What China's Military Parade and Newest Jets Tell Us About the Battle For Air Supremacy

0:00Your best restaurant location gets 5 star reviews. How do you make every location like your best location? Your best paper mill has been operating at peak productivity. How do you make every mill like your best mill? Your best data center has optimized every drop of water. How do you make every data center like your best data center? The answer is Ecolab. Better performance, better outcomes, better impact. Ecolab. Now every location is your best location. How many vendors does it take to meet all your organization's food needs? Just one. EasyCater, the workplace food platform that lets teams order from a huge variety of restaurants, over 100 ,000 nationwide, all through a single vendor.

0:45In addition to all that variety, EasyCater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. Easy Cater, your business tool for food. To learn more, visit easycater.com slash podcast. Every business starts with an idea. How can you go from daydreamer to industry leader? Amazon Business accelerates your journey. With smart business buying, get everything you need to grow in one familiar place, from office supplies to IT essentials and maintenance tools. Amazon Business takes the buying experience you know and love from Amazon, plus tools that help you save costs and make insights-based decisions.

1:29Ready to bring your visions to life? Learn how at amazonbusiness.com. Hello, OddLots listeners. This is Carmen, producer of the show, here to tell you that we're recording the show live at the Untitled Supper Club in Chicago on September 25th. Check out the show notes for a link to purchase tickets or go to bloomberg.com slash oddlots. Hope to see you there. Bloomberg Audio Studios. Podcasts. Radio. News.

2:07Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Tracy Alloway. Tracy, did you catch any of the clips from the big Chinese military parade? I did. I did. So this was the this is actually really good timing. So we're recording this. They really know how to put on a parade. They really know how to put on a military parade. We're recording this on September 4th. We just had a massive military parade in Beijing that Xi Jinping put on. This was while Putin was there and also Kim Jong-un. And there were tanks. There were helicopters. There were lots and lots of drones, nuclear capable missiles.

2:42There were robot dogs. Robot wolves, much more sinister. There were also 80 ,000 doves to mark China's victory in World War II. And I have to say, when I first saw that, I was reading a translation of the parade and it said 80 ,000 pigeons. And I thought, like, wait a second, are we bringing back carrier pigeons for military use or what? But it's 80 ,000 symbolic doves. So you're of the view that China won World War II. No, that's a joke. I'm not interested in getting into debates about attributes. Actually, I'm not that interested in that topic. I feel like that would be a big diversion. But yes, whenever I see the I don't know, I don't know anything about weapons.

3:20I'm like a bad man in that respect. No, I feel I'm what happened to all the military history books you're reading. I guess those are outdated weapons. I'm interested in like sort of the economics and the politics. But when I see people posting about, oh, wow, this is a fourth gen hypersonic, whatever. I like I have no idea. It's probably like what some people think about when you and I post about, you know, the UK 210 linkers spread or something like that. You know it means something, but you don't know one. You know it also is like, OK, a lot of people like to flex their knowledge. Again, a lot of men on the Internet like to flex their knowledge about stuff like that.

3:58Everyone wants to be an armchair military strategist or procurement specialist. All that being said, there are a couple of things that I'm interested in. One is sort of did the military parade tell us anything new about the state of the art of Chinese military technology? But also, you know, of course, several months ago, there was a sort of brief conflict between India and Pakistan. It was sort of, I believe, earlier in the summer, late spring. And there were battles between fighter jets. And for a moment, there was a lot of question about did this reveal something about the state of the art of who has the best Air Force, who has the best Air Force technology?

4:32And everyone was like pouring over the data to see what we learned. And so it is a good time to maybe get a temperature check on some of these questions about who has the best weapons and the concerns or the anxiety in D.C. about where we stand, where our allies stand and so forth. Lots of interesting questions being raised right now. Right. And there's clearly a lot of angst about the U.S.'s position in terms of military power right now. I got to say, when it comes to India-Pakistan, everything I know about India-Pakistan Air Force tensions comes from the Bollywood movie Veer Zahra. Have you ever seen that?

