced electricity, which guarantees them market share, but the envisaged wind expansion is due to fall on KEPCO’s subsidiaries (Korea South-East Power, Korea Midland Power, and Korea Western Power).

The South Korean government does plan to directly subsidise some of this transition and has planned $6.8 billion of central government investment annual by 2030, but the vast majority of the cost will fall on KEPCO, which suffered a $24.6 billion loss in 2022, a $3.43 billion loss in 2023 and has debts over $141.5 billion. Although the losses in 2022 and 2023 were due to of high fossil fuel generation costs, the plans to not phase them out until after 2038, continuing to expose them to future losses, the massive amounts of VRE capital investment and global experiences of VRE instability (VRE only contributes 6% of annual electricity production at the moment) Korea may yet return to its aims of 65% of electricity coming from nuclear energy.

To reach 65% of a projected 2038 electricity demand of 129.3 GW, this would require building a total of approximately 84 GW of new nuclear capacity. This would require three APR 1400 reactors to come online every year by 2038, with a capital cost of roughly $181 billion to $198 billion over the build period, which is cheaper than the proposed 40.7 GW of wind capacity and avoids most of the grid infrastructure costs.

As nuclear reactors are far smaller than VRE generation sites and can be located close to existing industrial and population centres rather than where the weather is most suitable, although this would be a massive expansion of nuclear construction, KNHP and its component suppliers could achieve this. As South Korea backs new nuclear generation with state-backed loans and nuclear generates profits for KNHP and KEPCO overall, it would be far more fiscally sustainable than the proposed VRE expansion and less risky than relying on natural gas costs. Although coal-fired stations in Korea are supercritical, meaning they operate at higher temperatures and emit fewer particulates (PM2.5 and PM10, nitrogen oxides, sulfur dioxide, and mercury), compared to nuclear power, coal stations have far lower capacity rates (averaging around 60%) and produce significant amounts of carbon emissions. Moving to a far higher nuclear generation goal would require not only a reassessment of the risk of relying to heavily on a single generation source, and long term political backing which is tricky to achive amidst domestic political unheaveal, but KNHP could deliver it, the expansion would be likely cheaper than the alternative and it would reduce Korean carbon emissions in an achievable manner while not affecting domestic electricity prices of South Koreas manufacturing heavy economy.

Away from potential grid-scale expansion, KEPCO E&C (Engineering & Construction) and KAERI (Korea Atomic Energy Research Institute) are working on small modular reactors intended primarily for industrial applications such as process heat, desalination, and electricity in remote areas or small grids. Their flagship SMR is the System-integrated Modular Advanced Reactor (SMART), which can generate 110MW of power, smaller than Rolls-Royce’s proposed 470 MW reactor or CNNC’s Linglong One (ACP100), a 125 megawatt design due to come online in 2026. Although KHNP signed an agreement with Saudi Arabia’s King Abdullah City for Atomic and Renewable Energy (K.A.CARE) in 2015 to provide SMART, the project has stalled. (CHECK). KHNP, Doosan Enerbility, and Kepco E&C are also working on the 170MW i-SMR for further export potential in Indonesia and Jordan. However, High-Temperature Gas Reactors and Sodium-cooled fast reactors being developed in China are not currently research priorities for Korea. Just as the APR1400 was an evolution of previous designs, since 2009, KHNP has been developing a successor design with a slightly larger capacity, 1500 MW, and an even longer design life of 80 years. However, it is unlikely to begin deployment until KHNP has recovered all the costs of developing the APR1400.

Implications and weaknesses.

South Korea’s primary weakness in its nuclear industry supply chain is the lack of domestic uranium production or any refining or enrichment facility. KEPCO Nuclear Fuels is the subdivision responsible for procuring fuel for nuclear reactors. All natural uranium is imported, typically as uranium oxide concentrate (U₃O₈). In 2022, Korea imported approximately 4,600 tonnes of uranium, primarily from Kazakhstan, Canada, and Australia. Korea lacks any indigenous uranium enrichment capability due to its commitments under the U.S.–South Korea 123 Agreement, renewed in 2015. All enrichment services are contracted externally, typically with companies in the United States, Europe (Urenco), and Russia. The fuel cycle process, therefore, requires Korea to import uranium, export it abroad for conversion and enrichment, and then reimport the enriched uranium. KEPCO Nuclear Fuel operates a fuel fabrication plant in Daejeon with an annual capacity of around 650 tonnes of fuel assemblies, where the reimported enriched uranium is processed into reactor-ready fuel. This structure leaves South Korea strategically dependent on external partners for upstream stages of the fuel cycle, even as it maintains strong domestic capabilities in fuel fabrication and reactor operation.

Although South Korea has a deep military industrial base, including the capacity to build missiles, satellites necessary for target identification and guidance, sophisticated research reactors, advanced radiochemical laboratories, and a skilled nuclear workforce, its lack of enrichment facilities for civilian or military-grade fuel means it is not in the same position as Japan to rapidly acquire nuclear weapons, a process which some analysts estimate Japan could complete in as little as six months. South Korea does possess approximately 0.7 tonnes of separated plutonium stored abroad, primarily in the United Kingdom and France, as a result of overseas reprocessing agreements. In theory, this amount could yield around 100 to 130 nuclear warheads with yields in the range of 10 to 20 kilotons, depending on the design. In reality, getting the plutonium stored abroad, which is closely monitored by the authorities there and also the IAEA, back to South Korea to place it in warheads is not feasible. While the South Korean population is overall favourable to acquiring nuclear weapons, and South Korea has repeatedly asked the US to again position nuclear weapons in the country (which it did prior to 1991) in response to North Korea's nuclear program and the growing military sophistication of China's military and growing nuclear forces, the government has remained formally committed to non-proliferation. The real strategic value of South Korea’s civilian nuclear program lies not in latent weapons capacity, but in its economic benefits and energy resilience it provides.

Conclusion

South Korea’s nuclear industry stands as a rare example of sustained, coherent industrial policy. Decades of steady investment, consistent reactor design, and political alignment have produced a fleet that delivers low-cost, low-carbon, and dependable electricity. Crucially, Korea has maintained institutional expertise and supply chain depth, avoiding the stagnation and disruption seen in many Western countries where fragmented regulation, rising costs, and inconsistent political support have undermined nuclear energy. Rather than being a financial burden, Korea’s reactors play a stabilising role in the power system, insulating industrial users from global gas price shocks and offsetting losses elsewhere in the electricity market.

But the outlook is uncertain. Official targets to cap nuclear’s share at 35 percent by 2038 are hard to square with its economic and environmental strengths. As KEPCO takes on more high-cost variable generation, the risk is that it drifts into the same cost pressures and system reliability issues that have plagued other energy systems dominated by renewables. Korea has the technical capacity and industrial base to expand its nuclear fleet if it chooses. Failing to do so would echo the mistakes made elsewhere, where political hesitation has hollowed out once-strong nuclear programs and made decarbonisation harder and more expensive.

Since the launch of the first American military satellite, Explorer 1, in 1958, the United States has developed increasingly sophisticated capabilities in space to enhance its formidable military might. A military presence in orbit is now a vital part of the American way of war. Yet despite the centrality of space to modern combat, the US resisted creating a dedicated space branch of its armed forces until 2019, when the US Space Force was launched to an unfortunate reaction. Rather than welcoming the newest addition to the existing five US armed services, the fact that it was President Trump's proposal, along with the uniforms and logo, and the “Guardians” name, overshadowed serious debate about the service’s purpose.

Since then, the USSF has quietly grown in importance and had a budget of $29.4 billion in 2025, nearly as much as the entire Canadian or Israeli militaries. The process of transferring assets to the USSF while maintaining the capabilities that space assets provide to the US Air Force, Navy, Army, and intelligence services has taken some time. The Biden administration has supported its mission, signaling bipartisan consensus, however reluctant, on its strategic value. It is now responsible for operating and defending military satellites, tracking foreign objects in orbit, monitoring global missile launches, managing space-based command and control, and conducting cyber and electromagnetic operations in the space domain. It is likely developing offensive counter-space capabilities, and as the US civilian space industry lowers the cost of transport to and from orbit, may also become responsible for the rapid deployment of military assets around the globe.

Aside from the considerable challenge of integrating existing US military space assets, the USSF competes with the significant legacy capabilities of the Russian Aerospace Forces and the growing threat from the People's Liberation Army Aerospace Force, which has emerged as a serious peer competitor. Backed by an advancing space sector, China is positioning itself as a direct rival in orbital operations. To preserve the space-based foundations of American military superiority, the Space Force must find ways to deny adversaries the ability to disrupt US orbital infrastructure. Unlike the other US armed services, which face serious questions about their ability to replace munitions in a peer-to-peer war, the USSF’s challenges are more about providing resilient systems. In a future war, especially over Taiwan, the Space Force would not be a sideshow. However understated its role in public, it will be a critical actor in any American victory.

Origins and Purpose

As Nazi Germany began its bloody collapse under the combined might of the Allies in February 1945, the US began to identify German scientists who had worked on advanced technologies such as the V1 and V2 rockets, eventually recruiting them under Operation Paperclip. Many of these scientists would form the genesis of the US space program, initially led by the US Army. After the US Air Force took responsibility for military space operations, working with the National Reconnaissance Office (NRO) to build up satellites for reconnaissance (launching the CORONA satellites beginning in 1959) and communications (the Initial Defense Communications Satellite Program in 1966) purposes. The idea of a separate military organization to coordinate space operations was first raised in the 1960s, but was fiercely resisted by the Air Force, which did not want to see a dilution of functions related to nuclear command and control systems in the depths of the Cold War. The existence of the NRO, already a hybrid organization with CIA and Air Force personnel, weakened the argument for another military service, as did the small number of satellites in orbit on military missions. In the 1960s and 70s, the military presence in space was crucial for intelligence gathering, early warning, and communications, but it was not yet integrated into the kill chain of identifying, attacking, and assessing damage in the way it would later become.

Although the Air Force took the lead in military space operations, the Air Force, Army, and Navy all maintained their own research programs and missions. When President Reagan announced the creation of the Strategic Defense Initiative, the Government Accountability Office called for the USAF to be reorganized as the US Aerospace Forces, combining all US military space operations with the air domain, but this was rejected. The fragmented arrangements, with each service running its own space missions, persisted until 1982, when the Air Force established Air Force Space Command to centralize and coordinate its space operations. That was followed in 1985 by the creation of the United States Space Command, a unified command responsible for overseeing space operations across all military services. The US Navy, Army, and Marine Corps followed the Air Force in establishing Space Commands that report to the overall Space Command.

The number of US satellites and their capabilities had increased significantly in the years leading up to the first Gulf War. For the first time, space assets were directly integrated into the kill chain and a new doctrine called AirLand Battle. Reconnaissance satellites operated by the NRO enabled high-resolution imagery of Iraqi forces and infrastructure, feeding targeting decisions and post-strike assessments. The Defense Satellite Communications System, first launched in 1966, provided real-time links between commanders and frontline units, allowing rapid coordination and strike authorization.. Cruise missiles, aircraft, and ground units all relied on satellite positioning to execute strikes with far greater accuracy and speed than in any previous conflict. The evisceration of the Iraqi command and control systems and collapse of its armed forces by the allied coalition, with only three days of ground combat, in combination with the deployment of stealth aircraft such as the F-117, led to a profound rethinking of how US forces could be defeated in combat, especially by the Chinese military. The bombing of the Chinese Embassy eight years later by NATO forces reinforced just how vulnerable China was to US airpower dominance enabled by GPS.

37th Tactical Fighter Wing F117 taking off during Operation Desert Storm

Although China’s economic position in the early 1990s meant its military could not afford the necessary technology in the short term and its own space capabilities, not just in the military realm, were minimal. China had no military communications satellites, its reconnaissance satellites (the Fanhui Shi Weixing series) were about as advanced as 1960s US technology which had to be returned to earth to view images with a resolution of 10-20 meters (compared to US 10 to 15cm resolutions) and its launch vehicles were unreliable and only capable of carrying a maxium of 3000kg to orbit. The PLA recognised that it needed a far greater presence in space if it was to challenge the US. As China grew richer and could afford to develop more advanced military platforms for its Army, Navy, and Air Force, its space capabilities took precedence over developing newer nuclear weapons, as space was recognized as being crucial to enabling modern warfare.

While the US was able to muster a coalition to meet the Iraqi invasion of Kuwait due to the collapse of the Soviet Union, Russian space forces did not fall out of orbit as statues of Lenin came down. Despite severe financial difficulties for the Russian Armed Forces in the 1990s, space capabilities were mostly maintained under the newly created Russian Space Forces (VKS-VS), which kept the Oko system of early warning satellites, the Tselina system (which provided space-based electronic intelligence), the Gorizont, Raduga, and Strela military communication system and retained and operated Baikonur Cosmodrome (leased from Kazakhstan) and Plesetsk Cosmodrome (on Russian territory). The Soviet counterpart to GPS, GLONASS, fell into disrepair and was unreliable by the turn of the millennium. After Vladimir Putin came to power in 1999 and the Russian economy began to stabilise in the 2000s, the VKS-VS again began to expand and update its military space presence, relaunching the GLONASS system, developing the Persona reconnaissance satellites with sub-meter resolutions and SIGINT systems were updated with the Lotos-S and Pion-NKS platforms. The Soviet Union had developed a capability the US never tested in the form of a co-orbital anti-satellite platform called the Istrebitel Sputnikov which would launch a projectile towards a target. Although it was retired in the 1980s, a follow-up satellite with a directed laser weapon (Polyus-Skif) was launched in 1987 but failed. In 2015, the Russian military was restructured and the VKS-VS was folded back into the Russian Aerospace Forces, the VKS. Russia began testing anti-satellite capabilities again in throughout the 2010s and 2020s. The Kosmos 2542 and 2543 satellites are maneuverable, capable of approaching other objects in orbit, which they did to a US military satellite in 2020. Additionally, the ground-based Tirada-2S system is designed to jam satellites, while forces operating in combat zones can use a vehicle-mounted Krasukha-4 radio-frequency jamming system that can disrupt airborne radar, aircraft datalinks, and satellite-based radar imaging systems, or the Borisoglebsk-2 radio and GPS jammer. Among the most worrying Russian anti-satellite capabilities is the Nudol (PL-19), a ground-based missile which demonstrated its capabilities by destroying the Russian Cosmos 1408 in November 2021. The Cosmos 2553 satellite, assessed to be part of project to develop Russian nuclear weapons in space, which was launched in 2022, suffered a problem in 2025 meaning it is potentially no longer functional, showcasing that despite Russia’s significant military assets in space, it is still a difficult environment to operate in. With Russian defense spending now focused on the war in Ukraine, and the necessity to replace many land and air assets lost due to Ukrainian forces, Russia’s space program is not the principal threat to US orbital supremecy, although its legacy platforms are still of concern.

In addition to the enduring Russian threat to US space assets, China has significantly advanced its military space presence and anti-satellite capabilities. As part of Xi Jinping’s sweeping reforms of the Chinese armed forces, the People’s Liberation Army Strategic Support Force (PLASSF) was established in 2015 alongside the PLA Rocket Force. Tasked with overseeing space, cyber, and electronic warfare, the PLASSF marked China’s first major step toward integrating space operations into its broader military doctrine. As China’s capacity to project power in orbit has grown and space assets have become foundational to PLA joint operations, the PLASSF was reorganized in 2024, leading to the creation of the PLA Aerospace Force, a direct competitor to the US Space Force. China’s civilian space sector also continues to expand, with the China National Space Administration and commercial partners completing 68 launches in 2024, the majority of which support dual-use or military missions. Coordinated by the PLA Aerospace Force, Chinese orbital presence is approaching American levels. The Yaogan series, now numbering over 60 satellites, provides a mix of optical imaging, synthetic aperture radar, and electronic intelligence, enabling persistent surveillance and precision targeting across key theaters. This has been reinforced by the launch of the Hongtu-1 (PIESAT-1) constellation in 2023, which delivers high-resolution X-band SAR imagery under all weather conditions. On the communications front, the PLA has expanded the Tianlian data relay system and deployed secure military satellites, such as Zhongxing-18A, enabling real-time command and control across the full range of China’s military operations.

Meanwhile, China’s ASAT capabilities have evolved from crude demonstrations to sophisticated, dual-use systems. The 2007 SC-19 test, in which a modified DF-21 missile destroyed a defunct Chinese weather satellite, remains the most visible example of kinetic ASAT use, but tests of the SC-19 have continued, and a suspected test occurred in 2023. SC-19s are launched by the PLARF. China has also tested interceptor missiles, the Dong Neng-2 and 3, designed for ballistic missile defense, in ASAT roles. Kinetic ASAT is suboptimal due to the debris it creates and the potential to disrupt a force's own assets. More recent Chinese programs suggest exploration of non-destructive, co-orbital techniques. The Shijian-21, launched in 2021, used a robotic arm to reposition a satellite to graveyard orbit, demonstrating active maneuvering and satellite capture abilities under the pretext of debris removal, but it is also assessed by the U.S. Defense Intelligence Agency to have potential co-orbital jamming and spoofing capabilities, allowing them to interfere with satellite communications, navigation, or data relays. These platforms may also be equipped to deploy directed electronic attacks against other satellites, either by directly targeting their sensors or by disrupting their uplinks and downlinks. Just as satellites can receive and transmit information from the ground, they can also be used to amplify cyber and EW attacks launched from Earth, extending their reach and reducing the risk of detection or attribution. Chinese military planners appear to be constructing a “kill mesh”, a layered and redundant network of reconnaissance satellites, early warning sensors, command links, and potential ASAT platforms that can rapidly detect, track, and engage targets in orbit. This architecture reflects a shift toward automated, decentralized space warfare, positioning China to challenge US freedom of action in orbit through pre-positioned assets, distributed ISR, and denial mechanisms. While the Cold War Soviet threat never required a standalone service to counter it, satellites are now fundamental to US military power, and with the threat from the Russian VKS and PLAAF, the 2019 decision to establish the US Space Force looks to be justified.

A Chinese state media image of a DF-11 ballistic missile armed with what may be a Dong Neng-series anti-satellite weapon.

The US Space Force

The 2007 Chinese destruction of a satellite led to the creation of the Allard Commission, which recommended the enhancement of US abilities to protect its own satellites, but it took until 2017 for members of Congress to propose the creation of a Space Corps within the Air Force. This proposal failed, but President Trump endorsed the Space Force in 2018 and with his support, in 2019 the US Space Force was established as the sixth American military service, but under the administration of the Department of the Air Force, akin to the US Marine Corps being a separate service as a part of the Department of the Navy.

In 2025, the USSF has a budget for the fiscal year of $29.4 billion. It currently consists of 9400 active duty “Guardians”, a term linked to the motto of Air Force Space Command, and around 5000 civilian personnel, but does not currently have a national guard or reserve element. It is led by the Chief of Space Operations, a four-star general who sits on the Joint Chiefs of Staff Committee, which since 2021 has been General B. Chance Saltzman, who was commanding the 1st Expeditionary Space Control Squadron in 2007 at the time of the Chinese SC-19 missile test. The USSF is organised into Field Commands, which manage major mission areas and coordinate with other US military branches and federal agencies. Below them are Deltas, equivalent to a USAF Wing or US Army Brigade who will be responsible for distinct operational functions such as missile warning, satellite communications, or orbital warfare, and Squadrons which are equivalent to a USAF Squadron or US Army Battalion which tend to have specific control of assets, such as the 2nd Space Operations Squadron (2 SOPS) who operate GPS, or the 18th Space Defense Squadron who are responsible for detecting, tracking, and characterizing all man-made objects in Earth orbit.

U.S. Space Force Chief of Space Operations Gen. Chance Saltzman with a freshly graduated Guardian in October 2024.

As a separate service, the USSF has its own uniforms, logo, flag, and doctrine. While on operations, USSF personnel wear combat fatigues similar to USAF personnel, but their dress uniform, used for ceremonial occasions and logo was widely mocked when it appeared, as it was seen as too futuristic and derivative of fictional militarized space forces. However, the creator of Star Trek said that he drew inspiration for the logo of fictional Starfleet from the logo of the Air Force Ballistic Missile Division in 1962, which had adopted the delta symbol from the U.S. Army Air Forces, who used it as early as 1942. The USSF warfighting doctrine is built around three pillars: maintaining domain awareness, protecting and defending assets through non-kinetic and maneuver options, and ensuring the ability to rapidly reconstitute capabilities in a contested environment. Rather than seeking dominance through offense alone, the USSF focuses on denying adversaries the ability to gain a strategic advantage in orbit.

The USSF inherited personnel from existing military services, principally the USAF, although it has now started its own recruitment program. While the US Army, Navy and Air Force offer a route for prospective officers via their respective military academies at West Point, Annapolis and USAF Academy Colorado, the USSF draws officers from the USAF Academy like the USMC recruits some officers from Annapolis. The current officer ratio in the USSF is much higher than in other services, being roughly equal in terms of officers (​​4,576) to enlisted personnel (4,924). Women are not restricted from holding any role in the USSF, and currently make up 19% of the total.

Upon its establishment, the USSF assumed control of a wide array of satellite and ground-based systems critical to US military operations, but not all. The National Reconnaissance Office (NRO) retains full operational authority over the United States’ most sensitive intelligence satellites, including those for electro-optical imagery, radar surveillance, and signals intelligence. The Army and Navy continue to operate certain tactical satellite terminals and user equipment, such as ground-based communications nodes and GPS receivers integrated into field units and naval platforms. The Missile Defense Agency also controls several space-based sensors for tracking ballistic and hypersonic threats, which support national missile defense but are not subordinated to the USSF. However, the USSF now controls the majority of US space assets including the most important platforms. In the area of reconnaissance and space domain awareness, it took over the Geosynchronous Space Situational Awareness Program (GSSAP), a fleet of maneuverable satellites in geostationary orbit used to monitor and inspect foreign space objects, as well as the Space-Based Space Surveillance (SBSS) satellite in low Earth orbit and the Space Surveillance Network, which integrates ground-based radars to track tens of thousands of objects across all orbital regimes. For communications, the USSF inherited control of the Advanced Extremely High Frequency (AEHF) constellation of six secure, nuclear-hardened satellites in GEO; the Wideband Global SATCOM (WGS) and legacy Defense Satellite Communications System (DSCS) fleets for high-capacity X-band and Ka-band voice and data services; and the Mobile User Objective System (MUOS), a narrowband UHF constellation originally developed by the Navy, which enables secure mobile connectivity for tactical units. In early warning and missile detection, the Space Force assumed responsibility for the Space-Based Infrared System (SBIRS), a constellation of satellites in both geosynchronous and highly elliptical orbits that detect ballistic and cruise missile launches using advanced infrared sensors, as well as key ground-based radar arrays like PAVE PAWS and the Ballistic Missile Early Warning System (BMEWS). Finally, in the domain of positioning, navigation, and timing, the USSF took operational command of the Global Positioning System (GPS) constellation in medium Earth orbit, currently composed of GPS IIR, IIF, and the modernized GPS III satellites, providing critical navigational services to both US forces and billions of civilian users worldwide.

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A 6000kg Advanced Extremely High Frequency Satellite at 22,300 miles high in orbit.

This fleet of satellites is worth tens of billions of dollars in the platforms alone. The Advanced Extremely High Frequency (AEHF) system, manufactured by Lockheed Martin, cost over $15 billion. More important than the cost is the utility these systems provide. AEHF is vital to the US nuclear deterrent, as it is one method of communicating Emergency Action Messages to Ohio-class nuclear ballistic submarines in the event of the President authorizing a strategic nuclear strike, and enables the continued coordination of a nuclear response in a nuclear war. US precision strikes are the core method of the American way of war. Surgically striking an adversary's command and control, air defense sites, logistics, and troop formations allows the US armed forces to systematically take apart the enemy's ability to fight. Russia, China and Iran have invested tens of billions in air defenses to blunt this capability, which cannot be delivered without GPS providing the precise timing and geolocation data necessary for long-range cruise missiles like the Tomahawk, air-launched munitions such as JDAMs, and navigation systems onboard F-35s, B-2s, ships, and drones to function. The GPS costs $2 billion a year in operations and maintenance, but upgraded versions which are more resistant to potential Russian and Chines interference (GPS III satellites are currently being deployed to orbit by Space X and United Launch Alliance, a Boeing/Lockheed collaboration, and the more advanced GPS IIIF is due to begin deployment in 2027) are expected to cost over $9 billion. The minimum requirement for GPS to function is 24 satellites, and although 31 are operational, approximately 20,200 kilometers (12,550 miles) high in orbit, they are still vulnerable to kinetic ASAT strikes. If the number of GPS platforms fell below 24, the ability of the US to deliver precision strikes would be significantly impacted.

Space is not a territory where allies can operate independently from geographically distinct locations. While US and allies can coordinate on monitoring and situational awareness, only the USSF possesses the ability to conduct meaningful military operations in orbit. The Combined Space Operations Initiative (CSpO), originally a Five Eyes (the intelligence-sharing alliance) project that started in 2014, links the United States, the United Kingdom, Australia, Canada, and New Zealand (later joined by France, Germany, and Japan in 2019) in sharing space situational awareness, coordinating responses to space threats, and aligning national space strategies. However, it is not a warfighting coalition like NATO’s integrated air and naval commands. CSpO ensures that attacks on satellites or ground facilities can be rapidly detected, attributed, and responded to collectively at the political level, but if the United States chose to act in orbit, it would do so alone. Taiwan and South Korea are not formal participants in CSpO, although they cooperate closely with US Indo-Pacific Command and receive space-based intelligence and early warning data. In the event of a war with China, Taiwan would likely receive far greater access to US space intelligence, just as Ukraine has during its conflict with Russia.

How the USSF Plans to Win in Orbit

The United States Space Force faces a rapidly evolving threat environment. Chinese and Russian forces can now target American satellites with ground-based missiles, electronic attacks, and co-orbital threats. Rather than relying on direct retaliation, the USSF emphasizes resilience, redundancy, and active defense. Against kinetic attacks, the USSF is investing heavily in dispersing its capabilities across hundreds of satellites, rather than concentrating them in a few vulnerable assets. Networks like the Proliferated Warfighter Space Architecture (PWSA) aim to ensure that no single loss cripples US space-based capabilities. Satellites are maneuverable and can shift orbits in response to threats detected by tracking systems like GSSAP and SBSS.

In the electromagnetic domain, the USSF counters jamming and electronic attacks through hardened communications satellites like AEHF and through flexible response units such as the 16th Electromagnetic Warfare Squadron. Tools like RAIDRS and mobile remote terminals allow the US to rapidly locate and disrupt adversary jamming efforts. In cyberspace, the USSF has adopted a Zero Trust model, assuming that attacks will breach some defenses and focusing on continuous authentication, rapid isolation of compromised systems, and active countermeasures. The Moonlighter CubeSat enables Guardians to practice cyber defense tactics in live orbital conditions.

The USSF has also prioritized non-kinetic offensive options. Directed energy systems under development may allow the dazzling or blinding of enemy satellites without creating dangerous debris. New maneuverable satellites, some designed by firms like VC-funded True Anomaly, are expected to shadow, inspect, or interfere with adversary space assets in close proximity operations. True Anomaly’s Jackal Autonomous Orbital Vehicle, if successful, could allow the USSF to field hundreds of units. Although the US banned ASAT tests in 2022, like its ability to restart nuclear weapons testing, it maintains direct-ascent ASAT missiles (variants of the SM-3 missile) and could theoretically use nuclear EMP attacks in space. However, these options are politically and strategically undesirable. Instead, the USSF doctrine stresses “fighting through” a degraded space environment, rapidly launching replacements, and denying the adversary a clean strategic victory in orbit.

A USSF X-37B in November 2022.

The USSF operates two X-37B Orbital Test Vehicles, reusable unmanned spacecraft built by Boeing that resemble small space shuttles. These vehicles have completed seven missions to date, with the most recent one lasting 434 days in orbit and returning in March 2025. Their exact missions are classified, but they are known to test satellite technologies, sensors, and potentially explore on-orbit servicing and surveillance roles in low and high earth orbit. Since its inception in 1999 and its first flight in 2010, the program has cost $2 billion, but has yielded massive amounts of information for future spacecraft development (the latest deployment saw the craft avoid over 1.7 potential collisions). Future developments include the possibility of a larger version or additional vehicles optimized for rapid deployment of small satellites or non-kinetic counterspace operations. China has also developed its own version of a reusable spaceplane, the Shenlong, conducting a classified mission in 2022, which demonstrates a clear interest in matching US capabilities in orbital maneuver and rapid deployment platforms. It is extremely unlikely, given the deadly operating environment of space, the high costs of deploying heavy payloads to space, and increasingly sophisticated robotics and AI systems, that humans will be fighting in spacecraft for the next few decades.

Space Industrial Base and Procurement Challenges

Although the US military retains a technological advantage over its potential peer competitors, its major weakness is sustaining high-intensity operations with expensive precision strike weapons and successfully intercepting enough enemy attacks to maintain viable forces. The US would run out of long-range anti-ship missiles within a week of engaging with the PLAN and exhaust its supplies of long-range air-launched ground attack missiles within a month. To defend against Houthi missile attacks on an arguably noncritical mission, the USN fired 200 SM2 ($.25 million a shot) and SM6 ($5 million) air defense missiles from October 2023-January 2025, supplies which will take years to rebuild as delivery from contracts being awarded takes a minimum of 18 months. The US military industrial base’s ability to produce complex weapons, despite receiving more funding to address the issue, is much weaker than China’s, which can produce thousands of missiles a year at significantly lower costs.

For the USSF, however, the playing field between the American and Chinese industrial bases is tilted firmly in the US’s favour. The US possesses the largest and most advanced space industry in the world, with multiple world-leading companies that outperform competitors on cost, reliability, and technical sophistication, contributing 0.5% of US GDP, or $143 billion in 2024. The USSF does not require constant resupply of munitions to deliver its core missions of protecting US satellites and communications, and its ability to deliver assets to orbit using SpaceX, United Launch Alliance (ULA) and Blue Origin is robust. The healthy US space industry offers resilience in the form of multiple supply chains, high reliability rates (ULA, used for more sensitive military missions, has a 100% success rate) and lower costs, as SpaceX’s Falcon 9 reusable rocket can launch heavier payloads for $64 million compared to a Long March 3 single use mission costing $70-$90 million. Having access to a variety of launch options also allows more flexibility and in the event of a satellite being disabled, perhaps due to an accident, the USSF could conceivably get a replacement into orbit within three weeks, with most of that time preparing the payload if there was a satellite ready to go rather than waiting for an available launch. China would struggle to do a similar option in any time less than eight weeks, due to fewer available rockets and launch pads. SpaceX and Blue Origin's ambitions to achieve interplanetary travel also means that private development of orbital logistics and necessary life support systems will have spillover benefits for the potential development of rapid logistical and troop deployment. The venture capital-backed explosion of defense start-ups (defense VC funding doubled from 2019-2022) since 2022 has been most successful in delivering newer technologies, such as AI-integrated platforms, better software for logistics, and space assets. Larger defense companies often struggle to make money from smaller systems and slower innovation cycles, while these emerging sectors have been ripe for disruption. In contrast, Chinese military technology development remains dominated by state-owned enterprises, lacking the commercial dynamism characteristic of American capitalism.

Satellite construction requires extreme precision, advanced components, and proficient designers and engineers. The United States maintains by far the largest satellite fleet in the world, with more than triple the combined total of China and Russia, underpinned by its dominant commercial and military space industries. American spacepower draws upon a uniquely deep, competitive, and specialized commercial satellite sector. Dozens of US companies design and manufacture satellites across all mission types, from large geostationary platforms to swarms of small LEO systems which can be produced for under $5 million. Lockheed Martin, Boeing, and Northrop Grumman compete to build secure and hardened military platforms. Maxar Technologies and L3Harris specialize in high-resolution Earth observation and imagery satellites and SpaceX, Planet, and Amazon’s Project Kuiper are building entire broadband constellations. Although not all of these platforms have strictly military applications, the workforce provides not just a deeper technical advantage but also potential reserve forces for the USSF. As the US space industry grows and drives down the costs of commercial satellites, the USSF is seeking cheaper yet more capable platforms, an enviable position for other services that have to purchase incredibly expensive munitions, ships, fighter jets, and tanks. The deployment of the Starlink network, which now has over 4000 satellites, has spurred the development of Proliferated Warfighter Space Architecture, a USSF network of 150 multifunctional satellites that cost $15 million each, including launch, which is due to expand by 200 satellites in 2026 and could reach over 1000 by the end of the decade. Compared to previous satellite networks, which tended to have a single function, were far less numerous (there are only 31 operational GPS satellites in orbit) and cost up to 100 times that of a PWSA platform, this modern system is less resistant to Chinese jamming or attempts to shoot platforms down just because its sheer size.

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How can its capabilities be further enhanced?

While the USSF’s current forces are formidable, a future conflict against a peer adversary like China would demand even greater resilience, reach and responsiveness. The USSF’s current arrangements with companies like SpaceX, United Launch Alliance, and Northrop Grumman mean that satellites can be prepared and launched within weeks, much faster than China’s current capacity. However, a truly “tactically responsive” launch, meaning a payload delivered to orbit within 24 to 72 hours of order, remains a work in progress. USSF programs like Victus Nox and Victus Haze are experimenting with achieving this capability. SpaceX, although highly capable, has obligations to other customers and is unlikely to prioritize a military launch in peacetime without significant contractual restructuring. The Department of Defense and DARPA have estimated that establishing a fully dedicated, tactically responsive launch capability (with standby rockets, permanent ground crews, rapid payload integration facilities, and secure military launch control) would cost between $2 and $3 billion, even if based at existing facilities such as Vandenberg Space Force Base.

One of the weaker elements of the USSF today is active defense against adversary satellites. While surveillance and resilience measures have improved, the ability to intercept or neutralize hostile space objects remains limited. The space industrial base is, however, providing new options. Rocket Lab, Starfish, Anduril/Impulse Space and True Anomaly are developing maneuverable “space drones” equipped with robotic arms, cameras, and potentially electronic warfare payloads. These drones would be able to approach, inspect, and, if necessary, disable adversary satellites without resorting to kinetic explosions that create debris fields. The USSF has awarded early contracts to companies such as Rocket Lab for the Victus Haze initiative (aiming for operational prototypes by 2026–2027), and Starfish, which received a $37.5 million contract for its Otter satellite servicing vehicle.

One potential future capability, far more visible and politically resonant, would be the adoption of suborbital rocket transport for logistics or military personnel. Logistics has always been a decisive factor in military operations. American military power depends on the logistical proficiency of the US Navy, the Merchant Marine, and the USAF with its fleets of C-17 and C-5 aircraft. In a major conflict, US civilian airlines can also be requisitioned to transport troops and materiel under the Civil Reserve Air Fleet system. The USAF, rather than the USSF, is leading the early development of RocketCargo concepts using SpaceX’s Starship or similar heavy lift vehicles. The initial focus is on logistics rather than troop transport, but with sufficient funding, a dedicated life support system could be developed to carry around 150 troops with a configuration larger than commercial airline economy seats across intercontinental distances. Developing a robust life support and re-entry module for Starship could cost $2 to $3 billion, as such an upgrade would align with SpaceX’s ambitions for Mars transport, where long-duration human survival systems are essential.

In a crisis, a Starship configured for military transport could deliver a company-sized force and their equipment to Taiwan from bases in Texas in around 90 minutes, potentially bypassing blockades or bottlenecks in the Pacific. Each suborbital mission may cost $10 to $20 million based on what SpaceX aims for Starship orbital missions. This is surprisingly close to the full cost of operating multiple C-17 sorties for a similar logistics payload, given that C-17s cost approximately $207,000 per flight hour including fuel, depreciation, maintenance, crew, training, parts, overhaul, and indirect support costs. Even flying from US bases closer to a potential conflict zone does not meaningfully reduce the overall cost of munitions or troop transport, because supplies still must be delivered across the Pacific from the continental United States. The larger C-5 Galaxy transport costs around $109,000 per flight hour but still takes 12 to 14 hours to fly from the United States to Taiwan, and flying into a contested zone carries significant risk of interception by enemy fighters or ship-based air defenses. The C-5 is also not typically used for aerial delivery of cargo. The USAF primarily uses C-130 transport aircraft for airdropped resupply missions, but these platforms are unsuitable for transporting large and complex systems, such as replacement air defense missiles. During the Vietnam War, US forces lost one C-130 and three C-123 aircraft to enemy fire during the resupply of Khe Sanh, with many more damaged. As a result, the United States does not conduct transport flights into active conflict zones without first heavily suppressing enemy air defenses, but in the face of a Chinese invasion of Taiwan, this would mean fending off hundreds of J-36 and J-20 fighters and avoiding hundreds of PLAN ships with surface-to-air missiles. Although landing a Starship in an active warzone would present significant risks and is currently not designed to relaunch without launch infrastructure, it could plausibly land in an emergency. While Taiwan does not currently have the launch infrastructure to support high-tempo Starship operations, even limited one-way missions could provide rapid reinforcement when conventional airlift options would be too slow or too vulnerable. While RocketCargo, or another mainly privately developed suborbital transport system would not replace traditional strategic airlift, it could offer unparalleled speed and flexibility for critical missions where minutes or hours matter. It would also expand the USSF’s mission set into logistical support for rapid reinforcement, making the service more central to any future high-intensity conflict.

A Starship booster before being caught by the Mechzilla in Texas. Future rapid USSF/USAF logistical operations may look closer to this than aircraft landing at airfields.

While the USSF currently focuses primarily on operations within Earth orbit, the rise of Chinese ambitions to establish a presence on the Moon and beyond is pushing the US to extend its surveillance envelope. The planned Deep Space Advanced Radar Capability will allow continuous monitoring of spacecraft out to cislunar distances. China has announced plans for a permanent lunar research base in partnership with Russia, which could in the future present new security concerns. Future missions to the Moon and Mars under NASA’s Artemis Program will rely on USSF support for communications, navigation, and domain awareness. Although there are no current plans for Space Force personnel to deploy to the lunar surface, protecting critical infrastructure like lunar communication relays or refueling depots could eventually require a limited security presence in space or even on the Moon itself.

Conclusion

Without the protection and resilience of space-based assets, the precision, speed, and global reach that define the American way of war would erode under the pressure of emerging peer threats. The USSF’s essential role is vastly disproportionate to its public presence. While the USSF faces real challenges, from adversaries’ growing counterspace capabilities to the need for faster launch cycles and more active orbital defenses, it enjoys structural advantages that no competitor can easily replicate. America’s deep and innovative space industrial base, unmatched commercial partnerships, and technological supremacy should allow the USSF to continue protecting the United States’ orbital infrastructure, upon which American military power depends.

Post Script - USSF at war in 2032.

A peer-on-peer conflict between the United States and China remains a remote but realistic possibility. Although Xi Jinping had declared that the PLA must be ready for such a conflict by 2027 and the PLA Rocket Force has exceeded expectations, the PLAAF, PLAN, and PLA were still some years from being ready to undertake a full-scale invasion of Taiwan. As capabilities on all sides grew, the following is a fictional, narrative description of how the USSF may be central to the defense of Taiwan in 2032.

After the death of Xi Jinping and the unexpected rise of now-President Han Wuwei, the People’s Republic of China began matching increasingly militant rhetoric with massive military drills, the mobilization of reserve forces, and the deployment of naval task groups encircling Taiwan. This did not resemble April 2021, when the Russian armed forces deployed hundreds of thousands of men to the border of Ukraine, but more closely mirrored January 2022. The USSF’s network of 1,200 PWSA satellites monitored a significant Chinese logistical buildup at the ports of Xiamen, Zhangzhou, and Fuzhou. These ports were crowded with dual-use ferries and commercial RO-RO vessels loading amphibious assault vehicles, tanks, and troop carriers. Naval vessels from the PLAN formed up in disciplined lines just offshore. Infrared and synthetic aperture radar platforms confirmed constant movement.

Coordinating with the National Reconnaissance Office, USSF analysts integrated optical, radar, and electronic intelligence into a comprehensive space-based operating picture, adding additional vital information that an attack on Taiwan was imminent. At Fort Meade, USCYBERCOM teams deployed hardened uplink and downlink protocols in anticipation of cyber and electromagnetic interference. The United States had been flying additional defensive systems into Taiwan with C-17 and C-5 transport planes. However, with PLAAF J-36 fighters flying aggressive combat air patrols just in and outside Taiwanese airspace, the risk of losing a USAF transport had grown dangerously high. Even with GPS IIIF guiding USAF pilots on erratic and low-flying missions, any further supplies could only be delivered by USSF-coordinated suborbital flights, which the President remained uncertain about deploying. Delivery by rocket cargo required a political leap.

Meanwhile, USSF satellites engaged in constant maneuvering with PLA Aerospace Force’s Shijian-27 units, which began shadowing US platforms in an apparent attempt to interfere with orbital trajectories and sensor integrity. The USSF’s regular deployment of new satellites ensured that American operations were not disrupted. As a precaution, the USSF launched X-37B vessels and AI-assisted counterspace drones to protect critical legacy platforms.

On the night of August 15, the USSF detected frenzied Chinese activity via orbital SIGINT and reconnaissance. It did not appear that the activity was directed against US assets in the Pacific, but Chinese satellites moved to disable Taiwanese military satellites while PLARF rockets unleashed a hail of devastating attacks on Taiwanese air defense systems, runways, military bases, and command and control nodes. Although not a critical military installation, the Taiwanese Presidential Palace was left in ruins.

The USSF coordinated a staggering volume of military traffic. The US 7th Fleet was already at sea, and additional carrier strike groups were making their way across the Pacific, while USAF E-3 Sentry planes relayed information on the changing course of the Fujian carrier group. F-35 fighters scrambled to provide air defense for their bases in Guam, Japan, and Korea. The Chinese invasion fleet, now assembling across the Taiwan Strait, would take perhaps a day to cross. China had not yet engaged US forces, and although the President was fully aware of the implications of a war with China, he refused to allow US forces to strike until China made the first move.

China, in the event, did not take long. The USSF detected the launch of SC-19 missiles, identifying the unit through its long-standing surveillance. The missiles headed toward orbit. Simultaneously, Chinese space-based jammers unleashed electromagnetic attacks against US military satellites, and the war between China and the United States began in space. The USSF maneuvered satellites it assessed to be in danger and redirected drone decoys toward the missiles’ projected destinations. USSF offensive counterspace deltas controlling drones equipped with directed laser weapons received permission to engage their Chinese counterparts. Other deltas initiated their own electronic warfare and cyberattacks on Chinese orbital and ground-based space units.

The SC-19 missiles did succeed in hitting some US satellites, but the redundancy of having hundreds of spare satellites already in orbit paid off. As the war in space intensified, the USSF had blunted the attack and emerged in a stronger position. US forces back on Earth now prepared to fight. B-2 Spirit bombers on high alert took off from bases in the Pacific. US nuclear submarines carrying Tomahawk missiles prepared to fire at targets in mainland China. F-35 fighters launched missions to destroy Chinese air defenses. None of this would have been possible had the USSF failed to protect American space assets.

The President now decided, with war underway, to deploy US special forces to Taiwan to boost the morale of Taiwanese army units and to signal that more help would be on the way. Only by using USSF suborbital transport could they get there safely and quickly. From the order going out to Naval Special Warfare Group One to landing in Taiwan took only one hour and fifteen minutes. Although the eventual victor remained uncertain, the USSF had survived the opening stages of the war and ensured that the United States would be able to continue the fight.

Unit 3 of the Guangxi Fangchenggang Nuclear Power Plant in Western China.

China has the world's fastest-growing civilian nuclear energy program. Since Xi Jinping came to power, development has accelerated rapidly, with the country now adding around 4 GW of new capacity each year. By 2030, China will have built more nuclear power stations than the rest of the world combined in the 21st century. It is on track to surpass the United States as the largest generator of civilian nuclear energy, with a target of reaching 200 gigawatts (GW) of capacity by 2035. In 2023, China invested more than $13 billion in new plant construction, and the build times for new power stations are reaching as low as five years.

