China’s Military Spending

When assessing China’s military spending and modernization, we should keep six things in mind. First, China’s official military spending figures are questionable, with many independent estimates suggesting that it already spends in excess of $200 billion on its military each year. Although the People’s Liberation Army (P.L.A.) has become somewhat more transparent over the past two decades, the exact annual defense budget should be taken with a grain of salt.

Two, until about 2020 the P.L.A. will be undertaking perhaps its most radical modernization drive since 1949, shrinking the size of its ground forces by about 300,000, increasing the relative weight of its air force and navy, and improving joint theater-level command and control structures. In short, the P.L.A. is evolving into a modern, war-fighting, and offensive-oriented force.

Three, despite spending increases, China’s ability to import defense equipment and technology is still limited by export controls and arms embargoes. Russia and the former Soviet republics are the largest exporters to China over the past five years, with sensors, missiles, and aircraft among the equipment provided. However, the fact that China’s arms imports have steadily decreased over the past 15 years points to its growing defense industrial capabilities, helped in part by reverse engineering and technological theft.

Four, as recently as 2013, China spent more on internal security than on defense (local security spending from 2014 onwards has not been fully divulged). This includes funding for entities such as the Ministry of State Security (intelligence) and Ministry of Public Security (law and order), whose functions partly contribute to national defense. But equally, this indicates Beijing’s continuing concerns about its vulnerability to domestic unrest.

Five, despite its greater resources, the P.L.A. of today has never fought a war. General Zhang Youxia, Vice Chairman of the Central Military Commission, is among the few remaining officers with battle experience (against Vietnam). This is in stark contrast to the United States, which has been battle-hardened (and fatigued) from almost constant warfare in the Gulf, Balkans, Afghanistan, and Iraq. Considering the rising tide of jingoism, the P.L.A.’s inexperience suggests that it is an adolescent and potentially trigger-happy force, one that is as likely to drag a country into conflict as it is to prevent one.

Six, rather paradoxically, the P.L.A. remains a force of last resort—for now. The recent pattern of Chinese assertiveness—whether in the East China Sea or in the Himalayas—has often involved a three-tier approach. It is led by apparent civilians, such as armed fishing vessels, dredging ships, or road-building crews, who are backed up by paramilitary or law enforcement forces such as coast guard vessels and border security. The P.L.A. itself offers a large latent threat, but one that has (so far) barked more than it has bitten. In fact, information, psychological, and legal warfare and economic coercion remain at the pointy end of China’s spear.

What is without doubt today is that China today has the second-most potent military today after the United States, and this represents the degree to which Beijing has become a peer competitor to Washington as a global power. Its ability to play an offensive role in future conflicts has increased. This is obviously a concern for countries along China’s periphery, particularly those with which it has outstanding territorial disputes. These include Japan, South Korea, Taiwan, Vietnam, the Philippines, Malaysia, Brunei, Bhutan, and India. China’s growing military profile also directly involves the United States, which is a resident power in the Western Pacific with alliance commitments to five countries. For all these actors, China’s increased military spending, capabilities, and assertiveness will require continued vigilance, confidence-building measures, and exhortations for greater transparency. At the same time, it will necessitate better defense preparedness and stronger alliances and partnerships to raise the potential costs of Chinese military adventurism, and if necessary the resolute and appropriate application of force.

The 8.1 percent increase in China’s defense budget represents the continuation of the second-most fundamental principle of Chinese military modernization—the coordinated development of national economic and defense construction. (The first-most fundamental principle of military modernization is the absolute loyalty of the armed forces to the Communist Party.)

The coordinated economic-military development principle is found in the 1998 white paper on defense and has been repeated consistently thereafter. In short, it means that defense spending will increase roughly as the Chinese economy grows, but not so much as to divert funds from important civilian requirements. The senior military leadership has accepted this precept understanding that time and experience are as important to military modernization as is money.

An English-language article addressed the reasons for this year’s increase:

. . . in recent years, China has appropriately increased its investment in national defense, a considerable part of which was used to make up for the deficiencies of the past. Weapons and equipment were updated and living conditions of military personnel were improved, as were training and living conditions for grass-roots units.

There is a slight difference between this statement and that of 2017. On Mar. 6, 2017, the Ministry of Finance said that the increase in defense spending for the 2017 budget was mainly used to support the deepening of national defense and military reforms, promote the development of civil-military integration, and improve the work, training and living conditions of grass-roots units.

This subtle difference in wording shows that the emphasis on the use of China's military spending in 2017 and 2018 varies from “supporting the deepening of national defense and military reform” to “updating weapons and equipment.” [emphasis in original]

Personnel, training, and equipment are the three major components of the defense budget. It is likely that any savings on personnel accrued through the 300,000-man reduction is being applied to salary increases for those on active duty or is being transferred to the training and equipment budget elements.

Unstated in the quote above is that “national defense and military reform” of the last two years has been very expensive. These reforms included structural changes in nearly every unit in the P.L.A. Many units and several large headquarters were eliminated. Some units were transferred to other headquarters; new units were created. Many leaders and entire units were transferred to different units and regions. The internal structure of most units was changed as subordinate units were added, transformed, or eliminated. Some units retired old equipment and received newer equipment. Necessarily, large-unit training unit decreased last year as the new, reorganized formations pulled themselves together.

