CSSC Paces Defense-Related Gains on Military Spending Rise: Shanghai Mover

China CSSC Holdings Ltd. (600150) rose to the highest in more than three months, pacing gains among defense- related shares, on speculation the companies will benefit from increased military spending by China this year.

CSSC, China’s largest listed shipbuilder, jumped 5.4 percent to 33.18 yuan in Shanghai, the highest close since Nov. 15. China North Optical-Electrical Technology Co. (600435), which gets about 58 percent of its revenue from military dual-use products, climbed 4.5 percent to 10.14 yuan. Hunan Jiangnan Red Arrow Co., which is owned by the country’s biggest defense equipment maker China North Industries Group Corp., added 6.9 percent to 12.33 yuan in Shenzhen. The Shanghai Composite Index (SHCOMP) sank 0.6 percent.

Defense spending is set to rise 11.2 percent this year to about 670 billion yuan ($106 billion), according to Li Zhaoxing, spokesman for China’s National People’s Congress. China’s military spending is second highest in the world, after the U.S.

“This year’s defense spending, while slowing from last year’s 12.7 percent growth, may focus on the nation’s navy and air force, benefiting companies such as CSSC and Jiangnan,” Zhang Yuande, an analyst at Founder Securities Co. in Beijing, said by phone.

Chinese defense spending has more than doubled since 2006, tracking a rise in nominal gross domestic product from 20.9 trillion yuan to 47.2 trillion yuan in that time. The growing defense budget has stoked concerns among China’s neighbors and the U.S., which announced last year a strategic shift toward Asia, including deploying forces to a base in Australia.

Chinese defense spending as a percentage of GDP was about 1.3 percent in 2011, falling from about 1.4 percent in 2006.

--Jiang Jianguo. Editors: Shiyin Chen, Matthew Oakley

To contact the reporter on this story: Jiang Jianguo in Shanghai at jjiang@bloomberg.net

To contact the editor responsible for this story: Shiyin Chen at schen37@bloomberg.net

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