China’s Defence Budget—An Unchecked Primer to China’s Defence Industrial Base

 By Dr. Amrita Jash
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In 2021, China issued a draft defence budget of 1.35 trillion yuan (US$ 209 billion), with a hike of 6.8 percent from 2020. To note, this single-digit growth rate is consecutively sixth in a row as previous estimates were 7.6 per cent in 2016, 7 per cent in 2017, 8.1 per cent in 2018, 7.5 per cent in 2019, 6.6 per cent in 2020 against 10.1 per cent in 2015.[1] However, unlike the past hikes, the 6.8 per cent increase in 2021 is a significant ‘hike’. That is, though a single-digit increase but what makes the numbers significant is the fact that the increased budget is complimented by worst economic downfall caused by the COVID-19 pandemic. It only suggests that China’s commitment towards military modernisation remains uncompromised despite the circumstances.

Unlike other defence budgets, China’s military expenditure is often a topic of debate. As noted, since its economic rise, China’s defence spending has exhibited an ascending trend- ranking second only to the US in defence spending. This automatically makes China’s budget way higher than that of its regional neighbours, such as India and Japan- with which it has territorial and maritime disputes.  With defence spending related to the military balance, China’s budget calls for speculation. Wherein, the estimated ‘numbers’ are not just a point of query, but also a cause of worry.

Here, the cause of concern is the ‘scepticism’ attached to the numbers. When it comes to China, the key question is: How accurate is the ‘official’ budget? This query is driven by the varying estimates attached to China’s official budget to that of estimates provided by other agencies such the Stockholm International Peace Research Institute (SIPRI), the U.S. Department of Defense (DoD), and the International Institute for Strategic Studies (IISS). To cite an example, in 2017 the Chinese government officially estimated the defence budget at 1.044 trillion yuan (US$ 151.4 billion) and its 2016 defence budget at 955 billion yuan (US$ 143.7 billion);  which SIPRI estimated to be US$ 228 billion (2017) and US$ 216 billion (2016); while the DoD estimated the 2016 defence budget at more than US$ 180 billion, and the IISS estimated it at US$ 197 billion.[2] Thus, the varied numbers bring into perspective the issue of ‘transparency’ over China’s defence spending.

At the heart of the spending lies the intention of modernisation of the People’s Liberation Army (PLA) that tops the Communist Party’s agenda. Wherein, the goal as set by Chinese President Xi Jinping at the 19th Party Congress aims at two key objectives: to complete national defence and military modernisation of the PLA by 2035, and to transform the PLA into a world-class military by mid-century. Owing to which, one of the key targets of the 14th Five Year Plan (2021-2025) is to “make major strides in the modernisation of national defence and the armed forces”. This commitment further justifies the uncompromised defence budget and more specifically, suggests that China’s military goals remain to be on ‘schedule’ even under the pandemic. Notwithstanding, the goal of ‘mechanisation by 2020’ seems to be still in progress. However, Beijing perceives it to be reasonable, as NPC Spokesperson Zhang Yesui suggests that:

“Maintaining a proper and steady increase in defence spending is needed to safeguard our sovereignty and development interests, fulfill China’s international responsibility and obligations, and promote the transformation of the Chinese military with Chinese characteristics”.[3]

Given China’s undeterred commitment, it becomes imperative to assess: What constitutes China’s defence spending? Rather, what is not accounted in China’s defence spending?

As outlined in China’s Defence White Papers, the defence spending is categorised by application under three areas— personnel expenses, training and sustainment, and equipment spending. Wherein, of the three categories, it is largely found that China is most transparent about the first category and least transparent about the third category of defence spending.[4]  To say so, as very little is known about the cost of weapons and equipment produced by the Chinese defence industry or the amount of money allocated to weapons search and development.[5] This very lacuna makes it imperative to explore China’s defence industry. Here, the logic is driven by two interlinked factors: First, an increased defence spending is a critical indicator of China’s growing defence industrial base. And second, a defence industrial base is a prerequisite for China given its aspirations to become a ‘world-class’ military. In view of this, an upward swing in China’s defence expenditure is exemplified by the change in China’s status from being an importer of arms to that of being ranked as a top global arms exporter.  What is noteworthy is that China has graduated to become the world’s second largest arms producer. Accounting for 5.5 per cent of the total arms sales, China ranks fifth in the global profile of arms exporter. This very change in China’s status calls for a probe into China’s Defence Industrial Base.

