10 May 2014

The Budget This Time: Taking the Measure of China’s Defense Spending

Andrew S. Erickson and Adam P. Liff, “The Budget This Time: Taking the Measure of China’s Defense Spending,” ASAN Forum 2.2 (March-April 2014).

1Early last month, China announced its projected 2014 defense budget of 808 billion yuan (roughly USD 132 billion), a 12.2 percent increase over the previous year. This continues the double-digit spending increases in nominal terms since 1989 (2010 was the exception, most likely because of priorities adjusted in the wake of the global financial crisis). China’s rapid rise in national power across the board and the pace and scale of its increasing investment in the PLA, together with its limited willingness to release a breakdown of how this money is spent, ensure that the annual announcement of its official defense budget for the forthcoming fiscal year attracts considerable attention. Annual multibillion-dollar increases suggest strong interest in furthering core strategic objectives, such as upholding island and maritime sovereignty claims in the East and South China Seas.2

By any measure, China already has the world’s second largest defense budget. While US aggregate military spending remains much higher, unlike the globally distributed US military the PLA is focused primarily on its immediate region, while seeking gradually to project military power globally. When thinking about a possible conflict on China’s periphery a comparison of aggregate defense budgets is not especially useful—the potential flashpoints are much closer to China. Fundamentally different US and Chinese military force postures and priorities likewise limit the usefulness of direct comparisons of force structures for assessing relative capabilities for peacetime influence or scenarios in a military conflict: in the Yellow, East, and South China seas and the airspace above them. The PLA has acquired growing numbers of increasingly capable weapons with this proximate theater in mind, as it strives to strengthen its ability to wield them effectively to uphold its unresolved island and maritime claims if the leadership judges it necessary to do so. Yet critical uncertainties remain concerning Beijing’s capabilities and intentions. While China’s limited budget transparency leaves much unknown, this article analyzes what is known about its military spending and suggests some implications.

Funding the PLA

While China’s official defense budget does not reflect all defense-related spending, given the absence of any consensus about how “defense spending” should be defined, the same is true (if often to a lesser degree) for all nations, including the United States. Nor should the official PLA budget be expected to include at least one of the major categories that are included in the calculations of two organizations that produce some of the best analysis available on China’s defense spending. The International Institute for Strategic Studies (IISS) and the Stockholm International Peace Research Institute (SIPRI) include the budget of the 660,000-strong People’s Armed Police (PAP) in their estimates of China’s military spending.3 This inclusion is puzzling, as the PAP is tasked primarily with domestic, stability-oriented security and its budget is therefore included elsewhere in official statistical yearbooks on government spending. It is also significant for assessments of China’s defense budget transparency, as the PAP budget is one of the largest expenditures for which China is frequently criticized for “inappropriately” excluding from the official defense budget.4 In short, while transparency (or lack thereof) remains a major issue, there is little consensus even outside China over what should, or should not, be included in measurements of China’s defense budget. While typically devoid of specifics, official Chinese statements accurately reveal the basic drivers of the PLA’s rapidly expanding resources:

  • to compensate for past austerity, including revenues “lost” since 1998, when the civilian leadership ordered the PLA to abandon most of its network of commercial businesses;
  • to modernize China’s military, which as recently as the 1990s consisted primarily of obsolete weapons and platforms acquired from the Soviet Union early in the Cold War and indigenizes
  • to develop and deploy new platforms and weapons systems, particularly capabilities designed to deter third party involvement in Chinese disputes by threatening enemy access to contested areas near China and to operate effectively from there, all networked with information technologies;
  • to develop the capabilities to conduct long-distance operations in accordance with “New Historical Missions” introduced in 2004 by Hu Jintao, which include unprecedented emphasis on safeguarding Chinese overseas interests and international security;
  • to attract and retain qualified personnel, many of whom now have access to more lucrative private sector career opportunities;
  • to keep pace with inflation; and
  • to improve management and accounting, and to place more spending “on the books.”

Leading the pack: China’s exceptional defense spending growth

Even inflation-adjusted, the pace and scale of growth in China’s defense budget far exceeds those of its neighbors. Defense spending among most advanced industrial democracies is either stagnating or declining absolutely (as in most of Europe). Since the 2008 financial crisis, as IISS calculates in its 2014 Military Balance, the US base budget has only registered a net (cumulative) real defense spending change of +0.1 percent.5 Even Japan, whose 2013 and 2014 budget increases made global headlines, is only marginally increasing spending on its military—after a decade of perennial reductions. At a modest nominal annual growth rate of +0.8 percent and +2.2 percent, respectively, these rare increases pale in comparison to China’s double-digit increases.6 This is part of a limited real net growth rate of +6.6 percent for Japan’s defense budget since 2008, a rate whose relatively large size despite annual reductions between 2008 and 2011 is largely an artifact of Japan’s severe deflation. The post-2008 real net growth of the defense budgets of India (+3.0%), Brazil (+10.0%), and even Russia (+31.2%) do not approach China’s +43.5 percent. … … …


China’s Military Spending: At the Double,” The Economist, 15 March 2014.

Edward Wong, “China Announces 12.2% Increase in Military Budget,” New York Times, 5 March 2014.

Andrew S. Erickson and Adam P. Liff, “Full Steam Ahead: China’s Ever-Increasing Military Budget,” China Real Time Report (中国实时报), Wall Street Journal, 5 March 2014.

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Andrew S. Erickson, “China’s Naval Modernization: Implications and Recommendations,” Testimony before the House Armed Services CommitteeSeapower and Projection Forces Subcommittee, “U.S. Asia-Pacific Strategic Considerations Related to PLA Naval Forces” hearing, Washington, DC, 11 December 2013. Click here for oral statement.

Adam P. Liff and Andrew S. Erickson, “Demystifying China’s Defence Spending: Less Mysterious in the Aggregate,”The China Quarterly 216 (December 2013): 805-30.

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Andrew S. Erickson, “China’s Defense Budget: A Richer Nation Builds a Stronger Army,” Inaugural Presentation in “China Reality Check” Speaker Series, Center for Strategic and International Studies (CSIS), Washington, DC, 8 April 2012.

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Andrew S. Erickson and Adam P. Liff, “A Player, but No Superpower,” Foreign Policy, 7 March 2013.
Andrew S. Erickson, “China’s Military Budget Bump: What it Means,” China Real Time Report (中国实时报), Wall Street Journal, 5 March 2013.