Not a Force to Be Trifled With

Every March, as part of the release of its annual budget for the coming year, Beijing makes public a single overall figure for national defence spending.

This year, if recent history is any guide, that figure will be anywhere from US$40.3 billion (S$62 billion) to US$42.1 billion - a rise of at least 10 per cent over last year's US$36.65 billion.

This pronouncement will likely touch off a flurry of media reports casting doubt on the official figure, and speculations of a much higher real figure. Critics will argue that China's lack of transparency on defence spending is another sign of its aggressive intent and perhaps even a warning of a covert military buildup.

But let's stop a moment and ask: What if the official defence budget increasingly does reflect actual spending? If not more transparent, is the declared budget at least more credible, and, if so, what does that mean for Chinese intentions and capabilities?

That China's People's Liberation Army (PLA) has been the beneficiary of a long-term expansion in defence spending is not in question. Since 1997, Beijing has raised its defence spending by double-digit doses every year - 13.7 per cent per annum, in real terms, according to the PRC's data.

China's official 2006 defence budget of 284 billion yuan (S$56 billion), for example, constituted a 15 per cent rise over the previous year, while the 2005 budget was itself a 12.5 per cent increase over 2004.

Consequently, military expenditure has nearly quadrupled in real terms since 1997, thus permitting Beijing to put much extra resources into the hardware and software of military modernisation.

All areas of the Chinese defence budget have benefited from these increases, such as personnel, training and operations. Nowhere, however, has Beijing's munificence been more strongly felt than in the PLA's equipment budget - expenditure for procurement and (supposedly) research and development.

PLA annual spending on equipment has risen from US$3.1 billion in 1997 to an estimated US$12.3 billion in 2006 - again, a four-fold increase in real spending.

If anything has supported China's recent expansion in military power, it is this explosion in defence spending, which has permitted the PLA to acquire new surface combatants and submarines, modern fighter jets, air-to-air refuelling aircraft, satellites, unmanned aerial vehicles and a host of ballistic, cruise and tactical missile systems.

This upward trend is likely to continue for some time. Last May, Beijing approved a new 15-year national development plan for defence science and technology that will boost military R&D spending and focus on developing high-technology weapons and 'IT solutions' for the PLA. It will also support advanced manufacturing technologies and cultivate collaborative international defence R&D efforts, with the goal of 'transforming the PLA into a modernised, mechanised, IT-based force'.

It has been widely accepted in the West that the official budget released by the Chinese every year accounts for only a fraction of their actual defence spending.

In particular, whole categories of military expenditure are believed to be missing from official figures, including R&D, arms imports, nuclear forces, the People's Armed Police and PLA reserves and militia forces, as well as state subsidies to the country's military-industrial complex.

How much all this extra- budgetary spending actually is has been the subject of considerable debate. A veritable cottage industry has sprung up dedicated to estimating likely Chinese defence expenditure. These unofficial estimates use many different approaches and methodologies, and have varied from between 1.5 and 10 times greater than the official budget.

The US Defence Department, for example, has stated that China's actual defence budget is two to three times its official figure, which would make it the world's second-highest military spender.

But is it fair to continue making such arguments about 'hidden' Chinese defence spending? In the first place, the evidence to support statements that some parts of military spending - especially on R&D and arms imports - were not in the official budget has always been spotty and usually uncorroborated.

Also, such arguments were too often based more on inference than fact, such as in 'how could an armed force of 2.3 million men have a procurement budget of only a few billion dollars?' After all, India maintains a force roughly half the size of and of around the same quality as China, on a budget of about US$20 billion. So why is a US$35 billion PLA budget so incredible?

In fact, it is just possible that China's declared defence budget is actually becoming a more accurate indicator of what the Chinese actually spend on their defence. Especially as military expenditure has grown, it is increasingly probable that more and more of what it costs to truly run the PLA is being reflected in the official budget.

There is some precedent to believe that this might be so. In the late 1990s, when the PLA was told to get rid of its outside business operations such as factories, hotels and real estate companies, at least part of the plus-up in the official budget was to compensate the army for these divestitures. Therefore, it is increasingly likely that the official budget now does include spending that may have once before been covered in extra-budgetary supplementals.

If the official Chinese budget does, more or less, account for all actual military expenditure, what does it mean?

In the first place, in just looking at the decade-long rise in official defence spending, we may deduce that Beijing is seriously committed to putting enough resources into modernising the PLA and to overcoming personnel, equipment and operations-related impediments to fielding an advanced military force.

We may also infer that the Chinese are using these budget increases to signal their intentions to potential adversaries - especially Taiwan and the United States - that it is serious about using military force, if necessary, in order to gain certain political-military objectives, such as the 'return' of Taiwan.

It is also evident that more than 10 years of double-digit increases in defence spending have begun to pay dividends. The PLA today is much more modern and more capable than it was only a few years ago, with new fourth-generation-plus jets (such as the recently unveiled J-10 fighter), surface combatants equivalent to the US Aegis-class destroyer and modern Albacore-hulled submarines.

Moreover, China has been able to make large-scale purchases of Russian weaponry, including fighters, missiles, and naval combatants - items that make up the sharpest edges of the pointy end of the PLA spear.

It may be that the Chinese still significantly under-report their military spending. Even so, it may hardly matter. One does not need to count all the beans to know that China is an emerging military (as well as economic and political) power in the Asia-Pacific to be reckoned with.