Monday, April 22, 2013

CHINA THREAT + ASIA PIVOT = BONANZA FOR U-S DEFENSE FIRMS


The drumbeat against the “China threat” and President Obama’s pivot to Asia could be very profitable for the United States and may yet provide the kind of economic stimulus that will finally lift American industries.

Countries surrounding China – from Japan in the Far East to the Philippines and Vietnam in Southeast Asia to India – are confronting what they see as an increasingly assertive China which has backed up its ratcheted up rhetoric with an unprecedented splurge in new weapons. Japan was the biggest defense spender until 2005 until China pulled all the breaks, posting double-digit growth rates to about $120 billion in 2012 (although some experts say the amount could be higher because China regularly understates its defense budget).

According to a Reuters report, US arms sales in the Asia-Pacific region hit nearly $14 billion in 2012, up 5.4 percent from the previous year. The US could potentially make $63 billion from military sales worldwide with 85,000 requests received last year – a new record, Reuters claimed.

Assistant Secretary of State for Political-Military Affairs Andrew Shapiro discussed last week here in Washington DC how military sales to friendly countries are complementing American diplomacy. Foreign military sales have become a potent “tool”, he averred, that’s “played a role in turning this idea of smart power into reality”.

That has led to US offers to sell F-16s to Indonesia, refurbishing over a hundred other F-16s in Taiwan (as Congress weighs selling them advanced versions of this multi-role aircraft) as well as the possible sale of Lockheed’s F-35 “Joint Strike Fighter” to India and South Korea.

Helping present and potential allies build the capacity to defend themselves lifts some of the pressure on the US, Shapiro indicated in a separate, earlier speech.

Contractors like Lockheed, Boeing, Northrop and Raytheon reportedly expect demand for their products and services to pick up and help offset the effects of the sequestration on the Pentagon. Japan, Australia, South Korea and Singapore have shown interest in Raytheon’s “Global Hawk” surveillance drone and Japan has already selected the F-35 as its next mainstay fighter – a deal potentially worth $5 billion for Lockheed Martin.

“Countries now want to partner with the US and we’ve seen it in the tremendous growth of US defense trade,” Shapiro said, adding “2012 was the largest year in history of foreign military sales, amounting to nearly $70 billion…To put that in perspective, in 2011 we broke the previous record at around $30 billion.

“In terms of arms sales to the region, I mean, we’ve – we provide foreign military financing to the Philippines, and we’ve transferred Naval – a Coast Guard cutter was transferred to the Philippines.  We have provided support – counterterrorism support.  And now we’re – they – we are now shifting our focus.  Because the Philippines have developed their own capacity to handle counterterrorism, we’re shifting our focus to helping improve their maritime capability at a time of increasing concerns about maritime security in that part of the world,” Shapiro explained.

The 2nd Hamilton-class high-endurance cutters, the BRP Ramon Alcaraz is scheduled to finally set sail next week from South Carolina and make the voyage through the Panama Canal and into the Pacific Ocean via Hawaii and in time to join the Philippine Independence Day celebrations in Manila.

Shapiro also expressed optimism about prospects for arms sales to another China border protagonist, Vietnam. “Right now we still have a policy that we won’t sell lethal arms to Vietnam but there’s still a lot we could work together that doesn’t necessarily have to be lethal. And so we are exploring that potential and those possibilities,” he explained.

Fears about China’s ambitions in the South China Sea and elsewhere is helping drive the growing demand for US arms (aside of course from the need to replace or modernize obsolescent hardware).  “Our goal is not to have an adversarial relationship with China,” Shapiro stressed during last week’s press conference.

Still, China appears to be playing right into the American’s hands. As her military expands, especially its naval forces (including the acquisition of a first aircraft carrier), building a security ring hundreds of miles from its shores and overlaps the territorial waters of neighbors, China appears to be stumbling its way to the realization that changing the region’s geopolitics carries a steep price.

“Going forward, we are hoping that – to encourage the Chinese to play – as they’re becoming a global power, to accept the responsibilities that go along with being a global power,” Shapiro said.

In a press conference with visiting US Joint Chiefs Chairman Martin Dempsey, his Chinese counterpart Fang Fenghui, Chief of the General Staff of the People’s Liberation Army, urged increased cooperation between their two countries. “We respect US interests in the region and are glad to see the United States play a constructive role on Asia Pacific affairs,” he told reporters – could that be sign America’s brand of diplomacy is working?  




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