China's Defense Budget Hits Record $91.5B

TAIPEI - China has announced a 12.7 percent increase in its annual defense budget to a new high of $91.5 billion, up from $78.6 billion in 2010 and a return to the double-digit growth recorded through most of the 2000s. Last year's increase was 7.5 percent. China's defense budget rose from $27.9 billion in 2000 to $60.1 billion in 2008.

China says part of the reason for its increasing military budget is to improve living standards for “grass-root units.” Above, People’s Liberation Army soldiers patrol the streets of Urumqi, Xinjiang province, in July 2009. (File photo / Agence France-Presse)

China overtook Japan in 2007 and the United Kingdom in 2008 in defense spending and is now second only to the U.S.

U.S. defense analysts have accused China of hiding its actual budget, which over the past few years could be well over $100 billion annually.
"There is no such thing as a so-called hidden military expenditure in China," Li Zhaoxing, spokesman for the Fourth Session of the 11th National People's Congress, said at a March 4 news conference announcing the budget.
Li said the bulk of this year's spending would go toward moderate improvements in armament, training, human resource development, infrastructure and living standard improvements for "grass-root units." The new defense budget accounts for only 6 percent of China's total budget, he said.
"I think Li is right on the explanation of the rise of the new military budget," said Zhuang Jianzhong, vice director of the Center for National Strategy Studies at Shanghai Jiao Tong University. Commodity prices have been rising rapidly, and wages and subsidies are comparatively low compared with Western military personnel, he said.
Maj. Gen. Zhu Chenghu, director-general, Strategic Studies Department, National Defense University, echoed the explanation. Military salaries are trying to keep pace with rising inflation as the Chinese economy continues to expand, he said.
China's military also has to meet the demands of educating and training personnel as the military takes on more international responsibilities, such as piracy patrols in the Gulf of Aden and continued involvement in U.N. peacekeeping operations.
As an example, Zhuang cited Chinese military involvement in the evacuation of Chinese citizens from Libya and downplayed critics who suggest China's military is planning foreign expeditions. China has no "intention to expand or invade or station military overseas," he said.
There is also an argument that the military wants more respect from the Chinese Communist Party (CCP). Richard Fisher, vice president of the Washington-based International Assessment and Strategy Center, said the CCP lives in fear of the People's Liberation Army (PLA). The party leadership needs to increase the pay of its officers, "lest the current galloping inflation and resulting social discontent wash over to the PLA."
Party power would "collapse if the PLA were to wake up some day and 'vote' against it," which "reflects power, but also fear."
Not everyone is buying the "inflation" and "salary increases" argument for a nearly 13 percent increase in the defense budget.
"Given an inflation rate of about 4 percent, that is an 8 percent real increase," said Richard Bitzinger, a former U.S. intelligence analyst, now a senior fellow with the S. Rajaratnam School of International Studies, Singapore.
"While it may be a bit less than the average annual growth rate of the past 15 years, it is still up from last year and seems consistent with China's continued emphasis on putting considerable resources into building up its military," he said.
"If we applied a purchasing power parity deflator to the yuan, it would be at the very least double the size of the Chinese defense budget."
Transparency remains an issue not only in China's defense spending, but also with China's stated capabilities and intentions, said Andrew Erickson, a China defense specialist at the U.S. Naval War College.
"Even the most basic data on service budgets remain unavailable to foreign researchers," he said. "China's military capabilities are clearly growing, but its intentions - at least beyond asserting control over its territorial and maritime claims, to include Taiwan - remain somewhat unclear."
Erickson pointed to expensive efforts by China's military for force modernization, including the recent unveiling of the stealthy J-20 fighter, the outfitting of the former Varyag aircraft carrier and development of the Dong Feng 21D anti-ship ballistic missile.
Also, Beijing's strategic goals "simply do not necessitate the military resources that Washington requires to fight two wars and maintain a global presence," he said.
Although China is expanding its global presence and is now conducting its first military operations in the Mediterranean evacuating Chinese citizens from Libya, it is still far behind the U.S. in global reach and responsibilities.
One explanation for China's return to double digit military spending increases is that the CCP leadership "needs to increase spending because many programs, like aircraft carriers and nuclear missile submarines, are entering their expensive procurement phases," Fisher said.

Senate Democrats Introduce Spending Bill

The U.S. Senate Appropriations Committee introduced a spending bill March 4 that would fund the Pentagon through Sept. 30, but comes up short of what Defense Secretary Robert Gates says is needed.
The Senate bill funds defense at $672 billion, which includes $158 billion for operations in Iraq and Afghanistan. This represents a $17.3 billion cut to the president's request for defense spending for 2011.

