2014-02-04 03:20:04 - Future of the Chinese Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2018 - a new market research report on companiesandmarkets.com
Expenditure in the China defence market is currently being driven by a fast growing economy combined with the objective of becoming a superpower. Disputes over borders and territories, and military modernization are expected to drive the country´s future military spending, which is expected to grow at a CAGR of 11.9% over the forecast period. Police modernization, expenditure on securing borders, and investment in security infrastructure propel the homeland security budget to surpass the country´s defense budget, and is expected to cross US$200 billion mark by 2018. China´s philosophy "Prosperous nation, strong military" drives its efforts in building a large military force to rival the best armies in the world, which in turn drives the country´s defense budget.
Territorial disputes and investments
in military modernization will drive China´s defense expenditure. China is involved in various disputes over rights to islands in the East China Sea and South China. In 2012, the dispute between the country and Japan over rights to the Diaoyu islands in the East China Sea intensified the tensions between the two countries. Both countries increased their military forces and patrol around these islands, fuelling the tensions. In addition, China is also involved in disputes over the rights to islands in South China Sea with the Philippines and Vietnam. Taiwan, Malaysia, and Brunei also have conflicting claims in the South China Sea, making the area a source of a potential military showdown. Such disputes and potential threats are expected to drive China´s defense expenditure over the forecast period, which is estimated to grow at a CAGR of 11.9%.
The Chinese defense industry is controlled by the government, and restrictions on private and foreign companies dampen the competition in the industry. A lack of competition diminishes the need for innovation in defense equipment and related technology advancement. Barring a few industrial enterprises, the majority of organizations fail to compete with each other, which impedes the development of China´s modern indigenous defense industry as there is no incentive for companies to innovate. Furthermore, some of China´s industrial-defense enterprises form business relationships based on long-standing political ties with regions and provinces. As a result, the country fails to gain access to technological innovations and advancements in foreign countries.
A major obstacle to investment in the Chinese defense industry is the arms embargo imposed by the US and other European countries, following the 1989 Tiananmen Square massacre. During the review period, some European states have proposed the lift of the arms ban, but the US and Japan have opposed this proposal due to fears that it will enable China to enhance its military capabilities. As a result, China´s defense industry is unable to acquire sophisticated military hardware from the US or Western European countries, and this hampers the development of its military-industrial complex.
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