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War in Ukraine revives global arms industry

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Russia-Ukraine war continues to make global arms industry giants earn money, especially the U.S. and Europe. Strong arms companies, particularly in Europe, aim to increase their production capacity to be able to keep up with the orders.

The famous British company BAE Systems, for example, decided to restart the discontinued production of M777 howitzer, which had succeeded in the war. According to the BAE, Central European countries are interested in M777. The company’s vice president, Mark Signorelli, added that they need order of at least 150 new M777 to start production again.

U.S. military approval is expected to start reproduction. New orders are also coming in for American HIMARS and Anglo-Swedish co-made NLAW portable anti-tank missiles.

U.S. based usual suspects Raytheon Technologies, Lockheed Martin and L3Harris Technologies are also winners of the war. L3Harris received an order worth $200 million to be sent to Ukraine. Raytheon has started using obsolete parts from the old Stingers and has called his retired staff back into office to increase production. Lockheed Martin doubled the production of Javelin anti-tank missiles and increased the production of HIMARS rocket launchers and GMLRS missiles by 60 per cent.

The war ‘relieves’ German Industry

Struggling German industry due to the cutting of cheap Russian gas, has been given a consolation called war. Germany’s automotive and defence company and one of Europe’s leading arms manufacturers Rheinmetall AG, acquired the Spanish explosive manufacturing company Expal for 1.2 billion euros. Armin Papperger, CEO of the company, said the customers will sign contracts with companies who have the capacity. According to Rheinmetall, Expal expected sales of around 400 million euros in 2023.

Rheinmetall shares have gained 115 per cent since January 1st. The company announced that it has increased tank ammunition manufacturing from 70,000 to 140,000 in one year. Rheinmetall, which also increased its cannon production from 70,000 to 110,000, also doubled its mortar production capacity. Papperger noted that they increased their potential medium-calibre ball production capacity from 1.2 million to 2.2 million annually and increased their capacity to produce military trucks from 2,500 to 4,000.

Rohde & Schwarz, who developed German military communication equipment other than Rheinmetall, Traton of Volkswagen, who developed military vehicles together with Rheinmetall, and Krauss-Maffei Wegmann (KMW), the manufacturer of Leopard 2 tanks, are also struggling to fulfil orders.

The German government had recently ordered 100 Panzerhaubitze 2000 self-propelled howitzer to be sent to Ukraine. KMW will be responsible for their production. The contract is said to be worth 1.7 billion euros. These howitzers have recently become a hot topic in the German media, claiming that they are the subject of a complaint in Ukraine because of their maintenance.

KNDS, the joint venture between KMW and France’s Nexter says governments should shape new arms contracts. KNDS CEO Frank Haun underlines that they cannot risk increasing capacity with just speeches and announcements.

The German government’s rearmament programme is also an incentive for its struggling economy. Carl Jonasson, CEO of Snigel Design, a Swedish maker of military gear, did not hide the fact that he was surprised by the size of the order they received from Germany in May.

Eastern and Central Europe find new export markets

In addition to German armament manufacturers, the war industry of the former Warsaw Pact countries has also achieved a significant market with the Ukrainian war.

Sebastian Chwalek, CEO of PGZ, the state-owned weapons and ammo consortium in Poland, said they have an important opportunity to enter new markets and increase export revenues in the coming years. The PGZ consortium controls over 50 companies, from weapons to shipping.

PGZ plans to invest 1.75 billion euros in the next decade, Chwalek told Reuters. That’s more than double its pre-war investment plan. The new production facilities will be built away from the border with Russia’s ally Belarus for security reasons, he said.

In 2023, Chwalek announced that they had reached the capacity to produce 1000 pieces of Piorun MANPAD systems. This figure was 600 in 2022 and 300 to 350 in previous years. The company’s pre-war 2022 revenue target was 1.43 billion euros. With the new situation, it is thought that this income will be much higher at the end of the year.

Czechia is also one of the countries that put the arms industry at the service of war in Ukraine. Prague has sold 2 billion euros of weapons and equipment to Kyiv, Czech Deputy Defence Minister Tomas Kopecny told Reuters. Czechia (then Czechoslovakia), the largest weapons producer after the USSR during the socialist bloc period, has realized its highest arms export since 1989.

David Hac, chief executive of Czech STV Group, the largest ammunition producer in Czechia, said that they would create new production lines for small-calibre ammunition and that they were considering expanding its large-calibre capability. Considering the tight labour market, Hajj added, they are trying to get new workers from a slowing automotive industry.