This was not always the case. China’s early nuclear industry relied heavily on imported technology, equipment, and expertise. That dependency has largely ended. As part of a broader campaign to secure domestic capacity in strategic sectors, China’s nuclear supply chain is now almost entirely sourced from within, with the exception of uranium. The state-owned firms China National Nuclear Corporation and China General Nuclear Power Group are also exporting reactor designs, challenging Western influence at a time when many governments are scrambling for reliable, large-scale sources of low-carbon electricity.

Beijing sees nuclear energy as essential to its long-term strategy for decarbonizing the grid and meeting its 2060 carbon neutrality goal. But building hundreds of reactors, training enough engineers and technicians, and securing stable uranium supplies will be a monumental effort. And even this unprecedented expansion is only just keeping pace. China’s total electricity demand now exceeds 9,450 terawatt hours per year and is growing at approximately seven percent annually. Nuclear power, despite rapid growth, is still only a minor contributor to the country’s overall energy mix. For all its speed and scale, the nuclear buildout still invites a deeper question. Is China pursuing a clearly defined strategy to secure baseload power and economic resilience, or is it primarily chasing prestige in another field where the West has slowed down?

China’s nuclear energy journey.

Despite acquiring nuclear weapons in the 1960s, China deferred developing its civilian nuclear power industry as it dealt with the aftermath of the Great Leap Forward, the Cultural Revolution, Chairman Mao's death, and Deng Xiaoping's rise to power, prioritizing economic development. Although plans for the first Chinese nuclear power plant began in earnest in the 1970s, and construction of China’s first nuclear power plant (Qinshan 1) began in 1985, it wasn’t until 1988 China’s National People’s Congress announced that the China National Nuclear Corporation (CNNC) would be created from the reorganization of the Ministry of Nuclear Industry amid the restructuring of Chinese state owned industries. CNNC had been responsible for the enrichment, reprocessing, and production infrastructure necessary for the creation of China’s nuclear weapons program and therefore had a close institutional relationship with the military and scientific establishment. As a result, the Qinshan 1, a domestically developed CNP-300 pressurized water reactor, was based on the design for the reactor powering the first Chinese nuclear-powered submarine, the Type 091 (Han-class), which itself had its roots in Soviet assistance before the Sino-Soviet split. Qinshan 1’s 300MW reactor was small compared to units being built in the US (a typical US PWR was 900-1,200MW), but the Chinese effort at Qinshan was far more concentrated on developing a domestic design, management, civil engineering, and integration. China lacked the ability to construct the reactor vessel (which was supplied by Mitsubishi Heavy Industries) due to a lack of heavy forging capacity or precision engineering capability. Although China claimed that 95% of the work was produced domestically, core components were still imported (primarily from Japan, Canada, and Switzerland) or constructed under close supervision from foreign suppliers.

Qinshan 1 was an impressive achievement and laid the foundations of future nuclear power construction and design in China. Its domestically designed reactor would evolve into the larger CNP-600 and CNP-1000, and eventually be combined with other designs based on foreign reactors to produce the Hualong One (HPR-1000), which is at the core of China’s modern power plant construction program. Although Qinshan was expensive, with a 2.5 billion yuan (about USD $300 million at late 1980s exchange rates or $800m today) construction cost, on a per MW basis, it was not outrageously expensive at $2.65 million per MW in 2025 dollars compared to South Korean efforts in the late 1980s, with a $1.85 million per MW cost for the OPR-1000 reactors.

Qinshan 1 nuclear power plant in Jiaxing, Zhejiang province, 100km from Shanghai.

As Deng’s time as paramount leader became more secure and economic modernization rose up the agenda, developing nuclear power was seen as a vital part of achieving this goal. However, nuclear power was not a part of a strategy to seriously power China’s growing industrial and consumer electricity needs, as China still only had a GDP per capita of $283 (2025 dollars) in 1988 and as Chinese electricity demand grew around 26% annually from 1988 to 2000, only coal could be built fast enough to keep up with the astonishing hunger for electricity. CNNC was not the only state-owned company working on nuclear power. In parallel, China launched another major initiative focused more heavily on international collaboration and technology transfer. This approach mirrored the strategy China had used in other sectors such as textiles and automobiles, where it had learned from foreign partners to accelerate domestic capabilities.

In 1987, construction began on Daya Bay Nuclear Power Plant in Guangdong Province, a joint project between the French company Framatome and the China General Nuclear Power Group (CNG). The Daya Bay plant was conceived to supply electricity to both Hong Kong and the Southern Chinese province of Guangdong, and amidst considerable diplomatic tension between the British and Chinese governments over the handover of British-administered Hong Kong, received backing from both Margaret Thatcher and Deng Xiaoping. Daya Bay was to be much larger than Qinshan 1, with the French M310 design being used to complete Daya Bay units 1 and 2, each generating 944MW of electricity. Almost all of the core components were French, including the reactor vessel, primary coolant pumps, and turbines. CNG’s more internationally rooted genesis continued to influence its operations, working with Framatome to develop the CPR-1000 reactor, exporting Chinese reactors to Pakistan and building reactors primarily in coastal provinces, unlike CNNC which builds plants inland. CNG, like CNNC, is state-owned and reports to the Assets Supervision and Administration Commission of the State Council. CNNC and CGN build, own, and operate China’s nuclear power plants, selling the electricity they generate through guaranteed rates to fund further construction and maintain existing facilities.

Chinese nuclear power plant construction remained at a cautious pace throughout the 1990s and early 2000s. By the end of 2010, China had 13 operational nuclear reactors with a total gross capacity of approximately 10.7 GW, but coal-fired power stations added around 500 GW of generation capacity over the same time period. Despite this, there were significant advancements in reactor technology by both CNNC and CNG during the 2000s. CNNC refined and scaled up the domestically developed CNP-300 design used at Qinshan 1 to produce the CNP-600, a 650 MW pressurized water reactor deployed at Qinshan Phase II, with the first unit coming online in 2002. It also collaborated with Westinghouse and Framatome to develop the CNP-1000, a 1,000 MW reactor intended for the Fangjiashan site. However, the plans at Fangjiashan were ultimately revised in favour of CNG’s CPR-1000 design.

CNG had begun constructing its first CPR-1000 units in 2005, based on the French M310 design but incorporating an increasing share of domestically manufactured components, including eventually Chinese-produced reactor pressure vessels made by Shanghai Electric Heavy Industry Group and Harbin Electric Corporation. Forging large single pieces for a reactor vessel requires massive open-die forging presses (with the ability for 12-15,000 tons of pressure), and Chinese firms worked closely with Japan Steel Works to study their equipment, build new facilities, learn more advanced metallurgy, and enhance their precision engineering. The CPR-1000 offered modest improvements in efficiency, digital control systems, and maintainability, but its key selling point was the domestically manufactured core components. The 11th Five-Year Plan, drawn up in 2006, accelerated the rollout of Chinese indigenous design and construction, setting a target of 45 GW of nuclear generation by 2020.

When Xi Jinping became paramount leader in 2012, China was locked into completing the 12th Five-Year Plan, which he had not been significantly influential in drafting, as it had been proposed by President Hu Jintao and Premier Wen Jiabao. As a result, Xi focused first on consolidating control over the Communist Party, eliminating rivals such as Bo Xilai, implementing internal reforms of the military (including the creation of the People’s Liberation Army Rocket Force), and preparing for the 13th Five-Year plan, which would lay out his economic priorities. In his second term as President, beginning in 2017, his administration accelerated the buildout of Chinese nuclear power plants to strengthen energy security, address international concerns (at least in tone) about carbon emissions, and further enhance Chinese industrial capabilities. These priorities had been elevated somewhat in the 13th Five-Year Plan, but would become even more ambitious as the 14th Plan was formulated. As Xi Jinping has extended his term beyond the post-Deng norms of two terms as President and paramount leader, his focus on enhancing domestic nuclear capacity is likely to remain central to Chinese political goals until he leaves office.

The installation of the Hualong One reactor pressure vessel at No.5 unit of Fuqing nuclear power plant in southeast China's Fujian Province.

How does China support nuclear power?

By the late 2010s, CNNC and CNG had both matured their designs for reactors and were directed to work together on the Hualong One reactor to provide standardization to help reach the 2035 target of 200GW of nuclear generation capacity. The playbook for nuclear power plant construction, in terms of land acquisition, integration with national and local plans, and resources, was now well established. Through state-owned banks, primarily the China Development Bank, financial costs for new power plant construction are heavily supported by state-backed loans with interest rates as low as 1.4 percent (compared to the April 2025 benchmark rate of 3.1%), which cover around 70 percent of the cost of Chinese reactors.

Suppliers of components for nuclear power plants are subject to tax exemptions, as they are eligible to be designated “High and New Technology Enterprises,” which offers a 10% reduction in their corporate tax rate, accelerated depreciation on capital equipment, and VAT refunds or reductions on qualified R&D expenses or equipment. These incentives for suppliers, such as Shanghai Electric Heavy Industry Group and China First Heavy Industries (who make reactor vessels), Dongfeng and Harbin Electric Corporation (who make nuclear steam turbines, generators and control systems) and the Baotou Nuclear Fuel Component Plant (a subsidiary of CNNC who produces nuclear fuel assemblies, playing a crucial role in the fuel supply chain for civilian and military nuclear projects) help lower the overall costs of project construction since lower operating margins allow them to offer more competitive pricing.

Provinces actively compete for nuclear projects, which offer high-paying and stable jobs, local tax revenue, and a reliable electricity supply. Land acquisition is relatively frictionless, as nuclear construction is treated as a national priority and enjoys broad political support. In Guangdong (the province with the most nuclear generation at 16 GW) alignment with nuclear goals has helped propel careers, including those of Hu Chunhua and Wang Yang (later Vice Premiers) and Ma Xingrui, who became Party Secretary of Xinjiang.

Prior to 2025, Chinese energy regulation set benchmark prices for all major electricity sources through state planning rather than allowing wholesale prices to fluctuate freely. This system provided predictability and enabled Beijing to channel investment into politically favoured sectors. However, a transition to market-based pricing for wind and solar began in 2021, as the cost of subsidising variable renewable (VRE) energy through feed-in tariffs became increasingly difficult to justify. By 2023, these subsidies had reached $15 billion. The new pricing mechanisms for future projects aim to expose VRE to market signals and test whether China can rely more heavily on VRE if it decides to start retiring parts of its coal fleet, and not experience grid instability and rising electricity costs that have accompanied VRE introductions in Western grids such as the UK, Germany, and Texas. In contrast, nuclear and hydroelectric power in China will continue to benefit from generous long-term subsidy arrangements, reflecting their importance for grid stability and baseload generation. Nuclear-generated electricity in China is currently sold at a benchmark price of around ¥0.43 per kWh, or approximately $59 per MWh. This is significantly lower than the generation costs of nuclear power in many advanced economies. In South Korea, nuclear is produced at around $70 per MWh, in Japan closer to $100, and in the United States about $85. In the United Kingdom, where nuclear power has some of the highest capital costs, new projects such as Hinkley Point C are expected to generate electricity at around $130 per MWh under a government-backed strike price agreement, compensating for the high capital costs and lack of direct state financing. These figures refer to wholesale generation costs, meaning the price paid to producers, and do not include the retail price to consumers, which also covers transmission, distribution, and other system charges.

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Chinese Nuclear Innovation

The playbook for new Chinese nuclear power has enabled the fastest-growing construction program in the world and supports some of the most competitive project delivery costs in the energy sector, but the Chinese nuclear industry is increasingly innovative outside of CNNC and CNG’s more common designs. The mainstay of the planned Chinese nuclear program is the Hualong One (HPR-1000) pressurized water reactor. Eighteen Hualong One units are currently either operational or under construction. With an output of around 1,100 megawatts per reactor and a unit cost of approximately ¥20 billion, or about $2.8 billion, the average cost per megawatt is in the range of $2.5 million. This is significantly cheaper than comparable reactors in other advanced economies. South Korea’s APR1400 costs around $3 million per megawatt, Japan’s ABWR designs cost approximately $4 million per megawatt, American AP1000 projects have ranged between $6 and $9 million per megawatt, and the United Kingdom’s EPR-based Hinkley Point C is expected to cost close to $8-10 million per megawatt.

Although the Hualong One is not yet fully modularised, China is increasingly adopting modular construction techniques, where reactor components are manufactured off-site and assembled at the plant. This approach can reduce overall project costs by up to 20 percent and shorten construction times by as much as 30 percent, and as China is already the fastest at delivering new nuclear construction with a typical power station taking four years, modularization could enable a far more ambitious rollout than the current plans of 6-8GW of nuclear capacity a year. The widespread deployment of the Hualong One will not exclude other Chinese-designed reactors from being built. The CAP1400, developed by the State Power Investment Corporation (SPIC) in cooperation with Westinghouse based on the AP1000 design, is a scaled-up 1,400 megawatt reactor, and the first unit at Shidao Bay Nuclear Power Plant is currently being commissioned. The TMSR-LF1 is a two megawatt thermal thorium molten salt reactor using liquid fuel. It is a prototype operated by the Shanghai Institute of Applied Physics, and the eventual goal is to develop a scalable commercial molten salt reactor that can contribute to China’s broader nuclear power ambitions and reduce reliance on uranium-based fuel cycles. China Huaneng Group in partnership with the Institute of Nuclear and New Energy Technology at Tsinghua University and CNNC, have also built the HTR-PM, a 210 MW high-temperature gas-cooled reactor that can be built on smaller grids and is designed for industrial heat applications, hydrogen production, and even process heat for desalination or chemicals manufacturing. A scaled-up version, the HTR-PM600, is in development. Western countries are not currently seriously producing either HTR (Germany was a pioneer in this field but shut down its pebble-bed reactor work in the 1980s and 1990s due to political and public pressure, while the US has a research project with X-Energy but no plants are yet operational) or thorium molten salt reactors.

In the small modular reactor (SMR) category, CNNC has developed the Linglong One (ACP100), a 125 megawatt design. It is aimed at flexible applications such as island energy supply (Linglong One is being built on Hainan Island in Southern China), industrial process heat, district heating, and desalination, and has become the first SMR in the world to begin actual construction with a planned delivery date of 2026.

Beyond the Linglong One, other Chinese SMR designs are also under development. CNNC is advancing the ACP100S, a marine version of the Linglong One intended for shipboard or offshore use, while the CGN is developing its own SMR concept known as the ACPR50. The CFR-600 Fast Breeder Reactor (not a SMR) being built by CNNC is a part of China’s strategy to establish a closed nuclear fuel cycle, a method of managing nuclear fuel that involves reprocessing spent nuclear fuel to extract usable materials (especially plutonium and uranium) so they can be reused in reactors. This ambitious buildout has significant political and institutional support, but can China continue to provide the supply chain necessary to deliver it?

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CNNC’s Uranium mining project in the Ordos Basin in Inner Mongolia.

Strategic Autonomy and Fuel Supply

China’s manufacturing base can reliably provide core inputs like concrete, steel, and heavy machinery for its nuclear program. But its primary strategic concern is securing enough nuclear fuel to meet the demands of a rapidly expanding reactor fleet. Each Hualong One reactor contains 157 fuel assemblies, each made up of 264 rods and approximately 500 kilograms of low-enriched uranium (LEU). One-third of these assemblies are replaced every 18 months, translating to an average annual requirement of about 20 tonnes of LEU per reactor. At present, China consumes around 13,000 tonnes of uranium metal (tU) each year, but domestic production was just 1,700 tonnes in 2022. If the current buildout proceeds, annual demand could reach 40,000 tonnes, nearly equal to the total global production of 49,355 tonnes in 2022.

Although China holds an estimated 2.8 million tonnes of uranium in 21 fields and basins, its ore grades are poor, often as low as 0.1 percent compared to the 10 percent grades in Canadian mines. Development has lagged due to these quality issues, technical challenges, and environmental concerns. CNNC began work in 2024 on what is expected to be its largest uranium mining project in the Ordos Basin in Inner Mongolia, but production figures remain undisclosed. Alternative approaches like extracting uranium from seawater are still experimental and years away from commercial viability.

To hedge against these constraints, China has prioritized foreign supply. CNNC owns stakes in uranium mines across Kazakhstan, Namibia, Niger, and Uzbekistan. Kazakhstan, in particular, is a strategic partner. CNNC co-owns mines with Kazatomprom, the world’s largest uranium producer, and purchases additional material through long-term agreements. While China also holds contracts with mines in Australia and Canada, worsening relations with the West could limit future access. For this reason, China is expanding its foreign mine portfolio in politically aligned or neutral countries. In a wartime scenario, it would likely rely on its strategic stockpile (estimated at around 120,000 tonnes of uranium) and its partnership with Kazakhstan to maintain fuel supply.

To further insulate itself, China is working to establish a closed nuclear fuel cycle. This involves reprocessing spent fuel to recover plutonium and combining it with depleted uranium to fabricate mixed oxide (MOX) fuel. The CFR-600 fast breeder reactor is a pilot project in this effort and may produce around 200 kilograms of plutonium annually. However, most of China’s current commercial reactors are not designed to use MOX, and the full infrastructure for a closed fuel cycle (including reprocessing facilities, MOX fuel lines, and fast reactors) does not yet exist at scale. Establishing this system for a 200 GW nuclear fleet would cost an estimated $75 billion and would require dozens of CFR-class reactors and extensive new support infrastructure. Although the fast breeder program is officially civilian, its dual-use potential also strengthens China’s military nuclear base.

China’s nuclear fuel fabrication capacity is already extensive and expanding in parallel with new reactor builds. Most fabrication is handled by CNNC at its Yibin and Baotou facilities, which have a combined annual capacity exceeding 2,000 tonnes of uranium, comparable to France’s Framatome and nearly matching Russia’s TVEL. This is far ahead of current U.S. domestic capacity. The Baotou plant is also being upgraded to produce MOX and TRISO fuel, and expansion costs are estimated at $500 million to $1 billion per additional 1,000 tonnes of capacity. Conventional low-enriched uranium (LEU) fuel produced in China costs under $200 per kilogram, significantly cheaper than the $300 to $400 per kilogram typical in the United States or Europe. Fabrication is tightly integrated with upstream mining, conversion, and enrichment activities, forming a domestically controlled supply chain that reduces exposure to external shocks. This system also positions China to offer long-term fuel contracts to international customers buying its reactors.

Compared to most Western countries, China is dramatically outpacing nuclear development. The average U.S. nuclear power plant is now 42 years old. Only one new reactor has entered service in the United States this century—Vogtle Unit 3 in Georgia. Its Westinghouse AP1000 design took over a decade to complete and cost between $17 and $18 billion for 1,100 MW of capacity, or roughly $15 to $16 million per megawatt. Vogtle Unit 4 followed at a lower cost of $11 billion. Other U.S. projects have fared worse: the V.C. Summer expansion in South Carolina was abandoned after four years and $9 billion in sunk costs, and proposed plants in Texas, in collaboration with Toshiba, were canceled in 2011. While the Department of Energy has proposed 200 GW of new nuclear capacity by 2050 and aims to add 35 GW by 2035, these targets appear ambitious given the sector’s record of delays and cost overruns. Small modular reactors have drawn attention from private companies such as Du Pont, Open AI, and Google but deployment remains years away and grid-scale plants remain more practical for base load electricity.

Kazakh uranium pellets.

Although the US does have far higher labour costs than China and its expansion of natural gas supply has made the economic case for gas fired generation far stronger over the past decade, the US does possess the necessary technological knowledge and still has some of the industrial base required to deliver nuclear power at lower cost than it currently does. There is nothing particularly special about China or Communism that has allowed its expansion of nuclear power. While the US does not have state-owned banks and its private land ownership prohibits some of the more aggressive tools China has used to power its nuclear rollout, recognizing that China’s success does not come from ideology but from long-term coordination and the political will to invest in complex infrastructure will go a long way to mitigate some of the US’s weaknesses. The IRA Zero-Emission Nuclear Power Production Credit is a powerful tool to help get new nuclear energy built. It provides a tax credit of up to $15 per megawatt-hour for existing nuclear power plants, helping prevent early closures in competitive markets. Running through 2032, it should incentivise new construction by stabilising the industry, reducing investor risk, and signalling long-term federal support for nuclear energy as a zero-emission power source. With US power demand expected to increase 15-16% by 2029, it could be central to meeting future nuclear power plant construction.

Geopolitics, Energy Security, and the Coal Dilemma

The implications of China’s nuclear buildout are substantial. If China meets its target of 200 GW of installed nuclear capacity by 2035, it could generate over 1,600 terawatt hours of electricity annually, roughly 15 percent of projected demand. While coal can be stockpiled for weeks or months, nuclear fuel can be stockpiled years in advance, offering long-term security in a crisis. In the event of a major conflict, including one over Taiwan, this means nuclear plants could continue generating power even if fuel imports are disrupted. Despite their well-known locations and the grave risks associated with uncontrolled shutdowns, nuclear power stations have historically been treated with some restraint in conflict zones due to the potential for catastrophic radioactive release. While this norm has been tested by recent drone and missile strikes on Ukrainian nuclear sites, the international backlash and strategic risks associated with such attacks have so far prevented any deliberate effort to trigger a major nuclear incident. In a major conflict, nuclear power stations remain at risk, but may still be considered less expendable targets than conventional baseload infrastructure. In the event of a war over Taiwan, although Taiwanese, US, Japanese or South Koreans strikes against Chinese grid infrastructure would be considered if the conflict was not resolved quickly and adversaries had to consider degrading the military industrial base of China, attacking nuclear power stations with precision munitions would risk a radiation leak, reactor meltdown and retaliatory strikes by Chinese forces on civilian nuclear infrastructure.

Although US and China face the realistic but unlikely chance of war, US reorientation towards China’s growing military and industrial power has strained relations with its NATO European allies. A remote scenario, given European concerns over Chinese human rights abuses and accusations of spying, but potentially a plausible one given the deep economic links between European nations and China, not just on consumer goods such as battery electric vehicles but also variable renewable infrastructure, is that US and European relations may degrade to the point where China is invited back into European countries to provide more substantial infrastructure. Countries such as the UK have previously allowed Chinese companies to be involved in developing nuclear power infrastructure, and with a demand for baseload power across Europe, cheap Chinese reactors that can be built in short timescales may become increasingly attractive. Although Chinese and European cooperation is unlikely, CNG has exported its Hualong One reactor designs to Pakistan to build the Karachi Nuclear Power Plant which began generating power in 2021. The per MW cost was $4.4 million, far more expensive than domestic production, but it delivered civilian power in a country that could otherwise not afford (China provided $6.5 billion of the $9.6 billion cost in financing) to develop its own civilian nuclear power. Pakistan's previous civilian nuclear power station, Chashma Nuclear Power Complex, was also built with Chinese reactors and assistance. As countries across the world seek access to more electricity generation, China is in a good position to provide access to its reactor designs, although it may be competing more often with Rosatom, which is the key player in Russia's nuclear industry and has built nuclear power plants in Bangladesh and Turkey. Countries that require assistance to build nuclear power stations, who don’t enjoy the friendliest of relations with Western countries, such as Egypt, Kenya, Thailand, and Kuwait are all potential options for increased cooperation with the Chinese nuclear industry.

Even as China exports nuclear technology abroad and sharpens its geopolitical influence through infrastructure deals, the greatest test of its nuclear program remains at home. Despite the scale of China’s nuclear ambitions, coal still dominates the country’s energy mix, with its 1,161 coal-fired power stations generating 61% of its electricity in 2023. Coal has been central to cheap industrial electricity prices, which have powered Chinese industrialization, and as countries such as Vietnam seek to use their now lower labour costs to follow the Chinese model of development, rising energy prices in China will reduce competitiveness and weaken the wider economy. Coal dependency presents a dilemma of how to expand nuclear power fast enough to matter, without triggering the social and political backlash that could come from undermining one of China’s most entrenched and politically sensitive industries. Over half of the world's coal miners are Chinese, and more than half of China's rail freight capacity is used to deliver coal.

China moves billions of tons of coal a year on its rail network.

While the case for relying on coal has weakened slightly as China has moved to higher value manufacturing which is not as dependent on ultra-cheap electricity and concerns not only about China’s contributions to global carbon emissions, but the effects of coal on air quality and healthcare costs in an ageing society, it will still be difficult to move China away from coal. China cannot replicate the move towards natural gas, which has contributed to carbon emission reductions in the US and other Western countries. It is already the third-largest consumer of natural gas and the biggest importer of LNG for use in manufacturing and residential heating. Substituting coal for gas would require the costly replacement of China’s 1,080 GW of coal capacity. Although coal is baseload power, meaning it can generate electricity when needed and is not dependent on weather conditions, its actual capacity factor (meaning how often it generates power) has dropped to around 55% in 2022 from 70% in 2006. Partly, this is reflective of the huge increases in variable renewable generation capacity, but also of limits on generation due to political concerns on air quality, and the average age of a coal power station being 32 years old, and parts of that fleet requiring more maintenance. Nuclear, on the other hand, as clean baseload power, has capacity factors approaching 90%, meaning it can consistently provide power.

The scale of a nuclear buildout required to replace coal by 2050 and maintain a reasonable rate of growth in electricity demand would be staggering. It would require China to build around 43 GW of new nuclear capacity a year. If enough high-grade steel and other components could be produced, the cost would be around $110 billion a year, or about half of what China says it spends on its armed forces. Although the state would not be directly financing this buildout, it could conceivably be underwriting it if it continued to provide generous loans to CNNC and CNG. The current work on securing enough uranium to power this capacity would be woefully inadequate. Fortunately for Chinese political leaders, it is not currently planning to do this and aims to phase out coal by 2060 through a mixture of variable renewables, increased hydroelectricity, and nuclear generation.

Conclusion

China’s nuclear buildout is not a curiosity. It is one of the most significant energy and industrial undertakings in the world today. It reflects a state that can set long-term goals, align institutions, and deliver large-scale infrastructure in a way that few democracies now manage. Nuclear energy offers a route to reliable baseload electricity, greater energy independence, and long-term geopolitical leverage. And yet, its deeper logic is somewhat mystifying. China’s current nuclear trajectory is impressive, but still falls far short of replacing coal, rapidly reducing carbon emissions or improving air quality. Combined with the rollbacks to intermittent renewable subsidies, continued coal-fired power station construction and also public pronouncements about reducing Chinese carbon emissions, the current Chinese energy policy is not aligned on any single objective.

Although China’s unique model of government allows long-term planning, significant marshalling of resources and can deliver world historical infrastructure, it appears that Xi Jinping's political ambitions are not centered on any one direction for future Chinese energy policy. Viewed through this lens, China's achievements in developing a world-beating nuclear power industry are better understood as providing options for future leaders on how to best deliver electricity to the worlds largest manufacturing base. The seriousness with which developing this capability reflect a Chinese political elite that can prepare for a variety of future scenarios, whether that be nuclear being the only plausible way of delivering reliable power, if variable renewables can have their problems of intermittency solved with cheaper storage and technological developments to manage their instability, or if the world abandons climate concerns and China can adapt more slowly to future energy supply at its own pace.

Nuclear power may still become a central pillar of Chinese energy security. It may yet allow Beijing to reduce emissions, sustain industrial output, and make its grid more resilient. But the more important lesson is not about China’s success. It is about its seriousness. China is building, not talking. If Western countries want to rebuild their own nuclear industries, they will have to start by deciding whether they are serious too.

A British Vanguard-class submarine showing the strain from a nuclear deterrent patrol.

Britain has fielded nuclear weapons for more than seventy years, but today its ability to sustain an independent deterrent is more uncertain than at any point since the 1950s. Britain maintains operational control over its nuclear deterrent, but the current submarine delivery system is ageing rapidly and increasingly overstretched. The recent failures of two consecutive missile tests, with subsequent trials not scheduled for years, call into question whether Britain’s nuclear posture is sustainable and credible. The submarines tasked with providing the nuclear deterrent have been running patrols far beyond their intended duration, placing extraordinary mechanical strain on the boats, resulting in punishingly long tours for submariners. Despite these challenges, every major political party remains committed to sustaining the continuous at sea deterrent, or CASD, into the 2030s and beyond.

Beneath the surface, however, Britain has quietly dismantled the industrial and technical base needed to independently design warheads, enrich uranium, or build missile delivery systems. It is entirely dependent on US technology, materials, and expertise to maintain every component of the deterrent, from targeting software to tritium supply. As Washington increasingly prioritises China over Russia, British nuclear strategy risks drifting into irrelevance: tied to a superpower whose strategic focus is moving elsewhere, and sustained by a supply chain the UK no longer controls.

The price of a special relationship.

After closely working with the United States on the Manhattan Project to deliver an atomic bomb, in the wake of the Atomic Energy Act of 1946, which prohibited the sharing of nuclear research and technologies, Britain was left without atomic weapons and a long road to developing theorised thermonuclear bombs. The British Government at the time decided to pursue this new marker of a first-rate global power despite the diminished status of the British Empire in the years following the Second World War, spending £100 million (roughly £3.5 billion today) to successfully detonate a 25 kiloton atomic bomb in October 1952. This was a significant financial burden, equivalent to around 0.5% of GDP at the time, and the Ministry of Works complained that post-war reconstruction was being slowed to allow Britain to develop atomic weapons. Less than a month later, the US detonated a 10.4 megaton device, demonstrating the power of thermonuclear bombs, leaving the UK to play catch-up again, which it announced it had achieved in November 1957 by successfully detonating a hydrogen device. The Government was knowingly lying about the yield of the bomb (it had only been 0.3 megatons), but it successfully helped persuade the US to reconsider cooperating with the UK on nuclear research, design, and testing. As the US was concerned about Soviet advances in missile and nuclear technologies and was stunned by the Sputnik satellite, the attitude towards cooperation with another Western power had changed considerably since 1946, allowing a financially stretched and technically limited British role in American nuclear technology. The genesis of the current British nuclear weapons arsenal and its posture, including the decision to maintain nuclear submarine-launched ballistic missiles on a continual patrol, is rooted in the 1958 US–UK Mutual Defence Agreement.

A 1957 British hydroden bomb test.

When British politicians talk about how the US is its closest ally, despite plenty of evidence to suggest the US favors other countries such as Israel, France, Japan, or Saudi Arabia more, it is the Mutual Defence Agreement that gives that claim substance. The UK is the only country with which the US shares nuclear warhead designs, submarine propulsion technologies, ballistic missile systems, enriched uranium and tritium stockpiles, and nuclear test data. The closest comparable deal is the AUKUS agreement between the UK, Australia, and the US, which is limited to sharing resources and designs on nuclear submarines, not nuclear weapons. Without the MDA between the UK and US, it is highly questionable whether the UK would be able to maintain its current nuclear status.

The current British nuclear arsenal consists of around 220 nuclear weapons in the form of “British-designed” Mk4/A Holbrook (by the Atomic Weapons Establishment at Aldermaston, although they are effectively copies of the W76 US weapons) thermonuclear warheads, which each have an estimated yield of 100 kilotons. Although these are significantly less powerful than some of the weapons developed by the US and Soviet Union in the Cold War, the Trident II D5 missile (which can be fired at targets up to 12,000 kilometres away and at its fastest can travel at more than 20,000kph), which delivers the Mk4/Holbrook weapons, carries 3-5 warheads under current plans, but can carry up to 12. These warheads can independently target different locations when the missile is in space. Trident missiles are carried on the Vanguard-class ballistic missile submarines, and under current doctrine, they carry eight Trident missiles, although they can hold up to 16. At least one boat (the traditional term for a submarine in the US and Royal Navies) is always on Operation Relentless, the Royal Navy’s name for continual at sea deterrent (CASD) patrols. Although the nuclear posture is “purely defensive”, the British government has remained deliberately ambiguous about the situations in which it would consider using nuclear weapons, refusing to adopt a “No First Use” policy to maintain the possibility in an adversary's mind that a nuclear attack could be launched first. British nuclear weapons are not only retained to deter an “extreme” (meaning chemical, biological or nuclear attack) against the UK itself, but are also assigned to the defence of its NATO allies. Whether Britain would actually use nuclear weapons in response to an attack on a NATO member is debatable, as is the question of whether Britain would use nuclear weapons if it were not joining the US in deploying them.

Unlike the US, which has engaged in publicly threatening nuclear weapons usage numerous times, including against China in 1955, and in 1991 handed a letter to Iraqi Foreign Minister Tariq Aziz with the words “this is not a threat, but”. The UK has only once done this publicly, echoing American threats against Saddam Hussein to potentially retaliate with nuclear weapons if chemical or biological weapons were used against coalition troops. Despite British possession of nuclear weapons not deterring the Argentine invasion of the Falklands, the task force that sailed to liberate the Falkland Islands in 1982 did contain tactical nuclear weapons on board the aircraft carrier HMS Hermes. Britain was then and remains committed to not using nuclear weapons against non-nuclear states. Currently, Britain cannot threaten to use smaller, tactical nuclear weapons as it only has the Trident missile system to deliver strikes.

The effects of a 100-kiloton nuclear bomb on London.

Britain is the only nuclear-armed country to have a single deterrence system. Britain adopted a minimum credible deterrent at the end of the Cold War, retiring its air-launched WE.177 tactical nuclear weapons carried by the RAF in 1998, having already removed nuclear depth charges, Vulcan strategic bombers, and US-supplied Lance ground-launched missiles as tensions dropped in the early 1990s. Even North Korea technically has two delivery systems, with the primary method being ground-launched Hwasong ballistic missiles, and shorter-range KN series missiles, and the Pukguksong series submarine-launched system providing further options. France, the closest comparable nuclear power to Britain, maintains submarine-launched ballistic missiles (the M51 missile built by Ariane Group) and the Air-Sol Moyenne Portée cruise missile (built by MBDA) designed to be carried by Dassault Rafale fighter jets, which could be theoretically delivered from jets operating from the French aircraft carrier, Charles de Gaulle.

The Vanguard submarine class, Trident missiles, and Mk4/Holbrook warheads are currently being replaced as the Vanguard boats continue to deploy on CASD patrols far beyond their design life of 25 years. This brings risk, and by the time the Dreadnought replacement is in service, some Vanguard boats will be 38, 39, or 40 years old. When the previous generation of Resolution-class SSBNs came towards the end of their service lives, they began to fail sea trials due to the years of mechanical stress operating in the most hostile environment on earth, and only two boats (HMS Resolution and HMS Repulse) were able to carry out increasingly long patrols at shallower depths. Although the plans to deal with a “worst case scenario” of moving a CASD submarine into Loch Long, where it would dive and remain in a static location, reportedly never came to pass, this suboptimal situation is now being seen again on the ageing Vanguard boats, and in some ways is much worse.

The unprecedented 107-day patrol conducted by a Resolution-class boat seems quaint to the grueling patrols that submariners are now expected to conduct to maintain CASD with the Vanguard class, as patrols are averaging 163 days, and one boat was at sea for 204 days in 2024. The Vanguard class was designed to be at sea for 90-120 days on an operational patrol, and on these longer patrols, it has been reported that submariners were forced to ration the remaining food. There are now questions around if the boats are surfacing to be resupplied with food, which would mean there are in fact periods of time where the nuclear deterrent is not actually available. Surfacing also means the submarine is liable to be detected, violating the fundamental command objective: always remaining undetected. It is so important to stay undetected that prior orders in the event of a life-threatening medical episode were to deal with the incident on board (including potential surgery conducted by the ship's medical officer) and to place a deceased sailor in the deep freezer rather than surface to seek help. If CASD patrols are surfacing for resupply, this undermines the deterrent, and if the alternative is to ration food, morale and retention in the submarine service will continue to suffer.

British submariners are volunteers within a volunteer service. An uncertain amount of time spent away from family, friends, and normal life, with no internet access, little exercise space and no fresh air for more than six months at a time is exchanged for an average of 5% higher wages than serving in the surface fleet and perhaps a personal thank you from the Royal Family, senior politicians and defense staff. The Royal Navy, like the other services, is seriously struggling to recruit (in 2023, the HMS Raleigh training establishment had just 109 recruits out of a capacity of 375) and retain sailors. The demands of the CASD place significant burdens on the submarine services' 830 officers and 3,150 ratings. Although major maintenance and teething issues have been reported, resulting in the Astute class attack submarines not taking to sea (none were sailing at times in 2024), it is possible that men are being pulled from attack boats to meet the crewing requirements of the CASD missions, particularly engineers and nuclear technicians.

The Vanguard class has ended up in this position due to years of delays in deciding to replace them, the decision to rip out HMS Vanguard's nuclear reactor (this was supposed to take three years costing £200 million but predictably took seven and cost over £500m), and unfortunate timing and delays in refitting the other boats in the class. To cap these issues of age, manpower difficulties, and increasingly long patrols, the most credible threat to the deterrent is the public failure of the last two Trident missile tests from British submarines.

A failed Trident missile test in 1986. Photos of the British 2024 have not been released.

Trident missiles for the British nuclear deterrent are shared in a pool with the US Navy, which deploys Trident on its 14 Ohio-class SSBNs, and are primarily stored at Naval Submarine Base Kings Bay in Georgia, USA. Around 40-60 missiles drawn from the pool are then transported to the Missile Servicing Facility at Coulport to be loaded onto Vanguard boats. Although day-to-day inspections of missiles at Coulport are handled by British personnel, if there are major servicing or maintenance issues, these are dealt with by the USN Strategic Systems Program back in Georgia. Trident missiles are designed and built by the prime contractor, Lockheed Martin. Every year, a Trident missile is fired from a submarine to test both the missile, submarine and her crew, and as a partner, the Royal Navy tests on rotation. In January 2024, the missile failed to ignite its first stage booster and unflatteringly “plopped” into the sea next to HMS Vanguard carrying the First Sea Lord and Defence Secretary. This followed a 2016 test conducted by HMS Vengeance saw the missile veer off course and have to self-destruct. Trident has been tested 215 times by the United States and the UK in total, including eight failures, five of which occurred between 1987–89, leaving the overall failure rate at 2.6%, but the consecutive failures of British tests raise questions about whether ageing British submarines have a specific issue with Trident, which has been upgraded multiple times since their introduction. Obviously, if there is such an issue, it will not be publicly acknowledged, but the UK is reliant on the US Navy and defense companies to fix the problems.

The British nuclear strategy is intrinsically tied to the US position against its Cold War adversary, the Soviet Union. The dependency on the US, while both countries were primarily concerned with the Soviet nuclear threat, made the cost of maintaining the deterrent justifiable. However, as the US focuses on the military and economic threat posed by China, a British deterrent aimed at deterring Russia while tied to the US, which may not be so concerned with wanting to risk nuclear war with a secondary threat, means the credibility of British nuclear weapons is weakened. Although there is a limited but realistic possibility of China and the United States going to war, and a route within that to a nuclear exchange, it is hard to envision how severely weakened British military forces would be able to fight alongside the US in the South China sea given the political reality that China is very far away. Dealing with the economic and social upheaval such a war would bring would be a major political challenge and increase the chances of a Russian attack on British European allies. The idea of Britain launching nuclear weapons against China in the event of a US/Chinese nuclear exchange and inviting Chinese nuclear retaliation is very remote. As British and US military threats diverge in the future, although Britain has operational control over its nuclear weapons, it is doubtful if Britain can realistically threaten to launch or retaliate to a Russian attack if the US does not approve, making the whole arrangement increasingly strategically incoherent.

Operational Independence, Total Reliance

The justifiable questionability of the credibility of the British nuclear deterrent has to be placed into the context of the cost of maintaining it, the financial burden it places on the rest of Britain's armed forces and the total reliance on the US for every part of the system. Currently, the UK is paying a publicly disclosed figure of around £3 billion annually (6% of the defense budget) to maintain the Vanguard class in a ring-fenced allocation. Prior to 2010, the cost of providing for the deterrent was met by the central government's special reserve budget, and the prediction by some that moving this to the Ministry of Defence's budget would hollow out conventional forces has proven to be correct. Although not the only factor, since 2010 the Royal Navy has seen its surface combatants decrease from 23 to 16, and of those 16 ships, only a handful are deployed on operations or being used in training. The Royal Navy cannot provide a full escort for its aircraft carriers and is reliant on allies to provide ships for the planned 2025 Carrier Strike Group deployment to the Pacific Ocean (Norway is providing a frigate and fleet oiler, while Canada and Spain are both providing a frigate for significant parts of the operation).

The current Dreadnought-class SSBN program (HMS Dreadnought is currently being constructed at BAE Systems in Barrow in Furness) is expected to cost £31 billion/$41 billion to bring the boats into service without delays or cost overruns, with an additional £4 billion cost to develop the A21/Mk7 or Astraea warhead and an estimated £4 billion (not including maintenance) to purchase Trident II D5LE2 missiles. However, only parts of this acquisition program are currently funded, and the National Audit Office estimates a £7.9 billion deficit as things currently stand. If reports about the nuclear program eating up any spare cash are accurate, and combined with the need to replace missile stocks sent to Ukraine, the recent announcement that defense spending will rise is meaningless in delivering visible new capabilities.

The Dreadnought class is the least dependent part of the whole deterrent system on US technical and material support, relying principally on the Common Missile Compartment housing the Trident missiles and US-developed software for elements of targeting, fire control, and system diagnostics. The UK designs and builds its own submarines (BAE Systems) and nuclear reactors (Rolls Royce in Derby), and although the UK does have a store of highly enriched uranium for nuclear submarine reactors, this was all produced before 1995 and the most critical components of the deterrent system are reliant on US supply chains. Britain stopped enriching uranium partly due to its existing stockpile, the cost of maintaining the plant at Capernhurst, and a desire to commit to non-proliferation ambitions. Since then, three nations (India, Pakistan and North Korea) have developed nuclear weapons, undermining the wisdom of this desire. In 2024, the defense secretary announced that Britain would explore options for reestablishing a domestic fuel cycle capability. However, currently the UK is dependent on the US for additional HEU requirements, as restarting enrichment of uranium would incur significant costs (an enrichment plant, conversion and feedstock infrastructure, fabrication and handling facilities, security, licensing, and commissioning would be over £10 billion) and take up to ten years, particularly with byzantine British planning laws and the ability of activists to raise legal challenges. The re-conversion of the plant at Capenhurst would also violate international law, as it is legally required only to produce material for civil infrastructure, a significant blocker as the current Prime Minister, Sir Keir Starmer, was himself a human rights lawyer and worked to strengthen international law during his career before formally entering politics.

Additionally, the integration of the Common Missile Compartment and the accompanying software makes it impossible for the UK to move to another missile delivery system without totally redesigning the Dreadnought class and costing billions. It would also require designing its own submarine-launched ballistic missiles, which is theoretically “possible” as MBDA UK does have some technical expertise, but realistically, there is no British space program or credible space company that could work on this effort. Furthermore, the French M51 missile is not designed by MBDA France and cost over €10 billion to develop. It could be possible for Britain to request that MBDA be involved in the design and production of Trident II D5LE2 missiles to build a more robust and sovereign capability, but this would be dependent on the goodwill of President Trump and his successor. Arguably, developing a more substantial British missile industry would be in line with President Trump’s and Vice President Vance’s ambition to reduce European military dependence on the US, but this would mean a smaller workshare for Lockheed Martin and may spook US officials who fear the UK may in the longer term seek its own credibly independent nuclear weapons program.

The UK is heavily reliant on the United States for the supply of tritium (used in nuclear weapons to increase the efficiency and explosive power of warheads), and while it possesses its own stockpile of plutonium for warhead production, it no longer has the capacity to produce new fissile material and would depend on US support to maintain or expand its arsenal over the long term. There is a facility under construction in Oxfordshire to recover and recycle tritium for civilian use, which is unlikely to be able to service military needs. Tritium has a relatively short half-life of 12.3 years, which means it decays over time and needs to be replenished regularly. The US itself is struggling to produce tritium, as it closed its Cold War manufacturing facility in 1988 and only opened the tritium production facility at Watts Bar Unit 1 in Tennessee in 2003. The production facility has consistently failed to meet production expectations, only producing 1/10th of the expected supply.

