News Flash: China's Third Aircraft Carrier Could Be Nuclear

China's naval build-up is rapidly closing the "aircraft carrier gap" with the U.S. -- and that's good news for one defense contractor in particular.

Jul 13, 2014 at 10:10AM

G
China's first aircraft carrier, the Liaoning (PLAN CV-16). Source: Google Earth

China has an aircraft carrier.

In fact, multiple media sources confirm that China has already begun work on its second aircraft carrier, a sister ship to the Liaoning (PLAN CV-16), and likely to be designated CV-17.

What's more, People's Liberation Army Major General Luo Yuan has publicly stated that China's People's Liberation Army-Navy (PLAN) needs three aircraft carriers at a minimum, just to maintain parity with its neighbors. As the general explained: "India will have three aircraft carriers by 2014 and Japan will have three carriers by 2014, so I think the number (for China) should not be less than three." So it should come as no great surprise when we learn that China's race to build a blue water navy is now rounding the corner and heading for a third carrier build.

But here's something that may surprise you: This third Chinese carrier will probably be nuclear -- a 100,000-ton monster of a warship, equal in size, and perhaps in capability, to the Nimitz and Ford-class nuclear aircraft carriers built by Huntington Ingalls (NYSE:HII).

File
USS Nimitz (CVN-68) at sea. Photo: Wikimedia Commons

What does this news mean to America's military, to Huntington Ingalls, and to investors in Huntington and other defense contractors? Read on, and we'll lay it all out for you.

Welcome to the (nuclear) carrier club
Currently, 12 countries around the world possess aircraft carriers. (The exact number depends on what exactly you think constitutes an "aircraft carrier." For example, Japan's helicopter destroyer class of warship is only capable of carrying helicopters -- but China considers them aircraft carriers nonetheless). But so far, the only nuclear-powered aircraft carriers in the world, are those built by Huntington Ingalls for America.

Japan Hhd

Japan Maritime Self-Defense Force helicopter destroyer JS Hyuga (DDH 181). Photo: Wikimedia Commons

This gives the U.S. Navy a big advantage over its potential rivals in endurance, in range of operations, in speed, and in on-board power generation. But China is closing the gap quickly.

China's newest carrier is said to feature three aircraft elevators, the capacity to carry 75 or more warplanes, and electrically powered catapults to launch them. Word has it that the new ship will bear the hull number CVN-18 -- indicating it will be the second to be built after Liaoning (CV-16), and with the "N" designation, will be nuclear-powered.

At present, the new carrier's only incarnation is as a scale model making the rounds in China. But according to Richard Fisher, senior fellow at the International Assessment and Strategy Center, China could begin work on this third aircraft carrier at its Jiangnan-Changxin shipyard in Shanghai "very soon."

Money can't buy happiness -- but it can buy a lot of aircraft carriers
The shift in balance of power at sea, with U.S. influence waning and China in ascendant, has been dramatic. As recently as two years ago, China had no operable aircraft carriers. Now it has one-and-a-half, and a third on the way.

And while some may argue that China can't afford the expense of building nuclear supercarriers, the facts argue otherwise. According to data from the Stockholm International Peace Research Institute (SIPRI) in Sweden, China boasts an annual military budget in excess of $188 billion, making it the world's second biggest defense spender after the United States. And recently, Time put actual Chinese military spending at more than $200 million. So even if Colonel Li Jie at China's Institute of Naval Military Academy laments the high "about 5 billion U.S. dollars" cost of building a nuclear aircraft carrier -- this is a luxury that China's military can certainly afford.

What it means for investors
In the best case, Congress currently anticipates building new aircraft carriers for the Navy at the rate of one every five years. But America currently has only 10 of its federally mandated 11 aircraft carriers operational, and Secretary of Defense Chuck Hagel has publicly floated plans to cut that number to as little as "eight or nine."

Meanwhile, China is rapidly ramping its carrier construction, going from zero to three carriers operational, beginning construction, or entering the planning stages in just the past two years. All too rapidly, the "carrier gap" is closing.

Now, maybe this isn't a bad thing. After all, just this week, Chinese President Xi Jinping argued that it's time to "break the old pattern of conflict and opposition between great powers," and improve "cooperation between China and the U.S." If China intends to use its new carriers to promote freedom of trade in the South China Sea, and deliver aid to neighboring nations struck by earthquakes, tsunamis, and hurricanes -- as the U.S. often does -- then that's all well and good.

But if China's intentions are otherwise -- or if Congress even fears they may become so, and deems it prudent to maintain naval superiority in aircraft carriers -- then the U.S. simply must build more of them, and build them faster. For Huntington Ingalls, the last remaining nuclear aircraft carrier-builder in America, that can only mean good things.

The more and the bigger aircraft carriers China builds, the harder it's going to be for even would-be budget-cutters in Congress to cut back on spending to bulk up America's fleet.

You can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!

File
Artist's depiction of the new Ford-class aircraft carriers. Source: Wikimedia Commons

Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers