Chris Thomas

Investment Implications of China's Satellite Killer

I couldn't disagree more.

Over the next few years, the Democrats in Congress will no doubt attempt to limit or curtail military spending, perhaps more than usual as a sort of vote of no confidence in bush's middle east policy.

So any stock pick will be, no doubt, over a longer time horizon than two years. Yet I still think that China will never be the military adversary that many doomsayers think they are destined to become.

1. China's and the United States' international interests in the world are largely similar. Both countries are hurt by disruptions in the energy supply, both countries are despised by Islamic extremists, both are capitalist countries that want stability and economic growth throughout the world.
2. China's and the United States' economies are intricately entangled and both would suffer horribly from any kind of geopolitical strife. Any sort of Cold war between the two would lead to recession and thus political consequences - in China due to the fragility of its despotic regime and in the United States due to its Democratic institutions.
3. China most likely tested its anti-Satellite missile because of its burgeoning space program, not because of any kind of military ambitions. The Chinese have a fascination with science - so much so that Chinese children don't have favorite sports or movie stars, but rather have favorite scientists that are sort of pseudo celebrities. Another possibility is that China is desperately attempting to build a Star Wars-like anti missile system out of fear of North Korea's nuclear capabilities.
4. Speaking of nuclear capabilities, it's worth noting that the likelihood of a hot war between the United States and China is next to nil for just that reason - both countries are nuclear powers.
5. As China's economy has grown, so has its government's spending. Much has been said about China's increase in its military spending, growing at a clip of roughly 10% a year. And yet, that spending has lagged behind the growth of the CCP's spending in nearly every other department. In other words, the military <b>is not the Chinese government's top priority</b>.

I wouldn't touch any defense contractor for at least the next two years while the Democrats are in power, and even then I have the feeling that military technology is going to slowly shift away from big ticket items used in combat between great powers, and toward anti-terrorism measures. While its certainly a distant possibility, I get the feeling that anyone that invests in a sort of military buildup between the United States and China will likely be very disappointed.