China is well known for having significant defense spending outside the officially announced defense budget. This is an obvious reality because of the pace at which they are launching defense satellites, maintaining the world’s largest military, building the world’s largest navy, including aircraft carriers, adding nearly 60 stealth J-20 to PLA Air Force (PLAAF) inventory every year; will soon be having a stealth bomber; a fast-growing large transport aircraft program; and infrastructure building in the South China Sea (SCS), and the Himalayas.
China is also pushing ahead in defense-related artificial intelligence (AI), Quantum technologies, hypersonic platforms, and autonomous systems.
The “official” Chinese defense spending has been inching up and is nearly one-third of the US budget. But of late, American intelligence agencies and many analysts have started openly talking about the Chinese hidden defense spending and how it is actually very close to the US defense budget.
Are the Chinese figures being exaggerated and overhyped through these articles with an ulterior motive? Such figures could be used to create insecurity and influence public and political opinion to increase defense budgets.
Are these articles backed by the military-industrial complex to increase defense sales? Aren’t there similar hidden spending in other countries, including the USA? Whatever the case, these hidden estimates have gained traction in the US Congress, the media, and defense circles. There is a need to understand.
China, An Autocratic Closed Society
China is a country led by an autocratic leader and the closely controlled Chinese Communist Party (CCP). Chinese people are under constant surveillance. The public is told what the CCP wants them to know. Not much information flows outside the country.
These days, many dual-use technologies can easily be covered under civil code heads. China also runs many programs under civil-military fusion and has huge paramilitary and militia-related spending. The same is true for defense Research and Development (R&D) spending.
Defense production in China is much cheaper than in the US and other Western countries because of low-paid labor. Thus, China gets a much larger bang for the buck.
The military personnel draw much lesser salaries and perks in China vis-à-vis the US. Analysts have adjusted Chinese defense budgets to Purchasing Power Parity (PPP), with the result the official 2024 Chinese defense budget of $232 billion goes up to $474 billion.
Applying the figures of defense-related spending by other ministries and institutions, the figure has been computed to reach nearly $711 billion. Thus, it comes fairly close to US defense spending.
Skeptics, though, feel that if a similar yardstick were to be applied to the US budget for 2024, it could be as high as $1.3 trillion. Of course, getting the defense spending estimates right, along with military and industrial technology status, is very important to understanding the current and future military capabilities.
Unlike in democratic nations like India, where the budgets are presented to the elected body and debated & telecast live, China’s military budget is released through state media each year. Compare this with the thousands of pages of public budget documentation released annually by the Pentagon.
China’s Hidden Military Spending
China last provided a broad three-category breakdown of its military budget to the United Nations in 2020. The breakdown was nearly 30 percent for personnel (Pay & Allowances), 33 percent for training and maintenance (Revenue), and 37 percent for new equipment (Capital).
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Exclusions of de facto military activity from the Chinese military budget are common. Pentagon-linked think tanks believe that Beijing omits defense budget funding for paramilitary organizations, military research and development, and many ongoing military operations. It does this by either not reporting the expenses or channeling them through civilian ministries.
The Chinese Coast Guard is taking significant military-like action to defend islands in the South China Sea (SCS). It has hundreds of ships, including a few ex-PLA Navy refitted Type 056 corvettes.
The estimated $2.1 billion Coast Guard budget is not part of the reported defense budget. The People’s Armed Police (PAP), comes under the Central Military Commission (CMC) but its budget is not part of defence spending. Other than domestic security, the PAP is officially tasked with augmenting the PLA in wartime. The PAP’s current spending is close to $50 billion.
Another important hidden expenditure is military research and development (R&D). Some researchers have indicated that roughly half of Chinese central government R&D spending is for military-related entities, which can be close to $50 billion.
China’s space program is highly military-centric. The PLA handles both the military and civilian space activities. The official space spend is close to $16 billion, but the actual is estimated to be around $25 billion.
