【Epoch Times May 28, 2025】As the ambitions of the Chinese Communist Party in the Asia-Pacific region intensify, countries in Southeast Asia are accelerating their military expenditures, attracting active participation from European and Middle Eastern countries in the region’s arms market. According to a recent report, the Asia-Pacific arms supply chain is becoming increasingly diversified, but Beijing’s role appears to be gradually limited, and its export influence is facing a trend of contraction.
The International Institute for Strategic Studies (IISS) released on Wednesday its 2025 edition of the “Asia-Pacific Regional Security Assessment” report, highlighting that defense policies in Asia-Pacific countries are undergoing structural changes. Countries are no longer just focusing on military threats but are shifting towards strengthening indigenous production, technology transfer to enhance their own defense capabilities.
This trend reflects the strategic choices of regional countries and is quietly reshaping the cooperation landscape of the global defense industry. The full version of the report will be officially released at the Shangri-La Dialogue in Singapore on Friday.
IISS noted that the six Southeast Asian countries, including Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam, had a total defense expenditure of $50.7 billion in 2024, slightly lower than Japan’s budget during the same period. The average defense spending of these countries accounts for about 1.5% of their GDP, a proportion that has remained stable over the past decade.
However, defense investments (including procurement and research and development) have been rapidly increasing, rising from $7.8 billion in 2022 to $10.5 billion in 2024. The budget allocation for procurement and research and development has also increased from 15.7% in 2014 to 21.1% in 2024, indicating a dual drive towards modernization and technological self-reliance in defense.
To reduce dependency on a single supplier, these countries are gradually implementing “offset” systems, requiring defense contractors to contribute to the local economy and technology development.
Indonesia mandates that foreign contractors provide at least 85% of the contract value as offset, with 50% for purchasing local components and the rest through technology transfer, investment, or training. Malaysia also requires contracts worth over 50 million ringgit (approximately $10.6 million) to include local participation. While Singapore does not have a formal offset system, all major procurement cases need to assess local industry participation and potential on a case-by-case basis.
The report categorizes global arms producers into three levels, with Southeast Asian countries mostly falling into the second tier (Tier 2) or third tier (Tier 3), relying on cooperation with technologically advanced countries like those in the first tier (Tier 1) of Europe to enhance their industrial chains. This has made offset and technology transfer indispensable parts of cooperation.
European companies such as Airbus, Naval Group, Thales, and Leonardo have been actively adjusting their proposals to accommodate the increasing requirements for local participation in Southeast Asia and deepening local partnerships, demonstrating their long-term commitment to the market.
Several examples in the region show diversified and deepening forms of cooperation. For instance, Indonesia collaborates with Airbus in producing C-295M transport aircraft and the Super Puma helicopter, expanding from licensed assembly to global supply chain participation; Malaysia collaborates with Turkey’s FNSS Defense Systems in developing the AV8 “Gempita” armored vehicle, involving local design and system integration; Vietnam, Thailand, and Singapore are engaged in local shipbuilding and system development.
Notably, Middle Eastern countries like Saudi Arabia and the UAE are actively establishing joint development and production relationships with Asian countries.
The report highlights that the EDGE Group in the UAE and Hindustan Aeronautics Limited (HAL) in India, a defense production division directly under the Indian Ministry of Defense, have signed a memorandum of understanding to explore joint design and production of missiles and drones, and are discussing the possibility of local ammunition production and technological investment with Indonesia and Malaysia.
In the Asia-Pacific region, Chinese defense companies have relatively low participation in the high-end arms market mainly due to the lack of meeting countries’ expectations for technology transfer, interoperability, and political transparency, affecting their export competitiveness.
This trend reflects that partners who can provide sustainable, secure, and self-developing mechanisms will have long-term advantages.
IISS points out that with the outbreak of the Ukraine conflict and tensions in the Middle East, as well as the strategic competition in the Indo-Pacific region involving the United States, China, and India, many countries are carefully choosing their sources of arms supplies.
Longstanding American allies like Singapore, the Philippines, and Thailand mostly prefer equipment and training systems compatible with the U.S. and European systems. The report suggests that the UAE and Saudi Arabia currently have ongoing cooperation relationships with Chinese defense companies; however, if geopolitical tensions escalate, maintaining such cooperation may be challenging.
Furthermore, IISS emphasizes that while the U.S. and its defense industry do not directly dominate regional production, they still have a significant long-term impact on Asia-Pacific defense development through integrated supply chains with allied nations, technology transfer policies, and transnational cooperation frameworks.
Especially in high-tech areas like unmanned systems, cyber warfare, and intelligence monitoring equipment, American companies continue to maintain a clear technological advantage and export influence.