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Editor's Note

In an effort to understand China's national and regional security strategy, Dong Ryul Lee reviews trends in China's military buildup with a focus on defense spending and strategy in response to economic growth. The paper shows that China's defense spending has consistently increased in line with its economic growth and fiscal spending, and that the country has sufficient economic and financial capacity to increase military spending if necessary. However, domestic factors, such as the growing domestic demand for social welfare and population changes, may act as a constraint on this spending in the future.

Quotes from the paper

China's Military Spending

The growth in Chinese military spending is tied to its rising GDP. China’s estimated defense budget was $50 billion (USD) in 2001 and $228 billion (USD) in 2017 (2016 base year USD). Although this number represents over a 356 percent increase, these figures run generally parallel with Chinese economic growth. Over the same period, the Chinese economy grew by approximately 950 percent, resulting in a rate of Chinese military expenditure as a percentage of GDP that remained steady at around 2 percent as shown in figure 2.

Figure 2 Military Spending as Percent of GDP

    Source: CSIS China Power Project (Data from: SIPIRI Milex Database)

China’s defense spending has certainly increased in absolute terms, but in the long term, the growth rate is tending towards decline. From 1990 to 2013, the average annual defense budget growth rate for the 24-year period was 15.1 percent. Throughout Xi Jinping’s administration (2013-2016), the average growth rate declined to 10.15 percent. In fact, China's defense spending has been rising sharply in recent years, but it still appears to be managed within acceptable limits of the country’s economic capacity.

Variables in Forecasting China's Defense Spending

In general, defense spending is mainly affected by three variables: policy wills, capacity, and the presence of  external threats. Therefore, predictions of Chinese defense spending consider the following variables which have the potential to affect China’s future defense spending. First, in terms of policy will, there is the question of how highly the Xi Jinping administration will prioritize “building a strong military (强軍夢)” in order to realize the so-called Chinese dream (中國夢). Second, in terms of capacity, it is necessary to examine the economic and social variables of China that will affect the country’s future defense budget, because the Chinese government has increased its military spending in line with the economic growth rate thus far.

Finally, as China has quickly emerged as a powerful country since it launched its reform and opening, it has significantly weakened its perception of direct military threats from outside. Therefore, the manner in which the Xi Jinping administration will recognize and respond to any checks posed by the US against China will become an important factor in determining defense spending.

Policy Will and Military Strategy

Building a strong national defense and powerful armed forces is a strategic task of China’s modernization drive and a security guarantee for China’s peaceful development. The building of a strong military pursued by the Xi Jinping administration encompasses modernizing the military and focusing on the qualitative growth of military power. The key to China’s military buildup is its ability to acquire advanced defense technology.

As long as China continues to actively pursue its military modernization, especially if it pursues the development of civil-military integration, the actual defense spending that the government does not include in its official figures will continue to grow in the future.

Capacity: GDP Growth Rate

China's defense spending has consistently increased within a certain range of China’s economic growth and fiscal spending. In other words, the Chinese government has stably maintained and controlled the defense budget. Should a situation that demands an increase in actual military strength arise, the country has sufficient economic and financial capacity to mobilize greater defense spending than the current level, depending on the will of policy makers.

However, as social diversity expands due to income growth, there is the potential for increased challenges to the legitimacy and stability of the Communist Party sys-tem. Even if China can sustain a medium level of growth, it will face financial limits on the development of its military power if it is to meet the growing needs and expectations of its people. Military spending may be constrained by a growing demand for domestic welfare, an aging population, and a decrease in the working population.

Threat: The United States Variable

China is trying to avoid entering into geopolitical conflicts with the US, and gradually seeks a path to a geoeconomic rise (Lee 2017, 329-364). Currently, China seeks to focus on economic development, such as the “Belt and Road Initiative (BRI),” while avoiding direct military conflicts with the United States to the greatest extent possible. China is not currently capable of directly challenging the US militarily, so the situation is likely to be one of long-term competition, not war.

As China continues its unexpectedly rapid rise and the United States further implements Indo-Pacific strategy in Asia, many countries in the Asia-Pacific region will face a harsh dilemma between US and China. The United States will push strongly to contain China’s expansion in the South China Sea, the East China Sea, and the Korean Peninsula, where China’s influence can prevail. Competition for influence between the US and China will gradually increase in the region. If the Trump government pressures China on territorial and sovereignty issues that the Xi Jinping government sees as its “core interests,” such as Taiwan or South China Sea, then the Xi government may encounter difficulties in that its active use of nationalism to secure the legitimacy of the communist regime leave it too rigid to address the issue adequately.

Author's Biography

Dong Ryul Lee is a professor in the Department of Chinese Studies at Dongduk Women’s University since 1997. He is now President of The Korean Association for Contemporary Chinese Studies and serves as a policy advisor to the Republic of Korea Ministry of Foreign Affairs. His research area includes Chinese foreign policy, international relations in East Asia, Chinese nationalism and minority. He was a visiting scholar at the Weatherhead East Asian Institute at Columbia University from 2005 to 2006. He received his Ph.D. in international politics from Peking University.