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Responses to Questions on China’s Defense Budget

May 23 , 2013
  • Xiao Tiefeng

    Research Fellow at the Academy of Military Science

China’s growing defense budget seems to be a perpetual topic for speculation, interpretation, and allegations. On May 6, the US Department of Defense released its 13th annual report on Military and Security Developments involving the People’s Republic of China, which again blamed China for poor accounting transparency in its military spending and estimated its 2012 defense budget “falls between $135 billion and $215 billion”, substantially higher than the officially announced $106 billion by China. Based on my analysis, I will say that China’s defense budget is neither growing excessively fast, nor is it extraordinarily large, nor is it a threatening factor to international peace. 

Is China’s Defense Budget Growing Excessively Fast?

A frequent allegation against China is that its military spending has been growing on a two-digit basis for more than two decades. Some basic facts cannot be ignored when we make such a conclusion.

Firstly, the growth rate of the Chinese defense budget is nominal; the real rate is much lower if inflation is adjusted. For example, China’s defense budget for 2012 was RMB 670.274 billion, with a growth rate of 11.2%. However, when inflation was adjusted, the real rate was 9.6%.

Secondly, the RMB’s appreciation results have seen rapid growth when compared internationally, while the growth is relatively lower when calculated in RMB. China’s 2004 defense budget was RMB 247.496 billion, about $26.580 billion, and its 2012 defense budget was RMB 670.274 billion, about $106.182 billion. Calculated in RMB, it increased 2.7 times, but when calculated in U.S. dollars, it was nearly a fourfold (3.99 times) increase.

Thirdly, China has been enjoying an economic boom since the 1990s and became the world’s second largest economy in 2010. It has occurred in history that a soaring economy would provide financial support to a fast-growing military expenditure. From 1961 to 1980, backed by Japan’s rapid economic growth, its defense expenditure increased from 183 billion Yen to 2250 billion Yen, which was an average annual growth of 14%.

Furthermore, China’s defense budget grows in accordance with other government spending. For instance, Chinese government spending on medical care was 132 billion in 2006, and 643 billion in 2011, an increase of 3.87 times. The expenditure on education was 546.4 billion in 2006 and 1649.7 billion in 2011, an increase of 2.01 times. And again, government spent 439.4 billion in 2006, and 1110.9 billion in 2011 on social security and employment, an increase of 1.53 times. During the same period, the military expenditure grew from 283.8 billion to 601.1 billion, an increase of 1.11 times.

Is China’s Defense Budget Extraordinarily Large?

China is often criticized for spending too much on its military modernization and on possessing the second largest defense budget in the world. However, this criticism ignores the following facts.

China’s Military Expenditure does not occupy a large share either in the GDP or in government budget. In 2012, China’s military expenditure occupies 1.29% of the GDP, and 5.72% of the state financial expenditure. In the same year, the U.S. military expenditure accounted for 4.28% of the country’s GDP and 17.99% of the federal budget, both much higher than those of China. As to Japan, the share was 0.99% in GDP and 5.2% in state financial expenditure, slightly lower than that of China. However, a noteworthy fact is Japan depends very much on the U.S. for its defense while China must rely on itself.

China’s military expenditure per capita is still at a low level from a worldwide view. Due to its enormous population and large size of military, China’s military expenditure per capita is still at a low level. According to SIPRI, the military expenditures in 2011 for China, the U.S., Russia, Japan, Britain, France and Germany were $129.3 billion, $689.6 billion, $64.1 billion, $54.5 billion, $57.9 billion, $58.2 billion and $43.4 billion respectively. However, divided by the total populations of those countries, the expenditures per capita became $95, $2213, $502, $380, $915, $942, and $531. Divided by the numbers of military personnel, the expenditures per capita became $56 thousand, $472 thousand, $61 thousand, $237 thousand, $292 thousand, $166 thousand and $227 thousand. In both categories, China was at the bottom.

Is China’s Defense Budget Growth a Threat to Peace and Stability?

There are assumptions that by increasing its military expenditure, China seeks to coerce neighboring countries, dominate regional security, and threaten the world peace. This assumption ignores China’s historical and current policies.

China has increased its military expenditure drastically only in times of war and for the purpose of homeland defense. We can find four years when China increased its annual defense budget more than 30%: in 1951, 1953, 1969 and 1979 respectively, during the Korean War, the Sino-Soviet conflict on the Zhenbao Island, and Sino-Vietnamese Border conflict. History told us that China fought those wars only for self-defense and counter-attack, but not for invasion or occupation.

Since late 1970s and early 1980s, China has steadfastly taken the road towards a peaceful rise, and has regarded a tranquil regional and international environment the precondition for its development. Starting a military conflict or getting itself into an arms race is the least that China desires. China might be counted as the only major military power, who has not entangled itself in a major military operations in the past 30 years.

In addition, the increase in China’s military expenditure is of a compensatory nature. From 1979 to 1988, China’s military spending had been kept less than RMB22.3 billion, while U.S. defense budget mounted from $116.3 billion to $290.3 billion. Considering RMB’s depreciation in the same period, the percetage of China’s military expenditure to that of the U.S. decreased from 12.33% to 2.02%. Even after two decades, China’s increase in military spending is still used as compensation for the underinvestment in the military in 1980s.

Last but not least, China’s security environment is much more complicated than any other major powers. China has 14 adjacent neighbors on land and 6 maritime neighbors. China is surrounded by regional hotspots. And China still faces the threats of terrorism, separatism and extremism. China’s increase in military expenditure is conducive to containing wars and conflicts, safeguarding its national security, and maintaining regional peace and prosperity.

Dr. Xiao Tiefeng is a Research Fellow at the Academy of Military Science.

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