Page last updated at 17:40 GMT, Monday, 1 February 2010

Asian instability attracts defence giants

By Juliana Liu
Asia Business Report, BBC World, Singapore air show

F-111 Aardvark

In service since the 1960s, the F-111 Aardvark strike aircraft is going out with a bang at the Singapore Air Show.

The Royal Australian Air Force will fly it for the last time in Asia, before decommissioning the storied but ageing fighter jet.

As a swansong, the RAAF will perform the famous "Dump and Burn" manoeuvre, a fuel dump in which fuel is ignited, intentionally, using the plane's afterburner. The spectacular, high speed crowd pleaser is the highlight of the aerial display.

China"s military show off their latest missiles during the National Day parade celebrating 60 years of communist rule on 1 October, 2009 in Beijing.
China is ultimately the 800 pound gorilla, so whether it's standing still, running around or just scratching, it matters to the world
Dean Cheng, Heritage Foundation

Originally built for service in the Vietnam War, the F-111 is a third-generation fighter.

Executives pitching their ware to delegations of defence officials in the chalets below the flying displays are now selling fourth-, and even fifth-generation fighters.

To them, Asia is increasingly becoming the commercial battleground of choice for military equipment sales, according to executives and analysts attending the Singapore trade show.

"Asian military forces are expanding for a number of reasons," says Dean Cheng, a research fellow at the Washington think tank the Heritage Foundation.

"They're just wealthier than they were. With greater wealth comes greater responsibilities."

Chinese giant

Mr Cheng joins a number of experts at a security conference on the sidelines of the air show in singling out China's rising international status as a major reason for growth in Asian military spending.

F-35 Joint Strike Fighter
When we talk to the Asian customers, they have security needs to meet
Stephen O'Bryan, Lockheed Martin

"What are China's intentions? It's unclear," he said.

"China is ultimately the 800 pound gorilla, so whether it's standing still, running around or just scratching, it matters to the world."

Zhu Feng, a professor at Peking University, says China's neighbours are indeed spending more.

Despite a financial crisis, South Korea increased its military budget by 9% in 2009, compared with a 7% jump in 2008.

Russia, meanwhile, hiked spending by 43% last year, he says. Australia, which owes much of its economic prosperity to Beijing, plans to spend hundreds of billions of dollars to boost its fire power in the next two decades.

Sanction threat

China itself spent 14.6% more last year than the year before.

"This is all being driven by the uncertainty over China's rise," Professor Zhu says.

"From my perspective, it is overstated, but the effect is very real."

This week, Beijing loudly protested Washington's plans to sell $6.4bn worth of weapons to Taiwan, which China considers its own territory.

The mainland has even threatened sanctions against companies selling weapons to the island.

Billion dollar deals

Even though China itself is largely off-limits to Western arms sellers, geopolitical tension in Asia helps create an environment for business.

Patrick Choy, ST Engineering
If we succeed in India, then it becomes our biggest market
Patrick Choy, ST Engineering

"When we talk to the Asian customers, they have security needs to meet," says Stephen O'Bryan, a vice-president at Lockheed Martin, whose job is to sell the top-of-the-line, fifth-generation F-35 Joint Strike Fighter jets to customers worldwide.

"They need to recapitalise their fleet."

Mr O'Bryan plans to spend more time in South Korea and Japan this year. Both are expected to hold international competitions to decide which jets to buy. The contracts up for grabs are worth billions of dollars.

Indian giant

Wedged between Pakistan and China, many consider India to be the world's last great market for fourth-generation fighter jets.

New Delhi is still mulling over which of six different types of aircraft to buy for its air force.

In competition are Lockheed's F-16, the Eurofighter Typhoon from EADS, Boeing's F-18, Russia's MiG-35 and MiG-29, France's Rafale and Gripen of Sweden's Saab.

The contract for 126 planes is believed to be worth some $12bn, the largest in a decade. Lockheed Martin says India's navy had separately made enquiries over its F-35 fighter.

The Raytheon booth showcasing military equipment at the Singapore air show
Huge markets are up for grabs as Asian countries raise spending on arms

For many companies, India is a more accessible arms market than China, because its own industry is less developed.

Singapore's ST Engineering has never tried to break into China, but is committed to cracking the sub-continent.

Field trials of its 155mm artillery guns will begin in India in February, after New Delhi lifted a freeze on doing business with the group. This contract is also worth billions.

"If we succeed in India, then it becomes our biggest market," says Patrick Choy, an executive vice president at the Singaporean firm.

"India won't accept Chinese guns, but we provide a very good alternative to the Western big boys in niche products."

Asian military budgets are still dwarfed by Washington's. But as long as China's rise evokes mistrust in its neighbours, arms sellers will find a growing market.

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