China’s Hidden Defense Budget

China’s Hidden Defense Budget
Chinese leader Xi Jinping (standing in vehicle) inspects People's Liberation Army (PLA) soldiers at a military base in Hong Kong on June 30, 2017. Dale de la Rey/AFP via Getty Images
Antonio Graceffo
Updated:
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Commentary

China’s military spending is larger than believed; Senate Minority Leader Mitch McConnell (R-Ky.) recently called for increasing the U.S. defense budget.

Chinese leader Xi Jinping’s objective for the People’s Liberation Army (PLA) is to achieve military superiority over the United States by 2050. Achieving this goal is directly predicated on the amount of money the two nations spend on defense. Previously, it was believed that China was spending $224.79 billion, a fraction of the U.S. military’s budget of $857.9 billion.
However, the U.S. Intelligence Community recently discovered that China may be spending as much as $700 billion, allowing China to challenge the United States for military supremacy much sooner than originally believed. This new revelation has lawmakers concerned.
One of the ways that Beijing disguised its spending was by directing money into the military-civil fusion, whereby the central government provides money to private companies to develop dual-use technology. Some of the most critical areas of military development, such as shipbuilding, information technology, and aerospace, are funded in this way. These three domains are expected to play the largest role in any war between the United States and China. A special danger regarding information technology and aerospace is that the ability to dominate cyberspace or damage or disable satellites will be crucial in 21st-century warfare. It could leave ships and planes unable to navigate or communicate or prevent the United States from guiding its missiles to targets.
China’s Coast Guard and People’s Armed Forces Maritime Militia aren’t covered by the defense budget. These two forces have been aggressively pushing the Chinese Communist Party’s (CCP’s) territorial claims in the South China Sea and conducting spying in the Bay of Bengal. They carry weapons and enforce Beijing’s foreign policy objectives but aren’t considered part of the PLA Navy.
China is one of the five largest arms importers in the world. During the past five years, its arms imports have been rising, with 83 percent coming from Russia. China primarily imports weapons and technology that can’t be produced domestically, such as long-range strike capabilities, combat aircraft, and missiles. These imports aren’t counted in Beijing’s official defense spending figures. Research and development are other large expenditures not charged to the country’s defense budget.
Purchasing power parity is another reason why China’s spending may be amplified. Because labor and many basic products and services are much cheaper in China than in the United States, Beijing can buy more of them with a smaller budget. Soldiers’ salaries are much higher in the United States than in China. A private in the PLA has a starting salary of $108 per month. In the U.S. Army, it’s $1,918. On a similar note, the United States has been plagued by inflation, with prices increasing by an average of nearly 18 percent since the Biden administration began. China, by contrast, is facing deflation. While prices are going up in the United States, they’re going down in China, making it possible for the CCP to buy more goods and services for the PLA.
China ranks among the world’s five largest arms exporters. Although its defense budget has increased steadily, year after year, its arms exports have been in decline. Last year, its weapons exports dropped by 23 percent. Russia surpassed China as the primary arms dealer in Africa. Europe, the part of the world that has seen the greatest increase in arms purchases, buys most of its overseas weapons imports from the United States. One reason for this may be that China is stockpiling weapons in preparation for war.
The PLA Navy and PLA Air Force have increasingly threatened the sea and air space around Taiwan. In response, the United States is strengthening its defense ties with Taiwan, India, Australia, and other nations. The U.S. Department of Defense has stated that it’s trying to prevent a war in the Indo-Pacific region but wants to be ready if war breaks out.
Secretary of Defense Lloyd Austin said the increase in the U.S. defense budget this year was “driven by the seriousness of our strategic competition with the People’s Republic of China.” Now, it appears that China is spending more than originally believed; the stakes have been raised.

Mr. McConnell, in a Sept. 19 statement, recognized the grave importance of stepping up U.S. preparations for a possible war with China. He called for more military spending.

Closing the gap with China—and outcompeting our biggest strategic adversary—will require more than innovation theater or speeches about revolutions in military affairs,“ he said. ”Real progress will require real investments in long-range strike capabilities. Real expansion of our defense production capacity. Real defense technology cooperation with our closest allies who increasingly share our concerns about the PLA.”
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
Antonio Graceffo
Antonio Graceffo
Author
Antonio Graceffo, Ph.D., is a China economic analyst who has spent more than 20 years in Asia. Graceffo is a graduate of the Shanghai University of Sport, holds a China-MBA from Shanghai Jiaotong University, and currently studies national defense at American Military University. He is the author of “Beyond the Belt and Road: China’s Global Economic Expansion” (2019).
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