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China’s military spending: is there a new arms race?

As the world’s second largest military power, China’s announcement of a 12% increase in its military budget has elicited grumbles from Taipei, Tokyo and Washington. But what does this increase signal regarding…

A 12% increase in China’s military spending may sound muscular: but as a proportion to GDP it has remained constant since 2000. AAP/EPA/ADRIAN BRADSHAW

As the world’s second largest military power, China’s announcement of a 12% increase in its military budget has elicited grumbles from Taipei, Tokyo and Washington. But what does this increase signal regarding China’s intentions, and how does it affect the balance of power in the Western Pacific?

China’s military strength over the last decade has been characterised by modernisation and double digit growth. It includes the development of military flagship programs such as its first aircraft carrier and anti-ship hypersonic missiles that can theoretically breach current generation US naval defences.

Moreover the estimated US$132 billion budget probably understates total defence spending since it leaves out many items, including procurement. The true budget is often estimated at almost double the official figures.

The announcement also comes against a background of China’s seemingly uncompromising claims of sovereignty over the whole of the South China Sea and the heightened tensions with Japan over the East China Sea. Likewise the United States has committed to its “pivot” (or rebalance) to Asia, and aims to have 60% of US naval capacity located in the Pacific by 2020. Other major players such as Japan and India are strengthening their defence ties and Japan has also recently announced its own increases in it military budget.

China points out, correctly, that its $US132 billion defence budget is still well below the USA’s level of $527 billion. Nevertheless this comparison, based on market exchange rates, probably understates China’s relative position. Comparing expenditures based on estimates of the actual purchasing power of each currency in its own country suggests that China’s real spending is closer to 70-80% of the United States. Moreover the USA’s budget is declining, and its military is globally stretched.

So is there a new arms race in Asia?

Possibly. But there there is some cause for a more sanguine interpretation of these numbers.

The first thing to note is that this year’s increase in China’s nominal spending is pretty much the same as last year’s increase and, in fact, smaller than the average annual rate of increase since about 2000, of 15%. So, importantly, the defence spending increase is not an acceleration. Rather it is simply “business as usual”.

Now double digit growth may not sound like “business as usual”, but remember this is China. In China just about everything – roads, cars, steel, guns and butter - has double digit growth.

To see this we only need to look at China’s military spending as a fraction of its total economic spending, measured by GDP, which has been almost constant since 2000. This reveals a much less hawkish picture.

Moreover China’s level of spending, even allowing for under-reporting, represents only about 2% of its GDP. This is approximately the world average (1.9%). Further it is is less than half that of the United State’s relative military spending, which exceeds 4% of GDP. In terms of arms races both of these numbers are dwarfed by the 20% of GDP spent by the Soviet Union in the 1970s - so in these terms it doesn’t look like an arms race.

Thus China’s commitment of economic resources to its military is remarkably average. And the double digit growth in China’s military budget is not a reflection of “increased militarisation”, but simply a result of its rapid economic growth. This allows it to increase its spending in real terms without any additional stress on the economy.

So as China grows, its potential military capacity has grown commensurately. This is not to deny China’s rise as a military power. But importantly, at this stage at least, there is no sign of an escalation in spending, or an increased commitment to military ambitions.

A growth rate of 12% would be a lot for the USA’s, Japan’s or Australia’s military. But in China, at the moment, it’s pretty much par for the course.

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14 Comments sorted by

  1. Lincoln Fung

    Economist

    Peter, thanks for the objective analysis that puts China's military budget increase in the regional and global as well as historical perspectives.
    I am not sure what it is meant by "real spending": "Comparing expenditures based on estimates of the actual purchasing power of each currency in its own country suggests that China’s real spending is closer to 70-80% of the United States"
    Does it mean military spending or total GDP in purchasing power parity terms? It would be nice if you can clarify that please.

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    1. Peter Robertson

      Winthrop Professor at University of Western Australia

      In reply to Lincoln Fung

      Thanks Lincoln

      I just mean the bundle military of goods that can be purchased in each country. Basically labour and services are relatively cheap in China, even after adjusting for quality differences. So using a PPP exchange rate gives a better relative comparison.

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    2. Georg Antony

      analyst

      In reply to Peter Robertson

      Corrections for purchasing-power parity are just one thing.

