Eurosatory 2014 
The Asia Pacific region’s status as the world’s most populous and dynamic economic zone is tempered by the fact that it is riven with unresolved territorial disputes. These – as well as continued concerns over China’s military development – are driving defence spending across the region. This has been characterised by some as an arms race, although it may be better viewed as a region-wide materiel upgrade propelled by resource competition, rising government revenues and declining markets elsewhere in the world.
Changes of leadership in China, Japan and South Korea in 2013 had a major effect on the strategic outlook for Northeast Asia. However, underlying defence trends have not changed significantly.
The key threat to the status quo remains North Korea, which followed up December 2012’s successful launch of an Unha-3 space launch vehicle with a nuclear test – its third – in February 2013. China, under the new leadership of Xi Jinping, came out hard against the North Korean nuclear test as it continued to deal with the consequences of the US rebalance to the Pacific and increasing regional disquiet over its growing military clout and territorial claims.
China’s People’s Liberation Army (PLA) is beginning to realise the joint forces synergies and new capabilities from an aggressive and comprehensive modernisation programme that dates back to the 1980s.
The PLA has placed significant focus on improving joint forces interoperability and numerous military exercises demonstrate that this is an area where China has made great strides. Furthermore, China has acquired a range of new information technologies, cyber-attack capabilities, new fourth-generation level platforms and precision strike systems, as well as implementing a range of personnel and training reforms.
The highlight of this effort will be the fielding of an array of new high-tech anti-access weapons such as anti-satellite systems, anti-ship ballistic missiles, new submarines, new cruise missiles and extensive mine warfare forces. While China stresses the defensive nature of its armed forces, the latest defence white paper, released in April 2013, emphasised the offensive as well as defensive capabilities of the PLA.
Japan is unlikely to back down under the stewardship of Shinzo Abe, who was re-elected in December 2012 for his second stint as Japanese prime minister. One of Abe’s first foreign policy moves was to announce his hopes for a “democratic security diamond” aligning Japan with like-minded countries such as Australia and India against Chinese aggression.
This has seen Tokyo look to ‘normalise’ its defence and foreign policies and to make the international case for a reinterpretation of its constitution to allow collective self-defence – basically the right to come to an ally’s aid.
Meanwhile, Abe has focused on building better relations with Association of South East Asian Nations (ASEAN) countries suspicious of Chinese behaviour, such as the Philippines and Vietnam.
ASEAN states are themselves pushing forward with programmes to modernise their respective defence industrial bases.
Underpinned by expanding economies and driven by a requirement to enhance self-sufficiency, most governments in the region are channelling modernisation efforts through indigenous programmes and defence offset strategies that are intended to secure technologies and technological know-how from military exporters.
In theory, this industrial development strategy is relatively straightforward, but in reality Southeast Asian countries face many challenges as they attempt to develop their respective defence industrial capabilities so that they are able, in time, to substitute imports with domestically developed and constructed military hardware.
Regional spending
There are some very limited indications of increased competition looking at Northeast Asian defence budgets, most notably in Japan. Although defence spending is growing in China, Japan and South Korea, that growth is tracking wider economic trends rather than being evidence of tension and defence spending, since a share of GDP has in effect been flat in all three cases since 2010.
Regionally, the general trend is towards military expenditure falling as a share of government spending, which strongly suggests there is no overt prioritisation of defence.
This trend will alter significantly in the short term only if China becomes overtly, consistently assertive in the region or there is a major incident. The reorientation of US forces towards the Pacific is a factor in determining the Japanese and Korean positions, and keeping concerns over Beijing’s intentions in check.
Regional defence spending in the major states of Southeast Asia stands at $38.5 billion, although it is falling as a share of GDP and below the global trend of about 2 per cent. Growth has averaged 3.4 per cent a year since 2010 in real terms and is expected to accelerate to an average of 3.7 per cent over the next five years.
MAJOR DEFENCE MARKETS
Indonesia
Indonesia – an archipelago of 18,000 islands that stretch over 2,600 miles – has been involved in numerous territorial disputes with neighbours and has also faced the challenge of dealing with natural disasters and internal unrest.