Military infrastructure projects in the SCS are also excluded. There are others, such as the People’s Armed Forces Maritime Militia, the militarization of commercial shipping, and China’s state-sponsored cyber hackers. Artificial Intelligence and 5G have dual use. Adding all these hidden expenditures and the PPP figures brings it very close to the US defense budget.
China Is Still Not A Global Policeman
The United States has been acting as a global policeman for over half a century. It is the only country in the world with military prowess to cover the geographical area of the entire globe.
It has more military bases and commitments across the world than any other country. The US has security commitments to Taiwan, Japan, South Korea, Israel, and now Ukraine.
The Pacific Deterrence Initiative (PDI) requires funding. Thus, a significant amount of the US defense budget gets diverted to these pledges. Whether it was the global war on terror or the many other American interventions, all did not directly benefit American power projection. In many cases, the USA pulled out after spending trillions of dollars and losing thousands of lives without achieving any strategic goals.
China currently has no such commitments. Their immediate focus is on the neighborhood. Annexing Taiwan is their first priority. Border disputes with India, Japan, and some other neighbors are next.
They use the Belt and Road Initiative (BRI) to peddle influence. They give out not-so-cheap loans to get a foothold in financially impoverished smaller countries. China’s sphere of influence is still in small parts of the Indo-Pacific, albeit they have global ambitions in the long term. China’s budget is then spent mostly on capability building.
What It Means For The USA
U.S. defense spending for 2024 was $842 billion. President Joe Biden’s defense budget request for fiscal year 2025 was only $850 billion, a mere one percent increase over 2024—the lowest increase in decades.
Normally, the USA needs to remember that Beijing’s $236 billion ‘official’ 2024 defense budget is less than a third of US figures. So, purely on official figures, even with a much higher growth rate of 4-6 percent, China could take over two decades to catch up.
Budgetary increase fluctuations and unpredicted large expenditures, such as those in Ukraine, complicate military industrial production planning and expenditures. Other out-of-area expenditures also dent American military capability building.
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The much higher defense spending over competition always makes the American public feel secure. Overestimated Chinese defense spending could create strong pressure for the United States to overreact and overspend.
Should China’s real defence spending provoke urgency in Washington to invest more in its own military and quickly? If the same was not done, it could erode the USA’s global image and deterrence and force lesser powers to distance or review alignments. It could also set a level of panic among the public and politicians.
For the US to meet Indo-Pacific priorities, deter Iran, counter Russia, and support NATO, the funding would have to be factored in. Alternatively, it would have to thin its global commitments and cede space to China.
The 2024 National Defence Authorization Act mandates that the Pentagon conduct a comparative study of Chinese military spending and publish the results. The counter to China’s growing combat power would then have to evolve numerically and in lethality.
Global Defence Expenditure 2023
Total global military expenditure reached an all-time high of $2443 billion in 2023, an increase of 6.8% in real terms from 2022. This was the steepest year-on-year increase since 2009.
The 10 largest spenders in 2023 were led by the United States, China, and Russia, all of which increased their military spending. This was the ninth consecutive year of global military spending rising.
Also, it was the first time since 2009 that military expenditure went up in all five geographical regions. Particularly large increases were seen in Europe, Asia and Oceania, and West Asia.
Clearly, peace and security are deteriorating. As the states prioritize military expenditure and strength, there is a risk of a spiral effect in each neighborhood.
Russia Ukraine Dynamics
Russia’s military spending increased by 24% to an estimated $109 billion in 2023, marking a 57 percent rise since 2014, the year that Russia annexed Crimea. The Russian 2023 military spending was 16 percent of total government spending and 5.9 percent of GDP.
Russia’s military and war-related spending is set to rise sharply in 2024 under new federal budget plans for 2024–26, which President Vladimir Putin signed into law in November 2023.
The plans suggest that the Russian government is committed to pursuing the war to a successful conclusion. Some have questioned the economic assumptions, though. Russia’s rising debt burden has also reduced allocations to key social spending, including housing, education, and healthcare.
Ukraine was the 8th largest military spender in 2023. Yearly spending surged 51 percent to reach $64.8 billion, representing 58 percent of total government annual spending.
