Friday, March 5, 2010

China's Defense Spending Growth Slows

Defense News


China's Defense Spending Growth Slows

By Wendell Minnick

TAIPEI - China's defense spending will rise 7.5 percent to $76.3 billion in 2010, according to a draft budget report released March 4.

That's quite a bit slower than the 12.9 percent average growth from 1996 through 2008, a period in which the country's GDP grew by an annual average of 9.6 percent. Chinese defense spending has more than tripled since 2000, when the official budget was $23.7 billion.

"At the end of the day, their defense budget grew 7.5 percent this year," said Scott Harold, a Rand researcher living in Hong Kong. "Who else's budget grew by that much? And why did they grow their budget that much, especially at a time when they enjoy a dramatically better relationship with Taiwan and have tremendous civilian-side fiscal needs?"

Among world militaries, China's $76.3 billion budget trails only the Pentagon, which plans to spend almost $710 billion in 2010.

"China overtook Japan a few years ago, and more recently, France, Britain and Russia," said Richard Bitzinger, a former CIA analyst at the Institute of Defence and Strategic Studies at Singapore's S. Rajaratnam School of International Studies.

Bitzinger also suggested there might be internal politics at work.

"It may be that some in Beijing feel that the military had done pretty well over the past 15 years and that it's time to rein things in a little bit," he said. With natural disasters like the 2008 Sichuan earthquake, the "leadership could be shifting priorities."


Growth may be slowing as the government prepares to move from the final year of its 11th Five-Year Plan, which ends in 2010, into the 12th, said Tai Ming Cheung, author of the book, "Fortifying China: The Struggle to Build a Modern Defense Economy."

"It could suggest that defense spending for the 12th Five-Year Plan may be pegged to a lower rate of increase," Cheung said. "Past precedents suggest that the level of defense budget increases in the first year of a five-year plan provides a rule of thumb of the level of increases for the following four years, subject to annual economic conditions."

The lower growth also might indicate that the military has reached many of its medium-term goals.

"If the above information is correct, the military has achieved much of what they wanted in the previous four years, and a smaller increase in 2010 can meet their five-year increase target settled in 2005," said Arthur Ding, a Taiwan-based China military specialist at National Chengchi University.

Cheung also said the low inflation - "near zero compared to much higher inflation rates in past years" - might have reduced expenses. In recent years, Chinese government officials have often attributed the speed of budget growth to inflation.

Cheung said the Chinese military has spent heavily to raise salaries and living standards, a drive that may have reached its goal.

"This has allowed military personnel to catch up with their civilian counterparts," he said. "The military may now be able to slow down spending in this area."

Yet another reason might be a crackdown on corruption: bribery for advancement and promotion, unauthorized contracts and projects, and procurement programs. In 2008, Beijing launched a five-year anti-corruption campaign that has resulted in hundreds of arrests of government and military officials.

According to the Pentagon's annual 2009 report on China's military modernization, China's National Audit Agency uncovered $170 billion in misappropriated and misspent public funds between 1996 and 2005. In 2003 alone, corruption cost the Chinese government as much as $86 billion, "an amount that was more than double China's announced defense budget for that year," said the Pentagon report.