The Future of Taiwan’s Defense Industry Part 1: Politics, Aircraft, and Missiles

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Domestic social concerns weigh heavily upon the national budget, limiting what Taiwan can spend on defense. (Photo: AP)

The newly elected DPP government has stated its intention to strengthen Taiwan’s defense industry as a way to both enhance national security and expand the economy.

Taiwan’s National Chung-Shan Institute of Science and Technology has already demonstrated its capability to develop various types of weaponry, including advanced missile systems, and the Aerospace Industry Development Corp. – with foreign assistance – produced the Indigenous Defense Fighter in the 1990s.

The next stage could involve new fighter aircraft and submarines.

When the Tsai Ing-wen administration takes office in May, it will face daunting challenges as it seeks to both maintain an effective military deterrent to cross-Strait aggression and grow the domestic economy. China’s military continues its rapid expansion, and its announced military budget in 2015 of US$145 billion dwarfs the Taiwan equivalent of just US$10.1 billion. Democratic Progressive Party (DPP) analysts estimate that by the end of Tsai’s first term in office, China could have the capacity to fully overwhelm Taiwan’s military in an invasion.

China’s military continues its rapid expansion, and its announced military budget in 2015 of US$145 billion dwarfs the Taiwan equivalent of just US$10.1 billion.

Domestic social concerns, however, weigh heavily upon the national budget, limiting what Taiwan can spend on defense. Taiwan faces the reality of an aging population that is putting ever greater demands on the social welfare and healthcare systems, along with worsening income inequality, stagnant wages, soaring housing costs, and a host of other concerns.

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When the Tsai Ing-wen administration takes office in May 2016, it will face daunting challenges at it seeks to maintain an effective military deterrent against cross-Strait aggression. (Photo: Wikipedia)

Guns or butter? It’s an age-old dilemma, but Tsai and the DPP say that they have a solution: develop the domestic defense industry in the interest of both national security and economic growth. The government must “transform the current dynamic of competition for resources between defense and economic growth into a mutually beneficial relationship,” Tsai wrote in the forword to the DPP’s Defense Policy Blue Paper No. 12: Preparing the Development of Indigenous Defense Industry issued in May 2015.

Although Taiwan’s most advanced weaponry is sourced from abroad, particularly from the United States, the island does have a substantial defense industry centered on the National Chung-Shan Institute of Science and Technology (NCSIST) in Taoyuan, an organization that comes directly under the Executive Yuan but coordinates closely with the Ministry of National Defense. NCSIST develops and manufactures most of Taiwan’s defense systems, particularly missiles and missile defense systems, along with advanced radar and electronic warfare systems.

In addition, the production of aerospace-related defense systems, including the Indigenous Defense Fighter in the 1990s, comes under the recently privatized Aerospace Industry Development Corp. (AIDC) in Tai-chung, while naval vessels are mainly constructed by the state-owned CSBC Corp. (formerly called China Shipbuilding Corp.) in Kaohsiung. These state-run or affiliated defense firms (the government remains the largest shareholder in AIDC) are augmented by some 200 private small and medium-sized enterprises that mostly supply non-sensitive components.

The DPP’s recommendations in its Defense Policy Blue Paper No. 9: Taiwan’s Military Capacities in 2025, also issued last May, call for a comprehensive review of the threat posed by the People’s Liberation Army (PLA) and Taiwan’s relative areas of strength and weakness in countering these threats, followed by the expansion or development of technological and manufacturing capacities as needed.

At a defense policy briefing last October, the DPP told reporters that its defense industry policy would generate between NT$250 billion and $400 billion (US$7.6 billion to $12.1 billion) in revenues along with 8,000 new jobs.

Further, the DPP calls for keeping a sharp eye on “capabilities that are globally in high demand, and for which the domestic desire for participation is strong, yet the capacities of the armed forces are currently insufficient – such as cybersecurity cooperation.” It regards these as “priority areas” that not only can augment defense but also potentially lead to export sales.

Among the strongest recommendations is the integration of “existing military units and capacities of IT, communications, and electronics to establish an independent fourth service branch alongside the current Armed Forces consisting of Army, Navy, and Air Force” (see the accompanying story).

