Every year when China unveils its annual military budget, it elicits a great deal of international commentary, with no lack of accusations from Western countries. For example, on March 6, in his speech before the Japanese Diet, Prime Minister Shinzo Abe stated: “China is increasing its military power, which lacks transparency; in the view of this region’s countries, including Japan, this merits concern.”(1) Further, on May 5, the United States released the newest version of its annual report on China’s military power. In this report, the U.S. Department of Defense pointed out that because China lacks transparency, its actual military expenditure estimates are much greater than the official amounts released.

In response to such accusations, it is necessary to undertake a serious analysis based on objective reality and international comparison. Doing so reveals that Western critics have exaggerated the size and threat of China’s military expenditure and have misunderstood the peaceful purposes behind China’s increased spending.(2)

1.    On the View That “China’s Military Spending Growth Is Too Fast”

The most frequent criticism of China’s military expenditure is that the country has seen double-digit increases in its defense budget for twenty consecutive years beginning in 1989. Related is the assertion that in the past ten years, China’s defense budget has rapidly risen in the international ranking to reach the level of number two in the world. However, these accusations ignore several basic facts.

First, China’s military spending growth rate is a nominal growth rate. This means that if inflation is removed as a factor, the actual rate of growth is not high. For example, China’s defense budget for 1994 was renminbi (RMB) 55.071 billion, an increase of 29.34 percent from the previous year. However, if adjusted for commodity price inflation (here, the consumer price index, CPI,  is used to measure commodity price, and the CPI for 1994 was 24.1 percent), the defense budget for that year only grew by 5.24 percent.

As another example, in 2012 China published a defense budget of RMB 670.274 billion, with an increase from 2011 of RMB 67.604 billion and a growth rate of 11.2 percent. However, if adjusted for commodity price inflation (in 2012 China’s CPI was 2.6 percent), the real growth rate was only 9.6 percent.(3)

Second, the RMB’s appreciation in value affects the growth rate. When China’s military spending is compared internationally, the rate of growth is relatively fast. But when calculated in domestic currency, the growth rate is rather slow. In 2004, China’s defense budget was RMB 247.496 billion, approximately $26.580 billion (at that time, the exchange rate was RMB 8.2768 to $1). In 2012, China’s defense budget was RMB 670.274 billion, approximately $106.182 billion (at that time, the exchange rate was RMB 6.3125 to $1). Calculated in U.S. dollars, China’s defense budget from 2004 to 2012 increased 2.99 times. Its proportion of U.S. military expenditure increased from 5.6 percent to 15.8 percent, and its proportion of Japan’s defense expenditure increased from 58.7 percent to 179.7 percent. However, if recalculated in RMB, China’s defense expenditure only rose 1.7 times, and the growth rate of its military spending slowed greatly.

Third, China’s military spending growth is driven by its economic development, as is the case for other countries. When these other countries have undergone periods of rapid growth, their military expenditures have also risen accordingly. In the case of Japan, its defense expenditure grew from 183 billion to 2,250 billion Japanese yen from 1961 to 1980, with an average annual growth rate of 14 percent (except for 1965, 1976, 1978, and 1983, all years in this range had double-digit growth rates). Even after deducting commodity price inflation, the actual growth rate was as high as 7 percent. The root cause for growth during this period was Japan’s rapid economic growth.

Following China’s reforms and opening up, and particularly its rapid economic rise since the 1990s, the country’s gross domestic product (GDP) has risen from occupying eleventh place in global rankings to its current position of second place. Given its soaring overall economy, China’s military expenditure will naturally increase.

Additionally, of the categories of China’s fiscal expenditure, military spending is growing more slowly than spending on social services such as medical care, education, and social security, among others. For example, from 2006 to 2011, expenditure on medical care and healthcare grew from RMB 132 billion to RMB 643 billion, an increase of 3.87 times; education expenditure grew from RMB 546.4 billion to RMB 1649.7 billion, an increase of 2.01 times; and social security and employment expenditure grew from RMB 439.4 billion to RMB 1110.9 billion, an increase of 1.53 times. During the same period, the national defense budget grew from RMB 283.8 billion to RMB 601.1 billion, an increase of only 1.11 times.

2.    On the View That “China’s Military Spending Is Too Large”

Some in the West have argued that China’s military expenditure is too high for a developing country, noting that it ranks second in the world and is almost twice that of third-ranked Russia. Such a view, however, ignores several key facts.
First, China’s military spending does not constitute a large share of either Chinese GDP or fiscal expenditure, and it has been on an overall declining trend. In the sixty years since the establishment of the People’s Republic of China, the highest level of military expenditure as a proportion of GDP and fiscal spending occurred in 1953, when these numbers were 9.1 percent and 35.21 percent, respectively. Thereafter, in particular since 1980, with improvements in the international environment and shifts in the domestic work focus, military expenditure began to trend downward and has in recent years stabilized. In 2012, China’s national defense budget amounted to 1.29 percent of its GDP and 5.72 percent of its fiscal spending.

