China Defense Buildup Slows as Cooler Economy Restrains Spending

  • Budget to rise 7% to 8%, slowest pace since at least 2010
  • China military spending remains less than a quarter of U.S.

China’s defense spending will grow at the slowest rate in at least six years as President Xi Jinping moves to trim the size of the military and the economy expands at its weakest pace in a quarter century.

The military budget will expand between 7 and 8 percent this year, National People’s Congress spokeswoman Fu Ying announced before the annual gathering starts in Beijing on Saturday. That’s down from a 10 percent increase last year and close to the projected rate of overall economic growth of between 6.5 percent and 7 percent.

China’s economic slowdown is putting limits on government spending as Xi implements the most sweeping military overhaul in decades. The plan to modernize the 2.3 million-member People’s Liberation Army includes cutting 300,000 personnel and breaking up the military’s back-office bureaucracy. China considered defense, economic development and fiscal revenue in setting the defense budget, Fu said.

“It isn’t a drastic cut,” said Collin Koh Swee Lean, an associate research fellow at the S. Rajaratnam School of International Studies in Singapore. “It might be a way to force the PLA to utilize money more efficiently and cut down wastage. Still, they don’t want to send the wrong signal to the domestic and international audiences about the military-modernization program.”

Aerosun Corp., which makes parts for the aviation industry, slid 4.5 percent in Shanghai, while Aerospace Communications Holdings Group Co. declined 2.6 percent. AviChina Industry & Technology Co. dropped for the first time in four days in Hong Kong, losing 0.4 percent.

Second Carrier

Xi’s military revamp is aimed at unifying the People’s Liberation Army, Navy, Air Force and a new Rocket Force under a U.S.-style joint command system, enabling the armed forces to better defend China’s sovereignty at home and its growing interests abroad.

Much of the budget will be earmarked for new hardware. A second aircraft carrier is under construction, the country is developing new planes including the J-20 stealth fighter, as well as weapons such as the submarine-launched anti-ship missile known as the YJ-18, which accelerates to supersonic speed just before hitting its target.

Though China’s defense budget has more than doubled after a decade of double-digit growth, it’s still dwarfed by U.S. spending. The Pentagon’s $585 billion budget for 2016 -- partly shaped by a need to counter China’s advancing capabilities -- is more than four times what China intends to spend. 

Defensive Purposes

China’s military outlays would likely represent about 1.3 of percent its economy in 2016, similar to that of recent years, and less than 3.1 percent for the U.S.

The spending has allowed the PLA to better project force and has contributed to rising tensions in the region, particularly in the contested South China Sea. The U.S. has begun sailing warships near disputed islands in "freedom-of-navigation" operations to challenge China’s claims to the area, where it’s reclaiming land and building military facilities.

Fu called the U.S.’s deployment of additional naval forces in the region under its "rebalance to Asia" a form of militarization. China’s deployment of missiles and radars on its islands were for defensive purposes, she said.

Arms Buildup

“Defense capability is not the same as militarization,” Fu said. “If the U.S. is indeed interested in upholding peace and stability in the region, it should support China’s effort to settle issues through negotiations.”

China’s military growth combined with heightened territorial tensions will propel the Asia-Pacific region to the top rank of global military spending by the end of the decade, accounting for one in every three dollars spent on defense by the end of 2020, up from one in five in 2010, IHS Jane’s forecast last month.

The Philippines and Vietnam -- spooked by China’s island-reclamation program in the disputed South China Sea -- are both increasing defense spending. India plans to spend at least $61 billion to expand its navy, eyeing Chinese submarine patrols in the Indian Ocean. 

Australia will boost defense spending by more than 81 percent over the next decade to A$58.7 billion ($42.9 billion) in 2025-26. Japan will increase its defense budget this year by 1.5 percent to a record 5.1 trillion yen ($47 billion).

Personnel Cuts

“The growth of China’s national power, including its military modernization, means China’s policies and actions will have a major impact on the stability of the Indo-Pacific,” an Australian White Paper on defense released by Prime Minister Malcolm Turnbull last month concluded.

Xi reorganization of the military will seek to chip away at the dominance of the army, which now accounts for more than 70 percent of total troops, followed by the Navy with 10 percent and 17 percent for the Air Force, according to the Washington-based Jamestown Foundation. The personnel cuts will target non-combat personnel and should make the country’s forces more focused and efficient, while helping contain future increases in defense spending.

“The size of the PLA in terms of manpower, coupled with increases in the average wage in China, had increasingly become a major driver behind defense budget growth, rather than actual military requirements, and this is a move to check that trend,” said Craig Caffrey, principal analyst for defense budgets at London-based military publisher IHS Jane’s.

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