China’s Defense Budget Set to Grow at Slower Pace

China has announced a defense budget for 2020 that will result in a year-on-year nominal increase of 6.6 percent, the lowest such figure since the first half of the 1990s. Chinese officials announced on May 22 a topline defense figure of 1.268 trillion yuan, which amounts to $178 billion. The earmark for 2019 amounted to CNY1.19 trillion, or $173 billion. This represented an increase over the 2018 allocation of 7.5 percent in a year in which the country’s economy grew by 6.1-6.2 percent.

The reduction in overall increase for 2020 comes as China confronts sharply slowing economic growth, a viral pandemic (the novel coronavirus COVID-19) that began within its borders, and geopolitical pushback on Beijing. The Chinese economy is expected to grow by around 1 percent this year. That would mark a significant slowdown for an economy that had already begun to show signs of reduced acceleration after years of tremendous growth. Factoring inflation into the equation knocks the figure down further, to about 4 percent growth in real terms.

Between 2016 and 2019, the defense budget increased between 7.1 and 8.2 percent, while GDP growth averaged roughly 6.6 percent. During this period, the defense earmark remained fixed at 1.3 percent of GDP, marking a parallel track between economic growth and military spending allocations.

China’s actual level of defense expenditure per annum is a matter of conjecture and confusion due to the purposefully opaque approach of the communist regime.

Security experts routinely estimate China’s defense investment totals to be much higher than the topline figures publicly announced by Beijing.

When employing purchasing power parity (PPP) into an examination of China’s defense spending the “bang for the buck” Beijing wrings from its annual investment is significantly higher than a sheer dollar figure as internal costs of production and purchasing are not tied to currency exchange rates and the salaried cost of maintaining a large standing military is less for China than it is for the U.S., Britain, France, etc.

Elements such as military technological research and development and even some major weapons purchases are believed to be kept off-budget, thus raising actual defense investment figures to well above the official topline figure published by the Chinese state. Such “off-budget” investment is becoming more and more innovation-driven rather than mirroring conventional platform trends, with priority granted to emerging technologies such as artificial intelligence, unmanned systems, directed-energy weapons, and quantum computing.

The U.S. Department of Defense noted in October 2019 that China was setting the global pace in innovative dual-use technologies such as these and others, including hypersonics, 5G mobile network technology, and genetic engineering.

The official government statement regarding the nation’s topline defense budget is that it is both proportionate and low in comparison to that of other developed nations.

Image – Nicolas Raymond

About Daniel Darling

Dan Darling is a senior analyst covering both the Europe and Asia-Pacific regions for Forecast International's International Military Markets group.

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