Core Viewpoint - The article discusses the significant changes in the global competitive landscape, particularly focusing on the decline of the United States and its implications for China and the world [2][10]. Historical Context - The establishment of Sino-American relations began in 1978 with agreements on student exchanges and trade, leading to China's entry into the World Trade Organization in 2000 [3]. - The 1990s marked the peak of U.S. dominance post-Cold War, but subsequent years have seen a decline in its global influence [5][9]. Economic Challenges - The article highlights the issue of "Rust Belt" in the U.S., where traditional industries have faced decline, contrasting with countries like Switzerland that have maintained economic stability despite high wages [6][7]. - The U.S. economy is burdened by a significant trade deficit of $1.2 trillion and a national debt of $36 trillion, raising concerns about its sustainability [9]. Global Dynamics - The article references the "Thucydides Trap," suggesting that as China rises, the potential for conflict with the U.S. increases, although there are examples of countries avoiding such outcomes [10][11]. - The shift in global power dynamics indicates that the U.S. can no longer maintain its previous level of global engagement without addressing domestic issues [12][14]. Future Outlook - The article posits that regardless of the direction the world takes, economic considerations will remain central, with historical examples showing that crises can lead to new economic opportunities [15][16].

Investment Rating - The report maintains a "Positive" investment rating for the aerospace and defense industry [2]. Core Insights - The report emphasizes that the aerospace sector is experiencing short-term fluctuations in fundamentals, with expectations for demand to be released during the 14th Five-Year Plan, potentially leading to a new cycle of prosperity [7][24]. - The drone segment is becoming an indispensable force in modern warfare, driven by the rapid development of AI, which is facilitating intelligent and autonomous upgrades [7][3]. - The report highlights the importance of selecting companies that can enhance product capabilities, increase penetration rates, and improve average transaction values as the 14th Five-Year Plan concludes [7][4]. Summary by Sections Section 1: Tariff Friction and National Security - The report discusses the perspective of offensive realism in understanding tariff friction, asserting that great power competition necessitates safeguarding national security [9][18]. Section 2: Aerospace and Engine Sector - The aerospace sector's performance in 2024 is under pressure, with revenue and profit growth rates of -4.69% and -15.41%, respectively, indicating a further slowdown compared to 2023 [27][30]. - The main engine manufacturers showed slight revenue declines, while the intermediate and upstream segments experienced significant fluctuations [27][30]. - The report notes that the main engine manufacturers have maintained strong profitability, while the intermediate segment has faced notable volatility due to price reductions [30][34]. Section 3: Company-Specific Insights - **AVIC Shenyang Aircraft Corporation**: Achieved a record high in quarterly profitability, with a 50.99% year-on-year increase in Q4 revenue to 17.54 billion yuan, despite an overall annual revenue decline of 7.37% [39][43]. - **AVIC Xi'an Aircraft Industry Group**: Reported a 21.09% increase in Q4 revenue, with a 39.14% rise in net profit, although the gross margin decreased [59][63]. - **AVIC Optical-Electrical Technology**: Demonstrated strong growth in defense and civil sectors, with a focus on high-quality delivery and market expansion [69][73]. Section 4: Engine Sector Performance - The engine sector maintained stable revenue growth, with a 9.48% increase in revenue for AVIC Engine, although profitability was impacted by rising costs and increased R&D expenses [92][97]. - The report highlights the growth potential in the civil aviation engine market, with significant contracts signed at the Zhuhai Airshow [102][104]. Section 5: Material Supply Sector - The material supply sector showed steady revenue growth, with a focus on increasing R&D investments for future development [105].