04 March 2013

China’s 2013 Military Budget to Rise 10.7% to US $114.3 Billion–What it Means, and Why it Matters

What happened?

Today, on Tuesday 5 March 2013 (Beijing time), China revealed its latest official defense budget: a projected 10.7% increase to 720.2 billion yuan (US $114.3 billion) for 2013.

The English version of the relevant report released at the National People’s Congress, Ministry of Finance of the People’s Republic of China, “Report on the Implementation of Central and Local Budgets in 2012 and on Draft Central and Local Budgets for 2013,” First Session of the Twelfth National People’s Congress, 5 March 2013 (p. 19) states:

“The appropriation for national defense is 720.168 billion yuan, an increase of 10.7%. Funds will be used to support efforts to improve the working and living conditions of officers and enlisted personnel, make the armed forces more mechanized and information-based, and safeguard national security.”

Analogous language appears on p. 21 0f the Chinese-language version: “国防支出7201.68亿元，增长10.7%。支特改善部队官兵工作生活条件，加强军队机械化和信息化建设，维护国防安全。”

How big is this?

This increase is not surprising, or sudden… but nevertheless significant. This year’s People’s Liberation Army (PLA) budget increase rate is similar to the projected 11.2% increase in 2012 to US$106.4 billion. While it can be difficult to compare figures exactly, the English version of the Ministry of Finance’s 2013 report (p. 6) states retroactively that in 2012 “National defense spending was 650.603 billion yuan, 100% of the budgeted figure and an 11.6% increase. Funds were used to improve living and training conditions for our troops, support the military in promoting IT application, strengthen development of new- and high-technology weapons and equipment, and enhance the country’s modem military capabilities.”

p. 7 of the Chinese-language version cites an increase of “11.5%,” but contains language that is otherwise analogous: “国防支出6506.03亿元，完成预算的100%，增长11.5%。改善部队生活和训练条件，支特军队提高信息化建设水平，加强高新技术武器装备，增强现代化军事能力。”

As Princeton’s Adam Liff and I document in our forthcoming article for The China Quarterly, even the growth rate of China’s military budget is significantly less impressive when inflation is factored in.

Yet even the PLA budget’s inflation-adjusted growth rate is the envy of Western militaries. Their budgets are typically either stagnating (including that of the U.S., when war expenditures are factored out and sequestration is factored in), or declining absolutely (as in most of Europe). The major exception is Japan, whose defense budget will rise in 2013, for the first time in 11 years, at a modest rate of 0.8%. For the U.S. and many of its traditional allies, military money is relatively tight.

What does this mean?

Regardless of exact numbers, this year’s PLA budget increase has important implications for China’s military development, for its place in East Asia and the world, and for its neighbors and the United States. The key dynamics are important, but should not be confused or conflated:

1. No matter how China’s goals expand or its defense spending rises in the future, its military will be hard-pressed to assume an extra-regional role on a par with that of the U.S. military. America’s armed forces remain far ahead over all, and nevertheless will find it difficult to continue to fund its current capabilities and operations. China’s eclectic “counter-intervention” approaches, which can support devastating attacks close to its shores, do not translate effectively into long-distance power projection at wartime intensity. Difficult reforms and major funding increases would be needed to realize such a transformation, and Beijing’s interests remain far from requiring this.

2. Yet regardless of exact numbers, the PLA already boasts potent capabilities vis-à-vis its outstanding island and maritime claims in Near Seas (Yellow Sea, East China, and South China Seas), regarding which Beijing reserves the right to use force. The U.S. enjoys by far the world’s largest defense budget, but its military is dispersed worldwide to pursue ambitious global missions. China’s defense spending remains a distant second in size, but is concentrated primarily around China’s mainland, border regions, and maritime periphery. It is how it might be used there that causes concern.

Ironically, the very “might makes right” approach that that Chinese official statements and media attribute constantly to the United States is manifested clearly in Beijing’s own dealings with its less-powerful neighbors. China’s unwillingness to limit itself to peaceful means in this regard poses significant challenges to its neighbors’ security; America’s regional position; and the norms concerning freedom of navigation, surveying, and resource access that sustain today’s international system—whose effective functioning depends on the stability and safety of the global commons, vital water and air spaces that all nations depend on for their prosperity, but which none own.

3. Fortunately, beyond the contested Near Seas, China shares considerable common interests with the U.S. and other nations, offering great prospects for mutually-beneficial cooperation. Indeed, the international community should encourage China to play a robust, constructive role, and acknowledge its status as a great power in proportion to the global “public goods” that it provides. This might be termed the “Spiderman Doctrine”: “With great power comes great responsibility.

4. To ensure that China acts responsibly in the Asia-Pacific, however—which has become the world’s most economically- and strategically-dynamic region—the U.S. must maintain strong military capabilities, alliances, and partnerships to deter any Chinese efforts to use force, or the threat of force, to alter the regional status quo. Preserving the peace will not sustain itself automatically; it requires strategic focus, and funding.

Here’s the bottom line from an American strategic perspective: As Washington stumbles into sequestration, U.S. policy-makers will have to decide quickly how important it is to sustain the nearly seven decades of Asia-Pacific peace and prosperity that their predecessors expended so much blood and treasure to establish.

For detailed analysis of the PLA’s budget, see Adam P. Liff and Andrew S. Erickson, “Demystifying China’s Defense Spending: Less Mysterious in the Aggregate,” The China Quarterly (forthcoming).

Click here to download PDF of Accepted Manuscript (AM) at The China Quarterly

Authors’ Note to Readers: The PDF you have downloaded is an Accepted Manuscript (AM) version of our forthcoming article in the journal The China Quarterly. The article is currently In Press and a final Version of Record (VoR) should be posted on the journal’s website shortly (journals.cambridge.org/action/displayJournal?jid=CQY). Any formal citations and page numbers should reference the VoR.

