04 March 2016

China Announces 7.6% Budget Increase to $146.67 Billion (954.35 Billion Yuan): Comprehensive Context & Analysis

At the National People’s Congress (NPC), Beijing announced a 2016 military budget of $146.67 billion (954.35 billion yuan), an increase of 7.6% from last year’s budget.

Regardless of what other Chinese defense spending is not reflected in these figures, China clearly has the world’s second largest economy and the world’s second largest military budget.

Balanced, sustainable defense spending ultimately hinges on the health and wealth of a nation. Whatever China’s actual numbers, they have to add up.

Bottom line and key takeaway: Beijing’s latest defense spending figure shows that it is determined to avoid succumbing to Soviet-style military overextension, yet remains focused on enhancing capabilities to further its contested island and maritime claims in the East and South China Seas.


Click here for text-searchable PDFs of all three NPC opening day reports, in English and Chinese.

Key Excerpts:


Delivered at the Fourth Session of the 12th National People’s Congress of the People’s Republic of China on March 5, 2016

Li Keqiang Premier of the State Council

pp. 36-37

… Second, last year saw significant progress in strengthening national defense and the armed forces. This year, in keeping with the Party’s goal of building strong armed forces under new conditions, we will boost efforts to build the armed forces through political work and reform, and run them by law. We will work to make the military more revolutionary, modern, and well-structured in every respect, and remain committed to safeguarding national security. We will uphold the fundamental principle and institution of the Party having absolute leadership over the armed forces, and put into practice the guiding principles adopted at the military’s meeting on political work held in Gurian, Fujian. We will strengthen in a coordinated way military preparedness on all fronts and for all scenarios, and work meticulously to ensure combat readiness and border, coastal, and air defense control. We will step up the development of logistics and equipment. We will make steady progress in reforming military leadership and command structures, and launch reform of the military’s size and structure as well as its policies and institutions. We will ensure law-based development of the armed forces. We will modernize the armed police force. We will promote close military-civilian integration in important fields. Mobilization for national defense will be strengthened. We will develop defense-related science, technology, and industries. Governments at all levels should give full support to strengthening national defense and the armed forces, and we should strive to forge an ever closer bond between the military and the government and between the military and the people in this new era. …


Fourth Session of the Twelfth National Peoples Congress March 5, 2016

Ministry of Finance

p. 6

… 2) Main expenditure items [for 2015]

Central government expenditures amounted to 2.5549 trillion yuan, which is 102.1% of the budgeted figure and an increase of 12.8%. Of this amount, education expenditures came to 135.705 billion yuan, up 8.3%; foreign affairs-related expenditures stood at 47.834 billion yuan, up 32.8%; national defense spending was 886.85 billion yuan, up 10.1%; public security expenses amounted to 158.416 billion yuan, up 7.2%; expenditures on general public services reached 105.619 billion yuan, up 0.5%; and interest payments on debt were 286.69 billion yuan, up 11.3%. …

p. 20

National defense and armed forces development

We will support efforts to deepen the reform of national defense and the armed forces and strengthen the military in all respects so that it is more revolutionary, modern, and standardized. We will promote integrated development of the economy and national defense. We will work hard to ensure that the capabilities of the armed forces are constantly improving, and that they are able to safeguard the sovereignty, security, and development interests of China. …


China Announces 7.6-pct Defense Budget Rise, Lowest in Six Years,” Xinhua, 5 March 2016.

BEIJING, March 5 (Xinhua) — China on Saturday announced the country’s lowest defense budget increase in six years in the wake of rising economic headwinds and last year’s massive drawdown of service people.

According to a budget report to the national legislature annual session, the government plans to raise the 2016 defense budget by 7.6 percent to 954 billion yuan (about 146 billion U.S. dollars).

The increase last year was 10.1 percent.

The fresh raise will make the world’s second largest economy the second largest defense spender, both next to the United States which, in the exact words of U.S. President Barack Obama, spends more on military “than the next eight nations combined.”

Obama proposed a 534-billion dollar defense budget package for the 2016 fiscal year, about 3.6 times China’s budget this year. This year’s new increase will do little to close that gap.

It would, however, break a multi-year run of double-digit increases in China’s defense budget, and mark the slowest growth in six years.

China to Raise 2016 Defense Budget by 7-8 pct: Spokesperson,” Xinhua, 4 March 2016.

Fu Ying (C, back), spokesperson for the fourth session of China’s 12th National People’s Congress (NPC), answers questions during a press conference on the session at the Great Hall of the People in Beijing, capital of China, March 4, 2016. The fourth session of the 12th NPC is scheduled to open in Beijing on March 5. (Xinhua/Ding Haitao)

BEIJING, March 4 — A spokesperson of the national legislature talked on Friday about what could be China’s slowest military budget increase for six years, as the world’s second largest economy feels the chill amid rising headwinds.