The DPP defense policy paper also calls for supporting “the upgrading of industry through international collaboration,” as well as increased defense spending to help the domestic defense industry raise both the volume of production and its standard of quality and technological sophistication. Of the new spending, it suggests that “70% should be concentrated toward investing in indigenous defense research and development.”

At a defense policy briefing last October, the DPP told reporters that its defense industry policy would generate between NT$250 billion and $400 billion (US$7.6 billion to $12.1 billion) in revenues along with 8,000 new jobs, while spurring the development of long-awaited defense systems such as indigenously developed submarines. Those numbers, said York Wen-cheng Chen, assistant professor at Tamkang University’s Graduate Institute of International Affairs and Strategic Studies and convener of the Defense Policy Advisory Committee at the DPP-sponsored New Frontier Foundation think tank, were based on in-depth analyses of Taiwan’s existing defense industry capacities. In another presentation, Taiwan Institute of Economic Research (TIER) deputy director Kung Ming-hsin said that the business activities stimulated by the plan would ripple through the overall economy.

Foreign procurement

Although total defense spending declined under the Ma Ying-jeou administration, the United States has sold nearly US$14 billion worth of defense systems to Taiwan during his two terms, including Apache helicopters, Patriot Advanced Capability (PAC-3) missile defense systems, and advanced radar systems. The latest package, valued at US$1.83-billion and confirmed on December 16 last year, includes Perry-class frigates, the Phalanx Close-In Weapon System, the advanced Tactical Digital Information Link, AAV-7 amphibious assault vehicles, and other weapons systems.

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The latest US weapons package, valued at US$1.83-billion and confirmed in December 2015, includes Perry-class frigates, the Phalanx Close-In Weapon System (pictured), the advanced Tactical Digital Information Link, AAV-7 amphibious assault vehicles, and other weapons systems. (Photo: Wikipedia)

The sale of many of these systems, which will include technology transfers as well as operational training and maintenance, will provide business opportunities for Taiwanese manufacturers. For example, the United States in 2011 authorized an upgrade of 60 of Taiwan’s existing F-16 A/B fighter aircraft, equipping them with new communications and radar systems, advanced weapons systems, and new engines that U.S. officials say will make the planes equal to advanced F-16 C/D versions in almost every respect. The retrofitting will be done by AIDC in tandem with U.S. defense contractor Lockheed Martin.

Not included in these sales, however, are items that many strategists see as truly vital for Taiwan’s defense: submarines and even more-advanced fighter aircraft. Although the Taiwan Relations Act mandates that the United States make available equipment “necessary to enable Taiwan to maintain a sufficient self-defense capability,” and the United States is still the only country in the world willing to risk China’s ire by selling arms to Taiwan, even the United States has held back on selling Taiwan the most advanced weapons systems. Typically, the United States provides Taiwan with weapons systems that are nearing the end of their serviceability, roughly 15 years into the usual 20-year life cycle.

Though the United States is still the only country in the world willing to risk China’s ire by selling arms to Taiwan, even they have held back on selling Taiwan the most advanced weapons systems.

“In the face of Chinese obstruction, Taiwan’s future defense procurement will become increasingly difficult,” Tsai observes in the Defense Blue Paper No. 12. “If Taiwan is unable to domestically produce the weapons and armaments that it requires, the imbalance in military capabilities across the Taiwan Strait will continue to grow. We cannot pin all our hopes on the possibility of foreign procurement.”

The United States has sold nearly US$14 billion worth of defense systems to Taiwan during Ma’s administration, including Apache helicopters, Patriot Advanced Capability (PAC-3) missile defense systems (pictured), and advanced radar systems. (Photo: Wikipedia)

Under the Ma administration, the government had also pushed for indigenous development of such weapons systems, and has made the development of submarines a particular focus [see accompanying story]. Yet the DPP criticizes the current administration’s policy on indigenous development as “an empty slogan” that has produced little progress.

Industry insiders are divided as to whether Taiwan has the capability to develop and manufacture sophisticated armaments, however. An executive with long experience in the defense sector, who asked to remain anonymous, dismisses the DPP’s goals as unrealistic in light of the many limitations Taiwan faces. “It’s impossible,” he says. “We have no raw materials, we have no systems, and we cannot manufacture any weapons because we don’t have the licenses.”

