Research Report Just the Facts, Ma’am: The Challenge of Analysing and Assessing Chinese Military Expenditures* Richard A. Bitzinger ABSTRACT Defence budgets can be a useful, even critical, indicator of national defence priorities, policies, strategies and capabilities. Consequently, knowing better where China is spending its defence dollars can be a useful mechanism for analysing and assessing current Chinese strategic and military intents, resolve and priorities, and whether the Chinese are devoting sufficient resources to meeting these needs. The dilemma with exploiting Chinese defence budgets as an analytic tool is that it is a highly data-dependent approach forced to work with a near-absence of usable data. Consequently, Western analysis of Chinese military expenditures has been forced to rely heavily upon extrapolation, inference, conjecture and even gut instinct in order to come up with “reasonable” guesses as how large China’s actual defence budget might be – an approach fraught with many pitfalls. This report argues that Chinese defence budget analysis has largely reached a methodological dead-end, and while it puts forth some suggestions for improving and refining this line of research, one should accept that, given the continued paucity of reliable data, this approach is a severely limited line of enquiry. Seek truth from facts. Deng Xiaoping Just the facts, ma’am. Joe Friday Defence budgets can be a useful, even critical, indicator of national defence priorities, policies, strategies and capabilities. The size of a country’s defence budget, the rate of growth or decline in its military expenditures, and what it spends this budget on can reveal much about a country’s strategic intentions and future military plans. Defence budgets can also be a good indicator of a country’s military modernization priorities and therefore its possible future military capabilities. Finally, military expenditures can serve as a gauge of a nation’s defence commit- ment and resolve, or its potential to threaten others. Consequently, it is not surprising that Western China-watchers are keen to know more about Chinese defence spending. As China looms * The author would like to thank Steven Kosiak, Michael O’Hanlon, Tai Ming Cheung, James Mulvenon, Lonnie Henley, David Shambaugh and Bernard Cole for their comments on earlier versions of this paper or for their insights on the general subject of Chinese military expenditures. The China Quarterly, 2003 Just the Facts, Ma’am 165 ever larger in the Western, and particularly US, security calculus, one important piece of the puzzle to a better understanding of where current Chinese strategic and military priorities lie, and whether the Chinese are devoting sufficient resources to these priorities, is to look at how and where China is spending its defence dollars.1 So, just how much is China spending on its military? A simple question, perhaps, but it is one that has increasingly preoccupied and perplexed the West’s China-watchers, not to mention their governments and militaries. And it is particularly prominent every March, when Beijing releases its defence budget for the next year. In early 2001, for example, China reported that it would spend 141 billion yuan ($17 billion) on the People’s Liberation Army (PLA) – an increase of 16.5 per cent over the previous year and continuing a 12-year trend of real growth in Chinese military expenditures. Moreover, given China’s practically nil rate of inflation in recent years, this increase constituted China’s largest real rise in defence spending in more than a decade. Not surprisingly, this announcement unleashed a flurry of speculation as to what it says about China’s strategic intentions and its future military plans, and whether its expanding defence budget translates into a growing Chinese threat to the West – particularly the United States and its friends and allies in East Asia. Beijing further fanned the flames by asserting that the increase in defence spending was necessary in order “to adapt to drastic changes in the military situation of the world and prepare for defense and combat given the conditions of modern technology, es- pecially high technology.”2 On top of this, it is widely accepted that the official budget released by the Chinese every year accounts for only a fraction of actual defence spending. In particular, whole categories of military expenditure are believed to be missing from official figures, seriously undervaluing real PLA spending and reinforcing beliefs that Beijing’s lack of candour and transparency regarding its defence budget is yet another indicator of its aggressive and irredentist intents. At the same time, Western attempts to fill in the gaps in Chinese military expenditures – however much they are 1. Recent