China's Defense Spending: What's Behind the Slowdown?

China's Defense Spending: What's Behind the Slowdown?
Photo Credit: Signaleer public domain

What you need to know

Beijing will continue to spend as appropriate on its defense, but at a level that won’t cause too much alarm and can't be used in "China threat" rhetoric.

China’s 2017 defense budget, announced earlier this week at the National People's Congress in Beijing, has the lowest rate of increase in years. At 7 percent, it is lower than the 7.6 percent for 2016, and represents the second year in a row that growth in defense spending has been kept below 10 percent, which has been the norm over the past two decades. As a percentage of GDP, it is about 1.3, much lower than the 3.3 percent the U.S. spends. Indeed, this slower rate of growth is in contrast to President Trump's recently announced US$54 billion increase in defense spending for 2018, a 10 percent hike over the previous fiscal year.

Granted, estimates from the U.S. government and key think tanks suggest real Chinese defense spending is much higher than the official figure would suggest. But the lower growth rate in Chinese defense spending for 2016 and 2017 also demonstrate that, given the overall slow-down of the economy, it is harder to maintain the double-digit increases that have fuelled Chinese defense modernization since the 1990s.

The questions are: what are the implications of China’s defense spending for its ongoing modernisation programs, regional security and stability, and U.S.-China competition in the Indo-Pacific?

Analysts of Chinese defense spending pay attention to (1) rate of growth, (2) hidden expenditure, and (3) the impact on the modernization of the People’s Liberation Army (PLA) in both equipment and power projection capabilities. But the first point (rate of growth) ignores the fact that the double-digit growth rate in Chinese defense spending that began in the early 1990s started from a low base and was primarily driven by the need to compensate for near-zero or even negative growth during previous decades as the country slowly recovered from the economic disaster of the Cultural Revolution. Deng Xiaoping (鄧小平) specifically asked the PLA to make sacrifices so that limited resources could be committed to economic development.

On the second point, all countries have different accounting methods when it comes to defense budgets so the issue is less about the lack of transparency of Chinese defense expenditure than what military capabilities China can buy. In that context, until and unless Chinese defense industry is capable of delivering the kind of weapons systems and equipment the PLA needs, the shortfalls will have to be met through procurement of foreign systems and the integration of such systems into the PLA’s order of battle. Clearly, China’s official defense budget over the years has been supplemented by funds set aside to procure key foreign (mainly Russian) weapons systems.

On the third point, double-digit growth in defense spending over the past two decades has clearly contributed to the development of a leaner, better equipped, better trained, and a more internationally engaged PLA. The PLA needs new power projection capabilities to achieve “new historic missions” including non-combat, non-traditional security missions such as anti-piracy and search-and-rescue. But while Chinese participation in international peacekeeping and anti-piracy operations has been viewed positively, a much more capable PLA and a more assertive Chinese foreign policy in recent years has stoked deep concern in the region, especially as tensions over territorial disputes between China and its neighbors have heightened. In fact, the region has experienced sustained growth in defense spending and a major procurement boom over the past few years largely attributable to concern over growing Chinese military power.

Meanwhile, differences in threat perceptions and visions for the future security architecture in the Indo-Pacific have increasingly brought Beijing and Washington into contention. The Obama Administration’s “Pivot to Asia” was launched largely out of concern over China’s growing military capabilities and the uncertainty about how it would be applied in a region where the U.S. has significant commercial, diplomatic, and security interests. While not engaged in anything like the Cold War arms race between the U.S. and the Soviet Union, both the Pentagon and the PLA are clearly planning their next war with the other as the primary nemesis.

In this context, China’s announced defense budget for 2017, at an even slower growth rate than last year’s, is as much about the economic reality as it is about sending a signal aimed at reassuring Washington and the region. The message: Beijing will continue to spend as appropriate on its defense, but at a level that won’t cause too much alarm and can't be used in "China threat" rhetoric. It appears Xi Jinping (習近平) is both anxious that China presents a reassuring and peaceful image, and confident that even with a lower growth rate, the defense budget, if properly spent, is more than adequate to meet the requirements of major military reform, including the continuing effort to make the PLA a modern fighting force.

In other words, even at a lower rate, the absolute increase in defense spending will remain sizeable and, when combined with the reduction of the armed forces by 300,000 (many of them non-combat units and bloated headquarters staff), a greater emphasis on civil-military integration, and the weeding out of wasteful spending and corruption, will be sufficient to achieve "bang for the buck."

This article originally appeared in the Lowy Interpreter. The News Lens has been authorized to republish this article.

TNL Editor: Edward White