A new low? Chinese defense spending takes a hit

Most militaries would kill for a 7.6% increase in their defense budgets. For China’s People’s Liberation Army (PLA), however, this amount is considered a major hit. That is because it is the lowest increase in Chinese defense spending in nearly twenty years, and it could presage a new phase of austerity for the PLA.

The National People’s Congress, China’s rubber stamp parliament, will soon approve a new defense budget totaling around 954 billion yuan (US$146 billion), up 7.6 percent from 887 billion yuan in 2015. This is the lowest increase in Chinese military spending since 2010, when the defense budget grew by 7.5%. Last year, the PLA’s budget grew 10%, and in 2014 it received a 12.2% increase. Altogether, Chinese military expenditures grew an average of 9.5% annually from 2005 to 2014, according to the US Defense Department.

One reason for this smaller-than-average increase is fiscal. China’s economy is slowing significantly, growing just 6.9% last year. This was one of the smallest increases in Chinese GDP in decades, and just a fraction below the growth rate of 7 to 8% that Beijing deems necessary to absorb the millions of people who annually enter the national workforce.

In the past, the PLA has been shielded from the vicissitudes of China’s overall economic development. Indeed, the military was one of the few public institutions in China that enjoys across-the-board support. As such, increases in Chinese defense spending have almost always outstripped the growth in GDP. Since the late 1990s, China’s defense budget has gone up around 600%, after taking inflation into account. Few militaries – and certainly none in recent memory – have enjoyed such largesse.

World’s No. 2 military spender

As a result, China moved from having a military budget smaller than Taiwan’s to becoming the second-largest defense spender in the world, outstripping Russia, Japan, and the United Kingdom. Today, only the United States spends more than China on defense.

Its dramatically expanded commitment to defense spending increases has allowed China to devote considerable resources to procurement and military research and development (R&D). Nowhere has Beijing’s munificence been more notable – or more alarming to its neighbors – than in the PLA’s budget for equipment acquisitions. According to its biannual defense white papers, Beijing has consistently allocated approximately one-third of its military expenditures over the past two decades to procurement and R&D. By way of comparison, most countries in the West spend barely 20% of their defense budgets on equipment. Japan allocates only around 17% of its defense budget to weapons purchases.

This likely makes China the second highest spender in the world when it comes to procurement and defense R&D – an estimated $47 billion in 2015. In other words, what China spends on equipment is more (or nearly more) than the entire defense budgets of Japan, India, South Korea, or all of Southeast Asia.

If anything this has supported China’s recent expansion in military power, therefore, it is an explosion in defense spending. It has permitted the PLA to acquire new surface combatants and submarines, modern fighter jets, air-to-air refueling aircraft, satellites, unmanned aerial vehicles, and a host of ballistic, cruise, and tactical missile systems. Additionally, expanding defense budgets have allowed China to fund an array of new military R&D projects, such as its J-31 fifth-generation fighter, its DF-21D anti-ship ballistic missile (ASBM), and a host of new missile programs.

Deceptive belt tightening?

All this makes this year’s smaller increase all the more significant – perhaps. On the one hand, it does appear, as some are putting it, that economics is trumping geopolitics. A 7.6% increase – more like 5%, after inflation – is indeed asking the PLA to tighten its belt during an extremely critical and tense phase in Asian regional security.

In particular, China is in the midst of a major effort to militarize the South China Sea. It has spent millions, perhaps billions, to build its constellation of artificial islands in and around the Spratly Islands. It is spending more to reinforce these islands with troops and military equipment. For instance, Woody Island, China’s main outpost in the South China Sea, is rapidly becoming a major forward operating base for the PLA, armed with surface-to-air missiles and modern fighter jets.

Finally, China’s growing fleet of nuclear-powered ballistic-missile-carrying submarines is being headquartered on Hainan Island. These boats would have to beat a quick passage through the South China Sea to reach the open oceans, where they would be the most safe from anti-submarine warfare operations.

In fact, the South China Sea is fast becoming a key military operating area for the PLA. To cut back on defense spending sends a message that Beijing can no longer write the PLA a blank check, and that it will have to do its patriotic duty and make sacrifices for the greater good of the Chinese economy.

On the other hand, one datapoint does not a trendline make. This year’s smallish defense budget rise could just be a momentary blip, and next year’s increase will again be in the double-digits. Indeed, past experiences would argue that this will probably occur.

In the meantime, one should not read too much into this “meager” increase in Chinese military expenditures. Beijing remains committed to military modernization and its rise as a great power. For the PLA, its “China dream” remains the attainment of a modern armed force capable of delivering greatness.

Richard A. Bitzinger is a Senior Fellow and Coordinator of the Military Transformations Program at the S.Rajaratnam School of International Studies, Nanyang Technological University, Singapore.