China to Boost Defense Spending by 12.7% as Military Extends Global Reach

China plans to increase defense spending 12.7 percent this year as the improved military capabilities of the country with the world’s biggest army have heightened concern in the U.S. and the region over its goals.

China will spend 601.1 billion yuan ($91.5 billion) on defense this year, Li Zhaoxing, spokesman for China’s National People’s Congress, told reporters today in Beijing. The increase compares with a previously reported 7.5 percent rise in 2010, the slowest pace of expansion in more than a decade.

“China adheres to a policy of peaceful development and we follow a defense policy that is defensive in nature,” Li said ahead of tomorrow’s opening of the Congress. China’s defense spending “does not pose a threat to any country,” he said.

Vice Admiral Jack Dorsett, the head of U.S. Navy intelligence, said Jan. 5 the Pentagon had underestimated the speed at which China has developed and fielded a ballistic missile that may be capable of hitting a maneuvering U.S. aircraft carrier. A Chinese fighter that may have radar-evading stealth capabilities flew a test flight in January during a visit by U.S. Defense Secretary Robert Gates.

China’s defense spending, the world’s second biggest, is still a fraction of U.S. outlays. The Pentagon is requesting $671 billion for fiscal 2012, starting Oct. 1, $37 billion less than this year’s request. U.S. analysts say China’s actual defense spending is much higher, because the announced figures may not include international arms purchases and other expenses.

‘Significantly Understates’

“The official defense budget omits a lot of defense- related expenditures, including acquisition of foreign weapons, much defense-related R&D, pensions, and support provided to the military by local authorities,” said Phillip C. Saunders, a research fellow at the National Defense University’s Institute for National Strategic Studies in Washington. “As a result, it significantly understates actual defense spending.”

Defense spending accounts for less than 2 percent of China’s gross domestic product, compared with almost 5 percent in the U.S. China’s defense spending increased an average of 16.2 percent a year from 1999 to 2008, according to figures from a defense white paper published in 2009. The biggest increase was 20.4 percent in 2006.

“Even with more than 1.3 billion people, a large land mass and long coastline, China’s defense spending is relatively low compared with other countries,” Li said.

Leadership ‘Disconnect’

China’s military spending is growing amid concern by the U.S. that the People’s Liberation Army, at about 2 million the world’s largest standing army, is increasingly disconnected from the country’s civilian leadership under President Hu Jintao. Gates, meeting with Hu on Jan. 11, told him about the stealth test flight and Hu’s reaction suggested that he may not have been aware of it, Gates said Jan. 14 in Japan.

“This is an area where, over the last several years, we have seen some signs of, I guess I would call it a disconnect, between the military and the civilian leadership,” Gates said, adding that while such lapses occasionally occur in the U.S. too, “this is something of a worry.”

China’s increased naval capabilities have raised concern among neighboring countries with competing territorial claims. A clash at sea between China and Japan last September near a disputed island chain reportedly prompted Beijing to cut exports of rare-earth minerals used to make hybrid car engines, missiles and radar.

Spratly Islands

Japan, the U.S. and several countries in the Association of Southeast Asian Nations have urged China to agree to a set of rules at sea to avoid confrontations, a move it has resisted so far. China spends more on defense than Japan and Asean countries combined, according to data compiled by the Stockholm International Peace Research Institute.

Vietnam, which ordered six submarines from Russia in 2009, protested Chinese military drills last month near the disputed Spratly Islands, according to a statement on the Foreign Ministry’s website yesterday. China claims most of the South China Sea as its own and dismisses rival claims to the islands from Taiwan, Vietnam, Malaysia, the Philippines and Brunei.

China’s military is also expanding its global reach as the country’s worldwide presence expands. In 2009, the Chinese navy began regular patrols to protect sea lanes from Somali pirates in the Middle East. This week, a frigate on that patrol arrived off the coast of Libya in the Mediterranean Sea after transiting the Suez Canal. The ship will help ensure that Chinese nationals are safely evacuated from Libya where the country’s leader, Muammar Qaddafi, is facing a rebellion as anti-government protests spread across the Middle East.

Tensions with the U.S. rose last year after the U.S. announced in January plans to sell $6.4 billion of missiles, helicopters and ships to Taiwan. China broke off bilateral military-to-military talks until late last year ahead of Gates’ visit to Beijing and Hu’s state visit to the U.S. in January.

--Michael Forsythe. Editors: Patrick Harrington, Peter Hirschberg, Paul Tighe

To contact Bloomberg News staff on this story: Michael Forsythe in Beijing at +8610-6649-7580 at mforsythe@bloomberg.net;

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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