Strategic analysis and prospects for China's military industry in 2025. The turning point from internal reorganization to the global arms race

2025 promises to be a turning point for China's military industry, marked by a convergence of domestic factors and global geopolitical dynamics. According to the recent research report "Mid-Year Strategy for the Military Industry Sector 2025," published on June 18, 2025, by Sinolink Securities, a Chinese investment bank listed on the Shanghai Stock Exchange, the sector is not only consolidating its domestic growth but also redefining its international role, leading to a revaluation of military assets. This pivotal moment, which will culminate with the conclusion of the 14th Five-Year Plan and the start of planning for the 15th, lays the foundation for a new cycle of development.

by Gabriele and Nicola Iuvinale

Solid Performance in the First Half

Despite an apparent contraction in first-quarter 2025 results, the sector has shown exceptional resilience and strong recovery potential. Overall revenue saw a slight decline of 7.3% and net profit fell by 32.5% year-on-year, largely due to a delay in order fulfillment and price pressure. However, the most significant aspect lies in contract liabilities, which increased by 12.7% from the beginning of the year, a clear indicator that companies are signing a growing number of new orders.

This trend reversal is particularly evident in downstream sectors, such as armaments, which saw a 4.9% revenue growth and an impressive 128.7% leap in net profit. The aviation and armaments sectors also recorded a significant increase in contract liabilities, setting the stage for a new phase of growth. The entire production cycle, from upstream components to downstream final products, appears to be in full mobilization, with an increase in inventories suggesting the start of intensive production preparation.

The Relevance of the Political and Geopolitical Context

The success of China's military industry cannot be separated from the political and geopolitical context. Domestically, 2025 is the final year of the 14th Five-Year Plan. The directive from President Xi Jinping to successfully complete the army's modernization goals has given a strong boost to companies in the sector, which are accelerating the production and delivery of orders. This institutional commitment ensures a steady flow of domestic demand and high profitability. Additionally, on September 3, 2025, the 80th anniversary of the victory in the Anti-Fascist War, significant events are expected that could attract further attention to the sector.

Internationally, the global arms race is creating an unprecedented opportunity for China's military industry. In response to increasing geopolitical tensions, countries like the United States, with its focus on sixth-generation aircraft and space defense systems, and the European Union, with a military spending plan of 800 billion euros, are intensifying their investments. The effectiveness demonstrated by Chinese military equipment in recent conflicts, such as the aerial war between India and Pakistan, positions China as a leading player in the military trade market. This global scenario not only validates Chinese investments but also opens up new and significant long-term expansion prospects.

Areas of Growth and Investment Recommendations

The Sinolink Securities report identifies several strategic directions for investors. The first, and most obvious, is military trade, which is expected to benefit from increased global demand. Other key investment areas include:

• Military electronics: an upstream sector that is seeing increased attention from institutional funds.

• New quality fighting forces: targeted investments to support emerging technologies and next-generation systems, which are fundamental for the army's modernization.

• Consumable ammunition: a segment that, given ongoing global tensions and intensified training, offers stable and predictable growth potential.

• Leading companies ("white horses"): investments in those companies that, despite operating in a volatile market context, have shown solid performance and sustained growth capacity.

In conclusion, 2025 represents a year of consolidation and a launching pad for China's military industry. Its ability to transform domestic demand into tangible results, combined with its growing influence in the global geopolitical landscape, suggests that the sector is ready for a new cycle of prosperity and re-evaluation.

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Mid-Year Strategy for the Military Industry Sector 2025.pdf

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