Britain was a world leader in plutonium production from the 1950s until it stopped production in the late 1960s with a significant stockpile, enough for 3-400 warheads. Its large (139 tons) civilian plutonium stockpile is mostly unsuitable for military use, although it could be theoretically refined further. In practice, the UK relies on the US for further material when needed. If the UK decided to restart plutonium production and avoid the concerns of the international community, it would likely cost billions to build or repurpose a facility. The attempted U.S. MOX (Mixed Oxide Fuel Fabrication Facility) at Savannah River serves as a recent example of how even financially well-resourced and technically capable states struggle with plutonium production, as the project was closed down after $8 billion was spent.

British dependence on US technical assistance, materials, and designs is deeply apparent in warhead design. The current “independently designed” Mk4/Holbrook warhead is so similar in design to the US W76 warhead that the British warhead is part of the W76 maintenance program, and the minutes of the second meeting following the signing of the 1958 MDA suggest that American scientists provided the blueprint. Furthermore, after the announcement of the development of the US W93 warhead, the British defense secretary lobbied the US Congress for funding for the A21/Mk7/Astraea, one of the only examples of Britain asking for direct US military financial aid since the Second World War, suggesting the US costs of developing the W93 which the UK is expected to copy are too expensive. This reliance also suggests that the UK has not actually designed a nuclear weapon since the introduction of the WE.177 tactical nuclear bomb in 1966. If you were 18 years old and working at AWE on the WE.177 during its design, you would be 77 years old. Although Britain does have the blueprints for the W76 and will be gaining close proximity to the W93, it is debatable if Britain actually has the capacity to design a nuclear weapon on its own, unlike France, which designs its own weapons under the direction of the Direction des Applications Militaires (DAM and developed the Tête nucléaire océanique (TNO) warhead in 2015.

A Dassault Rafale fighter jet carrying the Air-Sol Moyenne Portée cruise missile.

A further issue with the credibility of the A21/Mk7/Astraea is that as the UK and US are signatories to the Comprehensive Nuclear-Test-Ban Treaty (CTBT) this new warhead will not be live tested to demonstrate it works. Although the US has not ratified the CTBT, and testing could resume under US law (and very likely would if Russia or China resumed nuclear testing), the W93 and its British derivative are reliant on subcritical testing, computer simulation, and component tests to demonstrate the devices work. While this may satisfy internal concerns about the credibility of the warheads, there will continue to be doubt in the minds of potential adversaries about whether these weapons work. For the US, this is less of an issue as it will continue to maintain warheads and designs which were tested, but the UK is acquiring a sole deterrent that has never been live tested. In a currently unlikely but conceivable scenario where the 1958 MDA is dissolved and the UK has A21/Mk7 warheads as its only nuclear weapon, without US technical support on maintaining them or access to the stockpile of missiles in Georgia, the British nuclear deterrent would be the least credible in the world. Developing a sovereign nuclear deterrent would take years and cost tens of billions of pounds, and although the UK has some of the necessary ingredients for such a program, it arguably would be in a worse position than non nuclear Japan or South Korea, both of which possess space programs, independent missile manufacturers, large civillian nuclear programs, and larger manufacturing and talent bases. Both of these countries could develop nuclear weapons in as little as 6-12 months, although the cost would be in the tens of billions of dollars. In contrast, nuclear-armed Britain has effectively outsourced its entire nuclear deterrent to the US, at a time when global tensions are rising and nuclear-armed countries and stockpiles are increasing.

Although Britain would face significant political, economic, and diplomatic costs to develop its own nuclear weapons, it could acquire US designs for warheads delivered by air-launched missiles flown by F-35 or the proposed Tempest fighter jet. It would not be cheap, and would stretch limited British plutonium and tritium stockpiles, but it would provide an additional capability which may be more usable than submarine-launched strategic weapons on ageing submarines. It would not solve the deeper problems of reliance on the US for its nuclear weapons for decades, but moving to a more normal standard of multiple delivery systems for nuclear weapons would enhance the fear for adversaries that Britain can use nuclear weapons to defend its European NATO allies.

Conclusion - Is it worth it?

Overly optimistic decisions made at the end of the Cold War regarding future threats, leading to a degradation in military preparedness, industrial base and energy security, have unfortunately led to a deeply troubling situation for Britain in the 2020s. As Russia has demonstrated its willingness to attack its neighbour in Ukraine, China is rapidly increasing its nuclear stockpile, and the UK's closest ally pays more attention to disputes in East Asia, Britain has both severely underprovisioned conventional military forces and has abandoned its ability to develop nuclear weapons. The strategic decision to rely on a single deterrent system means the only conceivable short-term way to increase the options available to military planners would be to purchase US-designed air-launched warheads. Only over a much longer period of time will the UK be able to rebuild a truly independent nuclear deterrent.

With the cost of maintaining CASD and developing its replacement, the UK is spending a minimum of £6/$7.9 billion a year on its nuclear weapons program, over 10% of the whole defense budget. Britain has underfunded its military for decades, poorly chosen to fight non-essential conflicts, which have cannibalized planned equipment purchases and managed its existing procurement projects woefully. Despite the spending on the deterrent arguably being better spent on rebuilding its conventional forces, the political consensus behind maintaining the illusion of an independent nuclear capability and fear of jeopardising the relationship with the US means it is deeply unlikely Britain will abandon its operational nuclear deterrent, despite the costs. If the US decides in the future to withdraw troops and its military underwriting of European countries, the current British nuclear program will severely limit strategic choices available to political elites.

The current model is strategically incoherent. Without a reassessment of what a credible British deterrent actually requires, Britain will be paying tens of billions for decades for weapons it can never realistically use and will weaken military forces that would serve a deterrent purpose. Britain clings to the symbols of great power status, but if the country wants to be taken seriously as a nuclear power by Russia, China, France and the US, it must confront the uncomfortable reality that it no longer is one and act accordingly.

An MBDA beyond-visual-range air-to-air Meteor missile.

In the decades following the Cold War, most European nations allowed their defense industries to atrophy. Declining military budgets, deindustrialization, and a growing dependence on American security guarantees eroded Europe’s capacity to wage high-intensity warfare. The war in Ukraine has exposed the consequences: European missile stockpiles have been depleted by arms transfers, while the US’s growing strategic focus on deterring China in the Pacific raises the possibility that Europe may one day have to fight without guaranteed access to American munitions, airpower, logistics, or intelligence. A complete transatlantic rupture remains unlikely, but Europe’s ability to sustain a major conflict without direct US military support is uncertain.

At the heart of NATO and Western military doctrine is the assumption that allied forces will achieve air supremacy early in a conflict, enabling the systematic destruction of enemy air defenses, command infrastructure, and logistics nodes. That strategy depends on access to large quantities of advanced, precision-guided munitions launched from aircraft, ships, and mobile ground platforms, and on the ability to defend against ballistic missile and drone attacks in return.

Europe’s ability to field such weapons at scale will be decisive in any future war with a peer adversary. At the centre of that challenge is MBDA, Europe’s leading missile manufacturer and a consortium jointly owned by Airbus, BAE Systems, and Leonardo. MBDA produces the complex missile systems that many European aircraft, warships, and ground-based air defenses use. However, the question remains: Can MBDA and Europe’s fragmented defense industry replace American munitions' current role more broadly?

What is MBDA?

MBDA is Europe’s largest missile manufacturer, reporting $5.46 billion in revenue in 2024 with an order backlog exceeding $40 billion, reflecting the rising demand for European-made precision weapons off the back of the Russian invasion of Ukraine and concerns about American commitments to European defense. The company was established in 2001 through the merger of Matra BAe Dynamics (France/UK), Alenia Marconi Systems (Italy/UK), and Aerospatiale-Matra Missiles (France), consolidating Europe’s fragmented missile industry into a single multinational entity. Today, MBDA employs over 18,000 people across production and research facilities in France, the UK, Italy, Germany, and Spain.

The company is jointly owned by Airbus Defence and Space (France/Germany - 37.5%), BAE Systems (UK - 37.5%), and Leonardo (Italy - 25%), making it a multinational consortium rather than a vertically integrated company like Lockheed Martin or Raytheon. It does not release its own annual report or financial statements. Traditionally, the chair is always from BAE Systems and the chief executive is always French, with current CEO, Eric Béranger, taking up his position in 2019. The company saw a renewed push towards cooperation between the two largest national shareholders, Britain and France, in the wake of the 2010 Lancaster House Treaties, which was mainly aimed at eliminating duplicate efforts and costs, but has also resulted in the helicopter fired Sea Venom missile and the Future Cruise/Anti-Ship Weapon (FC/ASW) program.

Unlike its American counterparts, MBDA’s decision-making is shaped by the influence of its three parent companies and the differing strategic priorities of their respective governments. The UK has historically pushed for its missiles to be integrated with American-built fighters such as the F-35 and ground-based missile systems to maintain interoperability with the US military. France has pursued a sovereign missile manufacturing capability, ensuring that domestically built fighter jets, warships, and air defense systems remain independent of non-European suppliers. Despite being a key industrial player in MBDA, Germany has blocked the export of missiles to countries such as Saudi Arabia, leading to political tensions within the consortium, particularly with France, which relies heavily on arms exports as part of its defense industrial strategy. The company has separate accounts for each respective national component, allowing for national priorities to be addressed, but it does not separate the company's supply chains to mean one country can manufacture all the parts domestically for a missile.

While MBDA primarily produces advanced weaponry for European-built military assets, it has also expanded its exports to nations such as the UAE and India. MBDA has been working to expand production capacity at sites in Bolton (in the UK, where the manufacturing capacity is set to double), Venette (France), and Schrobenhausen (Germany) and adjust to a broad European procurement policy of only buying missiles for a “just on time” procurement policy to one focused on replacing stocks sent to Ukraine and building up stockpiles to make sure there are enough to deter any further Russian aggression against European nations.

The location of MBDA’s facilities reflects its longer-term commitment to a “Western European” capability to produce complex weapons rather than a purely sovereign capability. In the Storm Shadow missile, for example, the servo controller and controlling systems come from MBDA France, whereas the internal cabling comes from MBDA UK, the engine from Safran (a French company), and the warhead from BAE Systems. MBDA cannot function as a fully sovereign national supplier for any one country, meaning no single state can independently scale production in wartime. A further example of MBDA’s intentionally diverse supply chain is MBDA UK, which is responsible for the actuators and data link technology, while France delivers the control systems and testing equipment for the missiles. Although France procures all of its missiles for its military from MBDA, it still relies on parts from MBDA UK and Italy.

On paper, MBDA’s finances appear strong. While this reflects surging demand from European militaries, the backlog also highlights the limitations of Europe’s existing missile production base. These orders will take years to fulfill. Even with new investment, delivery timelines for complex systems like the ASTER 30 will still be 18 months by 2026, and the skilled workforce needed to expand production is finite.

A Storm Shadow/SCALP air-launched cruise missile.

The Limits of Europe’s Independent Warfighting Strategy

NATO’s war plans assume that any conflict with a peer adversary (most likely Russia) would be fought alongside the United States and aim to achieve air supremacy to enable the destruction of enemy forces. This model worked spectacularly well in the first and second invasions of Iraq, and Russia’s inability to do this in invading Ukraine shows that even with significant military forces and modern weapons, a conflict can quickly descend into a brutal attritional war. In NATO's war plans, the US provides stealth airpower, long-range strike munitions, satellite intelligence, and strategic lift capacity from the get-go to help win control of the air. In a war with NATO in which US forces joined the fight, F-22 and F-35 stealth fighters equipped with anti-radiation and long-range air-to-ground missiles would seek to find and destroy Russian air defense and command and control systems, freeing up fourth-generation Eurofighter and F-16 jets to execute more strikes on Russian logistical elements and formations.

In an outbreak of war between European countries and Russia in which the US refuses or is unable to commit to a European war, perhaps because it is fighting to defend Taiwan from a Chinese invasion, the odds that Russia is able to contest air supremacy become much more likely. European air forces do not have anywhere near the number or quality of US Intelligence, Signals, and Reconnaissance assets (ISR). European air forces have only three major signals intelligence (SIGINT) aircraft in the form of the British Royal Air Force's Boeing RC-135 Rivet Joint, used to monitor an adversary's electronic emissions and communications, which are a vital part in finding enemy assets before attacks can be made on them. However, the information these aircraft gather cannot be analysed without sending the data to the USAF, meaning the actual capabilities of European SIGINT analysis are negligible.

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If European NATO countries are not granted intelligence sharing from US satellites, they do have their own comparable programs, but they are not as high-quality or comprehensive. European Multinational Space-based Imaging System for Surveillance, Reconnaissance and Observation (MUSIS) has a 20cm resolution compared to the US National Reconnaissance Office's KH-series satellites 10cm, and has only limited infrared surveillance and signals reconnaissance capabilities. Although the EU’s Galileo system has better accuracy than GPS for civilian use, Military GPS III has a comparable accuracy. The US has several private companies, such as SpaceX, which can offer alternative comprehensive coverage or step in if satellites are shot down or disabled. As things currently stand, the UK has not had access to Galileo since leaving the EU in 2016.

European NATO countries do have respectable air-to-air refueling capabilities, with 44 mainly A330 MRTT tankers, which offer superior fuel efficiency, simultaneous refueling, and longer range than the 12-15 permanently based US KC-135R Stratotankers based at RAF Mildenhall in the UK, but their strategic lift cpabilities, essential for rapidly moving troops, munitions and support elements is deficient. European nations have a collective 126 A400M strategic lift vehicles with a payload capacity of 37 tons compared to 222 C-17A (77.5 tons) and 52 C-5M (127 tons) aircraft operated by the USAF. This matters in the scenario whereby European countries find themselves in a conflict with Russia, the faster weapons, troops, and support units can be moved to areas where they are needed, the greater the chances are of repulsing any attack. European nations are not totally disarmed and do have significant logistics and intelligence abilities, but it is questionable if these, without US support, are enough to deter or win a future conflict. When European forces can reach the battlefield, they will still depend on American weapons and munitions to sustain the fight.

That reliance becomes most acute in the area of advanced munitions, particularly the precision-guided weapons that underpin Western warfighting doctrine. At the centre of this challenge lies MBDA, Europe’s leading complex weapons manufacturer and the only European entity capable of producing a suite of air-to-air, air-to-ground, naval, and ground-launched missile systems for European forces.

Can MBDA’s Arsenal Deliver in a Peer Conflict?

To gain and maintain air superiority, European air forces require long-range air-to-air missiles capable of engaging enemy aircraft before they are detected or targeted. MBDA’s Meteor missile is the centrepiece of this capability. In performance terms, it exceeds its US equivalents, and costs around $2.6 million (depending on the number ordered). Meteor can hit enemy aircraft from up to 300km, but when fired from within 60km, its ramjet propulsion system and active radar seeking system supposedly does not allow a target to escape by maneuvering. This is longer ranged than the comparable US AIM-120D missile, but Meteor is not currently available on F-16 jets flown by Poland, Denmark, Belgium, the Netherlands, Norway, or Romania. Meteor can be equipped on F-35 jets that most European air forces are planning to acquire, but it is not as simple as fixing the missile to the plane and firing it when needed. F-35s are designed to fire US manufactured missiles, so to use MBDA’s premier long range missile, software for the F-35 has to be upgraded to the Block 4 package for $14 million, which should not be an issue for countries yet to receive their F-35s but is for those who have already ordered them.

MBDA does not produce medium-range air-to-air missiles for any European air forces aside from France, as this capability is fulfilled by the IRIS-T missile for European Eurofighters or American-made AIM-120 and AIM-9X Sidewinder missiles for F-16s and F-35s. MBDA’s Air-to-Ground and Strike Missiles, which would be used to destroy Russian air defense and command and control systems, include the Storm Shadow/SCALP-EG (F-16 and F-35 use Lockheed Martin's Joint Air-to-Surface Standoff Missile) and the Brimstone precision air-to-ground missile. Storm Shadow is simply too large to fit into an F-35's weapon bay, and if it were carried externally, it would seriously compromise the stealth capabilities of the jet, effectively proscribing its use against integrated air defense systems. It has a similar cost to Meteor. The successor to Brimstone is the SPEAR 3 missile, which is planned to work with F-35 but may not be in service until 2028. In 2017, MBDA stated that about 3000 Storm Shadow units had been produced and ordered across nine operator countries, not all of whom (Saudi Arabia, for instance) are European, leaving a stockpile of around 1500 missiles in stockpile to 2017 (once 100 missiles fired in Iraq are accounted for) and a production rate since contracts were first signed in 1997 of 150 a year. However, since 2017, there have not been many large orders from European countries for more Storm Shadow missiles, with only the German Luftwaffe ordering around 250 in 2024. The UK has sent “hundreds” of Storm Shadow missiles to Ukraine (possibly in the range of 300), but without US-supplied intelligence, Ukrainian forces cannot use these missiles, highlighting how vital ISR assets are to conducting strikes inside the Russian air defense umbrella.

An AGM-88 HARM being fixed to a USAF F16 in 2021.

Neither MBDA nor any other European missile manufacturer currently produces dedicated anti-radiation missiles (ARMs). Modern air defense systems such as the Russian long-range S-500 and S-400, medium-range Buk-M2/M3, S-350 Vityaz, and short-range Pantsir-S1/S2, Tor-M2 systems are highly capable. They are mobile, capable of detecting incoming strikes, shutting down their radars to evade attack, and employing electronic warfare systems to jam targeting sensors. ARMs, such as the AGM-88 HARM, AGM-88E, and AGM-88G, are designed to counter these defenses. They use passive radar seekers to locate enemy radar emissions without revealing their own position, can home in on jamming signals to neutralize electronic warfare assets, and can store target locations in case the radar shuts down or jamming attempts to disrupt guidance. Western air doctrine assumes up to six ARM missiles per heavily defended air defense target, ideally fired from stealth aircraft to minimize the chance of interception, but the F-35 can fly within Russian air defense zones to locate and target air defenses without ARMs. With the approximate numbers of Russian air defense systems at over 600 medium and long range batteries, to suppress Russian air defenses en masse would require over 1000 missiles in an initial wave of targets and thousands more to continually suppress Russian units that evade destruction.

The air component of European militaries is arguably the strongest. European states' naval and land forces are in varying states of readiness, with some militaries in much worse states than others due to a history of poor procurement, incoherent national strategies, and struggles with recruitment, particularly the British Army and Royal Navy. The only European navy that does not rely on American-made complex weapons for anti-air, anti-ship, and land attack systems is the French Marine Nationale, which sources all but one of its missiles from MBDA. The remaining missile system, the M51 submarine-launched ballistic missile, which carries one arm of the French nuclear deterrent, is sourced from ArianeGroup, a joint venture between Airbus and Safran, the aerospace, defence and security company. The British nuclear deterrent uses the Trident D5II missile, which is built by Lockheed Martin Space.

MBDA offers the MdCN (Missile de Croisière Naval), an equivalent missile to US Tomahawk missiles for use by submarines and frigates, which can attack targets up to 1000km away and costs around $3 million per missile. In a war scenario with Russia, this could be fired from the Barents Sea to attack radar installations and command-and-control centers supporting Russia’s integrated air-defense system, such as those near Arkhangelsk and Murmansk. However, the number of MdCM’s available are only in the region of 350, and in an intensive war, these supplies would soon drop low. As Russia’s navy is much smaller than the combined European NATO powers, the surface component, already in a poor state and damaged by Ukrainian forces, would be unlikely to sail and could be dealt with by air assets using anti ship missiles or naval missile attacks, either delivered by MBDA’s Exocet missile system or American-built Harpoon and LRASM missiles.

The Russian submarine fleet would likely sail to attack shipping, cut electricity interconnectors, sea communications, launch its own cruise missile strikes on lightly defended command and control headquarters or logistics hubs far away from Eastern Europe. Submarine hunting requires coordination between anti-submarine warfare (ASW) assets such as frigates, aircraft, and other submarines. MBDA contributes to European ASW capabilities through the MILAS (Missile de Lutte Anti-Sous-marine), a surface-launched anti-submarine missile designed to rapidly deploy a lightweight torpedo near an enemy submarine’s location.

A Royal Navy Daring Class Destroyer firing an ASTER 30 surface-to-air missile.

Defending against Russian air-launched and ballistic missile attacks is something that European navies need to do to protect themselves and extend air defences to land forces operating near coastlines, which could mean defending forces in the Baltics or near Kaliningrad. The ASTER 15, ASTER 30, and VL MICA are MBDA’s primary naval air defense missiles, providing varying levels of protection against aircraft, cruise missiles, and, in the case of ASTER 30, ballistic missile threats. ASTER 15, at over $1 million per missile, can intercept incoming drones, missiles, and aircraft up to a range of 30km, and was most recently used by the Royal Navy to intercept drone attacks from Houthi forces in Yemen. ASTER 30 is a longer-range (120km) and faster interceptor (flying up to Mach 4.5) that MBDA provides to the British, Frenc, and Italian navies. Production rates are not publicly available, but after an order for 700 missiles split between the Italian and French navies, MBDA said they were working to reduce Aster missile production time from 42 months in 2022 to less than 18 months by 2026. Although this order was worth over $1 billion, a Marine Nationale Forbin-class destroyer can carry up to 48 ASTER 15 and 30 missiles, so the stockpile of available missiles is not deep. MBDA also manufactures a shorter-range (20km) VL MICA missile for smaller ships, which, like ASTER 30, is used by the French and Italian armies to offer ground-based air defense.

For medium-range ground-based air defense, ASTER 30 missiles as a part of the SAMP/T system are a credible anti-air and ballistic missile system, but are not widely used by European militaries, who have overwhelmingly opted for Patriot missile systems manufactured by Raytheon and Lockheed Martin. Supplies of Patriot interceptor missiles have been stretched thin, not only by the war in Ukraine, but in defending US bases in Iraq from Iranian-backed militia strikes. Despite orders being placed for more missile systems and interceptor missiles by European countries, if a conflict did break out over Taiwan, it is doubtful that orders would be fulfilled given the threat that thousands of PLA Rocket Force missiles pose to Taiwan and US bases in South Korea and Japan. MBDA would require a massive expansion of ASTER 30 missile production to replace the Patriot system, but it currently would be unable to replace the US longer range Terminal High Altitude Area Defense (THAAD) operated by US Army units currently located in Europe, although it is working on the HYDIS2 (Hypersonic Defense Interceptor Study) program but this is not likely to be in service before the mid 2030s.

Ground-launched missiles, fired by platforms such as the US-produced HIMARS, are another area where European countries are heavily reliant on US supplies. Long-range missiles such as the Guided Multiple Launch Rocket System (GMLRS) and ATACMS (Army Tactical Missile System), used in Ukraine to target Russian ammunition depots, airfields, and units, currently have no European equivalent. Although MBDA is working on the Joint Fire Support Missile (JFS-M), currently, European variants of the M270 Multiple Launch Rocket System (MLRS), which fire these missiles, are tied to Lockheed Martin for resupplies of missiles. Germany, Denmark, and the Netherlands have ordered Euro PULS (multiple rocket launcher) systems, manufactured by Israeli company ELBIT Systems, and although some of these systems are being produced in Europe, they do not represent a true sovereign capability for Euro PULS.

MBDA’s portfolio demonstrates that Europe can produce a range of effective missile systems for air, land, and sea operations. However, the availability of these weapons is not simply a matter of funding or design. It ultimately rests on whether the components of high-performance metals, explosives, semiconductors, and subcomponents can be sourced in sufficient quantities and speed. With global supply chains strained, and many critical inputs dependent on foreign or fragile sources, the resilience of Europe’s missile production base is far from guaranteed. The next challenge is not just what Europe builds, but what it can sustain.

Supply Chains

Missile production is not just an engineering or funding challenge—it is a materials problem. Modern missiles depend on a small set of specialised metals and industrial inputs that cannot be easily substituted or rapidly scaled. Europe has only limited domestic access to many of these materials and has spent decades hollowing out its capacity to extract, refine, and stockpile them. Titanium, which is used extensively in missile airframes, propulsion housings, and control surfaces due to its strength-to-weight ratio and heat resistance, is a prime example. Chinese titanium production has exploded in recent decades, reaching 6.1 million tons in 2024, while European production is concentrated in Norway (not in the EU), as other European “producers” such as Belgium mainly export titanium products, not mine the raw material. Relying on Chinese titanium supplies for non-defense manufacturing has not been problem-free, as titanium used in parts manufactured between 2019 and 2023 on civilian aircraft such as Boeing’s 737 Max and 787 Dreamliner, as well as Airbus’s A220, was found to be defective, having been sourced from a supplier falsifying documentation. MBDA has been stockpiling titanium to ensure it can meet its order book.

An antimony mine in Kütahya, western Turkey.

Antimony is a minor element with outsized strategic importance. It is a critical enabler of precision-guided weapons, used to create specialised alloys, flame retardants, and dope semiconductors in systems such as infrared sensors, radar, and secure communications. Antimony-doped semiconductors are often used in missile systems in thermal imaging arrays and infrared seekers, allowing for accurate targeting and tracking in contested environments. Despite this importance, Europe does not currently mine any antimony. Slovakia’s last mine closed in the 1990s, and while significant deposits exist in France, Germany, Sweden, Finland, Slovakia, and Greece, none have been brought into production. A proposed mine in Greece is under review, but even if approved, it will take years to yield usable output.

In the meantime, MBDA and other European defence firms rely on Turkish mined antimony. While Turkey is a NATO ally, the political relationship between Ankara and EU capitals is complicated. Disagreements over migration policy, democratic backsliding under President Erdoğan, and Turkish military activity in Syria and the Eastern Mediterranean have all raised questions about the long-term stability of the alliance. Again, the lack of any domestic production of such a strategically important input highlights how Europe’s defence industrial base has been allowed to drift into dependency. Antimony is not rare, but it is environmentally challenging to mine, and European countries have prioritized environmental concerns over strategic autonomy. Without firm political backing, the chances of Europe restoring its own supply remain limited.

Semiconductors used in missile systems are not the most advanced chips found in consumer electronics or AI platforms, such as those built by TSMC. They are “legacy chips” - mature, well-tested designs for missile guidance, signal processing, secure communications, and sensor integration. Their value lies in their reliability under high stress, resistance to temperature fluctuations and vibration, and compatibility with older but robust military architectures. However, despite their technical simplicity, these chips became a critical bottleneck during the global semiconductor shortage in 2021-2022.

The situation is complicated further by security considerations. While commercial electronics manufacturing has long relied on Chinese suppliers for low-cost components, defence systems cannot. Any uncertainty about fabrication, provenance, or tampering risks compromising the missile’s integrity. Even a basic processor handling target acquisition cannot be allowed to fail, or worse, be manipulated, in flight. This rules out Chinese supply, not only during wartime but in peacetime stockpiling. MBDA has been working to strengthen its own semiconductor supply chain which are procured in a joint venture with Soitec, acquiring 40% of Dolphin Integration, a French semiconductor design company in 2024, and expanding the production facilities of its subsidiary Matra Electronique, who manufacture semiconductors in Venette.

Missile warheads and rocket motors rely on a small set of energetic compounds that must meet tight chemical tolerances to ensure consistent performance. High explosives such as RDX, HMX, and plastic-bonded explosive (PBX) formulations are used in warheads for systems like the Storm Shadow and ASMPA, while composite solid propellants (often based on ammonium perchlorate or nitrocellulose) are critical for propulsion in missiles such as SPEAR 3, MMP, and Exocet. Final integration of these materials is handled in-house by MBDA, but the company does not manufacture the raw explosive compounds themselves and instead relies on a small network of external suppliers.

The most important of these suppliers is Eurenco, which operates production sites in France, Belgium, and Sweden, and supplies MBDA with RDX, HMX, PBX warhead fills, and a wide range of tailored propellants. Rheinmetall’s joint venture Nitrochemie, with facilities in Germany and Switzerland, also supports missile-related production with single- and multi-base propellants. In Poland, Nitro-Chem produces RDX and TNT primarily for artillery, but has some capacity relevant to warhead applications. Within the UK, explosives manufacturing is focused more on legacy munitions than on high-energy compounds for missiles. Chemring Energetics UK, based in Ardeer, Scotland, produces initiators, delay elements, and pyrotechnic components, and plays a supporting role in fuzing and ignition systems but not in bulk propellant or warhead explosive production. BAE Systems manufactures traditional explosives for naval shells and artillery, but it too relies on foreign suppliers like Eurenco for the materials used in complex missiles. While MBDA UK manages final assembly of warheads and motors at its Bolton facility, the core energetic materials that underpin its missile portfolio still come primarily from the continent.

Even if Europe secures access to critical minerals and components, the energy intensity of defence manufacturing presents a further structural challenge. Missile production depends on stable, high-load industrial power. Foundries for titanium alloys, chemical plants for propellants and explosives, and semiconductor fabrication lines all require uninterrupted energy flows to remain viable. Yet much of Europe’s energy policy in recent years has favoured intermittent renewables over firm baseload capacity, and has resulted in European countries experiencing some of the highest industrial electricity prices in the world. Continuing to move towards intermittent renewables exposes the grid increasingly vulnerable to volatility, price shocks, and reliability gaps, which undermine precisely the heavy industrial activity required for sustained rearmament.

Conclusion

MBDA sits at the heart of Europe’s efforts to rebuild its ability to produce complex weapons systems. It manufactures some of the most advanced missiles in the world and has shown that Europe retains the technical expertise to deliver modern air, sea, and land-based strike capabilities without relying wholly on the United States. But MBDA does not operate independently. Its assembly lines rely on a fragile supply chain stretching across Europe and are dependent on a handful of producers for explosives, specialist metals, semiconductors, and rocket propellants. Without these materials, even the most sophisticated missile designs cannot be delivered at scale.

The war in Ukraine has revealed how shallow this supply chain is. Europe’s stockpiles are depleted, production is slow to scale, and key inputs are vulnerable to external pressure or simply unavailable in sufficient quantities. Rebuilding a fully resilient European missile supply chain will likely require investments exceeding tens of billions of dollars over the next decade, spread across mining, foundries, chemical synthesis plants, and legacy semiconductor fabrication. Even under ideal conditions, much of this capacity will take five to ten years to come online. MBDA is expanding, so its production capabilities will come online faster, and some surging is possible in the event of a genuine crisis, but Europe’s industrial base is still aligned with peacetime assumptions, and to reindustrialize will require a fundamental reassessment of climate-related goals. Trying to rebuild an independent European defense industrial base will be astonishingly expensive while basing electricity production on intermittent renewables. A genuine warfighting economy has yet to be rebuilt, and without it, rearmament risks becoming a political gesture rather than a strategic transformation.

The Global Combat Air Programme is a British, Japanese and Italian joint effort to develop a sixth generation air combat system, including a crewed fighter jet, UAVs, AI driven battle management systems, advanced sensors, and weapons. As U.S. focus shifts toward China and European nations question the long-term reliability of American security guarantees, these three allies are investing in their own next-generation airpower. The GCAP is vital to ensure that Britain, Japan, and Italy maintain a defense industry capable of producing first-rate air capabilities.

With Russia pressing against NATO’s borders and China rapidly modernizing its air force, Britain, Japan, and Italy can no longer rely on legacy platforms. The Eurofighters flown by the RAF and Aeronautica Militare, along with Japan’s F-2 fighters, will soon become obsolete and have growing operational costs. Japan faces a rapidly modernizing Chinese air force and needs GCAP to counter the PLAAF’s J-20s, J-35s, and long-range missile threats by 2035. For the UK and Italy, they are facing the prospect of deterring further Russian aggression against European states, possibly without American backing.

GCAP will be staggeringly expensive. While the UK, Japan, and Italy have all pledged to increase defense spending, funding for the project will compete with urgent priorities - from refilling munitions stockpiles to modernizing naval and ground forces - and existing budgetary black holes, which in the British case total hundreds of billions of pounds. Although a treaty underpins the project, Britain’s domestic political pressures could threaten long-term procurement, especially if defense planners prioritize short-term fixes over long-term capability. Can Britain, Japan, and Italy afford to build their own sixth-generation fighter? More importantly however, can they afford not to?

A German Luftwaffe Tranche 3 Eurofighter Typhoon

GCAP’s Foundations: Why Britain, Japan, and Italy Joined Forces for a Sixth-Gen Fighter

GCAP was announced on the 9th December 2022. The agreement merged the UK's and Italian Tempest program with Japan's F-X fighter program to create a program to deliver an in-service air combat system by 2035. Tempest originated from a 2015 British Ministry of Defence study to explore what was then called the Future Combat Air System, which saw British defense firms BAE Systems (assembly), Rolls-Royce (engines), Leonardo UK (avionics), and MBDA UK (weapons) collaborate to work on a replacement for the Eurofighter.

The Eurofighter was initially conceived in the 1980s as an air superiority fighter, but shrinking defense budgets after the end of the Cold War and increased upgrades through to Tranche 3 expanded its role to be able to deliver ground attack missions. It was the product of collaboration between the UK, Germany, Italy and Spain, who split the work 33, 33, 21 and 12% respectively. 680 Eurofighters have been ordered as exports were secured to Austria, Oman, Qatar, Kuwait and Saudi Arabia. The deal to sell Eurofighter to Saudi Arabia was held up for years by the German Bundestag, and is still blocking potentiala exports to Turkey, a fact that will not have been forgotten by the British and Italian governments who hope to export Tempest in the future.

Eurofighter's development was beset by the typical problems of military procurement, with significant cost overruns (development costs were double the initial estimate of €20 billion, leading to orders being cut back) and time delays (it took 10 years to deliver the first aircraft after the prototype flew), plus fierce political disagreements about the initial operating requirements and eventual workshare. The four separate production lines, resulting from a desire to share the development costs, led to poor efficiencies and higher logistics costs. Although the export price eventually reached $117 million for a Trance 3A jet, the purchase price for the original countries involved in developing the Eurofighter was closer to $201 million per unit. For potential foreign purchasers, this compares to a French-built Rafeal jet for $200 million (however French contracts usually include armaments, training, infrastructure upgrades and maintenance support) or F-16 with a price tag of $70 million, although this requires a close and ongoing relationship with the US government. A Eurofighter's high purchase ongoing cost is not made any easier by its very expensive ongoing costs, which average a reported $65,000 per flying hour. The costs are so high partly because of the multi-national supply chain and because the Eurofighter is twin engined, increasing fuel costs. For reference, the F-35, a generation ahead of the Eurofighter in stealth, avionics and weapon systems, costs around $41,000 per hour.

Despite upgrades, the Eurofighter is now showing its age. Eurofighter has reached close to its full development potential as its limited stealth leaves it vulnerable to integrated Russian S-400/S-500 and Chinese HQ-9/HQ-22 ground based air defense (GBAD) systems, which can detect the Eurofighter from hundreds of kilometers away. Additionally, long-range anti-air weapons such as the Chinese PL-17 and Russian 40N6 are capable of shooting down non-stealth fourth generation aircraft such as the Eurofighter before they could get close to GBAD systems. The successor to Eurofighter must be cheaper, stealthier, and deadlier.

To achieve these aims, in 2018, the Tempest concept was revealed at the Farnborough Air Show. Shortly afterwards, Italian companies Leonardo, Avio Aero, and MBDA Italy joined the project and Swedish firm SAAB, who build JAS 39 Gripen fighter jets, entered into discussions about also collaborating. At the time, Sweden was not a member of NATO, and SAAB focused on exporting jets to second-tier air forces, so their involvement was not core to the program. Meanwhile, French companies Dassault and Safran were working on developing their own sixth generation fighter, unhelpfully also named in English Future Combat Air System (to simplify this the project will be referred to by its French name, Système de combat aérien du futur, SCAF) with German based Airbus Defense, MTU Aero Engines, Hensoldt, and Diehl Defence. Although it may appear the two projects are in direct competition with one another, differences over what to prioritize, with SCAF aiming to develop the systems before the jet (and put integrate these systems on an upgraded Rafael fighter to bridge the gap until the SCAF next generation jet is available) while GCAP is pursuing the manned aircraft first. SCAF is not due to fly a demonstrator until 2029 (already a two year delay from the initial proposal) and is not due to be in service until 2040. These differences in delivery, plus no Rafale jets in service with the British, Japanese and Italian air forces made it possible for Japan to get involved in GCAP, signing the agreement that announced the joint participation of the UK, Japan, and Italy in 2022.

The Japanese Air Self Defense Force never expressed an interest in purchasing Eurofighter due to the exclusion of its own defense industry and its possession of the F-2 Jet. The F-2 was a Japanese manufactured version of the F-16C fourth generation fighter, and although manufactured and assembled by Mitsubishi Heavy Industries, it was heavily reliant on Lockheed Martin for the radar system, flight control software, avionics, sensors and weapon systems. MHI had no role in building the engine, relying instead on the General Electric F110-GE-129 used by other F-16s. Due to the significant involvement of US companies and American controls on exporting its defense technology, the F-2 could never be realistically exported, raising the program's cost as only the JSDAF would purchase F-2 jets which ended up twice as expensive as a conventionally supplied F-16. Despite this, in developing a replacement for the F-2 (known as the Mitsubishi F-X), MHI approached Lockheed Martin again for help and access to sixth generation technologies, but the US government refused to lift export controls to help its Japanese ally, despite MHI building a working demonstrator that flew in 2016. With the attempted collaboration with the US rebuffed and a need to replace the F-2 by 2035, MHI approached BAE and asked to merge the F-X with the Tempest program, creating GCAP, encompassing the Tempest/F-X jet and the technological ecosystem that will make the Tempest jet a truly sixth generation fighter. Although Tempest will not have the economies of scale that next generation US and Chinese aircraft will have from their much larger air forces, Tempest will have a larger initial order for the single replacement that all three air forces need rather than two separate programs, plus the potential for export partners that Japan has previously been restricted from.

Beyond the Eurofighter: What GCAP Promises for the Future of Air Combat

GCAP participants have already spent over $8 billion developing the Tempest and F-X jets, but this is just a fraction of the program’s total cost. While early cost estimates for fighter jet programs are often overly optimistic, the British Ministry of Defence has budgeted another $15 billion for development through 2036, on top of the $2.5 billion already spent. If preliminary workshare estimates align with the final costs, Britain and Japan will each bear 40% of the burden, with Italy contributing the remaining 20%, putting the remaining price tag at around $37.5 billion. What are these nations getting for their investment?

The most visible aspect of GCAP will be the fighter element, which will be known in Britain as Tempest. Tempest will have to balance stealth, reliably network with satellites, drones, and ground forces, excel in air superiority, strike, suppression of enemy air defense and electronic warfare missions, fire long range anti-air and ground attack missiles, be capable of future upgrades and do all of this while remaining cost competitive versus other Western fighter jets to not totally cannibalize the budgets of its own air forces and remain attractive to potential export partners. This is an ambitious challenge.

As Western militaries do not have a comparable force such as the PLA Rocket Force or Russian Strategic Rocket Forces to deliver large numbers of ground launched ballistic missiles to targets, and the only realistic method of delivering sea launched missiles would be via highly valuable submarines, Western militaries are currently dependent on air power to achieve missions against a potential Chinese, Russian or nations supplied by them. Although F-22 and F-35 have not been used in combat against modern air defenses, during the Gulf War, F-117 stealth fighters flying missions against formidable Soviet supplied Iraqi air defenses managed to deliver 30% of the munitions dropped against strategic Iraqi targets despite making up only 2.5% of the deployed American air force and did not lose a single aircraft. It was claimed that the Iraqis did not even successfully track an F-117, demonstrating just how effective stealth fighters can be versus integrated air defenses.

Chinese systems, such as the HQ-9 and HQ-22 operated by the PLAAF, rely on a ground-based radar to track and guide missiles to their targets, but if the radar is destroyed, the missiles are rendered useless. Although these systems are currently not as advanced as Russian air defenses, the PLAAF aims to counter stealth fighters by providing a dense, overlapping network of missile coverage with a larger number of deployed GBAD systems as well as airborne early warning aircraft (KJ-500) and satellites. Fourth-generation fighters like F-2 would be highly vulnerable to operating in this environment, and F-35 would have to operate at an increased distance until enough missions can degrade the air defenses over time.

The Russian S-500 mobile air defense system.

The S-500 is Russia’s most advanced air defense system, designed to detect and shoot down aircraft, missiles, and even satellites. It uses a network of powerful radars to track targets at long range, scanning the sky for threats. Once a target has been detected, some of the missiles fired by the S-500 also have their own radar systems to help guide them to their target. Russia claims the S-500 can do for up to ten targets moving at speeds upwards of 15,000mph. Although this is currently the most advanced GBAD system, the S-500 is vulnerable to anti-radiation missiles (missiles which home in on radars), jamming from electronic warfare systems, and if a target can be made stealthy enough by reducing its radar signature, the S-500 will be less effective at finding potential targets in the first place. Russian and Chinese GBAD systems will not just be operated by the Chinese and Russian militaries, but have already been exported to Iran. Tempest will blend an airframe designed to minimize potential radar deflection, radar absorbent materials (which remain highly classified), deployable expendable drones and reduced engine heat signatures to make detecting it as difficult as possible. As the US is unwilling to share its own stealth technologies, this cost has to be borne by the Tempest developers, which is one of the reasons why this is such an expensive program.

AI is not only being used to assist in the development of GCAP, but is also intended to be essential in helping the pilot manage the flight mission. As Tempest will be collecting more information on incoming threats, potential targets, and also managing drones deployed from the aircraft itself in addition to potential “loyal wingmen” or collaborative combat aircraft, AI integration will be necessary to help a pilot process this extremely complex environment. Although the Lightweight Affordable Novel Combat Aircraft (LANCA), a British low-cost unmanned air system also known as Mosquito, was envisioned as a part of GCAP, was cancelled in 2022, there is a follow-on program being funded, although details are sparse. Looking at US efforts to produce unmanned air combat systems such as the XQ-58A Valkyrie UAV demonstrates that if GCAP can integrate loyal wingmen into the system, there will be additional aircraft flying alongside Tempest which can act as decoys for air defense systems and carry weapons to assist in strike missions. The XQ-58A, although some time away from entering frontline service with the USAF, has a reported cost of $5.5 million, so if GCAP can develop its own drones that can work with Tempest its lethality can significantly increase while adding on relatively minor costs as opposed to adding additional jets costing hundreds of millions of dollars each. Due to an adversary's potential electronic warfare capabilities and the need to maintain control over the drone, manned Tempest jets will be required to accompany combat drones on missions.

As future jets evolve, their weapons systems will transform alongside them. The UK and Japan are working on a successor to the Meteor missile built by MBDA, the unimaginatively named Joint New Air-to-Air Missile. For ground strike missions, the British and French versions of MBDA (which is a pan-European company with ownership split between BAE, Airbus and Leonardo) are working on a successor to the Storm Shadow missile that has been used by Ukrainian forces to attack, among other targets, Sevastopol port and the Russian submarine Rostov-na-Donu. Perhaps the most exciting potential weapons system related to GCAP would be integrating directed energy (laser) weapons to disable incoming missile and drone threats. The MoD’s Defence Science and Technology Laboratory (Dstl), working with its industry partners MBDA, Leonardo and QinetiQ, have been working on a directed energy weapon called DragonFire that has been in development since 2017 and in 2024 was demonstrated hitting targets up to a kilometer away. However, it is not clear how the power or space requirements of DragonFire would be compatible with a single jet aircraft that has to provide enough energy to fly the plane and remain as stealthy as possible, although it is not inconceivable that a dedicated drone aircraft could fly alongside Tempest armed with DragonFire to act as a last resort defensive system.

Can the UK, Japan, and Italy Actually Build GCAP?

Defense budgets have been growing across the world, spurred by the Russian invasion of Ukraine in 2022 and the election of President Trump in 2024. In the UK, defense spending was just over 2% of GDP for the 2023/24 and Sir Keir Starmer has announced that it will rise to 2.5% by 2027. Japanese defense spending was historically low as a percentage of GDP, but in 2022 the Kishida administration confirmed that spending would rise to 2% by 2027. Italian spending is the lowest of the three partners both in cash and as a percentage of GDP, failing to meet its current NATO target of 2% in spending 1.57%.

