BMI View: China has continued its assertion of dominance in the South China Sea over several incidents in the past year. This has raised tensions between its Asian neighbours as well as the U.S. and has even caused a standoff between militaries. Although China has begun to make political moves, deals and visits to ease these tensions, many speculate that these are more for show rather than sincere negotiations. Again, little is truly known about China's domestic situation due to its blockade against news leaving the country.
China's defensive position and plans are difficult to fully confirm due to China's secrecy on such matters. Like many aspects of its defence posture, China keeps its annual defence budget secret, nevertheless, it is possible to make an accurate estimate regarding what the country spends annually on defence. China is one of the worlds largest spenders on defence but its significant rivals, the U.S., claim that China still has the disadvantage in terms of size and quality of equipment.
As we enter 2015, China has had a tempestuous year with several incidents causing tensions and aggressive responses in regards to not only the South China Sea but China's alleged cyber attacks against American security firms.
China has reassessed and reasserted its friendship with Russia as they have agreed to perform naval exercises in the Mediterranean Sea. This goes hand in hand with reports that China's naval strength (in terms of numbers) could overtake that of the U.S. by 2020. The tension between China and the U.S. has become increasingly tense over the past few years and this agreement with Russia has done nothing but add fuel to that fire. The agreement shows a joint venture that could further include military equipment from Russia and general production from China being exchanged; thereby helping to more extensively arm the two countries in the process, a worry that these arms will be used in China's sovereignty disputes.
In regards to other neighbouring countries, following the incursions made by Chinese troops onto territory claimed by Indian shared military exercises has helped re-establish a better relationship between the two countries. Relations between China and Australia have strengthened thanks to an agreement made mid-Q4 2014. This agreement between Australia and China has strengthened their trade relationship and although not directly affecting the defence sector, Australia's prominence in the Asia-Pacific region cannot be ignored.
Throughout Q314, Japan's plans to redraft the 'Article 9' of its constitution which bars the country from deploying military forces abroad has raised China's ire. Beijing has been harshly critical of the move which it sees as returning Japan to an era of militarism. From this came a meeting between the leaders Prime Minister Shinzo Abe and President Xi Jinping, which concluded with the matter being settled through future plans of shared collaboration in maritime crisis management, as well consent in regards to several other factors surrounding sovereignty of the islands in the East China Sea.
China-U.S. relations on the other hand, continue to experience challenges. In August 2014, Washington protested the government of China's aggressive interception of a US Navy Boeing P-8A maritime patrol aircraft by a Chinese fighter. In the cyber domain, attacks against American companies, particularly those in the defence and aerospace sector have continued. This has allowed the Chinese to obtain the schematics for a stealth jet being developed by a subsidiary of Lockheed Martin and begin developing their own version that was unveiled late Q414. Similar cyber attacks have also been perpetrated by China against pro-democracy and pro-Tibetan groups based in the United States.
The U.S. has also confirmed that China has been testing out a new hypersonic missile. This missile has the potential to travel at Mach 10 and therefore carries the ability to dodge American defensive systems. China has also decided to publically release a list of 108 procurement opportunities available to foreign companies and their subsidiaries. The Chinese Navy has also confirmed that it wishes to grow the number of ships to over 350 by the end of the decade. If this is to be achieved (along with the U.S. cutting back on its naval production through austerity) China will have a larger naval force than the U.S.
Key BMI Forecasts:
Over 2015, defence expenditure will reach USD145.5bn (an 8.5% change on 2014 levels).
Defence imports will reach USD13.1mn of which USD9.4mn will be from arms and ammunition.
Defence exports will reach USD186.0mn of which USD178.0mn will be from arms and ammunition.