16 April 2010

Chinese Defense Expenditures: Implications for Naval Modernization

Andrew S. Erickson, “Chinese Defense Expenditures: Implications for Naval Modernization,” Jamestown China Brief 10.8 (16 April 2010): 11-15.

The extent and nature of Chinese defense spending can serve as the parameters for the future course of China’s military power and China’s intentions as it continues military modernization. Recent scholarship on China’s defense spending concludes that its military budgets have been understated in official sources, although there is enormous controversy concerning how much and why. Even more controversial have been Western interpretations of China’s defense budget. Some believe there is now firm evidence that Beijing fully intends to challenge Washington for regional leadership in the Asian littoral and may even reach further to conduct extensive operations. Others have concluded from recent budgets that China is pursuing military power commensurate with its economic strength and sufficient to allow military actions to achieve reunification with Taiwan. Studying PLA funding can offer insights into the trajectory and dimensions of the People’s Liberation Army Navy (PLAN)’s modernization.

Current Spending

The People’s Liberation Army (PLA)’s official 2010 defense budget is $78 billion, ahead of Russia and Japan, and second only to that of the United States at $685 billion. Since 1990, the budget has enjoyed double-digit growth, with the exception of 2003 (in which growth was 9.6 percent) and 2010 (7.5 percent). From 1998-2007, China’s annual increase in defense expenditures averaged 15.9 percent, outpacing growth in GDP at 12.5 percent, but not government expenditure, at 18.4 percent. This episode followed a period of slightly slower defense budget increases averaging 14.5 percent from 1988-97, which nearly matched increases in state financial expenditure at 15.1 percent, but amid GDP growth of 20.7 percent and significant inflation. That period in turn represented a major transition from the 1978-87 era, when prioritization of economic development held defense expenditure growth at 3.5 percent and government budgets at 10.4 percent while focusing on GDP growth of 14.1 percent. …