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