China’s 2012 Defense Budget: Steady As She Goes

Chinese PresidentBy Brian Yeh and Dr. Phillip C. Saunders

On March 4th China released its 2012 defense budget, which is set to hit 670 billion yuan ($106.4 billion) – an 11.2% increase over last year’s defense expenditure. Li Zhaoxing, spokesman for the National People’s Congress, characterized the hike in spending as in accordance with China’s goal of “peaceful development” and its defense-oriented defense policy.[i]

The new budget remains roughly consistent with recent trends in Chinese defense expenditures. This year’s increase of 11.2% is down from the 2011 increase of 12.7% but nevertheless represents the second consecutive year in which nominal growth in defense spending has reached double digits, and the first time it has exceeded $100 billion.[ii] The 2011 and 2012 defense budget increases mark a return to the pattern of double-digit annual increases in defense spending that has prevailed since 1999. From 1998-2007, annual increases in the defense budget averaged 15.9%.[iii]

Figure 1. Chinese defense spending has increased an average of 15.9% every year from 1998-2007.

However, when measured as a percentage of GDP and of overall government expenditure, Chinese spending on defense has hovered around 1.5% and 6%, respectively. With a 7.5% target for GDP growth in 2012, the 11.2% increase represents a modest increase in the defense burden as a percentage of GDP.[iv]

Figure 2. PRC Defense Expenditure as % of GDP China’s defense expenditure as a percentage of GDP has remained relatively constant over recent years, at a rate of approximately 1.4%.

Despite speculation that China would increase defense spending significantly in response to the U.S. “strategic pivot” toward East Asia, the new budget figures are consistent with recent trends. This casts doubt on a February 2012 IHS Jane’s Defense Budgets report which predicted that Chinese defense spending would double by 2015 to a total of $238.2 billion.[v] The report, which attracted considerable press attention in Asia, had predicted an average annual increase of the Chinese defense budget of 18.75%.

Official Chinese government defense budget figures exclude a number of important budgetary items such as spending on strategic forces, foreign acquisitions, military research and development, and paramilitary forces.[vi] Although China has recently been more forthcoming about the process by which it constructs its defense budget, these omissions reflect both differences in the structural organization of China’s military, and hence the construction of its defense budget, as well as the intentional opacity that has long characterized the Chinese military budget process.[vii]

Figure 3. PRC Defense Expenditures China’s officially announced defense budgets, both projected and actual expenditures, are significantly lower than SIPRI estimates.

This lack of detailed information has prompted complaints and concerns among some nations about the true size of China’s military budget. Although China has submitted annual reports to the UN disclosing its defense expenditures since 2007,[viii] it has opted to use the simplified reporting form that does not contain detailed breakouts on items such as procurement and research and development spending.[ix]

As a result of concerns about the reliability and completeness of China’s budget figures, other organizations have constructed their own estimates of Chinese defense spending. According to its 2010 defense white paper, China’s defense spending in 2009 totaled approximately $72 billion (495.11 billion yuan).[x] The Stockholm International Peace Research Institute (SIPRI) estimated that China’s 2009 defense expenditure amounted to $92.7 billion (752 billion yuan), 41% higher than the official figure.[xi] An analysis by the U.S. Department of Defense (DoD) concluded that Chinese defense expenditures may have exceeded $150 billion (1,023.3 billion yuan) in 2009, 70% higher than the official figure.[xii]

Various methodological differences distinguish these estimates[xiii], and it is important to consider what is and is not included in each estimate. At present no international standard exists for measuring defense budgets.[xiv] Organizations such as SIPRI, NATO, and the UN all provide their own separate definitions for what should be included in total defense expenditure. The standard U.S. practice has been to include DoD military activities, the Department of Energy’s atomic energy programs, and the defense-related activities of other federal agencies in the defense budget.[xv] An additional complication is that some analysts argue that estimates of total Chinese defense spending should also be adjusted upwards on a purchasing power parity basis to reflect the fact that defense-related goods purchased in China at local prices are less expensive than equivalent goods purchased at international prices.

