2009: China’s Military Budget Continues Double-Digit Growth

Red flag to a
bull defense market

As was the case in the communist Soviet Union, China’s official military budget and real military budget are not the same thing. Many items are hidden under other ministries, or simply not reported truthfully in the absence of accountable government. Official figures are given, however, and for the last 20 years those figures have shown uninterrupted double-digit increases.

That tradition continues in 2009, as the official budget is set to rise to 14.9% to YUAN 480.6 billion (about $70.2 billion) from the 2008 figure of YUAN 417.77 billion ($58.81 billion). In 2006, the equivalent figure was $35 billion, which means the official budget has doubled over that time.

The biggest unanswered questions have to do with the differential between announced and actual figures. RAND’s Project Air Force, which has also studied China’s arms industry modernization, gave a figure of 150% – 200% difference. Other international analysts have estimated the actual budget at up to 400% of the official budget. A related question involves whether or not these differentials are narrowing or remaining stable, as a result of these continuous double-digit increases. SIPRI has side-stepped this issue by using the interesting metric of purchasing power parity, in order to derive a $188 billion figure that was just over 300% of the official total in 2008.

Any of these estimates would make China’s military budget the world’s second-largest, far outpacing competitors like India (reliable, and around $28 billion equivalent). BBC News.

Grant Thornton on US Aerospace Component M&A, 2008

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Guest article by Ian Cookson & Grant Thornton Corporate Finance LLC

Aerospace component M&A activity remained strong in 2008, and was one of the best performing sectors, with the same number of transactions as the record set in 2007. Activity was again weighted toward the first half of the year (in a 60/40 split), with a similar number of transactions in the second half of 2008 as 2007. Although 40% of transactions were led by private equity groups, this masks a shift in the second half where strategic buyers proved more successful in winning bids (by a factor of 3:1). Private equity buyers found it harder to raise the levels of debt that supported prices of previous acquisitions.

The strong level of aerospace component activity is in stark contrast to U.S. M&A activity as a whole, which declined by a third in volume terms from the prior year (and substantially more by value). However, the number of smaller deals across all industries (under $50 million) remained remarkably constant. It is this category of smaller deals that is more reflective of aerospace component transactions.