Despite these growing figures which should enable the development and purchase of Tempest jets, the British headline figure masks significant weakness. Included in British defense spending figures are pension payments for veterans, which although valuable do not contribute anything to current defensive capabilities, and the increase to 2.5% of GDP is to be partially “paid for” by moving the budgets of the intelligence services (MI5, MI6 and GCHQ) to be included under defense spending. Furthermore, in addition to the estimated £16.9/$21 billion of unfunded commitments in the MoD's equipment plan (mainly as a consequence of developing a replacement for the British nuclear deterrent), any more money for the British armed forces is likely to be hoovered up in replacing munitions donated to Ukraine. Japan’s defense spending increases are healthier and reflect growing investment that will deliver capabilities, but significant public debt (9.1% of the budget goes on interest rate repayments while interest rates are at 0.5%) and growing inflation for the first time in decades could put pressure on Japanese finances. Italy is hoping to fund increased defense expenditures through relaxing EU fiscal rules.

Beyond budgetary considerations, the industrial capacity of GCAP partners will significantly impact their ability to deliver the program on time and within cost. In the UK, industrial electricity prices are the highest in Europe, driven by carbon prices and taxes, a heavy reliance on gas bought on the market when intermittent renewables are unavailable, and the cost of upgrading transmission networks to deliver intermittent renewable sources, which are located far from users. British manufacturing output is down 9.2% since 2021, but within that decline are starker falls, such as basic metals down 35% and electrical equipment manufacture down nearly 50%. If British deindustrialisation continues, driven by legacies of a more peaceful time (the Climate Change Act 2008 and the Net Zero 2050 ambition) supporting advanced manufacturing with a smaller and smaller industrial base will become more difficult and expensive. Although BAE and Rolls-Royce (which look set to build the engines for Tempest) are world-class companies, British energy and industrial strategies undermine future competitiveness and raise costs for the Ministry of Defense. Woes are not just British - Italian industrial capacity has fallen for 23 consecutive years amidst poor GDP growth.

In this tight budgetary environment and with constrained industrial capacity in the UK and Italy, additional partners for GCAP have been proposed to lessen the financial burden. Saudi Arabia, which has no significant domestic aerospace industry but large reserves of cash, has previously bought Eurofighters, is hoping to build up a more robust economy as the world potentially transitions away from oil in transport use, and has a fierce rivalry with Iran, who possess Chinese and Russian air defense systems. However, including Saudi Arabia in the program would bring potential difficulties in exporting Tempest to other Gulf states, with which Saudi Arabia has a cooler relationship, such as Qatar and the UAE.

Although Japan has moved away from its own strict export controls, it may be unwilling to include Saudi Arabia. Additionally, involving Saudi Arabia in the program itself may upset Israel and by extension the United States, as the US is uncertain about providing Israel's neighbours with the capability to develop the most advanced military capabilities, which is a different consideration to selling weapons and platforms to the Gulf states. Complicating matters further is the pressure the US could bring on BAE, as the British defense firm generates 40% of its revenue from supplying the US military. Domestic British political opinion regarding Saudi investment is not universally supportive - there was significant pushback over the Saudi sovereign wealth fund Public Investment Fund (PIF), acquiring Newcastle Football Club.

Although South Korea and Japan have a deep distrust of each other despite their mutual fear of China, if the US is unwilling to sell NGAD to South Korea, which needs to replace its KF-16 jets around the end of the 2030s, South Korea may be a potential development partner or be open to acquiring Tempest fighters. South Korean defense firm Korea Aerospace Industries is building KF-21 Boramae “4.5” generation fighters, which are less capable than F-35 jets in stealth terms, but may be viable for upgrades to provide South Korea with more advanced capabilities without paying the full cost of sixth generation fighters.

Another potential partner is India. India is involved in the QUAD grouping of the US, Japan and Australia, and is a regional rival with China, but unlike Saudi Arabia, it does have its own domestic aerospace industry, and any partnership would realistically come with a diluted workshare agreement. Indian cooperation with Western countries is growing, but it is not as opposed to Russia as the UK and Italy are, flying Russian jets, was unwilling to sanction Russia in 2022, and attracting significant Russian investments. The geopolitical considerations of any further partners make expanding GCAP tricky.

How It Stacks Up Against Rival Programs

Other leading militaries are developing sixth-generation fighters within and outside Western alliances. While the US has been happy to share the development and production of F-35 fighters, it has never shared the technology underlying the F-22 air superiority fighter. Given the refusal to develop a sixth generation fighter platform alongside Japan, it is doubtful the Next Generation Air Dominance Program being developed by the US Air Force or the US Navy’s F/A-XX Program will be exported to many potential allies, with the possible exception of Israel. NGAD will be so expensive to develop (with an approximate cost of $300m per plane) that there is currently a fierce debate within the USAF on the viability of the program as the USAF also has to replace its air-to-air refueling, airborne warning and control systems and stealth bomber fleet in addition to aquiring 1300 more F-35 jets, a bill that will total hundreds of billions of dollars. When push comes to shove, the US can afford and is likely to go ahead with all of these acquisition programs, but if even the US is worried about costs, buying NGAD from the US will be ruinous for the budgets of less wealthy air forces.

How the USAF NGAD fighter may look.

The PLAAF showcased a potential demonstrator of its J-36 fighter in December 2024, meaning the PLAAF will have sixth-generation fighters in service before 2030 and potentially before the Tempest demonstrator (which is under construction) flies for the first time, due in 2027. Tempest will not compete for exports versus Chinese fighters, but it must be more or equally capable of engaging in combat with J-36 at very long ranges, as China has air-to-air missiles reportedly capable of reaching targets from 400km away.

SCAF, the joint French/German/Spanish sixth generation program, was originally on a more ambitious schedule than GCAP, but arguments over workshare between the two prime contractors, French Dassault Aviation and German Airbus Defense and Space have pushed the demonstrator phase back to at least 2029 and no fighter in service until potentially the 2050s. Although President Trump's election may focus minds and accelerate the development, the Japanese requirement for a replacement for F-2 by 2035 may put future development of aircraft on different replacement schedules, meaning if exports can be secured for Tempest, purchasing countries would not necessarily want to switch future aircraft suppliers for fighter jets. Germany has announced it is buying further Eurofighters for the Luftwaffe, limiting the number of SCAF jets it may purchase in the future. SCAF will want to export its aircraft and combat system to European partners as well as Gulf countries, but as European countries closer to Russia have a heightened sense of danger, Tempest may be able to secure orders in Poland, Romania, Finland, Sweden and Turkey if it is available sooner. Export orders don’t just recoup costs for manufacturers, but fund the development of future aircraft, strengthen diplomatic links between the participants and keep the military industrial capabilities of the exporting nation viable. In the UK, GCAP will support tens of thousands of jobs, and keep the pipeline of designers and workers for manufacturing secure for decades.

Conclusion - The Cost of Inaction: Why GCAP Must Succeed

GCAP will undoubtedly be expensive and is not guaranteed to be delivered on time. Although it is unlikely to be cancelled (despite a worrying wobble from British defense ministers in 2024), given the severe budgetary pressures facing the British defense budget in particular, there will be calls to simply “buy American” especially if the timetable slips. It cannot be assured that buying Ameican made jets will be an option in the future - all three nations have been excluded from buying the most advanced American stealth planes, and if the US chooses to change its stance towards it European allies radically, Britain and Italy will be wholly dependent on the French, German and Spanish effort which has already been subject to major delays and has different specifications and timetables. GCAP must succeed to retain independence in airpower.

This should not mean that defense companies should hold the whip hand over their relevant governments. With the expense of advanced aircraft development, governments cannot rely on start-up players to enter a very small and technically challenging market, but it is clear that BAE, Leonardo, Rolls Royce, and to a lesser extent Mitsubishi Heavy Industries will not be able to choose to reenter this market again in the future. Without sustained development programs, engineering expertise will decline, supply chains will be lost, and companies will pivot away from military aviation. As much as the Royal Air Force, Aeronautica Militare and JSDAF will suffer from not having access to cutting edge air combat technology unless foreign supplies are willing to provide it to them, the defense companies will suffer from not being able to offer the first rate jets and may move away from military aviation altogether.

GCAP could very well be the last manned combat aircraft produced before AI and network systems become secure and reliable enough to undertake missions by themselves, but as defensive technology advances this may not ever be good enough. Manned combat aircraft may continue to be relevant for the lifetimes of everyone involved, and if the capability to produce them is lost, it is unlikely ever to be regained. Not developing GCAP would be a strategic mistake. The stakes are clear: either Britain, Japan, and Italy build their own future, or they surrender it to others.

Flag of the PLAAF

The People’s Liberation Army Air Force (PLAAF) is the world’s second-largest air force, boasting over 3,700 aircraft and 430,000 personnel. Beyond its fighter fleet, it commands a vast array of ground-based air defense systems, some of the world’s most advanced long-range air-to-air missiles, and an expanding UAV arsenal. Over the past two decades, the PLAAF has evolved from a Soviet-style force, focused on defending Chinese airspace, into a modern air power capable of projecting strength beyond its borders. More than just an extension of national defense, China’s air force is now a central pillar of its strategy to deter U.S. intervention in the Taiwan Strait. Xi Jinping’s ambitions for Taiwan rest on having a large, competitive, and combat-ready air force. Without it, military success remains doubtful.

China is rapidly expanding its air force, becoming one of only three nations capable of designing and producing its own fifth-generation fighters and it has already flown sixth-generation prototypes. However, despite fielding thousands of fighter jets, the PLAAF remains constrained by limited strategic lift, airborne early warning and control (AWACS), and air-to-air refueling capabilities, the core enablers of sustained air operations. While these gaps may not hinder China in a short conflict, they would pose a serious challenge in prolonged air campaigns over Taiwan or the wider Western Pacific. Recognizing this, the PLAAF is actively closing these gaps as part of its broader Anti-Access/Area Denial (A2/AD) strategy. With a growing arsenal of long-range missiles, stealth fighters, and strike capabilities, it aims to not only neutralize U.S. aircraft but also threaten U.S. Navy vessels and regional bases, raising the cost of intervention in any future conflict.

China’s military leadership views 2027 as a critical deadline for the PLAAF to achieve full-spectrum modern capabilities - one that will determine whether it can credibly deter or defeat U.S. intervention. The urgency is compounded by Washington’s renewed focus on the Indo-Pacific under President Donald Trump, escalating the race between the U.S. and China for dominance in the region. The US faces costly upgrades to its air fleet and uncertainty about whether it can produce enough munitions to remain in a fight for months on end. If the PLAAF can bridge its remaining gaps in airpower, Beijing will gain far greater leverage over Taiwan’s future - and over America’s strategic calculus in the Pacific.

A Chinese MiG-15 Fighter jet flown by the PLAAF in the Korean War.

From a Soviet Clone to a Peer Competitor: The PLAAF’s Evolution

The People’s Liberation Army Air Force was formed on November 11, 1949. Throughout the Chinese Civil War, in which Mao Zedong’s People's Liberation Army was ultimately victorious, the communists had limited access to air power, only gaining US-made aircraft from the nationalists under Chiang Kai-shek by capturing them on the ground or through defections. In the Defense of Yan’an (1947), the PLA demonstrated how they typically dealt with superior nationalist air power by using ground-based air defenses and guerrilla tactics (in this case, retreating from their revolutionary capital). Corruption, a lack of fuel, and coordination meant that the nationalists could never decisively use their air supremacy to counter communist offensives. The Soviet Union did supply some Il-10 ground-attack aircraft along with training and advisors in 1949, but air power was not crucial to the communist victory. China’s poverty, lack of domestic manufacturing capability, and the primacy of the army in both the victory and minds of senior communist leadership meant that developing a domestically produced air force was a secondary concern in the immediate aftermath of the war, but the outbreak of the Korean war and the delivery of more Soviet aircraft changed this and saw the rapid expansion of the PLAAF.

During the Korean War, the PLAAF’s primary mission was to provide air defense for PLA and Korean forces fighting the South Korean and US-led UN forces. Soviet assistance, in the form of more training and advanced MiG-15 jet fighters, led to the PLAAF claiming over 300 allied aircraft shot down, including F-86 Sabre, F-84, and F-80 jets. By the end of the Korean War, the PLAAF had around 3000 aircraft, and Chinese industry was constructing Soviet-designed aircraft under license. Post-war, ts mission continued to be air defense in support of the PLA, which received the majority of funding and was seen to be the key to eventually winning any war against an adversary, but the PLAAF did engage in skirmishes with the Republic of China’s air force over the Taiwan straits throughout the 1950s and 60s..

Even after the Sino-Soviet split in the 1960s, China continued to produce Soviet aircraft under license and although the PLAAF maintained thousands of aircraft, these gradually became less and less qualitatively comparable to Western aircraft. During the Sino-Vietnamese war in 1979, Deng Xiaoping refused to allow the PLAAF to engage in combat operations to avoid antagonizing the Soviets.

Following a series of reorganizations in the 2010s, since 2016, the PLAAF has been organized into a brigade structure. At the top of the hierarchy sits the PLAAF HQ (which reports to the Central Military Commission), to which five geographically distributed Theater Command Air Forces control seven to ten brigades. Each brigade has three to six fighter groups totaling 30 to 50 aircraft, so a brigade such as the 9th Fighter Brigade (the first unit to be equipped with J-20 fighters) would be akin to a USAF Wing.

A PLAAF J-20 fifth-generation stealth fighter.

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Closing the gap with the US Air Force

The mainstay of the PLAAF 1,975-strong fighter force is 588 J10 single-engine multirole fighters, approximately equivalent to the F-16 jet flown by the US and many of its allies. In the US Air Force, Navy and Marines, the F-16 is gradually being replaced by variants of the F-35, a fifth-generation single-engine multirole stealth fighter capable of flying from Okinawa to Taipei on a combat mission without utilizing mid-air refueling. The PLAAF also flies 280 J-16, 205 J11, and 97 Sukhoi Su-30 fourth-generation jets and smaller numbers of older fighters, strike and multirole aircraft, as well as over 1000 training aircraft.

Hampered by the invasion of Ukraine, Russia is only producing small numbers of the Sukhoi Su-57 fifth-generation fighter, while other countries, such as the United Kingdom’s GCAP/Tempest jet, are still in the design process. Meanwhile, China is the only country besides the US producing sizeable numbers of fifth-generation fighters, producing roughly 120 J-20 multirole fighters annually, compared to 110 F-35s made by Lockheed Martin in 2024 after a disappointing 48 units in 2023.

Although technically a multirole fighter, the primary mission of the J20 is to establish air superiority, leaving strike missions on land and sea targets to other aircraft and ballistic missiles launched by the Peoples Liberation Army Rocket Force. While the J-20 is not a direct competitor to the F-35 it is supposedly faster but less stealthy, equipped with worse sensor and network capabilities. The first J-20s had either the Chinese WS-10B or Russian-made AL-31FM2/3 engines, which were inferior in thrust, efficiency, and reliability. While production numbers for the J-20 are higher than the F-35, both air forces are replacing older units with these newer fifth-generation aircraft, meaning the overall size of the PLAAF may not increase substantially over the coming decade as units will be equipped with older jets received J-20s (and older models of the J-20 are substituted for more advanced models). As the F-35 has been in production since 2011 and over 1000 F-35s have been delivered, even at an increased production rate for the J-20, it will take some years for the PLAAF to catch up in delivering its best fighter jets to most units. The J-20, like the J-10, is produced by the Chengdu Aircraft Industry Group, a subsidiary of state-owned Aviation Industry Corporation of China, the sixth-largest defense company in the world.

The J-20’s development has almost certainly been aided by Chinese industrial espionage, captured American technology (China acquired a downed F117 stealth jet from Serbia in 1999) and outright theft. Although the J-20 and F-35 look similar in appearance, the aesthetics of the jet are not the primary worry for the Americans (to some extent, jet aesthetics will continue to converge as aerodynamics limits differing styles for planes) but how the Chinese have stolen technology relating to engine treatments and engine heat reduction, the F-35’s fire-control array radar system and methods used by the turbine to cool gases, among other secrets that aid the F-35’s stealth capabilities. Beyond the J-20, China is developing additional stealth fighters. A second fifth-generation fighter, the J-35, is closer not just in name but role to the F-35, being a multirole aircraft. It has a naval variant designed for the PLA Navy. This has not yet entered frontline service with either the PLAAF or PLA Navy.

In December 2024, a new stealth aircraft was seen flying over populated areas in China, which has been termed the J-36, a sixth-generation fighter. These planes are optimized for even greater stealth, with better radar and targeting systems to deliver payloads at even greater distances and look more similar to a B-2 bomber than an F-16. This aircraft may be some years off entering frontline service, but if it can utilize greater stealth and “loyal wingman” or Collaborative Combat Aircraft (CCA) controlled by the aircraft rather than pilots located back at bases, which is an ambition of sixth-generation developers, this will pose a fearsome threat to adversaries. Although the USAF has reportedly flown a demonstrator of its Next Generation Air Dominance (NGAD) jet and the US Navy is working on the F/A-XX Program, given the secrecy and cost of these programs, China may be ahead in getting these vehicles into frontline units. While cost estimates for the J-36 are not yet available, the NGAD fighter is expected to cost in the region of $250 million per plane, a staggering upfront cost that implies considerable maintenance costs.

A J-36 sixth generation fighter jet, seen over Chengdu, Sichuan province.

China is one of the only three air forces to retain a strategic bomber force in the guise of 209 H6 bombers. Like the B-52 bomber still flown by the USAF, the H6 was first produced in the 1950s, being a copy of the Societ Tu-16, but has not been upgraded nearly as extensively as the B-52. The latest variant, HN-6, was introduced in 2019 and can carry DF-21D, used by the Peoples Liberation Army Rocket Force as an advanced anti-ship weapon. The prior variant, the HK-6, is capable of carrying nuclear-tipped cruise missiles, making it a part of the Chinese nuclear triad, but with a combat range of less than half a B-52, the PLAAF’s limited air-to-air refueling and limited numbers make it one of the less critical components of the Chinese military. Many of the potential missions given to an H6 crew could be tasked to the PLARF instead of risking a crew, but their continued operation tracks the overall ambition of the Chinese military to give as many options to political leadership for delivering strikes as possible.

Its strategic airlift component is a small but steadily growing element of the PLAAF’s fleet. The Y-20 transport aircraft, which the Chinese Air Force has 67 (including air-to-air refueling variants), is comparable yet inferior to the USAF C-17 Globemaster with a Y-20 cargo capacity of 60 metric tons, less than the C-17. The USASF has more than three times the number of C-17s than the PLAAF’s Y-20s, and the PLAAF has no competitor to the massive C-5M Super Galaxy strategic airlift vehicles (with a 122 metric ton capacity) the USAF possesses. Although the number of aircraft and the total cargo capacity is far smaller than the USAF fleet, the Y-20 was only introduced in 2016. The PLAAF Airborne Corps, an airborne rapid reaction force that is technically under the administration of the PLAAF but reports directly to the Central Military Commision (which is why it has not been discussed in this post), would make use of these aircraft if they were to parachute into a combat zone. An upgraded version of the Y-20 was first seen in 2024, and the PLAAF is currently prioritizing acquiring specialized versions of the aircraft to enable more air-to-air refueling (YY-20) and Airborne Warning and Control System (KJ-3000) capabilities.

The PLAAF operates multiple AWACS aircraft. The KJ-3000 is its most advanced system, while the KJ-2000, KJ-500, and KJ-200 serve in supporting roles. A carrier-based variant, the KJ-600, operates from China's aircraft carriers. AWACS is vital to modern airspace battle management, and these planes are airborne nerve centers - spotting threats, directing fights, and keeping commanders plugged into the battlespace in real-time. Any air force involved in directing fighter jets in strike missions or maintaining air superiority requires AWACS to coordinate the battle effectively. Although the number of aircraft is approaching parity with the USAF, the PLAAF is inexperienced at doing this in real-life scenarios.

The PLAAF has operated UAVs since the 1950s, beginning with Soviet-made Lavochkin La-17 radio-controlled target drones. Modern UAVs are capable of doing much more than just operating as flying targets for pilots or missile defense units, and the PLAAF has kept pace with US efforts to develop unmanned combat and reconnaissance drones. Most Chinese UAVs were initially reverse-engineered from foreign designs. In the case of Wu Zhen 5, a reconnaissance drone developed in the 1980s, it was reverse-engineered from captured US AQM-34 Firebee drones in the Vietnam War, but the more advanced ASN-301 anti-radiation loitering munition (designed to attack enemy radar) was effectively directly copied from Israeli Harpy drone, which China acquired in 1994. The 2025 force includes the GJ-2 (Wing Loong II), a combat and reconnaissance drone akin to the MQ-9 Reaper, capable of launching munitions up to 480kg in weight. It has been reportedly used in combat in Libya (by the UAE), Nigeria, Sudan, and Pakistan. A more advanced model has been showcased at air shows within China, but exact numbers on how many of these drones the PLAAF are not publicly available. Other UAVs, like the WZ-7 (Soaring Dragon) and BZK-005 (Giant Eagle), are primarily reconnaissance drones, that have been used to observe Taiwanese units. The PLAAF has also been working on uncrewed combat air vehicles (UCAV) designed to fly independently of ground-based pilots or linked to sixth-generation fighters, which the USAF abandoned in the early 2010s to focus on Collaborative Combat Aircraft.

As its mission is to safeguard Chinese airspace, the PLAAF is responsible for most of the PLA’s ground-based air defense, a system similar to the Russian military but unlike the US military, who delegates most of its air defense requirements to the US Army. To achieve this mission, the PLAAF is equipped with various missile defense systems, including radar, transportation, and interceptor missiles. The longest-ranged, capable of covering across the Taiwan Strait and the western portion of the island itself, is the HQ-9, first developed in the 1980s. The PLAAF has at least 260 HQ-9 launchers. With a slightly shorter range but domestically developed, the PLAAF operates at least 130 HQ-22 launchers, comparable to the US Patriot Missile System used by American allies in the Pacific. As the world has seen in Ukraine, GBAD systems are vital to defend against adversary's missile and air attacks. In a conflict, the PLAAF would task its GBAD systems to throw up a shield under which its own units can operate and blunt the effectiveness of enemy air power and missile attacks.

A HQ-9 ground-based mobile air defense system.

Training, Corruption, and Inexperience: The PLAAF’s Biggest Weaknesses

Like all the other elements of the Chinese military, the PLAAF has not fought a war for decades. No amount of training can adequately compensate for the institutional knowledge and personal experience that fighting and conducting operations for real can bring. China’s private aviation sector is limited, so pilots have to be trained to fly with usually no prior experience. Chinese pilots take four years to graduate from one of three training academies and then spend a further year of advanced combat training when they are assigned to a squadron. With minimal use of simulators, students are reliant on JL-10 training aircraft, which do not fully prepare them for the more advanced J-20 fighters the PLAAF is hoping to equip the majority of its air force with by the 2030s. Chinese pilots are not exempted from political education and oversight all Chinese military personnel have to participate in, exchanging valuable training or relaxation time for learning about the intricacies of Xi Jinping thought, an experience that will not change as long as the Chinese Communist Party rules China,

Chinese flight academies graduate about 400 pilots a year, whereas the USAF produces 1350 annually after only a two-year training program. The bottleneck in pilot graduation will continue to be an issue, even as some PLAAF academies attempt to cut the four-year program to three. China has hired former Western military pilots to help train the PLAAF in advanced techniques and to glean more information about how Western militaries operate, but this practice has been noticed, and individuals participating in these schemes face severe criminal sanctions for doing so. Having attempted to do this suggests the PLAAF's confidence in its own training regimes and pilots is deficient. China is not allowed to participate in Western bilateral or multilateral international exercises, so exercises primarily take place with the Russian air force. The PLAAF has been able to exercise in the past with the Pakistani, Turkish and Thai air forces, but these exercises require US permission to go ahead.

Corruption is pervasive within China, and the PLAAF is no different. Stories involving corruption leading to PLA Rocket Force missiles being filled with water instead of fuel were nonsensical, but siphoning aircraft fuel to cook hotpot is more plausible. Senior PLAAF officers have been removed (Ding Laihang, a former commander of the PLAAF) on corruption allegations, as have members of the Chinese aviation industry. Tan Ruisong, the former chairman of the Aviation Industry Corporation of China, which manufactures J-20 fighters, was accused of taking enormous bribes and sexual misconduct.

Can the PLAAF Fight and Win?

The immense resources poured into the PLAAF have one overriding objective - to constitute a force capable of defeating the US Air Force in a fight between China and a US ally or Taiwan, which the US currently gives an implicit guarantee. In this hypothetical engagement, it is not just the forces of the PLAAF who would be fighting the USAF, and the USAF would not be the only force that could disrupt Chinese operations. Just as the PLA Navy would be able to shoot down USAF jets using naval surface-to-air missiles, US submarines could launch cruise missiles aimed at Chinese radar or command and control systems. While the PLA Rocket Force has built up a sizeable arsenal of ballistic missiles to destroy air defenses, radars and runways in Taiwan, the PLAAF would have to keep the USAF not only out of the airspace around Taiwan in the event of a conflict but also defend installations closer to US bases in South Korea and Japan.

If the US and China went to war over Taiwan, South Korea and Japan would likely allow the Seventh (South Korea) and Fifth (Japan) US air forces to operate from bases there, which China could not attack unless it was willing to risk war with those countries in addition to Taiwan and the US. In addition to the roughly 700 fourth- and fifth-generation fighters that South Korea and Japan possess, this would also bring in these American allies' naval and land forces. Although China could destroy these air bases and significant amounts of US personnel and equipment, it would almost certainly mean that the US would feel free to operate from Taiwan itself and send troops to defend the island from an imminent invasion. The US can swiftly relocate F-35, F-16 and other air assets to the Western Pacific, meaning that although the strength of the USAF Pacific is currently only a few hundred fighter jets, this could very quickly (within days) become a force of over 1000 fighters, with B2 stealth bombers available for strikes on targets within China. Chinese leaders may decide that an air war with the U.S. is preferable to attacking U.S. bases in Japan, South Korea, or Guam. If so, the PLAAF would need to be far better equipped than it is today.

An air war is not just about the number of fighters an air force possesses. The PLAAF would not be fighting a war isolated from other elements of the Chinese military, but it is a part of a broader force designed to achieve tactical and strategic objectives. Its mission in a conflict is to deliver “kill chains” (detecting, identifying, tracking, engaging, and destroying a target) from the air, and to disrupt the kill chains of the enemy.

It does have advantages over the US - its own munitions production is far faster and cheaper than the US (currently, the US will run out of munitions within weeks), it has a sophisticated and considerable force of ballistic missiles to destroy Taiwanese defenses, and a far shorter distance from which to fight. The US and its production problems with producing munitions for its air, sea, and land forces face far higher purchase and upkeep costs for its aircraft. As previously mentioned, with an approximate upfront cost of $300 million for an NGAD jet (this may be an underestimate), the USAF may find itself stretched thin to afford the 200 sixth-generation fighters it thinks it would need it would need to maintain supremacy over the PLAAF.

A computer-generated image of what the USAF NGAD may look like.

This expensive problem is made worse as the US air-to-air refueling fleet is increasingly old and in need of replacement. The mainstay of the fleet, the KC-135 Stratotanker, was first introduced in the 1960s, and although the KC-46A Pegasus is gradually replacing it, the unit cost is $287 million. To replace the whole fleet with KC-46A Pegasus would cost in the region of $51 billion. The US also needs to replace its E-3 Sentry AWCAS aircraft, which have an average age of 45 years, with 28 Boeing E-7A Wedgetail planes, which currently cost over $1.2 billion for each aircraft. Due to cheaper labor, energy, materials, and industrial espionage, Chinese production costs are very likely lower than those of comparable US aircraft, although this can’t be confirmed as Chinese military spending data is not as readily publicly available as US procurement programs.

Furthermore, Chinese air-to-air missiles, specifically the PL-15 and PL-17, (which has a range of 400km, meaning aircraft flying 80km from the Chinese coast could therefore shoot down planes over Seoul). The PL-17 has been in service since 2022, and the US has only introduced the comparable AIM-174B in 2024. The US is hoping to expand its missile production (for all parts of the military), recently awarding a $3.5 billion contract to Lockheed Martin to produce more extreme-range missiles, but this pricey contract will only increase production by 380 missiles a year. China can make more, at a lower cost.

If the US wants to deter China even as it grows its air force, it needs to take advantage of cost asymmetries and make the PLAAF face the same difficulties it would face in conducting air attacks in China. This would require equipping allies with more advanced GBAD. Taiwan must purchase far more air defenses to blunt attacks from the PLA Rocket and Air Forces. The PLAAF will likely use its growing arsenal of drones for diversionary or speculative attacks to whittle down the number of interceptor missiles, so US or allied laser defense systems should be made available to the Taiwanese military. The USAF faces stark choices on where to direct its resources best, and for the first time since the end of the Cold War, is facing an industrial and military competitor who can outproduce and potentially outspend it.

Conclusion: The U.S. Still Has the Advantage - For Now

China’s willingness to invest significantly in its military capabilities is unlikely to cease. Although the PLAAF may be lagging in deploying its most advanced units compared to the PLARF and PLAN, China’s massive production capability will mean it can continue to deliver advanced jets and drones. Even if these are not as qualitatively good as US-made aircraft at the fifth generation, by building more sixth-generation fighters, investing in CCA and UCAV, and developing better coordination with other PLA units, the PLAAF will be in a good position to challenge the US. Once these objectives are achieved, the PLAAF may turn to compete with the USAF’s global reach. Although the PLAAF may miss Xi Jinping’s 2027 deadline of delivering a first-rate military, with enough time to deliver hundreds of J-20 and more advanced planes, plus a more robust air defense network, will mean the PLAAF is able to defend Chinese airspace against the US, replace losses in combat and pose a significant threat to the ability of the USAF to disrupt and defeat a Chinese invasion of Taiwan.

Mitsubishi Heavy Industries (MHI) is one of the core groups of Mitsubishi, a Japanese conglomerate that still builds many of the pillars of a modern advanced economy. Although they share a name with MUJF and Mitsubishi Corporation, they are not jointly owned or operated. Despite the founding family being stripped of its ownership after the conclusion of the Second World War and the company being broken up, MHI has managed to survive and now flourishes in producing gas turbines for electricity generation. MHI is also one of the leading pursuers of the Japanese goal of making hydrogen a core fuel source for industrial civilization. Although the dream of hydrogen displacing fossil fuels is unlikely, MHI will reap the benefits of growing energy demand from increased data center power demand and efforts across the Western world to electrify energy usage, as natural gas is the only realistic generation source that can be built quickly and without the intermittency problems of variable renewables. 

Founded as a shipbuilding company, MHI continues to produce high-quality naval vessels for the Japanese Navy on budget, on time, and at far lower cost than comparable US vessels. As the largest defense manufacturer in Japan, MHI is key to Japan’s quiet efforts to expand its military forces and capabilities. Additionally, as the premier Japanese space company, building rockets and satellites and having a history of building civilian nuclear reactors, MHI is the prime candidate to develop a Japanese nuclear weapon program if a change in the security situation pushes Japan to change its policy, especially if war breaks out in the Taiwan Straits. 

Defense 

MHI played a significant role in arms manufacturing for the Japanese Empire during the Second World War, building the famous Zero A6M fighters for the Imperial Japanese Navy (Nakajima and Kawasaki primarily built aircraft for the Imperial Japanese Army; Japan did not have a dedicated air force in WW2) and the battleship Mushashi, which, along with her sister ship Yamato, were the largest class of battleships ever built. After the conclusion of the war, Mitsubishi was split into three companies. With the pacifist constitution enforced on the country by the United States, Mitsubishi’s defense-related manufacturing looked to be at an end. However, with the outbreak of the Korean War and the emergence of a communist threat to American allies in East Asia (namely the Soviet Union, China, and North Korea), Japan was allowed to expand its military capabilities under the guidance of American advisors and defense manufacturers. Japan would not be allowed to develop its own top-tier platforms but was allowed to build American planes, artillery pieces, tanks, and ships. 

The first Japanese built F35-A fighter jet.

Until 2014, Japan restricted its military exports, limiting MHI's incentive to invest in developing military hardware as it could only sell to the Japanese Self-Defense Force (JSDF). Growing tensions have spurred two major policy changes in Japanese defense: the 2015 Legislation for Peace and Security allowed Japan to develop defensive capabilities concerning a foreign contingency, meaning Japan could begin to prepare for the fallout from a potential invasion of Taiwan and possibly support the US in intervening. In 2022, after the Russian invasion of Ukraine, the Kishida administration released a series of national security strategy documents, including a plan for a defense build-up program and an ambition to raise defense spending to 2% of GDP by 2027 and giving Japan the third largest defense budget in the world. Although Japan has a history of limited exports and significant American arms purchases, MHI is well placed to take advantage of this increased funding, primarily spent on offensive missiles, air defense, and unmanned intelligence, surveillance, and reconnaissance drones. MHI will doubtless be contracted to build AEGIS-capable ships as the Japanese Maritime Self-Defense Force (JMSDF) requirements increase from eight ships to ten (AEGIS is a missile defense system) and is already working on a new vertical launch missile system for the JMSDF. Japan’s defense build-up program will likely open up further opportunities for increased defense manufacturing for MHI, especially given the strain on the U.S. defense industrial base. 

For Japan's air force, the Japanese Air Self Defense Force (JASDF), MHI built McDonnell Douglas F4 jets under license in the 1980s, F2 jets in the 1990s, and 213 F-15J air superiority fighters under license from Lockheed Martin from 1981. This partnership has continued, with MHI responsible for assembling 38 of the 42 F-35A fighters the JASDF has currently ordered. F35A fighters cost Japan an average of $82.5 million, with the acquisition program costing over $23 billion. This high cost is partly why  Japan joined the United Kingdom and Italy in the development of the Global Combat Air Programme (GCAP), a sixth-generation fighter jet also known as Tempest, as a cheaper alternative to the US Air Force’s Next Generation Air Dominance program. GCAP is designed to be less expensive and also ensure the UK, Japan, and Italy can continue domestically producing advanced fighter jets, as the US refused Japan access to its F-22 stealth fighter. The GCAP is scheduled to test a demonstrator in 2027. Although the exact workshare is not yet available, Japan is funding 40% of the development costs. MHI will likely lead Japanese involvement while BAE Systems coordinates the British effort. This also includes Rolls Royce, which will probably build engines for GCAP. 

MHI is not assembling F35B short take-off and landing capable jets for the JMSDF, which are being purchased from Lockheed in the $23 billion F35 deal. These jets exemplify the JSDF's “speak softly and carry a big stick” doctrine. Although Japan has a pacifist constitution and its armed forces are described as self-defense forces, it has one of East Asia's largest and best-equipped militaries. The F35B variant is used by the British, Italian, and US Marine Corps to operate from aircraft carriers, which Japan officially do not possess. However, its Izumo class “Helicopter Destroyers” are aircraft carriers in all but name and are being adapted with more robust flight decks to operate F35B jets, giving the JMSDF two small aircraft carriers that can carry a total of 56 aircraft.   

Along with Kawasaki Heavy Industries, Japan Marine United, and IHI Corporation, MHI is one of Japan's most important shipbuilders. Of the JMSDF’s 75 major surface vessels and submarines, MHI has built 21 ships and submarines. MHI is currently contracted to build  Mogami-class frigates, at least one Taigei-class lithium-ion battery-powered attack submarine, and an AEGIS-equipped destroyer due for commissioning in 2027. By ordering ships of the same class from different manufacturers, the Japanese Ministry of Defense and JSDF ensure that skills and knowledge are not constrained to a single company that could go out of business, helping to build robustness into a defense industry that a lack of export opportunities has constrained. MHI civilian shipbuilding has suffered from the same pressures other Japanese and South Korean shipbuilders face as the China State Shipbuilding Corporation outcompetes them in construction speed and cost. Despite this, MHI still builds advanced ships, including LNG carriers and roll on roll off car carriers.

JS Mogami built by MHI in Nagasaki

MHI is also working on a deal to overhaul and repair US Navy ships based in the Pacific, as US shipyards have work backlogs over ten years. If successful, this may open up the possibility of MHI building ships for the US Navy, as MHI can build ships like the Kongo more quickly and cheaply than US shipbuilders,  the Kongo being roughly equivalent to Arleigh Burke destroyers that are the mainstay of the US fleet. Unlike US shipbuilders, MHI (and others) bear financial penalties if ships are not delivered on time or over budget. Although this will face furious opposition from US shipbuilders, the scale and speed of the People’s Liberation Army Navy’s fleet expansion may give the US no choice but to buy from allies: thanks to the efforts of the China State Shipbuilding Corporation, China’s navy is now the largest in the world. This may not be as outlandish as it may seem, as MHI is one of only a few non-American companies trusted to build advanced US missile technology also capable of building ships. A potential starting point would be for the US to procure from MHI auxiliary ships that carry fuel and supplies and cancel the proposed Light Replenishment Oiler to free up US shipyard space for combat vessel production and maintenance.  

MHI is the lead contractor for producing PAC3 Patriot missiles, currently building 30 missiles a year. Japan is the only country in the world aside from the US with this capability, but 18 countries worldwide currently use the Patriot system. Given the substantial threat posed by the People’s Liberation Army Rocket Force and its arsenal of thousands of ballistic and cruise missiles, as well as Ukraine's current use of Patriot missiles to intercept Russian missile attacks, increasing the number of interceptors produced every year is vital for US and allied stockpiles. In the US, Raytheon and Lockheed Martin are aiming to increase production from 500 to 750 interceptors a year, and the US hopes MHI will be able to produce around 100 a year, but a shortage of components responsible for end-stage interception currently manufactured by Boeing is limiting this to 60 a year by 2027. With MHI’s technical expertise and US willingness to license overall missile production, it may be worthwhile to contract MHI to produce the components Boeing is struggling with.

MHI also produces the US-designed Standard Missile 3 (SM3) used by the JMSDF and US Navy to intercept ballistic missiles, the Type 12 anti-ship cruise missile, and the ASM-3 supersonic anti-ship missile. The US only produces 12 SM3 missiles annually and expended an entire year's worth of production in defending Israel against an Iranian ballistic missile attack in October 2024. MHI would be a natural option to increase the production of these crucial defensive weapons. As Japanese doctrine now allows the JSDF to possess offensive ballistic and cruise missiles to attack ground-based targets, the Japanese government would be wiser to use MHI to produce these capabilities rather than relying on strained American defense industrial capacity, especially as MHI has experience in building rockets for the Japanese space agency, JAXA.

MHI’s role in producing space rockets has not been trailblazing but rather reflects MHIs usual competence and diligence. It has successfully launched dozens of H-II rockets carrying civilian satellites into orbit. MHI’s rockets have also carried Information Gathering Satellites for the Japanese Cabinet’s Satellite Intelligence Center. MHI’s H3 rocket, which the company spent around $1.5 billion USD developing, failed on its first launch, but subsequent missions have been successful. Although the H3 is uncompetitive compared to SpaceX’s Falcon 9 regarding launch costs, JAXA hopes the cost per mission of the H3 will eventually settle at $50m, around $17 million less than SpaceX. 

A H3 rocket lifting off from the Tanegashima Space Center in Feb 2024

Japan cannot realistically compete in building up as many offensive ballistic missiles as China currently possesses, but MHI is well placed to develop a limited offensive capability for the JSDF. As manufacturers of space rockets and ballistic missiles, in combination with enough stockpiled plutonium to build hundreds of nuclear weapons, MHI would be the natural option to develop a Japanese nuclear capability. Unlike South Korea, whose population supports the acquisition of nuclear weapons or hosting US warheads to defend from North Korean threats, the Japanese public is still very resistant to developing a nuclear capability. Public opinion may change if China was to successfully invade Taiwan. Japan, through MHI, has all the necessary technical expertise and components to develop nuclear weapons rapidly.   

Increased defense spending by NATO countries who are seeking to rebuild their militaries after decades of underinvestment may be an opportunity for MHI to expand defense sales to countries that have previously bought from Western European or American companies, although the countries that are expanding the most, such as Poland, appear to be buying more from with South Korean companies. However, if MHI can build up offensive and defensive missile systems for the JSDF, it will be well-placed to expand its sales across the Western world. MHI’s defense business relationship with the Japanese state appears to be a healthy one. However, MHI’s attempt to develop commercial aircraft proves it cannot do everything the Japanese state aspires to. 

Commercial Aerospace

MHI’s close relationship with the Japanese state, particularly the Ministry of Economy, Trade and Industry (METI), can come at a cost. More than 40 years after Japan last produced commercial aircraft, MHI's attempt to enter the commercial aerospace industry failed, with over 1 trillion yen ($6.5bn USD) spent over 15 years. 

The results of European collaboration to produce Airbus yielded an enormous strategic asset. Breaking into the commercial aerospace industry dominated by Airbus and Boeing is a goal for China, Russia, and, until recently, Japan. More than 40 years after Japan last produced commercial aircraft, in 2002, METI launched a project to develop a small regional jet. The success of the Embraer 145 jet, developed in the late 1980s, had led to over 1200 orders and proved popular for regional airlines and larger carriers using them as short-haul aircraft, gutting the turboprop market that had previously served these routes. Rather than launching into a highly costly and competitive market for widebody aircraft, as Airbus had done when they launched the A300, METI envisioned a smaller, more scaleable project that could entice manufacturers rather than getting them to commit to taking on Boeing and Airbus directly.

In 2003, MHI dispatched a small team to the US to research the potential of a new jet ahead of a METI deadline to present proposals and win 25 billion yen in development funding. From November 2003, MHI began exhibiting smaller-scale models and internal mock-ups, with the concept growing larger and more ambitious with every air show, moving from 20 seats to 90 by the Paris Air Show in May 2005. While MHI continued to show its proposed jet at air shows and won orders from Japanese and foreign airlines, the slow development time and advances in engine technology from Rolls Royce, General Electric, and Pratt and Whitney meant MHI’s jet was soon outdated and less fuel efficient than other aircraft. It first flew in 2015 and began the lengthy flight testing process to secure a type certificate from the US Federal Air Administration that would allow the production and sale of the aircraft to carriers that flew inside the US. MHI underestimated the rigor required to acquire a type certificate, only beginning to hire engineers who understood the process in 2016 after flight testing had already begun. In 2020, MHI suspended the development of the aircraft (renamed the Spacejet in 2019) when it became clear that continued development would cost a minimum of 100 billion yen annually, and that they could not guarantee a delivery date. 

Rather than continuing to develop an uncompetitive and costly aircraft, canceling the Spacejet shows autonomy from MHI with respect to Japanese government policy and was a sensible move for the company. It has not significantly affected the relationship with the government, which continues to rely on MHI to meet future Japanese energy needs.

Energy 

Japan is almost totally reliant on imports of raw materials for industrial use and electricity production. In 2022, gas-fired power stations produced 332.6 GWh out of a total generation of 1012 GWh, or 32%. Unlike many European nations that have chosen to prioritize carbon emission reductions, in Japan, the importance of industrial production and the shutdown of most of the country's nuclear power stations after the 2011 Fukushima incident has meant that coal-fired power stations still fulfill 30% of generation needs. The Japanese government, aware of the global desire to reduce emissions and conscious that Japan depends on imports, has adopted an energy strategy to balance competing needs.

A MHI M501J Series Gas Turbine

Until the Fukushima incident in 2011, 33 nuclear power stations produced 30% of the country's electricity, and the government aimed for this to increase to 40% by 2030. MHI had built all of Japan’s operational Pressurised Water Reactors (PWRs) and was contracted to build two 1500 MWe Advanced PWRs, but this plan has been put to one side. In the aftermath of the tsunami and radiation leak, all of Japan's nuclear reactors were shut down indefinitely. In late 2024, 13 of Japan’s 25 nuclear power plants were operational. MHI is currently developing a 1200 MWe PWR called SRZ-1200 that it hopes to commercialize in the mid 2030s, meaning MHI may miss out on the current renewed enthusiasm for nuclear power driven by global energy security concerns.

