China Boost Military Spending Whilst US Military Shares Take a Hit

China has stated that it will increase its spending on the military sector to 480.6 yuan (that's £50 bn) which works out as a 14% rise from last year.  Official Li Zhaoxing has assured that the increase in spending is aimed at improving defence for the country and "not threaten any country."  This increase comes very soon after China expended a great deal of cash hosting the Olympic games in Beijing 2008. This news is the latest in a string of mixed messages that China has been sending out regarding its financial state recently. The global recession is suspected to have hit China hard as Western consumerism slows and thus reduces production demand from their factories. Wages of workers in such factories have been reported to have been cut by as much as 75%.

BBC's James Reynolds (based in Beijing) points out that whilst this year's military budget is an increase; it is still small in comparison to the US budget, which is around 8 times greater, "China is simply redistributing funding rather than trying to match that of greater military powers".  In contrast to this growth in the Chinese military sector, the US military market has seen very recent falls in share prices as many fear that contracts have been reduced or cut all together. Business analysts first suggested that the market would fall after President Barak Obama highlighted his intention to pull troops out of Iraq and Afghanistan.  Obama's peaceful policies caused speculation that money would begin to be diverted away from armed forces and towards other areas of US economy and this was a likely cause of the drop in shares seen this week.

America has been keeping in an eye on China for a while now as they continue their emergence as a global power and it is likely that America will be putting them under further scrutiny with this new announcement on their military spending and the switches in spending policy. It is worth bearing in mind however that China has long been a very secretive nation and any information that they provide should be given only a certain amount of weight.  Most experts in the area say that China has made claims about its spending in the past which have turned out not to be accurate so there is every chance this announcement is just blowing hot air.