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Wednesday, 25 March 2015

China's Growing Military Expenditure

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China has done it again. In early March, it released its defence budget for 2015, and as in almost every year for over almost two decades, it increased its military expenditure by double-digit percentages. This year, the Chinese defence budget will rise by 10.1 percent, to roughly $145 billion. And it seems likely that the trend will continue, much to the concern of Washington and regional capitals.

Already, China is the second-biggest military spender in the world, having surpassed the United Kingdom in 2008. China’s new budget for the People’s Liberation Army (PLA) is more than three times those of other big spenders such as France, Japan, and the United Kingdom, and nearly four times that of its rising Asian rival, India. It is also the only country besides the United States to have a triple-digit defence budget (in billions of U.S. dollars).
This level of spending is all the more remarkable given where China started. In 1997, Chinese military expenditures totalled only about $10 billion, roughly on par with Taiwan and significantly less than that of Japan and South Korea. Beginning that year, however, China’s defence budget began to rise. There were two economic factors that made this growth possible. First, the country’s economy soared; in 1997, defence spending made up less than two percent of GDP, which remains roughly the same share today, at least according to Beijing. Second, low inflation rates over the past two decades have meant that real growth in defence spending has nearly matched nominal growth; even the most conservative estimate of actual growth rates (accounting for inflation) reveal a five-fold real increase in military expenditures since 1997.
What is particularly striking about the growth in defence spending over the last two decades is that it has almost always outpaced GDP growth. Between 1998 and 2007, China’s economy grew at an average annual rate of 12.5 percent, while its defence spending increased at an average of 15.9 percent per annum. Given that the economy is likely to grow by only seven percent in 2015, and its defence spending is growing at double digits, the disconnect between economic performance and defence spending is becoming more pronounced.

Comparing China's Military Spending and GDP Growth Rates (Foreign Affairs)
Further, it is commonly assumed by many in the West that the official defence budget does not provide a full picture of Chinese military spending and that the central government hides expenses for certain items—for example research and development, arms imports, and subsidies to defence industries—in other parts of its overall budget. Estimates of additional, off-the-books spending range from 35 percent to 50 percent of total defence expenditures, based on estimates by IHS Janes and the Stockholm International Peace Research Institute, respectively. A few years ago, the U.S. Defence Department asserted that China’s true defence budget could be as much as double the official figure; in fact, it has since stopped trying to figure out off-the-books spending.
Indeed, the exercise in guesstimating “actual” Chinese military expenditures has become increasingly irrelevant. With an official military budget approaching $150 billion, the PLA has all the on-the-books money it needs to underwrite a very aggressive military modernisation program, and if the military wants more, Beijing appears more than ready to provide it. There is, quite simply, no reason for Beijing to conceal actual military spending, at least the overall figure. 
China is still opaque, with some reason, about how it allocates its defence budget. The country has never released separate figures for its ground forces, navy, or air force. Chinese defence white papers (released every two years, starting in 1998) once broke down spending by personnel, operations and support, and “equipment” (which presumably includes weapons procurement and defence research and development). But that stopped in 2009.
Still, a few predictions can be made about the breakdown of this year’s defence spending. The white papers consistently revealed a near-even one-third split of funding between personnel, operations and support, and “equipment.” Since these ratios have remained more or less constant since the late 1990s, it is reasonable to say the same breakdown applies today. That means any increases in spending are still likely to be broken down equally among these three categories. 










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