Another Czech war giant, the Czechoslovak Group, nearly doubled its revenues in the first half of 2022 compared to the same period of the previous year. The Group’s spokesman, Andrej Cirtek, said their sales to the Ukrainian army multiplied after the war in Ukraine started.

Surprise attack from South Korea

South Korea, which has become the world’s fourth largest arms exporter, is also one of the winners of the Ukrainian war. The K2 tanks developed by ROTEM, an affiliate of the Hyundai-Kia Automotive Group, are already targeted by many countries from Mexico to Qatar.

Although Seoul has declared that it will not provide lethal aid to Ukraine directly, it is reported that the United States wants to buy ammunition from Korea to send to Ukraine. When details of the deal surfaced in the Wall Street Journal, the South Korean Defence Ministry insisted that they believed the U.S. was the ammunition’s end user.

Despite all these statements, South Korea’s relation with the Ukrainian war is not new. Last September, South Korea inked the largest arms agreement with Poland in its history to supply 1,000 K2 tanks, more than 600 Hanwha K9 self-propelled howitzers and dozens of combat aircraft to Warsaw. This deal will help Poland to send more weapons to Ukraine.

Customers of Hanwha K9 howitzers include Finland, India, Norway, Estonia, Australia, Egypt, and Turkey.

Limits of the arms industry

Under threat of deindustrialisation, the consolation that Europe found in war has its limits. The defence industry’s renaissance may begin to descend again due to the rising cost of materials and energy and dependence on imports from third countries.

Most of the raw materials needed to produce military products are not mined or are mined in limited amounts in EU countries, Jiří Hynek, head of the Association for Weapons and Defence Industry of the Czech Republic, told EURACTIV. Hynek underlined that most of the crucial materials are imported from Asian and African countries.

The materials that are in short supply on the market today are: all packaging materials, many chemicals but also the cellulose required for manufacturing gunpowder, and synthetic rubber, whose prices are astronomical, Hynek said. The latest material is used for ballistic resistant vests, and the EU is dependent on Asia, especially China, for this substance.

The price of steel has gone from 700 euros per tonne to 3500 euros, while aluminium has risen from 5 euros per kilo to 15 euros, according to Paolo Può, president of the Italian military shipbuilder Cantiere Navale Vittoria. Noting that most of their contracts are signed with the state, Può added that they are asking the government for intervention in the sector.

Rheinmetall also announced that they are stockpiling raw materials. The German arms manufacturer said that they purchased aluminium and important plastics in the first place, adding that they also obtained semiconductors to avoid supply problems in the medium term. The company also mentioned they have significantly increased working capital this year.

In France, on the other hand, the war industry has been experiencing production difficulties since before the Ukrainian war due to the semiconductor and chip problems.

DIPLOMACY

Security to dominate SCO agenda

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Astana will host the 24th Summit of the Shanghai Cooperation Organisation (SCO) Council of Heads of State and Government on 3-4 July. The summit promises important discussions on key regional issues.

The Shanghai Cooperation Organisation was established in Shanghai on 15 June 2001 by the six founding countries: China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan. The SCO currently has nine members in addition to the founding members, including India, Iran and Pakistan. There are three observer states – Afghanistan, Belarus and Mongolia – and 14 dialogue partners, including Azerbaijan, Armenia, Qatar, the United Arab Emirates, Saudi Arabia and Turkey.

The SCO Summit in Samarkand in 2022 began the process of upgrading Belarus’ status within the organisation to that of a member state.

SCO member states represent 40 per cent of the world’s population and contribute more than $23 trillion to global GDP.

Who is attending this year’s summit?

Sixteen heads of state and government are expected to attend the SCO Summit in Astana. President Recep Tayyip Erdoğan is among the leaders travelling to Astana to attend the summit.

Chinese President Xi Jinping arrived in Astana on 2 July for a state visit and to attend the summit.

Other leaders are Russian President Vladimir Putin, Pakistani Prime Minister Shahbaz Sharif, Uzbek President Shavkat Mirziyoyev, Tajik President Imamali Rahman and Kyrgyz President Sadyr Japarov.

India will be represented by Foreign Secretary Subrahmanyam Jaishankar. President Alexander Lukashenko of Belarus and President Ilham Aliyev of Azerbaijan will also attend the meeting.

United Nations Secretary-General António Guterres, who is currently on a visit to Central Asia, will also attend the summit.

