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China defence budget seen expanding, UK's shrinking

China is likely to see the largest increase in its defence budget in the next four years and Britain the biggest decrease, a defence information group said in its industry survey today.

world Updated: Jul 27, 2010 19:41 IST

China is likely to see the largest increase in its defence budget in the next four years and Britain the biggest decrease, a defence information group said in its industry survey on Tuesday.

Reduced defence spending in Western Europe and the United States will encourage greater competition for contracts between defence firms, but also collaboration on some projects to cut costs and penetrate new markets, the survey also said.

"Expectations of static or falling spending in established defence markets has put an emphasis on emerging markets," IHS Jane's defence information group said in its survey.

Some 80 per cent of the roughly 300 defence industry contacts surveyed expected China's defence budget to rise, with Jane's forecasting an increase of some 56 per cent by 2014.

About 44 per cent expected a fall in Britain's defence spending over the same period, and Jane's said it expected a decrease of about 17 per cent.

China's official 2010 defence budget is $78 billion, although some analysts say the real figure is likely to be higher, and Britain's is $56 billion.

India, South Korea, Brazil and Russia are also expected to spend more, while the governments of established Western defence markets are forecast to slash defence budgets to tackle budget deficits caused by the 2008 financial crisis.

Collaboration
Outside North America, survey respondents expected more consolidation among defence firms because of smaller orders. Jane's said this would be unlikely in more mature markets such as North America because of previous consolidation in response to previous downturns, and also due to competition rules.

Instead, firms in mature markets are more likely to collaborate, and larger firms to divest part of their business.

"Divestments by the top tiers are probable, while it is reasonable to expect a new class of middle-tier contractors to emerge to fill perceived vacuums," Jane's said.

"Calls for more joint activity have been particularly loud in the European Union in order to overcome overlap of capabilities during a period of austerity."

As firms search for more business abroad, they may have to collaborate with local partners to gain access to sensitive strategic defence contracts.

Despite expectations of constrained defence spending in the West, most of those surveyed expected to be in a "better position" within a year, and the number of people employed by their organisation to remain the same.

Jane's said one reason for the optimism could be that many respondents said they planned to increase their exposure to other industries, such as consultancy, information technology, commercial aerospace and nuclear and alternative energy.

The survey was conducted between Jan 28 and Feb 23.