China's Defense Budget
On March 5, 2014, while presenting the draft budget to Parliament, Chinese Premier Li Keqiang announced a rise of 12.2% in China's annual military budget, amounting to 808.2 billion yuan (132 billion US dollars). At the opening of the National People's Congress in Beijing Wednesday, a major political meeting, officials also said they expect the economy to continue to see stable growth of around 7.5 percent this year.
China plans to raise its defense budget by 10.7 percent to 720.2 billion yuan ($114.3 billion) in 2013, according to a budget report to be reviewed by the national legislature. The military spending will be used to improve living and working conditions of service people, make the armed forces more mechanized and information-based, and safeguard national security, the report on draft central and local budgets for 2013 said 05 March 2013. China spent 650.6 billion yuan on national defense in 2012, an increase of 11.6 percent than the previous year. A legislature spokesperson played down the media frenzy surrounding China's defense spending at the press conference on Monday. "China's peaceful foreign policies and its defensive military policies are conducive to security and peace of Asia," said Fu Ying, spokesperson for the first session of the 12th NPC.
On February 13, 2012 President Barack Obama sent to Congress a proposed defense budget of $613.9 billion for fiscal 2013. The request for the Department of Defense (DoD) includes $525.4 billion in discretionary budget authority to fund base defense programs and $88.5 billion to support Overseas Contingency Operations (OCO), primarily in Afghanistan. The United States' in February 2011 request totalled of $671 billion, so the US military budget declined by about the same percentage by which the Chinese budget increased. The Chinese military budget, at official exchange rates, is one-seventh that of the United States. But on a more appropriate purchasing power parity (PPP) basis, the Chinese military expenditure is about $500,000,000,000, about three-quarters that of the United States.
On 04 March 2011 China said it planned to raise its defense budget by 11.2 percent to 670 billion yuan (106.4 billion U.S. dollars) in 2012. This year's draft defense budget is 67.6 billion yuan more than the defense expenditure of 2011, said Li Zhaoxing, spokesman for the annual session of China's national legislature. "The Chinese government follows the principle of coordinating defense development with economic development. It sets the country's defense spending according to the requirements of national defense and the level of economic development," Li told a press conference. The former foreign minister said the growth of China's defense expenditure is "reasonable and appropriate."
On 4 March 2011, it was reported China would spend $91.5 billion on the People Liberation Army, navy and air forces next year, marking a return to double-digit spending. In the previous year the defense budget rose 7.5 percent. The rise accounted for just 6 percent of China's national budget. On Thursday 04 March 2010 Beijing published China's 2010 defense budget. It totalled 532.115 billion yuan (about $77.9 billion at current exchange rates) or 7.5% more than last year. Chinese defense spending had increased by an average of 12.9% annually since 1989 when Beijing launched an ambitious army modernization program, and this wasonly the second year over that period in which annual growth was less than 10%. In Military and Security Developments Involving the People's Republic of China 2010 the US Defense Department estimated that actual Chinese military spending was double this about, over $150 billion on an official exchange rate (OER) basis. Purchasing power parity (PPP) exchange rates are the value of goods and services produced in another country valued at prices prevailing in the United States. This is the measure most economists prefer when comparing use of resources across countries.
China's "Official" Budget
Every March, as part of its annual state budget, the Chinese release a single overall figure for national military expenditures.
In 2000, the official budget figure was approximately 14.6 billion, or 121 billion yuan. China increased its defense spending for the year by 17.7 percent. In early 2001, China's publicly-acknowledged defense budget of over $17 billion for 2001 was higher than the defense budgets of neighboring countries India, Taiwan, and South Korea. Beijing explained this increase as a response to "drastic changes" in the military situation around the world, a reference to the US-led war in Kosovo in 1999. In 2002, China increased military spending in 2002 by 17.6 percent, or $3 billion, bringing the publicly reported total to $20 billion.
