China’s defence budget

For more than a decade, China’s steadily rising military budget has been observed by Western analysts and the governments of neighbouring countries. This Keysource lists the country’s 2012 to 2014 official figures and diverging estimates provided by foreign organisations, international reaction to these figures plus analyses of the possible implications of current developments.

Development up to 2012

The Sentinel Security Assessments published by IHS Jane’s provide an overview on the development of the Chinese defence budget. They compare the official figures published by the Chinese government with own estimates and figures from the US Defence Department.

As IHS Jane’s points out, official defence spending grew at an average annual rate of 15.5% during the period of the 10th Five Year Plan (2001-2005), so that the budget increased by more than 70% in nominal terms. During the period of the 11th Five Year Plan (2006-2010) military expenditure continued to rise rapidly, reaching 16.0% throughout the period.

According to the US Department of Defense Annual Report to Congress on Military and Security Developments Involving the People’s Republic of China 2013, the analysis of data from 2003 through 2012 indicates China’s official military budget grew at an average of 9.7 percent per year in inflation-adjusted terms over the period.

As reported by the South China Morning Post on 4 March 2000, China had set aside 120.5 billion yuan for defence spending in 2000. Based on the exchange rate of 31 December 2000, this corresponded to approx. 14,460 million USD.

In 2012, the official defence budget increased to 670.3 billion yuan, according to a South China Morning Post article of 5 March 2012. Based on the exchange rate of 31 December 2012, this corresponded to approx. 107,248 million USD.

However, on 5 March 2013, the Xinhua’s China Economic Information Service reported that merely 650.6 billion yuan were spent on national defence in 2012. IHS Jane’s analysts take this as a sign of growing economic concern.

In contrast to these official figures, the US Department of Defense (DOD) expenditure estimates for the Chinese defence budget 2012 amounted to 120,000-180,000 million USD. However, as IHS Jane’s analysts underline, the disparity between the official budget and the DOD’s adjusted estimates has narrowed considerably since 2007.

IHS Jane’s suggests the 2012 defence budget to be 152,568 million USD.

The Stockholm International Peace Research Institute (SIPRI) estimates a Chinese defence budget of as much as 1049 billion yuan for the year 2012, corresponding to approx. 167,84 million USD (exchange rate as of 31 Dec 2012). SIPRI’s estimates for Chinese military spending tend to be a little over 50% higher than the official defence budget, according to a SIPRI comment published by Sam Perlo-Freeman of 5 March 2012, as they involve a large estimate for additional research and development (R&D), including however the possibility of “a substantial margin of error”.

In the same vein, analysts underline that due to poor transparency of China’s announced defence spending, i.e. lack of specific details and accuracy, Western think tanks, including SIPRI, can only provide general estimates of defence side spending (Andrew S. Erickson and Adam P. Liff in an interview of 16 May 2013).

2013

On 5 March 2013, Xinhua’s China Economic Information Service reported on Chinese plans to raise its defense budget by 10.7 percent to 720.2 billion Yuan (114.3 billion U.S. dollars) in 2013.

Stakeholder views

In an effort to explain the growing defence budget, Vice-Foreign Minister Fu Ying stressed China’s intention to strengthen regional security and peace, showing no understanding for the other countries’ repeated demand for justification of the increase.

In his comment Increased Defense Spending Justified, published in China Daily on 7 March 2013, Zhao Xiaozhuo, Deputy Director of the Center on China-US Defense Relations at the PLA Academy of Military Science, underlined the country’s need to modernize its military. Ever-diversifying military tasks like rescue efforts in national nature disasters and the support of UN peacekeeping missions and anti-piracy activities in the Gulf of Aden are said to further contribute to the increase in the Chinese defence expenditure. As a percentage of GDP and compared with the corresponding share of the state expenditure, the growth would rather appear moderate.

In a reaction to China’s announcement, the Japanese government called for greater transparency. On 6 March 2013 Japan’s most senior government spokesman, Yoshihide Suga, was cited by Asahi Shimbun as being concerned by the continued high growth and the missing details on the actual spending.

Commenting China’s budget figures, the India based newspaper The Asian Age, on 6 March 2013, stressed the fact that China aims to spend nearly three times as much as India on defence in 2013, interpreting this fact as a sign of China’s intention to project its power overseas.

In the same vein, the Indian Express of 6 March 2013 raised concerns about a further widening of the gap in the military capabilities of China and India which would hit the Indian Navy especially hard. Officials in the Indian defence establishment are being quoted as expecting the Chinese defence budget to be much higher than the projected amount, “traditionally over 60 per cent more than the declared budget.”

Surpassing these figures, in February 2014, Army Lieutenant General Michael Flynn, director of the U.S. Defense Intelligence Agency, suggested that China’s military spending had totalled to as much as 240 billion USD in 2013.

