By David Lague
HONG KONG (Reuters) - Turkey's $4 billion order for a Chinese missile defense system is a breakthrough for China in its bid to become a supplier of advanced weapons, even though opposition from Washington and NATO threatens to derail the deal.
The winning bid from the China Precision Machinery Import and Export Corp (CPMIEC) to deliver its FD-2000 air defense missile system in a joint production agreement with Turkey is the first time a Chinese supplier has won a major order for state-of-the-art equipment from a NATO member. U.S., Russian and Western European manufacturers were also in the fray.
The decision last week to award the contract to CPMIEC, a company that is under U.S. sanctions for dealings with Iran, North Korea and Syria, surprised global arms trade experts and senior NATO officials.
"It is quite significant I would say, if it materializes," said Oliver Brauner, a researcher on China's arms exports at the Stockholm International Peace Research Institute (SIPRI)."It would certainly be a landmark deal."
Turkey signaled on Monday that it could back away from its decision after Washington said it had "serious concerns" about the deal with a sanctioned company for a system that would not be compatible with NATO's other weapons and networks.
And, in a reminder that Ankara faces stiff opposition from its alliance partners in Europe, a NATO official in Brussels said it was important that equipment ordered by member countries is compatible.
"It is premature at this stage to say whether Turkey's acquisition will be able to operate with the NATO Integrated Air and Missile Defence System," the official said.
NATO's disappointment with Turkey is heightened by the fact that the United States, Germany and the Netherlands each sent two Patriot batteries earlier this year after Ankara asked for help in beefing up its air defenses against the threat of missiles from Syria.
Ankara could call off the air defense deal under pressure, but some Chinese and foreign commentators suggested it would still be a symbolic victory for Beijing.
They say Turkey's willingness to choose the FD-2000 over established rivals confirms the rapid technical improvement and competitiveness of China's missile and aerospace sector.
Chinese military experts say the system performed well in live tests for the Turkish Defence Ministry.
It also signals that China's sprawling defense industry is poised to become a low cost supplier of high technology weaponry alongside its rapidly expanding sales of basic military equipment including small arms, artillery, armored vehicles, general purpose vehicles and older generation missiles.
CHINESE MILITARY EXPORTS SOARING
China has displaced the United Kingdom as the world's fifth biggest arms supplier in the five years to 2012, according to SIPRI.
Chinese exports of conventional weapons increased 162 per cent in the five years from 2008 to 2012 compared with the five years from 2003 to 2007, the arms trade monitor reported earlier this year.
Sales to close ally Pakistan accounted for most of this but China is also expanding its deliveries to other markets, mostly in the developing world.
While almost three decades of double digit, annual increases in military spending has accelerated Beijing's ambitious military build-up, it has also allowed China's defense factories to boost the quality and performance of home-grown weapons and military hardware.
"There are good reasons for China to succeed in Turkey," says Vasily Kashin, an arms trade expert at Moscow's Centre for Analysis of Strategies and Technologies. "The key factors were price and the readiness to transfer technology."
CPMIEC, the marketing arm of China's missile manufacturing industry, outbid the Franco-Italian company Eurosam and its SAMP/T Aster 30 missile, Russia's Rosoboronexport's S-300 and Patriot air defense batteries from U.S. contractors Raytheon and Lockheed Martin.
Atilla Sandikli, the chairman of think-tank Bilgesam and a former high-level officer in the Turkish army, said an offer of technology transfer from China was decisive.
Turkey's NATO allies were less enthusiastic about co-production and technology sharing, he added.
"The only reason why Turkey didn't have them (the air defense systems) until now is because they wanted to achieve the technological information and know-how to produce these systems," Sandikli said."I think Turkey's choice is a message to its NATO allies in this sense."
Some analysts said Turkey's decision also reflected warming ties between Ankara and Beijing in recent years and a growing track record of defense cooperation.
Nihat Ali Ozcan, an analyst at Ankara-based think-tank TEPAV, said that Turkey and China already were in cooperation on short-range missile defense systems.
"Co-producing these systems also requires technology transfer, and China has no restrictions on it," he said.
Reports in China's state-run military press suggested the sale would open the door to further high technology orders in the West and other markets. Chinese military experts were quoted as saying that while price had been a key factor, the capability of the FD-2000 system also satisfied Turkey's demands.
China has been aggressively marketing this air defense system at arms exhibitions and air shows in recent years.
Military analysts familiar with the FD-2000 say it is a leading example of Chinese defense industry's capacity to absorb and adapt foreign technology, combine this with local innovation and ramp up low cost manufacturing.
Kashin said the Chinese missile system was partly based on Western technology obtained from Israel and also drew on Russian know-how.
It was possible that Russia supplied some of the components and technology under contracts with China, he said.
According to marketing material for the FD-2000 and reports in the Chinese military press, the missiles, launchers, radars, vehicles and support systems of the mobile FD-2000 are all designed and built in China.
It is reported to be effective in intercepting high performance strike aircraft, helicopters, unmanned aerial vehicles (UAVs), precision guided bombs and a range of missiles. It is also advertised that it remains effective during heavy air strikes and electronic interference.
(Additional reporting by Tulay Karadeniz in Ankara, Ece Toksabay and Can Sezer in Istanbul and Adrian Croft in Brussels; editing by Raju Gopalakrishnan)