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Economics trumps geopolitics as China announces lowest defence budget increase in years

A type 071 (Yuzhao-class) Chinese warfare ship in Rotterdam
Dr Sam Perlo-Freeman

On 5 March, the opening day of the annual National People’s Congress, China announced a 7.6 per cent increase in its National Defense budget for 2016—or a total of 954 billion yuan ($146 billion).

After accounting for inflation, the increase amounts to about 6 per cent compared with 2015 and is the lowest since 2010. In 2009, China made a particularly large increase as part of its economic stimulus measures in the wake of the global financial crisis; thus, the lower than usual spending increase in 2010 can be seen as a ‘correction’. Before that, the increase is the lowest since 1996.

Nonetheless, it is still a significant increase that will consolidate China’s position as the 2nd largest military spender in the world, with a share of more than 10 per cent of the global total. However, it is still far behind the United States, which accounts for more than 30 per cent of global military spending.

The 2016 budget maintains the trend of China increasing its military spending roughly in line with economic growth: according to the International Monetary Fund, this is projected to continue to slow down to 6.3 per cent in 2016, while the Chinese Government has set a target of 6.5–7 per cent. Thus, China’s military spending as a share of GDP (the ‘military burden’) is likely to continue to remain relatively stable at around 1.9 per cent—as it has over the past 10–15 years.

The relatively low—for China—rate of increase comes despite the increasing tension over territorial disputes in the South China Sea. China began stepping up ‘land-reclamation’ efforts in 2015, building new military installations on the resulting artificial islands, developments which have alarmed neighbouring countries. The USA has also expressed concern and has been carrying out ‘freedom of navigation’ operations in the area, sailing warships close to land features claimed by China.

China’s Defence White Paper on military strategy, published in 2015, expressed a gloomier picture of the global and regional security situation, an increased perception of threat from the actions of other countries, especially the USA and Japan, and a more ambitious role for the People’s Liberation Army (PLA), particularly in the maritime domain.

In this context, the 2016 budget reinforces the view that the economy is the primary driver of the rate of increase of Chinese military spending. Despite the ups and downs in relationships with the USA and regional neighbours, and the increasing competition for regional military dominance with the USA, the Chinese Government does not seem in any hurry to accelerate the process of upgrading its military capabilities. Nonetheless, the long-term goal of strengthening China’s military power is a constant aspect of policy.

China’s official National Defense budget does not cover all of China’s military spending. SIPRI’s military expenditure estimates for China are typically about 50 per cent higher than the country’s National Defense budget, as they include several items from other areas of the state budget: spending on the paramilitary People’s Armed Police, estimates for additional military R&D spending, payments to soldiers leaving the army, estimates for additional military construction spending and estimates for arms imports. However, the trend in SIPRI’s figures is broadly in line with that of the official defence budget. SIPRI’s provisional estimate for China’s military spending in 2015 is around 1330 billion yuan ($215 billion), compared with official National Defense spending of 887 billion yuan ($142 billion).

ABOUT THE AUTHOR(S)

Dr Sam Perlo-Freeman is the Head of the SIPRI Project on Military Expenditure in the Arms and Military Expenditure Programme (currently on leave of absence).