China again increased its budget to $22 billion in 2003 (about 185.3 billion RMB). China's defense budget continued to grow in 2004. Chinese Finance Minister Jin Renqing proposed an increase of 11.6 percent [$2.6 billion] in military expenditures. The government forecast total revenue for the central budget at $157 billion, up 7 percent [$10.9 billion] from 2003, with a 7 percent boost in overall spending from 2003. The country's $38.7 billion deficit was the same as 2003. Adding off-budget funding for foreign weapons system imports, total defense-related expenditures for 2004 were estimated at between $50 and $70 billion dollars by Richard Lawless, the Deputy Undersecretary of Defense.
The Information Office of China's State Council issued on 27 December 2004 a white paper titled "China's National Defense in 2004". Pursuant to the National Defense Law, the Chinese government follows the guiding principle of the coordinated development of national defense and economy. In 2005, it was announced that China's military budget will rise 12.6 percent, to 247.7 billion yuan ($29.9 billion). China has announced double-digit increases in military spending nearly every year for more than a decade. In March 2006 the Chinese government announced an official defense budget of about $35 billion for 2006, an increase of nearly 15 percent over the previous year.
Analysis of PRC budget data and International Monetary Fund (IMF) GDP data for the period of 1996 to 2006 shows average annual defense budget growth of 11.8 percent (infl ation adjusted) compared with average annual GDP growth of 9.2 percent (inflation adjusted). Of note, China's 2006 Defense White Paper contains a similar analysis in stating that between 1990 and 2005 the defense budget grew by an average of 9.6 percent between, while China's GDP over the same period grew in constant prices an average of 9.7 percent yearly, according to the IMF. The 1996-2006 data is a more useful measure, however, as it covers the period following the 1995 and 1996 Taiwan Strait crises and incorporates the 9th and 10th Five Year Plan periods (1996-2000 and 2001-2005, respectively) in which the post-Persian Gulf War reinvigoration of the PLA modernization drive would be fully reflected.
In March 2007, China announced that it would increase its annual defense budget by 17.8% over the previous year, to $45 billion. In March 2008, China's State Council submitted a proposal to a National People's Congress session to consider the approval of 417.8 billion yuan -- about US$57.22 billion -- in defense spending for the country in 2008. China announced a nearly 15 percent rise in military spending on 04 March 2009 - a smaller boost than in previous years - as the national legislature prepared to open its annual session with a focus firmly on overcoming the country's brewing economic crisis. The 14.9 percent increase in defense spending is the lowest in three years, a possible reflection of shifting priorities. The 480.68 billion yuan (US$70.27 billion) military budget follows a 17.6 percent increase last year and 17.8 percent in 2007 - the biggest jump in more than a decade. It also was the 19th double-digit percentage increase in the past two decades.
China's defense spending is by no means transparent. China's published defense budget does not include large categories of expenditure, including expenses for strategic forces, foreign acquisitions, military-related research and development, and China's paramilitary forces.
For many years, much of the reported annual increases in China's official budget was absorbed by high inflation rates. However, the largest problem in estimating defense spending arises from inadequate accounting methods by the Peoples Liberation Army (PLA). Budgeted functions are hidden under construction, administrative expenses, and under state organizations such as the Commission on Science, Technology and Industry for National Defense (COSTIND), which mix PLA and other state activities. Further sources of income outside the national defense budget include official local and regional government expenses for local army contributions, pensions, militia upkeep and off-budget income from PLA commercial enterprises and defense industries, as well as income from international arms sales and unit-level production (e.g. farming).
China's expenditure on national defense falls into the following categories: personnel expenses, mainly including pay, food and clothing of military and non-military personnel; costs for maintenance of activities, mainly including military training, construction and maintenance of facilities and running expenses; and costs for equipment, including research and experimentation, procurement, maintenance, transportation and storage. In terms of the scope of logistic support, these expenditures cover not only active service personnel, but also militia and reserve requirements.
In addition, a large amount of spending are used to fund activities associated with social welfare, mainly pensions for some of the retired officers, schools and kindergartens for children of military personnel, training personnel competent for both military and civilian services, supporting national economic construction, and participation in emergency rescues and disaster relief efforts.
