This report analyzes the individual strengths and weaknesses of China’s defense industrial complex. It examines four specific defense-industrial sectors - missiles, aircraft, shipbuilding, and information technology. It argues that China’s defense industry is gradually emerging from two and a half decades of neglect, inefficiency and corruption. As part of a larger RAND Project AIR FORCE study on Chinese military modernization, this document analyzes the individual strengths and weaknesses of four specific defense-industrial sectors - missile, aircraft, shipbuilding, and information technology - to explain variations in performance among those sectors, with a focus on differences in institutional arrangements, incentives, and exposure to market forces, and to evaluate the prospects for China’s defense industry and its ability to contribute to military modernization.