China Releases White Paper Highlighting Military Spending

By Teja Yenamandra

Apr. 20 – Last month, the Chinese military released its national defense white paper – a report which is published every two years aimed at highlighting the goals of the People's Liberation Army as well as describing the disbursement of funds related to the country's military budget.

The paper, titled China's National Defense in 2010, attempts to celebrate the modernization efforts of the Chinese military while calming fears echoed by foreign governments who say that the PLA will be used for expansionist purposes.

The paper expectedly maintained the party line: it stressed repeatedly that the buildup was undertaken purely for defensive purposes, and highlighted the cooperative measures it has taken with foreign militaries.

Recently, China's dramatic military buildup and more assertive foreign policy have resulted in a sense of discomfort with some of its neighbors, as well in some American policy circles and government groups.

Such fears, however, may be overblown.

Blogger Fred S. Teng has done a great job at breaking the numbers down in an article on China-U.S. Focus:

China's military budget is about US$91.5 billion and the United States budget is about US$663.8 billion. The United States military is more than seven times larger than China China has roughly 1.34 billion people, which means China is spending US$70 per each of its citizens, whereas the United States is spending US$2,119 per each of its citizens, 30 times that of China The United States has the largest economy in the world at US$14.6 trillion annually, whereas China is only a fraction of that amount at only US$5.75 trillion. With an economy almost three times as large as China's, the United States is spending 4.7% of its GDP on its military budget while China is only spending 1.4% of its GDP In terms of the number of active troops of both countries, China has 2,285,000 active troops and the United States is not far behind with 1,580,255 China spends an average of US$40,043 per each soldier, and the United States spends US$420,058 – 10 times the amount

On the other hand, as friend of mine from CBI Consulting, Ning Tung, pointed out, "A numbers game is really comparing apples and oranges until one puts them in context of how they will practically be utilized in the field."

Moreover, numbers can sometimes lie, especially when it comes to emerging markets like China.

"Also, who knows how much undisclosed money is being channeled into the military under the guise of aerospace research, telecoms, IT, and whatever other military-related industry," Tung added.

At the same time, numbers, however difficult they may be to confirm, are on a firmer footing than conjecture. And if we ignore the numbers presented by China entirely, we're left only with guesses.

To my mind, the most important metric to discern a country's allocation of funds to its military is how much of a proportion of GDP it devotes to it. Using the data Fred Teng provides, we see that both the percentage as well as the absolute amount the United States spend on its military is several orders of magnitude more.

On the other hand, if one were to measure each economy's size in PPP terms (and account for the undervalued yuan), the difference between the two economies is only US$5 trillion―a gap which China, under current growth rates, could close fairly quickly. And that's when fudging up military numbers as percentage of GDP becomes a huge issue.

For example, even if China were putting 10 percent of its GDP into its military (which is a huge proportion―twice what the United States spends in percentage terms) with its US$5 trillion GDP, that's still, only US$500 billion.

On the other hand, if one were to calculate China's GDP using PPP figures since much of its military technology China procures from within, 10 percent of a US$10 trillion GDP is a startlingly high figure.

However, given the speed with which inflation has been rising in China, PPP been discredited as a good measure of the nation's GDP. The World Bank, for one, cut its PPP estimate of China's economy by 40 percent recently.

Most analysts, government and private alike, seem to agree that China's expenditure on its military does not yet rival that of the United States, the world's top spender on military-related materials, but is probably somewhere around second place.

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Source: 2point6billion.com - Foreign Direct Investment in Asia