After the Fukushima incident, Japan could have reevaluated its energy policy and turned towards intermittent renewables to secure its future energy needs. According to the Global Wind Energy Council, Japan has the potential for around 128 GW capacity for fixed bottom projects in shallow waters and 424 GW for floating offshore wind in deeper waters. As a major industrial company, MHI could have played a role in constructing wind turbines. Although Japan’s location at the heart of four tectonic plates and its vulnerability to earthquakes, tsunamis, and typhoons halted its proposed nuclear expansion, fortunately, Japan did not pursue offshore intermittent wind generation as this infrastructure would be incredibly vulnerable to natural disasters. Japan has also therefore avoided the significant hidden transmission and balancing costs of intermittent wind, which have contributed to increasing energy costs in Britain, Denmark, Texas, and Germany. Instead, the Japanese government reasserted its policy of pursuing carbon capture technology and the pursuit of “green hydrogen” as a fuel source, which MHI puts at the heart of its plans to help countries pursue a low-carbon generation future. 

MHI's main revenues from its energy business come from selling turbines used in gas-fired power stations. In 2023, MHI Power Systems division was the global market leader in selling gas turbines, with a 36% market share, but they also sold 56% of the most advanced turbines, securing 120 orders for their latest JAC (J-Series Air-Cooled) model gas turbines in  Brazil, Canada, Japan, Mexico, Peru, South Korea, Taiwan, Thailand, and the United States. These turbines have a shorter start-up time, can change their power output faster than previous models, and have higher efficiency. The greater the temperatures at which fuel can be combusted, the more efficient the turbine is at converting fuel to power. MHI’s 420MW turbines can also burn a mixture of hydrogen and natural gas, which burns at a higher temperature than solely using natural gas. To achieve these temperatures, MHI had to develop advanced cooling processes and materials to enable the turbines to operate at 1600C. Compared to other models available, MHI claims their J series achieves 64% efficiency when burning a 30% hydrogen mix (and 44% operating on simple cycle natural gas), whereas General Electric’s H class claims a 63% combined cycle efficiency.  

As data center demand for electricity looks to explode over the coming decades (McKinsey estimates that data center power demand will grow from 25GW in 2024 to 80GW in 2030, and this may be an underestimate), and nuclear power is likely to remain very highly regulated and expensive, demand for gas generation particularly in the US is likely to grow even in a world where intermittent renewable supply increases. However, as grids in California, Texas, and New York are wracked with instability from adding too much variable energy sources, many data centers will be built off-grid and require their own electricity sources. Some data centers may be built with intermittent renewables in combination with battery backup, but the power requirements of larger data centers may outstrip the size of batteries. All of the above should mean that if MHI can continue to build efficient gas turbines, they will play a crucial role in powering future economic growth.

MHI’s pursuit of “green hydrogen” is more speculative but is a core component of Japanese energy transformation. Major Japanese car makers such as Toyota and Hyundai have hoped that hydrogen fuel will become a primary fuel source for automotive transport for decades, but in 2023, hydrogen fuel cell cars sold 0.14% of the number of Battery Electric Vehicles (BEVs), and approximately 0.019% of all cars sold worldwide. Cost reductions and far greater uptake of battery-electric vehicles mean Japanese car manufacturers' bet on hydrogen fuel cell cars is unlikely to pay off.

Hydrogen does have some advantages as a fuel source compared to fossil fuels or intermittent renewables. It only emits water when combusted, does not suffer from intermittency problems inherent in wind and solar, and is already commonly produced in industrial processes to make chemical products, such as ammonia and jet fuel. However, as the smallest molecule that exists, it is prone to leakage, and given it is exceptionally flammable, it is challenging to transport. Worst of all, for widespread adoption, it uses more energy to produce than the energy the resulting hydrogen fuel stores. Cracking how to make hydrogen cheap enough to be a widely available fuel source would be a major benefit for the climate and reducing reliance on fossil-fuel producing countries.

To produce green hydrogen (hydrogen can be produced by reacting natural gas with steam at high temperatures or by using coal, which produces significant carbon emissions), water must be split in an electrolyzer, producing hydrogen and waste oxygen that can be released into the atmosphere.

MHI has built the Takasago Hydrogen Park facility to pursue research into hydrogen-fired gas turbines, hydrogen production and storage facilities. It boasts an alkaline electrolyzer with a production capacity of 1,100Nm3/h, which could produce 9,636,000 cubic meters (Nm3) of hydrogen a year. For reference, a typical gas-fired power station of 1.2MW running at 80% capacity consumes over 10 million Nm3 of natural gas per day. MHI is also pursuing the viability of using nuclear power to produce hydrogen. A 30MW research reactor in Ibaraki Prefecture is being used in a project with the Japanese Atomic Energy Agency to explore the potential for nuclear-generated green hydrogen. MHI will have to invest significant amounts of capital to see any potential return on the project, but if it is successful, it could radically change Japan’s dependence on foreign energy suppliers.

Conclusion

MHI stands as a testament to Japan's industrial prowess and technological innovation. Its diverse portfolio spanning defense, aerospace, energy, and shipbuilding has allowed it to play a crucial role in shaping the global landscape. MHI continues to demonstrate resilience and adaptability in a country with a declining population, weathering significant disruption to its nuclear energy business and previous constraints on exporting weapons.

MHI is well-positioned to capitalize on emerging opportunities in growing electricity demand, both with its existing gas turbine business and the more speculative pursuit of cheap hydrogen. If nuclear power becomes easier to build with a reduction in the amount of regulation in the US and Europe, MHI is a strong contender to export reactor designs and begin to compete with KEPCO, the South Korean energy company building cheap reactors in the UAE.

In the defense sector, if American defense planners are truly serious about building up forces and weapons stockpiles to effectively contain Chinese ambitions, the opportunities for MHI are staggering. Even if this does not come to pass, MHI will be key to strengthening the JSDF and keeping peace in the region.

Flag of the PLARF - the yellow represents the flare of a missile, the characters refer to the founding date of the PLA.

China’s People's Liberation Army Rocket Force (PLARF) is a unique military institution. It is responsible for the land-based arm of Chinese nuclear forces, currently larger than the naval and air nuclear arms, and the world's largest conventional ground-based missile force. It possesses hundreds of nuclear-armed ICBMs in silos and mobile launchers. As well as cruise missiles, it is equipped with thousands of conventionally armed ballistic missiles with ranges from 300-13,000km that can accurately target and potentially overwhelm missile defenses in Taiwan, Japan, South Korea, and even US military bases in the Pacific. The PLARF has enough anti-ship missiles to attack and overwhelm the defenses of every US ship currently based in the region.

When the PLARF was created in 1966, it was known as the Second Artillery Force. It was mainly responsible for China’s small number of nuclear weapons, which Chinese leaders only envisioned as a deterrent to nuclear conflict. After Xi Jinping took power in 2012, he drove the expansion, modernization, and increased lethality of China’s rocket forces and reformed the SAF into PLARF in 2015. Under his premiership, the PLARF has transitioned into a full People’s Liberation Army branch, equivalent to the Army, Navy, and Air Force, and begun a worrying expansion of nuclear weapons.  

The PLARF is critical to Xi’s transformation of the Chinese military into a force capable of challenging the foremost military in the world—that of the United States. The PLARF is crucial in enabling a successful invasion of Taiwan, by far the most strategically important operation China’s armed forces must plan for. While it is still possible to counter the impressive missile force China has assembled, this will require a change of thinking Taiwan currently lacks and resources the US is hesitant to provide.

Second Artillery Force

The People’s Republic of China (PRC) first detonated an atomic weapon on October 16th, 1964, nearly 60 years ago, and quickly demonstrated a hydrogen bomb two years later. Mao Zedong had felt it necessary to build nuclear weapons after President Eisenhower threatened to use nuclear forces against China in 1955 during the First Taiwan Straits Crisis, and because he felt the Soviet Union would also engage in nuclear coercion as the two communist nations’ relations worsened throughout the 1950s and 60s. Mao and subsequent Chinese leaders never thought nuclear weapons were inherently valuable as a means of threatening other nuclear powers. As such, China adopted a “no first use” policy and did not significantly invest in the nuclear component of the Second Artillery Force, created in 1966. Until the 2010s, the SAF only had 18 ICBMs in silos and 12 mobile launchers with missiles that could reliably reach the mainland United States, kept at a low state of readiness. 

Chinese military engineers and scientists raising Mao’s little red book in celebration of a Chinese nuclear test.

China's nuclear warhead stockpile was equally reserved, only numbering around 150-250 warheads from 1974-2010, compared to the roughly 16,000 in the Soviet stockpile in 1974. The SAF received a small amount of investment relative to the full branches of the People's Liberation Army (PLA). China did not deploy the first generation DF4 liquid-fueled ICBM until 1975. This missile was not a Soviet design, although the first Chinese ballistic missiles were built with Soviet assistance. While ICBMs can be either solid or liquid-fueled, solid-fueled missiles are preferred  for weapons purposes because they can be fired faster (even a modern SpaceX Falcon 9 rocket takes 35 minutes to fuel), are more reliable, can be stored for longer, and are less unstable. A liquid-fueled US Titan II missile exploded in its missile silo in 1980, killing one technician, injuring 21 others, and throwing its 740-ton silo door and nine-megaton warhead hundreds of feet away. 

While the SAF’s nuclear capabilities were only intended to deter nuclear powers, it started to build up its conventional ballistic missile capabilities, becoming responsible for conventional missile strike operations in 1993. The development of a large conventionally armed ballistic missile arsenal was partly due to the desire to research and develop more effective means of delivering nuclear payloads, but it was possible because China did not sign the Intermediate-Range Nuclear Forces Treaty. This 1987 agreement between the USA and Soviet Union limited missile development with ranges between 500-5500km. The SAF’s arsenal allowed the PRC to threaten attacks beyond the capability of its outranged army and outclassed air force. However, US defense experts considered the SAF an object of secondary importance. In the annual Military and Security Developments Involving the People’s Republic of China Report for 2014, the SAF merited discussion for three paragraphs out of 96 pages. 

Transformation under Xi 

As of 2024, the PLARF has over 300,000 men split into six main “bases” (numbering 61-66) equivalent to a corps-level command, plus three additional bases responsible for storage and handling of China’s nuclear warheads (Base 67), the construction and maintenance of PLARF sites and missile silos (Base 68) and the testing and training of the PLARF (Base 69). The numbered bases from 61-66 each have a geographical area of responsibility. Base 61 corresponds to the southeastern area of China opposite Taiwan, Base 65 covers South Korea and Japan, and Base 64 and 66 are located in central and western China and hold long-range ICBMs.  

Within the Base units, the PLARF is split further into brigade-level units, which, depending on the missile type, have between 12 and 36 launchers per brigade. Each brigade holds a single kind of missile type, so the 611 brigade of the 61st base is thought to be equipped with DF-26 IRBM with a range of 3- 4,000km, enough range to cover US military bases in Guam, Japan, and South Korea. Brigades also have enough equipment, in the form of mobile launchers, cranes, carriers, and support vehicles, to enable the units to move within China and fight independently of one another. The PLARF also has two universities, the Rocket Force Engineering University in Xi’an, Shaanxi, responsible for training the majority of PLARF officers (akin to West Point for the US Army), and the Rocket Force Command College in Wuhan, Henan, which appears to offer further professional military and engineering courses for officers. The PLARF has 41 brigades, over 1000 mobile launchers, and over 2200 missiles deployed, with more launchers and missiles currently being built. It is hard to estimate the production rate of the various missiles that manufacturers such as the China Aerospace Science and Technology Corporation (which builds all of the PLARFs ICBMs) and the China Aerospace Science and Industry Corporation (which describes itself as the largest missile manufacturer in China) are capable of, but it is significantly greater than US manufacturing capability - potentially up to six times faster than US procurement capacity. 

Among the varied arsenal of the PLARF, the DF15, DF17, DF21, and DF41 are particularly relevant to Taiwan and any US intervention. “DF” refers to Dong Feng or East Wind, but the numerical categorization following DF does not refer to any particular convention or increase in effectiveness - DF17 is a hypersonic glide vehicle, for example, while the DF5 is an ICBM. The DF15 is a mobile launched short-range surface-to-surface missile family first developed in 1988, which has seen extensive testing and upgrades, including a “bunker buster” variant, the DF15C, designed to attack hardened bunkers. In the case of Taiwan, which aims to shelter its F16 fighters in the event of an outbreak of conflict with the PRC, the DF15 is a significant threat. The missile has a 500 kg warhead, and the PRC is estimated to produce 50 of these missiles a year. 

The DF17 is a missile designed to deploy the DF-ZF hypersonic glide vehicle traveling over Mach 5 to a target up to 1600 km away. Due to its astonishing speed, the DF-ZF poses significant challenges to existing missile defense systems on US ships and ground installations. Although the DF17 has been tested at least nine times since its development in 2014 (with one failure) and is a potent threat, it is not currently thought to be able to attack moving targets such as aircraft carriers. It only makes up a small proportion of PLARF forces, as only two of the PLARF 41 combat brigades are equipped with DF17s.

DF21 is a road-mobile solid fuel missile family first developed in 1991 with a maximum range of 1800km that can be fired with only a few minutes of preparation time, allowing brigades equipped with it to maneuver to avoid potential counterfire. One variant, the DF21-D, is the first anti-ship ballistic missile, becoming available to the PLARF’s predecessor in 2012. The DF21-D is China’s fastest medium-ranged ballistic missile, reaching speeds of up to Mach 10 in the terminal flight phase, posing a significant challenge to the AEGIS missile defense system the US Navy uses to protect its ships and carrier battle groups. Although deemed the “carrier killer” by US defense analysts, a single missile would not be enough to cripple a carrier battle group, but ballistic missiles such as this are not intended to be used alone. 

In a conflict between China and the US, the PLARF would likely use dozens of these missiles to overwhelm US Navy missile defenses, ideally cooperating with attacks from the PLA Air Force and PLA Navy’s missiles and submarines. Although Base 61 (the PLARF unit responsible for Taiwan) is not thought to have a brigade equipped with this missile, Base 65, closer to Japan (where the US 7th Fleet is based), does have at least one brigade equipped with DF21-D. The US Navy has recently shown that it can shoot down ballistic missiles fired at its ships by the Houthis in Yemen. Still, although these attacks have been sustained over several months, the US Navy has not faced a saturation-style attack of dozens of anti-ship ballistic missiles at any one time. Even with the relatively low scale of attacks, the US Navy has spent interceptor missiles (at the cost of $5m per unit) to such an extent it is now recertifying older missiles to rebuild stockpiles. War does not obey the rock-paper-scissors logic of a computer game and DF21-D threat does not render a carrier useless; but it would likely force it to operate further away until Chinese air defenses are degraded to such an extent that US forces could strike and suppress PLARF units, allowing the US Navy to move closer to any hotspot. In the case of an invasion of Taiwan, the more time the PLA can buy for a successful operation, the greater the chance of outright victory or Taiwanese capitulation, if it becomes clear the US is unable or willing to bring its forces to their aid.

DF21D missiles on parade in Beijing.

Lastly, the DF41 is a road-mobile ICBM capable of launching nuclear and non-nuclear payloads up to distances of 15,000km, the range of an Airbus A350 jetliner. The DF41 was initially conceived in 1986, but the DF31 missile superseded the DF41’s development. The DF41 was tested seven times within China from 2012 to its deployment in 2019, but in September 2024, the PLARF launched a DF41 missile over the Philippines into the sea near French Polynesia, a test it claimed was successful. This successful test firing, combined with the nuclear warhead capability of the DF41, potentially demonstrates the ability of the PLARF to launch a nuclear strike at a sea-based target. However this is very unlikely, particularly if the PLARF can disable and disrupt US units seeking to enter into battle against the PLA using conventional weapons alone. 

Chinese nuclear doctrine has been historically based upon the “no first use” principle. China’s small stockpile was envisioned as a retaliatory capability, and unlike the US, China has never publicly threatened the use of nuclear weapons. Since 1945, the US publicly threatened to use nuclear weapons twice in the Korean war, once during the 1955 Taiwan straits crisis, and in 1991 Secretary of State James Baker handed a letter from President G W Bush to the Iraqi foreign minister communicating an explicit threat of nuclear retaliation if Iraq used chemical or biological weapons on US troops. The US to this day reserves the right to use nuclear weapons first. Although the no-first-use policy remained Chinese policy after  Xi Jinping assumed power in 2012, the transformation of the SAF into the PLARF has been accompanied by a growing stockpile of nuclear weapons and delivery systems. China now possesses 500 operational nuclear warheads, and the US expects this to grow to 1000 by 2030.

PLARF delivery systems include more nuclear-capable DF26, DF31, and DF41 mobile launchers, as well as more missile silo sites being built in China’s eastern regions. Some media reports suggested these sites were not functional or suffered from faulty construction, but any prudent US nuclear strategy must assume they are operational. In a full-scale nuclear war, even if these sites are not functional they would have to be targeted, drawing resources away from other targets and potentially allowing more mobile forces to survive and retaliate. Other media reports concerning the PLARF have focused on corruption, the potentially poor state of PLARF equipment, and their ability to maintain it. One story claimed that PLARF missiles had been filled with water instead of fuel, but this report is based only on one defector's claims and remains unconfirmed. In any event, the vast majority of the PLARF missiles are solid-fueled, meaning this would have only affected a small number of China’s missiles even if true. Although it is difficult to assess the true potential of the PLARF’s equipment, and Russia’s invasion of Ukraine shows how poorly international assessments of military preparedness and utility can turn out, when leader of the US House of Representatives Nancy Pelosi visited Taiwan in 2022, the PLARF fired 11 missiles around the island to demonstrate its readiness. Unlike in 1996 when the SAF launched missiles during the 2nd Taiwan Strait Crisis, none of the missiles malfunctioned. 

Corruption in the PLARF and PLA more generally continues to be a pervasive issue, and Xi has fired several serving and former PLARF commanders since beginning a corruption purge within the PLA in 2023. Corruption can mean not just selling or failing to maintain equipment, which has been so devastating to Russia since 2022; but also the selling of promotions, leading to incompetent officers in charge of units. However, outside of the PLA China is a deeply corrupt country, and although officials and officers may be charged with corruption, it is not clear if that is the actual reason they have been removed from their postings, or if they are being removed due to a lack of (real or perceived) loyalty to the Chinese Communist Party and to Xi. Continually removing officers, although embarrassing, may be an ongoing process to stamp authority on military units and better prepare them for conflict. 

Dealing with the PLARF

The impressive growth of the PLARF should also be considered within the context of the upgrades the PLA, PLAN, and PLAAF have received under Xi Jinping. In a conflict with Taiwan or any other neighbor, it would not fall solely on the PLARF to disable, destroy, and suppress an enemy's capabilities, but be a part of a broader spectrum of options the Central Military Commission can call upon to achieve its objectives. However, the PLARF has arguably the most significant potential to deliver blows to critical military and civilian infrastructure. Being responsible for the majority of China’s nuclear forces, it also has a growing ability to deter any US nuclear strike and keep the PLA’s advantages of size and proximity to the conflict zone in play. 

Winning a war is not as simple as launching missiles and blowing up enemy assets, as the US found in Afghanistan and Russia has in Ukraine. The recent Iranian ballistic missile attacks on Israel which involved hundreds of missiles have shown that saturation attacks can be blunted and result in minimal damage if the defender is adequately prepared. However, Taiwan is much closer to mainland China than Iran is to Israel, and would have less time and forewarning of a ballistic missile attack from the PLARF or guided rocket artillery fired by the PLA.

For Taiwan, upgrading its missile defenses must be the absolute priority. Neither Taiwan nor the US can currently win a ballistic missile arms race with China, which has a massive head start and significant future resources it could further dedicate to such an effort. Taiwan’s current missile defenses are wholly inadequate to counter the PLARF or PLAAF. Taiwan relies heavily on its small air force to provide anti-missile and anti-air capabilities, with fewer resources devoted to ground-based air defense and naval-based anti-ship and anti-air missiles. This is partly due to the Taiwanese perception of its air force as an elite, but also because having jets flying around shows the population the airspace is protected during peacetime, despite their vulnerability in a conflict. It is investing heavily in air-to-air missiles (Sky Sword III) and hopes to spend $4.5 billion to acquire new F16 jets. Taiwan should operate with an assumption that the PLARF and PLAAF will attack its air bases and that its small air force will not be able to operate as Israeli, US and British fighters did to provide air defense against Iranian missiles in April 2024.

Taiwanese ground-based missile defense consists of seven Patriot PAC2 batteries, the Avenger Air Defense System, and the Tien-Kung/Sky Bow system, supplemented by Sky Sword 2 and MK 41 Vertical Launch System (VLS) on Taiwanese navy vessels. Like the Sky Sword missiles fielded by the Taiwanese Air Force, Taiwan should assume its small navy would either be destroyed or kept outside the conflict area by PLARF and PLAN assets (if it could sail before a conflict broke out). While the Patriot missile system is a capable system for targeting cruise missiles, UAVs, and short-range ballistic missiles, and Taiwan is currently buying the latest PAC3 GEM system, it is expensive (costing around $4m per interceptor missile)and relatively immobile, taking an hour to set up and shoot. 

The Avenger system is only suitable for defending against slower-moving cruise missiles and UAVs, a valuable asset in defending against an invasion but unable to counter most PLARF missiles. Tien-Kung/Sky Bow III is an indigenously produced missile system designed to intercept aircraft and short-range ballistic missiles, costing about 1/6th of a PAC3 interceptor. Taiwan should seek to massively expand the procurement of its domestically produced Sky Bow III surface-to-air missiles. However, Tien-Kung/Sky Bow cannot intercept DF17 Hypersonic missiles, and the relatively small numbers of launchers in all of Taiwan’s missile defenses and small stockpiles means they would likely be overwhelmed by PLARF attacks, and could not adequately defend against saturation attacks alongside PLAAF and PLA UAVs, missiles and drones. Taiwan should assume that additional stocks of Patriot air defense missiles will be unable to reach the island by air or sea in the case of a conflict. If China and Taiwan were to go to war, Taiwan's missile defenses would quickly run out of missiles and be rendered ineffective. 

Tien-Kung III (Sky Bow III) Surface-to-Air Missile System

All of Taiwan's billions of dollars spent on new fighter jets, tanks, artillery, and ships will be wasted if Taiwan cannot provide adequate air defense that can survive PLARF strikes. Taiwan urgently needs to expand its stocks of air defense missiles and should seek to indigenously produce more effective missile defense to intercept faster and longer-range PLARF ballistic missiles. While the Arrow missile system developed by Israel and the US is expensive, Taiwan needs more interceptors to defend against the PLARF’s more advanced missiles. Ideally, Taiwan should expand its spending on defense to as much as 6% of GDP to build up a robust missile defense capability. By preparing adequate air defenses to absorb PLARF strikes, Taiwan will force the PLARF to spend resources that would otherwise be aimed at the US Navy and air forces coming to Taiwan’s aid. Taiwan's geography, economy, and people should make it incredibly difficult to conquer. If it is not willing to genuinely prepare itself to fight and throw off a potential Chinese invasion, the US should seriously consider if it is willing to fight for a state that does not take its defense seriously. 

The PLARF poses a significant challenge for the US Navy, even before additional Chinese military units enter the playing field. Although US Air Force bomber units could potentially launch strikes on PLARF bases in China, a US fleet sailing to Taiwan would have to operate under the assumption that it will come under sustained ballistic missile attack the likes of which the US Navy has never seen before. The US urgently needs to rebuild its depleted stockpiles of air defense missiles, make more air defense destroyers such as the Arleigh Burke class available for deployment to the Far East, and speed up the development of air defense lasers to neutralize drone threats from the PLAN and PLA to enable the limited surface to air missiles available to destroy incoming ballistic missile attacks. Like Taiwan, the US desperately needs to expand the production of missiles. In helping Israel defend against the October 2024 ballistic missile attack, the US expended an entire year's worth of output of SM-3 ballistic missile interceptors. In a conflict with China, the US would run out of missiles within weeks, if not sooner. 

Conclusion

Xi Jinping aimed to modernize and grow the PLA into a force capable of fighting and winning modern conflicts. The PLARF is possibly the best example of the success of this endeavor. It now possesses thousands of conventional ballistic missiles capable of overwhelming Taiwanese missile defenses to enable an invasion by the PLA and PLAN. Learning from Iraq, Libya, and latterly, Ukraine, Chinese political leadership has learned that without a robust nuclear deterrent, the US and others will intervene in any conflict with a geopolitical adversary, necessitating an expansion of China’s nuclear forces. While more survivable nuclear assets, such as submarine-based ICBMs, are expanding slower, the PLARF has taken on this burden without any notable accidents or failures. The PLARF is so much more capable than Taiwan's missile defenses that the island may choose to submit without the majority of its arsenal even being fired. 

The transformation of the PLARF should be yet another wake-up call that China is preparing to fight and win a conflict. Although the political and economic costs of doing so are possibly too great to contemplate at the moment, the PLARF demonstrates that China is gaining considerable ground and perhaps approaching a once-in-a-generation opportunity to use force to achieve the unification of China under communist rule. 

The China State Shipbuilding Corporation (CSSC) is the world's largest shipbuilder and one of the People’s Republic of China's most vital defense entities. CSSC - a state-owned and directed company - owns the most important shipyards in China designed for the dual construction of military and civilian vessels and controls hundreds of maritime-related companies. It produces bulk cargo, LNG carriers, roll-on roll-off car transport vessels, cruise ships for commercial partners, and increasingly sophisticated military vessels for the People’s Liberation Army Navy (PLAN) and, in 2023, had a revenue of $52 billion USD, placing it on the Fortune 500 Global list.

CSSC has been at the forefront of the rise of the Chinese shipbuilding industry, which now produces more than the two next largest shipbuilding nations, Japan and South Korea, combined. Chinese shipbuilding’s astonishing growth, which from 2000 until 2010 saw Chinese deadweight ton (dwt) output rise 41% annually and its share of worldwide output reach 43.6% in 2023, has been heavily supported through state intervention. Driving this desire to build a modern shipbuilding industry is a politically driven aspiration to increase Chinese influence in international trade, support export-led economic growth, and build sufficient military capability to invade Taiwan and deter or defeat the US Navy if necessary. 

As the primary champion of Chinese maritime construction, the story of CSSC's rise highlights how dominant Chinese shipbuilding currently is. As Chinese naval capacity further increases, the ability of Western naval forces to deter a potential invasion of Taiwan will diminish, increasing the likelihood that Chinese leaders will risk an invasion to fulfill the long-held desire of finally uniting all of China under the leadership of the Communist Party. 

Rise of a giant  

Unlike many of China’s most influential and successful companies, such as Alibaba, BYD, and Tencent, CSSC has always been state-owned. CSSC was originally formed as the Sixth Ministry of Machine Building in 1964 - the seven other ministries included strategically essential industries such as aviation and nuclear). In 1982, the ministry was the first of the strategic sectors to be converted into a corporation as part of defense reforms instituted by Deng Xiaoping. Although the PLAN continued to operate some shipyards, principally for repairs, CSSC was now responsible for essentially all shipbuilding in China but continued to report to the State Council, the ultimate administrative body in the PRC. In 1999, CSSC was broken up into two holding companies to improve the efficiency of shipyards - although both companies remained under state control. After this split, CSSC took a smaller share of shipyards located in the more prosperous Southern and Eastern provinces, including the vast facilities in fast-growing Shanghai, such as the Jiangnan and Hudong Zhonghua, and other yards, including Huangpu Wenchong in Guangzhou and Wuchang in Wuhan. The Hudong Zhonghua shipyard is notable for constructing the first Chinese LNG carrier, launched in 2008 and in 2024, received the largest-ever contract for export LNG carriers with Qatar Energy, worth over $6bn, building on a previous $3bn deal. 

Meanwhile, the newly created China Shipbuilding Industry Corporation (CSIC) was given assets in the northern provinces. It was given ownership of the Dalian shipyard on the Bohai Sea, which converted China's first aircraft carrier purchased from the Soviets (the Liaoning, formally known as the Varyag). It also laid down the PLAN's second carrier, Shandong, China’s first domestically produced aircraft carrier. More importantly, it received the custodianship of the Bohai shipyard in Laidong Bay, which is responsible for building nuclear-powered submarines, assembling six Type 094 ballistic missile submarines when CSSC and CSIC were split. These submarines are responsible for carrying the maritime component of the Chinese nuclear weapons force. Only five other countries - the US, UK, Russia, France, and India can construct nuclear submarines. The Bohai shipyard first launched a nuclear submarine, the Type 091 attack class, in 1974, nine years before the French navy was able to commission its first nuclear attack submarine.

Shandong, China’s first domestically produced aircraft carrier, can carry up to 36 aircraft, including 24 Shenyang J-15 multirole fighter aircraft.

While CSSC and CSIC were separate entities, CSIC received more revenue from constructing military vessels, reaching nearly double CSSC’s revenues from defense spending in 2019 at $12 billion for CSIC. These revenues were driven by a rapid expansion of the PLAN, growing from 216 combat ships in 2005, including aircraft carriers, cruisers, destroyers, frigates, and submarines, to 335 in 2019. Corruption in military contracts is common in China, and issues have plagued the Chinese military as the PLA saw officers routinely buying ranks and selling off logistical supplies. PLAAF personnel reportedly siphoned off jet fuel to cook hotpots. According to US intelligence sources, corruption is so bad in the PLA Rocket Force that fuel for missiles was never loaded but instead replaced with water, rendering the force responsible for the first wave of attacks on Taiwanese military infrastructure in the event of invasion unreliable or even useless. 

Within shipbuilding, corruption tainted the research landscape: institutes operated with incomplete regulations, financial records were shrouded in secrecy, and bribery routinely secured research funding. Publicly funded projects were diverted for private gain, with resources and technology sold off for personal benefit.  This culture of self-interest extended to nepotism, where individuals leveraged their positions to favor family and friends' businesses, all while blatantly disregarding established party rules. At the head of CSIC was Hu Wenming, who became Chairman and Party Secretary. Partly as a consequence of his inability to limit corruption with CSIC and the consolidation of shipbuilding companies worldwide, the CSIC and CSSC merged again in 2019, creating the world's largest shipbuilding company. Hu Wenming was arrested and disappeared from public view in 2020. 

Currently, CSSC has a healthy order book for commercial and naval ships. Demand for LNG carriers has been growing since 2010 as US, Qatari, and Australian export potential increased in response to expanding supply and demand as countries move away from coal; the number of LNG carriers has grown from around 370 in 2010 to 734 at the end of 2022. While CSSC is a relatively new entrant to this market, it currently has the largest orders of any shipbuilder for new LNG carriers, partly due to a $3bn deal with Qatar Energy. Chinese LNG imports are expected to increase as China’s own demand for energy increases.

Rendering of the design of the Hyundai Glovis, a 10,000-unit RoRo ship to be built by CSSC.

CSSC has also received orders for roll-on-roll-off (RoRo) car carriers to export domestic giants BYD, Geely, and SAIC Motors’s electric vehicles worldwide. Although orders may be canceled, Chinese shipyards have potentially 200 orders of RoRo ships until 2036. RoRo vessels are notable because of their potential military applications. A ship that can deliver wheeled vehicles can also deliver tracked vehicles, wheeled armored personnel carriers, and supplies to conflict zones. Chinese RoRo vessels have been built to military specifications, with stern ramps to launch amphibious vehicles, highlighting them as a potential auxiliary force to supplement the PLAN's own logistics capabilities. Chinese state television has shown the Chinese Marine Corps practicing loading and unloading ZBD-05 amphibious vehicles on RoRo vessels. 

CSSC has also been constructing cruise vessels for the burgeoning Chinese tourism industry. While pleasure crafts may not seem to have military utility, their use in wartime would not be new. Olympia, the sister ship of the doomed Titanic, was used as a troopship in the First World War, and more recently, the British military used the luxury liners SS Canberra and Queen Elizabeth 2 to transport marines and soldiers to the Falklands War. CSSC has built one 136,000-ton cruise ship, the Adora Magic City, and has another under construction that could hold up to as many as 5300 troops to be sent as reinforcements to a conflict. 

CSSC has built up significant capabilities in shipbuilding of all forms. Due to the strategic relevance of building military vessels, China’s shipbuilding industry would never compete internationally under free market conditions. The Chinese state uses various instruments to support CSSC and the wider shipbuilding industry. Direct subsidies for shipbuilding companies totaled $5 billion from 2010-2018 from the Ministry of Transportation and local governments. State-owned banks, such as the China Export-Import Bank (China Exim) and Bank of China, also provide generous loans (state-owned banks financed $127 billion of loans over the same period), with interest rates that average 0.5% less than loans made to privately owned Chinese firms. These loans are used not only to invest in upgrading shipyard facilities (Shanghai’s Changxing Island is in the process of building enormous new shipbuilding facilities, and the Hudong-Zhonghua yard is growing by 50%) but are made to both domestic and international firms purchasing ships so that orders can begin without needing more expensive private funding. Although state-backed financing is not unique to China, the scale far outstrips Western financial coordination - the China Exim provided $38 billion in export credits to Chinese firms in 2018, more than the next three largest credit agencies combined. 

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In the wake of the financial crisis and a downturn in ship construction, the CCP began a “scrap and build” subsidy worth billions of dollars to modernize fleets and keep companies such as CSSC building new vessels. This had the dual effect of adding more efficient and larger ships to Chinese shipping fleets while also squeezing foreign competition that could not compete with the volume produced by Chinese yards. 

Indirect subsidies given to other industries feeding ship construction, such as steel production, also support CSSC. Chinese steel companies have received hundreds of billions of dollars in subsidies since the start of the millennium. Similar support is given to industries involved in ship construction, such as electricity and oil. Additionally, foreign firms are not allowed to operate by themselves in China and must “cooperate” with a Chinese firm. 

Furthermore, cross-industry cooperation is facilitated by membership of the CCP. The CCP has required companies to allow party cells to operate at all levels since 1993, from shop floors to management. Senior company officials of large companies are sometimes made delegates to the National People's Congress, the Chinese legislature. Embedding party members and officials within state and privately owned companies enables the CCP to oversee company management and allows directives and priorities to be dispersed throughout all levels of an organization so that it can understand the priorities of the CCP.  

Chinese state support also includes the Chinese logistics support platform Logink, a supply chain platform that leverages data from a wide range of sources, including domestic and international ports, global logistics networks, users within China, and public databases around the world, to create what is claimed to be the most comprehensive picture of global logistics activity. It was first created as a provincial initiative in 2007 but expanded globally in 2014 and is provided free of charge to global ports, freight carriers, forwarders, and other countries. Over 20 ports, including eight European ports, currently have cooperation agreements. Although this service does not directly link with CSSC’s shipbuilding business, it does demonstrate how CSSC and Logink are a part of the wide-reaching strategy to dominate the international shipping trade, building both the ships on which goods travel and the logistics tools to understand when they will arrive. Logink could also pose a strategic risk by collecting information on other nations' intentions and monitoring what they are shipping. The US military, for instance, utilizes commercial shipping to move logistical support and military equipment to its vast network of overseas bases and allies.

This expansion in capacity now means China can build 42 million dwt of shipping a year (compared to South Korea’s capacity of 23 million dwt and Japan’s 17 million dwt), has 20 large dockyards to facilitate repairs, and can continue to support the expansion of the PLAN. 

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What has CSSC built for the PLAN?

Chinese economic expansion has been accompanied by expanding military budgets, growing from $22.2 billion to $292 billion USD in 2022. In 2022, China spent more on defense than the next 17 Indo-Pacific economies combined. Although Chinese diplomats emphasize that this is less than half of the US military budget, which totaled $916 billion in 2023, when calculating for lower inputs, off-budget defense-related spending, and exchange rates, the Chinese military budget is closer to $471 billion. Importantly, China’s military is concentrated in one region, while the US maintains a presence worldwide. 

At the turn of the millennium, the PLAN consisted of antiquated ships bought or copied from foreign designs. Since then, the PLAN fleet has seen significant upgrades - over 70% of China’s fleet has been launched since 2010 - adding three aircraft carriers with a further one under construction. While these are not nuclear-powered and carry a smaller complement of aircraft than US supercarriers, they demonstrate growing Chinese naval power. Their utility in invading Taiwan is questionable as Taiwan is already within range of fighters and missile attacks operating from the mainland. Still, they may pose a threat to the Taiwanese fleet if it attempts to break a blockade of the island or escape to link up with any reinforcing fleets. 

One area in which the PLAN has been deficient compared to the US is the number of nuclear submarines (SSN). Conventional submarines (SNs), powered by diesel-electric batteries, have not been operated by the US since 1990, as they have a shorter endurance and carry fewer armaments, although they are significantly cheaper and can be quieter in shallow water, allowing them to avoid detection. However, CSSC has been building increasing numbers of SSNs that can range far from home waters and intercept supply lines. The latest PLAN SSN is the Type 093A submarine, the last of which was completed in 2018. A newer SSN, the Type 095, is currently under development. As China has large numbers of SNs and an invasion of Taiwan may not necessitate significant submarine forces deployed far from the mainland, it is unsurprising the PLAN has not prioritized more SSNs. Still, the US Navy is concerned about the production rate of Chinese submarines, and the growing SSN force is one reason behind the AUKUS agreement, where Australia will become the 7th nation to possess nuclear submarines to help the US Navy patrol the Pacific Ocean. 

A Type 055 destroyer underway.

Of the 50 destroyers in active service in the PLAN, only four were commissioned prior to 2000, and 37 have been commissioned since 2010. These include the largest surface combatant built in Asia since the Second World War, the Type 055. Eight of these ships carry 112-cell modular Vertical Launch Systems (VLS) able to fire YJ-18 anti-ship cruise missiles and Y-21  hypersonic anti-ship ballistic missiles, reportedly capable of reaching targets over 900 miles away, a distance greater than Taipei to Nagasaki in Japan. Eight more of these large ships are under construction, and CSSC hopes to achieve an initial assembly to commissioning time of four years for this batch. Still, the mainstay of the PLAN fleet is 25 Type 052D destroyers, which are comparable to the US Navy’s Arleigh Burke, Royal Navy’s Daring, or the Japanese Maritime SDF Akizuki Class destroyers, carrying radar designed to protect the rest of the fleet. Type 052D Destroyers took four years to complete, matching the production rate of Arleigh Burkes. While the PLAN's destroyers are currently not as advanced as Western-designed ships, quantity has its own quality. The US Seventh Fleet, responsible for East Asia, currently has 10 destroyers available. Although forces would be surged to East Asia in the event of a conflict, depending on the level of readiness, these ships could take weeks to arrive. 

How can Western nations respond? 

The United States has built an impressive and complex set of alliances and military relationships to ensure geopolitical stability. Previously, US allies who have accompanied the US on military interventions in the Middle East have principally been European nations, but as the principal target of Chinese expansionism is Taiwan, European nations cannot be counted upon to intervene. Only three European nations joined Operation Prosperity Guardian, the US-led coalition to secure the Bab el Mandeb strait into the Red Sea, partly due to political reservations and a lack of naval vessels. Although European nations could take over some duties patrolling the North Atlantic and Mediterranean, it is deeply unlikely that any European nation would send forces to defend Taiwan in the event of an invasion. If it wanted to defend Taiwan, the US would have to lean on its allies in Japan, Australia, and South Korea, none of whom have any commitment to defend Taiwan and would be wary of engaging in military conflict with China due to economic ties and the risk of a Chinese counterattack striking critical military installations and civilian population centers at home. 

Although the chances of either South Korea or Japan getting involved in a military conflict over Taiwan are uncertain, both governments are taking steps to regain lost ground regarding commercial shipbuilding, investing in more advanced forms of shipping and more efficient and environmentally friendly engines. South Korea has launched a $7 billion fund to support investment in autonomous and zero-emission ships, as well as training 2000 extra shipbuilders and designers a year. Japan’s six major shipbuilders are collaborating on ammonia-fueled ships and battery tankers to try and capitalize on the  International Maritime Organization's target of net-zero greenhouse gas emissions from international shipping by or around 2050.

The list of allies the US could call upon in the event of war over Taiwan is short, and their likely response is unknown. Consequently, the US has been attempting to increase the number of ships available to the US Navy by extending the in-service periods of older ships, cutting non-essential ships to free up funding, and accelerating construction times. Unlike China, shipbuilding is concentrated among large military contractors who do not build civilian vessels. The US shipbuilding potential is 230 times smaller than China's, with only seven large shipyards. High labor costs, a declining manufacturing base, and an inability to efficiently plan and execute ambitious state-led projects mean any improvement to US shipbuilding capabilities will take years, if not decades. 

If the US wanted to rapidly increase the number of ships available, it could buy ships from efficient South Korean and Japanese yards. The prospects of this are slim, as 400,000 jobs are tied to the US shipbuilding industry, and established defense contractors Huntington Ingalls Industries and General Dynamics NASSCO would fiercely object with well-funded lobbyists. It would also be incredibly expensive at a time when budgets, although growing, are tight, with many other global priorities, not to mention the pressures of democratic decision-making. Even if funds were dedicated to building more ships, the US Navy would also have to solve the problems of a 20-year maintenance backlog that is currently causing some ships to be retired early or taken to sea in less than acceptable conditions.  Finally, to crew these ships, the US would need to address the issue of manpower: all branches of the US military are currently failing to recruit sufficient personnel.

Conclusion

CSSC has built so many naval and commercial ships because the CCP leveraged China's comparative advantage in heavy industry and significant state resources to turn their strategic priority into a reality. If the end goal is to mount an invasion of Taiwan, the PLAN has been given the resources to accomplish this goal, even if the current quality of its sailors and some of its equipment is questionable. One advantage of having a large navy is the training and learning opportunities that come from operating more often. As the PLAN continues to expand, its officers and men will gain more experience, catching up on the job to the professionalism of Western navies.

If the goal was simply to dominate shipbuilding and make world economies increasingly dependent on Chinese goods, this goal could be considered largely achieved. Not only is the world dependent on China for many key manufactured goods, but they are now also carried to market on Chinese-made ships, welded together by the 310,000 thousand workers of CSSC.

Constructing a large fleet takes decades, requires significant political willpower and a considerable industrial base. The US now lacks time and political urgency to significantly increase its naval forces. If Taiwan is to remain independent, it will be wiser to focus on lower-cost anti-access/area denial capabilities to deter the growing Chinese fleet.

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Based in Shenzhen, China, BYD Auto is the largest electric car manufacturer in the world, selling over 3 million fully electric and hybrid battery vehicles in 2023 and recording a revenue of over $80 billion. Although Tesla sold more fully electric cars in 2023, BYD has only a small overseas presence and expects to sell over four million vehicles in 2024. Its parent company was founded as a battery manufacturer in 1995 by Wang Chuanfu, but in 2003 he decided to diversify into automobile manufacturing, partly as a response to the development of Japanese hybrid cars. BYD’s parent company continues to be influential in the battery market, making laptops, phones, electric bikes, and backup storage, but has also branched out into semiconductor and solar panel manufacturing. 

BYD Autos' enormous growth since the beginning of the decade comes not only from significant state support but also from building a range of attractive vehicles. A desire amongst Chinese elites to reduce dependence on oil (China imports over 70% of its oil, and 2023 saw imports at a record 11.3 million barrels a day) and changing attitudes in the Chinese government towards emissions have also factored into favorable conditions for EV manufacturers. BYD has evolved dramatically from its beginnings when the CEO personally smashed the prototype of the company's first car to producing luxury vehicles that compete with the latest Tesla models. This transformation has propelled Chuanfu to amass a fortune worth over $47 billion. While BYD is the largest car manufacturer in China, it does not currently meaningfully compete in exports to Europe, which is dominated by Chinese-manufactured Teslas, SAIC Motors/MG, and Geely/Volvo models, although it aims to capture 5% of the EU EV market by 2025.

While the company is building factories worldwide to manufacture its vehicles, tensions between China and Western nations over Taiwan, industrial espionage, and economic decoupling raise the question of whether BYD can expand significantly outside China and how much that would affect the company. Out of the 3 million vehicles BYD manufactured in 2023, only 15,000 were sold in Europe, and the company does not sell any cars into the lucrative US market at all. Whether BYD can break into Western markets or not raises significant questions for Western automobile manufacturers and Governments who wish to reduce emissions from transport. If they can, this may increase European reliance on Chinese manufacturing, potentially restricting European foreign policy.

