AIRSHOW-Asia's biggest arms, aerospace event begins under China shadow

Mon Feb 13, 2012 11:18pm EST

* China defence spending to hit $238 billion by 2015

* Japan spending constrained by Fukushima disaster

* Regional tensions, resource competition drive spending

* European carbon charges risk full-blown trade war

SINGAPORE, Feb 14 (Reuters) - Asia launched its biggest exhibition of aircraft and military hardware on Tuesday as a new report said China's defence expenditures would exceed the combined spending of all other major countries in the region within three years.

Aircraft and weapons manufacturers, military officers, arms dealers and airline executives rubbed shoulders as the 2012 Singapore Airshow kicked off in a vast hangar near the city-state's Changi airport.

Deals worth about $10 billion were announced at the last show in 2010 and the number could well be higher this year as Asian nations ramp up defence spending.

IHS Jane's said in a report that while all major Asian nations are forecast to increase spending on defence, China's military budget will soar to $238.20 billion by 2015 from $119.80 billion last year, growing about 18.75 percent per annum.

That number will exceed spending by all other nations in the region combined, but compares with a base U.S. defence budget of $525.40 billion for 2013.

In Asia, Japan and India follow China in defence spending, but both may be constrained in coming years while China is likely to steam ahead, underpinned by strong economic growth, analysts said.

"Japan's government debt and the investment needed after Fukushima will impact defence spend. We will increasingly see budget channeled towards key programmes and equipment," said Rajiv Biswas, chief economist in the Asia-Pacific for IHS Global Insight.

"India's government debt and fiscal deficit is very high as a share of GDP, and the rupee depreciated significantly in 2011, all of which will limit India's defence ambitions."

Nevertheless, Japan's defence budget is forecast to rise to $66.60 billion by 2015 from $60.30 billion last year. India's military expenditure is likely to be $44.90 billion in 2015 from $35.40 billion in 2011.

"China's rise is not the only motivator," said Paul Burton at IHS Jane's. "There are a number of lingering security issues, driven by competition for untapped natural resources, that are prompting many states to increase their defence to GDP ratio."

AIRCRAFT

On the civilian side, the show is likely to be dominated by Europe's carbon emissions scheme and by defects plaguing the Airbus A-380 and the Boeing 787 Dreamliner.

The EU's Emissions Trading Scheme, introduced on Jan. 1, has drawn howls of protest from airlines around the world, with China banning its carriers from taking part.

Europe's plan to charge airlines for carbon emissions could trigger a full-blown trade war with implications for plane deals and Europe's crippling sovereign debt crisis.

Meanwhile, the discovery of hairline cracks on part of the frame inside A380 wings several weeks ago has embarrassed its maker, Airbus Industrie, a unit of EADS. European safety authorities last week extended inspections for similar cracks to the entire fleet.

Airbus and operators say there is no risk to safety, but German magazine Der Spiegel said the problem could cost Airbus 100 million euros ($132 million).

Boeing has said it has found a problem with the 787's fuselage, but has said the "incorrect shimming" is easily fixed and will not affect production schedules. Shims are used to close tiny gaps in joints.

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