Chinese President Xi Jinping inspects People's Liberation Army equipment in January: Military and private-sector ties make calculating defense spending harder. © Xinhua News Agency/KyodoPhoto by: © Xinhua News Agency/Kyodo
BEIJING -- China's defense budget and what it is spending its money on are growing harder to gauge, even as its leaders devote more resources to the military and are increasingly willing to flex the country's strategic muscles.
According to official figures, the 2018 defense budget rose 8.1% on the year to 1.1 trillion yuan ($175 billion), putting China second behind the U.S.
But that leaves out some research and development spending and purchases of foreign weapons, leading some analysts to conclude China's total defense spending could be several times higher than the official number.
Further obscuring the picture is a strategy being pushed by President Xi Jinping in which private-sector companies are encouraged to take part in weapons development. This is blurring the line between civilian and military activity, making it more difficult to get a handle on China's actual military budget.
At a March 12 session of the National People's Congress, China's rubber-stamp parliament, Xi urged the armed forces to uphold the civil-military integration strategy in order to build a strong military.
Xi has touted this approach since around 2015. It calls for military technology to be applied to civilian uses as a way of spurring economic reform, and conversely, for technology developed by the private sector to be used in weaponry. The strategy focuses particularly on artificial intelligence, aerospace and information technology.
One company involved in the civilian-military partnership is Aero Engine Corporation of China. Founded in 2016, it specializes in manufacturing aircraft engines and has close ties to the Chinese air force. The hope is that the company will help China overcome a weakness in aircraft engine technology. A number of investment funds aimed at fostering civilian-military cooperation were set up, starting around 2016. Investors include many state-owned companies.
The money contributed by companies to these funds is not counted in the defense budget. It appears the listing of companies with military ties is aimed at raising more money for defense. When the Communist Party or the government has announced policies aimed at promoting the civil-military integration strategy, shares of such companies have occasionally shot up by their daily limit.
The American military-industrial complex is well known. In Japan, Mitsubishi Heavy Industries is a big defense contractor. But in China, most military-related companies are state-owned, which, in effect, puts them under the control of the Communist Party. Foreign military experts say China's civil-military integration is thus making the defense budget more opaque.
China's defense spending is divided roughly equally between personnel, training and maintenance, and equipment, but the details are secret.
Beijing granted significant pay raises to military personnel in 2017, but the growth of defense spending last year was slower than in 2016. Experts say that considering the increased pace of China's naval exercises on the high seas, and its active weapons development program, the official defense budget is too small.
Many Western military analysts say China's defense budget government does not include development costs for state-of-the-art equipment, such as the J-20 stealth fighter jet, and purchases of Russian-made Su-35 fighters, for example. Nor does it cover the budget for the People's Armed Police, which is tasked with maintaining civil order.
Including these costs would push up China's total defense spending by anywhere from 50% to 200%, compared with the official figure. If the upper estimate is accurate, China would closely trail the U.S. as the world's largest defense spender, with a budget of about $686 billion. This would underscore the country's goal of building a world-class military by the middle of this century.
China launched its first domestically built aircraft carrier last year. © KyodoPhoto by: © Kyodo
Zhang Yesui, spokesman for the National People's Congress, has said China's per capita defense spending is lower than that of other big countries.
Chen Zhou, a researcher at the People's Liberation Army Academy of Military Science, who has helped compile China's military white papers, denies the country has any off-the-books defense spending.
The government faces a dilemma when it comes to the military budget. It wants to demonstrate to its citizens its ability and willingness to defend China's interests, but it does not want to alarm other countries.
One way of looking at the threat one country poses to another is to multiply its strategic intentions by its capabilities. China's efforts to build military bases in the South China Sea, and its frequent naval exercises clearly show its desire to expand its sphere of influence at least as far as the western Pacific.
But its military budget is both large and fuzzy. This adds to tensions in the region and may cause its neighbors to respond by strengthinging their own military punch. China does not want to tip its hand, but its secrecy may make it less secure, not more.