These changes have resulted anxiety in many personnel (“Will I be demobilized or be assigned a new job?” “Will my unit be transferred from where it has been stationed for years?”) and a decrease in many units’ combat readiness. Units have used psychological counselors to help troops cope with new stresses.

The 8.1 percent increase means that money for equipment and training is being restored and gradually things will return to normal . . . for a while.

The significance of China’s military budget lies not so much in the technicalities of how much is being spent but in what that budget is being used to accomplish. Media attention usually gravitates to China’s lack of transparency in military spending and the gap between official vs. actual spending (the official budget does not include important categories such as research and development (R&D) and foreign weapons acquisition). Many reports also try to derive meaning from the exact year-over-year budget increase which, in 2018, was the largest in three years at 8.1 percent but still was slightly less than the average 8.5 percent annual increase seen in the decade between 2007 and 2016. Still others note the gap in military spending between China and the United States (U.S.$175 billion vs. U.S.$700 billion for 2018) as a way to contextualize, and usually downplay, the significance of China’s advances.

However, the exact figures matter less than the purposes these budgets are serving. At the 19th Party Congress in November, Xi Jinping outlined a three-step strategy for military development with milestones in 2020, 2035, and 2050 (by which date the People’s Liberation Army must become a “world-class” force). An important question is how much of China’s military budgets are being used to fund near-term readiness versus long-term R&D that will help it to remain competitive in future conflicts. What is clear is that the People’s Liberation Army (P.L.A.) has gradually shifted its emphasis from quantity to quality. More of China’s military budget is being used on capital—witness the P.L.A.’s advances in stealth fighters, submarines, counter-space systems, etc.—and less on labor. This trend will continue as the P.L.A. completes its most recent reduction in force, from 2.3 million to 2 million personnel.

Two other changes in P.L.A. priorities are also worth noting. First is a shift from an emphasis on ground forces to naval, air force, and conventional missile capabilities. Planned increases in the navy and P.L.A. marine corps, deployment of long-range ballistic and cruise missiles, and transformation of the army from divisions to more rapidly deployable brigades all help the P.L.A. project power and thus deter adversaries. Second is a shift from regional to global operations. While the P.L.A.’s combat focus remains on China’s periphery, expanding overseas interests demand a military that can operate globally—to protect vital sea lanes, protect Chinese nationals and assets, and “shape” the international security environment through military diplomacy. Simply focusing on topline budget figures tends to obscure these patterns.

Increasing Chinese military budgets, of whatever size, will simply reinforce these trends. China’s neighbors and the United States have already adapted by fielding new systems, developing new doctrine, and forging closer partnerships, but more can be done. From a U.S. perspective, part of the answer is a return to normal defense appropriations to support strategic requirements in the region. Washington also needs to explain how the military can support a broader “Indo-Pacific” strategy unilaterally, bilaterally, and multilaterally (such as through a renewed quadrilateral partnership with India, Japan, and Australia). There is also a premium on engaging smartly with China both to encourage transparency and to build stronger crisis control mechanisms should problems occur.

President Xi Jinping has staked his leadership on helping his nation fulfill its “China Dream” of national rejuvenation, and there’s a pronounced military and naval dimension to that dream. The latest budgetary figures announce to Chinese and the world that Xi means to continue fielding implements to help China reach its goals and aspirations. Maritime strategy is about opening and preserving commercial, diplomatic, and military access to important trading regions, but access starts at home for China, faced as it is with uniquely restrictive strategic geography. Chinese merchant and naval traffic must be able to break through what Chinese strategists term a “metal chain” that confines them within the China seas—namely a first island chain occupied by American allies and forces. Chinese military acquisitions are geared to deter, encumber, or defeat hostile forces holding the metal chain taut, so that People’s Liberation Army (P.L.A.) naval forces can take on a more expeditionary character. Assure access to the high seas so you may carry on commerce, diplomacy, and military affairs in distant waters such as the Indian Ocean.

Message: China remains resolute about its maritime destiny and has the economic and military means to make good on it. How will the news be received in the region? As confirmation that China will soon boast the wherewithal to enforce its claims to islands, seas, and undersea natural resources and, in general, restore its central position in Asia for the first time since the 1830s. Its actions will do little to keep regional neighbors from coagulating into a coalition with the United States. How effective a coalition that will be remains an open question: allies like Duterte’s Philippines are waffling while former enemies are taking a gradual approach to working with America. This is not a NATO in the making, at least not yet.

How accurate are budgetary figures out of Beijing? They’re worth what you paid for them. There’s no external oversight over how they’re computed. Xi wants to transmit two contradictory messages. One, that China is increasingly powerful in military terms. That’s aimed at the domestic audience. But two, that P.L.A. budgets are only X fraction of the U.S. defense budget and that China remains too weak to trample its neighbors’ interests. That goes out to the international audience and is meant to keep a hostile coalition from forming. An inoffensive China provides too little adhesive to hold together such an arrangement. But even if the budget numbers are accurate, remember that China is preparing to fight on its ground, and far from our ground. It doesn’t need the vast—and pricey—logistical and basing infrastructure we do. It can concentrate all of the forces purchased for that U.S.$175 billion close to home while U.S. forces are scattered around the world. Chinese military labor is cheap while American soldiers, sailors, and aviators are expensive. And on and on. Bottom line, let’s not be lied to by statistics. He who spends the most need not win.