India-Pakistan Ceasefire Triggers Drop in Chinese Defence Stocks
| 2025-05-13
Chinese defence stocks fell sharply after an India-Pakistan ceasefire.
Chinese defence stocks fell sharply after an India-Pakistan ceasefire halted hostilities, raising doubts about near-term arms demand from Pakistan.
Chinese defence companies saw a significant drop in market value on Tuesday following a surprise ceasefire agreement between India and Pakistan, raising investor concerns over reduced arms demand from Islamabad.
The ceasefire, agreed on 10 May, marked the end of four days of intense military confrontation across the border, which included drone and missile attacks. India had launched what it described as "Operation Sindoor," targeting 21 suspected militant camps in Pakistan and Pakistan-administered Kashmir. Pakistan responded with drone and missile strikes on Indian civilian and military targets in Jammu, Punjab, and Rajasthan.
Market Reaction in China
Following the cessation of hostilities, the Hang Seng China A Aerospace & Defence Index fell by nearly 3% on 13 May. AVIC Chengdu Aircraft, a leading Chinese military jet manufacturer, saw its shares fall by 8.6%, while Zhuzhou Hongda Electronics Corp declined by 6.3%.
The sharp reversal followed a brief period of gains earlier in May when tensions suggested the possibility of a prolonged conflict. During that time, investors had anticipated increased military exports from China to Pakistan. For example, AVIC Chengdu’s shares had surged by up to 16% on 8 May, reflecting speculation about higher demand for its J-10C fighter jets.
China's Role in Pakistan's Defence
Pakistan’s Foreign Minister Ishaq Dar confirmed in Parliament that Chinese-made J-10C fighter jets were used during the confrontation. The aircraft, manufactured by AVIC Chengdu Aircraft, are part of a broader military cooperation between Beijing and Islamabad.
Chinese defence firms also played a key role in supplying missile systems. Zhuzhou Hongda, the producer of PL-15 long-range air-to-air missiles, reportedly supplied armaments used by Pakistani forces. India’s Ministry of Defence presented photographic evidence indicating the use of these missiles during Pakistan’s aerial operations.
According to Air Marshal A K Bharti, Director General of Air Operations for India, "Our integrated air defence systems stood like a wall and they [Pakistan] could not breach it. Whether it's a Turkish drone or anything else, it fails in front of the technology of India."
India claimed its air defence systems successfully intercepted incoming attacks, neutralising drones and missiles largely sourced from China and Turkey. Among the intercepted weapons were Turkish-manufactured kamikaze drones and loitering munitions.
China-Pakistan Arms Trade
China has emerged as Pakistan’s primary defence partner. According to the Stockholm International Peace Research Institute (SIPRI), 81% of Pakistan’s arms imports from 2019 to 2023 came from China. The total value of Chinese arms exports to Pakistan during this period was estimated at $5.28 billion.
This defence relationship is underpinned by the China-Pakistan Economic Corridor (CPEC), a $60 billion infrastructure project under China’s Belt and Road Initiative. Alongside economic development, CPEC also involves defence cooperation, with Chinese firms providing security equipment and strategic support.
Strategic and Economic Implications
The stock market reaction reflects investor sentiment that the likelihood of immediate arms purchases has diminished. The sharp rise in defence stock prices earlier this month was driven by expectations of a longer conflict, which now appears unlikely in the short term.
The ceasefire may not only reduce arms sales but also prompt a reassessment of regional defence procurement strategies. Analysts suggest that future Chinese military exports may face increased scrutiny, especially as rival countries develop countermeasures.
While Chinese defence firms remain key players in global arms trade, the volatility seen in recent days highlights their exposure to geopolitical developments. Continued military cooperation between China and Pakistan is expected, but future procurement may depend on the regional security landscape and diplomatic engagement between India and Pakistan.