“The high number of participants is due to the fact that the summit is a platform for constructive dialogue for all interested countries,” said Alisher Tastenov, senior expert at the Asian Studies Department of the Kazakhstan Institute for Strategic Studies (KazISS).

Important bilateral meetings between leaders will also take place at the summit.

The most eagerly awaited meeting of the summit is that between Russian leader Putin and Chinese leader Xi Jinping.

What is the Summit’s agenda?

The Summit, entitled “Strengthening Multilateral Dialogue – The Quest for Sustainable Peace and Prosperity”, will discuss a comprehensive agenda focusing on key areas of cooperation and development among Member States.

The quest for security and stability is expected to top the agenda.

At least 20 important documents will be discussed at the Summit. These include the SCO Astana Declaration, the SCO Development Strategy until 2035, the SCO Energy Cooperation Development Strategy until 2030, the Programme for Cooperation in Combating Terrorism, Separatism and Extremism for 2025-2027, and the SCO Anti-Drug Strategy for 2024-2029.

One of the documents on the agenda is the World Union for Just Peace and Harmony initiative proposed by Kazakhstan. This initiative aims to strengthen cooperation among SCO countries in promoting global and regional security.

In an interview with China’s Xinhua agency, Kazakhstan’s President Tokayev said he expected the summit’s final decisions to fully embody “the basic principles of the Shanghai Spirit: mutual trust, friendship, mutual benefit and consideration of each other’s interests”.

“We expect strategically important decisions to be taken for the further development of the SCO. In the medium term, the main areas of interaction will be defined and initiatives will be developed to respond adequately and in a timely manner to current challenges and threats,” he said.

Kazakhstan took over the chairmanship from India in July 2023.

Tokayev said that during its chairmanship, Kazakhstan aims to strengthen the international influence of the organisation by expanding its contacts with major international and regional organisations.

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Ukraine, US, Israel in talks to send up to eight Patriot systems to Ukraine

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The US, Israel and Ukraine are in talks to supply Kiev with up to eight Patriot air defence systems to significantly improve its ability to counter Russian air strikes.

According to the Financial Times (FT), the deal, which has yet to be finalised, would see the Patriot systems shipped from Israel to the US before being delivered to Ukraine.

The outlines of the deal, which would mark a shift in Israel’s relationship with Moscow, have been discussed between ministers and senior officials from the three countries, according to five people familiar with the negotiations.

Israel announced in April that it would retire eight Patriot batteries with more than 30 years of service and replace them with more advanced systems.

However, the batteries used in the Gaza war have not yet been decommissioned amid fears that tensions with Hezbollah in the north could escalate into a full-scale war.

If such a transfer were to take place, it would represent a significant change in Ukraine’s defence capabilities. The country currently has at least four Patriot systems supplied by both the United States and Germany.

Ukraine has frequently asked its Western allies to supply it with air defence systems, particularly US-made Patriots.

Last week, the US announced that it was halting deliveries of Patriot interceptors to other countries in order to prioritise deliveries to Ukraine.

Israel has been wary of taking sides in Ukraine because of Moscow’s influence in Syria.

But according to the FT, US officials have tried to persuade Benjamin Netanyahu’s government that Russia’s increasingly close ties with Iran, particularly in the area of military cooperation, are a more pressing concern.

However, the sources said that while the transfer of all eight systems was being discussed, not all of them might be sent to Ukraine. Three people familiar with the discussions said Ukrainian Foreign Minister Dmytro Kuleba had held talks on the issue with his US counterpart, Antony Blinken, in recent weeks.

White House national security adviser Jake Sullivan has also met at least twice with the Ukrainian president’s chief of staff, Andriy Yermak, the three sources said.

Kuleba did not confirm the talks, but told the FT: “Ukraine continues to work with various countries around the world to acquire additional Patriot systems. We once again call on all countries that have such systems to provide them to Ukraine,” he added.

In addition to the US-Ukraine talks, a person familiar with the diplomatic situation said there were also direct talks between Tel Aviv and Kiev on the transfer of Patriots.

Israel’s M901 PAC-2 batteries are older than most of the Patriot systems currently in Ukraine. But military analysts say the older model is still fully compatible with the newer ones.

According to a person familiar with the size of Israel’s arsenal, Tel Aviv has plenty of interceptors for use with these batteries, which Kiev also needs.

Analysts also said that Israel’s older interceptors have a longer range and a larger warhead than the new PAC-3 model.

Former officials and analysts said the Israeli systems would most likely be sold back to the United States, which could send them to Ukraine.