Indonesia is committed to a concept of minimum essential force (MEF); a strategy introduced in 2005 under which Jakarta assessed the scale and nature of military capabilities required. MEF led to a strong emphasis on procurement funding. Early stages of the plan focused on internal threats, but subsequent phases are geared towards Indonesia achieving military balance with any perceived threat within the Asian region.
Under this approach, major acquisitions likely to get underway by 2019 include additional multirole combat aircraft, large tactical transport aircraft, diesel-electric submarines and a range of surface combatants. Military industrialisation is also a key component of MEF.
To this end, Indonesia has invested heavily in its state-dominated defence industries and introduced legislation in 2012 – the Defence Industry Law – to mandate local industrial participation in military programmes. The “Indonesia first” principal of procurement was also enshrined in the act.
Despite a preference for local solutions above imported materiel, Indonesia’s defence industries lack the sophistication to make a meaningful contribution to national military materiel requirements other than through subcontracted production.
Indonesia has remained reliant, therefore, on a broad range of international suppliers. Procurement relations have historically encompassed Russia; the USA (other than a brief hiatus as a result of an arms embargo); and Europe (including France, Germany and the Netherlands).
Defence industrial and procurement relations are also growing. Between 2012 and 2013, Indonesia signed bilateral defence co-operation accords with the Czech Republic, France, Germany, India, Italy, North Korea, Spain, UK, Finland, Turkey, Ukraine and Vietnam.
Defence spending
Indonesian defence funding has been on a steep upward trajectory for a number of years, with annual allocations of between 19 per cent and 29 per cent from 2009 to 2013.
Strong economic growth has allowed Indonesia to ease the chronic underfunding of past years. Regional rivalries, territorial disputes, the need to recapitalise ageing inventories and a strategy of economic growth through military industrial development have acted as defence spending drivers.
The defence budget will stand at just less than $8 billion in 2014; an increase of 9 per cent over the previous year and an allocation equivalent to about 0.9 per cent of GDP. Defence spending has historically remained below 1 per cent of GDP; a relatively low level even by the standards of Southeast Asia.
Land sector indigenous industry
Indonesia’s land systems sector, which is dominated by state-owned PT Pindad and PT Dahana, is relatively self-sufficient, having developed and produced the Anoa APS-2 and APS-3 6×6 armoured personnel carriers (APCs) and a range of firearms, ammunition, explosives, mortars and howitzers for a number of years.
PT Pindad has also produced other firearms under licence from Belgium’s FN Herstal and Singapore Technologies Engineering.
Indonesia’s indigenous defence industrial capabilities have been developed out of necessity. Development of the Anoa, for example, was accelerated in the early 2000s when the Indonesian Armed Forces were involved in conflict with the Free Aceh Movement.
Indonesia has recognised a specific strength with particularly its development of the APCs and is looking to enhance this capability through a partnership with Turkey announced in April 2011, whereby PT Pindad and FNSS Savunma Sistemleri will jointly develop an armoured combat vehicle, as well as various missiles, rockets and propellants. South Korea The defence market of South Korea is shaped primarily by a requirement to modernise the country’s armed forces in the face of continuing high tension with North Korea.
South Korea
Seoul’s main strategy in dealing with this threat is the acquisition and indigenous development of advanced military technologies and platforms channelled through its long-term defence reform plan. This is intended to provide South Korea with a qualitative edge, offsetting North Korea’s perceived quantitative advantage in terms of military personnel and conventional military equipment.
South Korea’s procurement strategy is also underpinned by a long-standing commitment to secure modern technologies and expertise through defence offset and industrial collaboration. This has enabled the local defence industrial base to develop strongly over the past 10 years and is likely to facilitate the continued expansion of capability over the coming decade.
The growing competitiveness of this defence industrial base is evidenced by its expanded presence in military export markets and is strengthened by South Korea’s highly educated workforce, which is well suited to high-technology industries such as defence and aerospace.
While growing indigenous defence industrial capability has enabled Seoul to spend much of its capital expenditure in country, its traditionally close relationship with Washington means that the vast majority of imported materiel is sourced from the USA, with most of the remainder contested by European states, in particular Germany and France.
Defence spending
South Korea’s drive to continue to expand its military and industrial capabilities will be supported by a defence budget that is forecast by IHS to grow in line with the country’s economy at a rate of about $1 billion a year during 2013-17 from about $30 billion to $34 billion; a compound annual growth rate (CAGR) of 3 per cent.
