Between the late 1980s and 1997, military spending and arms procurement throughout East Asia grew on an unprecedented scale. At the same time, local defence industries also expanded. Although these developments do not constitute an arms race, they do have important implications for suppliers of defence equipment, for arms control and for regional stability. This paper not only assesses trends in East Asian defence spending, particularly in the light of the economic crisis since July 1997, but also focuses on three closely related issues: the nature of the regional market for defence equipment; defence industrialisation; and the effect of trends in defence procurement and industrialisation on military capabilities, and on the regional military balance. This paper argues that, although the economic crisis has undermined defence modernisation in some East Asian states, and has forced the pace of industrial restructuring, the regions most important military players are likely to continue building modern, powerful and effective armed forces. The US-aligned status-quo powers Taiwan, South Korea, Japan and Singapore are unlikely to use their burgeoning military capabilities aggressively.
But others, particularly China and North Korea, could challenge the stability of the regional military balance. Chinese and North Korean missile and weapons of mass destruction development programmes, together with Chinas selective exploitation of high-technology weapons, could undermine the conventional military superiority of the US and its regional allies and associates.