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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.