Asean builds home-grown defence industry amid tension with China

Written by Reuters | Updated: Aug 13 2014, 06:59am hrs
Spurred by tensions with China, Southeast Asian nations are building up their own defence industries, channelling fast-growing military budgets to develop local expertise and lower their dependence on big US and European arms suppliers.

While countries such as Indonesia, Thailand and Malaysia won't do away with big-ticket imports from giants like Airbus Group or Lockheed Martin, they are increasingly encouraging domestic defence firms to manufacture hardware locally. With regional defence spending seen rising to $40 billion in 2016, 10% higher than last year, some countries are already developing their own exports.

A domestic defence industry is a long-term economic as well as security goal of varying degree for the 10 countries in the Association of Southeast Asian Nations (Asean), spending more on modernising ageing equipment partly to retain the region's military balance. The goal has been given urgency by China's moves in recent months to press disputed claims in oil- and gas-rich waters of the South China Sea, security analysts say.

Asean members have stopped short of explicitly citing Beijing as a reason for beefing up military capability. At a meeting in Myanmar last weekend, Asean foreign ministers again appealed for self-restraint in the face of heightened tensions, with no mention of China in a formal communique.

This drive to ensure sovereignty is now at the foremost of all governments' minds in the region, said Jon Grevatt, Asia Pacific defence industry analyst with IHS Jane's. Obviously the activity of China has raised the issue of protecting, securing territory.

China, whose military spending topped $145 billion last year according to US estimates, claims about nine-tenths of the South China Sea. It has alarmed Southeast Asian diplomats this year with assertive moves like planting a giant, $1 billion oil rig in waters claimed by Vietnam.

A build-up in China's coastguard fleet has also allowed Beijing to beef up its maritime presence without deploying warships. Some in the region have sought to counter that like-for-like: In a package due to take effect this month, Vietnam has set aside 11.5 trillion dong ($543 million) to be used to buy 32 coastguard and surveillance ships.

Southeast Asia's defence spending grew 5% to $35.9 billion in 2013, data from the Stockholm International Peace Research Institute (SIPRI) showed, and is expected to rise to $40 billion by 2016. The region's defence spending has more than doubled since 1992, according to SIPRI.

Defence procurement in Southeast Asia is still dominated by government purchases of big-ticket items like jets or submarines from Western defence suppliers such as Lockheed Martin of the United States, France-based Airbus or Germany's ThyssenKrupp. The region became the world's second-largest importer of military equipment and technology after India.

Now, though, from Indonesia radar to Singapore submarines, governments are tilting such purchases to help them develop their own defence expertise. While breaking no records in size or scope, recent deals show a growing trend towards embedding local manufacturing in procurement contracts.

In one example, Malaysia's shipbuilding-to-weaponry group Boustead Heavy Industries Corporation is working with French state-controlled naval contractor DCNS on a 9 billion ringgit ($2.8 billion) contract for six coastal combat ships for Malaysia's navy to be built locally.