In contrast, the United States in fiscal year 2012 had a military expenditure that amounted to 4.28 percent of its GDP and 17.99 percent of its fiscal spending, substantially higher than that of China. As for Japan, its defense expenditure was 0.99 percent of its GDP and 5.2 percent of its fiscal spending (general accounting expenses), which was slightly lower than that of China. However, Japan relies to a large extent on the United States in the arena of defense and therefore has a low defense expenditure. By contrast, China has had to independently build up its national defense force. Under these conditions, the fact that China’s military expenditure is only slightly greater than that of Japan shows that China’s spending is very modest.

Second, China’s per capita military spending, when compared internationally, remains at a low level. Although China’s military expenditure has broken the $100 billion mark in recent years, the country’s large population and sizeable military mean that in per capita terms its military spending is relatively low. According to data from the Stockholm International Peace Research Institute (SIPRI), the 2011 military expenditures for six countries were as follows: $689.6 billion for the United States $129.3 billion for China, $64.1 billion for Russia, $58.2 billion for France, $57.9 billion for England, $54.5 billion for Japan, and $43.4 billion for Germany. When calculated according to each country’s total population, per capita amounts become $2,213 (United States), $942 (France), $915 (England), $531 (Germany), $502 (Russia), $380 (Japan), and $95 (China). When calculated according the amount of national military personnel, per capita amounts compare at $472,000 (United States), $292,000 (England), $237,000 (Japan), $227,000 (Germany), $166,000 (France), $61,000 (Russia), and $56,000 (China). In these two data sets, China’s expenditures are the lowest.

Moreover, it should be pointed out that SIPRI exaggerated China’s total military expenditure. If calculated in accordance with China’s official figures, the average per capita military expenditure would be 30 percent lower.

3.    On the View That “Chinese Military Spending Is Too Hidden”

For years, the U.S. report on China’s military power, Japan’s Defense White Paper, and a number of other Western documents that reference China have indicated that the country’s actual military expenditure far exceeds the figure reported by the government. These reports contend that a significant “hidden military expenditure” is spent on military personnel as well as on the research and development of military equipment, and they use this accusation as a means of demanding that China enhance its so-called military transparency. For example, the 2013 U.S. report on China’s military power points out that “China’s published military budget omits several major categories of expenditure, such as procurement of foreign weapons and equipment” and states that the U.S. Department of Defense “estimates that China’s total actual military-related expenditure for 2012 falls between $135 billion and $215 billion.”(4)

Western criticism of China’s “hidden military expenditure” is fourfold. First, differences in ideology often create trouble and cause many Western countries to look at China through the lens of their preconceived notions. Some of these nations incorrectly perceive an outdated value system in China, ignoring the significant changes that have occurred since the country’s reforms and opening up. They mistakenly believe that China’s political and economic structure is the same as that of the former Soviet Union and thus assume that Beijing has deliberately concealed its military spending as Moscow once did.

Second, many Western countries also lack an understanding of China’s national conditions, which causes them to repeat baseless assertions. For example, they sometimes claim that expenditures on the “armed police” should be included in China’s military budget. In fact, “armed police” (wujing) is an abbreviated version of the term wuzhuang jingcha, which refers to a body that bears only domestic security and defense tasks and is associated with noncombat functions.

Third, many Western critics fail to recognize China’s progress on the issue of “military transparency.” In fact, China—in accordance with its budget law and national defense law—implements a strict fiscal allocation system in which the annual defense budget is included in the national state budget. The national state budget, in turn, is subject to the approval of the National People’s Congress, enforced according to regulations, and under the supervision of national and military audit departments. And since 1998, China has biannually published its National Defense White Paper, which introduces in detail the scope and purposes of national defense expenditure and investment. Since 2007, China has participated in the United Nations’ military expenditure mechanism by submitting annual military expenditure reports. The reason that China’s 2012 National Defense White Paper did not mention its national defense expenditure is primarily because it was a special topical white paper centered on the diversified uses of armed forces.

Fourth, some criticism stems from the inability of Western countries to objectively address the issue of reporting standards (koujing) for military spending.(5) Currently, there are no internationally unified and authoritative reporting standards on military expenditure. Each country, when calculating its military spending, uses its own method. For example, the entire budget and retirement funds of the U.S. Department of Veterans Affairs are the responsibility of the U.S. Department of the Treasury, while the expenditures for reemployment and training programs for retiring veterans are supplied by the U.S. Department of Labor. Neither the Treasury nor the Labor Department has anything to do with the U.S. Department of Defense, and neither is included in national defense expenditure. Similarly, the Japanese Ministry of Defense’s arms procurement occurs primarily through tenders to private-sector companies like Fujitsu, Kobe Steel, and Mitsubishi Heavy Industries, but the production value and capital of these military items are not incorporated into national defense expenditure.

