 Members of China's People's Liberation Army (PLA) Guard of Honor perform drills during a media tour in Beijing in 2011. Photographer: Sim Chi Yin/Bloomberg
Bloomberg NewsChina Boosts Military Spending in Face of DisputesBy Bloomberg News on March 04, 2012
http://www.businessweek.com/news/2012-03-04/chinese-military-spending-will-rise-11-percent-in-2012
China plans to increase defensespending 11.2 percent this year as the country’s expandingglobal commitments and lingering territorial disputes drivedemand for more warships, missiles and fighter planes. Military spending is set to rise this year to about 670billion yuan ($106.4 billion), Li Zhaoxing, spokesman forChina’s National People’s Congress, said yesterday ahead of aspeech today by Premier Wen Jiabao to open the annual 10-daysession of the country’s legislature.
China’s defense spending, the second highest in the worldafter the U.S., has risen in tandem with the expansion of itseconomy and a new focus by the Obama administration on the Asia-Pacific region. China is also involved in spats with Vietnam,the Philippines and Japan over control of oil- and gas-richwaters and has a lingering territorial dispute with India thaterupted into a war in 1962.
“China’s got a lot of things that require a state to havemilitary hardware for,” Geoff Raby, who was Australia’sambassador to China until last year, said in a telephoneinterview. “China lives in a neighborhood where it doesn’t haveany natural allies or friends.”
Satellite Maker Rises China North Optical-Electrical Technology Co. (600435), the maker ofmilitary control systems and sensors, rose as much as 9.7percent in Shanghai trading, the biggest intraday gain in morethan a month. The Beijing-based company was up 6.3 percent at10.31 yuan as of 10:14 a.m. China Dongfanghong Spacesat Co. (600118),which builds satellites, advanced as much as 3.9 percent.
Defense spending has more than doubled since 2006, trackinga rise in nominal gross domestic product from 20.9 trillion yuanto 47.2 trillion yuan in that time. China’s spending on domesticsecurity will be higher than military spending this year for thethird straight year, according to Finance Ministry figuresreleased today, underscoring the government’s concerns aboutgrowing social unrest and threats to stability in Tibet andXinjiang province.
The growing defense budget has stoked concerns amongChina’s neighbors and the U.S., which announced last year astrategic shift toward Asia including deploying forces to a basein Australia. Chinese defense spending as a percentage of GDPwas about 1.3 percent in 2011, falling from about 1.4 percent in2006.
‘Reasonable and Appropriate’ “The Chinese government has maintained reasonable andappropriate growth of defense spending on the strength of rapideconomic and social development and the steady increase offiscal revenues,” Li said.
He spoke a day before the start of the annual meeting ofthe National People’s Congress, the 3,000-member parliament thatis legally the highest governmental body in China. Sessions runfrom today to March 14.
U.S. analysts say actual Chinese defense spending is muchhigher than the amount announced by Li yesterday. Phillip Saunders, director of the Center for the Study of ChineseMilitary Affairs at National Defense University in Washington,estimates China’s true defense spending is 50 percent higherthan the official budget because items such as research anddevelopment as well as foreign weapons procurement are notincluded. Li said research and procurement are included.
Off-Budget Items Taylor Fravel, a professor at the Massachusetts Instituteof Technology who studies China’s relations with its neighbors,said the number of off-budget items such has foreign armsprocurement have decreased in recent years. China includessupport for veterans in its budget while the U.S. does not,Fravel said.
While Chinese military spending is still officially lessthan a fifth of U.S. defense spending, its neighbors areconcerned about the country’s expansive territorial claims.China claims indisputable sovereignty over the islands, reefsand shoals of the South China Sea and their surrounding waters,demarcating a tongue-shaped claim on Chinese maps extendinghundreds of miles from mainland China.
China is “always ready” to use force if necessary toensure its territorial integrity in the South China Sea, Maj.Gen. Luo Yan, deputy secretary general of the Chinese Academy ofMilitary Science, said today. China’s military should be“strong and big,” and the country should do more to mark itsrightful claim to the area, he told reporters in Beijing.
‘Scared Its Neighbors’ It also contests control over the Senkaku, or Diaoyuislands with Japan, which sparked a diplomatic standoff in 2010after Japan detained a Chinese fishing boat captain when hisvessel collided with a Japanese patrol boat. Japan is “closelywatching” China’s military spending and is seeking greatertransparency in its outlays, Chief Cabinet Secretary OsamuFujimura told reporters today in Tokyo.
Vietnam recently filed a protest saying China assaulted itsfishermen and prevented them from entering the Paracel Islands.China responded by claiming sovereignty over the islands andsaid it didn’t board the vessels.
“China scared its neighbors,” Saunders said in an e-mail.“Now it is back on the path of greater restraint, but itsneighbors are still alarmed.” U.S. concerns stem from Chinese progress in developingmodern fighters and precision ballistic missiles that can targetU.S. aircraft carriers, Saunders said.
In the past year, China began sea trials of its firstaircraft carrier, a refurbished Soviet-era vessel acquired fromUkraine more than a decade ago.
Military Buildup Beijing is also continuing a military buildup across theTaiwan Strait. The U.S. is obligated by a 1979 law to providedefensive weapons to Taiwan, which China claims as a province. APentagon report published last August said that as of December,2010, China’s People’s Liberation Army had deployed between1,000 and 1,200 short-range ballistic missiles to units oppositeTaiwan even as cross-Strait ties have improved.
Last year the U.S. announced it would sell Taiwan $5.3billion in upgrades for its 145 Lockheed Martin Corp. (LMT) F-16fighters.
China will boost spending on domestic security by 11.5percent this year to 701.8 billion yuan, outstripping spendingon defense by 31.5 billion yuan, according to a table in thework report issued by the Finance Ministry.
Economic Interests Economic interests around the world, including 812,000workers abroad at the end of 2011, mean China’s military mayincreasingly deploy across the globe. China set a frigate toLibya last year to help evacuate thousands of Chinese nationalsduring the revolt that saw the overthrow of Muammar Qaddafi. Lisaid Chinese warships have made eight deployments to helpinternational efforts to protect sea lanes from Somali pirates.Chinese peacekeepers now patrol as part of a United Nationsmission in Sudan.
The country is also increasingly dependent on globalcommerce for its well-being, factors which in past eras ledcountries such as the U.K. and the U.S. to boost militaryspending. Combined imports and exports last year amounted to$3.6 trillion, and China, the world’s biggest energy consumer,is also the world’s second-biggest oil importer after the U.S.
The U.S., with an economy less than three times the size ofChina’s, has a military budget about between five and six timesas big. The Pentagon is asking for $613.9 billion next year,which also includes $88.5 billion in supplemental spending forwars. Unlike China’s, the U.S. defense budget is shrinking. ThePentagon’s request is $31.8 billion less than the amount enactedby Congress for 2012.
China’s defense spending increased an average of 16.2percent a year from 1999 to 2008, according to figures from adefense white paper published in 2009. While building upspending, China has also proclaimed that it takes anonconfrontational approach in the region.
“China’s limited military strength is aimed atsafeguarding sovereignty, national security and territorialintegrity,” Li said. “It will not in the least pose a threatto other countries.”
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