Taiwan approves $7 billion drone budget to counter China threat

Taiwan's legislature approved a plan to spend more than $7 billion on drones over six years, betting uncrewed systems can deter a Chinese invasion while building a domestic supply chain free of Chinese parts.

"Better late than never," Vice President Hsiao Bi-khim said, noting how closely Taiwan had studied how Ukrainian drone units built asymmetric warfare capabilities from the "battlefield of blood and tears."

The plan, passed Thursday, funds aerial and undersea drones and focuses on Taiwan-made systems, though it doesn't rule out foreign acquisition. Taiwan exported more than 85,000 drones in the first two months of this year, compared with 3,473 in all of 2024, according to the government-funded Research Institute for Democracy, Society and Emerging Technology. The sector's total value expanded to $155 million in 2024 from $87 million in 2023.

The approved spending plan wasn't as robust as the ruling party's proposal of around $6 billion. The opposition-controlled legislature passed a higher figure but spread it over a longer period with more conditions, folding the funds into annual budgets that require yearly approval. The bill still needs Premier Cho Jung-tai's signature to take effect.

A Supply Chain Built Without China

Taiwanese military planners said they are taking a page from Ukraine and Iran to counter the threat from China, which claims the self-ruled democracy as part of its territory and hasn't ruled out taking it by force. China holds a formidable lead in drone production, and that head start adds urgency to Taiwan's push to develop a military-drone supply chain that can flourish without relying on Chinese components, officials said.

Making drones for export has helped Taiwan's homegrown sector grow as it waits for more reliable domestic demand, analysts said. The new funding plan could bring a more reliable, larger demand for drone production, giving a boost to Taiwan's domestic industry and building deterrence, according to Cathy Fang, a policy analyst focusing on drones at DSET in Taipei.

"Drones are critical because they directly support Taiwan's effort to build a more distributed, survivable and asymmetric defense posture," Fang said. "If Taiwan can convert the six-year annual-budget framework into timely, predictable, and sufficiently large procurement orders, the spending can strengthen both deterrence and the resilience and competitiveness of Taiwan's domestic uncrewed-systems industrial base."

Implementation Remains the Wild Card

Taiwan's Ministry of National Defense expressed regret that the government's proposed budget had failed to pass. That proposal allocated funding specifically for the purchase of three types of uncrewed platforms over the next five years: coastal surveillance drones, coastal attack drones and small one-way attack drone boats.

"The final passed version reflects a compromise," Fang said. "The main uncertainty is implementation."

Following the vote, Cho didn't say whether he would sign the bill. "What I care about is national security," Cho said. "We will carefully evaluate this from the perspective of national needs and national security."

The spending plan reflects a broader shift in Taiwan's defense posture as it seeks to reduce reliance on Chinese components in favor of domestic and Western suppliers. For investors, the plan could provide a tailwind for Taiwan's listed defense and drone companies, which have seen export demand surge even before the domestic procurement pipeline is locked in. The last time Taiwan committed comparable defense funding to a single uncrewed program, the domestic sector's value roughly doubled within a year, according to DSET data.

This article is for informational purposes only and does not constitute investment advice.