But they added that the real question was whether Tel Aviv was prepared to alienate its one-time ally Russia, despite Moscow’s increasingly close relationship with Tehran.

Israel has previously rejected Ukrainian requests for air defence systems. It also has an agreement with Russia that gives Israeli jets access to Syrian airspace.

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Polish president meets Xi Jinping in China

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Polish President Andrzej Duda met Chinese President Xi Jinping in Beijing on Saturday as part of a state visit. The two leaders attended a signing ceremony in Beijing on Monday, CGTN reported.

“Bilateral exchanges and cooperation have expanded and deepened in all fields, benefiting the people of both countries. China will work with Poland to uphold the Five Principles of Peaceful Coexistence, fulfil the commitments made at the time of the establishment of diplomatic relations, and take the relationship to greater heights,” Xi said.

The Polish leader said he had raised Russia’s war in Ukraine and the crisis on Poland’s border with Belarus during the talks, which also focused on developing economic ties.

Duda later said: “Thanks to the fact that President [Xi] called me his friend, which is a great honour for me, I am very happy to be able to contribute to the development of [Polish-Chinese] relations together with the president.”

Noting that his second and final term in office will end next year, Duda said he “hopes that these relations will be built in the future…[and] will always be based on common ideals…[and] mutual respect”.

Experts believe that this visit, which will last until Wednesday, will help strengthen China-Poland relations and increase economic cooperation between the two countries.

Duda and his wife Agata Kornhauser-Duda arrived in Beijing on Saturday at the invitation of Chinese President Xi Jinping. Duda and his wife were met at the airport by Chinese Vice Foreign Minister Deng Li and other officials, China Central Television reported.

Duda is expected to ask for visa exemptions for Poles travelling to China and seek ways to increase Polish exports to China to balance trade relations.

Polish state statistics reported that 13.9 per cent of the country’s imports came from China last year, while Polish exports to China were only a fraction of that amount.

A number of trade agreements are expected to be signed during the visit.

On Wednesday, Duda will fly to the financial centre of Shanghai to attend the Polish-Chinese Business Forum.

During his visit, Xi will hold talks with Duda to map out the future development of China-Poland relations, have in-depth exchanges on issues of common concern and jointly attend the signing ceremony of cooperation documents, Lin Jian, a Foreign Ministry spokesman, said at a routine press briefing last Thursday.

China is willing to work with Poland to take this visit as an opportunity to deepen political mutual trust, expand exchanges and cooperation in various fields, jointly pioneer high-quality cooperation on the Belt and Road Initiative and China’s cooperation with Central and Eastern European countries, and continuously enrich the connotation of the China-Poland comprehensive strategic partnership, Lin said.

Cui Hongjian, a professor with the Academy of Regional and Global Governance at Beijing Foreign Studies University, told the Global Times on Sunday that China’s relations with Central and Eastern Europe have remained stable this year, and Poland sees this visit as a way to boost cooperation in both political and economic fields.

Cui said strengthening cooperation with China would not only benefit Poland’s economy, but also help Warsaw increase its influence within the EU. Although Poland and the United States have been in close contact in recent years, Duda’s visit shows that the Eastern European country is seeking balanced diplomacy to build close ties with China as well, Cui said.

Chinese experts also said that while Beijing and Brussels have a complex relationship and the EU has threatened to launch a potential trade war against China, Poland could play a positive role in negotiating bilateral relations between China and the bloc.

Janusz Piechocinski, Poland’s former deputy prime minister, said in an interview with the Global Times: “China will remain a powerful engine of the global economy. Trade wars with China could reduce demand and limit opportunities for trade expansion. We need more cooperation and less confrontation, a more practical dialogue aimed at solving problems rather than exacerbating them through protectionist measures.

Experts expect the Russia-Ukraine crisis to be on the agenda during Duda’s visit, as Poland has thrown its full weight behind Ukraine. Although China’s position on the Ukraine crisis differs from Poland’s, Beijing has been in close contact with Warsaw since the beginning of the crisis. In March this year, Li Hui, the Chinese government’s special representative for Eurasian affairs, embarked on a second round of shuttle diplomacy to find a political solution to the Ukrainian crisis, visiting Poland in the process.

This is Duda’s third visit to China as President of Poland. The first was in November 2015, after which he became the only elected EU leader to attend the opening ceremony of the Beijing Winter Olympics in February 2022. Xi also visited Poland in 2016.

“I try to maintain friendly relations with China, Poland has always had good relations with China and I want this to continue,” Duda said in an interview with private Radio Zet on Friday.

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