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China’s Defence Budget: 2013-14

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“Building a strong national defense and powerful armed forces that are commensurate with China’s international standing and meet the needs of its security and development interests is a strategic task of China’s modernization drive…”

– Hu Jintao, in a speech to the Party Congress, November 8, 2012.

The release of China’s defence budget is an annual event watched keenly by defence analysts the world over. This year, the procedure of declaring the figures a day prior to the National People’s Congress (NPC) convention was also changed, in keeping with the on-going change in leadership. The defence budget figures were released on March 5, 2013, just before Wen Jiabao’s ‘work report’ to the 12th NPC. But the figures neither evoked surprise nor caused a flutter because they were along expected lines—a 10.7 per cent increase over 2012 to RMB 720.2 billion ($117 billion; the figure varies between $114 and 117 billion in various sources). In the past, China’s defence budget had increased at an average 15.9 per cent from 1998 to 2007, 14.5 per cent from 1988 to 1997, and 3.5 per cent from 1978 to 19 87. In 2012, it increased by 11.2 per cent to RMB 670.2 billion ($106.4 billion) over the 2011 figures of RMB 602.6 billion ($95.4 billion). In terms of percentage of GDP, this year’s budget is pegged at 1.3 per cent of the GDP, a marginal increase from 1.28 per cent in 2012, but below the 1.33 per cent registered in 2008.

Zhao Xiaozhuo, Deputy Director of the Academy of Military Sciences, a think tank of the People’s Liberation Army (PLA), has justified the continued double-digit growth in China’s defence spending thus: China’s vast land and maritime frontiers, four nuclear neighbours, and the four disputed areas in its proximity have exacerbated tensions in the region. Falling back on the cliché of ‘century of humiliation’, he asserts that it is essential to modernise to avoid being attacked again. Finally, Zhao avers that ‘diversified military tasks’ has increased the multi-faceted roles of the PLA. All these necessitate a double digit increase in military spending.1 Zhao has also criticised the Western media as having ‘made it their wont to criticize China’s defense budget’ without taking into account the fact that “China’s per capita expenditure on defense is only 3.46 percent of the US, 8.29 percent of the United Kingdom and 18.45 percent of Japan, according to the SIPRI Yearbook 2012, published by Stockholm International Peace Research Institute, an international defense think tank.”2

At the official level, the Parliament spokesperson Fu Ying was quick to state that, “It’s not good news for the world that a country as large as China is unable to protect itself….China’s peaceful foreign policies and its defensive military policies are conducive to security and peace in Asia.”3 And as if to give the budget acceptability, the Global Times, in a poll conducted the same day, stated that as many as 50.1 per cent people agreed that the budget was ‘reasonable’ and 28.7 per cent wanted it to be increased. Only 12.7 per cent said that it should be cut while 8.5 per cent had ‘no opinion’.4

It is no secret that the actual figures of China’s budget lack transparency. In its 2012 report on China’s military, the US defence department estimated actual spending of $120 to $180 billion in 2011, well above China’s official figure that year of $91.5 billion.5 This year, using the average variation factor of 1.6 times of the last year, it could be assessed to be approximately $187 billion. The final expenditure also tends to vary from the budgeted amount. In 2012, actual spending reached RMB 691.3 billion compared with the budgeted RMB 670.3 billion,6 an increase of almost 3.5 per cent which led to an overall increase of 14.7 per cent over the 2011 figures!

What the Budget Conceals

John McCreary, a veteran defence intelligence analyst, was quoted in the Washington Times as saying that, “The announced figure does not include Chinese spending on defense research and development, arms procurement and defense industrial activities.”7 Nor are procurement of weapons from abroad, expenses on paramilitaries, nuclear weapons and strategic rocket programmes, state subsidies for the military-industrial complex, some military-related research and development, and extra-budget revenue included in the 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.8

Defence Budget and the Economy

A study of China’s previous National Defence papers reveals that the country links the defence budget to its economy.9 In the last three years, the rise in the defence budget has been proportional to the growth rate of the economy (See Figure 1). This is an indicator that the PLA has limited influence in demanding budget raises with the Party. In a sense, it also sanctifies the relationship between the PLA and the CPC—clearly, the PLA being subservient to the Party. In 2010, China’s economy grew by 10.4 per cent over the previous year. In 2011, it dropped to 9.3 per cent and further to 7.8 per cent in 2012. There has been a corresponding decrease in the rate at which the defence budget grew: 12.7 per cent in 2011-12, 11.2 per cent in 2012-13, and now 10.7 per cent for 2013-14.

On the other hand, it would be interesting to note the actual budget expenditure after adjustment for inflation. Last year, China had set a target of containing inflation at four per cent and achieved an actual inflation rate of 2.6 per cent.10 Thus, the net increase of China’s defence budget in real terms was 12.1 per cent.11 This year, China has set its inflation target at 3.5 per cent.12 Thus, one can conclude that the minimum increase in real terms will be over 7 per cent, which is in line with the projected economic growth rate of 7.5 per cent for the coming year, adjusted for inflation.