5:07I haven't seen it, no. So basically, I don't know a lot. But it's a great movie. It actually really encapsulates Pakistan-India relations quite well. But anyway. We should do a screening. Yeah, there we go. Okay. Okay. Well, I'm really excited to say we have someone who knows about this much more than the two of us. We literally have the perfect guest, someone we've wanted to talk to for a long time, Kelly Grieco, senior fellow at the Stimson Center. So Kelly, thank you so much for coming on OddLots. Hi, thank you for having me. Let's start with the parade. Anything strike you there? You know, I think as an aviation geek, I was a little disappointed because we didn't really see any new aircraft.

5:44There were some support aircraft, enabling aircraft they displayed. I was really hoping we might see their new sixth generation bomber, the H-20, but they didn't give us a preview of that or the aircraft, you know, the sixth gen fighters that we had seen earlier in this past year. So it was sort of the, you know, the J-20 that their fifth gen was certainly flying. I'd say the biggest takeaway, though, for me that I was thinking about what would a U.S. military parade look like and how would that compare to a Chinese military parade? And what really struck me was actually the number of unmanned systems, the drones.

6:16I don't think you would see that in an American parade to the same degree. And also just a variety of types of drones. You know, if you were having the Air Force do a parade and you said, OK, you have to come out with your drones, we would see really high end capabilities that look more like fighter aircraft. And we might see some of the smaller drones, but really not anything in between as much. And that's the space where China is clearly developing that in between space in particular to have a lot of options and variety. Yeah. So one of the things we did see was a new like unmanned air vehicle.

6:50I think it was called like loyal wingman or something like that. It does seem that China is putting more emphasis on, I guess, like a sort of holistic approach to its air capabilities where like maybe some of the traditional aircraft are basically playing support roles for drones and vice versa. Is that the direction that they seem to be going in? Yeah, I think that is actually a fair conclusion to say, which given the emphasis they placed on drones and that word these days is almost it's really useful. And in some ways it's not. It means different things to different people. But I'm going to use it just to mean that there is not a human being inside the platform.

7:27So we saw, you know, cross domains, the air domain, the sea domain, the land domain, lots of these kinds of drones. And it does seem that they're moving towards a model where they lead with the drones and the human beings are more in a role of enabling that as opposed to perhaps the drones helping to support or enable the human beings that are operating. And so that is quite a different model, potentially. Joe, there's one thing we should say before we go any further, which is I know European defense stocks have gotten all the attention this year. But actually, if you look at Chinese defense stocks, they went absolutely crazy.

8:00So pull up, I wrote this down earlier, pull up Avik Chengdu Aircraft. OK. I'm looking at the chart. So that had a massive run up this year. It's come down basically since the military parade, but it's still up like 15 % year to date. And in general, Chinese defense stocks have been outperforming the broader market. So you can see people are getting excited about defense. In January 2023, this was a$10 UN stock. Now it's at 83. Yeah, it's not just Europe that's rallying. You mentioned your disappointment. What was it, the sixth gen plane that they didn't show? What do these things mean? I see this.

8:37They're unveiling their fifth gen plane, their sixth gen plane. Are gens, generations, are they comparable? Are they like for like? Are these useful terms? Talk to us about what these terms mean and how you understand them or how you state them. Yeah, so this is a great question. You know, we talk a lot about generations. I'd like to think that, you know, say that these are scientific terms that are used with these very clear criteria. The reality is that's not entirely the case. And people will even disagree about what aircraft, whether it belongs in, you know, fifth gen or fourth gen. But basically what we try to do with the generational term is group aircraft together where it seems like there's some leap or magnitude difference in terms of the kinds of capabilities it has.

9:20So if you look at fourth gen, which was developed mostly in the 70s, it was really the emphasis was on maneuverability and being able to dogfight. Whereas when you get to the fifth gen, this is when we see stealth. The aircraft that look much more futuristic, the weapon bays are internal to try to help with that stealth. And then we also see the start of really these turning into much more computer based systems with sensors and trying to integrate some of these sensors. That's where like the F-35, the F-22 come in. And now the reality is those aircraft were developed, say, 20 years ago. We're now moving into the sixth generation, which is a continuation of the stealth.

