Rising tensions between India and Pakistan propel surge in Chinese defence stocks

As tensions escalate between India and Pakistan, Chinese defence stocks are rising, fuelled by expectations of a boost in exports from Chinese defence manufacturing companies.

Over the past decade, China has become the primary supplier of military hardware to Pakistan, including fighter jets, submarines, frigates, drones, and missile systems.

Between 2020 and 2024, China emerged as the largest seller of weapons to Pakistan, accounting for 81 per cent of its imports, followed by the Netherlands at 5.5 per cent and Turkey at 3.8 per cent. From 2009 to 2014, China represented 51 per cent of Pakistan’s total military imports, which rose to 73 per cent between 2015 and 2019.

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In the case of China, Pakistan has become its largest defence export market, accounting for 63 per cent of its exports in 2020-24 as compared to 41 per cent in 2009-14.

This heavy military dependence of Pakistan has led to rising investor confidence in Chinese defence stocks. China and Pakistan have long-standing political ties, with diplomatic relations established in 1951. China has also been Pakistan's most important defence partner since the end of the Cold War, according to the US Institute of Peace.

CNBC reported that AVIC, through its subsidiary AVIC Chengdu Aircraft, manufactures the J-10C fighter jets reportedly used by Pakistan in the recent conflict. Another subsidiary, AVIC Aerospace, which produces military aircraft and helicopters, saw its Hong Kong-listed shares rise over 6 per cent. And Shenzhen-listed stocks of AVIC Chengdu Aircraft surged as much as over 16 per cent. It last traded 8.31 per cent higher at 11.40 a.m. local time. On Wednesday, its stocks rose 17.05 per cent, marking the most significant gain since last October.

Shares of China State Shipbuilding Corporation, which builds military and civilian vessels, inched up 0.4 per cent.

China-Pakistan defence deals

Over the years, Pakistan has secured several major defence deals with China, with the estimated total value of these agreements spanning billions of dollars. In 2015, Pakistan signed a deal worth $5 billion for eight Type-041 submarines. Three years later, in 2018, it purchased four Type-054A/P frigates for approximately $1.4 billion.

The following years saw further acquisitions, including the purchase of 36 J-10CE jets in 2022 for an estimated $1.5–2 billion. Since 2007, the JF-17 Fighter Jet Programme has been a significant investment, with an estimated cost of $2–3 billion. In 2018, Pakistan also acquired 48 Wing Loong II drones, costing around $200–300 million.

More recently, in 2021, Pakistan bought HQ-9 surface-to-air missile defence systems and PL-15 air-to-air missiles for about $650–900 million, and in 2022, it purchased Z-10ME helicopters for an estimated $150–240 million.

Throughout these transactions, China has supported Pakistan with low-interest financing and flexible payment terms, enabling the country to continue these imports despite its ongoing economic challenges.

Pakistan was the fifth largest buyer of arms in 2020-24, its share jumping to 4.6 per cent from 2.8 per cent in 2015-19.