The $514 billion base budget is far below the $540 billion Gates has said the Pentagon would need to operate.
The bill does not fund an alternate engine for the F-35 Joint Strike Fighter. The administration has repeatedly said it does not need the G.E.-Rolls-Royce-built engine.
In addition, the bill cuts $9 billion across operations and maintenance accounts due to "programmatic adjustments, historic under-execution and unsupported requests for civilian personnel increases," according to a committee statement.

German Defense Secretary Sacks State Secretary

BONN - One day after coming into office, Germany's new defense secretary Thomas de Maizière sacked Walter Otremba, one of the two permanent state secretaries.
Under de Maizière's predecessor, Karl-Theodor zu Guttenberg, Otremba, 59, had been responsible for the restructuring of the Bundeswehr. He headed the commission that designed the plan for changing the leadership structure of the military and the defense department.

In his March 4 announcement, de Maizière said reforms would continue, but said he would pause for a thorough assessment of the situation before making any decisions.
A department spokesman gave no reasons for Otremba's transfer to a temporary retirement, and said a successor would be named soon.

EADS Won't Protest USAF Tanker Pick

EADS North America will not protest the U.S. Air Force's decision to award a $35 billion aerial refueling contact to Boeing last week, senior company officials announced March 4.
The announcement clears the way for the Air Force to begin buying KC-135 replacements after more than a decade of trying to get the program off the ground.

Ralph Crosby, chairman of EADS North America, told reporters that while the company still believes it offered a better aircraft, it would not contest the service's selection of a smaller Boeing offer.
"After meeting with the Air Force and the Department of Defense, and evaluating the information they provided to us in their debriefing, EADS North America has decided not to protest the KC-X contract award," he said. "Our reasoning is simple: The acquisition architecture for this procurement ... was quite mechanistic and mathematical. The outcome was decided by price, and Boeing's offer was at a lower price than ours."
The company made the announcement during a briefing with reporters at the National Press Club in Washington. On Feb. 24, the Air Force announced it had chosen a tanker variant of the Boeing 767 to be its KC-X aircraft.
Sean O'Keefe, president and CEO of EADS North America, said the company believes it offered an "incredibly aggressive, very, very solid proposal."
Still, Crosby said the Air Force did not fully answer all of the company's questions during a debrief earlier this week.
"In this case, the debriefing was very brief," he said.

U.K. May Slash Hawk Advanced Trainers By One-Third

LONDON - Britain may cut its fleet of Hawk T2 advanced training aircraft by nearly one-third following last year's government decision to slash the number of combat jets flown by the Royal Air Force and Royal Navy.
Eight, maybe more, of the new BAE Systems jets could be disposed of without ever having been used for training pilots, industry executives here said.

"The requirement is for about 20 aircraft, but we are looking at how we might keep other T2s occupied by offering training to foreign governments as part of the Military Flying Training System program," one executive here said.
A Ministry of Defence spokesman said he could provide no details on possible T2 cuts as the department continues to explore a number of options. He dismissed suggestions the aircraft could be used to update the Red Arrows aerobatic team from the current T1 Hawk.
The previous government ordered 28 of the Hawk Advanced Jet Trainers, known as the T2 in RAF service, in a controversial 450 million-pound ($733.5 million) deal with BAE, in part to keep the aircraft in production.
Now, with deliveries of the new glass cockpit version of the Hawk almost complete, focus is switching to exactly how many trainer jets and pilots will be needed after the Strategic Defense and Security Review last year axed the Harrier GR9 fleet and heavily reduced Tornado GR4 numbers.
Further cuts to the Tornado fleet are possible as the MoD attempts to nail down spending plans for fiscal 2011, which will require another round of heavy capability and program reductions to bring the department's budget into balance.
One MoD insider said the number of fast-jet pilots emerging from the training pipeline next year could be between 30 percent and 40 percent lower than the usual output.
Just how serious the pilot cuts are was illustrated last week when Defence Secretary Liam Fox announced that 170 of the 514 pilots already in the training pipeline would be dropped. The bulk of the reductions are expected to fall in the fast-jet pilot sector.
The cuts were part of a redundancy program that will see RAF personnel numbers fall by 5,000 over the next four years to about 33,500.
Army and Navy cuts are due to be detailed early next month. Some 17,000 military personnel are expected to be made redundant.

