Don't look now, but China has a new warship in its fleet. It's tailor-made for hunting U.S. submarines -- and just might give us a clue as to what defense contracts will be coming out of the Pentagon next.

China's new Type 056-class corvette. Image source: Hudong Zhongua Shipbuilding Group.

As reported earlier this week by The National Interest magazine, China has churned out "nearly 20" of these new antisubmarine warships in less than five years. Described as "small, cheap, versatile, rugged and well-armed," the Type 056 patrol ship is designed "to show the flag in proximate maritime disputes," says the magazine.

But the Type 056 carries more than just flags:

  • It has a flight deck capable of carrying the new Z-18F submarine-hunting helicopter.
  • It sports variable-depth sonar capable of searching for submarines hiding beneath thermal layers in the ocean.
  • It's expected to carry a new type of "homing" depth charge alongside antisubmarine guided missiles.

The common theme running throughout all this is, of course, the word "submarine." Indeed, the Type 056 is designed from the keel up to hunt U.S. nuclear submarines operating in the South China Sea. (A new Type 055 guided missile destroyer is said to be in the works as well. It will have much the same mission as the Type 056 -- but carry twice as many helicopters.)

Chinese naval bases are starting to fill up with warships and ASW aircraft. Satellite view of the Qingdao Naval Base, via Google Earth.

Plugging the gaps in China's Great Wall of Defense
Why the sudden emphasis on antisubmarine warfare, or ASW? The answer begins in March 1996, when the U.S. responded to China's conducting of amphibious assault exercises off the coast of Taiwan by sending an aircraft carrier battle group into the Taiwan Strait.

China didn't like that one bit. And ever since, it's been working to expand its security envelope, and make it harder (and more dangerous) for U.S. forces to enter a region that China considers its own private sphere of influence.

In the years since, China has invested heavily in building up its surface navy and its submarine forces, and has even bought an aircraft carrier. It developed the DF-21D ballistic missile -- China's so-called "carrier killer" -- to force the U.S. Navy to think twice about sending $14 billion supercarriers into harm's way.

To deal with America's development of stealthy warplanes that might launch from outside the range of shore-launched DF-21Ds, and use refueling tankers to penetrate Chinese airspace, China developed new radar systems. According to China, at least, these radars can detect stealth aircraft at distances of up to 360 miles.

Development of the Type 055 (and Type 056) warships is therefore just the next step in a 20-year effort by China to secure its borders and keep America's military at bay. With the threat of U.S. aircraft and their carriers now minimized, the People's Liberation Army Navy is tackling the problem of stealthy nuclear submarines.

What comes next?
All of which is, of course, fascinating in a geo-politico-military sense. But what does it mean to investors? Well, now that we know where we are in the game of move, countermove, counter-countermove, we can next make an educated guess as to how the U.S. might respond to China's new ASW capabilities.

Logically, the U.S. Navy has two responses it can make to China's Type 055 and Type 056 warships. First, the U.S. can develop new missiles to threaten China's warships. (And in fact, the Navy is doing that.) Second, the Navy could develop new submarines that it can afford to risk losing -- and we're doing that, too.

Earlier this year, we reported on the U.S. Navy's Large Displacement Unmanned Undersea Vehicle, or LDUUV, program, which aims to develop robot submarines that can be used in naval warfare. Major defense contractors have been enlisted in the effort. Indeed, Boeing's (NYSE:BA)new five-ton Echo Ranger autonomous underwater vehicle appears designed with the LDUUV program in mind. While not necessarily more survivable than our existing submarine fleet, Boeing's robotic submarines, being unmanned, would at least be expendable.

Last month, the Navy doubled down on this effort, awarding contracts worth up to $1.4 billion to a team of contractors -- Harris Corporation (NYSE:HRS) and SAIC (NYSE:SAIC) among them -- to develop new "unmanned maritime systems." Precisely what work Harris and SAIC are doing for the Navy hasn't been revealed, but the size of the contract alone speaks volumes.

Going forward, we'll want to keep our eyes open for more developments on this front. Despite the large sums being expended, the Navy is still in the early stages of developing an unmanned underwater military capability. In years to come, however, this ability will only grow -- as will the values of the contracts, and the profits of the defense contractors working on them.

Will the submarine force of the future look something like this? If the U.S. Navy gets its way, it might. Image source: U.S. Navy.