Reflecting South Korea’s concern over strategic threats, however, spending allocated to military procurement during the 2013-17 timeframe is forecast to expand at an even faster rate. IHS forecasts a CAGR of 7 per cent growth in defence procurement spending, rising from $5.9 billion in 2013 to $7.8 billion in 2017. Total procurement investment in the period is forecast at more than $35 billion.
Land sector indigenous industry
The Army is the country’s largest force and has the broadest array of requirements, most of which are met through indigenous products, suggesting that South Korea’s land systems capabilities are relatively advanced.
Over the years, some of these requirements have been met through systems designed, developed and produced in foreign countries, such as Kirov Works T-80 MBTs, BAE Systems M113 and M577 armoured personnel carriers and Lockheed Martin MLRS.
However, increasingly South Korean industry is meeting these requirements, and the Army is now estimated to source more than 70 per cent of its procured materiel from local firms. Companies including Hyundai Rotem, Doosan DST, Samsung Techwin and KIA Motors have supplied the RoKA with K1/ K1A1 MBTs, K21 infantry fighting vehicles, a range of military trucks and K9 Thunder self-propelled howitzers. Air defence weapons have been developed by companies including Lig Nex1, Hanwha and Doosan DST. RoKA weaponry requirements are also met by European and US designs, notably by MBDA and Raytheon.
Singapore
The defence market of the tiny city state of Singapore is shaped by its vibrant economy and the contrast between domestic political stability and the potential for upheaval in the wider region.
Singapore has pursued a remarkably mature foreign policy, which has shaped its approach to defence investment.
It has aimed to tread the delicate balance between having the capability to defeat regional rivals without inflaming tensions or igniting a regional arms race through inflammatory materiel purchases. Relations with neighbouring Malaysia and Indonesia have been periodically tense, while Singapore is conscious of the potential political and economic fallout that could stem from poorer relations with regional power China.
There are strong ties between the military and largely state-owned defence industry, which is housed almost entirely under the aegis of Singapore Technologies Engineering.
The country’s long-standing emphasis on training and skills acquisition has also enabled these institutions to assimilate modern military technologies. Industrial development has been further underpinned by a strategy to acquire technologies and know-how through offset and industrial collaboration.
Singapore’s stated undertaking to develop and acquire capabilities that provide a qualitative edge over regional rivals has also meant that the USA has become the country’s most important military vendor (particularly in aerospace programmes) supplying 60 per cent of the country’s imports over the past decade. French, German and Israeli technologies are also favoured.
Market entrants are further attracted by Singapore’s relative transparency and its commitment to open-market acquisition, although a lack of access to information can render opaque some areas of procurement.
Defence spending
IHS expects Singapore’s military investment to remain on a modest upward trajectory over the coming five years. Military investment is assessed to have stood at $10.3 billion in 2013. Growth of 9 per cent to 2017 is forecast, with aggregate investment of $53 billion over the period. Investment as a percentage of GDP is expected to remain at about 3.5 per cent.
Land sector indigenous industry
Singapore’s land systems capabilities are wide ranging and have been specifically designed to fulfil Republic of Singapore Army requirements. Despite this, international sales of some land systems from ST Kinetics – ST Engineering’s land systems division – are reasonably strong to both developed and developing markets, reflecting a sophisticated level of capability in a few niche areas.
Land systems capabilities are concentrated on the design, development and manufacturing of wheeled and tracked military vehicles; military vehicle MRO; production of 40mm weapon systems; a range of munitions; production of the SAR 21 5.56 assault rifle; and the design, development and production of 155mm artillery systems.
As is custom in Singapore, the products have been developed in collaboration with the SAF and domestic R&D agencies. In terms of international sales of land systems, ST Kinetics has sold in recent years 40mm weapon and ammunition systems to the UK, Sweden, Finland and Brazil; L70 naval guns to the Brazilian Navy; and Bronco All-Terrain Tracked Carriers (ATTC) to the British Army (which has modified the vehicle’s protection systems and renamed it Warthog).
Another area of investment has been remotely operated land systems. Such efforts have previously been focused on the Spider strike vehicle, but have also been explored through partnerships with foreign primes. For instance, ST Kinetics signed an agreement with Lockheed Martin in 2004 to explore opportunities in the unmanned ground systems sector.