Beginning with Batteries 

Electric vehicles (EVs) are powered by batteries, typically 40% of the cost of an EV. BYD (although the name supposedly stands for Build Your Dreams, this is a marketing rebrand, and the initials stood for the name of the road where the first office was located) began in 1995 as a battery manufacturer. Wang Chuanfu, who founded the company, graduated with a bachelor's degree in metallurgical physical chemistry in 1987 before going on to study for a MA in materials from the Beijing General Research Institute of Nonferrous Metals. While working as a deputy director, he worked closely with foreign companies, including those from Japan. Battery technology at the time was led by Japanese firms, who were working on moving from nickel-cadmium batteries to nickel–metal hydride and lithium-ion batteries, which were less prone to leaking and had higher energy density and efficiency. In 1993, he quit his role at the research institute and moved to Shenzen.

Wang Chuanfu with then Governor Arnold Schwarzenegger in 2004.

After Deng Xiaoping had concluded his tour of southern China in 1992, opening the door to capitalism in Communist China, Shenzhen was a center of entrepreneurship. Chuanfu had left his job to move to Shenzen and start BYD with a 250,000 RMB loan from his cousin, Lu Xiangyang. Initially, the 20-person company worked on producing batteries similar to those produced by Japanese companies for small consumer products. As many Chinese companies operated, BYD would acquire foreign products, tear them to pieces to understand how they worked, and manufacture similar products with the cheaper labor and fixed costs available in a country with a GDP per capita of $610 in 1995. Exemplifying how committed Chuanfu was to understanding how foreign manufacturers produced superior products, Chuanfu once had his engineers break down his personal Mercedes S-class car.

Only two years after Chuanfu founded the company, the Asian financial crisis broke out, offering BYD an opportunity to market its cheaper batteries to a wider range of buyers as companies such as Sanyo, Panasonic, and Phillips struggled with the downturn and battery prices dropped as much as 40%. However, BYD’s rechargeable batteries were not just carbon copies of foreign-designed batteries. After stripping down the products they acquired, Chuanfu and his engineers worked to improve the designs and refine their production process. By the beginning of the millennium, western companies such as Dell were buying BYD’s batteries not just because of their price but also because of their efficiency and quality. 

Chuanfu’s model of following Japanese technological development and improving designs led to the creation of BYD Auto. In 1997, Toyota released the Prius, a hybrid battery/petrol engine car made famous to the world as the ubiquitous Uber car. At the time, China’s automobile industry was decades behind Japanese and Western car manufacturers, and many Chinese industrial conglomerates wanted to sell off their auto manufacturing businesses as Chinese consumers sought Western cars, but in 2002, Chuanfu saw a risky opportunity to get into car manufacturing and acquired Qinchuan Automobile. Qinchuan was owned by the China North Industry Corporation, traditionally an arms manufacturer, who had an agreement with Suzuki to produce its models under license, but the agreement had been broken off, and China North Industry Corporation wanted to get rid of it. Chuanfu acquired Qinchuan for around $30 million USD (2003 exchange rate), rebranding the company as BYD Auto. At this time, Warren Buffett noticed the company and its founder, leading Berkshire Hathaway, to eventually invest in BYD for a 10% share for $225m. Buffett values company owners who care about the businesses they own and are willing to consume their own products - Buffett himself drinks five cokes a day and bought 6% of the Coca-Cola company between 1987 and 1994. Chuanfu seemingly also believes his product is good enough to drink - in 2008, he drank battery fluid from a lithium-ion battery manufactured by BYD.

The first car BYD produced was a complete disaster. It was ugly, poorly made, and the model's fate was destruction at the hands of Chuanfu himself, who smashed the car to bits in front of the engineers who had produced it. However, reckoning the model that had worked in batteries would also work for cars, Chuanfu persevered, and BYD acquired molds, engines, and other parts, reverse-engineered them, and began to build its “own” cars. 1.5 and 1.8L Mitsubishi engines powered the first BYD F3 4-seater sedan cars, but later generations had their own BYD-produced engines that were strikingly similar in performance and engineering to Mitsubishis. Until the second generation of BYD vehicles, you could easily mistake a BYD car for a Toyota, so similar was the design. 

A BYD model (F3DM)

In 2008, the first hybrid BYD model (F3DM) was released in China. BYD Auto acquired the batteries from its parent company, sowing the seeds of vertical integration that would allow it to achieve a significant cost advantage over its competitors. Average prices for lithium-ion EV batteries were over $1000 per kWh in 2007 but had dropped to $410 in 2014. As a battery manufacturer with cheap labor, BYD could leverage its batteries to reduce the prices of its cars while improving the quality, ride, and look. Its car sales increased from 101,665 units to 429,946 over this time. 

Subsidies   

It would be wrong to imagine this was a free market miracle. In 2009, Wang Chuanfu attended the China Automotive Industry International Forum, where Chinese standards for EV car batteries were being discussed. Over the following years, BYD provided input and analysis for setting battery regulatory standards and developing a relationship with the Chinese state. Chuanfu himself has attended the National Peoples Congress, the Chinese legislature. While this 3000-member body has little real power, that being held in the Central Committee of the Chinese Communist Party and its Chairman, Xi Jinping, membership of the congress means becoming a state cadre. In the cadre system in China, this confers a leadership position within the party and means local police cannot investigate individuals without a serious reason to do so. For the wealthy, this protects their business interests. For the party, this allows them access to the expertise and connections of their loyal cadres and means their advice on steering the country towards industrial plans can be sought. Like semiconductors, shipbuilding, intermittent renewables, and other strategic industries, the PRC maintains a close relationship with local elites in order to pursue strategic economic goals that support foreign policy aspirations. 

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Learning from the Russian invasion of Ukraine, the PRC is now wary of how significant the damage can be from Western sanctions being imposed in response to aggressive actions. The PRC aims to make Western nations unable to detach themselves economically if they choose to mount an invasion of Taiwan. As an example of how Chinese industrial strategy overlaps, BYD has purchased seven Chinese-made car transporters capable of shipping 7000 cars to foreign markets. In the event of a Taiwanese invasion, roll-on-roll-off transporters can also be used to move armored vehicles, munitions, and troops. 

Promoting battery manufacturing and EVs has been a part of Chinese Five Year Plans since the 11th plan was announced in 2006 but was further emphasized in 2012 under a sector-specific goal. The Chinese state supports consumers switching to EVs via subsidies for consumers to purchase EVs and hybrid cars (China has reportedly spent over $22 billion from 2014-2022 on EV subsidies). Chinese provinces and cities mandate switches to electric buses and taxis, almost all manufactured by Chinese firms. Cheap land and financing are also reportedly made available to strategic sectors, with industrial land ten times cheaper than residential land. However, China does not consider this a subsidy but rather a revenue-raising measure for local government. Subsidies for BYD Auto, listed as “grants were provided for autos and auto-related expenses” in filings to the Hong Kong Stock Exchange, totaled 1.8 billion RMB ($250 million) in 2023 (although “subsidies” are disputed by BYD). While these numbers are dwarfed by the revenues brought in by selling cars, they have partially contributed to some financial stability for the firm and allowed it to offset the cost of research and investment. 

A BYD K bus in Shenzen

However, the Chinese state also subsidizes battery manufacturers separately. Shenzhen-based Contemporary Amperex Technology (CATL), the largest battery manufacturer in China, received $400m in the first half of 2023 alone. Like BYD, CATL manufactures batteries for EVs, supplying Audi, Ford, Tesla, BMW, and Volkswagen. 

CATL had a revenue of $56 billion and a profit of over $6 billion in 2023. It is projected to increase its annual output of batteries in GWs from 390GW in 2022 to 670GW by 2025, resulting in little opportunity for start-up Western companies to compete without heavy subsidies, which would not be guaranteed to result in a competitive product. Lithium refining facilities, necessary to produce EV batteries, can take up to five years to build, but an Australian facility, partially Chinese-owned, took closer to seven to actually produce any lithium. CATL has said they are targeting a 50% reduction in their battery costs in 2024 alone in an attempt to take their market share, which currently stands at 37%, even higher. (BYD is the second largest at 15.8%). South Korean-based LG Energy Solutions is the only non-Chinese firm with more than 10% market share. There are no US or European-based EV manufacturers with any meaningful market share. 

American and European car manufacturers have little choice but to source the batteries for their EVs from Chinese, South Korean, and Japanese firms. Chinese companies have a 56% share of the EV battery market, which is increasingly composed of lithium iron phosphate batteries. Although some Chinese companies have opened facilities in the US and EU (one factory in Hungary is due to open in 2026), these moves are as much about making any potential switch away from Chinese companies more painful as they are about lowering the logistics costs of shipping cars from China. 

Tariffs

While ongoing support does little to change BYD’s current bottom line, it has allowed the company to develop world-beating EV technology shielded from market forces. Due to this, the European Union has opened an investigation into the effect subsidies and other state support have had on BYD’s ability to produce cars at such a price discount compared to its competitors, with the threat of tariffs being imposed on its cars sold in the European Union.  It has been reported these tariffs could be as high as 30%, but independent analysis suggests they would need to be as high as 50% to make the European market totally unattractive to BYD and other Chinese EV manufacturers. Although BYD does not currently sell cars into the US market due to Trump-era tariffs, President Biden has used Trump-era powers in the US to launch an investigation into Chinese car makers and potentially impose further penalties. 

If the EU chooses to enforce tariffs on Chinese-manufactured cars, this could impact the continental desire to move away from internal combustion cars and meet lowered emissions targets. The EU aims to have 80% of cars sold by 2030 as EVs, an ambitious target as only 12% of new cars were EVs in 2023. Coupled with high electricity costs, the prospect of pure EV cars totally dominating European highways may remain a dream. While hybrid vehicles may appeal more to consumers, these are not totally emissions-free, complicating plans to move to a zero-emissions world. The second-hand market for EVs and BEVs is also plagued by uncertainty over the selling quality, with depreciation values difficult to gauge due to the variability of EV battery quality. 

Although BYD does sell many hybrid vehicles, depending on how painful the tariffs are on their cars, consumers may not be inclined to buy them, and with BYD making more profit on its EVs (making around €14,000 on a BYD Soul EV) selling BEVs to Europe will be less profitable and therefore less desirable for the company. However, although European carmakers produce EVs, which are crucial for the desire to lower emissions radically, these cars are still dependent on batteries and rare earth metals produced by China, which owns 40% of the world's cobalt reserves and significant amounts of lithium. 

There are further concerns regarding Chinese car sales to Western nations. Intelligence agencies have warned that Chinese vehicles could be used to collect data on Western motorists, as well as logging visits to sensitive sites. Given that BYD has remotely shut down its vehicles in China, some British politicians have warned that this scenario could also play out even if Western countries decide to take the economic pain and support Taiwan, causing utter chaos on roads.

Conclusion  

BYD has emerged as a truly global competitor in the EV market in the last ten years, albeit with steady state support. While many Chinese firms did little to adapt the technology they were building for consumers, Wang Changfu’s technical expertise helped underpin the innovations in battery technology that has been so crucial to BYD’s success. Inside China, the company has made large contributions in reducing the emissions of personal transport, although this has been offset by continued growth in fossil fuel emissions fueling voracious Chinese economic growth. Coal consumption does not look set to reduce despite expert forecasts. If European countries are set on reaching their 80% EV market share by 2030, they will have to use Chinese-made EVs, BEVs, and batteries. 

Leaving aside the specifics of BYD’s potential contribution to future European transport needs, the drive to move to emissions-free cars will be dependent on China, one way or another. This has considerable security concerns - if a war were to break out over Taiwan, it is questionable if Europe could afford to repeat its sanctioning of Russia after that country invaded Ukraine, even before the continent moves to rely more heavily on China for cars, steel, intermittent renewable infrastructure, and rare earth metal production. 

BYD is part of the overall strategic vision to render Western and European countries (in particular) less able to object to the PRC’s foreign policy ambitions. Although this is unlikely to be successful in manufacturing cutting-edge semiconductors, it appears to have been successful in manufacturing the supply chain for parts essential to EVs and building multiple companies capable of providing the cheapest EVs.

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With a native population of just over 300,000 people, the state of Qatar should be an insignificant player on the global stage. However, the country's rulers have leveraged considerable mineral resources, media assets, and central geographical position to become a significant regional power. Its wealth and relationships with powerful non-regional actors give Qatar a degree of independence from other Gulf states.  

The country is at the heart of a complex and sensitive set of relationships between parties at odds with one another, attempting to balance the concerns of far larger and more powerful actors in the gulf to further its self-interest. Navigating these relationships has been challenging, and Qatar suffered when neighboring states of Saudi Arabia, Bahrain, and the UAE cut off relations in 2017. Still, political flexibility underpinned by hydrocarbon wealth allowed Qatar to weather the storm until the situation was resolved. 

Qatar's decision to move towards liquid natural gas exports (LNG), first made by the previous Emir in the 1990s, looks especially clairvoyant since 2022 and the increase in gas prices since the Russian invasion of Ukraine. However lucrative this may be in the short term, the LNG bonanza may complicate Emir Tamim bin Hamad Al Thani’s ambitions to move the Gulf state away from hydrocarbons and towards a more balanced economy. Like other Gulf states, it is in fierce competition to continue providing economic benefits to its citizens while maintaining the political status quo for its ruling family. However, its delicate position between far more powerful states and ambition to punch above its weight internationally, if not navigated carefully, may one day place the regime in an uncomfortable position.

Qatar's position as a significant exporter of a more politically acceptable fossil fuel (gas), significant investments in Western companies, and its willingness to invest over a longer time horizon than many Western states or institutions likely means it will continue to have an outsized influence on the world.  

Sheikh Tamim bin Hamad Al Thani

The House of Al Thani   

Qatar is ruled by Sheikh Tamim bin Hamad Al Thani (for the rest of this post, Tamim), who has been the Emir of Qatar since 2013 when his father, Hamad bin Khalifa Al Thani (for the rest of this post, Hamad), abdicated. This was a return to tradition by Hamad, as the two previous transitions of power in 1972 and 1995 had been (bloodless) coups. Earlier transitions of power in Qatar had, in 1913, 1949, and 1960, unusually for Arab monarchies, also been abdications. The Al Thani family has ruled Qatar since the mid-19th century under the Ottoman and British Empires until the country became independent in 1971 and continues to rule until now. There are no political parties, and NGO activities are strictly constrained. The current Deputy and heir apparent to the Qatari throne is Tamims brother, Abdullah bin Hamad Al Thani. Still, as Tamin has seven sons, this will probably change when one of his children is ready to assume the position of heir. 

Qatar strictly limits (and does not publicly disclose) how many Qataris hold citizenship. Even amongst the estimated 310,000 or so Qatari citizens, there are tiers to citizenship, and a citizen can be unaware of which of three ranks they are until they apply for a specific job or permit. In 2021, when very limited elections were held, only those whose grandfathers were born in Qatar could vote. Although citizens' political rights are unequal, they receive considerable benefits, including the right to sponsor visas, allowing Qataris to host cheap domestic help from abroad (there are an estimated 300,000 domestic workers in Qatar). Foreigners make up the overwhelming majority of Qatar's population. One group is migrant laborers whose treatment, particularly around constructing facilities for the 2022 World Cup, led to international condemnation. 

Migrant professional classes, which make up a far larger percentage of the population than laborers, work in almost all other sectors of the economy. The most important contributors to the economy - the gas export industry, financial services, and the flagship airline (over 90% of Qatar Airways staff are non-Qatari) are all numerically dominated by foreigners, although Qataris hold key roles in practically every firm due to an explicit government policy that aims to promote Qatari nationals into leadership positions. These advantages for Qatari citizens and the temporary nature of residence for the non-Qatari population translate into significant domestic political power for Tamin. The reliance on foreign workers means falling fertility rates, which affect almost all advanced economies, are much less of a problem for Qatar throughout the 21st century, although amongst Qatari citizens it has fallen below the replacement rate. 

Domestic political power is also intertwined with Islam. Qatar officially practices Salafist Sunni Islam, which is written extensively into the constitution. Although this is the same form of Islam practiced in Saudi Arabia, traditionally, in Qatar, this has been less strict than in its famously draconian neighbor - pork and alcohol are available in Qatar, although only to non-Muslims. Qatar's relationship with Islam is mainly concerned with its support for aligned groups and states abroad. 

Tamim inherited a state that his father primarily shaped. Under Hamad, Qatar took the risky bet to build extensive LNG export facilities when LNG prices were far lower, and coal was more acceptable as a power source. Hamad loaned Al Jazeera $137 million, helping kickstart one of the Middle East's most influential and controversial media organizations. Hamad was also responsible for inviting the US to build, expand, and use the Al-Udeid Air Base, now the largest US military base in the Middle East. Hamad also started the Qatari Investment Authority, the sovereign wealth fund managing over $475 billion. Although Hamad abdicated in 2013, he is reportedly consulted on some state matters, although rumored poor health keeps him from interfering too much. 

Foreign Relationships 

Tamim has yet to radically deviate from his father's strategy of enriching Qatar and balancing competing foreign interests. Tamim’s main challenge has been managing an acrimonious relationship with other Gulf states, principally Saudi Arabia. 

Although a member of the Gulf Cooperation Council since its founding in 1981, Qatar has never enjoyed a harmonious relationship with Saudi Arabia or other Arab states. Partly, this is due to the Al Jazeera media network, which was founded in 1996 after Saudi Arabia shut down the BBC Arabic Television station. The $137 million loaned by Qatar to start the network was in part used to recruit former members of the BBC's network, and the channel began broadcasting news that other Arab regimes preferred its citizens not to know. The network gained prominence in the West when it broadcast interviews with Osama Bin Laden but had been upsetting authoritarian neighboring countries for years before this. Other Arab countries sometimes took extreme measures to prevent some programs from being aired - in 1999, Algerian authorities cut power to parts of Algiers when critics of the government appeared on the channel’s live program El-Itidjah el-Mouakass (“The Opposite Direction”). Al Jazeera’s website was blocked in Saudi Arabia and the UAE in 2017, and the channel is blocked in Saudi hotels.  

Both during and after the Arab Spring (in which only Qatar and the UAE did not experience any protests), Al Jazeera prominently featured members of the Muslim Brotherhood, infuriating Arab rulers who were dealing with unrest related to the movement's activities. Qatar’s relationship with the Muslim Brotherhood was far deeper than allowing them onto Al Jazeera. During the presidency of Mohammed Morsi, who was affiliated with the Muslim Brotherhood, Qatar loaned the Egyptian state $7.5 billion. It hosted Muslim Brotherhood exiles from Egypt, allowed senior Hamas figures from Gaza to use Doha as a base of operations, and allegedly provided funding for MB-associated organizations across Europe. 

As Qatar shares the North Dome gas field with Iran, its main gas field, it has had far friendlier relations with the Islamic Republic than other Gulf states to avoid antagonizing the more powerful and populous state on the other side of the Gulf Sea. In contrast, Saudi Arabia views Iran as its most significant regional rival, driven by the revolutionary ideology of Iran's leaders, differences over theology, and competition in oil exports. Although relations between Iran and the UAE are slightly warmer, Iran still occupies islands claimed by the UAE, and the Emirates broadly supports measures to limit Iranian influence. 

These relationships with the Muslim Brotherhood and Iran are why Saudi Arabia, the United Arab Emirates, Egypt, and Bahrain broke off relations in 2017. Qatar was not just diplomatically isolated but was cut off from food imports, airspace access, and Qatar-flagged vessels were banned from docking at the ports of the coalition. It survived the blockade and maintained its independent foreign policy by leaning on Turkey and Iran for food imports, although it also built up its own domestic production capabilities, becoming self-sufficient in dairy production, for instance. Additionally, Turkey deployed thousands of troops at a base near Doha in a show of support, which Qatar reciprocated by investing in the struggling Turkish economy. 

The boycott was eventually ended in a US/Kuwaiti brokered agreement after the election of President Biden, as Mohammed Bin Salman, the de facto ruler of Saudi Arabia, sought to repair ties with the US after the killing of Jamal Khashoggi and American dissatisfaction with the Saudi led war in Yemen. Despite Qatar’s relationship with Iran and Hamas, its relationship with the US was boosted during the US withdrawal from Afghanistan, as allowing the Taliban an office in Doha turned out to be a place where the US could negotiate with the group, which it had been at war with for more than 20 years. Qatar’s now prime minister, Mohammed bin Abdulrahman bin Jassim Al Thani, was awarded the Department of Defense Medal for Distinguished Public Service to recognize Qatari efforts during the wind-down of the American presence in Afghanistan. 

It is difficult to judge how warm US/Qatari relations are in the current context of the Israeli/Hamas war. Qatar claims it has been central to negotiating the release of some hostages because it hosts Hamas leadership and has supported the group in the past. However, Hamas leadership has reportedly left Doha for the time being after being based there for more than a decade. Whether they have returned at any point to continue negotiating or are currently residing in other Middle Eastern countries is unknown. 

Qatar has a close military partnership with the US and is a designated non-NATO ally—South Korea, Egypt, and Australia are other nations with this designation. Although this doesn’t constitute an automatic mutual defense pact, it includes exemptions to arms export controls and strategic-level working partnerships. Qatar hosts the largest US base in the Middle East and an advanced early warning radar system only deployed to a select few allies in critical locations. 

Although most of Qatar’s most recent defense purchases have been made by the United States, the checkbook has also been out for other Western nations. Since 2017, Qatar has bought 24 Eurofighter Typhoons from the British defense company BAE in a deal worth $7.25 billion. This deal also included the formation of a joint Qatari-British fighter squadron, which aimed to train Qatari pilots on fighter jets and help provide security for the 2022 World Cup. France has sold billions of dollars of Rafale fighter jets to Qatar since 2015. Since 2013, the Qatari army has been equipped with 62 German-made Leopard 2A7 main battle tanks in a deal worth $2.48 billion and also purchased 24 PzH 2000 155mm self-propelled howitzers. 

However, these vast arms purchases are only part of Qatar's strategy to secure itself from foreign aggression. Instead, they are mainly done to ensure favor from Western states with the capability and experience to deter attacks and keep the peace. This bargain may be less secure if Western militaries are drawn into a conflict with China, which is partially why Qatar buys equipment from various Western countries. Unlike Taiwan, which faces significant opportunity costs in buying specific Western capabilities, expensive procurement projects are not the primary problem that Qatar’s military faces, but a lack of proven combat experience and only a small population to be drawn upon to man its military. Although Qatar maintains a more open relationship with Russia than most US allies and did not divest from Russia in 2022, it does not buy any military equipment from them.

The North Dome/South Pars gas field.

Gas 

Although a significant contributor to past government revenues and responsible for much previous growth, oil is not central to Qatar's energy production or potential. Instead, with Qatar sitting on the 3rd largest proven reserves in the world, natural gas will underpin Qatar's economic and financial muscle in the coming decades. Gas contributes 44% of Qatar's GDP, and Qatar Energy, the state-owned energy company, made over $42.4 billion in profit in 2022. Energy Minister Saad Al-Kaabi has the country's aim to become the world's largest LNG exporter, more than doubling export capacity to 142 million tons a year by 2030. The world's largest gas exporters are Russia and Iran, both countries that face sanctions on exporting their gas to Western countries, making Qatar a naturally attractive place for Western countries to source energy, especially if they wish to diversify away from the US, which has seen a massive expansion in LNG exports. 

Given the distances to export markets in Europe and Asia and fractious security situations, Qatar naturally exports the vast majority of its gas by sea rather than by pipeline. At 21% of global LNG exports, it is the second-largest exporter of LNG in the world and third largest of natural gas. These figures have remained relatively stable since 2012, when the last large LNG facility was completed, but new facilities will be completed in 2025. Total natural gas exports are around 4.4 Tcf/y, and includes gas exported to the UAE via the Dolphin pipeline.

Qatar tends to build export facilities linked to long-term contracts and relationships rather than speculatively, so it could not substantially increase exports when demand for LNG spiked in the wake of the Russia/Ukraine war. Recent QatarEnergy contracts include a 27-year deal with Sinopec and a deal with Germany, but these are not due to start delivering gas until 2026. Although the relationship with China is growing, South Korea is currently the largest recipient of Qatari gas, followed by India, with Japan and China following in third.  

Qatar's massively capital-intensive plans for LNG expansion predate the Russian/Ukraine war and are not just based on exports to Asian countries with less ambitious climate goals. In an interview with Bloomberg, Al-Kaabi said, “Renewables will definitely happen—we’re doing a lot ourselves—but you need gas to complement that. “Gas is sort of in a Catholic marriage with renewables. They would need to stay together for a very long time for you to have the transition successfully.” 

In spending billions preparing to continue to export gas for decades to come, Qatar is in part betting both that some European ambitions to transition to near-total renewable energy generation will fail and that Europeans will struggle to develop their own sources of gas from either substantial new offshore sources or by fracking, despite large reserves across the continent. It is making this bet even as other countries, such as the US and Australia, expand their capacity to export natural gas. As nations like Britain ban onshore shale gas development or are expected to ban offshore gas development, this bet may prove highly lucrative. 

The bet that gas will continue to be used extensively even by countries with high amounts of renewable generation may also enhance Qatar's relationship with the US. Although the US itself is not dependent on Qatari gas due to the US's position as a net energy exporter, Qatar will contribute to America’s European allies' economic security by either directly supplying them with gas or keeping costs lower than they otherwise would be. Although the natural gas market is less of a global market than the oil market, the more LNG is brought online, the more prices will become global.

Gas revenues will also continue to provide funds for the Qatari Investment Authority (QIA). Started by Hamid in 2005, the QIA soon invested in distinctive Western brands such as Harrods. Many are done in times of Western financial distress, with notable outlays during the last financial crisis, with QIA investing in Barclays Bank to help keep it solvent in 2008. Sovereign wealth funds supporting vital industries are not confined to the financial crisis, with a willingness to invest in crucial national infrastructure implicitly linked to investments in more sensitive industries. QIA was an early investor in Rolls Royce SMR, and Qatari money has been crucial to keeping the project alive as it has suffered under the British Government’s lack of haste.  

Conclusion

Tight domestic political control and significant energy resources mean the principal challenge for Qatari elites will be navigating its complex foreign relationships. In particular, if Qatar continues to be successful at exporting LNG, this could provide relief for European countries intent on transitioning to a tricky renewable energy future, although this may come at the “cost” of greater Qatari influence in Western companies and institutions. This may be unpopular with Western publics and elites, which have demonstrated opposition to Gulf ownership of news outlets.    

Vertex Pharmaceuticals is an American biotech company headquartered in Boston, Massachusetts. Vertex is most famous for developing novel Cystic Fibrosis (CF) drugs, a condition that only affects 100,000 worldwide, for which Vertex is now worth over $90 billion and is one of the 15 largest pharma companies in the world. Founded in 1989, the company took over 20 years and $4 billion of investors cash to become profitable. If not for its founder, it would not have gotten involved in researching the drugs for which it has become most famous.

While most pharmaceutical companies operate by designing marginal improvements to existing treatments, Vertex was founded to develop drugs for small target markets. When it was founded, this approach was unorthodox. Fortunately, it has been exceptionally financially lucrative and has massively benefited Cystic fibrosis sufferers while inspiring the creation of biotech companies invested in developing drugs for specific conditions. However, future genetic therapies may prove prohibitively expensive for healthcare providers, especially outside of the United States.

Early Years - Search for HIV Treatments

Vertex was founded by Joshua Boger and Kevin Kinsella. Kinsella was a venture capitalist who founded Avalon Ventures with a $400,000 loan from a friend in 1983. He went on to help found over 125 companies and was a producer on the musical Jersey Boys. Boger had graduated from Harvard in 1979 with a PhD in chemistry, then briefly worked with future Nobel prize winner Jean-Marie Lehn before joining Merck. Merck was a giant in the pharmaceutical industry with decades of breakthroughs. In the 1940s, Merck had developed the first antibiotic, penicillin. In the 1960s, Merck released lovastatin, the first statin drug used to lower cholesterol, and had then developed the constituent vaccines in the MMR vaccine. In the 1980s, Merck had a reputation for a better research environment than more profitable companies such as Pfizer, but this approach of working on groundbreaking research was gradually being changed by management. In part, this was due to many low-hanging pharmaceutical breakthroughs having all been eaten up, but also due to the more onerous safety regimes after the wake of the thalidomide scandal, and is also due to the incentives of the US healthcare system, where patients rarely pay the list price for medications and can ask for drugs with marginal benefits. Instead of developing new treatments for diseases, Merck executives wanted to pursue a more profitable and safer strategy to build on existing treatments and aggressively promote them to the healthcare industry. 

In 1988, Boger ran an immunology team within Merck but was increasingly frustrated by management's approach. After his close friend within the company,  Dr. Irving Sigal, who was running Merck AIDS research efforts, died in the Lockerbie bombing, Boger decided to leave and start his own company.  Many early Vertex employees, like Boger, had previously worked at Merck. While Vertex initially didn’t hold any patents and the company didn’t produce any drugs, it was kept afloat by relying on investors, partnerships with universities, and larger companies to fund its research efforts. Although the company was not generating an income by 1993, it had raised over $50 million and had dozens of competitive research projects in rare diseases.  One early success was a $20 million partnership with a Japanese company, Kissei Pharmaceuticals, to develop AIDs medications. 

Vertex Founder Joshua Boger

Vertex started with the goal of developing small-molecule drugs to tackle diseases, underpinned by a broad research portfolio. Small molecule drugs are organic compounds utilized as therapeutic agents in medicine. These drugs are usually chemically synthesized, allowing them to permeate cell membranes and interact with target molecules inside cells. Most small-molecule drugs can be taken orally rather than being injected, making them far easier to administer. Importantly, once the compounds are discovered, the drugs can be manufactured for a fraction of their labeled cost. 

Drug discovery is expensive and time-consuming. Before clinical trials can begin, the preclinical research stage to identify promising molecules that interact with the intended targets can prove fruitless. Even if a molecule is identified, companies may find it unsafe for human consumption in preclinical lab tests. Although estimates vary, on average, it takes over $1.3 billion to bring a drug to market, which start-up pharmaceutical companies will not usually be able to raise on their own. For genetic medicines, the cost is estimated to be far higher, averaging around $2 billion. Often, companies with promising research pipelines or drugs are acquired by larger pharma companies, sometimes cynically, if the smaller company has a drug that could significantly impact the larger companies' revenue stream. In 2017, Mallinckrodt Pharmaceuticals settled with the Federal Trade Commission after it was accused of violating anti-trust laws by buying a company that had previously acquired a competitor to its anti-inflammatory drug Achtar. 

Five years after Boger founded the company, Vertex had not brought any drugs to market but was putting significant resources into developing drugs to help treat HIV/AIDS. By the mid-1990s, AIDS was killing tens of thousands of Americans a year, primarily gay men who had contracted the disease via sexual intercourse. While Zidovudine, also known as azidothymidine/AZT, an antiretroviral drug, had been introduced in 1987, it was not effective on its own. In the early 1990s, Vertex was working on a small molecule that aimed to bind itself to the active site of HIV proteases, which, in theory, would stop the replication of the virus as proteases, enzymes responsible for cleaving protein sections, enable HIV multiplication. Eventually, Vertex did release Agenerase in 1999, but larger companies, such as Merck and Roche, had beaten Vertex to it.

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Miracle Hunting - Finding a treatment for Cystic Fibrosis

In the traditional approach to small-molecule drug development, researchers would discover small-molecule drugs primarily by screening extensive compound libraries against assumed biological targets. Researchers would search for "hits" based on characteristics like shape, electrical charge, and affinity for or aversion to water. Medicinal chemists would subsequently attempt to refine these properties through modification. Instead, Boger wanted to develop drugs using structure-based design, which required large amounts of computing power to model and simulate molecules interacting with proteins and enzymes. 

Boger was also hunting for assays (lab tests designed to mimic diseases) to test the molecules Vertex had been developing against. Aurora Bioscience was a business founded to help larger companies develop drugs by developing assays for their particular interests, but it had decided to move towards drug development itself. In the early 2000s, Wall Street funding for pharmaceutical companies was scarce. As a part of its regular business, Aurora had an ongoing $300,000 contract with the Cystic Fibrosis Foundation (CFF), a US-based charity, to develop an assay for the disease. In search of more funding, Aurora had agreed to a $30 million contract with CFF to develop three drug candidates ready for the preclinical and clinical research stages to treat the underlying causes of CF, with funding only released if Aurora met strict milestones. In return for the investment, the CFF would receive royalties to any drugs released onto the market instead of equity in Aurora, keeping the incentives for both parties to develop effective drugs for patients firmly aligned. This method of funding was known as venture philanthropy.

Cystic fibrosis is a genetic condition in which mutations in the CFTR (cystic fibrosis transmembrane conductance regulator) gene can lead to cystic fibrosis (CF). The CFTR gene provides instructions for producing a protein that regulates the flow of chloride ions across cell membranes. These chloride ions are crucial in maintaining salt and water balance in various organs, including the lungs and digestive system.

Over 1800 different mutations can occur in the CFTR gene, each resulting in varying degrees of impairment in the function of the CFTR protein. However, most people with CF have a mutation called DF508, meaning if a treatment could be found for that mutation, it would be effective for tens of thousands of CF sufferers. The defective CFTR protein in the lungs produces thick, sticky mucus that is difficult to clear. Normally, airway epithelial cells produce a thin layer of mucus that helps trap and remove inhaled particles and bacteria. However, in individuals with CF, the abnormal mucus becomes dehydrated and accumulates in the airways, leading to obstruction, inflammation, and recurrent infections.

These infections would typically reduce the life expectancy of the sufferer to 31. While the genes responsible for the cruel life of the person afflicted had been discovered in 1989, there was only minimal progress in treatments. The day-to-day life of a person with CF included dozens of tablets with varying levels of unpleasant side effects and hours of chest physio to keep the disease at bay. Treatments and tablets were only able to delay inevitable inpatient hospital visits to administer round-the-clock intravenous antibiotics for a few weeks or months at a time.  The late Claire Wineland documented years of her life, including her final days, showing the relentless cycle of treatments and illness Cystic Fibrosis inflicts without effective treatments.

When Vertex bought Aurora, it was not obligated to continue its partnership with the CFF. Boger said, “I knew that this cystic fibrosis assay work was being done, but frankly, it wasn’t even in the top 10 things we were interested in the company for”. The partnership could have ended in 2001. Boger was strongly encouraged to do this by almost everyone he spoke to about the partnership, but he had started Vertex in order to develop breakthrough drugs. He decided to stick to his convictions despite the small CF population and no clear way to profit from the endeavor. It would turn out to be an incredibly fortuitous decision. 

In Boger's words, they had to make “a pill that would make a protein that’s not working work.”As a research proposition, it was “scary as hell.” Still, within the venture philanthropy framework, it did make sense to continue investigating, especially as the CFF was willing to provide the majority of funding.

Eric Olson, who led CF drug development at Vertex from 2001 to 2013, was the person tasked with making malfunctioning CFTR work. He became intrigued by the disease after working with a colleague whose daughter suffered from the condition, combating pseudomonas, the most prevalent bacterium that targets the lungs of CF patients. Olson's team began by aiming at the G511D mutation, which only 4% of CF patients carried. In 2005, at Vertex’s San Diego facility, they discovered that they could alter the functioning of the gene. Further results in 2008 showed a 10% improvement in lung function. After clinical trials confirmed this result, the Food and Drug Administration approved Kalydeco, the brand name for ivacaftor, in January 2012. Initially, Vertex priced this drug at $300,000. Although over a thousand patients were soon taking the drug, with many seeing significant increases in quality of life, this was still only a small percentage of the total number of CF patients. In 2014, the CFF, having seen their investment pay off and wanting to avoid any future conflict of interest, sold the rights to the royalties for the drugs Vertex had developed for over $3 billion. The venture philanthropy framework had worked to develop drugs treating the underlying cause of CF, and the profits for the CFF would see dozens of other projects funded.

Based on the positive rollout, Vertex was already working on follow-up drugs. In 2015, Orkambi was approved by the FDA, increasing the number of patients on a CFTR modulator in the US to just under 10,000. Orkmabi resulted from combining ivacaftor with a new compound, lumacaftor. In Britain, although some CF patients were taking the drug as a result of either their participation in clinical trials or due to compassionate use, a battle to get the drug approved for those with suitable genes was underway. Unlike the US, where insurers foot the bill for medical care, in the UK, the state pays for healthcare under a free-at-the-point-of-use system. To keep drug costs under control, the National Institute for Health and Care Excellence (NICE) reviews drugs under a cost-benefit analysis system. Theoretically, this thoroughly analyzes a drug's benefit to patients and the healthcare system versus its costs. Still, the analysis is constructed with assumptions about the efficiency of treatment using conventional methods and is implicitly constrained by the amount of money that taxation can raise. This meant that patients in the UK did not receive Orkambi until 2019, when Vertex was in the final stages of developing its most effective CF drug yet, Trikafta, targeting the DF508 mutation that most CF sufferers possessed. Like Orkambi, Trikafta is a combination therapy made from tezacaftor, ivacaftor, and elexacaftor.

Paying the Price - Patients vs Costs

Trikafta had sped through approval to get to patients. It received an expedited approval process, including Priority Review, Fast Track, Breakthrough Therapy, and orphan drug designation. In late 2019, Kaftrio was approved for prescription to tens of thousands of patients in the US. It was again priced at over $300,000 a year in the US, meaning every tablet of the three-pill-a-day regime (two taken in the morning with a third at night) cost $270. 

A week’s worth of Trikafta (known as Katrio in Europe) tablets. In the US, these tablets would cost $5670 without insurance coverage.

There was considerable excitement in the UK at the prospect of this revolutionary drug. Still, there was apprehension at how long it had taken Vertex and the NHS to agree on a price for Orkambi. NICE’s appraisals are commonly used by smaller countries that do not have the resources to conduct analysis by themselves, a fact known by NICE, which means they are not just setting NHS prices but also drug prices in other European countries. The pricing battle between Vertex and British authorities had led to a darkly comical situation in which thousands of packs of drugs had been destroyed rather than distributed to patients in need.

However, in late 2019, another medical development was underway to change the lives of many more people than the CF population. As COVID-19 began to spread worldwide, an unseen effect of the huge amounts of money spent to support economies worldwide was the massive price tag of Kaftrio suddenly seemed insignificant. Against the advice of NICE, the NHS and Vertex agreed on a price for Trikafta in 2020. Patients in the UK began receiving the drug in August. 

Although some details of the agreement were kept secret, it has been reported the NHS managed to get the cost down to $200,000. One detail that wasn’t secret was that NICE would review the cost over a four-year period. In 2023, NICE released its initial report claiming that despite the drug being effective, Trikafta was not cost-effective and that any future patients who were not previously eligible would not receive the drug. The NHS was paying hundreds of millions a year to Vertex for Trikafta. Supporters of continuing access pointed out that the cost of admitting patients with chest infections had fallen massively, freeing up desperately needed hospital beds, and continued access to the drug would mean the most expensive clinical interventions, such as lung transplants (which can cost over $5 million per patient) would also fall, as well as patients having much longer lifespans. NICE disregarded these arguments. 

To campaigners for cheaper drugs for access outside of the US and richer countries with one-off agreements, the cost of manufacturing drugs is a disgrace. Trikafta is estimated to cost $5,676 for a year's treatment in manufacturing and packaging, while the drug is sold in the US for $300,000. Vertex claims they invested over $10 billion in R+D to develop the drugs, although they are unclear if this is specific to CF. Finding a balance between development costs and access is a deeply emotionally charged issue.

Unusually, the cost of Trikafta was even causing issues in the US. States such as Washington, Oregon, Colorado, Maryland, and Minnesota have looked into capping the amount that Vertex and other drug companies can charge for treatments, which may cause companies to withdraw from those markets. Patients with CF could be denied access to the life-changing drug and return to a future full of hospital admissions and shortened lifespans. This problem of life-changing medicines versus unsustainable costs will continue to affect those on the hook for the bill. The pharmaceutical industry, while appearing cruel by limiting access to treatments through high prices, incentivizes further drug development. When Orkambi was the leading treatment for CF patients with only one copy of the DF508  gene, analysts predicted it would earn over $20 billion from the lifetime of the drug. Within four years, it had released Kaftrio, sending the price of Okrambi from $300,000 to under $30,000, demolishing its own revenue stream. 

The Future of Vertex 

Ultimately, the patents on Kaftrio will expire in 2037, and the company will need new drugs to continue its profitability. Vertex now has many drugs in its pipeline to treat various diseases, including sickle cell disease, beta-thalassemia, Duchenne muscular dystrophy, alpha-1 antitrypsin deficiency, pain, and APOL1-mediated kidney diseases. The company's genetic modulator for sickle cell may cost as much as $2.2 million per patient.

One promising breakthrough drug is Vertex’s pain medication. Typically, opioids are used to manage pain relief resulting from surgery or injury, and drugs such as OxyContin work by binding themselves to opioid receptors in the nervous system, which blocks pain but also interferes with the brain’s reward system, leading to addiction if the dosage is not closely monitored. Millions of Americans have died due to becoming addicted to opioids and turning to heroin or fentanyl once prescription medications become unavailable to them. It is estimated that 10 million Americans are addicted to opioids. VX-548 is a new class of pain medication designed to prevent receptors in neurons outside the brain from detecting painful stimuli. Vertex is optimistic that VX-548 will not have the addictive properties of opioids and will be a profitable asset for the company. 

For CF patients, Vertex continues developing drugs to increase lung function and adherence. Vanza, the successor drug to Trikafta, is due to be released in the US in late 2024, taking the three-pill regime down to a single pill with a modest increase in lung function over Trikafta. How popular this drug will be is an open question. Patients can only take Trikafta or Vanza, and it would appear Vanza is at either risk of cannibalizing Vertex’s Trikafta businesses or not being deemed beneficial enough to switch patients over from Trikafta, which seems to be the likely conclusion of NICE which doesn’t want to pay for Trikafta anyway. However, Vanza has been developed without needing to pay the full royalties concerning the agreement signed by the CFF over 20 years ago. Short of a cure, there may only be marginal gains from further CFTR modulators, but Vertex is intent on making the most of its remaining patent and scientific advantage.

Conclusion

Vertex is earning $9.87 billion a year from its CF treatments. It has created a breakthrough treatment and extended patients' lives by decades. They are currently working on a cure for CF delivered based on their breakthrough treatment, which, if successful, will destroy their current revenue stream from their most advanced CFTR modulators, just as they previously did with Okrambi by developing Trikafta. If healthcare systems refuse to pay for these kinds of therapies, it is not just the specific patients of treatments already in development who will suffer. The massive amounts of money Vertex has earned have spurned the creation of several companies and research efforts to alleviate or cure other conditions. While it remains to be seen if Vertex can actually pull off a cure for CF, which would require permanently altering the CFTR to function properly, its track record so far suggests it is earnestly pursuing this goal. Such a discovery would not be entirely selfless, as it would make the company tens if not hundreds of billions of dollars, but this revenue could fund decades of research into other genetic diseases, bringing genuinely miraculous cures to potentially millions of people around the world. 

While the pharmaceutical industry’s reputation has suffered due to pricing scandals since Boger founded Vertex in 1989, technology has raced that many previously untreatable conditions now look conceivably treatable or curable. The American healthcare system is horrendously expensive for Americans, but it clearly spurs innovations that benefit the rest of the world. Whether Americans will continue to pay this cost remains to be seen. With a strengthening US economy, versus Europe in particular, treatments may be out of reach for patients worldwide. Some countries will deny patients access to these treatments, while others will seek to remove patent protections on drugs to treat their own citizens. A lesson for patients is that perhaps to receive access to innovative drugs, participation in clinical trials may allow them to continue receiving effective drugs even if the healthcare systems in their countries refuse to pay for them. Vertex may have inadvertently set the pieces in place to disrupt the global pharmaceutical industry truly, but perhaps not in the way they intended.

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There are still people who are not eligible for the drugs that have changed the lives of so many people with Cystic Fibrosis. If you enjoyed this edition of the Kitstack, please consider donating to the Cystic Fibrosis Foundation (US) or Cystic Fibrosis Trust (UK) as they continue to do marvelous work supporting people with Cystic Fibrosis, particularly those who are not eligible for current treatments.

