China’s Defense Spending Detaches From GDP Growth

CHINA’S RAPID GROWTH over the past quarter of a century has provided the wherewithal to create the world’s second best-funded military after the United States. Beijing has kept its annual military expenditure to within a few points of 2% of GDP during that time. That has still let annual military spending rise from $1.8 billion in 1998 to $188.5 billion in 2013, according to the widely respected estimates of the Stockholm International Peace Research Institute (SIPRI), which is also the source of the data in the charts below.

That represents a more than eightfold increase in real terms. China’s spending successively outstripped that of regional neighbours India (late-1980s), Russia (late-1990s) and Japan (early-2000s). Only the US, at more than $600 million a year, now spends more on its military than China.

Last year, China’s total military expenditures in all likelihood passed the $200 billion mark for the first time. This year, the official defense budget, due to be presented to the National People’s Congress in the next couple of weeks, could well top $150 billion for the first time, up from 2014’s $132 billion. That would be at least a 13% increase and would follow last year’s more than 12% increase on the previous year. Those numbers are well in excess of the economy’s 7.4% growth last year, and more in keeping with the double-digit rates of growth in their budgets that the People’s Liberation Army (PLA) has been accustomed to for a couple of decades.

The official budget undercounts total defence spending by at least a third, on best guesses. It doesn’t include some military-related R&D expenditure, overseas weapons procurement, contributions by local and provincial governments through such as covering the operating costs of local military bases and earnings from PLA-owned commercial enterprises. Most significantly, it does not include the cost of the 1 million-strong paramilitary People’s Armed Police, which is primarily responsible for internal security, civil defense and border control.

Those are opaque areas in which to find hard numbers. However, despite the slowing of economic growth, spending on modernising and professionalising the armed forces and strengthening air and coastal defense remains a high priority for Beijing, as is beefed up spending on internal security.

President Xi Jinping remains committed to a robust Chinese presence in the region, especially in the disputed waters of the East and South China Seas. A 2015 budget of $150 billion would be three times the size of Japan’s recently announced record defense budget for fiscal 2015. Xi, conscious of the U.S.’s pivot to Asia, also wants China to be able to project force ever further out into the Pacific and Indian Oceans.

That all means expensive kit, not just aircraft carriers but also new submarines, frigates, destroyers and missile-firing catamarans. It also means anti-ship ballistic missiles, and maritime reconnaissance aircraft and combat planes like the J-10 and J-11 fighters and the forthcoming J-20 and J-31 stealth fighters. Regardless of how much the economy softens, spending on hard power looks immune from any budget cuts that slowing growth might eventually make necessary elsewhere in China’s economy.