China's military capacity is expected to grow faster than its defense budget

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When China announced its draft budget this week, the defense spending target revealed little about how much the country is actually spending on the People's Liberation Army.

The official defense budget will increase by 7.2 percent this year. However, experts believe that figure masks a much larger boost to military capabilities as leader Xi Jinping seeks to transform the People's Liberation Army into a more effective force while lowering the cost of acquiring weapons as China's economic slowdown deepens.

“Xi has been talking about the need to accelerate defense modernization and push for reforms that enable the economy to support its wartime situation. It requires more resources, not fewer,” said Tai Ming-cheung, director of the Institute for Global Conflict and Cooperation at the University of California, San Diego.

International analysts of the Chinese military agree that Beijing's total military spending far exceeds the official defense budget, which does not include military research and development, some procurement, paramilitary forces and the coast guard.

“Our estimates suggest that total military spending is about 30 to 35 percent higher than the official budget,” said Nan Tian, ​​a researcher who tracks Chinese military spending at the Stockholm International Peace Research Institute.

Cheung, who has been researching China's defense industrial complex and military procurement for many years, said that after extensive research and development over the past three decades, the production of a number of systems such as missiles, fighter aircraft and warships is now moving to a higher level.

This indicates a need for greater spending outside the official defense budget. “I assume it's at least double digits [year-on-year] Growth rate in general.

Over the past year, Xi Jinping's plans to harness strategic resources to strengthen China in its competition with the United States have gained great importance.

In a speech last year to military delegates to the National People's Congress, China's parliament, Xi Jinping outlined plans to build an “integrated national strategic system and capabilities.” This phrase expands on Xi's concept of “civilian-military integration,” calling for the pooling not only of military and civilian technological and industrial resources, but also of strategic capabilities across the entire economy.

However, with China's economy growing at its slowest rate in years, Xi's desire to put the military in a much stronger position must be reconciled with efforts to reduce procurement costs and further drain the country's defense industries.

“The economy is doing badly, and that necessarily means the PLA doesn't have a blank check,” said Lyle Morris, a senior fellow at the Asian Community Policy Institute's China Analysis Center and the bureau's former China country director. From the US Secretary of Defense.

In response, the leadership is trying to reorganize China's military-industrial complex. In a notice published in August 2021, the People's Liberation Army said there was an “urgent need to accelerate the development of high-quality, high-efficiency, high-speed, low-cost military equipment.”

Since then, state-owned defense contractors have highlighted the need to pursue lower-cost systems, said Roderick Li, research director of the China Aerospace Studies Institute at Air University, the educational institution for the U.S. Air Force and Space Forces in Alabama.

Chinese analysts explain this trend by pointing to the widening gap between the procurement needs of the armed forces and the available budget.

In a report on the defense industry published a few months after the military's 2021 notification, brokerage China Galaxy Securities highlighted this gap by pointing to the Air Force and the Missile Force, the missile arm of the People's Liberation Army, which has been rocked by the anti-corruption campaign. Which led to the dismissal of its entire leadership and the Minister of Defense.

The brokerage estimates that equipment purchases through these two services will grow at a rate of 30 percent annually in the five years until 2025.

The report said there was a “sharp discrepancy” between the growth of fiscal revenues and military spending, and the rapid increase in demand for equipment. “Reducing the purchase price of equipment may be an important means of meeting the quantitative equipment requirements needed to prepare for war under the current stringent military budget framework.”

According to Chinese and international military experts, this transformation is now well under way and has been accelerated by what Beijing observed during the war in Ukraine, where Russia has exhausted huge supplies of materiel.

“This military operation is continuing much longer than expected and has created a need… for this.” . . “We have ordered much larger quantities of munitions and other equipment than expected,” said a Chinese military expert who requested anonymity because he was not authorized to speak to foreign media. “This is an experience from which we must draw lessons.”

The expert added that the People's Liberation Army is asking suppliers to increase production to compensate for the erosion of profits caused by falling prices.

“We are now seeing a large-scale expansion of their defense industrial base,” said Lee of the Air University. “After the 14th Five-Year Plan, we should expect very large quantities of low-cost missiles and other low-cost systems in the future.”