Some dismiss the DPP’s goals as unrealistic in light of the many limitations Taiwan faces. “It’s impossible … we have no raw materials, we have no systems, and we cannot manufacture any weapons because we don’t have the licenses.”

He adds that Taiwan’s pursuit of indigenously developed advanced weapons systems would likely be deemed provocative not only by China but by the United States as well. If Tsai wants to pursue this policy, “what do you think the U.S. attitude will be? Of course it will be opposed,” he asserts. And in the end, “what will you get?” he asks. “You will get nothing. Not even an upgraded F-16. The U.S. can stop these at any time. Why would you want to do this?”

This observer considers the DPP defense-industry policy initiative to be aimed simply at garnering political support from small and medium-sized manufacturers who might be led to believe they would benefit from the plan.

On the other hand, a host of political analysts and industry representatives paint a very different portrait of Taiwan’s defense industry capability. “Taiwan has impressive world-class capability in its defense development and production sector,” observes one such expert, Richard Fisher, a Senior Fellow in Asian Military Affairs at the Washington, D.C.-based International Assessment and Strategy Center. “It has demonstrated its ability to design and assemble a fourth-generation fighter airframe, produce stealthy combat ships, and develop and manufacture ballistic and cruise missiles.”

Others claim “Taiwan has impressive world-class capability in its defense development and production sector.”

NCSIST’s missile development

NCSIST has excelled in missile development, with successes in both cruise and ballistic missiles as well as missile-defense systems intended to thwart a missile bombardment by China. Among the systems developed at NCSIST are the Tien Kung (“Sky Bow”) I and II surface-to-air missiles, Tien Jian (“Sky Sword”) I and II air-to-air missiles, and Hsiung Feng (“Brave Wind”) I, II and III anti-ship missiles.

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The National Chung-Shan Institute of Science and Technology shows off its latest missiles, the Sky Bow-III and Brave Wind-III, to reporters at its facilities in Taoyuan (Photo: CNA)

James Liu, a retired ROC army general and former member of the National Security Council, notes that while the Tien Kung was originally developed with U.S. assistance, it has since been improved upon and now performs better across a wider range of situations than the PAC-3 system. “Software is the key,” he says.

Citing another example, Liu says that Taiwan’s advanced software allows its Hsiung Feng-2E land attack cruise missiles (LACM) to fly lower over the ground or water and better adjust to unanticipated changes in topography than similar U.S.-built missiles. Unlike U.S.-developed LACMs, Liu notes, Taiwan’s LACM relies for guidance not on satellite communications but on built-in software systems that allow it to make rapid adjustments.

Fisher adds by email that “the Mach 3 speed Hsiung Feng III is one of the world’s most capable anti-ship missiles.”

Taiwan has demonstrated its ability to design and assemble a fourth-generation fighter airframe, produce stealthy combat ships, and develop and manufacture ballistic and cruise missiles.”

At the 2015 Taipei Aerospace & Defense Technology Exhibition held last August, NCSIST unveiled a number of missile and missile-defense systems, including a short-range air defense system called the Sea Oryx intended to replace the older, U.S.-acquired Chaparral system currently used by ROC Navy vessels. Media reports say that this ship-based system employs launchers with either eight or 16 ready-to-fire missiles designed to protect small and medium-sized naval vessels against anti-ship missiles, aircraft, UAVs, and helicopters.

NCSIST also unveiled its turret-mounted, unmanned, rotational Tan An Coastal Defense Rocket System, intended to be deployed onshore and on offshore islands to lay concentrated rocket fire on invading forces.

For its part, CSBC Corp., working in conjunction with NCSIST, delivered a twin-hulled, stealth missile corvette dubbed the Tuo Jiang, equipped with eight Hsiung Feng-IIs and IIIs. The 500-ton ship was initially deployed in late 2014 and media reports indicate that 11 more will be delivered.

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CSBC Corp., working in conjunction with NCSIST, delivered a twin-hulled, stealth missile corvette dubbed the Tuo Jiang, equipped with eight Hsiung Feng-IIs and IIIs. The 500-ton ship was initially deployed in late 2014 and media reports indicate that 11 more will be delivered. (Photo: Reddit user Doncuneo)

These successes illuminate the technological capacity of Taiwan’s defense industry. But is it able to develop the complex weapons systems that are at the top of Taiwan’s wish list?