China’s defence industry is driven by the country’s state-owned enterprises (SOEs). As per SIPRI’s 2020 Top 100, the four Chinese companies that made to the Top 20 included- Aviation Industry Corporation of China (AVIC), China North Industries Group Corporation (NORINCO), China Electronics Technology Group Corporation (CETC), and China South Industries Group Corporation (CSGC) with a combined arms sales of US$ 54.1 billion.[6] What is noteworthy is that the Chinese companies did not even figure in SIPRI’s past listing even a decade back. For instance, in SIPRI’s 2012 Year Book, the Top 20 only comprised of companies mainly from- US, UK, France and Russia. Here, the absence of Chinese companies can be attributed to the lack of transparency, inadequate data as well as unreliable estimates that resulted into an oversight of China’s defence industrial base. This was also compounded by the longstanding assumption based on ‘quality’ that Chinese weapons and weapon systems as redundant and incompetent against other major players such as US, Russia and others. If that be the case, the 2020 SIPRI estimates are alarming. An indicator to the fact that China’s defence industry has graduated from being ‘nowhere’ to that of joining the Top 20 league- hence, cannot be treated in oblivion.

The other distinct aspect of China’s defence industry is that unlike the American defence contractors such as Lockheed Martin that produce weapons and weapon systems in all domain, the Chinese SOEs are categorical in their expertise and defence production. Unlike a wide-spectrum, China’s arms production is mainly in five key sectors: aerospace, electronics, land systems, nuclear and shipbuilding. In these specific domains, the SOEs that operate are listed below.

Sl No.Chinese Companies & InstituteKey Area(s) of Production
1Aero Engine Corporation of China (AECC)Aircraft
2Aviation Industry Corporation of China (AVIC)
3China Aerospace Science and Industry Corporation (CASIC)Missile and space systems
4China Aerospace Science and Technology Corporation (CASC)
5China Electronics Technology Group Corporation (CETC)Electronics such as radars, military communication systems and others
6China North Industries Group Corporation (NORINCO)Land Systems

 

7China South Industries Group Corporation (CSGC)
8China State Shipbuilding Corporation (CSSC)
9China Academy of Engineering Physics (CAEP)Nuclear Weapons
10China National Nuclear Corporation (CNNC)

Source: Author

Undeniably, it is the SOEs that are paving the path for Beijing as a competitor in global arms export- thus, the pillar of China’s defence industrial base. This when linked to China’s military spending brings forth the essence of China’s increasing military capabilities and undeterred military intentions. Wherein, defence industrial base aims to match the military capabilities- a parameter to take note of. That is, the scaling numbers of China’s defence spending is symptomatic of its  growing defence industial base. Thus, cannot afford an oversight, neither from India in particular, and the world at large.

End Notes:

[1]Tabulated by the author from the official Chinese defence spending estimates.

[2]Dong Ryul Lee (2019), “The Prospect and Trend of Military Spending and Strategy in Rising China”, EAI Working Paper, 8 January 2019, pp. 1-2, http://www.eai.or.kr/main/english/publication_01_view.asp?intSeq=9913&board=eng_report, accessed online 15 April 2021.

[3] Liu Xuanzun (2021), “China hikes defense budget by 6.8 % in 2021, faster than 6.6% growth last year”, Global Times, 5 March 2021, https://www.globaltimes.cn/page/202103/1217416.shtml, accessed online 15 April 2021.

[4]Adam P. Liff and Andrew S. Erickson (2013), “Demystifying China’s Defence Spending: Less Mysterious in the Aggregate”, The China Quarterly, Vol. 216, p. 815.

[5] Ibid.

[6] Stockholm International Peace Research Institute (2020), “New SIPRI data reveals scale of Chinese arms industry”, 27 January 2020, https://www.sipri.org/media/press-release/2020/new-sipri-data-reveals-scale-chinese-arms-industry, accessed online 17 April 2021.

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Dr. Amrita Jash is Research Fellow at the Centre for Land Warfare Studies, New Delhi. She co-edited the book on COVID-19 & Its Challenges: Is India Future Ready? with Lt Gen (Dr.) VK Ahluwalia (Pentagon Press, 2020). She holds a Ph.D in Chinese Studies from Jawaharlal Nehru University. She is the Managing Editor of the CLAWS Journal(KW Publishers).Dr. Jash is a Pavate Fellow and has been a Visiting Fellow at the Department of Politics and International Studies, University of Cambridge. She has been an Adjunct Faculty at the School of Global Affairs-Ambedkar University and a Visiting Faculty at the Department of Chinese-Sikkim Central University; a UGC Graduate Fellow (2012-2017); a US-INDIA-CHINA InitiativeFellow SAIS-Johns Hopkins University(2013); a researcher under China’s Ministry of Commerce(2014); a researcher under Harvard-Yenching-Nanching Programme (2015). In 2019, COAS Gen Bipin Rawat awarded her for contributing to the field of Chinese Studies.Dr. Jash’s research has appeared in 13 edited books, Peer-Reviewed Journals such as East Asian Policy, Review of Global Politics, Strategic Analysis, Yonsei Journal, China Report, Maritime Affairs and Strategic Vision. She has published with CSIS, RUSI, RSIS, Pacific Forum, ThinkChina, Huffington Post, E-IR, Asia Times, Munk School, Crawford School, ISDP, China-India Brief, SADF, and others. Her expertise are: China’s foreign policy, strategic and security issues; the PLA, India-China relations, China-Japan relations, and Indo-Pacific.