Although the tension between maintaining an appropriate level of secrecy and public accountability is by no means unique to China, the United States has repeatedly pressed Beijing to increase its transparency. A 2010 National Defense University study on Chinese military transparency noted that “the Chinese white paper does not detail what portion of the equipment category is devoted to procurement, what portion is devoted to research and development, or the level of spending within these categories. The section does not discuss any defense-related expenditure not included in the official defense budget, even though a significant amount of Chinese defense-related expenditure (including procurement of foreign weapons systems) is not included in the official budget.”[xvi] According to Transparency International, which gave China a “Low Transparency” rating[xvii] for its failure to produce public budget documents, its exclusion of key defense expenditures from the official budget, and its partial budget auditing process[xviii], defense budget transparency can increase regional stability and security while decreasing uncertainty and suspicion.[xix]

The cumulative result of the secrecy surrounding China’s defense budget is a situation in which outsiders have tremendous difficulty verifying whether China’s military capabilities are compatible with its stated intention of peaceful development. Not only does this increase the potential for escalation and misunderstandings between China and regional neighbors, it also negatively impacts China’s ability to enhance the effectiveness and efficiency of its own defense institutions. For China itself, increased transparency can help reduce corruption and waste, leaving more money for expenditures outside of the defense sector, while also increasing the space for public discussion over defense budget formation and consideration of alternative force structures.

_______________________________________________________

Brian Yeh is a Research Intern at the Center for Strategic Research at National Defense University’s Institute for National Strategic Studies. Dr. Phillip C. Saunders is Director of the Center for the Study of Chinese Military Affairs and a Distinguished Research Fellow at the Center for Strategic Research at National Defense University’s Institute for National Strategic Studies. The views expressed are their own and do not reflect the official policy or position of the National Defense University, the Department of Defense, or the U.S. government.


[i] “China’s defense budget to grow 11.2 pct in 2012: spokesman” in Xinhua 2012-03-04 at http://www.webcitation.org/65zNbyiQA.

[ii] “China military spending to top $100 billion in 2012, alarming neighbors” in The Washington Post 2012-03-05 at http://www.webcitation.org/6616gxQcQ.

[iii] “Understanding China’s Defense Budget: What It Means, Why It Matters” 2011-03-17 at http://www.webcitation.org/66Ks116Ev.

[iv] Interestingly, total central and local government spending on public security, which will reach 701.8 billion yuan in 2012, has exceeded spending on national defense for the past three years. This underscores the primacy the government has placed on maintaining internal stability. See “China boosts domestic security spending by 11.5 pct” in Reuters 2012-03-05 at http://www.webcitation.org/662JDOPQ1, “Internal Security Tops Military in China Spending” in The Wall Street Journal 2011-03-05 at http://www.webcitation.org/662JMEN5I, and “China’s Spending on Internal Police Force in 2010 Outstrips Defense Budget” in Bloomberg 2011-03-06 at http://www.webcitation.org/662JeVENE.

[v] “China to Exceed Combined Defence Budget of All Other Key Defence Markets in APAC by 2015,” IHS 2012-03-07 athttp://www.webcitation.org/65zMMhCJT.

[vi] Military Power of the People’s Republic of China 2007, Office of the Secretary of Defense at http://www.defense.gov/pubs/pdfs/070523-china-military-power-final.pdf, p. 25.

[vii] Blasko et al., Defense-Related Spending in China: A Preliminary Analysis and Comparison with American Equivalents, p.3.

[viii] Military expenditure reports submitted to the United Nations can be found at http://www.webcitation.org/661KxrFXd.

[ix] The budgets China has submitted to the UN are identical to the ones contained in official defense white papers. Sample UN military expenditure report forms can be found at http://www.webcitation.org/662HLZotQ.

[x] Text of 2010 Defense White Paper at http://www.webcitation.org/65zNKKyI7.

[xi] From the SIPRI military expenditures database at http://www.webcitation.org/65zQsAMEO.

[xii] Military and Security Developments Involving the People’s Republic of China 2010, Office of the Secretary of Defense at http://www.defense.gov/pubs/pdfs/2010_CMPR_Final.pdf.

[xiii] See Blasko et al., Defense-Related Spending in China: A Preliminary Analysis and Comparison with American Equivalents, The United States-China Policy Foundation, 2006, pp. 6-8, for a concise summary of what is included in different definitions.

[xiv] Ibid., p. 3.

[xv] Ibid., p. 8.

[xvi] Michael Kiselycznyk and Phillip C. Saunders, “Assessing Chinese Military Transparency,” China Strategic Perspectives No. 1, June 2010, http://www.ndu.edu/press/lib/pdf/china-perspectives/ChinaPerspectives-1.pdf.

[xvii] The Transparency of National Defence Budgets, Transparency International UK 2011, p. 25.

[xviii] Ibid., p.23.

[xix] Ibid., p. 9.

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