EU Could Deploy Ships to Enforce Libya Arms Ban

BRUSSELS, Belgium - The European Union could deploy warships near Libya to enforce an arms embargo on the strife-torn north African country, a senior EU official said Friday.
The potential weapons blockade will be among a package of measures that EU leaders will debate during an emergency summit on the Libyan crisis next Friday in Brussels, the official said.

The United Nations and the European Union decided earlier this week to ban the sale of weapons to Libya as part of a set of sanctions to punish Moammar Gadhafi's regime for its violent crackdown on protesters.
The 27-nation EU's security and defense policy provides "the possibility of some sort of naval surveillance" to enforce the embargo, the EU official said.
"I'm not saying that's exactly what is going to be done but there are always ways through which we can tighten up the sanctions to make sure they work," the official said.
The United States, Britain and France have deployed warships toward Libya amid debate among NATO allies about whether to use military power to stop the bloodshed.
The United States and Britain have evoked the possibility of imposing a no-fly zone over Libya, which would mean bombing Gadhafi's air defenses on the ground and shooting down hostile jets.
Several governments, including France, insist that such an operation would require a UN mandate. Russia, a veto-wielding member of the Security Council, has voiced deep reservations about it.

Anti-Pirate Patrols 'Not Really Producing': Clinton

The international naval flotilla working to curtail piracy in the western Indian Ocean is failing to solve the problem, U.S. Secretary of State Hillary Clinton told Congress.
"The naval ships that have been involved from … more than 20 nations just have not been willing to really put themselves out," Clinton said on March 2. "They're happy to patrol, and they're happy to say they are, and then kind of count themselves as part of the coalition. But when push comes to shove, they're not really producing."

Clinton, appearing at a Senate Appropriations Committee international affairs budget hearing, ticked off several other points about the Somali-based pirates who have captured dozens of merchant ships and private yachts and held them for ransom.
"One of our big problems is that a lot of the major shipping companies in the world think it's the price of doing business," she said of the ransoms. "And they're not pressuring governments. They're not particularly concerned. They pay a ransom and they just go on their merry way. That has been a huge problem."
While declaring that "boots on the ground" are not a solution, Clinton urged an effort to "go after their land-based ports."
Newly elected Sen. Mark Kirk, R-Ill., a Navy reservist, noted that "if we can't be tough on pirates on the open seas, we can't be tough on almost anything," and urged military action on the high seas against the pirates.
"Anybody more than 12 miles off the coast [of Somalia], moving out into the Indian Ocean, I think is subject to attack and sinking," he said.
Mother ships operated by the pirates as floating bases could be disabled, Kirk observed.
"The standard procedure would be just to put a round into the rudder of the ship. At that point, they run out of food and water, but it's too bad," he said.
"I share your outrage," Clinton told Kirk. "We have put together an international coalition, but, frankly, we're just not, in my view, getting enough out of it."
The State Department has been tasked to "come up with a much more comprehensive approach," Clinton said, and is working with the Pentagon on the issue.
"I'm just fed up with it," Clinton said. "We need to do more, and we need to make it clearer that the entire world had better get behind whatever we do and get this scourge resolved."

Nexter, Thales Hold Preliminary Talks on Alliance

PARIS - Nexter is in preliminary talks with Thales as a possible alliance partner in a restructuring of the French land systems sector, Nexter Executive Chairman Philippe Burtin said March 4.
The discussions with Thales were part of "preliminary, non-binding and non-exclusive" talks, which included other companies in France and Europe, aimed at industry consolidation, Burtin told analysts and journalists as he unveiled Nexter's 2010 results.

State-owned Nexter pursued a "strategy of sector" in its talks, Burtin said. In the land sector, Thales has the TDA munitions and mortar business, and its Australian unit builds the Bushmaster armored vehicle, he said.
The discussions over a potential partnership were also at the program level, namely the Véhicule Blindé Multi-Role multirole troop carrier, which Nexter hopes to win in an international tender expected to be launched toward the end of this year, Burtin said.
Thales Executive Chairman Luc Vigneron said Feb. 14 the electronics company "could not remain indifferent to changes in the land defense sector."
Nexter posted 2010 net profit of 164 million euros ($227.8 million), up 16 percent from 141 million euros a year ago, on a 21 percent increase in sales to 1.1 billion from 887 million euros. New orders totaled 601 million euros, lifted by a Saudi Arabian order for 155mm shells for the Caesar artillery system and a French multiyear purchase of medium-caliber munitions. That compared with 2009 orders worth 1.29 billion euros.
Operating profit rose 26 percent to 185 million euros, from 147 million euros. The outlook for 2011 was for a decline in sales to about 800 million to 850 million euros, while new orders were expected to be stable, Burtin said.
The order book totaled 2 billion euros, or 2½ years work, down from 2.5 billion euros.

