China’s Economy Shrinks, Defence Budget 2020 Up 6.6%

anil chopra, air power asia, China, Defence Budget

Coronavirus hit China’s economy shrank 6.8% in the first quarter of 2020 compared with a year earlier. China’s defence spending in 2020 will rise 6.6% from 2019, according to a report issued at the opening of the country’s annual meeting of parliament on 21 May 2020. The growth is slower than last year, 2019, when it grew at 7.5%. China‘s 2019 defence budget was 1.19 trillion Yuan ($177.5 billion). The 1.268 trillion Yuan ($178.16 billion) funding will give significant beef up its military capabilities. the defence budget increase outpaces the nation’s gross domestic product (GDP) growth which grew at 6.1%. According to the report, China is targeting a 2020 budget deficit of at least 3.6% of GDP, above last year’s 2.8%. China is the world’s second-largest economy, and has the second largest defence budget, but it trails the biggest, USA which had the FY2020, Defence budget of $721.5 billion. Clearly USA and China appear to be in an arms race, and together the two represent 52 per cent of global spending. China has openly stated its desire to one day surpass the United States.

          China traditionally announces only a raw figure for military expenditure, with no breakdown, and it is widely believed that China under-report the real number. There are many military capability development programs that are covered under separate civil code heads. China continues to quote much higher US defence spending and their need to close the gap. China, for example, has only two aircraft carriers, compared with 12 for the United States. The increasing defence spending could also give the Chinese economy a much-needed booster shot.

Chinese Aircraft Carrier Liaoning. Picture Credit: You Tube

Active Borders Despite Covid

          China could not achieve the 2020 economic growth target for the first time, said Premier Li Keqiang’s work report and pledged government support for the economy. Despite the Coronavirus, the Chinese armed forces have remained active in the disputed South China Sea and around Chinese-claimed Taiwan. China also remains active in creating border issues and stand-offs with India. The allegations related to Coronavirus have also worsened already-poor relations between Beijing and Washington. The Chinese Ministry of State Security warned in a its internal report that China faced a rising wave of hostility in the wake of the Coronavirus outbreak that could tip relations with the United States into armed confrontation.

J 10. Picture Credit: Wikicommons

Defence Budget and Military Capability

          China’s rising defense spending follows from over two decades of modernization efforts. China began military modernization in earnest after the 1995–1996 Taiwan Strait crisis, which exposed fundamental weaknesses in China’s ability to deter foreign intervention in sovereignty disputes. China’s defense budget relatively stagnant prior to the 2000s.

          Defense spending normally relates to a countries military capability, especially the money spent on Capital acquisitions and research and development.  Comparison of defence spending, as an absolute figure, or as a percentage of government annual spend are indicators of relative military strength. Spending also indicates political intent. China remains a closed country, lacks transparency, and media releases are very centrally controlled. Real information flow is thus slow and delayed. China’s defense spending has seen a nearly seven-fold increase over the past two decades, jumping from $39.6 billion in 1999 to $266.4 billion in 2019. China currently spends on defence, around three times as much as India, and more than Japan, South Korea, the Philippines, and Vietnam combined. Japan’s military spending remains set at approximately 1 percent of its GDP, but this could change in the future as Prime Minister Abe has pushed for a spending increase.

Z 20 Attack Helicopter. Picture Credit: China Daily

Major Defence Spenders

          The Stockholm International Peace Research Institute (SIPRI) report released on 27 April 2020 indicates that the global military spending has hit new highs reaching $ 1917 in 2019.  The total represents an increase of 3.6 percent from 2018 and the largest annual growth in spending since 2010. The five largest spenders in 2019, which accounted for 62 percent of expenditure, were the United States, China, India, Russia and Saudi Arabia. This is the first time that two Asian states have featured among the top three spenders. The comprehensive annual update of the SIPRI Military Expenditure Database is accessible at http://www.sipre.org.  