Interestingly, this spending was 59 percent of Russia’s defense expenditures. Ukraine also received at least $35 billion in military aid during 2023, including $25.4 billion from the US. When combined, the two became 91 percent of Russian spending.
NATO Defence Expenditure Shooting Up
The US remains NATO’s major spender, but European members have increased their share. In 2023, 31 NATO members accounted for $1341 billion, equal to 55 percent of the global military expenditure.
USA’s military spending rose by 2.3 percent and reached $916 billion in 2023. This was 68 percent of NATO’s total military spending. European NATO members increased their military expenditure, and their combined share was now 28 percent of NATO, the highest in a decade. The remaining 4 percent was by Canada and Turkey.
Europeans feel that the Russian threat has now come closer to NATO. The US has been asking Europeans to take greater charge of their security. After all, the USA has to concentrate a little more on Chinese expansion and bolster security in the Indo-Pacific.
Nearly a decade back, European NATO members had formally committed to target spending 2 percent of GDP on the military. 11 out of 31 NATO members actually hit or crossed that percentage in 2023.
Another NATO target was that at least 20 percent of military spending be directed towards ‘Capital’ expenditures for new equipment. This was met by 28 NATO members in 2023, up from 7 in 2014. Poland’s military spending, the 14th highest in the world, was $31.6 billion and grew 75 percent in one year, the largest annual increase by any European country.
China’s Threatened Neighbours
China’s neighbors, especially India, Japan, South Korea, and the Philippines, monitor all military power projection-related activities of China. All Chinese neighbors increased their defense budgets to reduce the growing military power gap with China.
Japan’s 2023 defense budget was $50.2 billion, an 11 percent increase over 2022. Japan shed its pacifist approach last year. It is relooking at the 1947 enacted Article 9 of their constitution that forbids offensive weapons.
Taiwan plans to increase its defense budget further, bringing it up to 2 percent of GDP by 2027. Taiwan’s military expenditures also grew by 11 percent, reaching $16.6 billion.
India’s Defence Budgeting & Way Ahead
Chinese and Indian troops, the two largest armies by numbers, have been facing eyeball-to-eyeball on the Line of Actual Control (LAC) for nearly four years now. The negotiations are on to ease border tensions. The 30th round of the Working Mechanism for Consultation & Coordination on India-China Border Affairs (WMCC) took place in Beijing recently.
India is the fourth most powerful military force and also the fourth largest military spender in 2023. The defense budget for 2024-25 presented in July 2024, at $73.9 billion at the current conversion rate, saw a very marginal 4.72 percent increase over last year’s budget estimates, and it amounted to only a 0.37 percent increase over revised estimates. It constituted 12.9 percent of the central government’s annual expenditure. It was 1.9 percent of GDP.
India needs to spend much more on R&D to acquire intellectual property. Aero engines, hypersonics, electronic warfare, directed energy weapons, AI, drones, robotics, quantum, long-range missiles, cyber, and space are some of the major areas.
Jumpstart may not be easy. Partnerships with friendly foreign countries are perhaps the best way. Prime Minister Modi’s forthcoming visit to the US should see more interactions with CEOs of top technology companies and invitations to work with and in India.
Ongoing conflicts have clearly brought out that wars will not be short and swift. Despite being the fourth most powerful nation, the power index gap with China remains significant.
India has a numbers and modernization backlog. India is short of 11 fighter squadrons and needs much more helicopters, especially attack variants. India needs more submarines, warships, tanks, artillery guns, and unmanned systems.
India must also decide on the next aircraft carrier. The importance of air defense systems has been underscored. India must also build up munitions stocks. Clearly, the Indian military has to grow, and allocations must increase according to threat perception. It should be at least 2.5 percent of the GDP for the next two decades.
- Air Marshal Anil Chopra (Retired) is an Indian Air Force veteran fighter test pilot and former Director-General of the Center for Air Power Studies in New Delhi. He has been decorated with gallantry and distinguished service medals while serving in the IAF for 40 years.
- He tweets @Chopsyturvey
- Follow EurAsian Times on Google News
