Berlin (EAST SEA) Sunday, May 8th, 2022 / 06:27 AM

South China Sea faces higher risk of conflict as arms race builds up

The South China Sea region faces a heightened risk of conflict as it arms itself at an “alarming rate,” an expert from the Stockholm International Peace Research Institute told CNBC on Monday.

It comes as worldwide military spending surpassed $2 trillion for the first time ever in 2021, he added.

 “The region is arming at an alarming rate. Countries are playing with each other in terms of action-reaction, where when one country increases [purchases], another country [also] increases, procuring more weapons,” Nan Tian, a senior researcher in military expenditure at SIPRI, told CNBC’s “Squawk Box Asia.

Tian said China’s increased military spending has created a “greater threat perception” in the neighborhood. This has “led to these neighboring countries such as Singapore, Japan, Australia and Taiwan purchasing a lot of new technologies, such as nuclear submarines and precision missile systems,” he said.

In response to China’s growing assertiveness in the South and East China Seas, its neighbors have purchased several U.S weapon systems over the past decade.

Earlier in April, the U.S. approved the sale of up to $95 million worth of training and equipment to support Taiwan’s Patriot missile defense system developed by Raytheon. It’s the third arms sale to Taiwan under the Biden administration.

In 2020, the U.S. approved a $23 billion order by Japan for a large number of F-35 fighter aircraft manufactured by Lockheed MartinNorthrop Grumman also delivered Global Hawk UAVs to Japan earlier this year. And Singapore has placed orders for F-35 fighters expected to be delivered in 2026.

Some of these U.S. defense stocks have surged since the start of Russia’s unprovoked war on Ukraine. Raytheon shares are 5% higher since Feb. 24, while Lockheed Martin stocks are up around 12% and Northrop Grumman is higher by around 11%. In comparison, the S&P 500 index is down over 2% in the same period.

Tian also referred to the threat North Korea poses to the region and the world. “North Korea is testing and developing nuclear weapons, which of course is a greater concern to not only the region but the world as a whole,” he said.

Tian said a large amount of financial resources are being allocated to the militaries of the South China Sea region, making a miscalculation possible. “A miscalculation could have severe consequences, given the amount of weapons being procured and the amount of financial resources being allocated to the region’s militaries to increase capabilities,” he said.

Top spenders

Globally, the total military expenditure surpassed $2 trillion for the first time. China and India were among the top three military spenders in 2021, behind the United States, which was the largest defense spender.

The U.K. and Russia, which were the fourth and fifth biggest spenders respectively, together accounted for 62% of total military spending last year. “This is the highest level ever recorded,” Tian said of total spending, adding that it had been increasing for seven consecutive years. “It puts the point into perspective that throughout the times of economic recession, changes in oil prices or even the pandemic, military spending has seen a consistent, persistent increase,” he said.

He also said military spending outstripped either spending on health care or on education.
The Ukraine war would only increase spending, he said. He said Germany, Sweden and Romania had already announced more spending.

“These countries will be looking to modernize their militaries, buy more weapons systems, equipment, and this would mean potentially more orders for the largest arms producing companies such as Lockheed Martin, Boeing and BAE systems, for example,” he said.

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