Tensions between India and Pakistan have periodically escalated since their independence in 1947, particularly over the disputed region of Kashmir. Previous ceasefire agreements have often been short-lived. The latest agreement appears to have been reached under international diplomatic pressure, though details of mediation remain unclear.The outcome of this ceasefire may also influence foreign policy in both countries and shape their defence ties with external partners. With China playing a pivotal role in South Asia’s strategic affairs, the response of Chinese markets signals a broader awareness of how diplomacy can swiftly alter defence economics.
The ceasefire, agreed on 10 May, marked the end of four days of intense military confrontation across the border, which included drone and missile attacks. India had launched what it described as "Operation Sindoor," targeting 21 suspected militant camps in Pakistan and Pakistan-administered Kashmir. Pakistan responded with drone and missile strikes on Indian civilian and military targets in Jammu, Punjab, and Rajasthan.
Market Reaction in China
Following the cessation of hostilities, the Hang Seng China A Aerospace & Defence Index fell by nearly 3% on 13 May. AVIC Chengdu Aircraft, a leading Chinese military jet manufacturer, saw its shares fall by 8.6%, while Zhuzhou Hongda Electronics Corp declined by 6.3%.
The sharp reversal followed a brief period of gains earlier in May when tensions suggested the possibility of a prolonged conflict. During that time, investors had anticipated increased military exports from China to Pakistan. For example, AVIC Chengdu’s shares had surged by up to 16% on 8 May, reflecting speculation about higher demand for its J-10C fighter jets.
China's Role in Pakistan's Defence
Pakistan’s Foreign Minister Ishaq Dar confirmed in Parliament that Chinese-made J-10C fighter jets were used during the confrontation. The aircraft, manufactured by AVIC Chengdu Aircraft, are part of a broader military cooperation between Beijing and Islamabad.
Chinese defence firms also played a key role in supplying missile systems. Zhuzhou Hongda, the producer of PL-15 long-range air-to-air missiles, reportedly supplied armaments used by Pakistani forces. India’s Ministry of Defence presented photographic evidence indicating the use of these missiles during Pakistan’s aerial operations.
According to Air Marshal A K Bharti, Director General of Air Operations for India, "Our integrated air defence systems stood like a wall and they [Pakistan] could not breach it. Whether it's a Turkish drone or anything else, it fails in front of the technology of India."
India claimed its air defence systems successfully intercepted incoming attacks, neutralising drones and missiles largely sourced from China and Turkey. Among the intercepted weapons were Turkish-manufactured kamikaze drones and loitering munitions.
China-Pakistan Arms Trade
China has emerged as Pakistan’s primary defence partner. According to the Stockholm International Peace Research Institute (SIPRI), 81% of Pakistan’s arms imports from 2019 to 2023 came from China. The total value of Chinese arms exports to Pakistan during this period was estimated at $5.28 billion.
This defence relationship is underpinned by the China-Pakistan Economic Corridor (CPEC), a $60 billion infrastructure project under China’s Belt and Road Initiative. Alongside economic development, CPEC also involves defence cooperation, with Chinese firms providing security equipment and strategic support.
Strategic and Economic Implications
The stock market reaction reflects investor sentiment that the likelihood of immediate arms purchases has diminished. The sharp rise in defence stock prices earlier this month was driven by expectations of a longer conflict, which now appears unlikely in the short term.
The ceasefire may not only reduce arms sales but also prompt a reassessment of regional defence procurement strategies. Analysts suggest that future Chinese military exports may face increased scrutiny, especially as rival countries develop countermeasures.
While Chinese defence firms remain key players in global arms trade, the volatility seen in recent days highlights their exposure to geopolitical developments. Continued military cooperation between China and Pakistan is expected, but future procurement may depend on the regional security landscape and diplomatic engagement between India and Pakistan.
Tensions between India and Pakistan have periodically escalated since their independence in 1947, particularly over the disputed region of Kashmir. Previous ceasefire agreements have often been short-lived. The latest agreement appears to have been reached under international diplomatic pressure, though details of mediation remain unclear.The outcome of this ceasefire may also influence foreign policy in both countries and shape their defence ties with external partners. With China playing a pivotal role in South Asia’s strategic affairs, the response of Chinese markets signals a broader awareness of how diplomacy can swiftly alter defence economics.
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