China’s defence budget is said to have grown only in single-digit figures since 2016, with the PLA enjoying double-digit increases for nearly thirty years before that. Over the years, Western analysis of China’s defence budget has claimed that the People’s Republic of China does not officially reveal its actual expenditure on defence and that available figures are way below the expenses actually incurred by the People’s Liberation Army (PLA). The challenge is that it is difficult to make real estimates of China’s defence expenditure in the absence of clearly defined heads of expenditure. In this context, we have a welcome addition to the literature on the subject in the form of the analysis by Nan Tian and FeiSu of the Stockholm International Peace Research Institute (SIPRI).
SIPRI, which had originally estimated China’s defence expenditure for 2019 as being US$ 261 billion, has reduced its estimates for expenditure in 2019 to US$ 240 billion (Chinese Yuan 1,660 billion). SIPRI states that it had reduced its estimates of Chinese defence expenditure, as some of the expenses earlier considered extra-budgetary in the 1990s and 2000s were probably included in the main defence budget in 2019. The assessments of inclusions and exclusions is a useful academic exercise into the constituents of China’s defence budget. However, this fails to take into account the rapid pace of military modernization undertaken by China in the last decade or so. This includes specific attention given to the rocket and missile forces, the PLA Navy and Air Force.
Military expenditure figures published by China are usually only the total figure for ‘national defence’ expenditure, with no disaggregated information. Occasionally, China provides a breakdown of expenditure, normally across the three categories of personnel, training &maintenance, and equipment. The Defence White Paper (July 2019), for instance, offers a breakdown for spending across 2010-2017, which significantly reveals that the share of total spending allocated to equipment had risen from 33.2 percent to 41.1 percent over this period. Additionally, official figures do not account for spending on China’s space (military) programme, extra-budgetary revenues from military-owned commercial enterprises, defence mobilization funds, authorized sales of land or excess food produced by some units, and provincial military base operating costs.
The SIPRI study revises, by both adding or excluding some heads under which China could be spending its money on defence and then calculates the overall expenditure. For instance, expenditure on the Chinese Coast Guard is included in the new estimate, while appropriations for arms imports and commercial earnings from military-owned businesses are not. The new SIPRI estimates also excludes the idea that arms imports expenses came from outside the national budget. As three-quarters of Chinese imports come from Russia, the SIPRI study uses figures from Russian sources to calculate these figures. The logic used is that since there is no conclusive evidence to show that there exist extra-budgetary sources of expenditure for arms imports, it is safer to assume that this forms a part of the national budget. Profits from military-owned businesses have been excluded from SIPRI’s estimates. It was thought that the PLA offered “paid services” such as accommodation, healthcare and agricultural services to earn additional income. In 2015, President Xi Jinping ordered the closure of these activities within a period of three years. Assuming that some degree of closure was achieved, it can be presumed that income from commercial enterprises still in operation could not be calculated, therefore SIPRI deleted these from the official national budget.
What SIPRI has retained in its estimates of official defence expenditure is money spent on military research & development and testing. While China asserts that R&D is covered in the official estimate of expenditure, SIPRI basing its calculations on the annual changes in the general R&D budget assumes that 90 per cent of this funding goes to military programmes. Capital construction spending i.e., civil and military, is not differentiated in the budget. Historically, 5 per cent of this allocation was supposed to go to military expenditure, but SIPRI asserts that the actual spending amounted to only 0.07 on the military side. This then accounts for the sharp drop in the overall figure for military expenditure in 2019. In the past, Chinese State-Owned Enterprises (SOE) involved in arms manufacturing and exports made profits, with State subsidies. In the current scenario, SIPRI assumes that the level of subsidy granted to most SOEs, including loss-making ones, would be higher than before. Companies like the China Electronics Technology Group Corporation still receives subsidy. However, the absence of accurate data on this has made SIPRI drop this item from its estimates.
The authors of the SIPRI report have chosen to add five new elements to China’s official budget. These include the Coast Guard, the People’s Armed Police, payments to demobilised and retired personnel, additional military R&D, testing and evaluation expenditure, and finally, additional military construction expenditure. These five areas totalled Chinese Yuan 448 billion in 2019, amounting to 27 per cent of the total estimate of Chinese Yuan of 1,660 billion.
Official figures released by China for 2021 indicate that the defence budget is around of Chinese Yuan 1.355 trillion (US$209 billion) which represents a 6.8 per cent nominal increase over the core 2020 budget of Chinese Yuan 1.268 trillion (US$188billion). The UK’s IISS estimates that the nominal growth for 2021 is indicative of the sturdier footing that China’s economy is on, compared to last year. In real terms, the 2021 defence budget growth is slightly lower than in 2020, owing to the 3 per cent annual inflation rate in China. But in value terms, the increase amounts to a whooping US$ 13 billon, a figure comparable with the entire defence budget of Taiwan! Similarly, in 2020, despite slower real growth in the defence budget, the nominal US$ 12 billion increase was greater than the combined defence budget increases of all other Asian states. The IISS thus concludes that the 2020 China defence budget, including funding for local militias, came to US$193billon, although total expenditure is estimated to be much higher if foreign weapons purchases, military R&D funding, and the People’s Armed Police central budget are included.
Evaluating defence spending in relation to the overall government budget also gives one for interesting insights. While China’s central government budget is slated to fall by 0.2 percent, total national government spending will probably increase by 1.8 percent. Spending on the military as a share of overall national government spending according to the IISS rises from 5.1 percent in 2020 to 5.4 percent in 2021, the highest in several years. Similarly, spending as a percent of the central government budget will rise from 36.2 percent to 38.7 percent, well above the average of 34.7 percent seen in the last five years. The new SIPRI estimate of Chinese military expenditure in 2019 is Chinese Yuan 1,660 billion (US$240 billion). This is Yuan 142 billion less than the old SIPRI estimate, but still Chinese Yuan 448 billion more than the official national defence budget. With the new estimate of US$240 billion in 2019, China remains the second largest military spender in the world (behind the USA) and its spending is still almost three-and-a-half times higher than India. China’s military burden—that is, military spending as a share of GDP—is now 1.7 per cent, down from 1.9 per cent under the old estimate.
Whichever way one looks at it, the conclusion can safely be drawn that China continues its military modernization across the spectrum and aims for advances in high technology that will give it an edge over its adversaries. This is the key lesson to be derived from any analysis of its defence expenditure. While statistics can vary from time to time, according to the figures used to calculate the total budget, analysts still don’t have a full picture of the money that is going to building the Chinese war machine and this is worrisome. Just one instance of this will suffice to illustrate the issue. For over eight months last year, China mobilised 60,000 troops ostensibly for military exercises, but were in fact used to occupy contentious positions in Eastern Ladakh against India and was very much a part of the offensive strategy adopted by the PLA across its periphery, displaying new weapons and equipment. Strangely though this deployment did not find a mention in the 35-page Work Report submitted by Premier Li Keqiang to the National People’s Congress recently.