Western writings on Chinese defence expenditures include David Shambaugh, Modernizing China’s Military: Progress, Problems, and Prospects, chapter on defence spending (Berkeley University of California Press, forthcoming); Wang Shaoguang, “The military expenditure of China, 1989–98,” SIPRI Yearbook 2000 (Oxford: Oxford University Press, 2000); Wang Shaoguang, “Estimating China’s defense expenditure: some evidence from Chinese sources,” The China Quarterly, No. 147 (September 1996); Bates Gill, “Chinese defense procurement spending: determining intentions and capabilities,” in James R. Lilley and David Shambaugh (eds.), China’s Military Faces the Future (Washington DC: American Enterprise Institute, 1999); Arthur Ding, “China defense finance: content, process and administration,” The China Quarterly, No. 146 (June 1996); International Institute for Strategic Studies (IISS), “China’s military expenditures,” The Military Balance 1995/96 (London: IISS, 1995), pp. 270–75; David Shambaugh, “Wealth in search of power: the Chinese military budget and revenue base,” paper delivered to the Conference on Chinese Economic Reform and Defense Policy, Hong Kong, July 1994; and Richard A. Bitzinger and Chong-Pin Lin, The Defense Budget of the People’s Republic of China (Washington, DC: Defense Budget Project, 1994). 2. Robert Karniol, “PRC spending continues to rise,” Jane’s Defense Weekly,14March 2001 (internet version). 166 The China Quarterly good faith efforts to be scientific and “reasonable” – still largely consist of “guesstimates” piled on top of “guesstimates,” and hence contain a considerable margin of error. Moreover, such estimates vary widely from each other, which has only further clouded the whole issue of analysing and assessing Chinese defence spending. Consequently, Western efforts at Chinese defence budget analysis have largely reached a methodological dead-end. The salient issue now is where to go from here. In this regard, this report has two purposes. First, by discussing what is and is not known – and, more importantly, what will probably never be known – about Chinese military expenditures, it attempts to determine the limits to using defence budget analysis as a research tool for inferring and evaluating Chinese military priorities, policies, strategies and capabilities. Secondly, it offers some suggestions and alternative approaches for improving and reinvigorating this line of research. In particular, however, it recommends that we get away from simply focusing on making “bottom-line” assessments and rather attempt to link military capabilities and requirements to budgetary demands, to determine if there is a spending–capabilities mismatch. Seeking Truth From Facts: What Do We Want Defence Budgets to Tell Us? To being with, what insights do we hope to get from analysing defence budgets and military expenditures? Ideally, such analysis should give information in four areas. Intentions and resolve. As an indicator of the country’s determination to modernize its armed forces over a long period, what are China’s long-term commitments to defence spending? Is Beijing willing to in- crease defence spending both in real terms and over a sustained period? How does this compare with neighbouring states and potential rivals? The burden on the national economy. Is China spending an “inordinate” amount of money on defence, compared to other nations? What does this say about commitments and resolve? How sustainable are current levels of spending? Modernization priorities. Which defence technologies, military re- search and development (R&D), and arms procurement programmes are receiving priority funding? What and how many of a particular type of weapon system are being produced and acquired? What does this say about current or emerging Chinese military doctrine or strategy? How much is being spent on personnel, operations and maintenance (O&M), and equipment, all of which indicate different priorities for force im- provement and have different time scales for pay-offs? Is one area of expenditure starving out the others? Just the Facts, Ma’am 167 Future military capabilities. How much funding is going to which branch or branches of the military? Is more money being spent on modernizing the navy and air force, and hence on increasing power projection capabilities, or on ground forces and territorial defence, that is, People’s War? Is the PLA putting more funding into technologies relating to the so-called revolution in military affairs (RMA), particularly infor- mation on warfare and precision-strike, which could result in increased capabilities to fight an unconventional or asymmetric war? Just the Facts, Ma’am: What Do We Definitely Know About Chinese Military Expenditures, What Do We Think We Know and What Do We Not Know?