Indigenous fighter aircraft

The highest profile locally developed weapons system, the Indigenous Defense Fighter (IDF), simultaneously underscores the Taiwan’s defense industry’s capability and its dependence on foreign technology transfer. The IDF project was started in response to the Reagan administration’s unwillingness to supply Taiwan with F-16 or other advanced fighter aircraft (the George H.W. Bush administration sold Taiwan 150 F-16s in 1992). Beginning in 1982, Taiwan began cooperating with a number of U.S. defense contractors to design and manufacture the IDF. General Dynamics was the lead contractor and worked with AIDC on the main design and manufacture, and AIDC engaged Allied Signal Aerospace Garrett Engine Division (now part of Honeywell) to design the engines. The avionics for the IDF were developed in conjunction with Westinghouse, while the weapons systems were locally produced.

The IDF project was started in response to the Reagan administration’s unwillingness to supply Taiwan with F-16 or other advanced fighter aircraft.

Completed IDF fighters started going into service in the mid-1990s, and all 130 were delivered by 1999.

Wan Tung, chairman and CEO of Taiwan Aerospace Co. (TAC), who was involved in the IDF program from the start, considers it “an almost total success,” and the IDF is rated favorably by many defense analytics firms. Besides the IDF, AIDC has worked on several other military aircraft, including the AT-3 fighter-trainer, F-5 fighter jet (in coordination with Northrop Grumman Corp.), and the UH-1H helicopter with Bell Helicopters.

A Taiwan's Indigenous Defense Fighter (IDF) lands in Hsinchu Air Force base during an air show in Hsinchu, Taiwan, Thursday, Nov. 19, 2015. (AP Photo/Chiang Ying-ying)
Taiwan’s Indigenous Defense Fighter (IDF) lands in Hsinchu Air Force base during an air show in Hsinchu, Taiwan, Thursday, Nov. 19, 2015. (AP Photo/Chiang Ying-ying)

Now, with budget already allocated for 66 advanced Lead-In Fighter Trainers (LIFT) to replace the AT-3, Taiwan looks set to get back into fighter design and development. AIDC is reportedly weighing two options: designing the LIFT domestically or procuring design and assistance from abroad. TAC’s Wan, who is also a professor of aerospace design at Tamkang University, favors “doing our own design and manufacturing in Taiwan.”

But will Taiwan be able to replicate its past success? All of the previous projects were highly dependent on U.S. weapons contractors, support which may no longer be so readily available in the face of Chinese obstruction. Further, once the IDF project was completed, Taiwan began pulling back from indigenous development of advanced fighter aircraft, resulting in a loss of industrial capacity and know-how.

Once the IDF project was completed, Taiwan began pulling back from indigenous development of advanced fighter aircraft, resulting in a loss of industrial capacity and know-how.

The status of the project under the new administration remains uncertain, but as the DPP has repeatedly called for indigenously developed trainer aircraft, approval is considered likely.

Far more uncertain are the DPP’s hopes to develop advanced fighter aircraft. Taiwan has long sought the procurement of the F-35, the advanced multi-role jet fighter famous for its stealth technologies, its Vertical/Short Take-off/Vertical Landing (V/STOVL) capabilities, and its hefty price tag of some US$98 million to $116 million apiece (according to its builder, Lockheed Martin). The need for V/STOVL technology is apparent, as Taiwan’s runways would likely be first-strike targets to prevent Taiwan’s existing fighter jets from taking to the sky in the event of an attack. But defense analysts doubt that the United States will make the F-35 available to Taiwan at this stage.

Taiwan’s runways would likely be first-strike targets to prevent Taiwan’s existing fighter jets from taking to the sky in the event of an attack.

The United States has more recently put the possible sale of Harrier jets on the table, as these aircraft meet the requirements for vertical takeoff and are being phased out by the U.S. Marine Corps in favor of the F-35. They are also decades old and suffer from performance inadequacies in many respects, as well as being very costly to maintain.

