Dr. Alexandr Nemets
Wednesday, Mar. 7, 2002

How Large Is the Chinese Defense Budget?

On March 3, just before the start of the annual session of the Chinese parliament, it became known in Beijing that in 2002, China's official defense expenditures would increase by 17.6 percent from the 2001 level and reach 166 billion yuan ($20.1 billion in the official exchange rate).

Several weeks ago, Dr. Thomas Torda and I wrote in the NewsMax article Russia Suffers While Arming China, Part 2: "The authors will be very surprised if this increase [this year's official Chinese defense budget] is less than 15 percent."

So this author is not surprised to see the modernization of the PLA and construction of the mighty Chinese military machine moving rapidly forward.

That same report from Beijing emphasized that the real defense budget of China, with all the "invisible articles" accounted for, "is four times greater than the official figure [for 2001-2002]." This estimation is very close to reality. The author, after comprehensive research, came to the same conclusion.

So, the real defense budget of China this year will reach between 660-670 billion yuan, or approximately $80 billion in the official exchange rate.

Still, the message from Beijing insists, "[the budget] is small when compared with the U.S. defense budget," about $340 billion in the 2002 fiscal year and around $380 billion planned for the 2003 fiscal year.

On this point, the author absolutely disagrees.

Let's look at the table composed by the author jointly with his friend Thomas Torda and used in the book "Chinese-Russian alliance" (scheduled for publication), with newly added preliminary data for 2002.

	1990	1995	1996	1997	1998	1999	2000	2001	2002
Official expenses, billion yuan	29.0	63.6	71.5	80.9	92.8	104.6	123	141	166
Actual expenses, billion yuan	~72	~172	~200	~243	~278	~334	~418	~560	~670
Multiplication factor	2.5	2.7	2.8	3.0	3.0	3.2	3.4	4.0	4.0
Real growth of official defense expenditures, adjusted for inflation, with 1990 as base	100	118	127	144	162	187	220	~250	290-295
Real growth of actual military expenditures, adjusted for inflation, with 1990 as base	100	127	142	173	194	238	298	~350	410-415

The "multiplication factor" is the ratio between real and official defense outlays. This changing factor – estimated on the basis of a large amount of data published by the U.S., U.K., Taiwan and Hong Kong media – increased from about 2.5 in 1990 to about 3.0 in 1997-98, and then to about 4.0 in 2001. The value of this coefficient is directly related to the intensity of PLA modernization.

The rapid growth of official and real defense expenditures, in comparable rates, has been supported mainly by China's dramatic economic expansion of the 1990s. However, between 1990 and 1996 real military expenses increased "only" 44 percent, while the Chinese GDP in this same period expanded almost two times.

Deng Xiaoping, who died in February 1997, did his best to restrain the growth of military expenses. After his death, Beijing's new leaders drastically changed political course and opened wide the military coffers.

As a result, the preliminary data show the PLA, in 1997-2002, will get about three times as much money, in real terms, as in the preceding six years (1991-1996).

But maybe it's still "small when compared with the U.S. defense budget."

According to World Bank "2001 World Development Indicators," in 1999 the GDP of China, officially about 8,300 billion yuan, was equal, if recalculated on the basis of purchase power parity of Chinese currency, to about $4,250 billion. In other words, the average yuan in China in 2001 was able to buy about the same goods and services as 51 cents in America.

The real purchase power of the yuan in 1999 was at least four times greater than the official exchange rate. In 2000-2001 this ratio remained the same. Does this mean that about 670 billion yuan of total Chinese military expenses in 2002 are equal, by their real purchase power, to about $340 billion?

The "military yuan," for some reason, buys less than the "general yuan." Still, one may conclude that, in 2002, the total military expenditures of China, if recalculated on the basis of current U.S. prices, will surpass $250 billion. This is a grave reality we must deal with.

It is easy to forecast – based on the data from 1997-2002 – that in 2003, Chinese defense expenditures, both official and actual, will again increase by 15-17 percent, thus continuing to reduce the gap between China and the USA.

Qualitative and Quantitative Upgrading of the PLA

Usually when some expert speaks about PLA modernization, he gives a "laundry list" of the PLA's recent acquisitions, mostly of Russian origin: SU-27 and SU-30 fighters, Kilo submarines, Sovremenny destroyers, S-300 and Tor-M1 air defense systems, etc.

The more insightful expert will mention Chinese weapons development (also, as a rule, with heavy use of Russian technology): "Project 093" nuclear attack submarines, "Project 094" strategic submarines, Luhai missile destroyer, "Super-Kilo" diesel-electric submarine, DF-31 ICBMs, HN-series long-range cruise missiles, J-10 mid-level fighter and FC-1 light fighter, many comparatively advanced weapons for Ground Forces, etc.

Let's look a bit deeper. Analysis of articles in the major Chinese military journals Zhongguo Junshi Kexue (China Military Science), Junshi Xueshu (Military Art), Xiandai Junshi (Modern Military), Bingqi Zhishi (Weapon Knowledge) shows a dramatic rise in qualifications of Chinese strategists during 1999-2001.

This reflects a great qualitative upgrading of the entire PLA, along with the quantitative upgrading due to obtaining the advanced weaponry listed above.

The PLA started discussions about Revolution of Military Affairs (RMA), effectively accomplished by U.S. armed forces in the 1990s, after the Chinese Communist Party's 15th Congress in September 1997, which proclaimed an acceleration of "PLA modernization."

In 1999 the PLA really became engaged in RMA. The brilliant results of allied forces operations in Yugoslavia became a mighty stimulus for Chinese leaders and PLA generals. In 2001, the PLA accelerated its transformation into a "flexible and effective system of weapons systems," the final goal of RMA.

Almost certainly, in 2002-2003 the PLA will continue its rapid qualitative upgrading, along with large-scale purchases of new-generation weaponry, and will transform itself into essentially a new army, practically unrecognizable from the PLA of 1996.

The major factors promoting this transformation are as follows:

• Steep rise in military expenditures.

• Continuous expansion of Chinese economic and technological potential.

• Unlimited access to Russian military technologies.

Read more on this subject in related Hot Topics:
China/Taiwan

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