9:58And I'll just say there's two really defining features for sixth gen. One is that it's tailess. It doesn't have a vertical tail to, again, improve with that stealth, also help with range. And then the other part of it is something that you mentioned earlier, which is this loyal wingman concept, that it won't just be a manned fighter with a human inside, but that will also be cooperating with these really high-end drones that are capable of operating either alongside it or ahead of it. By the way, Tracy, I have to say I'm not totally surprised that there is not nice definitions of various jets.

10:29And the only reason I say that is because based on our semiconductor episodes, you can't even get consistent definitions of like, what is a four nanometer? And so if you can't even get an agreed upon definition of what is the sort of nanometer size of a chip, I'm not surprised that there is not agreed upon definitions of things more vague, like a generation of aircraft technology. Absolutely. On this note, when it comes to developing new aircraft, is it mostly an iterative process? Like we just improve upon the existing technology? And I guess like what's the catalyst or the decision that goes into, you know what, we're going to scrap this existing design.

11:04It's no longer useful or whatever. And we're going to start something entirely new. Yeah, those are great questions. Once the Air Force itself is often wrestling with. I would just say one thing that you asked about is this sort of iterative improvements on technology. And the answer to that when it comes to fighter aircraft and bombers is yes. I was thinking about this, you know, preparing for this podcast and thinking about the historical development of fighter aircraft. And you go back and look, it really hasn't, in some sense, it hasn't changed that much. You know, the missions that these aircraft were doing in World War I and World War II, you know, trying to clear the airspace of other aircraft, trying to support, you know, ground forces or surface forces through attacks on the ground, delivering effects.

11:46That hasn't really changed. The missions haven't really changed for these aircraft. And, you know, once you get to, you know, certainly, you know, second, third generation, they start to look like fighter, modern fighter aircraft to the naked eye. And so each generation is improving in some way, iteratively, the technology. This is evolution, not revolution in terms of the technological developments, even things like stealth, right? We see that as often revolutionary, but it's really an improvement on the existing technology. And because it's evolution and not revolution in terms of capabilities that are being added, there's marginal gains.

12:21So the more you're trying to improve this existing technology and sort of extend this existing technology, the costlier it's becoming. But you're getting perhaps less in terms of the actual capabilities that you're gaining each time. So it's becoming more and more expensive to create a new generation with more fancy tech. And then that raises the question, their second question, which is, when do you decide, okay, it's worth investing in a new aircraft with new technology versus trying to extend existing aircraft? You know, there was talk, for example, of taking U.S. fifth generation aircraft like the F-35, the F-22, and pairing those with these, you know, high-end drones that are called collaborative combat aircraft, pairing them together to this manned-unmanned teaming.

13:06Or do you really need a whole new manned fighter aircraft to operate alongside those? Is it worth the investment? And so those are hard choices in terms of what you really think you're gaining in terms of capability with a new aircraft versus trying to sustain what you have in terms of maintenance costs and the ability to upgrade those systems. So obviously, we don't know that much about the sixth gen jet in China. I know there were like a few clips that were on the Internet several months ago and people like yourself tried to divine as much as you could based on a few seconds of video. And I'm sure you learned something, although to the naked eye was like, oh, it looks like a plane to me.

13:42Don't you just love, though, that the Chinese just happen to be, you know, flaunting over cities? Yeah, yeah. But where do we stand here? Like, from the inside the Pentagon or at the Air Force, et cetera, when they see those same videos and they know where we're at, what do people feel about where the U.S. stands in comparison to China right now in terms of our cutting edge versus their cutting edge? Yeah. So, you know, I think the truth is that you get different answers from different people. And sometimes I think that might also reflect different interests that they have in the development of six-gen aircraft.

14:13Just as a caveat, let me just say that the Chinese actually demonstrated what looked like two six-gen aircraft in late December to Mark Mao's birthday. You know, one that looks like it might be more of a fighter-bomber, was much larger, the J-36, and another that looks more like, you know, a fighter aircraft in terms of size and things, what people are calling the J-50. We don't know a lot about those aircraft. My guess is that they were demonstrator aircraft, not things that are operational in production, that they're very early in their flight process and testing. You know, you heard a lot of people saying, oh, look, see, we're behind.