By contrast, Xiao Tiefeng from the Carnegie-Tsinghua Centre for Global Policy accused Western critics to exaggerate the size and threat of China’s military expenditure (Misconceptions About China’s Growth in Military, 28 May 2013).

2014

According to an article published by the Xinhua’s China Economic Information Service on 5 March 2014, China plans to raise its defence budget by 12.2 percent to 808.2 billion yuan (about 132 billion U.S. dollars) in 2014.

Adjusted for inflation, the real increase might come down to 8.4%, as the Economist pointed out on 15 March 2014. Yet the analysts assume the real budget to be 40% higher than the official figures.

As stated in a communication to the European Parliamentary Research Service from 11 March 2014, IHS Jane’s analysts estimate the China’s 2014 defence expenditure to be 176,252 million USD. Interpreting the new budget as an 8.5% increase in real terms, they consider it to be largely in line with China’s economic growth in 2013.However they suspect the budget to exclude a number of activities, including research and development (R&D), military pensions obligations and procurement from foreign suppliers.

Stakeholder views

Chen Zhou, a researcher with the Chinese Academy of Military Sciences and a deputy to the National People’s Congress (NPC), is quoted by Xinhua News Agency on 5 March 2014 as justifying the defence budget increase with the need to protect the country and ensure regional peace and stability in view of rising maritime security risks, territorial and maritime disputes and terrorist threats.

On the same day, Yin Zhuo, director of the Expert Consultation Committee of the People’s Liberation Army (PLA) Navy underlined China’s increasing international responsibilities like major personnel contributions to UN peace-keeping missions and the provision of naval task forces to escort missions in the Gulf of Aden, thus repeating arguments from previous years.

In reaction to China’s official announcements, Japan’s Chief Cabinet Secretary Yoshihide Suga showed concern over the lacking transparency of China’s military capacity and its military spending (AAP, 6 March 2014).

A spokesman for Taiwan’s Defence Ministry suspected this to indicate a massive amount of hidden military items hidden (Today, 6 March 2014).

Citing previous Indian positions, Arun Sahgal, Director of the Forum for Strategic Initiative in New Delhi, pointed to the widening gap in the conventional military capabilities of China and India (The Hindu, 7 March 2014).

However, Xinhuanet News Agency, in a commentary of 5 March 2014, strongly condemned critics by Japan’s Chief Cabinet Secretary Yoshihide Suga and others, while emphasizing China’s need for sufficient strength and referring to “the mounting assertiveness of some South China Sea claimants emboldened by the United States’ so-called re-balancing to the Asia-Pacific and the resurgence of Japanese radical nationalism.”

Analysis

IHS Jane’s analysts interpret the 2014 budget growth – the largest percentage increase since 2011 – as an effort to bolster China’s military capabilities with regard to the increasing tension with neighbours (IHS Jane’s communication from 6 March 2014).

Giri Rajendran from the International Institute for Strategic Studies points out that out that for closing the large gap between Chinese and US military spending China would need to maintain the current growth rates of about 10% over the next two decades (Military Balance Recap: Defence spending – when will China match US?, 19 February 2014, 1’16”).

By contrast, the Economist analysts expect this gap to quickly narrow and to provoke Japan, Vietnam and South Korea to equally increase their military budget (China’s military spending: At the double, 15 March 2014).

In addition to the increase in absolute terms, as IHS Jane’s analysts underline, the defence budget increased marginally as a share of China’s total expenditure for the first time since 2006, from 5.16% of spending to 5.25%.

Yet the Economistbelieves that inflation in defence might be higher than in the economy as a whole, due to the urgent recruitment of competent and well-paid staff.

In an interview of May 2013, Andrew S. Erickson of the U.S. War Naval College and Adam Liff of Princeton University point out the consistency of China’s defence budget increases and GDP growth, as opposed to the more rapid increase of overall government expenditures. They expect defence spending to be limited to a rate proportional to economic growth while still allowing for relatively rapid increases in the future.

While China’s military transparency seemed to have improved over the past two decades, missing accuracy and lacking detail especially on intra-PLA spending priorities are still observed, including China’s defence white papers and the reports to the UN Secretary General. In view of these constraints, Erickson and Liff recommend to focus on the acquisition of military equipment which suggests that China tries to secure its homeland and to “assert control over contested territorial and maritime claims”.

From a different angle, Valérie Niquet from the Foundation for Strategic Research (FRS) and Emmanuel Puig from the Asia Centre see the continued increase of China’s defence budget as the country’s strive to protect its territory and to participate in foreign missions, interpreting this as a strategic medium and long term goal rather than the reaction to a perceived threat. This could nevertheless provoke a growing military spending of neighbouring countries, even if the Chinese defence budget seems to be more and more limited by increasing salaries and growing fixed cost, development costs and corruption (interview published by Le Monde on 6 March 2014).