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Taiwan has long sought the procurement of the F-35, the advanced multi-role jet fighter famous for its stealth technologies, vertical/short take-off/vertical landing capabilities, and its US$100 million price tag. (Photo: Wikipedia)

Taiwan may thus be left with little choice but to attempt to produce its own V/STOVL-capable jet fighters. Wan Tung stresses that Taiwan doesn’t need fighters on a par with the F-35. “We only need a small simple version with V/STOVL consideration,” he says. “And we only need 60 of them.”

Even these more limited requirements will be difficult to achieve, however.

Development of advanced fighters, even with extensive international assistance and vast budgets, often takes decades, as shown by the F-35, which was initially conceived in 1996 but was only deployed in July 2015, seven years behind schedule and US$135 billion over budget – the most expensive weapons system in history. Military analysts are highly skeptical that Taiwan could develop even a stripped-down advanced fighter jet within budget and according to schedule.

Richard Fisher cautions that any such project would require extensive U.S. assistance, which – as shown by the American unwillingness to supply new F-16 C/Ds – is far from being assured.

Military analysts are highly skeptical that Taiwan could develop even a stripped-down advanced fighter jet within budget and according to schedule.

Budgets and the private sector

Deploying military budgets to help grow the economy is not a new idea in Taiwan. Since the early 2000s, NCSIST has been licensing local manufacturers to produce less-sensitive military components under the auspices of the National Defense Act, which gives priority to qualified domestic suppliers. The program has allowed the local defense industry to upgrade and expand by improving technology, spurring R&D in both military and dual-use technologies, and stimulating market development and job creation. The Ministry of National Defense says that defense manufacturing has generated a total of some NT$10 billion in market opportunities for Taiwan companies.

The Ministry of National Defense says that defense manufacturing has generated a total of some NT$10 billion in market opportunities for Taiwan companies.

Jack Nieh, a former NCSIST electrical engineer, exemplifies the success of that program. A decade ago, he saw a market need for “rugged computers” able to withstand the rigors of military use. Nieh then shifted the focus of his firm, Printing Web International (PWI), away from distributing imported printing systems towards building custom-made embedded computer systems for the military. “We custom-make systems to order, rather than having a standard product,” he says.

Exporting would be another way for Taiwan to expand its market in defense-related technologies. But political sensitivities and the often controversial nature of weapons sales make it difficult for Taiwan to engage in the arms trade.

The systems he sells are built from military-grade computers mostly sourced from specialty makers, including GE’s Intelligent Platform and Germany’s Kontron Ag. Using both imported and domestically sourced parts and systems, PWI packages the systems with power supplies, controls and sensors, and software. It might sound strange that one of the world’s leading production centers for computer hardware would need to import such equipment, but Nieh explains that computers meeting military requirements are made only in the United States and European Union. As specialized niche products, they would not offer the mass-market economies of scale needed by Taiwanese computer makers.

Robert Kuo, founder and chairman of Taiwanese firm Dafar International, which supplies foreign and domestic search-and-rescue systems and components to both military and civilian markets, agrees that lack of scale is a major drawback for the development of indigenous defense systems. “It’s not realistic to develop weapons on our own,” he says, since “it costs huge money and the market is too small.”

Lack of scale is a major drawback for the development of indigenous defense systems. “It’s not realistic to develop weapons on our own,” he says, since “it costs huge money and the market is too small.”

Aside from increasing the defense budget, Kuo urges more support for private-sector development of defense systems, instead of relying so heavily on NCSIST. “Small companies have the energy and passion,” he says. “We have to get orders to survive, so we are more motivated.”

Dafar is staffed largely by navy veterans who have a high degree of awareness of modern naval requirements. One of Kuo’s R&D engineers invented and patented an anti-torpedo system, but the company lacks the testing facilities to develop prototypes. He says that access to such resources as funding and testing facilities would greatly enhance the capabilities of smaller firms in the sector.

Exporting would be another way for Taiwan to expand its market in defense-related technologies. But political sensitivities and the often controversial nature of weapons sales make it difficult for Taiwan to engage in the arms trade. Dual-use technologies, however, such as Unmanned Aerial Vehicles (UAV), embedded computer systems, and cybersecurity (see the accompanying stories), are potential areas for export.

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