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Defence & Aerospace

ASEAN members developing lucrative weapons industry in response to China


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There was an article on development of the weapons industry in Southeast Asia, ascribing it to the fear of China’s rise among countries there. However, we can blame China for the rising military budgets and purchases of weapon there, but not the development of the weapons industry.

It is only natural that when the emerging economies have become rich and have money to invest, they will certainly be interested in the lucrative weapons industry. It is also the case with China. Quite a few analysts believe that China’s Shenyang Aircraft Corporation developed the J-31 stealth fighter jet without government funding for the purpose of grabbing a market share from the US F-35. It is obvious to them that due to the excessive high price of the F-35, Shenyang will make a lot of money if it can develop something a little inferior but at a much lower price.

Therefore, the writer shows his insight in concluding his article by quoting John Dowdy, senior partner at McKinsey & Company: “This is a near-term opportunity for global defense firms and a longer-term challenge”.

The following is the full text of the Reuters article

* SE Asia defence spending seen rising to $40 bln by 2016

* Region is world no. 2 in military imports after India

* Countries tilting procurement to develop own expertise (Adds link to graphic)

Spurred by tensions with China, Southeast Asian nations are building up their own defence industries, channelling fast-growing military budgets to develop local expertise and lower their dependence on big U.S. and European arms suppliers.

While countries such as Indonesia, Thailand and Malaysia won’t do away with big-ticket imports from giants like Airbus Group NV or Lockheed Martin Corp, they are increasingly encouraging domestic defence firms to manufacture hardware locally. With regional defence spending seen rising to $40 billion in 2016, 10 percent higher than last year, some countries are already developing their own exports.

A domestic defence industry is a long-term economic as well as security goal of varying degree for the 10 countries in the Association of Southeast Asian Nations (ASEAN), spending more on modernising ageing equipment partly to retain the region’s military balance. The goal has been given urgency by China’s moves in recent months to press disputed claims in oil- and gas-rich waters of the South China Sea, security analysts say.

ASEAN members have stopped short of explicitly citing Beijing as a reason for beefing up military capability. At a meeting in Myanmar last weekend, ASEAN foreign ministers again appealed for “self-restraint” in the face of heightened tensions, with no mention of China in a formal communique.

“This drive to ensure sovereignty is now at the foremost of all governments’ minds in the region,” said Jon Grevatt, Asia Pacific defence industry analyst with IHS Jane’s. “Obviously the activity of China has raised the issue of protecting, securing territory.”

China, whose military spending topped $145 billion last year according to U.S. estimates, claims about nine-tenths of the South China Sea. It has alarmed Southeast Asian diplomats this year with assertive moves like planting a giant, $1 billion oil rig in waters claimed by Vietnam.

A build-up in China’s coastguard fleet has also allowed Beijing to beef up its maritime presence without deploying warships. Some in the region have sought to counter that like-for-like: In a package due to take effect this month, Vietnam has set aside 11.5 trillion dong ($543 million) to be used to buy 32 coastguard and surveillance ships.

Southeast Asia’s defence spending grew 5 percent to $35.9 billion in 2013, data from the Stockholm International Peace Research Institute (SIPRI) showed, and is expected to rise to $40 billion by 2016. The region’s defence spending has more than doubled since 1992, according to SIPRI.

LOCAL OBLIGATION

Defence procurement in Southeast Asia is still dominated by government purchases of big-ticket items like jets or submarines from Western defence suppliers such as Lockheed Martin of the United States, France-based Airbus or Germany’s ThyssenKrupp AG . The region became the world’s second-largest importer of military equipment and technology after India.

Now, though, from Indonesia radar to Singapore submarines, governments are tilting such purchases to help them develop their own defence expertise. While breaking no records in size or scope, recent deals show a growing trend towards embedding local manufacturing in procurement contracts.

In one example, Malaysia’s shipbuilding-to-weaponry group Boustead Heavy Industries Corporation is working with French state-controlled naval contractor DCNS on a 9 billion ringgit ($2.8 billion) contract for six coastal combat ships for Malaysia’s navy – to be built locally.

“We expect to achieve well over 60 percent in terms of local content and value, and see considerable transfer of technology to ourselves as well as local vendors and suppliers who we work with and cultivate,” Ahmad Ramli Mohd Nor, executive deputy chairman and managing director of Boustead Heavy, told Reuters.

“Importantly, we will already have IP (intellectual property) rights for the first generation of offshore patrol vessels, and this can provide a platform to tap the international market,” he added.

Known as “defence offset” deals, these partnerships can enable countries to carve out domestic defence industries over time. Turkey, for example, has successfully used defence offsets to nurture its domestic industry, whose companies now produce half the country’s military equipment.

