Signal
In September 2025, CSIS analysis highlighted that China’s official defence budget has reached nearly $247 billion. Independent estimates put the true figure far higher, ranging from $318 billion (SIPRI, 2024) to $471 billion. The United States still outspends China, but the gap is narrowing. In 2012, China’s defence spending was one-sixth of U.S. levels; by 2024 it had risen to one-third. In the Indo-Pacific, Beijing now spends five times as much as Japan and seven times as much as South Korea.
Why it matters
Budgets drive capacity. China’s sustained growth in military expenditure has enabled parallel investment in naval power, advanced aircraft, missile systems, and space assets. The shift compresses allied response times in the Indo-Pacific and raises the cost of deterrence. Xi Jinping’s directive to prepare for a Taiwan operation by 2027 gives this budgetary trajectory a hard edge. Allies cannot match Beijing dollar-for-dollar, but must invest asymmetrically in resilience, denial capabilities, and secure supply chains.
Strategic takeaway
China’s defence spending is not just an accounting exercise. It is the clearest indicator of intent, scale, and time horizon. Numbers on a budget line today set the operational balance tomorrow.
Investor Implications
Defence primes positioned for asymmetric capabilities such as Lockheed Martin (NYSE: LMT), Raytheon (NYSE: RTX), and BAE Systems (LSE: BA.) stand to benefit from allied counter-investments in missile defence, ISR, and electronic warfare. Northrop Grumman (NYSE: NOC) and General Dynamics (NYSE: GD) may capture naval and space-related spending. Asian contractors including Mitsubishi Heavy Industries (TYO: 7011) and Hanwha Aerospace (KRX: 012450) will see procurement tailwinds as Japan and South Korea respond. Investors should track spending bills in allied parliaments, budget lines are leading indicators of procurement flows.
Watchpoints
8-9 Oct 2025 → C-UAS & Integrated Protection Summit, London. Allied counter-investments in asymmetric defence.
2027 → PLA deadline to achieve capability to take Taiwan by force.
Tactical Lexicon - Budget Power
The translation of economic strength into sustained military capacity through defence spending.
Why it matters:
• Spending trajectories show intent before capabilities are fielded.
• Budgets create strategic inevitability by locking in force structure years ahead.
• Counter-strategy must target resilience, not parity.
Source: csis.org
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