14:47They're flying these aircraft already, these six gen. But the reality is the United States has been flying six gen what we know about since at least 2020, its own demonstrator aircraft. So I don't think the United States is actually behind in terms of six gen technology. Same thing with the collaborative combat aircraft, the drone portion. I think we're actually ahead in that, probably against China. On the exquisite side of things, the United States, I think, is ahead of China. And certainly there was already a discussion happening about whether to proceed with the Sixth Gen Air Force aircraft, a fighter aircraft, which is now called the F-47.

15:21China flew it around the time that that decision was being made. The Trump administration decided to go ahead with it. So we're continuing with the development of our own Sixth Gen fighter aircraft. We already have a six-gen bomber, the B-21. So we're ahead of the Chinese certainly there. So I don't think we're certainly behind. The issue might be, it's not just like who gets there first in the terms of six-gen, but who's able to really scale up. And I think that's when we maybe should be a little bit more concerned about China, is their ability to scale might be quite greater.

16:28www.ecolab.com Better outcomes. Better impact. Ecolab. Now every location is your best location. How many vendors does it take to meet all your organization's food needs? Just one. EasyCater, the workplace food platform that lets teams order from a huge variety of restaurants, over 100 ,000 nationwide, all through a single vendor. In addition to all that variety, EasyCater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. EasyCater, your business tool for food. To learn more, visit easycater.com slash podcast.

17:14You're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic options plays on the side. The point is, you're engaged with your investments, and Public gets that. That's why they built an investing platform for those who take it seriously. On Public, you can put together a multi-asset portfolio for the long haul. Stocks, bonds, options, crypto, it's all there. Plus an industry-leading 3.8 % APY high-yield cash account. Switch to the platform built for those who take investing seriously. Go to Public.com and earn an uncapped 1 % bonus when you transfer your portfolio.

18:26That's Public.com. Orality and Literacy by Walter Ong. Oh, yeah. You do bring that up a lot. But wars are one, obviously, partly on the advanced tech, but also on just the ability to produce at scale, which is, of course, a major concern here. Well, wait, does that actually apply to fighter jets? So does quantity matter in air combat in the sense that, you know, if I have like 100 MiG-21s or something really outdated, can I actually succeed against like one F-47, the new like next generation fighter jet? Yeah. So this is something the United States, again, has debated for a long time. When we go back to the Cold War and the Soviets, and we were facing an enemy that had a quantitative advantage, they were just able to produce more numbers, more people.

19:12And one of the things the United States decided to do is develop what's called an offset strategy. And it did try to gain an advantage through quality, a quality advantage in terms of the technology to make up for the lack of numbers. And so to some extent, yes, you can do that. But there comes a point in which you can't make up for a lack of simple math and numbers. You know, one of the challenges I would just say is against China is they may have a sufficient quality and quantity, right? That, you know, it's a little bit of a different kind of adversary in that way. But just in terms of how much you can make up for it, I think there are a couple of things that are specific as well to the Indo-Pacific theater that make it harder to operate with a smaller number of exquisite high-end platforms, even if they're enormously capable.

19:55I would say one is just simply that air warfare itself has changed. And so particularly with the sensors that are now available, you know, in all kinds of domains to be able to look for these aircraft and try to find them, you know, the threat environment has changed and that having a small number of very expensive aircraft is inherently kind of fragile because if you start losing some of these, you start trading significant amounts of capability very quickly. and with the kinds of sensors and the kind of surface-to-air missiles, air defense systems that China's developed, that kind of threat environment, that's more likely to happen.

20:31So that's one. And then the second I would just say is that an aircraft cannot be in two places at once. I know that seems pretty obvious, but in the Indo-Pacific, this really matters because of the ranges we're talking about. You know, fighter aircraft were originally developed for the European theater, and you see that reflected in the kinds of ranges. So they have a range often of around like on average about 600 nautical miles without aerial refueling. That works great in Europe because there are plenty of airfields you can land at, backup airfields, and to be able to, you know, even on the ground get refueled.

