Rising Global Defense Spending: Asia Pacific’s Outlook

By Shawn Greene

Posted: 21st March 2014 09:15

For the first time in five years, worldwide defense spending will increase according to IHS Jane’s Annual Defence Budgets Review.
 
According to the forecast, China is on track to outspend the UK, France and Germany combined by 2015, and Asia Pacific remains the only region with a steady increase in defense expenditures from 2009 onwards.
 
The yearly review from the U.K.-based defense analysis company tracks military expenditures in the 77 top-spending countries while making predictions about global defense budgets over the next five years.
 
“Asia Pacific is the only region where from 2009 onwards we have seen a steady rise in defense expenditure. Based on IHS Jane’s Defence Budgets projections, Asia Pacific’s share of global budget spending will grow to 28 percent from its current 24 percent by the end of the decade, reaching US$474 billion,” Craig Caffrey, senior analyst at IHS Jane’s Aerospace, Defence & Security said.
 
“If we step back to look at Asia Pacific without China, we see the region overtaking Western Europe in 2015,” Caffrey continued.
 
Four Asia countries – China, Japan, India and South Korea – made the top-10 list of global defense spenders.
 
China’s Steady Spending Increase
 
At the current time, China spends more on its military than any country in the world besides the United States and has been increasing its defense budget by around 10 percent every year. According IHS Jane’s projections, China will spend US$148 billion on its military this year, up from 139.2 billion in 2013.
 
“IHS predictions suggest that official Chinese defense spending for 2014 is likely to be in the region of US$130 billion, around 10 times the size of Taiwan’s budget. Taking adjustments for pensions and military R&D into account, Beijing’s military expenditure is thought to account for around 9 percent of the global total,” Caffrey said.
 
Fenella McGerty, another senior analyst at IHS, predicts China’s military will outspend all of Western Europe by 2024.
 
“By 2015, China will spend more than the UK, France and Germany combined. In 2015, China is expected to spend US$159.6 billion, while the sum of the three largest Western European markets is expected to reach just US$149 billion. Defense budgets in the five largest Western European Markets (UK, France, Germany, Italy and Spain) decreased by 1.3 percent in 2013. Regional spending totaled US$242.8 billion in 2013 and this is expected to decrease to US$237 billion by 2018 in real terms,” she said.
 
Increases in Chinese spending over the past few years have resulted in the purchase of several sensational pieces of military hardware including China’s first aircraft carrier, the Liaoning, in 2012 and a Chinese-made stealth fighter which made its first official test flight during a 2011 visit to the country by then-U.S. Defense Secretary Robert Gates.
 
Despite this increase, the United States continues to significantly outspend the world with a 2014 budget forecast of US$574.9 billion, a decrease from US$664.3 billion in 2012 due to budget cuts.
 
Some military analysts believe China’s increase in military spending will not necessarily accompany an increase in military capabilities, however.
 
Last month, Ian Easton from the well-known Project 2049 Institute suggested China’s military remains deceptively weak despite its increasingly impressive outward appearance. In Eason’s view, it is highly improbable that China’s People’s Liberation Army (PLA) would be successful in a Taiwan invasion scenario, which many analysts consider one of the PLA’s top operational planning priorities at the present time.
 
Controlled by the ruling Communist Party rather than the government, the PLA’s combat readiness has also been called into question in recent months in light of several high-level corruption scandals involving top generals such as former Lt. Gen. Gu Junshan.
 
Japan Moves to Increase Capabilities, Reevaluate Constitution Interpretation
 
Japan is ranked fifth in the IHS report with a yearly expenditure of US$56.8 billion, and recent developments indicate that number may increase substantially in the near future.
“In Japan, where the previous governments have sought to restrict defense spending and focus resources on bringing down government debt and improving economic performance, the Abe administration increased core defense spending in 2013 and has asked for additional funds for the FY14 budget,” Caffrey said.
 
On Tuesday, a 14-member government panel urged Japan to reverse its longstanding ban on collective defense and permit Japan’s military to assist international allies that come under attack. Discussing ways Japan could improve its defense capability, the panel headed by former Ambassador to the U.S. Shunji Yanai will draft an official recommendation in the coming weeks that is likely to call for the Japanese to alter their current interpretation of the nation’s pacifist constitution.
 
The Japanese constitution, written under U.S. direction after the Second World War, requires the Japanese people to “forever renounce war as a sovereign right of the nation” and stipulates that “land, sea and air forces, as well as other war potential, will never be maintained.”
 
An altered interpretation of the constitution may lead to the conclusion that strict self-defense policy is inadequate in the Asia Pacific region’s increasingly challenging security environment, and lead to the purchase of weapons widely considered to be strictly ‘offensive’ such as ICBMs and strategic bombers.
 
“The best possible scenario for the Abe administration is to reach a cabinet decision to change Japan’s constitutional interpretations during this parliamentary session which ends in June, and to revise the current self-defense force laws and U.S.-Japan defense cooperation guidelines accordingly later this year. I doubt things will proceed so smoothly, as collective self-defense is still a dividing issue among the Japanese people and without enough popular support, the LDP’s coalition party, Komeito, is likely to boycott the required unanimous vote for the cabinet decision. I suspect that Abe will act cautiously and first try to seek the public’s understanding,” said Daisuke Minami of the Rising Powers Initiative at the Elliot School of International Affairs.
 
In recent months, tensions between Japan and China have become increasingly strained over territorial disputes, China’s declaration of an air defense identification zone, Japanese Prime Minister Shinzo Abe’s controversial visit to the Yasukuni Shrineand concerns from both sides about increased defense spending in the Asia Pacific region.
 
Japan’s plan to boost defense spending by 2.6 percent over the next five years represents the first move to increase Japanese military capabilities in nearly a decade. According to PM Abe, the nation’s military build-up is intended to enable Japan to play a greater role in international peacekeeping operations and step up its defense posture in response to potential threats posed by China and North Korea.
 
A Shift East
 
According to Paul Burton, Director of IHS Jane’s, the IHS report’s predictions reflect a significant shift in defense expenditures away from Western nations.
 
“We have seen substantial increases in defense spending from countries like Russia, China, India, Saudi Arabia and Oman over the past two years. With military budgets among many of the major NATO nations due to continue to contract over the next 12 months, the center of gravity in defense expenditure is expected to continue to shift south and east in 2014, following the trend of global economic expansion. Russia, Asia and the Middle East will provide the impetus behind the growth in global military spending expected this year and will drive the recovery projected from 2016 onwards,” he explained.
 
As Asia Pacific and ASEAN move into the future, it will be increasingly important that Asian nations flush with large military expenditures ensure political, economic and territorial disputes continue to be managed in a peaceful, non-military fashion.
 
 
This article was first published on Asia Briefing.
 
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
 
For further details or to contact the firm, please email info@dezshira.com or visit www.dezshira.com.

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