The Asia Pacific region’s status as the world’s most populous and dynamic economic zone is tempered by the fact that it is riven with unresolved territorial disputes. These – as well as continued concerns over China’s military development – are driving defence spending across the region. This has been characterised by some as an arms race, although it may be better viewed as a region-wide materiel upgrade propelled by resource competition, rising government revenues and declining markets elsewhere in the world.Changes of leadership in China, Japan and South Korea in 2013 had a major effect on the strategic outlook for Northeast Asia. However, underlying defence trends have not changed significantly.
The key threat to the status quo remains North Korea, which followed up December 2012’s successful launch of an Unha-3 space launch vehicle with a nuclear test – its third – in February 2013. China, under the new leadership of Xi Jinping, came out hard against the North Korean nuclear test as it continued to deal with the consequences of the US rebalance to the Pacific and increasing regional disquiet over its growing military clout and territorial claims.
China’s People’s Liberation Army (PLA) is beginning to realise the joint forces synergies and new capabilities from an aggressive and comprehensive modernisation programme that dates back to the 1980s.
The PLA has placed significant focus on improving joint forces interoperability and numerous military exercises demonstrate that this is an area where China has made great strides. Furthermore, China has acquired a range of new information technologies, cyber-attack capabilities, new fourth-generation level platforms and precision strike systems, as well as implementing a range of personnel and training reforms.
The highlight of this effort will be the fielding of an array of new high-tech anti-access weapons such as anti-satellite systems, anti-ship ballistic missiles, new submarines, new cruise missiles and extensive mine warfare forces. While China stresses the defensive nature of its armed forces, the latest defence white paper, released in April 2013, emphasised the offensive as well as defensive capabilities of the PLA.
Japan is unlikely to back down under the stewardship of Shinzo Abe, who was re-elected in December 2012 for his second stint as Japanese prime minister. One of Abe’s first foreign policy moves was to announce his hopes for a “democratic security diamond” aligning Japan with like-minded countries such as Australia and India against Chinese aggression.
This has seen Tokyo look to ‘normalise’ its defence and foreign policies and to make the international case for a reinterpretation of its constitution to allow collective self-defence – basically the right to come to an ally’s aid.
Meanwhile, Abe has focused on building better relations with Association of South East Asian Nations (ASEAN) countries suspicious of Chinese behaviour, such as the Philippines and Vietnam.
ASEAN states are themselves pushing forward with programmes to modernise their respective defence industrial bases.
Underpinned by expanding economies and driven by a requirement to enhance self-sufficiency, most governments in the region are channelling modernisation efforts through indigenous programmes and defence offset strategies that are intended to secure technologies and technological know-how from military exporters.
In theory, this industrial development strategy is relatively straightforward, but in reality Southeast Asian countries face many challenges as they attempt to develop their respective defence industrial capabilities so that they are able, in time, to substitute imports with domestically developed and constructed military hardware.
Regional spending
There are some very limited indications of increased competition looking at Northeast Asian defence budgets, most notably in Japan. Although defence spending is growing in China, Japan and South Korea, that growth is tracking wider economic trends rather than being evidence of tension and defence spending, since a share of GDP has in effect been flat in all three cases since 2010.
Regionally, the general trend is towards military expenditure falling as a share of government spending, which strongly suggests there is no overt prioritisation of defence.
This trend will alter significantly in the short term only if China becomes overtly, consistently assertive in the region or there is a major incident. The reorientation of US forces towards the Pacific is a factor in determining the Japanese and Korean positions, and keeping concerns over Beijing’s intentions in check.
Regional defence spending in the major states of Southeast Asia stands at $38.5 billion, although it is falling as a share of GDP and below the global trend of about 2 per cent. Growth has averaged 3.4 per cent a year since 2010 in real terms and is expected to accelerate to an average of 3.7 per cent over the next five years.
MAJOR DEFENCE MARKETS
Indonesia
Indonesia – an archipelago of 18,000 islands that stretch over 2,600 miles – has been involved in numerous territorial disputes with neighbours and has also faced the challenge of dealing with natural disasters and internal unrest.
Indonesia is committed to a concept of minimum essential force (MEF); a strategy introduced in 2005 under which Jakarta assessed the scale and nature of military capabilities required. MEF led to a strong emphasis on procurement funding. Early stages of the plan focused on internal threats, but subsequent phases are geared towards Indonesia achieving military balance with any perceived threat within the Asian region.
