The outlook for China’s military spending

August 8, 2013 by Timothy Beardson

China’s military spending, like its economy, has grown at double digits since the 1990s and Beijing is now probably the second highest-spending military power in the world, with total spend for 2012 estimated at around $160bn – although the actual figure is unclear because much of China’s military spending (for example, on R&D) is kept off the books.

What effect is this having? Is China destined to become a regional bully, fully justifying the US decision to ‘pivot’ its military forces towards the Pacific, or will it run out of steam as it becomes increasingly embroiled in domestic political and social problems?

Neighbours such as Japan and Australia openly cite China’s military spending as the reason for their own increased arms commitments . Nearly every country in the Asian region is now arming rapidly. Asia has become the world’s largest arms-importing region.  Yet there has been no major war for 50 years and it is a quarter of a century since the Cold War ended.

China is clearly seen as a threat and yet – according to the external assessment of the Stockholm International Peace Research Institute (SIPRI) – it spends only 2.5% of GDP on its military, compared to 4% (of a much large GDP figure) in America.

As the world’s second biggest economy with the largest population of any single country, many in China quite reasonably ask why they shouldn’t spend what is actually the world average percentage of GDP on the military.  A fair enough point. In the end, what matters is the likely use of the huge amounts of new equipment being provided to the People’s Liberation Army and whether or not it will be misused.

China has land borders with 14 countries and maritime borders with six. It has some form of dispute with at least 12 of them. Almost all these disputes are about something China wants from its neighbours – mostly either land or water. It is a power unhappy with the status quo. Its neighbours tend to want peace, security and stability.

China usually seeks to placate the international community by issuing a stock set of remarks, pointing out that since 1949 it has not attacked anyone and, indeed in the nineteenth and early twentieth century it was a victim, not an aggressor.

This line has some problems. First, a century ago China was weak and thus scarcely capable of much aggression. It would be more relevant to see what the Chinese did when the country was strong and – rather importantly – when they were in charge of their country. As they were not a sovereign independent power for 70 per cent of the period from the Sung dynasty of the 10th century until the republic of the 20th century, the actions of “China” are neither to the credit nor the discredit of the Chinese.

Responsibility for any wars lies with those who held power over China during that period, often foreign dynasties such as the Mongols and the Manchu. The only significant period in the last 1,000 years when China was both ruled by Chinese and independent was during the Ming dynasty (1368-1644).

Recent academic study of the strategic preferences of the Ming dynasty by Alastair Iain Johnston suggests a propensity for conflict over diplomacy. Wars were regular. Beating the neighbour rather than settling with him seems to have been the preferred method of resolving disputes.

Since 1949, there is has been plenty of evidence that China prefers violent solutions over diplomacy – despite protestations to the contrary. There were border disputes with the Soviet Union along the Amur River, serious hostilities with India in the Himalayas in 1962 and also the 1979 Chinese invasion of Vietnam under Deng Xiaoping. This latter event was ‘provoked’ by the expulsion of ethnic Chinese from Vietnam but was in reality a Cold War proxy battle with the Soviet Union. A full list of military disputes involving the People’s Republic can be found here.

Now, in the early 21st century, we are seeing continuing assertiveness from China. Except vis-a-vis the Soviets, Mao was more pacific than the leadership directing Beijing’s foreign policy today. Claims are being laid across the Sea of Japan and the South China Sea. In Asia, China is seriously considering diverting significant amounts of the Himalayan head waters of downstream Asia’s major rivers – a move that could affect Russia, India, Bangladesh and much of south-east Asia. Each of these strategies is capable of culminating in armed conflict.

In the Eastern seas China is outspoken and bellicose. In the Himalayas and rainfall basins it controls China plays a quiet game but its neighbours are nervous.

On the surface, it looks like the prospects for China’s neighbours are bleak, but there have been some interesting geopolitical changes. President Obama’s ‘pivot’ has been well received by a number of Asian countries which have felt beleaguered. Second, Vietnam, not naturally sinophile, has become gradually more comfortable with the US, which has led to increasing security cooperation.

Third, Burma which until recently seemed almost beholden to China, in a small universe where only China, India and Thailand participated, has broken out to engage with the US and Japan, and hence the world. This transformation has been brokered by Vietnam, aware of the advantages of reconfiguring the Southeast Asian networks.

Domestically, China suffers from a surprisingly limited budget as a percentage of GDP, compared with the US, Britain or Japan. For example, the total budget of China in 2012 was estimated at about a third more than France even though China’s population is over 20 times as big. This means that Beijing regularly faces tough budget decisions.

The fact that China’s tax revenue is low as a proportion of GDP reflects both an underperforming tax system but also a less profitable than expected business sector and widespread tax avoidance.

Currently China is under-spending on education, healthcare and pensions and with acute demographic changes looming the situation could become much worse, with the over 65’s trebling by 2030 and the working population beginning to reduce. As the ‘dependency ratio’ of workers to retirees collapses, it will place further constraints on an already overstretched budget.

Second, the perceived risk to regime stability from restive minorities has caused internal security spending to overtake conventional military spending. As long as the domestic situation looks awkward, internal security cash requests will trump the military.

The desire to avoid internal confrontations and extend the reach of the social umbrella to buy domestic support could leave the military as the loser in future budgetary rows.

Overall, a long-term slowing economy and rising domestic budgetary demands could limit the hitherto continuous rise in military expenditure, which should relieve China’s regional neighbours.  Without a reform of the tax system and thoughtful nurturing of a more efficient economy, China may become again a quiet neighbour.

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