Provisional Citation: Liff, Adam P., and Andrew S. Erickson. “Demystifying China’s Defense Spending: Less Mysterious in the Aggregate.” The China Quarterly (Forthcoming).

Abstract

China’s limited transparency concerning its defence spending harms strategic trust, but foreign analysts often lose sight of important realities. Specific details remain unclear, but China’s defence spending overall is no mystery – it supports PLA modernization and personnel development as well as its announced objectives of securing China’s homeland and asserting control over contested territorial and maritime claims, with a focus on the Near Seas (the Yellow, East, and South China seas). This article offers greater context and perspective for Chinese and Western discussions of China’s rise and concomitant military build-up through a nuanced and comprehensive assessment of its defence spending and military transparency.

Keywords

China; defence spending; military budget; rising powers; People’s Liberation Army; PLA

Whatever the exact size of the People’s Republic of China’s (PRC) actual defence spending, it is now the world’s second largest. Its rapid increase over the past two decades is a development of considerable significance to the world, yet it remains poorly understood. Many analysts have a tendency to focus on the most unsettling aspects of both China’s military strategic and budgetary opacity while overlooking the context in which relevant policy choices are made. The result is often an over-simplistic narrative about China’s rise and long-term strategic intentions. A salient example of the problematic, decontextualized discourse about China’s defence spending is then-US secretary of defence Donald Rumsfeld’s charge at the June 2005 Shangri-La Dialogue: “Since no nation threatens China, one must wonder: Why this growing investment [in defence]? Why these continuing large and expanded arms purchases? Why these continued deployments?”

As this article will demonstrate, however undesirable to foreign observers the PRC’s military build-up may be, the trajectory of the People’s Liberation Army (PLA) is increasingly amenable to external analysis: it is focused primarily on explicitly identified contingencies and is not particularly surprising. To be clear: to say that China’s military trajectory is not as mysterious as is commonly believed is not to say that the PLA’s growing capabilities should not be an issue of concern to other states or that China’s military has achieved a sufficient level of transparency; nor is it to deny that some of China’s recent rhetoric and behaviour toward its neighbours in East Asia has had a deleterious effect on regional stability. Nevertheless, inferences about China’s strategic intentions and judgments about the appropriate policy response should be based on a full consideration of the available data, rather than focused only on the concerns raised by what some might term the “known unknowns” about China’s military trajectory.

To be sure, remaining uncertainties are significant. The lack of reliable open-source data, and infeasibility of confirming the veracity of those data that are available, hinders efforts to determine total military spending figures and intra-PLA spending priorities and capabilities. Given this reality, such figures are best estimated deductively from doctrine and inductively via an examination of procurement patterns of specific platforms and weapons systems. Specific estimation is extraordinarily complex and depends on data typically unavailable to scholars. For these reasons, linkage of funding estimates to specific capabilities is beyond the scope of the present study.

Although many of these and other specific criticisms raised about China’s defence spending are valid, conclusions about the broader strategic uncertainty surrounding China’s near-term military development that many observers reach based on those criticisms are often over-wrought. While China’s official defence budget does not capture all defence-relevant spending, it is not exceptional in this regard: estimates of any country’s total defence-related spending, to the extent that they are possible at all using open sources, are contingent on a subjective judgment about what constitutes “defence-related spending.” Despite perennial limitations in China’s budgetary transparency, the information currently available about China’s priorities and investment is sufficient to develop a good sense of its broader military trajectory. A more complete understanding of the drivers of and trends in China’s military development and defence spending, the international context in which China’s rise is occurring, as well as a forecast of likely developments in the future, are necessary to ensure appropriate policy responses from the international community.

This article argues that what open-source data reveal in aggregate about broader trends in China’s defence spending is significant. The growth in spending over the past two decades is driven primarily by a desire to modernize and professionalize the PLA after decades of neglect and military backwardness. Throughout much of the post-1978 reform era the real-world effects of China’s nominal defence spending have been mitigated heavily by rampant inflation. Even during recent periods of relatively low inflation, rapid defence budget increases have been roughly consistent with overall GDP growth and outpaced by the growth in total state financial expenditures. Beijing’s official defence budget increasingly captures actual PLA funding and the PLA’s widely criticized opacity is improving gradually and is not as exceptional among countries at its stage of development as is widely believed. Defence spending growth over the past two decades has led to significantly improved military capabilities, the most significant of which are designed primarily to address contingencies in the Near Seas and their immediate approaches as opposed to further afield. Recent defence spending increases are sustainable, at least in the near-term, and could be augmented considerably and directed to support selected overseas contingencies. However, in the medium- to long-term, worsening economic and demographic pressures may impel China’s leaders to shift budget resources elsewhere and thereby limit further military spending growth.

This article is divided into six sections. We begin with an overview of recent trends in China’s defence spending. Second, we summarize remaining extrabudgetary funding and common Western criticisms of China’s defence spending. We delineate several salutary trends resulting from recent budget reforms, the inclusion of several frequently overlooked spending categories, and gradual improvements in budgetary transparency. Third, we briefly summarize Chinese responses to Western criticisms about China’s military transparency and defence spending in order to help elucidate the manifold drivers of China’s rapidly increasing defence budget. Fourth, we highlight the problems inherent in over-simplified analyses of China’s military development that view budget increases in isolation and mystify China’s current and likely future military trajectory. We argue that China’s military development targets conspicuous objectives, and that a more comparative and nuanced approach offers a more complete understanding of trends in China’s defence spending. Fifth, we discuss several important implications of China’s improving military capabilities and assess the prospects for the future growth of its defence budget. A final section concludes. …

CHINESE SOURCES: