Growing Tensions Around South China Sea to Drive Defense Spending in APAC

Estimated reading time: 2 minutes

Rising tensions around the disputed South China Sea are expected to drive defense spending in the Asia Pacific region during the next five years. Total regional defense spending is forecast to increase by nearly 23 percent from $435 billion in 2015 to $533 billion in 2020, according to IHS Inc., the leading global source of critical information and insight.

“By 2020, the centre of gravity of the global defense spending landscape is expected to have continued its gradual shift away from the developed economies of Western Europe and North America, and towards emerging markets, particularly in Asia,” said Paul Burton, director at IHS Jane’s. “In terms of overall growth in each region between 2015 and 2020, Asia Pacific is expected to solidify its position as the engine of global defense growth.”

APAC has seen a long overdue process of military modernization move up the political agenda in several countries. “A number of the South China Sea’s littoral states appear to be responding to China’s more assertive stance in the region and there is no sign of this trend coming to an end,” said Craig Caffrey, principal analyst at IHS Jane’s.

According to IHS Jane’s Defense Budgets, between 2016 and 2020, Indonesia and Vietnam are expected to grow their defense spending at a compound annual growth rate (CAGR) of 5 percent and 6 percent respectively, while China will see a 5 percent increase. Investment in defense procurement will also grow rapidly over the same period, by around 20 percent in the Philippines, 30 percent in China and 40 percent in Indonesia.

“The Indonesian government appears committed to raising defense spending significantly,” Caffrey said. “The strong economic outlook in Indonesia, coupled with long standing government plans to increase the defense budget as a percentage of GDP, should ensure that spending on the military increases rapidly over the next decade.”

“Vietnam’s government is finally making a concerted effort to inject more money into the modernisation of its armed forces,” Burton said. “Now, with the U.S. arms ban lifted, Vietnam is expected to diversify its supplier base beyond Russia more aggressively.”

About IHS

IHS is the leading source of insight, analytics and expertise in critical areas that shape today’s business landscape. Businesses and governments in more than 140 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs approximately 9,000 people in 33 countries around the world.