In the 1980s Chinese statistics indicated that defense spending represented a decreasing percentage of government expenditures, falling from 16 percent in 1980 to 8.3 percent of the state budget in 1987. However, United States Department of Defense studies suggested that the published budget figures understated defense spending by about one-half. With the growth of the Chinese economy under the modernization program, defense spending also represented a smaller percentage of the gross national product (GNP) than previously. United States Central Intelligence Agency analysts estimated that defense expenditures in 1978 absorbed 8 to 10 percent of GNP; in 1986 United States Department of Defense analysts estimated that China's military expenses fell within the range of 6 to 8 percent of GNP. Comparison of indices of defense procurement spending and industrial production from 1971 to 1983 revealed that the former increased by 15 percent, whereas the latter rose by 170 percent. These studies indicated that Chinese leaders had indeed subordinated military modernization to economic development.
United States Department of Defense officials in 1986 estimated Chinese defense spending by resources and force categories for the 1967 to 1983 period. Roughly 50 percent of defense expenditures were for weapons, equipment, and new facilities; 35 percent for operating costs; and 15 percent for research, development, and testing and evaluation. By service, these costs broke down to 25 percent for the ground forces; 15 percent for the Navy; 15 percent for strategic air defenses; 5 percent for ballistic missile forces; 5 percent for tactical air forces; and about 35 percent for command, logistics, personnel, intelligence, medical care, administration, research, development, testing and evaluation, and other support. Beginning in the late 1970s, China devoted more resources to its Strategic Missile Force, indicating an effort to increase its strategic security while modernizing the economy, and to national command and support activities, reflecting an emphasis on modernization of the defense structure.
Procurement of weapons and equipment represented 45 percent of the defense budget during the 1967 to 1983 period. This figure included 25 percent for aircraft, 15 percent for ground forces weapons, and about 10 percent each for naval and missile systems. China's military-industrial complex, the third largest in the world, produced a wide variety of weapons, including light arms and ammunition, armor, artillery, combat aircraft, fast-attack craft, frigates, destroyers, conventional and nuclear submarines, electronic equipment, tactical missiles, and ballistic missiles. With the notable exception of China's indigenously produced nuclear submarines, nuclear missiles, and satellites, most Chinese weaponry was based on Soviet designs of the 1950s and 1960s. Much of this equipment was obsolete or obsolescent, and beginning in the late 1970s China made great efforts to upgrade the equipment by changing indigenous design or by incorporating Western technology. The greatest weaknesses were in conventional arms, precision-guided munitions, electronic warfare, and command, control, communications, and intelligence. China attempted to address these weaknesses by focusing military research on electronics--essential to progress in the previously mentioned areas--and by selectively importing key systems or technologies.
By official accounts, the composition of China's defense expenditure in 1997 was as follows: 29.162 billion yuan for personnel expenses, accounting for 35.89 percent; 26.536 billion yuan for maintenance of activities, 32.66 percent; and 25.559 billion yuan for equipment, 31.45 percent. Most of the defense outlay went to the personnel's living costs and maintenance of normal activities. In addition, more than four billion yuan, or about 5 percent, was spent to fund activities associated with social welfare.
The PLA has enjoyed two decades of double-digit budget growth. However, its purchasing power was not enhanced until the mid-1990s, when inflation was brought under control. Since 1995, inflation continues to drop sharply, reflecting tighter monetary policies and stronger measures to control food prices. The PLAN benefited the most in the 1990s, and received the bulk of China's annual defense budget (an estimated 35 percent). The army and air force receive about 29 percent each and the 2nd Artillery Regiment about seven percent. Procurement, research and development, reserves and paramilitary are excluded whole or in part from the official defense budget. China's improving economic situation has bolstered Beijing's ability to acquire the latest weapons systems from countries that increasingly demand hard cash.
Additional double-digit defense budget growth continued through the 10th Five-Year Plan (2001-05). These increases were used to offset losses from divested PLA commercial enterprises, underwrite escalating personnel costs, and fund PLA modernization. Beijing's 2000 White Paper on National Defense and its predecessor editions detail the official PLA budget, but only by poorly defined resource categories and not by service or mission. The release of the white papers may be an attempt by China to appear to be increasing its military transparency to the West while in reality keeping much secret.
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