Figure 1

Internal Security

Addressing the 12th People’s Congress on March 5, 2013, Premier Wen Jiabao listed ‘maintaining social harmony and stability’ as one of the government’s priorities for this year. He said:

“We should improve the mechanism for assessing potential risks major policy decisions may pose for social stability….The purpose of this work is to preserve law and order and promote social harmony and stability.”

For a third year in a row, the internal security (also called public security) budget has exceeded the defence budget. Last year, it stood at RMB 701.8 billion ($111 billion) and this year it has marginally increased by 8.7 per cent to RMB 769 billion. In 2011, expenditure on public security was RMB 624 billion, an increase of 13.8 per cent over 2010 figures and almost RMB 23 billion more than that year’s defence budget of RMB 601 billion.

Analysts continue to cite a larger domestic security budget as an indication of growing unrest, instability and protests within China. But they ignore the fact that social stability through public security measures, also called weihu shehui wending, or weiwen in short, is the responsibility of the Central Political and Legislative Affairs Committee. Public security spending is distributed between four ministries in China: the Ministry of Public security, the Ministry of Railways, the Ministry of Justice, and the General Administration of Civil Aviation. Within each ministry, the expenditure on public security may be just 50 per cent while the rest goes to diplomacy, education, etc. According to an ECFR report, the “Chinese government uses this complex situation to blur the distinction between spending that is dedicated to the maintenance of social stability and that which is not.”13 The report also states that 77 per cent of the public security budget goes to the People’s Armed Police (PAP) whose responsibilities have been increased by the implementation of the ‘six forces’ policy in 2012. The ‘six forces’ policy envisages converting the PAP into a ‘modern , integrated and multi-tasking force’ comprising counter-insurgency forces, anti-terrorism forces, emergency first aid and rescue teams and forest fire fighting forces.14

In fact, on March 14, 2013 the government announced a restructuring of some ministries, one of which being the Ministry of Railways—which is being divided into two—operations under a newly created State-owned enterprise, the China Railway Corporation, and administration under the Ministry of Transport. Thus, it may be prudent to conclude that while social unrest and protests may continue to be prevalent in China, the main reason for the sudden and sustained increase in the public security budget is the revamping of the entire public security apparatus and the ongoing reform process in China. Once the structures are in place, we may see a reversal in expenditure trends in the defence budget in China.

International Reactions

The Asahi Shimbun quoted Japan’s senior-most government spokesman and chief Cabinet secretary, Yoshihide Suga, as saying that, “Growth has been in double digits for three years running…. China must enhance the transparency of both its defense policy and regarding its military forces.”15 The paper also quoted defence officials as saying that “The modernization of fighter jets, an aircraft carrier, destroyers and other weaponry presents a threat to us.”16 Japan’s own budget is proposed to be raised for the first time in 11 years, and is presently awaiting approval of the Diet.

The Taipei Times was muted in its comment with no official government statement. There was no major comment from The Jakarta Post or The Jakarta Globe. The Washington Post noted that “[T]he higher military spending may be an important tool for Xi as he moves to shore up personal relations with China’s generals and consolidate his power.” Quoting Major General Luo Yuan, deputy secretary-general of the Military Science Society and an outspoken officer, the paper said, “Our foreign policy goal is peaceful development and strengthening defensive abilities rather than growing our ability to plunder others.”17 Overall, the world’s view on the budget appeared subdued and acquiescent. This is in contrast to the anxiety and concern expressed by various countries to China’s budget presented in March 2012.18

In India, there was no official comment from the government. The Times of India reported that “China significantly upped its defence spending by over 10 [per cent], a rise that will be watched nervously in India. Particularly, since India’s own defence budget is constrained not only by decreased funding, but also by a distinct lack of strategic planning.”19 The Deccan Chronicle quoted well-known defence analyst Commodore (Retd.) C. Uday Bhaskar as saying, “China is taking its national security requirements in a very serious, focused and determined manner which is a contrast to the Indian example. China is focusing on its trans-border military capability and this is of very deep strategic import.”20 The UPI’s headline read “Increasing Chinese Defence Budget Alarms India”, but aside from that had little content to justify the alarm.21 In short, the budget did not draw much attention of the Indian government or media.

Impact on India

  • China’s military modernisation programme will continue as per schedule. On the other hand, the Indian Defence budget at one-third that of China ($37 billion) with an increase of five per cent over the previous year barely caters for inflation. In real terms, it may have even been lower than 2012. Undoubtedly, this will impact fresh defence acquisitions while China’s strategic projection programme in the Indian Ocean Region will be on target.
  • The PLA’s programmes like Type 094 nuclear submarines, Y-20 long range strategic lift capability, DF-41 and JL-2 ballistic missiles, J-20 and J-31 fifth-generation fighter programmes will continue on schedule.
  • The PLA’s infrastructure development programme in the Tibet Autonomous Region (TAR), such as dual runways, logistic support bases and sheds, construction of blast pens, extension of rail and road networks, construction of barracks and special habitat for troops at high altitudes will continue to be funded adequately.
  • The PLA has been laying emphasis on human resource management. Recruitment, salaries, living standards, perks and education are likely to get an impetus with attendant advantages of morale, motivation and technology absorption.

Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India

Keywords: China, Defence Budget, People's Liberation Army (PLA)
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