          India’s grew by 6.8 percent to $71.1 billion. ‘India’s tensions and rivalry with both Pakistan and China are among the major drivers for its increased military spending,’ says Siemon T. Wezeman, SIPRI Senior Researcher.In addition, Japan at $47.6 billion (ranked 9th) and South Korea at $43.9 billion (ranked 10th) were the other big spenders of the region. Saudi military spending represents 8 percent of the GDP, higher than all the major powers. Germany at $49.3 billion had an increase of 10 percent. This was the largest increase in spending among the top 15 military spenders in 2019. Germany has an increased threat perception from Russia. NATO’s total military spending reached $1.035 trillion in 2019. In 2019 Russia was the fourth-largest spender, and at $65.1 billion had an increase of 4.5 percent. Despite its stagnant economy, at 3.9 percent of its GDP, Russia’s military spending burden was among the highest in Europe in 2019,’ says Alexandra Kuimova, Researcher at SIPRI. Its soured relationship with the U.S. and NATO is the main factor driving Russian rearmament. There was practically no increase of  military spending by France and UK. The average military spending was 1.4 percent of GDP for countries in the Americas, 1.6 percent for Africa, 1.7 percent for Asia and Oceania and for Europe and 4.5 percent for the Middle East.

No Standard Reporting Format on Military Expenditure

          There is no universally accepted standard for reporting military spending. Governments, especially in centrally control regimes, report their expenditure with varying degrees of detail. China joined the UN Military Expenditure Reporting system in 2007, but it remains less transparent than many countries. How much China actually spends on its military is widely debated. For 2018, the SIPRI estimate was nearly $254 billion and the International Institute for Strategic Studies (IISS) puts the number at $225 billion. The US Department of Defense (DoD) said that it likely exceeded $200 billion. The 2019 estimate from SIPRI pegs China’s nominal defense spending at $261 billion, 1.5 times larger than the official figure. The inconsistencies in estimates are further complicated by a lack of pricing information.

          In 2018 writer John Zmirak warned that China is “arming faster than Hitler was arming in the thirties.” In 2019, Peter Robertson, a professor from the University of Western Australia, argued that using conventional currency conversion as opposed to more accurate “purchasing power parity” (PPP) exchange rates dramatically understated China’s military capabilities and that China’s real military spending was equivalent to US spending of $455 billion, calculated from a PPP perspective.

Chinese Broad Defence Expenditure Breakdown

          An analysis of U.N data for 2017 indicates that China spent 30.8% on personnel (Salaries), 28.1% on training and maintenance (Revenue), and 41.1% on equipment (Capital).  Beijing states that it annually reports categorized military spending information to the UN. The 2019 white paper, which includes spending breakdowns between 2010 and 2017, reveals spending on equipment now accounts for the largest share of the defence budget. In case of India the Capital budget for 2020-21 is 35% of the total defence estimates.

China’s Type 99 Main Battle Tank. Picture Credit: National Interest

Doctrinal Shifts and Defence Expenditure

          China’s spending increases have often corresponded with several high-profile procurement programs, military reforms, and military doctrinal and strategic shifts for playing a larger role in regional and international security. China has a growing security interests in the East and South China Seas. It also has strained relations with most regional players, including Japan and India. Despite increases China military presence primarily remains off its coast and at best within the Indo-Pacific areas. Looking at broader regional trends, East Asia spends close to the same amount as Western and Eastern Europe combined. East Asian spending has increased from $92.8 billion in 1990 to $363 billion in 2019. Much of this growth in expenditure has been driven by China, which was 70.5% in 2019. China became the world’s fifth largest exporter of major arms in 2014-18, and supplied major arms to 53 states in this period. Pakistan received 37% of these.

Implications India

          China’s 2020 defence budget is about 2.7 times more that of India. China’s defence spending is around 1.3 percent of its GDP vis-a-vis India’s at close to 1.5 percent. China has embarked on a massive modernisation which included a number of aircraft carriers, stealth aircraft, rapid development of modern naval frigates. China has revamped its defence forces, cutting down army troops and enhanced its naval and air power as Beijing expanded its influence abroad. China currently has one aircraft carrier, the second one is undergoing trials while the third is being built. China continues to show aggression on India’s borders and increased presence in Indian Ocean region. India has to not only increase defence spending but also get the value for its defence spend by investing in force multipliers.

Picture Credit: Imaginechina via Associated Press

Published by Anil Chopra

I am the founder of Air Power Asia and a retired Air Marshal from the Indian Air Force.

6 thoughts on “China’s Economy Shrinks, Defence Budget 2020 Up 6.6%

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