Russian defense firms scramble as Europe eyes China market

Monday, August 23, 2004

MOSCOW Russia's defense industry has been clamoring for an expanded Middle East market to compensate for an expected decline in arms sales to China.

Russian industry sources said 2004 could mark the first drop in weapons exports to China amid plans by the European Union to lift its embargo on Beijing. The sources said President Vladimir Putin has been urged to help Russia's defense industry find new markets, particularly in the Middle East.

The focus of Russian efforts in the Middle East has been Algeria. Russia has been trying to win Algerian approval for a $1.5 billion sale of nearly 50 advanced MiG-29 fighter-jets to the North African state. In July, Russia completed an estimated $300 million sale of 12 MiG-29s to Sudan, Middle East Newsline reported.

France and Germany have been prepared to offer China a range of defense equipment, the sources said. They said negotiations with Beijing could begin by the end of 2004 after the European Union lifts trade sanctions imposed in the aftermath of China's killing of hundreds of protesters in 1989.

"France and Germany, which are ready to offer to China hi-tech electronic reconnaissance, navigation, communications and target designation systems the weak points of the Russian defense industry already have their sights set on developing this market," Dmitry Litovkin, a defense analyst wrote in the Moscow-based Izvestia.

The sources said Russia's state arms agency, Rosoboronexport, has examined the prospect of a reduction in defense exports to China market and the need to develop the Middle East and other markets during 2004. They said Rosoboronexport intended to accelerate weapons development and ensure quicker delivery of spare parts to clients in an effort to develop new markets.

But the largest potential Russian market in the Middle East has failed to materialize. In 2002, Iran and Russia signed a defense cooperation agreement with an estimated worth of up to $7 billion. Russian sources cited Iran's economic difficulties as well as U.S. pressure against the sale of advanced weaponry to the Islamic republic.

In 2003, Russia's defense exports reached a record $5.4 billion. Of that, Rosoboronexport administered export sales of $5.1 billion.

Copyright 2004 East West Services, Inc.

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