The Real Arms Race is Economic

“To subdue the enemy without fighting is the acme of skill.” (Sun Tzu). South Asia keeps reading “skill” as daring, not capacity. Yet the states that withstand conflicts have reserves that hold through a shock, an industry that can replace losses, and budgets that fund defence readiness.

China and India offer two models for converting money into wieldable power. Beijing sequences growth first and treats capability as a long game, while New Delhi risks turning modernisation into political signalling in a nuclearised neighbourhood. With two different models in its neighbourhood, how Pakistan prioritises a robust economy that supports fiscal stability while funding deterrence needs is a guiding question.

While the country has shown resilience in the face of external adversaries, Pakistan still cannot afford strategic comfort. The 2025-26 federal budget documents USD 9.13 billion for Defence Affairs and Services. That is a heavy commitment for a state carrying debt pressure, climate stress, and basic service gaps. Stabilisation of foreign exchange reserves at around USD 21.19 billion in early January 2026 set the minimum conditions for strategic steadiness.

Security remains the second constraint, and it feeds back into the first. A state cannot build an export economy while bleeding internally. The Pakistan Institute for Peace Studies recorded 699 terrorist attacks in 2025, a 34 per cent rise from the previous year. Stability is the ability to protect investors, roads, ports, and schools, and to prevent entrepreneurs from pricing risk into every decision.

As the new quarter of the 21st century begins, Pakistan must formulate a strategic thought process for untapping resources, utilising demographic dividends and stretching to newer markets and corridors.

China offers one model in this regard, whereby it treated its economic policy as a strategy. The arc is familiar: reform and opening in 1978, WTO entry in 2001, then the long grind of moving from low-value exports to higher-end industry.

In numbers, China’s GDP is about USD 43.125 trillion in Purchasing Power Parity terms, which creates room for Beijing to fund research, subsidise industry and accumulate profits. The conversion from economic mass to military capability is visible. Beijing announced a 7.2 per cent rise in its defence budget to roughly USD 249 billion in March 2025. It is the kind of figure that keeps shipyards warm and production lines predictable.

Additionally, the Pentagon’s 2025 China report pointed to the first sea trials of the Fujian, China’s third aircraft carrier. The same report also noted work on AI-enabled teaming, including a two-seat J-20 model pitched as a controller for loyal wingman drones. That is what procurement looks like when it is backed by an industrial system.

China sells its rise through restraint and partnered growth. On the 70th anniversary of the Five Principles of Peaceful Coexistence, President Xi reiterated the resolve of “peaceful development.” Despite its capability, Beijing intends to abstain from hostility for sustainable geoeconomics.

Unlike China, India’s modernisation is increasingly shaped by political signalling and a fatal aspiration for regional hegemony. India’s GDP sits around USD 3.91 trillion per the World Bank, with GDP per capita near USD 2,695. This is still a country struggling to translate aggregate growth into broad prosperity.

New Delhi is scaling defence allocations fast. The 2025-26 Union Budget highlighted a record allocation of USD 75.5 billion for the Ministry of Defence, with USD 20.0 billion as armed forces capital outlay and USD 12.4 billion reserved for procurement from domestic industry. These are serious sums with a serious story attached to them.

Spending risk rises when modernisation is sold as a matter of primacy and dominance. India has failed to acknowledge that in a nuclearised region with dense populations and thin fiscal cushions, “limited” adventures like those in February 2019 and May 2025 are not experiments.

India’s fiscal muscle is also being channelled into pressure on Pakistan through grey-zone tools. Islamabad has repeatedly debunked India’s support for militancy inside Pakistan, including in Balochistan, as the Kulbhushan Jadhav case indicates, together with the current wave of cross-border terrorism.

Both the Chinese and Indian models of economic progress and defence readiness present stark contrasts. Beijing’s economic depth underwrites patience and a long procurement horizon. New Delhi’s modernisation, colluding dominance signalling and crisis politics force neighbours to spend on security rather than growth.

The two regional stories indicate that economic strength can consolidate defences. Next to rakish India, defence is a recurring bill for Pakistan. Therefore, to avoid fiscal shocks, Pakistan should adopt the path that leads to a robust economy because that can keep deterrence credible. To ration the resources, it can use the Chinese concept of partnered innovation to ensure resilience and denial. That posture will signal responsibility and steadiness, unlike Indian edginess.