However, when Western countries are discussing Chinese military expenditure, they never address these details. Instead, they declare that reporting standards for China’s military expenditure are not inclusive enough. For example, Shigeru Ishiba, Japan’s former defense minister, along with others, believes that China omits some of its technology and equipment research and development from its reported military expenditure. Some suggest that Chinese military veterans’ pensions should be included in national defense budgets.

Because each country’s national and military conditions differ, it is natural that there are some inconsistencies in their reporting methods for military expenditure. Given that there is currently no authoritative mechanism that regulates this issue, it is best to use each country’s officially released data to engage in international comparison.

4.    On the View That “China’s Military Spending Increases Target Other Countries”

Some Western countries presume that by increasing its military expenditure, China is seeking to enhance its national hard power and opportunistically provoke neighboring countries to change the current balance of power in the East Asian region. This argument completely ignores the history and reality of China’s policies.

China is a peace-loving country. Since its founding, the People’s Republic of China has engaged in large-scale military spending increases only when forced (beipo) to pursue self-defensive counterattacks (ziwei fanji). China’s annual military spending growth rate only exceeded 32 percent in 1951, 1969, and 1979. In these three years, China engaged in the war to resist the United States and aid Korea (kangmei yuanchao), the Sino-Soviet conflict over Zhenbao Island (zhongsu zhenbaodao chongtu), and the Sino-Vietnamese border counterattack (zhongyue bianjie fanjizhan). History has already shown that in these wars, the Chinese military’s combat aim was only to defend the homeland and not to occupy other countries’ territory. Since the 1980s, China has unswervingly followed the route of peaceful development. Among the world’s major military powers, China is the only country that has not engaged in the external use of force.

China’s increase in military expenditure is a form of “compensatory growth” that primarily aims to make up for weak links in the country’s national defense foundation. From 1979 to 1988, China’s military expenditure was less than RMB 22.3 billion, and in certain years it decreased sharply. During that time, the U.S. military budget increased from $116.3 billion to $290.3 billion. Combined with the devaluation of the renminbi against the dollar during the same period, the ratio of China’s military expenditure to that of the United States declined from 12.33 percent to 2.02 percent.

At this stage, China’s increased military spending is still meant to compensate for its previous deficiencies in investment. In particular, it aims to appropriately increase investments in the construction of high-tech weapons and equipment, as well as support facilities; promote logistical infrastructure construction for the troops and improve officer and enlisted working and living conditions; mitigate the impact of rising prices and make appropriate adjustments to force maintenance costs; and promote capacity building in counterterrorism, disaster relief, and other military operations other than war in order to improve the ability of forces to respond to multiple security threats and accomplish diverse military missions.

China’s increase in military expenditure is in line with its unswerving pursuit of the path of peaceful development. Among the world’s major powers, China’s regional environment is the most complicated. It shares borders with fourteen countries on land and six at sea, and it is surrounded by many regional hot spots and a number of nuclear states. In addition, it still faces significant threats from terrorism, separatism, and extremism.

Despite these challenges, China has always adhered to the road of peaceful development, pursuing a defensive (fangyu xing) national defense policy. China’s appropriate increase in defense expenditure is a strong guarantee for its security and is conducive to containing wars and conflicts, safeguarding national security, and maintaining world peace.

The author earned his doctoral degree at Tsinghua University’s Department of International Relations and is a postdoctoral candidate at the Academy of Military Sciences in Beijing.

Lora Saalman revised the English draft of this essay to correspond with the Chinese draft. The final version reflects stylistic changes for flow, but largely retains its original meaning. The direct translation of the original title is “My Views on China’s Growth in Military Spending.” Subtitles throughout adhere to the original Chinese version to allow for comparison of the Chinese and English texts.

 

1.Translated from Japanese by the author and subsequently translated into English from the draft Chinese version of this article. “PM Shinzo Abei says China’s investment on military has been concerning the whole region,” Yomiuri Shinbun, March 6, 2013, available at http://www.yomiuri.co.jp/politics/news/20130306-OYT1T01018.htm.
2.Sentence added to the English version for clarification. The original text ended the paragraph with the Chinese equivalent of, “In response to such accusations, it is necessary to undertake a serious analysis based on objective reality and international comparison.”
3.Chinese military expenditure data mentioned in this article is based on the Chinese National Defense White Paper and Yearbook of Chinese Statistics.
4.Quotations translated from the original Chinese draft. Office of the Secretary of Defense, Annual Report to Congress, Military and Security Developments Involving the People’s Republic of China 2013, May 2012, pp. 45.
5.This term could be interpreted as “standard” (biaozhun);, however, the original Chinese term is directly translated as “caliber” (ktoujing).