Under this approach, major acquisitions likely to get underway by 2019 include additional multirole combat aircraft, large tactical transport aircraft, diesel-electric submarines and a range of surface combatants. Military industrialisation is also a key component of MEF.
To this end, Indonesia has invested heavily in its state-dominated defence industries and introduced legislation in 2012 – the Defence Industry Law – to mandate local industrial participation in military programmes. The “Indonesia first” principal of procurement was also enshrined in the act.
Despite a preference for local solutions above imported materiel, Indonesia’s defence industries lack the sophistication to make a meaningful contribution to national military materiel requirements other than through subcontracted production.
Indonesia has remained reliant, therefore, on a broad range of international suppliers. Procurement relations have historically encompassed Russia; the USA (other than a brief hiatus as a result of an arms embargo); and Europe (including France, Germany and the Netherlands).
Defence industrial and procurement relations are also growing. Between 2012 and 2013, Indonesia signed bilateral defence co-operation accords with the Czech Republic, France, Germany, India, Italy, North Korea, Spain, UK, Finland, Turkey, Ukraine and Vietnam.
Defence spending
Indonesian defence funding has been on a steep upward trajectory for a number of years, with annual allocations of between 19 per cent and 29 per cent from 2009 to 2013.
Strong economic growth has allowed Indonesia to ease the chronic underfunding of past years. Regional rivalries, territorial disputes, the need to recapitalise ageing inventories and a strategy of economic growth through military industrial development have acted as defence spending drivers.
The defence budget will stand at just less than $8 billion in 2014; an increase of 9 per cent over the previous year and an allocation equivalent to about 0.9 per cent of GDP. Defence spending has historically remained below 1 per cent of GDP; a relatively low level even by the standards of Southeast Asia.
Land sector indigenous industry
Indonesia’s land systems sector, which is dominated by state-owned PT Pindad and PT Dahana, is relatively self-sufficient, having developed and produced the Anoa APS-2 and APS-3 6×6 armoured personnel carriers (APCs) and a range of firearms, ammunition, explosives, mortars and howitzers for a number of years.
PT Pindad has also produced other firearms under licence from Belgium’s FN Herstal and Singapore Technologies Engineering.
Indonesia’s indigenous defence industrial capabilities have been developed out of necessity. Development of the Anoa, for example, was accelerated in the early 2000s when the Indonesian Armed Forces were involved in conflict with the Free Aceh Movement.
Indonesia has recognised a specific strength with particularly its development of the APCs and is looking to enhance this capability through a partnership with Turkey announced in April 2011, whereby PT Pindad and FNSS Savunma Sistemleri will jointly develop an armoured combat vehicle, as well as various missiles, rockets and propellants. South Korea The defence market of South Korea is shaped primarily by a requirement to modernise the country’s armed forces in the face of continuing high tension with North Korea.
South Korea
Seoul’s main strategy in dealing with this threat is the acquisition and indigenous development of advanced military technologies and platforms channelled through its long-term defence reform plan. This is intended to provide South Korea with a qualitative edge, offsetting North Korea’s perceived quantitative advantage in terms of military personnel and conventional military equipment.
South Korea’s procurement strategy is also underpinned by a long-standing commitment to secure modern technologies and expertise through defence offset and industrial collaboration. This has enabled the local defence industrial base to develop strongly over the past 10 years and is likely to facilitate the continued expansion of capability over the coming decade.
The growing competitiveness of this defence industrial base is evidenced by its expanded presence in military export markets and is strengthened by South Korea’s highly educated workforce, which is well suited to high-technology industries such as defence and aerospace.
While growing indigenous defence industrial capability has enabled Seoul to spend much of its capital expenditure in country, its traditionally close relationship with Washington means that the vast majority of imported materiel is sourced from the USA, with most of the remainder contested by European states, in particular Germany and France.
Defence spending
South Korea’s drive to continue to expand its military and industrial capabilities will be supported by a defence budget that is forecast by IHS to grow in line with the country’s economy at a rate of about $1 billion a year during 2013-17 from about $30 billion to $34 billion; a compound annual growth rate (CAGR) of 3 per cent.