New York State is the 3rd largest economy in the United States, the center of the US financial industry, and 7th largest energy generator in the country. The state, run by Democrats since 2006, has ambitious goals introduced by the Climate Leadership and Community Protection Act to reduce carbon emissions by 45% by 2030 and 85% by 2050 compared to 1990 levels. Furthermore, it aims to generate 70% of its electricity from carbon-free sources by 2030 and achieve 100% carbon-free electricity by 2040. Additionally, the state aims to shift millions of vehicles and homes from oil and gas to electricity consumption.

To reach these goals, New York plans to substantially increase the amount of renewable energy connected to the grid, transitioning from an energy mix dominated by natural gas to wind and solar energy. This transition is set to occur without constructing new nuclear power plants, as existing reactors are scheduled to be shut down. Achieving the 2040 target will necessitate adding over 90 gigawatts (GW) of intermittent renewable energy.

Despite New York's purported strong mandate to transform its energy mix, progress has been lacking. The transformation remains elusive five years after the previous governor announced the goals. New York's 2030 target of 70% emission-free energy appears reasonable, considering that hydroelectric, nuclear, and other renewables already constitute around half of the state's energy production. Achieving the 2030 target should be feasible, given that Texas has added over 30 GW of wind capacity since 2019 alone. However, New York has regressed, having only constructed 2.4 GW of capacity of all kinds in the last five years while deactivating 4.7 GW of capacity.

New York's slow transition to renewable energy has been deliberate. The Climate Leadership and Community Protection Act has opted to delegate the specifics of how, where, and when renewable energy projects will be developed to a 22-member committee, which has been gradually formulating a plan over the past five years. There is no urgency to finalize these details. However, the progress is further hindered by consultations with locals who oppose planned renewable energy projects, providers demanding subsidies the state refuses to pay, and environmental activists who adamantly oppose any dilution of the Climate Leadership and Community Protection Act. Despite bold claims of climate leadership, New York's approach has left it stagnant. 

Powering New York 

New York State first drafted a climate action plan in 2015. In 2016, New York's carbon emissions represented 3.52% of the country’s total. While New York's typical household emissions were only 67% of the national average in 2019, climate activist organizations such as NY Renewal and Environmental Advocacy NY had placed significant pressure on then-Gov Cuomo to go further in reducing emissions. After elections in 2018 in which the Democrats gained control of the New York Senate, in 2019, Gov. Cuomo announced changes to the 2015 plan to put New York at the forefront of “the most aggressive climate change program in the United States of America, period.” The plans don't just affect energy generation, which is around 15% of the state's total emissions, but also transportation, housing, and industrial emissions. 

The organization responsible for determining the future of New York’s energy mix and usage is the Climate Action Council, a 22-member body currently co-chaired by Doreen Harris, CEO of the New York State Energy Research and Development Authority and Basil Seggos, Commissioner, New York State Department of Environmental Conservation. The Council delivered its scoping report arriving in December 2023, four years after it was commissioned. In the 445-page report, only 20 are devoted to how New York will achieve its energy transition, with other topics, such as climate justice, receiving more attention. Like many public consultations, the amount of time consulting the public was enormous, with the council receiving over 35,000 separate public comments. The plan recommends a cap and invest program, setting an annual limit on the emissions each sector can emit annually. The limit will be gradually lowered, but there are no clear details on how these limits will be enforced or overseen. 

In 2022, New York generated 128 TWh of energy, with the state requiring some imported energy from Canada. The main supplier of New York's energy is natural gas. The state generates just shy of half (48.19%) of its energy from gas mainly imported from neighboring Pennsylvania, which has been one of many beneficiaries of the US liquid natural gas success story. Gas also plays an important role as the fuel in backup generators, known as “peaker” plants. These older and more polluting plants around New York City provide extra power only a few days a year when demand is highest. Although some providers have wanted to modernize these plants to make them less polluting (and run them for longer), the state has refused permission to upgrade them under significant pressure from local activists, and instead, these plants will close by 2025. This means New York faces a 440MW gap in capability as there are not enough transmission lines to move power generated in the north of the state to America’s largest city. 

Ravenswood Generating Station in Long Island City - a “peaker” plant.

Although New York has not built any gas power plants since 2012, it is extending the life of four plants to maintain grid reliability. Gas has remained vital as a dispatchable power source in places that have switched to a much more renewable-dependent grid. As New York is yet to make the transition, it remains to be seen how much the state will have to rely on its aging plants, but experience from Texas and the UK suggests it will not be able to fully decarbonize, even with substantial amounts of dispatchable hydroelectric power.  

Hydroelectric power is the second largest contributor to the grid, with 21.84% of the state's needs met by over 300 plants. The last major hydroelectric project was completed in 1973. Most of New York's 27.4 TWh of annual hydroelectric power is generated in the north of the state and must be transported to the south, where the main population resides. New York is in the process of building new transmission lines across the state to import hydroelectric power from Canada, but it is not planning any new hydroelectric power plants of its own. New York is not alone in avoiding major hydroelectric projects despite the power they generate being emission-free, partly due to the environmental damage of constructing one. The US has not built a major hydroelectric power station since the 1980s.  

Despite only three operational sites, nuclear energy provides 21.45% of New York’s power. The State has not built a nuclear power plant since 1988. Current climate plans make no mention of building more nuclear capacity despite the fact that nuclear power does not generate any carbon emissions and is a reliable supplier of dispatchable power. Under Gov Cuomo, the three-reactor Indian Point power station closed down, resulting in an increase in gas generation, the exact opposite of what New York climate plans desire. While capital costs for new nuclear power stations are especially high in the US, with the Vogtle plant in Georgia costing over $34 billion, small modular reactors designed to be cheaper and faster to build are entirely absent from discussions on New York's future energy mix.

Wind power is a small contributor to the grid, generating 3.66% of the state's energy needs. While existing Wind power installations are mainly located upstate, the Climate Leadership and Community Protection Act aims to generate 9 GW from offshore wind power by 2035. Unlike the United Kingdom, Denmark, and Germany, the US has virtually no significant offshore wind capacity. The Jones Act, a federal law requiring all goods transported between US ports to be entirely constructed, owned, and crewed within the US by US citizens, hinders the exploitation of offshore wind. As US shipbuilding capacity has shrunk and offshore wind turbines have mainly been developed by European companies using ships constructed in East Asia, there are next to no ships available to build offshore wind turbines. The Vineyard Wind 800 MW project built off the coast of Massachusetts did spur the construction of a specialized US-built vessel to assemble wind turbines to meet the Jones Act criteria, but offshore wind is constrained by too few of these vessels. 

New York's largest current offshore wind farm is a 132-MW project called South Fork. While the construction of the farm cost around $680 million, the cost of customers will pay for that energy is much higher. After years of legal battles fought by residents to find out how much the project costs, the Long Island Power Association claimed in 2017 that South Forks energy would cost $160 MWh. In 2022, the US Department of Energy estimated that the cost of offshore wind was on average $84. As offshore wind is still in its infancy in the US, costs may have been expected to be higher, but even these costs are made under levelized cost of energy (LCOE) estimates that are not suitable for estimating the long-term costs of intermittent energy. It is likely the costs will be far higher, especially as this project then required an additional $512 million in interconnection costs paid by ratepayers.

Although determining the precise price of any intermittent renewable is challenging, developers who have previously secured contracts to supply offshore wind believe that, at the rates they negotiated, wind power is significantly higher than what the Department of Energy believes. New York had negotiated 4.5 GW of its 9 GW offshore wind target to be delivered by 2035. In 2023, wind farm developer BP-Equinor sought to negotiate their contract with NYISO as the previously agreed prices were now unviable. New Yorkers were initially going to pay $107.50/MWh for Empire Wind 2, a 1,260 MW project. After accounting for inflation, interest rate rises, and a lack of workers, the partners were reportedly asking for an increase in the strike price to $177.84/MWh. New York refused to renegotiate the contract, leaving BP Euinor and Orsted-Eversource to cancel their contracts. 

Although pitched as a cheap and renewable power source, offshore wind currently appears to be an unrealistic option for New York. Although the state may try to subsidize offshore wind generation, it will not be doing this from a place of fiscal health. The state faces a $4.3 billion deficit in funds in 2023 that is expected to grow to over $7 billion in 2027 without any significant energy subsidies in place. Its offshore wind target may have to be modified, although the political cost for the incumbent Gov, Kathy Houchlen, may be galling. 

With hydroelectric power unappealing due to environmental damage, more nuclear power not even a part of the discussion, and offshore wind too expensive, the remaining renewable power sources available are solar power and biomass. Solar power in New York is mainly distributed solar - ie, panels on people's houses rather than concentrated in large solar farms operated by generators. This form of solar energy adds significant complexity to the grid because it often intermittently generates too much and too little. Despite falling solar costs, New York has no planned large-scale solar farms or significant battery storage facilities. As an intermittent renewable, claims of solar costs that are based on LCOE are unreliable. Any significant expansion of solar capacity would bring increased hidden costs and complexity. A deeper problem for New York is that its solar potential is quite low, especially in periods where electricity demand is high for heating during the winter. If New York did engage in large-scale solar expansion, it would still have to find power sources during the winter as battery technology is not yet nearly advanced enough to store months’ worth of electricity.  

Biomass is not currently a major contributor to New York's energy grid but is a potential option in the future of the state’s energy mix. Whether biomass, typically wood pellets burnt to power steam turbines, counts as a renewable energy source is currently a fierce debate. The EU Renewable Energy Directive counts it as a renewable source, while the European Academies Science Advisory Council advises that biomass should not count as a renewable energy source. Advocates of biomass claim it is renewable as the pellets are made from timber industry waste products, which are being replanted, and that this is carbon neutral because the trees have already processed carbon as they were growing. While this may be true on a small scale, mass adoption of wood burning is undoubtedly negative for the environment. However, as the current European biomass situation is a political fudge, it is not implausible this could also result in biomass adoption in New York, especially as the US Energy Department currently regards it as renewable. 

Conclusion  

New York’s energy plans to reach 70% carbon-free generation clearly faces some challenges. Although hydroelectric power can likely be relied upon to continue to produce around 28TWh a year, how it will generate the other 100 TWh from only carbon-free sources is an open question. 

For the time being, New York will continue to be stuck between the demands of environmental activists, the law, and a lack of viable projects. The governor’s attempts to bring some measurements of emissions into line with how the federal government measures were met by fierce opposition and halted, leaving the prospect of the Climate Leadership and Community Protection Act being repealed deeply unlikely. The political cost of rowing back the country’s most ambitious climate goals is too high, especially if Governor Kathy Hochul has ambitions to position herself as a national political figure if the Democrats lose this year's presidential election. 

While New York will not be a climate leader, its complete inability to move towards its climate goals may be a blessing in disguise. As it is not installing large amounts of intermittent energy sources, it is currently not hugely stressing its grid, like Texas. If significant advances can be made in battery technology, it does not pay high upfront development costs. If it turns out that intermittent renewable energy is a zero-interest rate phenomenon, New York may have made an unintentionally wise choice in continuing to kick its energy transition down the road.

Semiconductors play a crucial role in the functioning of computers and electronic devices and are therefore vital ingredients in the functioning of the world's economy. Their production is so important that access to the most advanced chips, produced only by the Taiwan Semiconductor Manufacturing Company (TSMC), is a major factor in the United States's implicit guarantee of the island's independence from the People's Republic of China. 

China has spent decades trying to catch up in semiconductor capabilities relative to Taiwan, Japan, South Korea, and the US. Concerned about the consequences of Chinese companies catching up too fast, the US has implemented sanctions designed to slow down this progress. So far, results have been mixed, with Huawei showcasing chips in 2023 that are supposedly only two generations behind those made by TSMC. While this seems not too bad from the Chinese point of view, those only two-generations-behind chips likely involved Western-made equipment from which Chinese companies have now been cut off. 

China is a huge consumer of semiconductors, as well as a producer. Unwilling to face potential disruptions to its future supply, it plans to de-Americanize its supply chain and build up its own capabilities for manufacturing the most advanced chips. The future of China’s semiconductor industry, AI development, and a potential military conflict between the US and China are all dependent on whether China will be able to overcome the effects of Western sanctions and successfully develop the most essential kinds of equipment for semiconductor fabrication: lithography, deposition, etching, and process control.

On the other hand, while the United States leads in semiconductor designs, it has lost the ability to manufacture any significant amounts of chips, advanced or not. Can the US regain the capability to manufacture these crucial components of both modern economies and militaries?

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How do you make a semiconductor? 

A semiconductor starts with highly purified silicon. This is refined into wafers, very thin and perfectly flat cuboids of silicon which are then cleaned and polished. They are then coated with protective oxide and photo-resistant materials before being subjected to photolithography. Photolithography is a process that uses light to transfer a pattern from a photomask to a photosensitive material. The most advanced form of photolithography is extreme ultraviolet light (EUV). 

After photolithography, the photo-resistant coating is removed, as is some of the oxide. This process occurs at the nanometer level – a sheet of paper is about 100,000 nanometers thick. Then, the semiconductor is doped, which intentionally introduces impurities to change how the silicon conducts electricity and creates components necessary for integrated circuits, such as resistors, capacitors, and transistors. Following this, ions are implanted for the same reasons as doping before the wafer is heated to repair potential damage from the process so far. Often, the photolithographic, doping, and ion stages are repeated to create even more complex chips. Unsurprisingly, many wafers have defects. Wafer yields - how many chips are created without defects -  improve over time as the manufacturers refine their processes. For some chips, TSMC has a yield of 80%, while other firms' yields on the same-sized chips can be only 50%.  

Manufacturers and the media conventionally discuss performance in terms of nanometers (nm), representing the distance between transistors on the chip. However, since the 1990s, the nm measurement is better understood as marketing rather than a strict standard. Three-nanometer chips do not have a two-nanometer smaller distance between transistors on the chips than 5-nm chips. Adding to the confusion and akin to how fashion companies use different sizes, similarly marketed chips do not have the same performance metrics. A 10nm chip produced by Samsung can have 50% fewer transistors than an Intel 10nm chip. 

The more transistors that can fit on a chip, the faster and more energy-efficient it becomes, thanks to the ability to perform more operations in parallel, reduce signal travel distances and achieve faster processing with lower energy consumption. Squeezing more transistors onto a chip more efficiently is incredibly complicated and capital-intensive. TSMC's capex spending, at $32 billion, is nearly 33% more than the Taiwanese military’s annual budget. ASML, a Dutch company that makes photolithography machines, spent $10 billion and more than 13 years researching and building the most advanced EUV machine to produce chips smaller than 7nm. 

Different types of semiconductors perform different roles. The key types are logic chips, which interpret and perform instructions; memory chips, which store information; and analog chips, which convert real-world data into digital data. Central processing and graphics processing units are the most recognizable logic chips due to their inclusion in the laptops and desktops that normal people interact with at home. However, field-programmable gate arrays and application-specific integrated circuits are key sources of revenue for chip manufacturers. Very specific and narrow functions, such as image processing, cryptographic operations, signal processing, and neural network inference, can be addressed by application-specific integrated circuits, handling the workload in a parallel manner and reducing training time and costs for AI systems.

China's leading semiconductor fabricator is Semiconductor Manufacturing International Corporation (SMIC). Given the intensive returns to specialization and the large amounts of R&D, if anyone can compete against the leaders in chip fabrication, SMIC would be the foremost candidate. Founded in 2000 and headquartered in Shanghai, it has 18,000 employees and multiple plants in China. Since 2017, it has been run by Liang Mong Song, a 72 yr old former senior TSMC and Samsung employee born in Taiwan. Song was a key member of the TSMC R&D team that developed 130mn chips in the early 2000s and has over 500 patents to his name. After Morris Chang, the founder of TSMC, first retired in 2005, Song was passed over as the head of R&D at the company and was put in charge of developing more efficient trailing edge chips. Furious at not being allowed to work on leading-edge chips, he left in 2009 to teach at National Tsing Hua University in Hsinchu, Taiwan, as he was forbidden from working at other semiconductor companies for two years due to a non-compete clause. 

After 18 months, he moved to South Korea to teach at a university closely associated with Samsung before joining the South Korean giant in 2011 as Vice President and Technical Director. When he arrived, Samsung was trying to develop 20nm chips, two generations behind TSMC. Instead of developing generation by generation, he instead decided to attempt to leapfrog to 14nm, a massive gamble. Fortunately for Song and Samsung, this paid off, and in 2015, Samsung released a more advanced 14nm chip than TSMC’s 16nm. The shocking technological leap led to a massive lawsuit in Taiwan between the two companies, with TSMC arguing Song had broken his non-compete cause. Samsung lost the case, and Song had to step back from Samsung. 

In 2017, the head of SMIC, former deputy head of the Chinese Ministry of Electronics Zhou Zixue, lured Song to the company with guarantees he could select his own team and generous financial incentives, hoping Song could replicate what he had achieved at Samsung and catapult his new employer to the front of the pack in chip fabrication. This move was supported by the Chinese state through the Big Fund, a state-backed investment fund that directed billions of dollars toward Chinese manufacturers such as SMIC. Unfortunately for Zixue and Song, the relationship between the US and China deteriorated after Song joined, making the prospect of replicating his success at Samsung much more difficult. Although talent is vitally important in making breakthroughs in chip manufacturing – something they can get in spades –  even world-class individuals cannot compensate for the lack of the equipment needed to make the most advanced chips. 

ASML’s EUV Photolithography machine costs over $150 million.

Sanctions 

China is now subject to sanctions on semiconductor manufacturing equipment and some advanced chips. The first tranche of sanctions was introduced in 2022 by the Biden administration, aiming to prevent American companies from selling advanced chips and some manufacturing capabilities to Chinese forms. After a number of loopholes in those sanctions were pointed out (and exploited), the Biden administration introduced further sanctions in 2023 to iron them out. Before sanctions were tightened, companies could sell chips that weren’t breaching bandwidth regulations but had similar or better performance than explicitly banned chips. Sanctions also went further in collaboration with allies, preventing companies that rely on American patents from selling tools and services to Chinese companies. 

Under the latest rules, ASML is forbidden from selling its advanced EUV machines (Twinscan NXE:3600D/C) and its less advanced deep ultraviolet light (DUV) Twinscan NXT1930Di machine to China. The lasers in their EUV machines are nearly ten times smaller than those in DUV machines. A DUV machine can be used to produce smaller chips, albeit in less efficient methods, at the cost of multiple exposures. These methods are not commercially viable for the most advanced chips due to repeated processing and resulting low yields, but DUV machines can still create trailing edge chips and semiconductors for military use.  

China is unlikely to escape sanctions on semiconductor manufacturing equipment, as the US, possessing one of the most far-reaching and serious sanctions regimes globally, has effectively persuaded the Dutch, Japanese, and Taiwanese governments to limit Chinese access to both chips and the necessary manufacturing equipment. 

If China is serious about building its own semiconductor supply chain, it will have to rely on domestic companies to develop it. At the forefront of the many incredibly complex supply chain challenges Chinese companies will need to overcome is photolithography equipment. Arguably, ASML’s EUV machine is not one but three separate technological challenges - light source/laser, optics, and the instrument worktable - all of which combine to create a machine with over 450,000 components. In etching a semiconductor, a laser in a photolithography machine does not just have to be capable of firing an accurate beam. To create a 13.5nm chip, the laser must hit its target (30 millionths of a meter in diameter) at 50,000 times a second while the target is traveling over 200mph. The many lenses used in the machines must be smooth on the atomic level. Zeiss, the leading (and only) German optical manufacturer capable of providing lenses and mirrors to ASML, likens the challenge of creating mirrors for ASML to “enlarging the mirror to the size of Germany, with elevations no greater than 0.1 mm”. The last major component of an EUV machine is the precision instrument worktable, which in an ASML machine takes over 55,000 components to control the transistors' carving into the silicon accurately.

Shanghai Micro Electronics Equipment (SMEE) is the most advanced Chinese photolithography company, founded in 2002. It’s advanced for China but not for Taiwan or South Korea: its current SSA600 series machines can be used to create 90nm, 110nm, and 280nm chips, generations behind ASML technology. SMEE previously announced plans to release a machine capable of manufacturing 28nm chips, with the initial release scheduled for 2021. As of January 2024, it has still not released a device, although the company was added to the US Department of Commerce's Bureau of Industry and Security trade restriction list (the Entity List) in late 2022, suggesting they may be close. 

Contrary to the Chinese government's goals of establishing an indigenous semiconductor manufacturing industry, SMEE's suppliers depend on foreign parts, with Chinese companies UP Optotech, Focuslight Technologies, and MLOptic Corp sourcing equipment from abroad. In 2022, UP Optotech revealed that German company iC-Haus was their second-biggest supplier. Doubtlessly, there will be dozens of other examples demonstrating the very high barriers to an entirely de-Westernized semiconductor supply chain. 

Sanctions don’t just apply to manufacturing equipment. The business model TSMC pioneered was fabricating other companies' designs rather than producing chips for a general chip market. By focusing on fabrication methods, they did not have to spend valuable R&D on designing more complicated chips, which is now dominated by US companies. The most successful fabless Chinese semiconductor company, HiSilicon, was acquired by the technology giant Huawei in 2004. Before sanctions, most of its chip designs for Huawei were based on British semiconductor designer ARM and depended on TSMC for manufacturing. In August 2023, they announced the Kirin 9000S, a 7nm chip for Huawei’s Mate 60 Pro smartphones, which were claimed to be manufactured by SMIC. However, it is not actually clear if the 7nm chip is simply leftover rebranded 5nm TSMC stock from 2020, modified stockpiled chips, or an SMIC-produced 14nm chip heavily modified to improve performance.  

Fundamentally, the challenge of creating an entirely domestic semiconductor supply chain is vast. It is easily less of a challenge to put a man on the moon. China must simultaneously break through hundreds of different barriers while the most advanced chip-related companies, TSMC, Nvidia, Intel, and Samsung, can continue innovating at the frontier with no sanctions. Attaining its own semiconductor industry or leapfrogging TSMC or ASML to become the leader in fabrication or photolithography are both extremely unlikely. 

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The guidance computer of an obsolete FGM-148 Javelin Missile.

Behind the cutting-edge

Competition at the cutting edge is not the only issue. Most devices that require computing power, like medical equipment, modern cars, and even fridges, use trailing edge chips. The average electric vehicle contains over $1000 worth of semiconductors, and the largest electric car company in the world, BYD, sources most of its chips from within China. The use of these kinds of chips is only expected to rise as they become more and more incorporated into everyday items. The largest Chinese fabs - SMIC and HuaHong Group, rely on global supply chains for parts and supplies, but they are located within China and have some protection from global supply shocks. US fabless chip designers are almost entirely dependent on foreign fabs to produce trailing edge designs, with 80% of their designs being produced in China and Taiwan. Over the next three to five years, China is anticipated to increase trailing-edge (50-130nm) capacity equivalent to the combined capacity added by the rest of the world. This expansion will bolster a robust supply chain for goods China produces for Western economies, which they currently depend on. While autarky in semiconductors is a Chinese aspiration, the US recognizes this is not a realistic goal for a free market liberal democracy. To keep the global supply of semiconductors flowing, it must work to ensure peace in East Asia - a goal made more difficult by an overstretched US Navy and long lead times to replace precision munitions that require semiconductors. 

While chips for US military use are sourced from a Department of Defense program called the Trusted Foundry, only 2% of the chips required by the US military are sourced from US-based foundries. F35 fighter jets, the most advanced fighters on the planet, rely on chips made by TSMC. The small scale of current production contributes to shortages in a wide range of military equipment. 

As a market economy, the US is also at the mercy of what US-based foundries decide to manufacture. The US was left without 7nm production from 2017-22 as Global Foundries acquired a trusted foundry from IBM and decided to produce less advanced but more profitable chips. The overwhelming majority of military equipment uses trailing edge chips because progress is so fast in chip design, and military equipment needs to be tested to ensure it is resilient. A Javelin missile requires over 200 semiconductors, none of which will be cutting edge. The US has recognized this deficiency in domestic production, passing the CHIPs Act in 2022, allocating billions of dollars in support for domestic manufacturing. 

It is only natural when a government decides to spend tens of billions of dollars of taxpayers' money on domestic production of something, the government will end up heavily depending on a domestic company. Although the CHIPS Act has spurred TSMC to invest in a foundry in Arizona, this plant producing 4nm chips won’t open until 2025, and a second plant won’t open until 2027 or 2028, with no guarantee from the company it will be producing cutting edge chips. It seems the major beneficiary of CHIPS subsidies will be Intel. Unfortunately for the US government, Intel is no longer a leader in chip manufacturing after a disastrous decision in the early 2010s to ignore EUV in manufacturing next-generation semiconductors, which led it to lose significant market share to TSMC and Samsung. Intel faces higher labor and capital costs from manufacturing in the US, which Asian-based manufacturers don’t have to worry about. The CHIPS act talks a big talk about reshoring advanced semiconductor manufacturing to the US, but Intel will face significant challenges in attempting to regain the lead it lost, even with US government subsidies. Just as China’s Big Fund found out, throwing money at the problem does not guarantee success. However, although the CHIPS act will likely not see US companies returning to leadership in semiconductor manufacturing, it will guarantee some domestic manufacturing capability and start to increase US supply chain robustness. 

Conclusion

Perhaps only China or the US could tackle the immense technical challenge of developing a domestic semiconductor manufacturing equipment industry. As it stands, China's attempt to domesticate semiconductor manufacturing is likely to be unsuccessful, and any claimed domestication will probably depend on foreign components. It also seems implausible for China to successfully catch up to leading semiconductor fabricators in the scale or performance of chips, although it can produce chips for specific purposes. 

The United States' challenge is that its embracement of market forces has driven semiconductor manufacturing away from its own borders, while the importance of chips to the world economy has only increased. Although it is attempting to increase its own domestic production through the CHIPS Act, leadership in semiconductor manufacturing is likely to remain in Asia.

Ansar Allah, better known as the Houthis movement, is a Shia militia and political movement based in Yemen. Since 2009, it has increasingly received military support from the Islamic Republic of Iran to fight the government of Yemen and, from 2015, a Saudi-led military coalition. As a result of the Israel-Hamas war, which began in October 2023, the group is currently attacking shipping passing through the Bab el Mandeb strait into the Red Sea. 

Consequently, some of the world's most significant shipping companies are diverting cargo around the Horn of Africa while the US has attempted to assemble a coalition to project shipping. Although it has been successful at protecting against attacks, shooting down 61 drones and missiles, the cost asymmetries are not sustainable, and the operation has thus far not reassured shipping companies, who have redirected their cargo ships thousands of miles south around the Cape of Good Hope. 

The Biden administration faces a complex problem, balancing competing allies' various interests, especially in the context of the Israel-Hamas war. Furthermore, it must decide if military action against the Houthis is worth it to attempt to resolve the threat to shipping. Is dragging the US into a conflict during an election year, while the US is already supporting two nations at war and with an increasing Chinese threat to Taiwan worth the risk?  

The Houthis and Iran

Ansar Allah began in the early 1990s as a theological movement based in former North Yemen to promote the growth of Zaydism, a branch of Shia Islam. The movement grew throughout the 1990s under the leadership of the al-Houthi brothers (Abdul-Malik, Yahia, Abdul-Karim, Hussein, Ibrahim, and Abdulkhaliq) and saw rising tensions with the government of Ali Abdullah Saleh. In 2004, Hussein al-Houthi was killed after the Government began arresting members of the movement, leading to an uprising. After his death, the movement took his name, and the uprising continued under Abdul-Malik. 

After a ceasefire in June 2005, sporadic fighting continued with various intensity until 2009, when the Yemeni government undertook Operation Scorched Earth, at which point Iran, a fellow Shia nation that follows the Imāmiyya branch of Islam, is first estimated to start seriously arming the Houthis. For decades, Iran has been engaged in a bitter struggle with its regional rival, Saudi Arabia. Supporting the Houthis by causing discord on Saudi Arabia’s borders was a natural opportunity for the Iranians. 

Operation Scorched Earth ended in 2010 with a ceasefire. In 2012, President Saleh resigned in the wake of the Yemeni revolution, and President Hadi took over. This did not lead to stability but continued conflict, and in 2014, the Houthis took control of the capital, Sanaa. At this point, they controlled around half of the country and a majority of Yemen's 28 million-strong population. In February 2015, the Houthis took control of the government, leading to a Saudi Arabian-led coalition launching Operation Decisive Storm to reinstall President Hadi and the internationally recognized Government of Yemen. 

The coalition (shortly renamed Operation Restoring Hope) launched against the Houthis was, on paper, at least, formidable. In addition to Saudi Arabia, the United Arab Emirates, Egypt, Morocco, Jordan, Bahrain, Sudan, and Kuwait all committed to various levels of military support. Saudi Arabia was able to assemble this coalition as Iran's backing of the Houthis had increased considerably since 2009, and although Iran and the Houthis do not share entirely the same theological views, they were viewed as enough of a threat by the various coalition members. The coalition also had the backing of the US and the United Kingdom with weapons, training, and muted political support. Although it was a large coalition, at the same time, the Islamic State was rampaging through Iraq and Syria, and some states were far more focused on that threat, contributing little to the conflict in Yemen. 

Saudi Arabia was far from successful in this conflict. By 2019, US congressional political support for the coalition as Yemen fell into famine, and the Saudis were accused of committing a series of atrocities, leading President Trump to veto a bipartisan congressional measure to end the US involvement in the war.  The UAE had entirely withdrawn from the war in the same year, but Saudi Arabia could not extricate itself.

In August 2019, the Houthis claimed to have launched a drone and cruise missile attack on Saudi oil processing facilities in Abqaiq and Khurais, over 1000km from Yemen. The attack was shocking. US-supplied MIM-104 Patriot missiles and Skyguard Air Defence Systems and radar were defending the facilities. Although the Houthis claimed responsibility for the attack, the 18 IRN-05 UAV drones and seven Ya-Ali cruise missiles were more likely fired from Iran.  

The Covid pandemic brought a pause to further fighting for a brief while before violence scaled up again in 2021 when the Houthis launched an assault on the Marib province. By 2022, the Saudi coalition had lost the war, President Hadi had been forced from power on the Yemeni Presidential Leadership Council by the Saudis to be replaced by Rashad al-Alimi, and Yemen settled into an uneasy peace. 

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Map of Yemen, September 2023 - The Houthis are shown in green, the Government of Yemen in red, and the Southern Transitional Council in yellow - source.

The Red Sea Threat  

Although Iran is not allowed to export weapons, it has nevertheless supplied groups affiliated with it with thousands of missiles and drones, as well as designs and engineers to help the groups manufacture their own. These proxies help extend Iranian influence far beyond its borders. The Iranian-designed missiles that Hamas has been launching since October 2023 were constructed by a mix of manufacturing in the strip and smuggling. Hezbollah’s missiles in Lebanon are also positioned to pose an Iranian threat to Israel and shipping in the Meditteranean. 

However, Yemen's position adjacent to a crucial shipping lane means the Houthis have more interest in Iranian-designed anti-ship missiles than other Iranian proxies. These include the Asef missile, based on the Fateh-313 ballistic missile with a range of 450 kilometers carrying a payload of more than half a ton. Some captured missiles from Yemeni Government stockpiles have been converted into makeshift ballistic missiles, such as the Muhit missile, which was converted from Soviet-era SA-2 Guideline missiles.  

On the 15th of November, more than a month after the Israel-Hamas war began, the Houthis hijacked the Galaxy Leader cargo ship. In December, they then issued a threat to all ships connected to Israel transiting the Red Sea “unless Gaza’s needs for food and medicine are met.” Further attacks on ships such as the Norwegian-owned Swan Atlantic, carrying vegetable oil, and MSC Palatium III, a container ship, demonstrated the Houthi's willingness to follow up on their threats. 

As the Houthis have attacked ships with tangible links to Israel at best, insurers and shipping companies have decided to avoid the Red Sea until further notice to avoid ballistic missile and air/sea drone attacks and boarding attempts by the militants. In terms of the Houthis goal of attacking Israeli trade, Eilat Port on the Red Sea has seen an 85% drop in traffic since the crisis began, although Israel's largest ports are situated on its Mediterranean coast. Importantly, the Houthis have not yet targeted oil or gas shipments. 

Around 12% of all global trade and over $1 trillion worth of goods pass through the Red Sea every year, and more than ​​50 ships a day pass through the Suez Canal at the northern end. When the Ever Given container ship wedged itself in the Suez Canal in 2021 for six days, it caused over $9 billion worth of trade to get stuck. Depending on the destination, sailing around the Cape of Good Hope can add 30-40% extra distance for ships sailing from the Persian Gulf, typically oil or LNG shipments. For cargo ships sailing from Asia to Europe or Africa, the % increase is smaller but adds thousands of miles and as much as two weeks extra sailing time.

Due to this considerable disruption to global trade, on the 18th of December, the US announced a naval coalition to help protect ships passing close to the danger area. While the initial announcement included over 20 countries, only the United Kingdom has provided a ship to the US-led coalition so far, and only two more, Denmark and Greece, are currently planning to join, sending a single ship each. Some nations, such as France, Italy, and India, refused to join Prosperity Guardian because they do not want to be seen as contributing to allowing Israel to continue its war against Hamas. In protecting the shipping lane under a US-led coalition, less political pressure would be on the Israelis to end the war.

Similar to the Saudi-led “coalition” that fought the Houthis from 2015, the “coalition” is dominated by one country. The task force is headed by the USS Dwight D Eisenhower, a Nimitz class supercarrier with over 90 fighters and helicopters. Although one of the most powerful naval assets available in the world, it is not the carrier that has primarily been engaged in intercepting the Houthis missile and drone attacks, but her escorts, the USS Laboon, USS Gravely, and HMS Diamond, all air defense destroyers. 

The USS Laboon and USS Gravely are Arleigh-Burke class destroyers that used Standard Missile-2 Block IVs to shoot down the incoming Houthi attacks. These missiles cost over $2 million each, while the Houthis are shooting at ships for a few thousand dollars a pop, and their drones cost as little as $2000. Although Arleigh-Burke destroyers are able to use much cheaper 5-inch gun munitions to shoot down drones (as demonstrated by the USS Carney last year), this is not always an option. HMS Diamond, which used a Sea Viper missile (similar in price to US missiles) to shoot down a drone, is not able to use its 5-inch gun to shoot drones because software support enabling the gun to track small targets was withdrawn, and will not be available until the end of 2026 when new British frigates come into service. Its Sea Viper missiles can also not officially shoot down the missiles the Houthis are launching, although its radar system can help identify incoming threats for the rest of the task force.

It is simply not sustainable to shoot down drones costing thousands, with munitions costing millions. Although the US Navy has been working on a high-powered laser system to enhance air defensive capabilities, it is not currently available in this crisis. In the meantime, the Biden administration has to make a choice. 

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An imagined US carrier-led naval task force in the Red Sea.

No good options 

The US has a number of options on what to do next. It can continue to operate Prosperity Guardian as it currently is and bear the asymmetric cost, hoping for no changes in strategy from the Houthis or other regional crises to break out. It could launch airstrikes on Houthi positions to try to degrade their ability to threaten shipping and attempt to convince them to stop by inflicting enough pain. The US could do this independently or could start an operation in cooperation with the internationally recognized Government of Yemeni, which currently has a ceasefire with the Houthis. It could attempt to persuade regional allies to attack the Houthis with US support or lower their objections to US action. It could accept that shipping is unlikely to return to the Red Sea while the Israel-Hamas war is ongoing and send its ships home until Hamas has been eliminated or Israel is forced to stop either through domestic or political pressure. 

The last option is deeply unlikely. Giving up would be an incredible sign of weakness and would embolden the Houthis, their backers in Iran, and every other US adversary. The US’s regional allies - Saudi Arabia, the UAE, Qatar, and Bahrain, among others - all share a desire to see the Israel-Hamas war end and, like Western nations who have not committed to Prosperity Guardian, do not want to be seen to contributing to allowing Israel to continue with its war.  

Launching strikes against the Houthis is an option available to the US. Although this is feasible from a military standpoint with the ability to launch strikes from carrier-based aircraft in the area, cruise missiles from other naval assets, or longer-range strikes from bases using air-to-air refueling, it is unlikely the Houthis ability to threaten shipping would be seriously disrupted by a few precision strikes. The group has the ability to move its missiles around and has years of experience avoiding Western-trained Saudi pilots conducting airstrikes.

It is doubtful that striking Houthi positions would cause enough political pain to cause them to stop. The group does not rule Yemen as a democracy, and although not a direct puppet of the Iranian regime, it is dependent on Iranian support, and Iran will not want the pressure on the US to let up. The Houthi leadership has also been adamant that they are willing to withstand US action and may even escalate. Attacks inside Yemen could also invite further attacks on the carrier group aimed at seriously hitting one of the vessels in a combined anti-ship missile/swarm drone attack, which would attempt to overwhelm the air defense to seriously damage or sink a ship. 

Although action could be unilateral, the United Kingdom, which thinks of itself as the closest US ally, is considering airstrikes if the US goes ahead. The Royal Navy has aircraft carriers that claim to be ready to sail from southern England in 72 hours, but the Queen Elizabeth class aircraft carriers do not have enough escorts to protect them as a part of a British-only task force. HMS Diamond is currently the only one of six Daring class destroyers available. British forces do have access to bases proximate to the Middle East, but British aircraft flying from RAF Akrotiri in Cyprus would need to fly a long route over Egypt, which is not guaranteed to grant permission, or through Israeli airspace, a politically sensitive route. Qatar is unlikely to be happy about RAF flying missions from Al Udeid Air Base, and any missions would need air-to-air refueling as Saudi Arabia may refuse permission to use its airspace as well. An alternative option would be Camp Lemonnier, the US base in Djibouti, to host British aircraft longer-term if a campaign was started and looked like it would continue for some time.

Although some forces say they are willing to fight the Houthis with Western support, these are relatively weak. Perhaps more importantly, the US’s regional allies do not want to disturb the fragile ceasefire that exists between the Houthis and the Yemeni. This calculation may change if the Houthis actions significantly alter their relative negotiating power versus the US’s regional allies. Additionally, it is not impossible for the US to decide to support the weaker side in a conflict that its allies suggest is deeply unwise. 

Involving US forces in a conflict with no clear way of ending it is also likely unpopular at home. Although the situation has now changed with the threat to shipping, it is only a few years since Congress bipartisanly called for an end to US support for the Saudi-led coalition. It is also an election year, with many supporters of President Biden wanting an end to the Israeli-Hamas war. 

Operation Status Quo  

Absent other crises that require US attention, if the Houthis were attacking shipping, then launching some punitive strikes may already have happened. The Houthis only have the opportunity to threaten international shipping because of the delicate situation the Israeli-Hamas war has created, and any US military action will cause fallout that will have to be further managed.

With an overstretched US Navy, next to no allies willing to help protect shipping in a combined effort, and few tangible benefits from launching a campaign of punitive strikes, the Biden administration may decide that doing more than continuing their current limited operation is the best course of action. Despite the high cost to international trade, the political and military risk from striking the Houthis, without much support from allies over a sea route that does not hugely affect American energy imports or trade (most trade between the US and Asia flows through across the Pacific, with significant amounts then passing through the Panama Canal) does not seem particularly attractive. The US is already dealing with its forces under attack in Iraq from Iranian proxies, and if the situation gets worse, it will need some capacity to respond. If a conflict between Ethiopia and Eritrea breaks, then the US may not want to be engaged in a campaign of strikes on the other side of the straits. It also has to bear in mind that less pressure will be on the Israelis to end their campaign against Hamas, as the disruption to trade will be seen to have been escalated by the US. 

The efffective closure of the Red Sea will primarily affect Gulf states exporting fuels through the Suez Canal and trade between Europe and Asia. Although France and Italy have forces in the area to protect their own shipping, most European states are relying on the US to ensure the safety of their shipping. If it engaged in offensive actions against the Houthis, it would bear all of the risk for little reward, which makes little strategic sense. If energy prices rise and shortages emerge in Europe, this is not a priority for the US. In the European-wide EU elections in June, right-wing parties may make gains due to dissatisfaction over the economy and immigration, which should make some European governments worry, but due to persistent underinvestment in their militaries, few European countries can project force independent of the US. If pressure builds, more countries could be tempted to join Prosperity Guardian, easing the burden on the US - but this will only happen with time. 

Chinese exporters to Europe seeing increased costs may induce the Chinese government to pressure the Iranian government to pull the leash on the Houthis. Overstretching the US military is in China’s interest, especially if it wants to take military action over Taiwan with Taiwanese forces in disarray. However, there are no indications (with the first of two annual weather windows to invade across the straits of Taiwan soon approaching) that militarily disrupting the US is a priority for Xi Jinping, particularly amid concerns over rampant corruption in the Peoples Liberation Army Rocket Force.

Although oil and gas exports are currently not being targeted, the US may come under diplomatic pressure from Gulf allies to do something about the Houthi threat because of the effects it may have on strengthening the Yememi group’s future political strength. Here again, the US would bear most of the political and military cost for its allies, and if it happens, the Gulf states would surely be offering something in return.

Maintaining an aircraft carrier strike group firing expensive missiles to shoot down cheap drones is not in the dictionary definition of doing nothing, and nor is it ideal. However, compared to the other options available to the US, it might be exactly what happens.

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However, Rolls Royce has a new CEO, Tufan Erginbilgic, who has seen the stock price triple in under a year. Erginbilgic seems determined to cut costs and grow the company, with a distant eye on returning Rolls Royce to manufacturing jet engines for the lucrative narrowbody aircraft market. Although dependent on partners for orders of civil aerospace engines and parts, Erginbilgic also hopes to grow its business by abandoning its traditional aerospace business model of relying on maintenance contracts. Due to its naval nuclear reactor experience, Rolls Royce is one of the best-placed companies to successfully build small modular reactors and help the West embrace a nuclear renaissance. Erginbilgic’s success in cutting non-essential projects means under his leadership, he will not hesitate to cut even this promising project if the British government continues to drag its feet on choosing a partner for its SMR project. Rolls Royce's leadership change and an expected new Government offer that government a rare opportunity to elevate a latent strategic partner into a world-defining asset.  

Civil Aerospace

Rolls Royce is currently the world’s largest civilian large jet engine manufacturer, with a 54% market share in 2022. Over 30% of the group's total revenue came from the large engine component of its civil aerospace business. The ability to manufacture safe, reliable, and increasingly energy-efficient engines makes Rolls Royce a vital part of the world economy. Its large engine offering includes the Trent 7000, XWB, and 1000 engines, which equip the widebody Airbus 330, A350, and Boeing 787 planes, respectively. Rolls Royce has a close relationship with Airbus and is currently due to deliver 1287 engines to the European aircraft manufacturer. Airbus, along with Boeing, forms a duopoly in civilian aircraft manufacturing. Together, they comprise 90% of aircraft orders. For decades, Airbus was the smaller company in the duopoly. However, after the Boeing 737 Max was grounded worldwide after two crashes in 2019 that killed over 340 people, Airbus overtook Boeing in revenue. Most airlines still tend to mix their orders between the two companies. Since the pandemic, massive orders from Air India and Turkish Airlines have favored Airbus, and Rolls Royce is set to benefit from these orders.

Even before the Russian invasion of Ukraine, major Russian civilian aircraft manufacturer United Aircraft Corporation struggled to sell its domestically produced aircraft abroad (and was heavily reliant on Western engines and parts). It will likely have to spend years reestablishing its supply chains after being cut off from Western parts. A joint Russian/Chinese effort to develop a narrowbody aircraft (the Comac C919) was delayed for years and is only expected to sell aircraft within China and Russia, and like UAC’s effort, was heavily reliant on Western parts, with more than 40% of its components being Western origin. There are currently no alternatives to the widebody aircraft that Airbus and Boeing produce, and the only major competitor that Rolls Royce faces in large engine manufacturing is General Electric (GE), an American aerospace company. GE produce the General Electric GEnx, a turbofan engine that is the competitor for Rolls Royce’s Trent 1000 on the Boeing 787. Around 70% of all the engines produced for the 787 have been produced by GE.