      Perhaps more important is that official statistics published by dictatorships are often worthless. Especially on a sensitive topic as the military, the official statistics are mere propaganda: they convey the message the Chinese Communist Party wants to tell the world.

      In practice, putting an expense item into the military budget or into a provincial budget under infrastructure development is purely a matter of choice by the Communist Party, not of accounting principles.

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  2. Jay Wulf

    Digerati at nomeonastiq.com

    It is important to remember that the US pre-emptive strike doctrine first stated by Bush.2 asserts that the US will attack any country seeking parity with the US.
    This is very concerning as China grows stronger.

    Hence perhaps the grumblings.

    I for one think that a counter balancing military power to the US hegemony is in the global interest.
    It benefits everyone.

    - The US has a new 'bad boy' they can rally around.
    - The likelyhood of serious conflict as asserted by the MAD doctrine is decreased.
    - The Chinese, unlike the Americans are astute diplomats. On the surface at least, the US often behaves in very thuggish and inelegant manner. Where as, as a very casual observer of the Chinese diplomacy I am impressed by how soft gloved it is (with the occasional exceptions like Tianamin).
    - There is a counterpoint power to contain the expansionalism of the other.

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    1. Greg North

      Retired Engineer

      In reply to Jay Wulf

      They were certainly soft gloved with the Tibetans Jay and remain that way as they do with other ethical minorities.
      As for what they do internationally, they do very little other than asserting their sea claims and that is where you see real diplomacy so I'd not confuse your alleged soft gloving domestics with the broader international context.

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    2. Jay Wulf

      Digerati at nomeonastiq.com

      In reply to Greg North

      Keep up Greg.

      The Chinese are our best buddies now. This is not the 1950s anymore.

      Chinese are now our best friends, right after the Americans, The English, The Canadians, The New Zealanders, The Indonesians, the Malaysians, the PNG, Oceania, Japan, Vietnam, South Korea, India, Pakistan, South Africa and Israel.

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  3. Michael Shand

    Software Tester

    Interesting Article, thanks for sharing

    Is it possible to get an article on the weapons being developed by each of the powers, is it drones? just more tanks? sharks with lasers?

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  4. Ian Austin

    Lecturer in International Business

    I think in examining China or any other country in areas of security or economic development it is important to understand how the existing powers themselves who are questioning the new powers actions came themselves to hold their own current position. The US is not the power it is because it itself was not prepared to embark on a few arms races throughout its history that expanded its sphere of influence by force or the treat of force firstly across the America's and then across the Pacific. For China not to seek to expand its influence via increasing its security capacity within its own region would in fact be outside the norm.

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    1. Greg North

      Retired Engineer

      In reply to Ian Austin

      " The US is not the power it is because it itself was not prepared to embark on a few arms races throughout its history "
      Maybe at least one extra not in there even if their planes and aircraft rack up plenty of knots.
      Just to what extent the US have flexed their muscles to use force or threaten it is arguable as is the why of it?

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    2. Ian Austin

      Lecturer in International Business

      In reply to Greg North

      The very structure of the US today is based on the use of force. Native Americans Indians lost at arms race against the US government. The people of Mexico lost an arms race against the US government and their former territory is called currently called Texas and California. Hawaii anyone! The Philippines became a US colony not through choice. When not doing it itself, the US government executed the Monroe Doctrine into South America by providing superior arms to their favored choice.

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  5. Garry Baker

    researcher

    Professor, perhaps you might add another element to this essay. It is not commonly appreciated in the west, but China's internal security budget (to keep the populace in line) has only just been surpassed by this years military budget. Albeit, not by much either - so, these two budgets are now of a similar order

    Also, one might suggest there could be some fiscal and political duck shoving going on here, insofar as there would be some overlap in the very forces and assets employed in domestic…

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  6. Robert Tony Brklje
    Robert Tony Brklje is a Friend of The Conversation.

    retired

    Rather than starting to blow the bugles of war how about looking at some of the more realistic things. China has a huge defence in terms of human numbers and simply trying to shift it to a more professional status which incorporates such things as higher wages will have a large impact on total defence spending.
    Realistically want to reduce global defence spending then people should put a united face to the united states and start chastising their defence spending. Countries should unite together…

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