NEWTOWN, Conn. — Despite the tremors felt across much of the international defense market since the global economic downturn of 2008-09, the Asia-Pacific region will serve as a generator of military spending growth through the near- to medium-term, according to a Forecast International analysis.
[Contact: Dan Darling | December 1, 2014 | Forecast International]
While China's ongoing military expansion and modernization efforts capture most of the attention, defense spending and procurement trends in Australia, India, Indonesia and Japan indicate significant market potential over the next five to 10 years. Australia's center-right government has made clear it intends to move forward with ambitious spending targets and big-ticket defense projects, while the outcomes of recent elections in India and Indonesia should serve to maintain – or accelerate – broad-spectrum force upgrade strategies. Japan's conservative government is charting an upward course in military investment as it seeks to cultivate a highly capable amphibious arm and offset China's growing military capability with its own high-end defense technologies.
"Due to the strategic dynamics at play and the myriad security concerns and modernization requirements of countries across the region, defense spending is trending steadily upward and should continue to climb for the next five to 10 years barring sharp and prolonged economic slumps," states Forecast's Asia-Pacific analyst Dan Darling. "Even the smaller, developing markets of Southeast Asia are in line for steady defense investment increases as long-neglected modernization cycles are brought to the fore."
Forecast International's defense spending projection for the Southeast Asia slice of the greater market indicates annual year-on-year growth of 3.1 percent over a five-year period, an amount that would be even higher but for inflation fears and the need to factor in currency fluctuations.
Australia's annual military earmarks over that same timeframe project to 6.8 percent growth in absolute terms, while those of India, Indonesia and Japan are estimated at 2.1 percent, 2.3 percent and 6.5 percent, respectively. While not the double-digit year-on-year growth exhibited by China over its past three fiscal years, in U.S.-dollar terms this will amount to an additional $40 billion in combined nominal military investment above the 2014 budgetary baselines for these four nations.
Ongoing exclusive economic zone (EEZ) disputes and competing territorial claims in the South and East China Seas are spurring many regional actors to improve and expand their air and sea capabilities. Whether looking for fast attack missile boats or special mission aircraft and other assets, Southeast Asian countries are placing an increased urgency on acquiring sea- and airborne force multipliers as Beijing seeks to establish de facto control over resource-rich waters alongside the coasts of Brunei, Malaysia, the Philippines and Vietnam.
"China is attempting to exert its will in contested waters and bring disputed island chains and shoals under its control as part of a larger strategy to increase its regional influence and expand its maritime domain outward while securing its sea lines of communication, and to extract greater energy and fishing resources in the process," says Darling. "But this effort to intimidate and assert control by sheer force of presence in turn triggers the fears of many regional actors."
The knock-on effect is that many of these nations are not only increasing their defense budgets and expanding their procurement requirements, but also are looking to cooperate with nations viewed by China as strategic rivals. Thus Vietnam is looking to broaden its military supply chain to include the U.S., which Hanoi hopes will lift an embargo and sell it multimission assets such as the P-3 Orion.
Having eased its longstanding self-imposed weapons export restrictions in April, Japan is in a position to emerge as a defense-technology partner and supplier to the region. India is looking to Tokyo for the supply of US-2 amphibious aircraft, while Australia is interested in potentially harnessing Japanese technologies for its Collins-class submarine replacement program.
In the meantime, despite burgeoning defense-technological industrial bases in many populous Asia-Pacific nations, the region continues to import foreign-sourced military hardware on a large scale. Its "Make in India" indigenization emphasis notwithstanding, India currently serves as the world's largest defense-importing nation and meets nearly 80 percent of its weaponry and equipment requirements via foreign vendors. Indonesia, Malaysia and Singapore are also import-heavy defense markets.
Excluded from the U.S. and European Union defense markets, China continues to expand its own defense industry in an attempt to achieve self-sufficiency in meeting the needs of its military. The growth of its defense manufacturing sector and qualitative leap in its capabilities have had the added effect of turning China into one of the world's largest defense-exporting nations. Aided by double-digit defense budget increases that FI estimates will continue to average close to 12 percent annually through 2019, China's military buildup shows little sign of slowing down.
"As Beijing's stated ambition has been to build a military equal in measure to the country's economic and diplomatic stature, its defense spending projections appear robust across the immediate horizon," Darling notes. "However, each announcement of another year-on-year military budgetary increase is seen in distant capitals as the intention of the world's most populous nation to become the region's hyper-power, capable of imposing its will and asserting control over disputed borders, islands, territorial waters and energy reserves through the sheer overwhelming size and power of its military. The net effect is an acceleration of military modernization and materiel expansion in countries wary of China's expanding presence."