A Trent XWB Engine on an Airbus A350

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This large engine success masks a current major weakness of Rolls Royce - failure to compete in engines for the narrowbody aircraft market, such as the Airbus A320 and Boeing 737 planes, which conduct short haul/intercontinental flights and are the workhorses of most airlines. It left narrowbody engines in 2011 after deciding to focus on widebody aircraft engine production. The narrowbody engine market is split between CFM International (a GE/Safran collaboration) and Pratt and Whitney. Although large engines cost more, Rolls Royce’s share of all engines sold is only 18%.  

Rolls Royce executives at the time were reluctant to commit to new engines for large numbers of retrofits rather than new aircraft. Older airframes have less time to make money back for engine manufacturers. Rolls Royce executives also believed that demand for widebody aircraft would be higher than it turned out to be. This prediction proved poor due to improved range from narrowbody aircraft and delays to widebody aircraft - caused in part by problems with engines. This meant airlines did not want to invest in the much more expensive widebody aircraft. This decision has cost Rolls Royce billions in revenue over the years, and its leadership believes it has missed the opportunity to reenter the narrowbody engine market until at least the late 2020s. As Erginbilgic looks for future growth potential, correcting this past misstep will surely be among his options. 

Along with prior costly decisions, Erginbilgic has also had to deal with the legacy of some poorly performing engines. Rolls Royce suffered financially and reputationally from delays to Trent 1000 engines certification for the Boeing 787, as the contracts for the engines put most of the risk of engine malfunctions on Rolls Royce themselves, rather than sharing it with the aircraft manufacturer and/or final purchasers. The troubled development of the Trent 1000 engine cost the company over $2.4 billion. 

A long-term problem for Rolls Royce has been their business model for selling engines. Previously, they made a loss per engine sold but made money back over time by relying on maintenance (shop visits) and upgrades. By doing so, they locked in revenue generation and buttressed themselves against new entrants who cannot credibly guarantee to be around servicing engines in a decade or so’s time. However, this reliance on maintenance contracts and repairs for revenue became a problem for Rolls Royce as their engines became more reliable, requiring fewer spare parts and less maintenance. As a part of his new strategy, he has raised engine prices to offset the declines in revenue from maintenance contracts. This has not been without consequences. Erginbilgic was embroiled in a public fallout with Emirate Airlines over cost increases for XWB-97 engines which were due to power an order of A380-1000 jets. Emirates refused to order the jets from Airbus without engine reliability improvements for desert conditions. 

Despite this, investors seem to believe he can significantly strengthen the company. Listed on the London Stock Exchange, Rolls Royce’s share price has risen over 200% in 2023. Cynically, one could argue that this is merely a rebound from the pandemic lows across the aerospace industry, but this cynical view does not reflect the changes he has made to the business or that the current share price is a 30-year high. Although some cost-cutting began under his predecessor, Erginbilgic accelerated this. He closed a direct carbon capture project that was started in 2021. He has shut Rolls Royce’s in-house AI start-up, even as funding for AI businesses worldwide has boomed. 

Defense 

One part of the company that is unlikely to be spun out or shut down as Erginbilgic reorganizes the company is the defense component. Its revenue was £3.6 billion ($4.58 billion), and in 2022, it was the most profitable part of the whole company. If Rolls Royce were just a defense company it would be the 22nd largest in the world. Although the current largest contributor to the defense component of the business is its production of aircraft engines for jets, helicopters, and turboprop aircraft, its production of naval nuclear reactors makes the company vital to British interests. 

The Royal Navy currently operates ten nuclear submarines - six attack submarines armed with torpedos and land attack missiles responsible for sinking enemy ships and striking coastal targets in a war1. The Royal Navy also operates four Vanguard-class ballistic missile submarines carrying Britain's continuous at-sea nuclear deterrent. Rolls Royce builds the reactors that power both classes of submarines and has built the reactors for every British nuclear submarine. The maximum thermal power output of the PWR2 reactors Rolls Royce builds is estimated at 148MWt. It is a highly technical and specialized capability, with higher engineering standards on military vessels required to demonstrate the ability to survive battle damage, operate in a harsh environment, and regularly change power output, which civilian reactors do not have to do. Despite significant delays and cost overruns with the Astute class submarines, it does not appear these have been caused by Rolls Royce. Such a long history of precision engineering is an accomplishment. 

Producing the components utilized in naval reactors takes up to 4-8 years, involving precision machining, welding, grinding, heat treatment, and nondestructive testing of sizable specialized metal forgings. The knowledge required to create steel for nuclear reactors and the sensitive nature of production led to the nationalization of Sheffield Forgemasters, a supplier to Rolls Royce, in 2021. Although Rolls Royce is in a far healthier financial position than some of its suppliers, if Rolls Royce ends up in financial distress, its nuclear reactor business is so critical to the strategic deterrent that this part of the business would be nationalized or sold off to another British firm. 

There are only three Western private companies that can build nuclear naval reactors. In the US, despite a far larger nuclear submarine program and the US Navy’s supercarriers also being powered by nuclear propulsion, only BXW and Bechtel have contracts with the US Navy. The French company which produces reactors for the Marine Nationale’s Triomphant and Barracuda-class submarines is state-owned. Rolls Royce's position as one of the very few Western manufacturers of naval nuclear reactors led to it being awarded the contract for the Australian nuclear submarines being developed as a part of the AUKUS agreements. 

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While Rolls Royce is nowhere near the primary manufacturer of F135 engines for the F35 fighter jet (Pratt & Whitney, the American aerospace company, build the majority), it is responsible for the LiftSystsem, which enables vertical take-off and landing (VTOL) on the F35B variant - although operationally the aircraft tend to use runways and not exclusively take off and land vertically to save on engine wear and fuel. The F35 program is the largest military procurement program in history, and around 10% of all F35 orders are currently F35Bs. Rolls Royce previously manufactured the Harrier SVTOL aircraft, which enabled British victory in the Falklands War and found popularity in the US Marine Corps due to its ability to take off from smaller decks at sea. Britain, the USMC, Japan, and Italy, all of whom operate smaller carriers than the US Navy’s supercarriers wanted a VTOL variant of the F35, and Rolls Royce's experience with successfully manufacturing the Pegasus engine for Harrier landed them the contract for the LiftSystem. 

Rolls Royce manufactures the EJ200 engine for the Eurofighter, which has current orders for the Qatari military. They maintain the RB199 for the Tornado multi-role combat aircraft operated by German, Italian, and Saudi air forces. The company has a contract to produce F130 engines to power B52 bombers as a part of the modernization program, which will power them until 2060. Away from jet engines, they build AE 1107C engines for the US military's Osprey aircraft,  CTS800 engines for the Royal Navy’s Wildcat helicopters, and AE 2100D3 turboprop engines for aircraft including the C-130J Hercules. The company has also produced drone engines, notably the Global Hawk and Triton ISR aircraft. These various programs demonstrate the significance of Rolls Royce to Western military power as a whole.

The company is likely to play a part in producing engines for the Tempest sixth-generation fighter jet project, a joint collaboration between the British, Japanese, and Italian governments, as there are no Italian or Japanese companies with the ability to manufacture jet engines. Tempest is partly an attempt to keep non-American fighter jet production viable in Western countries. If the project is successful, Rolls Royce could see future orders with Western-aligned countries, who will also struggle to afford large numbers of American-made aircraft. 

Bing imagines what the Tempest jet may look like.

Who is going to build the Nuclear Renaissance?

The production of advanced jet engines and propulsion systems for nuclear submarines certainly makes Rolls Royce an interesting company. However, a proposed system of small modular nuclear reactors (SMRs) for the civilian market could make it far more influential.

Current nuclear power plants have extremely high up-front capital costs. Over-regulation and over-engineering contribute to these high costs, but another important aspect is that most Western nuclear reactors are bespoke projects. Different regulatory considerations, builders, and reactor designs mean new lessons have to be learned repeatedly, rather than perfecting a standardized process for building plants which would lower costs in the long term. Making the problem worse is that in many countries that struggle to find investment for nuclear power plants, wind, and solar energy are massively subsidized, making any prospective investment in a nuclear power plant even less attractive.

However, due to increased concerns about energy security, the unreliability of intermittent renewables, and a continued desire to reduce emissions from fossil fuel production, small modular reactors - which can be produced in factories and then assembled at a lower cost on a smaller site - have attracted a great deal of interest from states around the world. Although Rolls Royce’s proposed 470MW reactors are far larger than their reactors for the Royal Navy, the company has decades of experience in constructing small reactors, making it a promising partner for the British government's desire to add a fleet of SMRs to the national grid. 

At the moment, there is little urgency on the part of the British government to see these SMRs connected to the National Grid or to support a British company in exporting them. The SMR process is expected to find a winner to partner with Great British Nuclear (GBN) “by 2030” with an ambition to have SMRs connected to the grid in the mid-2030s. GBN claims this is the fastest kind of competition in the world, giving the impression Britain is leading the world in SMR deployment. This is laughable. The competition for SMRs has been running since 2015 - back then, the ambition was to have SMRs operational by the mid-2020s.

More concretely, in Texas X-Energy is due to start building a 320MW SMR facility for the chemical giant Dow in 2026. By this time, GBN will still be three years away from making a final investment decision, due in 2029. Although it is very unlikely that Chinese SMRs will be built in Western countries for now, in South China's Hainan province the Linglong One project will come online in 2026. It is plausible that by the time any GBN SMR project is running, the Linglong will have been running for over 10 years. China’s National Nuclear Corporation may be finding export partners in Pakistan even before a decision is made by GBN as to which British company will build the UK’s SMRs. GBN is not the only stick in the dam. HM Treasury (the British finance ministry) has refused to commit to funding any SMRs, regardless of who wins the bid. 

This slovenly approach to approving SMRs is a massive wasted opportunity. Although prospects of exporting SMRs to France or Germany might be thin due to French domestic nuclear power and German fondness for coal-fired energy, outside Europe countries are desperate for new power sources. Furthermore, Rolls Royce is one of a few British manufacturers with a history of delivering complex projects to US companies. In states such as Texas and California, which are seeing increasing grid instability due to an influx of intermittent renewables, the company could use its SMRs to deliver reliable energy to individual US companies. Being the supplier of private nuclear power plants to the world’s most important companies is an aspiration any British government should want for a British company.

More speculatively, given the high costs of intermittent renewable energy it is not impossible that some countries will decide to reverse commitments to renewable energy and instead opt for a long-term nuclear strategy to lower their renewable emissions (as Ontario has done). In this world, a track record of a successful SMR buildout would be the most successful Western nuclear project of the 21st Century and would make Rolls Royce a natural partner to build larger reactors at scale. This may not be in the plans of the current Rolls Royce leadership but it does not require a large leap of imagination. 

To capture the economic benefits of a successful fleet build-out and start exporting to other countries, the British government's SMR rollout time scale needs to accelerate. With 70 designs from companies in 18 countries planning their own SMR builds, GBN's slow-paced competition seriously risks the benefits of adding more low-carbon, reliable nuclear energy to the grid. It also risks losing out entirely on the influence and profits a nuclear industry export capacity would bring.  

A future Rolls Royce large nuclear reactor factory, churning out hundreds of gigawatts of capacity a year.

Conclusion 

Tufan Erginbilgic and his team are focused on making Rolls Royce a growing and competitive company. Although Rolls Royce is unlikely to ever abandon its contacts for reactors for the Royal Navy in order to invest more in the largest part of the business and recapture market share in narrowbody aircraft engine production, any future British Government should not blithely assume that RR will stick around until 2029 for a project that will not start seeing returns until the 2030s. Erginbilgic has confirmed that Rolls Royce will run out of money for SMR development in 2024. In 2024, Britain will face an election. The winners of that election have the opportunity to speed up, or abandon entirely, a treacle-like competition to contribute to critical national infrastructure and build a new export industry. This is the very least they should do. A Government serious about seizing opportunities should commit financial support to whoever is chosen, and the usual absurd planning and regulatory mountains should be abandoned. Rolls Royce is perhaps Britain's most strategic asset - maybe the government should start treating it like one while it has the opportunity. 

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The Electric Reliability Council of Texas, or ERCOT, operates the Texas Interconnection, the electricity grid covering most of Texas, supplying electricity to over 26 million Texan consumers. In 2021, the grid experienced blackouts that killed hundreds of people. It was later revealed the grid came within four minutes of a total shutdown, which could have taken days or weeks to restart. Dysfunction continued in 2022 and 2023, with blackouts coming close nearly a dozen times this year alone. The issue has not been fixed despite billions of dollars of funding, and Texas risks yet more grid disruption this winter. 

In the aftermath of the 2021 disaster, Texans were caught in the crossfire of a media war as different interest groups rushed to blame one another. Renewable advocates were quick to point to frozen gas pipelines as the guilty party, whilst advocates for fossil fuels blamed the unavailability of wind and solar for the tragedy. The truth is more complex. Unpicking the dysfunction of the Texan grid provides vital lessons for a Western world that is rushing to switch to carbon-free generation.

Alone in the Current

Like other large nations such as China, India, Canada, and Australia, the United States has several electrical grids. In the continental US, there are two main electricity interconnections and three minor. The Eastern Interconnection serves a large portion of the population, including major cities like New York, Atlanta, and Chicago, and crosses into Canada through the midwest states. The Western Interconnection covers most of the Western seaboard and connects to the Mexican grid. These interconnections are managed by a number of regional entities. The Quebec and Alaska interconnections are two of the three minor interconnections.  The last primary grid is the Texas Interconnection, which the Electric Reliability Council of Texas manages. There are parts of Texas not managed by ERCOT - El Paso, the upper Panhandle, and some of East Texas. Still, around 90% of Texans get their electricity from a grid not substantially connected to the rest of the US grid systems. In Texas, ERCOT manages the interconnection/grid and the market serving it. 

Texas is not just independent from the other major electricity grids but also avoids being overseen by federal regulators. Indeed, Texas has a separate grid because of a desire by various Texan utility firms in the 1930s to avoid regulations created by President Roosevelt in the aftermath of the Great Depression. By only providing electricity within Texas, the companies did not cross state lines and, therefore, did not fall under the new Federal Power Commission (FPC) (now the Federal Energy Regulatory Commission). In 1970, in response to the North American Electric Reliability Corporation being formed after the 1965 Blackout, the Texan-based companies set up an interstate power pool named ERCOT. Although there was a legal battle in the mid-70s to try to prove that ERCOT was interconnected with the other grids prompted by the deliberate sending of power to Oklahoma by a company that operated grids in both Texas and Oklahoma, ERCOT managed to avoid being forcibly connected to the Southwest Power Pool.

In 1999, then-Governor George Bush signed the first renewable energy mandate for utilities, directing 1280 megawatts (MW) of generating capacity from renewable technologies by January 2003. Texas smashed through this target, leading Gov. Rick Perry to sign an expansion in 2005, roughly doubling the targets set in by the first mandate, calling for the state to obtain 5,880 MW, or about five percent of the state’s electricity, by 2015. Due to state and federal subsidies and favorable conditions for generators, who do not have to pay to connect to the grid, Texas also blew through this target. 

The current Texas energy mix is still dominated by combined cycle gas turbine units (CCGT)1, which accounted for 37% of generation in 2023. Non-CCGT gas then produces a further 9%, totaling 46%. Gas-fired generation in the state has a maximum capacity of 69.9 GW.

Wind is the second largest contributor to the grid at 24%. Texas has the most wind turbines in the US and is only just shy of having more than the next three states put together, with more than 15,000. Total installed capacity is over 40GW, more than a quarter of all wind generation in the US, and if Texas were a country, it would have the fourth-highest capacity in the world.

The Situation Today 

A near blackout at the beginning of September of this year again highlighted some of the problems with ERCOT’s current energy mix. As twilight approached on September 7th, Texans continued to use air conditioning in the unseasonal heat as solar power became less and less available due to the sun setting. Wind generation conditions were poor, and ERCOT issued a Level 2 Energy Emergency Alert in response, meaning all available generation had to be brought online immediately. Along with ramping up what little generation was available, Texans were sent text messages asking them to reduce their electricity consumption to avoid what ERCOT and other independent system operators (ISO) call a Level 3 Emergency Alert. In a Level 3 alert, managed blackouts occur as there is insufficient power to supply the grid, but the frequency must be kept at a certain level so as not to damage generation inputs. This was the most severe incident of the past few months, but Texans have been requested to conserve energy on ten separate occasions over the summer due to the elevated demand for electricity. With increased temperatures due to climate change on the horizon, the Texan grid will likely continue to be tested in subsequent summers.

In the end, enough power could be brought online to stop the emergency from escalating further, and blackouts were avoided. Had uncontrolled blackouts occurred, they would have wreaked havoc on the grid's physical infrastructure, on industries relying on energy to keep their industrial processes stable, and, most seriously, put lives at risk. The blackouts in February 2021 resulted in the tragic loss of hundreds of lives due to extreme cold and power outages. Samsung lost over $290 million and a month's production at a semiconductor plant outside of Austin. The 2021 blackouts, as bad as they were, could have been much worse. As previously mentioned, the grid came within four minutes of a total shutdown. Restarting an electric grid from a complete shutdown is known as a black start and can be done by turning on dispatchable power such as gas, oil, or hydro. All grids are supposed to maintain backup generators to get the grid back online as soon as possible - even the biggest total blackout in US history was resolved in under 24 hours. Unfortunately, Texas does not have any significant hydrogen or oil-fired power generation, so its black start capacity is entirely gas-fired power plants.

Gas-fired power plants in Texas typically rely on supplies delivered through pipelines, not through storage on site. In the winter 2021 blackouts, not only were over 30% of ERCOTs rated winter capacity offline, but 14 of the 28 backup generators were also offline. If more of these backup generators had failed, it could have taken days or weeks to bring the grid back online rather than a number of hours.

Renewable energy advocates were quick to point the problems with gas-fired generation out in response to the Governor's claims that the lack of renewable supply had caused the blackout, with many claiming that the “pipelines froze.” This is inaccurate, as pipelines are buried underground, and natural gas cannot freeze. However, facilities that help pipelines carry gas were cut off from power, and this issue (among others) saw so much gas supply drop off, meaning gas plants couldn’t operate. It was a cascading failure. Much of Texas’s wind generation, which is not a dispatchable power source in the first place, was also offline. Regarding total generating capacity offline at the peak of the crisis, gas and wind were equal at 41% of their rated capacity being offline. The problem was not simply gas versus wind but a system failure.

On the 7th of November, 2023, billions of dollars of state funding were approved to support a more reliable grid. These costs include a $7.2 billion low-interest loan and grant program to build and maintain more dispatchable power, well as “$1.8 billion of state funds for grants or loans for the operation of stand-alone, “behind-the-meter” multiday backup power sources” to guard against grid failure at critical locations and another $1 billion “grants to transmission and distribution infrastructure and electric generation facilities located within Texas, but outside of the ERCOT power region.” This is on top of another $7 billion in funding set aside the previous year to deal with the 2021 blackout.

Furthermore, ERCOT, not generators, is responsible for building and maintaining the transmission lines from generation sites to population and industrial centers. This results in projects that would otherwise be unviable due to location continuing to be constructed. There are over 52,700 miles of transmission lines and 1,100 generation units, but so much generation capacity has been added to the grid far away from where it is needed (principally the West Texas plains) that ERCOT has to limit the production of power not to risk transmission congestion overheating high voltage lines, and in the worst case scenario, melting them. Upgrading and building new transmission lines cost $3.4 billion in 2023 alone, and there is another $11 billion worth of transmission upgrades, either planned or under construction.  

The debate after the 2021 blackouts was so vicious because Texas is seen as the future of the wider American electricity grid system, as so much of the new capacity has been renewable. In particular, its massive 40GW wind power capacity and the speed at which it was built are often highlighted to illustrate how other countries can achieve greater renewable generation.

However, wind and solar push down electricity prices when operating at their maximum capacity in favorable conditions. Given ERCOT's market structure, generators were compensated solely for the electricity they contribute to the grid. If wind and other renewables consistently offer energy at a lower cost to the market, gas plants struggle to operate at a profit enough of the time, but when wind and solar cannot contribute to the grid, there has to be backup capacity found somewhere for it to run, or the grid will go offline and Texas, the grid is isolated from other power sources in the US.

Energy projects are often pitched in cost terms using something called the levelized cost of electricity (LCOE). It serves as a metric that calculates the average net present cost of electricity generation throughout a generator's operational lifespan, but it was initially used only for dispatchable power generation, which can run for much longer (solar doesn’t work at night) and more predictable periods (the wind stops blowing sometimes). This results in costly direct financing for standby backup power ready for immediate use. These costs vary monthly, but ERCOT consumers paid billions of dollars in 2022 to keep CCGT plants online. Under recent changes, these costs are likely to increase for consumers. ERCOT also finds that substantial payments are required to disincentivize some energy usage, resulting in ERCOT paying Bitcoin miners tens of millions of dollars to not mine during the 2022 heatwave.

Energy is needed when it is needed, not when generation facilities are capable of providing it. Renewable energy advocates love to stress that wind/solar are the “cheapest forms of electricity,” but they are making this claim on LOCE grounds, which vary around the world but in Texas are estimated at $40MWh for onshore wind and $36MWh for solar, compared to $82MWh for nuclear and $38MWh for gas.

However, if both the (marginal) generation costs (the LCOE) and the (marginal) integration costs are included, the costs look rather different. Based on independent analysis from Rice University, wind could cost, on average, as much as $291MWh and solar a cool $413MWh on a Levelized Full System Costs of Electricity (LFSOE) in Texas. So much renewable capacity has not just been added because of LOCE estimates being presented to investors, but because of generous state and federal subsidies. A 2018 paper estimated that, on average, while Texas’ dispatchable generation received $0-$2/MWh, wind power received $16-$30/MWh. Although state subsidies have been reduced, federal subsidies for renewable energy will continue and have been expanded under the Inflation Reduction Act. Headline renewable energy may appear cheaper in terms of generation, but Texans bear the costs of unreliability and large amounts of capacity being offline.

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What are the implications? 

Both inside and outside the United States, Texas is held up as an exemplar when it comes to transitioning to renewable energy. However, it should actually be held up as an example of how difficult it is to move a grid to renewables, even with the advantages of the fabulous wealth (in 2023, the State of Texas had a $33 billion revenue surplus) and space Texas enjoys. The problems with the grid will not be unique to Texas but are common to all grids that rely on large amounts of intermittent power.

If Texas chooses to do nothing to change how it funds energy infrastructure, it will be costly and risk grid failure through persistent underinvestment, but at least it will do so from a position of robust financial health. At least in the near term, it can arguably afford its dysfunctional grid. European countries planning further intermittent energy capacity to replace dispatchable sources do not have anywhere near such healthy finances.

Texas has an advantage in that its wind capacity is entirely shore-based, but Britain and Germany, among others, plan to host substantial amounts of their generation capacity offshore, making maintenance and replacement more difficult and expensive. Britain is currently planning on 50GW of offshore generation by 2030, while Germany is planning 115GW to meet an 80% renewables target in the same year. Given that the levelized full system electricity costs are even greater in Germany than in Texas due to how much is based offshore (wind at sea is estimated at $504MWh), this will be staggeringly expensive for any country attempting to base their electricity on offshore wind.

Even these sky-high prices are perhaps even an underestimate. Existing problems in turbines do not consider the real-life effects harsh conditions at sea will have on offshore wind turbines, but they look likely to have shorter lifespans than their onshore counterparts, requiring replacements sooner and more often. Shifting seabeds can also damage connections to the mainland, costing hundreds of millions of dollars to repair.

Even though much of the US has a far warmer and sunnier climate than Northwestern Europe, making the prospect of widespread solar energy more viable, these hopes are still dependent on massive takeup and installation of battery technology, which currently cannot meet the required tasks. Part of what makes Northwestern Europe more viable for wind energy is the weather, which also makes solar less viable there. Despite some proposals to power some European countries via connections to vast solar farms in North Africa, the energy still has to be moved thousands of miles via some of the harshest environments on earth. Experience from Texas shows this will not be cheap. In the European case, it would also increase energy dependence on countries that are not democracies. Solar is likely not the answer for wet, windy, cold countries.

The grid balancing issues that Texas faces will also be present in other grids, which are aiming to be significantly intermittent. As Samsung found out at its semiconductor factory, this causes chaos for industrial production, even withstanding the increased cost of electricity. In Britain, the industrial price of energy tripled between 2004–21, undermining the prospect of significant economic growth in a country that has not seen any real wage increases in nearly two decades. It is theoretically possible some companies might be able to justify investing in their own power generation; it is far easier, especially with Britain’s dysfunctional planning system, to close down operations. 

While European nations do hold an edge over Texas due to continent-wide interconnectors, enabling them to purchase electricity from neighboring regions (albeit at elevated costs) when necessary, an increase in the number of intermittent energy sources across Europe will lead to reduced power availability during unfavorable conditions for renewable energy generation. If everyone needs power at the same time, some will have to go without or pay nosebleed-inducing prices. Sometimes, the wind does stop blowing and can be for as long as weeks at a time. 

Given the desire of European countries to decarbonize their economies, it would perhaps be wiser to consider expanding nuclear energy despite its current very high upfront capital costs. Current nuclear reactors are over-regulated, and European designs are almost certainly over-engineered, adding considerable costs.

Conclusion 

Energy policy, planning, and forecasting are incredibly complex and have decades-long implications. Getting it right requires learning from others and adjusting accordingly. Unfortunately, politicians in countries planning to go further than Texas in the number of renewables the grid relies upon are either unaware or unconcerned about the issues affecting the Texan grid, perhaps mistakenly thinking other countries' grids will continue to bail them out when domestic intermittent sources fall short. The issues that grids face regarding increasing amounts of renewable energy generation require intense management and resources. It is unclear whether the significant financial resources required to manage these problems are worth the risks. If energy becomes so unreliable or expensive that it becomes impossible to operate advanced industrial processes, states that rely on intermittent energy will be significantly weaker and vulnerable to economic and military pressure. If a blackout took out a grid in a northwestern European country in the depths of winter, it could very easily kill hundreds or thousands of people. This has not only happened in Texas once before but is at risk again this winter. States looking to increase renewable, intermittent energy should learn from Texas before it is too late.

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Thank you for reading this edition of the Kitstack. My friend Aria Babu has also launched a substack that focuses on birth rates, fertility, and pronatalism, and I wholeheartedly recommend it. A year out from the 2024 US Presidential elections, my forecasting colleague Robert de Neufville has given his thoughts on the chances of President Biden remaining in power. Subscribe here. Ed West generously gave the Kitstack a recommendation, and I’m happy to reciprocate - he is always well worth reading. Last but not least, I always find Sam Atis’s Stuff He Finds Interesting interesting and valuable. 

I’ve included some additional factual content on the energy grid in Texas below.  

Notes - The Current Texan Grid 

In 2022, Texas continued its 17-year streak as the leading contributor to U.S. wind-generated electricity. Notably, wind power surpassed Texas's nuclear generation in 2014 and exceeded coal-fired generation for the first time in 2020. The current Texas energy mix is still dominated by combined cycle gas turbine units (CCGT), which account for 37% of generation in 2023. Non-CCGT gas then produces a further 9%, totaling 46%. The newest gas-fired station is Bacliff Power Plant, with a capacity of 324MW that was brought online in 2018, but plans are underway across the state to either build or convert GWs of new capacity. (LFSCOE - $40MWh)

The second largest contributor to the grid is wind at 24%. Total installed capacity is over 40GW, and ERCOT is forecasting another 37,268MW of generation to be added by 2027. The largest wind farm in Texas (and second largest in the US), Los Vientos, is a four-stage 912MW facility close to the Mexican border, owned by Duke Energy. There are currently no offshore wind farms connected to the Texan grid, and although the Federal government has proposed developing offshore facilities in the Gulf of Mexico, no private firms have bid to build them and connect them to the grid in Texas, instead preferring a potential development in Louisiana. (LFSCOE - $291MWh)  

Coal, although significantly reduced from being the second largest contributor until 2018, when it contributed 25% of generation, is the third largest contributor at 14%. 13 coal-fired power plants contribute to the grid. Martin Lake Power Plant has a capacity of 2,250MW and is the largest coal-fired power plant in the state. Since 2012, seven coal plants have been fully decommissioned; of the 13 still running, four are supposed to close by 2030. However, of these four, some may be converted into gas-fired plants, given the strong financial incentives unveiled this year by the Texas Legislature. (LFSCOE - $90MWh)

Nuclear power generates 9% of Texas’s energy. The South Texas Project Electric Generating Station and Comanche Peak Nuclear Power Plant were completed in 1989 and 1993, respectively. Although expensive in upfront capital costs, nuclear power is clean and reliable. This is partly why Dow, the chemicals giant, is exploring an experimental small modular reactor to power operations at its Seadrift manufacturing site. Aside from bespoke projects such as Dows, there are no current plans to construct any new nuclear power stations in the Lone Star state, and the last proposal to expand Comanche Peak, in a partnership with Mitsubishi Heavy Industries, was put on hold in 2013. (LFSCOE - $122MWh)

Solar has seen the fastest growth in recent years, currently contributing 7% to the grid, up from 2% in 2020. A favorable climate, large amounts of available land, and generous subsidies have been responsible for increased solar generation capacity. The largest plant in Texas, the Roadrunner solar power plant, is the third largest of its kind in the US, with 497MW of generating capacity and 52MW of battery storage. Enel Green Power, the owner, did not disclose how much it cost to build the plant. (LFSCOE - $413MWh). ERCOT is expecting to see 15,659 MW of solar capacity added to the grid by 2027.

Despite Texas being a significant oil producer, producing 5.49 million barrels per day (MBD) in May of this year (for context, Saudia Arabia produced around 10 MDB before imposing cuts to its production in July), Texas does not incorporate oil into its energy mix. Oil-fired power plants were heavily discouraged in the US by the 1978 National Energy Act passed after the Arab oil embargo.

Adapting to a transformation in military circumstances is a significant challenge for any military, but Taiwan’s Ministry of National Defence (MND) has thus far not been willing or able to do it. While China was still a poor country and its armed forces were far inferior to Taiwan’s, the basic plan to defend the island from invasion was to meet the large invasion force and defeat it. Both during and after the Cold War, the US provided Taiwan with a host of equipment, including jets, destroyers, tanks, artillery, and air defense systems.

Although Taiwan and China did fight various skirmishes throughout the Cold War, these never massively escalated in large part due to US intervention. During some periods of Chinese internal strife, the threat of conflict was far lower, but in periods of relative stability, there was a non-zero risk of invasion. If China decided to invade, Taiwan's US (and later, indigenously built) jets would first establish air superiority over the straits. The Taiwanese navy would then attack the invasion force of Chinese Navy ships and ramshackle troop transports, which would be nearly helpless as Taiwanese jets screamed overhead. Given the often shambolic state of the Chinese military and the fact that the US would be free to join in with its own even more superior forces, it is obvious why the Chinese military never attempted this invasion. 

The Chinese Threat 

Today, the story is somewhat different. China has developed a modern air, land, and naval force. China officially spends $227.79 billion (1.55 trillion yuan) on its military, but due to purchasing power parity, this is equivalent to $700 billion. The PLAAF has 2,500 aircraft, including about 2,000 fighter jets, and has taken delivery of hundreds of Chengdu J-20 fighters, one of only four examples worldwide of a 5th generation fighter. 5th generation jets offer greater stealth, maneuverability, range, and information processing capabilities compared to 4th generation machines.  The Chengdu J-20’s capabilities against the US F-35 are uncertain, but they are more than a match for Taiwan's air force, which numbers around 250 fighters, with its most advanced models being outdated 4th generation F-16s, which date from 1992. 

A Chengdu J-20 fighter.

Supporting this formidable air force is a daunting layer of air defenses. Consisting of radars and ground-to-air and ship missiles, the PLA can conduct operations over the Taiwan Strait with a reasonable degree of safety, allowing the PLAAF to focus on supporting an invasion effort. China's air defense was initially built on Soviet platforms but now includes Russian S-300 and S-400 missile systems and indigenously developed HQ-22 system. When properly integrated with supporting systems, the S-400 is deemed a threat to F-35 stealth fighters.

From the 1970s onwards, the PLAN has been expanding its numbers and quality, even managing to build nuclear submarines in the 1980s. However, it wasn’t until the mid-2000s that the construction of large numbers of modern vessels began, including aircraft carriers. China is now the world's largest navy by ship size, and although it does not possess as many nuclear carriers as the US, it massively outnumbers the Taiwanese Navy. In July, the ​Fujian, the latest Chinese aircraft carrier, was launched and is expected to be in service within the next couple of years.

China has also invested in helicopters for anti-submarine and anti-tank operations and transporting special forces. The latter capability is particularly important given the limited number of landing zones on the island of Taiwan and opens up more options for any potential assault on the outlying or main islands. Taiwan has sought to acquire more Stinger missiles to counter this growing capability, but worldwide stockpiles are low due to the war in Ukraine.

Regardless of how impressive the improvements in equipment have been, this does not mean there are no problems within the Chinese military.  China has not fought a conflict since the war with Vietnam in 1979, has significant problems with corruption and has struggled to develop a professional Non-Commissioned Officer (NCO) cadre. NCOs in Western militaries can take on some of the duties of officers, providing leadership at even lower levels in combat situations, and are entrusted to use their initiative. Furthermore, for the leadership of the Chinese Communist Party (CCP), the primary concern is the political loyalty of the People's Liberation Army (PLA). Perhaps the most prominent example of wavering loyalty was during the Tiananmen Square massacre, where senior officers pretended they had not received orders and deliberately went slow. In an invasion, any wavering could have significant consequences for the success of an operation. Recently, Xi removed the head and political commissar of another branch of the Chinese military, the People's Liberation Army Rocket Force (PLARF), reflecting a great deal of uncertainty from political elites in the military's loyalty and/or competence. 

Although its primary mission is to maintain China's land-based nuclear and conventional missiles, in a conflict scenario, its role is to initially hit targets to weaken Taiwan’s defenses with conventional missiles, primarily coming from units under the command of Base 61. Research indicates that with a stockpile of at least 1,000 to 1,200 short-range ballistic missiles, China can potentially threaten all aircraft openly stationed at Taiwan's ten air bases, estimating that between 240 and 360 missiles might be needed for such an operation. Aside from hitting Taiwan’s air force on the ground, among many plausible targets the PLARF would be tasked with destroying are the large, stationary radars that Taiwan uses to monitor potential threats, although China has reportedly jammed these in the past. Even if Taiwan can quickly repair runways or move fighter jets into bunkers, it may not be able to replace or protect other supporting infrastructure like radars or fuel infrastructure. Taiwan is not likely to be able to replace naval assets in any reasonable time to disrupt an invasion if they were damaged in a PLARF strike.

Midjourney imagining a Chinese invasion of Taiwan.

Taiwan’s Response

In response to these developments, Taiwan's plans have not significantly changed despite the urging of defense experts. Taiwan’s military aims to provide “resolute defense and multi-domain deterrence”. Multi-domain deterrence means to contest what is called the “grey zone,” where various actors engage in both military and non-military actions to accomplish strategic objectives while avoiding the onset of overt, conventional warfare. This means warding off PLAAF incursions into its airspace, contesting PLAN submarines shadowing ROC naval assets, and defending against cyber attacks from non-state Chinese actors.

Many military experts argue that instead of its plans to meet the PLA head-on, Taiwan needs to buy as much time as possible to allow the US to fight through the Chinese missile defense zone to bring assistance. To them, this means adopting an asymmetric defense, making any invasion as painful as possible for the invader. Instead of large prestige projects, analysts suggested that Taiwan acquire vast quantities of coastal defense cruise missiles, mobile short-range air defenses, naval mines, and drones that can survive an initial attack from the PLARF and then engage in a protracted, dispersed, and multi-faceted attrition campaign.

The current equipment priorities do not reflect these recommendations. Taiwan currently plans to purchase a variety of big-budget platforms. The US will provide some of these, but current equipment is old, and replacements are costly. F-16V (Block 70) fighters, one of the Ministry of National Defense (MND) priorities, are expected to cost $8 billion. Taiwan's defense budget, although increasing, is around $19 billion. The current fighter fleet already consumes 12.6% of the defense budget. Taiwanese defense planners are also seeking to purchase more weapons that would allow them to strike at the Chinese homeland. In 2020, the US agreed to sell 11 High Mobility Artillery Rocket Systems (HIMARS) to Taiwan, with a further 18 being added to the order in 2022, bringing the total to 29. HIMARS does have some utility, as Ukrainian forces have proven by using it to target Russian logistics and command centers, but Taiwan will not have the spare capacity to conduct strikes on symbolic political targets, which the PLARF will. 

$2 billion is being spent on M1A2 Abrams Main Battle tanks, which the MND expects to use to repel an invasion once PLA units land, despite the apparent implication that the PLA would not launch an invasion without air superiority. These units would be highly vulnerable and are of questionable use in a scenario where the enemy dominates the air. Ukraine has disabled thousands of Russian tanks and infantry fighting vehicles using drones, showing armored vehicles vulnerability even in a situation where neither side has air superiority. Although Taiwan is upgrading its Patriot air defense systems to challenge Chinese airpower, it only has two of the estimated ten battalions it would take to cover the island effectively. This deficiency could be resolved in the medium term by buying Patriot systems from NATO countries, which are due to replace them with more advanced systems towards the end of the decade, but this is a few years away. 

A Russian T-72 tank that was destroyed by a Ukrainian drone.

Like many other military procurement plans, these proposals are also subject to significant delays. The F-16V fighters were first ordered in 2019, but the first jets are currently subject to delays, reportedly due to software upgrade problems. Although HIMARS is presently being delivered ahead of schedule, it won’t be in Taiwanese hands until 2026. Due to the war in Ukraine, delivery schedules for crucial weapons and munitions, such as Stinger missiles, have been pushed back, in many cases, for years. 

However, the most egregious procurement decision is Taiwan’s indigenously produced diesel-electric submarines, which are expected to cost over $10 billion. Although submarines have been used by weaker naval powers to contest control of the sea (the most famous being the U-boat threat posed by Germany in the two world wars), the Taiwan Straits and surrounding waters are relatively shallow. This makes Chinese attempts to find and destroy them easier than in a deeper ocean. Furthermore, only a third of naval assets are typically available to be at sea due to training and repair needs. Two or three submarines cannot stop the PLA from invading the island. With a limited budget, these acquisitions are questionable at best.

Problems exist not just at the strategic level. The MND has struggled to adapt basic training to reflect the changes in Taiwan's military situation. Soldiers must learn the goose step rather than spending more of the precious four months of basic training on more urgent military skills. From 2024, conscripts will be required to serve a year instead of four months, but it is unclear whether conscripts will be doing more helpful training. Although the 2023 National Defence Report aims to increase the number of live firing drills that recruits perform in basic training, this could be from a remarkably low level. Analyst Tanner Greer reports that some recruits firing fewer than 300 rounds during their entire training. Although reservists returning for two-week refresher courses are due to increase the number of rounds they fire in training, this is to a barely sufficient 138. As a result, many otherwise patriotic Taiwanese are demoralized by the poor quality of training they receive, which tempers the MND's claims that millions of reservists are available in an emergency as many are simply not trained to be of any real utility. Problems exist in more than just non-commissioned ranks. Remarkably, despite Taiwan’s military sending dozens of officers to West Point for advanced training, none have made it to the flag officer level, reflecting an insular culture hostile to those with valuable outsider experience. 

To make matters worse, much of the equipment the Taiwanese army possesses is inoperable, and many units are drastically under-strength. Some front-line units have as little as 60% of the manpower they are supposed to have. In 2020, Foreign Policy reported a serving Taiwanese soldier saying that only 30% of Taiwan’s tanks are in a state comparable to US minimum requirements. Given the MND expects the battle for Taiwan to be won by these front-line ground units, it is an understatement to say this is a little concerning. 

Optimistic assessments of Taiwan’s armed forces assert that its professional armed forces are well-placed to defeat the PLA, but a more honest assessment would be that there are significant challenges that provoke questions about the chosen strategy to defend Taiwan in the event of a war.

Why won’t they adopt asymmetric defense? 

To outsiders, the lack of urgency seems strange. However, institutional intransigence, political limitations, and likely good intelligence on Chinese invasion plans all play into why Taiwan doesn’t change its course. The outcome of these choices is a tendency to prioritize highly visible weapons systems over those potentially more effective in an invasion scenario.

At first, the primary blocker to changing military plans would seem to be the military. This is largely accurate. Despite a former chief of the General Staff, Adm. Lee Hsi-Min, introducing a plan that reflected the changes China’s military had made in 2017, the document was subsequently binned, and references to it within the military were reportedly discouraged. The latest National Defence Report does use terms such as Asymmetric Approach, but current purchasing priorities show this is mainly cover and does not represent a change in approach. 

Although the military should bear a significant amount of blame for refusing to evolve, it is commanded by politicians who have struggled to force it to chart another course. Complicating this task has been the efforts of the Tsai government to get to grips with another key pillar of the state, the intelligence agencies. Taiwan has the National Security Bureau, which is equivalent to the CIA or MI6, and the Military Intelligence Bureau (MIB), which sits under the MND and is assigned to gather human intelligence (HUMINT) regarding the PLA. Despite being responsible for gathering HUMINT, since the early 2000s, it has banned itself from sending agents to mainland China.  The NSB is generally well regarded. The MIB, on the other hand, has had a series of scandals and was under threat of closure. In 2021, 4 former officials of the MIB, one of whom was a general, were found to have been agents of the PRC and were recruiting agents for them in Taiwan. This betrayal, along with a myriad of other issues, has meant that the government has had to spend resources reforming it rather than utilizing its information to more accurately understand how the balance of power has changed.  

A further factor in the reluctance to change Taiwan's strategy is that it would require significant political costs. Foremost, the cost of a change to asymmetric defense would be asking more voters to defend themselves and accept the possibility of death or injury. It would be admitting that Taiwan was in a far weaker position than previously suggested, and the military cannot protect the island as it would have done in the past. Although support for defending Taiwan has risen in polling over the last few years, and other advanced democracies such as Poland have successfully raised volunteer defense forces, Taiwanese politicians do not appear to be willing to make this change. To a certain extent, this is because military advice would be against it. It would also change the relationship with the mainland unpredictably and may make the CCP think the island is gearing up for independence, accelerating a rush to confrontation.  Secondly, Taiwan's costly platforms it purchases from the US are thought to signal to voters and China that Taiwan is a valued ally. NATO partners such as Turkey are prevented from buying top-of-the-range American military equipment, but when Taiwan makes big-ticket purchases, it is saying that it is a first-rank ally despite the dubious military value of some of them. 

A further reason Taiwan maintains its current lack of urgency must include the role of intelligence in decision-making. Although the MIB has its problems, there is close cooperation with the United States, which operates a listening post on the island to help its intelligence-gathering efforts. Even if there weren’t this cooperation, modern satellites, and communications technology would make a genuine build-up of an invasion force easy to spot. Coordinating an active invasion plan would require senior Chinese politicians and military leaders to meet more often, which it can be assumed would be noticed by relevant foreign intelligence agencies which have had an improved track record of uncovering critical information about 

Conclusion

Taken in turn, these are understandable reasons why Taiwan does not feel the same urgency to abandon its current plans and adopt a more realistic but challenging defense strategy. Even though the reasons are understandable, this does not mean they are justified. As Australia recently proved by canceling a submarine contract with France in order to develop nuclear submarines instead, even developed procurement plans can be changed if the relevant authorities recognize that situations have changed. Taiwan could cancel its orders of expensive fighter jets and tanks and instead buy far more coastal defense cruise missiles, mobile short-range air defenses, naval mines, and drones, as well as ensure adequate stocks of munitions to enable its professional and reserve forces to train properly. Taiwan has a number of significant advantages in any proposed conflict with China, but its current procurement priorities, lack of suitable training, and unwillingness to pay the political cost of changing direction risk undermining its geographical and home advantage. Ultimately, China has been building its forces to successfully assault the island of Taiwan, while Taiwan has not been able to sufficiently reassess how it will successfully counter these changes. If this continues to be the case as the 100th anniversary of the CCP approaches, Chinese leadership may think an invasion of Taiwan is a gamble worth taking.   

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