Fu Ying, spokesperson for the National People’s Congress annual session, said military spending is budgeted to grow by around 7 to 8 percent in 2016.

The exact figure will be released in a budget report to the session, Fu told a press conference.

China’s defense budget rose by 10.1 percent last year.

A growth rate within the range that Fu mentioned might be the lowest for years since 2010, when the figure stood at 7.5 percent.

The spokesperson said the raise in 2016 is in line with China’s national defense need and fiscal revenue.

China’s economy expanded 6.9 percent year on year in 2015, the slowest in one fourth a century, weighed down by a property market downturn, falling trade and weak factory activity.

Premier Li Keqiang will unveil the government’s GDP target on Saturday.

The figure is expected to be in a range between 6.5 and 7 percent, compared with the “approximately 7 percent” target announced by Li last year.

Additional reporting:

Jeremy Page, “China to Raise Defense Spending by 7% to 8%,” Wall Street Journal, 4 March 2016.

China said it was increasing its defense budget by 7% to 8% in 2016, the slowest rate in at least six years, a first indication that an economic slowdown is starting to hamper President Xi Jinping’s military ambitions.

But the estimate was still higher than China’s expected gross domestic product growth target of 6.5% to 7%, suggesting Beijing is prioritizing defense spending as it presses ahead with island-building in the South China Sea and the biggest restructuring of the military since the 1950s.

The military spending forecast was given by Fu Ying, a spokeswoman for the National People’s Congress, at a news conference on the eve of the annual legislative meeting, which kicks off in Beijing on Saturday. …

Maj-Gen. Chen Zhou, a researcher at China’s Academy of Military Sciences, told a small group of reporters later Friday that the military budget was keeping step with overall economic growth, and the government was trying to spend it more efficiently.

He added that much of this year’s budget would go toward the plan Mr. Xi unveiled last year to cut the People’s Liberation Army by 300,000 troops and overhaul its Soviet-modeled command structures. …

Andrew Erickson, a professor at the U.S. Naval War College, said that whatever the exact figure was for China’s defense budget, it was still the second-largest in the world.

“Beijing’s latest defense spending figure shows that it is determined to avoid Soviet-style military overextension, yet remains focused on enhancing capabilities to further its outstanding island and maritime claims in the East and South China seas,” he said.

Subsequent assessment based on China’s March 2016 defense budget announcement:

Andrew S. Erickson and Adam P. Liff, “The Limits of Growth: Economic Headwinds Inform China’s Latest Military Budget,” China Real Time Report (中国实时报), Wall Street Journal, 5 March 2016.

With an official defense budget increase of 7.6% to 954 billion yuan ($147 billion) announced today, Beijing’s quest to restore China’s historic “greatness” and to attain international status as a military power commensurate with its economic standing continues. Yet with GDP growth slowing and social and demographic headwinds mounting, Chinese leaders face increasingly difficult tradeoffs concerning how to allocate government largesse.

With Beijing’s 2016 official defense budget, it is clear that even military spending is not immune to China’s economic and fiscal realities. Advance reports that this year’s official budget would entail an increase of as much as 20% proved significantly off-the-mark. So, what’s in a number? Nothing short of this: Beijing’s latest defense spending figure provides further evidence that it is determined to avoid succumbing to Soviet-style military overextension – yet it remains committed to enhancing capabilities to further its priorities, especially vis-à-vis contested island and maritime claims in the East and South China Seas. …


The following analysis offers further insights and context:

Andrew S. Erickson and Adam P. Liff, “China’s Military Spending Swells Again Despite Domestic Headwinds,” China Real Time Report (中国实时报), Wall Street Journal, 5 March 2015.

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).

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.

Andrew S. Erickson, “China’s Near-Seas Challenges,” The National Interest 129 (January-February 2014): 60-66.

Andrew S. Erickson, “Testimony before the U.S.-China Economic and Security Review Commission,” Panel II: “Inputs to China’s Military Modernization,” “China’s Military Modernization and its Implications for the United States” hearing, Washington, DC, 30 January 2014.

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.

Nathaniel Austin, “Lifting the Shroud on China’s Defense Spending: Trends, Drivers, and Implications—An Interview with Andrew S. Erickson and Adam P. Liff,” Policy Q&A, National Bureau of Asian Research, 16 May 2013.

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.

Andrew S. Erickson and Adam P. Liff, “China’s Military Development, Beyond the Numbers,” The Diplomat, 12 March 2013.

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.