3 June 2019

Research Fellow for Chinese Defence Policy and Military Modernisation

Meia Nouwens

China’s defence spending: a question of perspective?

Despite the emphasis placed on China’s defence spending, Beijing’s ambitions for defence modernisation and reform may have to jostle for resources in the future. As China faces domestic challenges to achieving the ‘China Dream’, broader national strategic ambitions will have a significant bearing on the country’s spending priorities, writes Meia Nouwens.

Beijing’s second Belt and Road Initiative (BRI) forum, held at the end of April 2019, hinted at some changes of approach to deal with the challenges that the BRI is facing. It also helped add significant context to other recent announcements on defence-spending plans, and how ambitions for defence modernisation and reform may have to jostle for resources in the future with the country’s other broader national strategic ambitions.

On 5 March 2019, at the Two Sessions meeting of the National People’s Congress in Beijing, Premier Li Keqiang announced that China’s defence budget for the coming year would total 1.19 trillion yuan (US$175.4 billion), although that figure is still to be officially confirmed by the Ministry of Finance.


Defence budget trajectory

Reports on the defence budget have been quick to point to its growth, citing military modernisation as Beijing’s ‘top priority’, even amid slowed overall economic growth. However, there is a broader picture. The country is indeed pursuing a ‘China Dream’ of becoming a great power with global ambitions, but it faces domestic challenges to achieving this dream and is pursuing reforms in multiple areas all at once.

The official budget total represents a nominal growth of 7.5% compared to 2018. But real-terms growth would be 5.1%, which is lower than in 2017–18, when it stood at 5.7%. Rather than defying a slow-down in overall economic growth, it actually appears to be aligned with it.

This is, of course, a potentially significant consideration in determining China’s strategic trajectory, and therefore policy responses to it. But there are other complications, not least China’s lack of transparency over its defence outlays and what spending lines are included or excluded. The IISS estimates that an extra 33% should be added to the officially declared defence budget, to account for defence procurement and research and development spending. Other reports reinforce the suspicion that current estimates may not reflect the complex reality of China’s defence spending: for example, that the 2019 budget does not include the cost of procuring China’s new aircraft carrier, but does include the maintenance costs for the first operational carrier, the Liaoning.

Other government spending

In addition to all this, China’s defence spending does not occur in a national or geopolitical vacuum. Specifically, the modernisation of the People’s Liberation Army (PLA) is just one of many national reforms that the Communist Party of China (CCP) is currently pursuing and needs to deliver on before the 2049 deadline set by President Xi Jinping for achieving his vision of a ‘great China’, and which is about more than military power. Indeed, the 2049 goal aims for China to become a fully developed nation and a world-leader in cultural, economic, political and military terms. Despite the emphasis placed on it, China’s defence spending has to compete with other domestic spending priorities. For example, between 1992 and 2011, China spent 8.5% of its Gross Domestic Product (GDP) on national infrastructure, including roads, power, rail, water, telecommunications, ports and airports.

At the 2019 Two Sessions, Premier Li also set out other targets that the government will aim to reach this year: GDP growth of between 6% to 6.5%; the creation of 11 million new urban jobs; the reduction in the rural poor population by more than ten million; and a reduction in tax burdens on enterprises and their social insurance contributions. With a slowing economy, a trade war with the United States that is yet to be resolved, and Xi’s declarations of ‘war on poverty’ and ‘war on pollution’, government expenditure will have to be allocated carefully to a whole range of priorities.

And then there is the issue of Xi’s other signature project, the BRI, which aims to bring digital and transportation connectivity through infrastructure investment to all (many) corners of the globe, and on which China is estimated to have spent more than US$1 trillion in various forms of loans and grants. The recent hint of a change in approach may be in response to concerns about the significant levels of indebtedness of some partner BRI countries, and their lack of ability to repay Chinese financing for BRI projects. In Sri Lanka’s case, China took possession of Hambantota Port. But it is unlikely that China can afford every BRI project to result in debt-for-equity swaps.

Under President Xi’s rule, the CCP has been given greater authority. This does not mean that the Party ignores domestic public opinion. Though experts agree the Two Sessions remain a highly choreographed affair, particularly under Xi’s tighter grip on the government, the South China Morning Post argues that ‘a noticeable increase of [mildly] dissenting voices’ about the government’s performance in a number of areas made this year’s event more interesting. This may not be dissent in a Western sense. But one corollary of it may be that the PLA Navy’s supposed plans for another four aircraft carriers will not come at the expense of education, the environment, infrastructure or welfare on Xi’s path to national greatness.

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