Roxel To Provide 258 Rocket Motors for GMLRS

PARIS - Roxel, the Anglo-French missile propulsion company, received in December an order from Lockheed Martin for a first batch of 258 rocket motors for the Guided Multiple Launch Rocket System (GMLRS), known in French as the Lance-Roquette Unitaire (LRU), said Françis Rodriguez, Roxel vice president for sales and business development.
Lockheed Martin said in a statement, "The French DGA (Délégation Générale de l'Armement) is also in the process of finalizing its selection of an upgraded fire control system to support the guided precision munitions."

Lockheed has pitched its Universal Fire Control System against a competing offer of the European Fire Control System, proposed by a consortium of three European companies. A DGA spokesman said studies are being conducted on selection of the fire control system, and an industry executive said a choice is expected by the end of the first half of the year.
Gen. Elrick Irastorza, Army chief of staff, said March 1 that French land forces of the future will need precision artillery of 1meter accuracy, day and night. The LRU offered just that capability, an Army officer said.
Roxel expects further orders for LRU rocket motors, built under license from Aerojet. The LRU system was bought under a memorandum of understanding signed by Britain, Germany, France, Italy and the United States.

U.S. Navy Seeks New Landing Craft Proposals

An updated draft solicitation for Ship-to-Shore-Connector (SSC) landing craft was issued March 1 by the U.S. Navy's Naval Sea Systems Command (NAVSEA). The draft request for proposals begins the process of building a replacement for the Landing Craft Air Cushion (LCAC) amphibious craft that first entered service in the mid-1980s.
Two primary industry efforts have been underway to compete for the new landing craft. SSC Team Textron is led by Textron Marine and Land Systems - builders of most existing LCACs - and supported by L3 Communications and Alcoa.

Team SSC is anchored by Marinette Marine working with Boeing, Oceaneering and Griffon Hoverwork, Both teams have put together proposals to build up to 73 SSCs over eight years. The first SSC is to be delivered in 2018. The request asks for bids for the first eight production SSCs to be delivered by 2020.
Proposals already shown by both teams feature air-cushioned craft with similar configurations to the LCACs. As with the earlier craft, the SSC will be 91.8 feet long and have a beam of 47.8 feet. The new craft is to carry a load of 67 metric tons - 13 more than the LCAC - have a crew of two rather than three, use a simpler and more efficient drive train, and have better environmental and communications systems.
Industry teams have until March 31 to respond.

Finmeccanica Eyes Sell-off of Some DRS Units

ROME - Three years after acquiring U.S. defense electronics firm DRS, Italy's Finmeccanica is planning to sell off some DRS units with total revenue of up to $800 million, managers said March 3.
The selloff at DRS, which saw $4 billion in revenue last year, is part of a move away from "non-core" activities. It will also help cut debt at parent Finmeccanica, CFO Alessandro Pansa told financial analysts in a meeting in London.

Some of the proceeds from the sales will also be plowed back into new acquisitions for DRS, which could be outside the U.S., said CEO Pierfrancesco Guarguaglini.
"If DRS can be more present outside the U.S., it will give the possibility to increase revenue," Guarguaglini said at the meeting.
Guarguaglini has previously said that DRS could benefit from expanding outside the U.S. market, guided by the global know-how of its parent company, Finmeccanica.
Without naming which units might be sold, Finmeccanica said it would seek to divest activities operating in "non-core segments for the group, markets with limited growth opportunities in the near future and markets where DRS lacks scale. …We are currently initiating the process to implement this portfolio optimization by 2011."
Proceeds from the sales would be partly used to help ease Finmeccanica's debt of 3.13 billion euros ($4.32 billion). Finmeccanica is also planning property sales and sale of a stake in energy unit Ansaldo Energia to reduce debt.
Targets for DRS acquisitions have already been identified by Finmeccanica, the company said, and were small to medium-sized. The company is interested in "control of enabling technologies, ease of integration within group products," and that possible acquisitions be in "key DoD programs of interest for the group that can be effectively integrated within DRS and foster growth in strategic areas."