BMI View: Growth in Vietnam's defence expenditure over the coming years continues to be assured byongoing tension in the South China Sea. The China challenge in these waters has continued to necessitateinvestment into strengthening the country's deterrence capabilities and its overall asymmetrical defencestrategy - especially in terms of its naval and air forces' maritime power projection capabilities. Despitethis positive outlook however, we caution that defence spending as a portion of GDP remains relatively flatand just ahead of inflation. The domestic industry, however, remains under-developed and incapable ofproviding for the technologically advanced requirements of its armed forces, meaning the country willremain heavily dependent on foreign defence companies for supply in the coming years - although state-ofthe-art systems will remain firmly out of budgetary capacity.
In July, the Vietnam government announced its commitment to reduce the number of military ownedbusinesses, vowing the divest stakes in the majority of such companies.
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