Reflecting South Korea’s concern over strategic threats, however, spending allocated to military procurement during the 2013-17 timeframe is forecast to expand at an even faster rate. IHS forecasts a CAGR of 7 per cent growth in defence procurement spending, rising from $5.9 billion in 2013 to $7.8 billion in 2017. Total procurement investment in the period is forecast at more than $35 billion.
Land sector indigenous industry
The Army is the country’s largest force and has the broadest array of requirements, most of which are met through indigenous products, suggesting that South Korea’s land systems capabilities are relatively advanced.
Over the years, some of these requirements have been met through systems designed, developed and produced in foreign countries, such as Kirov Works T-80 MBTs, BAE Systems M113 and M577 armoured personnel carriers and Lockheed Martin MLRS.
However, increasingly South Korean industry is meeting these requirements, and the Army is now estimated to source more than 70 per cent of its procured materiel from local firms. Companies including Hyundai Rotem, Doosan DST, Samsung Techwin and KIA Motors have supplied the RoKA with K1/ K1A1 MBTs, K21 infantry fighting vehicles, a range of military trucks and K9 Thunder self-propelled howitzers. Air defence weapons have been developed by companies including Lig Nex1, Hanwha and Doosan DST. RoKA weaponry requirements are also met by European and US designs, notably by MBDA and Raytheon.
Singapore
The defence market of the tiny city state of Singapore is shaped by its vibrant economy and the contrast between domestic political stability and the potential for upheaval in the wider region.
Singapore has pursued a remarkably mature foreign policy, which has shaped its approach to defence investment.
It has aimed to tread the delicate balance between having the capability to defeat regional rivals without inflaming tensions or igniting a regional arms race through inflammatory materiel purchases. Relations with neighbouring Malaysia and Indonesia have been periodically tense, while Singapore is conscious of the potential political and economic fallout that could stem from poorer relations with regional power China.
There are strong ties between the military and largely state-owned defence industry, which is housed almost entirely under the aegis of Singapore Technologies Engineering.
The country’s long-standing emphasis on training and skills acquisition has also enabled these institutions to assimilate modern military technologies. Industrial development has been further underpinned by a strategy to acquire technologies and know-how through offset and industrial collaboration.
Singapore’s stated undertaking to develop and acquire capabilities that provide a qualitative edge over regional rivals has also meant that the USA has become the country’s most important military vendor (particularly in aerospace programmes) supplying 60 per cent of the country’s imports over the past decade. French, German and Israeli technologies are also favoured.
Market entrants are further attracted by Singapore’s relative transparency and its commitment to open-market acquisition, although a lack of access to information can render opaque some areas of procurement.
Defence spending
IHS expects Singapore’s military investment to remain on a modest upward trajectory over the coming five years. Military investment is assessed to have stood at $10.3 billion in 2013. Growth of 9 per cent to 2017 is forecast, with aggregate investment of $53 billion over the period. Investment as a percentage of GDP is expected to remain at about 3.5 per cent.
Land sector indigenous industry
Singapore’s land systems capabilities are wide ranging and have been specifically designed to fulfil Republic of Singapore Army requirements. Despite this, international sales of some land systems from ST Kinetics – ST Engineering’s land systems division – are reasonably strong to both developed and developing markets, reflecting a sophisticated level of capability in a few niche areas.
Land systems capabilities are concentrated on the design, development and manufacturing of wheeled and tracked military vehicles; military vehicle MRO; production of 40mm weapon systems; a range of munitions; production of the SAR 21 5.56 assault rifle; and the design, development and production of 155mm artillery systems.
As is custom in Singapore, the products have been developed in collaboration with the SAF and domestic R&D agencies. In terms of international sales of land systems, ST Kinetics has sold in recent years 40mm weapon and ammunition systems to the UK, Sweden, Finland and Brazil; L70 naval guns to the Brazilian Navy; and Bronco All-Terrain Tracked Carriers (ATTC) to the British Army (which has modified the vehicle’s protection systems and renamed it Warthog).
Another area of investment has been remotely operated land systems. Such efforts have previously been focused on the Spider strike vehicle, but have also been explored through partnerships with foreign primes. For instance, ST Kinetics signed an agreement with Lockheed Martin in 2004 to explore opportunities in the unmanned ground systems sector.
★ Janes
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