Chinese defence budget prompts mixed market response

China's defence budget rise was greeted with an indifferent response on the country's stock exchanges on 5 March as the value of the country's listed defence companies varied between modest gains and losses.

The reaction is notable because previous defence-related announcements and events in China - such as the publication of the defence White Paper in January 2009, the People's Liberation Army's 60th anniversary parade in September 2009, and previous double-digit budget increases - all saw high growth across the board.

The spending increase announced by Beijing on 4 March reached 7.5 per cent, or CNY532.1 billion (USD78 billion). Although still considerable by the standards of most Western nations over the past two years, the rise signifies a significant slowdown from the increases of 14.9 per cent, 17.6 per cent and 17.8 per cent over the past three fiscal years.

The spending increase, which has been proposed to the annual session of the National People's Congress (NPC) for expected approval, is also less than what was predicted within China. For example, Xinhua state news agency said on 3 March that it anticipated a defence spending increase of 15 to 18.6 per cent to around CNY550 billion or CNY570 billion. The lower-than-expected rise has contributed to investors' subdued response.