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Taiwan Defence and Security Report Q3 2010
Business Monitor International, July 2010, Pages: 85
Business Monitor International's Taiwan Defence and Security Report provides industry professionals and strategists, corporate analysts, defence and security associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Taiwan's defence and security industry.
The planned US-Taiwan arms deal worth US$6.4bn and announced on January 29 2010, continues to disrupt US-China relations. On June 5, US defence secretary Robert Gates again urged China to restore military relations with the US. He claimed that the lack of military contact between the US and China is detrimental to regional security in Asia.
The Quadrennial Defence Review (QDR) of 2009, as well as detailing military strategic directions, contains the strategy for ‘asymmetric warfare’ in relation to the military balance across the Taiwan Strait. In any conflict with China, Taiwan would retain the asymmetrical advantage of being the defender – it would aim to deny China’s achievements of its military objectives in Taiwan rather than try to destroy its weapons. President Ma Ying-jeou said on May 19 that Taiwan ‘cannot possibly engage in an arms race with China,’ and that Taiwan has ‘limited national resources and we have to make the best uses of them’. He said that Taiwan’s military forces will be ‘small but elite’. Taiwan maintains that China is continuing its military build-up against Taiwan, having set up more than 1,300 ballistic and cruise missiles. It also intends to acquire an aircraft carrier.
On May 18, the navy took delivery of the first 10 stealth 170-ton Kuang Hua-6 (KH-6) guided-missile patrol ships, built by CSBC. CSBC is constructing a further 20 ships for the navy – they are due for completion in 2012.
According to the Republic of China Yearbook 2009, the defence forces aim for growing self-reliance by increasing the ability of local companies to produce defence equipment. The government’s policy is for the defence budget to take up at least 3% of the country’s GDP.
Taiwan’s economy continues its strong rebound, in line with our expectations of a sizeable GDP expansion over the course of 2010. It may well exceed our earlier prediction of 5.0% y-o-y annual GDP growth for 2010. This contrasts sharply with 2009’s 1.9% contraction, which was the worst real growth figure for Taiwan in over 50 years. We expect the main drivers of 2010 growth to be inventory restocking, gross fixed capital formation and private consumption.
Taiwan has considerable trade links with (mainland) China, recorded at 29.9% this March. As Chinese demand recovered much more rapidly than that from the rest of the world in 2009, it boosted Taiwan’s economic performance through recent quarters. However, we are concerned about the health of mainland China’s economy, especially regarding their property market, which we believe is overheating and at risk of a correction. We see China’s economy slipping from 8.8% real growth in 2010 to a disappointing 7.5% in 2011. We forecast Taiwan’s real GDP growth at just 3.4% in 2011, well below the 5.2% average of 2002-2007.
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