Indonesia, which has more than doubled its defence spending in the last five years, this year awarded a $164 million air defence system contract to France’s Thales SA. A condition of the deal is that Thales must transfer radar manufacturing skills and knowledge to state-owned Indonesian electronics firm PT LEN Industri.

Similarly, Singapore said late last year it would buy two submarines from ThyssenKrupp Marine Systems in Germany – making the deal conditional on the involvement of local industry in developing combat systems.

SINGAPORE LEADS

Singapore has by far the most advanced defence industry in the region, as well as being one of the world’s biggest arms importers.

The wealthy island state has sold defence equipment to countries from Nigeria to Brazil since its first overseas arms sales to Malaysia in 1971. Singapore Technologies Engineering (ST Engineering), the state’s main arms maker, generated sales of $1.89 billion in 2012 alone, according to SIPRI.

In a breakthrough, a unit of ST Engineering also won a S$330 million ($256 million) contract in 2008 to supply armoured troop carriers to Britain – its first such sale to a major Western arms supplier – showing it could compete in the global defence arena in some product categories.

“Singapore will agree deals with its foreign suppliers that promote the best interests of both parties, and will not be constrained by lots of regulations and unrealistic expectations,” said Ron Matthews, professor of defence economics at Britain’s Cranfield University.

Still, for now the rise of a Southeast Asia defence industry won’t deter big global players, analysts said. The region’s rising defence spending makes it attractive for weapons makers at a time of tight military budgets in Europe and North America.

The regional firms’ lack of advanced capability also means they are not currently competing head-on with the big players for big-ticket orders.

Instead, they can play a more complimentary role, focusing on areas such as ammunition, small marine vessels and maintenance. But that could change over time – as Turkey’s experience shows – if Southeast Asian firms start to compete for orders on the global market.

“This is a near-term opportunity for global defence firms and a longer-term challenge,” said John Dowdy, senior partner at McKinsey & Company.

Source: Reuters – “As China flexes maritime muscle, SE Asia builds home-grown defence industry”

China rebuffs U.S. efforts on South China Sea tensions (chinadailymail.com)

China to build lighthouses on five South China Sea islands, in defiance of U.S. call to stop provocations (chinadailymail.com)

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About chankaiyee2

Author of the book "Tiananmen's Tremendous Achievements" about how with the help of Tiananmen Protests, talented scholars with moral integrity seized power in the Party and state and brought prosperity to China. The second edition of the book will be published within a few days to mark the 25th anniversary of Tiananmen Protests All the parts in the first edition remain in the second edition with a few changes due to information available later and better understanding. There are also some changes for improvements of style. The new parts are Chapters 12-19 on events in China after the first edition was published: The fierce power struggle for succession between reformists and conservatives; Xi Jinping winning all elders’ support during his mysterious disappearance for 2 weeks in early September, 2012; and Xi Jinping Cyclone. Chan Kai Yee's new book: SPACE ERA STRATEGY: The Way China Beats The US An eye-opening book that tells the truth how the US is losing to China. The US is losing as it adopts the outdated strategy of Air-Sea Battle while China adopts the space era strategy to pursue integrated space and air capabilities: It is losing due to its diplomacy that has given rise to Russian-Chinese alliance. US outdated strategy has enabled China to catch up and surpass the US in key weapons: Hypersonic weapons (HGV) that Pentagon regards as the weapon that will dominate the world in the future. Aerospaceplane in China’s development of space-air bomber that can engage enemy anywhere in the world within an hour and destroy an entire aircraft carrier battle group within minutes. Anti-satellite (ASAT) weapons, anti-ASAT weapons, stealth aircrafts, drones, AEW&C, etc. The book gives detailed descriptions of China’s weapon development based on information mainly from Chinese sources that the author monitors closely. U.S. Must Not Be Beaten by China! China is not a democracy. Its political system cannot prevent the emergence of a despotic leader or stop such a leader when he begins to bring disasters to people. A few decades ago, Mao Zedong, the worst tyrant in world history did emerge and bring disasters to Chinese people. He wanted to fight a nuclear war to replace capitalism with communism but could not bring nuclear holocaust to world people as China was too weak and poor at that time. If a despot like Mao Zedong emerges when China has surpassed the US in military strength, world people will suffer the misery experienced by Chinese people in Mao era. China surpassing the US in GDP is not something to worry about as China has the heavy burden to satisfy its huge population, but China surpassing the US in military strength will be world people’s greatest concern if China remains an autocracy. US people are of much better quality than Chinese people. What they lack is a wise leader to adopt the correct strategy and diplomacy and the creative ways to use its resources in developing its military capabilities. I hope that with the emergence of a great leader, the US can put an end to its decline and remain number one in the world. China, US, space era strategy, air-sea battle, space-air bomber, arms race, weapon development, chan kai yee

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