21:03In the Indo-Pacific, you know, if you look at like a Taiwan contingency potentially, you can maybe operate fighters from, say, Okinawa, U.S. fighters from Okinawa without aerial refueling. even if you were to operate them from other places in Japan, the main island of Japan, you would need aerial refueling in order to be able to get to the theater of operations in return. And so when you need that kind of aerial refueling capability, but you also are traveling these longer distances, it means you can't do as many sorties every day or the limited number of sorties. You need more aircraft just to be able to even create some kind of consistent presence in the area of operations.

21:43So, you know, mass does matter in certain ways. And this is, I think, something we're seeing, you know, in Ukraine. You know, we've seen it, I think, even in the Middle East and kind of a return back to that time when, you know, industrial scale matters, particularly in great power conflicts. That makes sense. Can I ask a slightly personal question? But since Joe mentioned at the beginning of this conversation how much men like to sit around and talk about military strategy, it actually reminded me. So occasionally when I visit my dad, I am forced to go to the American Legion Club. And there are a lot of old guys there talking about Air Force and other military things.

22:20And one thing that always comes up is this idea of air superiority. And I never really know quite what they mean, because it just sounds like, okay, if you're if you have air superiority, then you're going to win. But my understanding is it's something like much more subtle than that, like something that actually comes on a range, even though it sounds very binary. What is it? What's air superiority? Yeah, well, let me first just say if air superiority allows you to win wars, then, you know, the Taliban should not be in power in Afghanistan. We would have had a cakewalk in Vietnam, too. Yeah, exactly.

22:54If only we're so simple. But so air superiority. So I think first I would just say is to start with the term air control, which is this idea that what degree are you able to actually control the airspace to be able to, on the one hand, use it, access it yourself and use it militarily, but also to deny the adversary the ability to access and control the airspace. And so if you think about that air control, there is a spectrum, as you said, of degrees of air control. And it can be completely contested and neither side has it. It's mutual air denial. Neither side is really able to access the airspace or deny the other side the ability to access it.

23:33Or air superiority is a higher degree of control. And the way it's defined as it's usually time bound in terms of area and the amount of time you're able to have this degree of control, but you're able to operate, conduct operations without prohibitive interference from the adversary. So you're able to basically do what you want with the airspace, generating effects, you know, on the ground to support, you know, the joint force without the adversary being able to unduly interfere in your operations. And, you know, that's pretty subjective criteria, I would just note. Whereas, you know, there's a degree beyond air superiority, which is actually air supremacy, and which is something I would argue the United States has had by and large, you know, the last 20 years, it's been air supremacy, which is effectively, you are the only actor really operating in the airspace.

24:21The adversary, you know, is not able to really bother you at all in terms of the airspace. And it's essentially a permanent condition. The United States ruled the skies over Afghanistan, over Iraq during those wars. It was really more air supremacy, which is, and I'll just say we've gotten very used to it, but it's actually an historical anomaly. That's really not the reality. We've usually had to fight for air superiority even, including against Vietnam, particularly over North Vietnam. It was really quite back and forth in terms of air superiority and fighting for air control. So this might be actually a good time to pivot a little bit to the recent conflict.

24:58I guess it was in May where we saw Indian and Pakistani Air Force, the Air Forces shoot at each other. What did we learn? This wasn't a dogfight in this sort of classical sense, but it was in a situation which seems to be fairly rare in modern times in which we had competing Air Forces shooting at each other in the sky. So why don't you talk to us a little bit big picture, maybe then we'll drill down about who backs either side in terms of where they get their planes and what we learned, what kind of data we amassed from that period. Yeah. So, you know, it is unusual to see two essentially modern air forces attacking each other or fighting each other, having some kind of exchange, particularly an air to air, you know, and also an air to air exchange as well as ground to air.

25:41So the Indians were operating kind of a mix of some French aircraft, some Russian aircraft, whereas on the other side, we had the Pakistanis were, it seems, using Chinese aircraft, older Chinese aircraft, the J-10, and also Chinese missiles. They were using something called the PL-15. It's an export version, so it's not quite as good as what the Chinese operate as a PL-15. But it's interesting and I think surprising to many people because it is clear that in this exchange that kind of happened almost like Western style, you know, they're meeting at the border. What was surprising to think to many people is that it's clear that Indians lost some aircraft.