March 5 (Bloomberg) -- China will boost defense spending 10.7 percent this year as the government modernizes its military arsenal and adopts a more assertive stance in territorial disputes with its neighbors.
Military spending is set to rise this year to 740.6 billion yuan ($119 billion) from 669.1 billion yuan, the Ministry of Finance said in a report. China has the second-biggest military budget in the world after the U.S., which spent nearly six times more on defense than China last year and is now cutting those outlays.
Defense spending as a percentage of gross domestic product remained unchanged in 2012 from a year earlier at 1.3 percent as the country upgrades its fleet of fighter jets, ships and missiles. The Communist Party says its modernization doesn’t pose a threat, while Japan and other nations in the region argue China has become more hostile in disputes over territory in the resource-rich waters of the East and South China seas.
“The increase is consistent with their long-term modernization plans,” said Taylor Fravel, a professor at the Massachusetts Institute of Technology who studies China’s relations with its neighbors. “Any time you see a double-digit increase in defense spending, especially when nobody else in the region is growing their budget at those rates, it generates anxiety and concern.”
The military outlays is in contrast with the U.S., where defense expenditures totaled $677.2 billion in inflation-adjusted dollars in 2012, down 3 percent from 2011. In December, congressional negotiators agreed on $640.7 billion in defense spending for this year. Automatic spending cuts from the so-called sequester may trigger further reductions.
In the last year, China’s Navy commissioned its first aircraft carrier and a frigate with stealth capabilities. The country completed its first manned space docking, launched a home-grown satellite navigation system and progressed with its aerial drone program.
China has also boosted its cyber-warfare capability, according to technology experts. Computer-security firm Mandiant Corp. said in a report last month that the Chinese army is probably the source of hacking attacks against at least 141 companies worldwide since 2006. The Ministry of Defense later said the accusations were “inaccurate and unprofessional.”
Defense spending rose just over 11 percent last year. As a percentage of GDP, defense spending was 1.3 percent in 2012, the same as in 2011 and down from 1.4 percent in 2006. Defense spending is projected to be 5.3 percent of total government outlays in 2013, unchanged from 2012 and down from 5.5 percent in 2011, according to data compiled by Bloomberg.
China and Japan have traded accusations over islands claimed by both sides in the East China Sea. Chinese protesters ransacked Japanese businesses after Japan purchased the islands in September. Last month, Japan said China used fire-control radar twice on Japanese targets.
Chinese ships also blocked the Philippines last year from inspecting Chinese fishing boats in a reef the Philippines calls Panatag Shoal and China refers to as Huangyan Island. Those moves may have backfired against China by aligning countries in the region against it, Philippine Foreign Affairs Secretary Albert Del Rosario said on Jan. 10, after meeting his Japanese counterpart, Fumio Kishida.
Japan is paying “careful attention” to the double-digit growth in China’s military spending, Chief Cabinet Secretary Yoshihide Suga told reporters today in Tokyo. “It is desirable for China to increase transparency in its defense and military policy, including expenditures.”
At the same time, China has avoided using its military to press its claims in maritime disputes, sending marine surveillance ships into waters surrounding the contested islands with Japan.
Some in the army have also counseled caution. People’s Liberation Army General Liu Yuan, the son of former President Liu Shaoqi, said in an editorial in the Global Times newspaper on Feb. 4 that China’s economic growth is in a critical phase and shouldn’t be interrupted by accidents.
China’s official defense budget doesn’t include items that other countries would count, such as research and development and foreign arms acquisitions, said Tai Ming Cheung, an associate professor at the University of California, San Diego.
The budget for domestic security will increase 8.7 percent to 769.1 billion yuan, less than the 12.4 percent rise last year. China has spent more on internal security than on national defense since 2010.
Increased military spending reinforces “the perception throughout the region that China is committed to striving for great power status,” Denny Roy, a senior fellow at the Honolulu-based East-West Center whose work focuses on Chinese security issues, said before the budget was announced.
China is planning to improve the transparency of its army and will hold 40 exercises with the military and paramilitary in 2013, Han Xudong, a professor at the University of National Defense under the People’s Liberation Army, wrote in the Global Times March 1.
Even as its budget expands, the military has also taken up a frugality campaign announced by Communist Party General Secretary Xi Jinping.
The army should give priority to high-tech weapons, training and information technology, and tighten control over receptions, celebrations and overseas trips, the official Xinhua News Agency said last month, citing a new regulation.
In a Feb. 20 report, Xinhua said the military had also told soldiers to recook unfinished rice and turn leftover vegetables into “various pickles and appetizers” to cut down on waste.
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