Friday, October 21, 2005

Chinese Defense Spending

Defense Secretary Rumsfeld, on his recent visit to China, asked China to release its real defense expenditures. When prodded by Associated Press reporter Bob Burns during a question and answer session, Chinese Defense Minister Cao Gangchuan replied (through translator):
[T]his year's defense budget of China is some 29.56 billion U.S. dollars, and that's calculated according to the old official exchange rate between the Chinese Yuan and U.S. dollars. Introducing the new exchange rate, today's defense budget is at the level of 30.2 billion U.S. dollars. And I'm quite sure to tell you that that is indeed the true budget we have today. It is not necessary and not impossible [sic], actually, for us to massively increase the defense budget. (source)
I guess that clears it up then. American estimates, which differ by hundreds of percent in many cases, were off because of the two percent appreciation of the Yuan. (note the sarcasm)

Most PLA-watchers conclude that the numbers China gives for its defense expenditures are unrealisitically low. Sinologist David Shambaugh has concluded:
Few areas of Chinese military affairs are more opaque and difficult to research than the revenue/expenditure and budget/finance domains--but perhaps none is more important to understand. (Modernizing China's Military, 184)

Deadpen at Project China recently collected some different estimates of Chinese defense spending showing how confusing and varied the estimates were. There are a couple of reasons for the variation:
  • Ideas differ as to what numbers should be included in 'defense spending.'
  • The PLA has multiple sources of revenue.
In his defense, Minister Cao did caveat his answer, saying:
[S]ome funding for the development of certain equipments is not calculated in our defense budget, that is true. For example, the funding for the manned space mission, Shenzhou VI, is not calculated as part of the defense budget.

That is a good start but far from sufficient. In addition to the space program, China's official defense budget overlooks
a wide variety of military accounting items commonly included in Western budgets:
  • Procurement of weapons from abroad
  • Expenses for paramilitaries (People's Armed Police)
  • Nuclear weapons and strategic rocket programs
  • State subsidies for the defense-industrial complex
  • Some defense-related research and development
  • Extra-budget revenue (yusuanwai).
That quote comes from the most complete analysis I've seen of the Chinese defense budget: RAND's Modernizing China's Military, which is available free online. Chapter four of that text will tell you more than you ever wanted to know about Chinese defense numbers and certainly more than you will ever get out of China's Ministry of National Defense.

Update: Sun Bin offers this article critiquing many Western estimates of Chinese defense expenditures.