Quietly China Increases Defence Spending

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By Devinder Kumar
IDN-InDepth NewsAnalysis

NEW DELHI (IDN) - Amid little fanfare and just ahead of the opening of the National People's Congress (NPC), China announced its draft defence budget for 2012 on March 4. At 670.2 billion Yuan (US$106.4 billion) it represents an 11.2 per cent increase from last year's budget figures of 602.6 billion Yuan.

Li Zhaoxing, spokesperson for the NPC, the country’s highest legislative body, was quick to declare that the budget was 1.28 per cent of the country's gross domestic product (GDP), down from 1.33 per cent in 2008; and that the year-on-year increase of 11.2 per cent was much less than the 12.7 per cent increase from 2010.

Li also noted that China's budget was "reasonable and appropriate", and assured that "China is committed to the path of peaceful development and follows a national defence policy that is defensive in nature."

According to analysts, this was clearly an attempt to put to rest any fears that China may be raising the bar on its military spending with the intent of announcing its growing military prowess on the world stage. Reasserting China's peaceful intentions, Li concluded: "The limited military strength of China is solely for safeguarding its national sovereignty and territorial integrity, and will not pose a threat to any country."

An assessment of the budget, however, seems to suggest otherwise, maintains an Issue Brief by the Institute for Defence Studies and Analyses (IDSA) in New Delhi. China's defence budget has seen a double digit increase over the last decade, in keeping with its quest to develop a military capable of fighting "local wars under conditions of informationalisation".

This was apparent in Chinese Premier Wen Jiabao's opening day address to the 11th NPC where he said that China must enhance its military ability to win "local wars" even as there were growing concerns over the country's assertiveness in the South China Sea, Indian Ocean Region, and in the Arunachal Pradesh border dispute with India.

Defending the budget allocation, Major General Luo Yuan, a researcher with the Chinese People's Liberation Army (PLA) Military Science Academy, said that China has always maintained its defence spending at a "moderate and sufficient level".

”Moderate" means China will not raise its military spending merely for the purpose of boosting scale, while "sufficient" means the spending has to meet necessary demand for national defence, comments IDSA.

IDSA analysts refer to the Xinhua, the official Chinese news agency, which said that the three implications of China’s rising budget were "adherence to its central task – economic development", a display of the "government's confidence in coping with its ever more complicated exterior environment", and an "explicit message that China is adamant in maintaining the national security and global peace".

"Quite clearly, (this is) a veiled implication of intent to deal with security threats vigorously," avers an analysis by Brig Mandip Singh, Senior Fellow at the IDSA, and Lalit Kumar, a senior corporate executive and international management consultant.

Understanding the Defence Budget

According to the IDSA analysis, China's defence white papers have always linked the defence budget to its economy. "In a sense, it sanctifies the relationship between the PLA and the Chinese Communist Party (CPC) – clearly the PLA being subservient to the Party. The PLA does not break down its budget by individual service. However, the Central Military Commission, four General Headquarters Departments, Navy, Air Force, Second Artillery, National Defence University, Academy of Military Sciences, and the National University of Defence Technology – known as "major commands" – all have their own budgets which are allocated from the overall defence budget.

China's defence budget covers the following categories:

- Personnel expenses, mainly covering salaries, insurance, food, clothing, and welfare benefits for officers, non-commissioned officers, and enlisted men as well as for civilian employees.

- Training and maintenance expenses, which cover troop training, institutional education, construction and maintenance of installations and facilities, and other expenses on routine consumables.

- Equipment expenses, covering research on, experimentation with, and procurement, maintenance, transportation, and storage, of weaponry and equipment.

The accurate percentages spent on each of these categories vary but are generally between 31 per cent and 36 per cent each, IDSA analysts say. In 2009, more than 96 per cent of the total budget was spent on the active force and just three per cent and one per cent on the militia and reserve force, respectively. These figures could serve as a guideline for the breakdown in the budget expenditures for the future, they add.

The process of making the budget is an annual, time-bound exercise. It has been called the "down-up-down" approach where the General Logistics Department (GLD) of the PLA first works with the Central Military Commission (CMC) and the Ministry of Finance to establish total expenditure targets, and then initiates a bidding system from the lower military region (MR) and district-level headquarters.

These are then put together to reach the final expenditure figures for the central defence budget. Once approved, these are then disseminated down to Military Region/district level.

What Does the Defence Budget Exclude?

Though the level of transparency in the Chinese defence budgets has been improving over the years, it is still not fully transparent, IDSA analysts say. But considering the fact that prior to 1998 China simply released an aggregate figure of total defence spending, the country has come a long way.

In fact, since 1998, China has been publishing biennial National Defence Papers which cover the defence budget in some detail; and since 2008, it submits a "Simplified Reporting Form" to the UN Secretary General, giving basic information about its military expenditure.

Willy Lam, a leading China expert at the Chinese University of Hong Kong, says that "funding for modernizing the country's military was not included in the published budget."

According to The Guardian, foreign defence experts say the budget may be 50 per cent higher as China excludes outlays for its nuclear missiles and other programmes.

A 2005 RAND report identifies those items not included more accurately: procurement of weapons from abroad, expenses for paramilitaries, nuclear weapons and strategic rocket programmes, state subsidies for the military-industrial complex, some military-related research and development, and extra-budget revenue.

Provincial governments also fund the PLA deployed within their provinces, IDSA analysts say. These include payments for the use of airbases and naval bases, which are not reflected in the defence budget. The other major exclusion in the Budget is the proceeds from the sale of weapons and equipment manufactured at the armament factories owned by the PLA.

Extra Budgetary Income

The IDSA analysis points out that sources of extra-budgetary income are many but difficult to evaluate as they vary from year to year. Besides, insufficient data precludes applying a standard factor for addition. This still remains in the realm of conjecture. Listed below are some inferences:

- Funds from Central/Provincial governments for mobilisation, conscription and demobilisation;

- Sale of land;

- Food produced and consumed by PLA units including their sale;

- Commercial guest houses, hotels, troop service centres and China XinXing Corporation, the largest commercial conglomerate of the General Logistics Department.

According to SIPRI, an analysis of military expenditure in the last decade suggests that China has increased its spending by a whopping 256 per cent in comparison to, say, India which has done so by 60 per cent.

As a percentage of its GDP, China spends 2.2 per cent to India's 2.8 per cent, according to 2010 figures, but the per capita expenditure on defence for China is a whopping $88 as compared to India's $34 and Pakistan's $31.

In a report, IHS Jane's stated that by 2015, China's defence budget will double from $119.8 billion to $238.2 billion, thus closing the gap with the US, which actually imposing cuts on its defence spending.

Interestingly, the figure of 670.2 billion Yuan announced by NPC spokesperson at the press conference on March 4, 2012, is at variance with that placed before the NPC – reportedly 650.311 billion Yuan – endorsed by that body on March 14, 2012. [IDN-InDepthNews – March 30, 2012]

2012 IDN-InDepthNews | Analysis That Matters


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