^{Source: Business Today}

Chinese defense stocks have surged in response to escalating tensions between India and Pakistan. The uptick comes after Pakistan reportedly deployed Chinese-made J-10C fighter jets in a skirmish with India’s air force, according to statements from Pakistan’s Foreign Minister Ishaq Dar. The conflict has sparked concerns over regional stability, pushing investors toward defense sector stocks, particularly those linked to Chinese arms production.

Chinese Arms in Action: The J-10C Fighter Jet

Pakistan’s alleged use of the J-10C, manufactured by AVIC Chengdu Aircraft, a subsidiary of the state-owned Aviation Industry Corporation of China (AVIC), has garnered significant attention. The J-10C is a versatile, all-weather fighter jet designed for air-to-air and air-to-ground combat. Reports indicate that AVIC Chengdu Aircraft’s Shenzhen-listed shares rose by as much as 16%, eventually settling at 8.31% higher as of 11:40 a.m. local time. On the previous trading day, the stock saw a 17.05% rise, marking its most significant increase since October.

Meanwhile, AVIC Aerospace, another subsidiary specializing in military aircraft and helicopters, experienced a 6% increase in its Hong Kong-listed shares. China State Shipbuilding Corporation, responsible for both military and civilian vessels, also saw its shares inch up by 0.4%. The market’s reaction reflects investor confidence in Chinese defense manufacturing amid rising geopolitical risks.

Pakistan-China Defense Partnership: A Deep-Rooted Alliance

Pakistan has been the largest buyer of Chinese arms for years, accounting for more than 60% of China’s total arms exports between 2020 and 2024, according to the Stockholm International Peace Research Institute. The country regularly procures fighter jets, air defense systems, naval vessels, and UAVs from China. Yang Zi, a research fellow at the S. Rajaratnam School of International Studies, emphasized that Pakistan’s use of Chinese aircraft is “highly plausible” given the historical defense ties between the two nations.

Seth Jones, president of the defense and security department at the Center for Strategic and International Studies (CSIS), noted that the conflict highlights the operational capabilities of Chinese-made arms. “The use of the J-10C is a testament to the effectiveness of China’s military technology,” Jones said.

Diverging Narratives: Conflicting Claims from Both Sides

Pakistan’s Information Minister Attaullah Tarar claimed that five Indian jets were shot down while attempting to enter Pakistani airspace. However, India has firmly denied these reports, labeling them as “disinformation.” In a counter-move, the Indian Ministry of Defense stated that it had conducted strikes targeting nine locations linked to planned terrorist activities in the region referred to as Pakistan-occupied Jammu and Kashmir. This action followed a deadly militant attack in Pahalgam, Jammu and Kashmir, last month, which left 26 people dead.

Investor Sentiment and Market Dynamics

David Roche, a strategist at Quantum Strategy, suggested that the rally in Chinese defense stocks likely reflects the expectation that China would continue to arm Pakistan if the conflict escalates. Historically, China has been Pakistan’s most reliable defense partner, especially since the end of the Cold War. As Roche pointed out, the potential for continued military support from China underpins the stock surge.

Strategic and Economic Implications

While the rise in Chinese defense stocks is notable, experts caution that it may only be a temporary blip driven by market speculation. CSIS’ Jones remarked that the trajectory of these stocks will depend largely on whether the India-Pakistan conflict de-escalates or escalates further. Despite the stock market response, both countries have expressed a preference to avoid prolonged conflict, with the focus now on how Pakistan will react to India’s airstrikes.

With tensions at a critical point, the coming days will reveal whether the market's confidence in Chinese defense stocks is justified or merely a short-term reaction. As the situation evolves, investors are keeping a close watch on both diplomatic developments and market movements.

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