For the past two decades, China's rapid economic growth has been twinned with an even more rapid increase in military spending. While GDP has expanded by an annual average of 9.6% over the past 10 years, the reported budget for the People's Liberation Army has grown by an average of 16%. So it was an unexpected surprise when Li Zhaoxing, a former foreign minister who is now spokesman for the National People's Congress, announced on March 4 that China's defense budget would increase by 7.5% for 2010, just over half of last year's 14.9% rise.
The slowdown was partly attributed the difficult economic climate. While China was able to grow at 8.7% last year, that healthy rate came at the expense of $586 billion in stimulus spending. Last week Premier Wen Jiabao said that government spending would grow more slowly this year as Beijing seeks to control inflation while maintaining stable growth. (See pictures of the making of modern China.)
Amid those economic demands, another double-digit increase in military spending might be seen as excessive. But perhaps the most compelling reason for the slowdown in spending is that Chinese officials have become more cautious of the way the development of the People's Liberation Army is perceived abroad. Last year China marked the 60th anniversary of the founding of the People's Republic with an Oct. 1 military parade in front of Tiananmen Square. While generally a cause for celebration in China, the parade of soldiers, tanks and missile carriers was seen as intimidating by many foreign observers.
Chinese military analysts have explained the rapid spending increase as normal for a large nation climbing out of decades of poverty. "Although China now has a growing military demand, it has always upheld the principle of peaceful development. The double-digit increases in the past should be interpreted as compensational growth," says Zhao Zongjiu, deputy secretary-in-general at Shanghai Institute for International Strategic Studies, a government-backed think tank. "I predict that, given the current policy environment, the growth rate of military expenses will remain roughly on the same level as China's GDP growth in the next few years." (See pictures of China's infrastructure boom.)
China's 2010 military budget, which is awaiting legislative approval, will be $78 billion. That would make it second only to the United States, which for 2010 has a total budget of $663.8 billion. U.S. spending is equivalent to 4.7% of the nation's GDP, while China's defense outlay equals about 1.5% of its estimated 2010 GDP. But military observers have long cautioned that China's official defense budget figures shouldn't be taken at face value, and that actual spending could be two or three times higher than what is reported. China is engaged in a significant number of expensive military equipment development programs, including likely efforts to develop its first aircraft carrier. Those all make it difficult to curtail spending, says Andrei Chang, Hong Kong-based editor-in-chief of Kanwa Defense Review Monthly. "There are very ambitious military plans for the Chinese," he says. "This is the reason it's impossible to have an increase of 7.5%."
Improving ties with Taiwan have also lessened some of the military tension along China's periphery. Beijing considers the self-ruled island a breakaway province that should ultimately be reunited with the mainland, by force if necessary. A more China-friendly leadership in Taipei has helped eased some of the fear of armed conflict. But the region still has the potential to be a flash point. Taiwan says China has some 1,500 missiles stationed along the Taiwan Strait. And a decision by U.S. President Obama in January to approve the sale of more than $6 billion in military equipment to Taiwan has angered the Chinese government, which has postponed some military exchanges with the U.S. in protest.
Chang also notes that China is just two years away from an expected reconfiguration of its leadership. President Hu Jintao is expected to step down, and will want to secure high positions for his political allies. Drastically curtailing defense spending could alienate the military, whose support he needs to ensure top spots for his proteges. "The new round of political power struggle is continuing," Chang says. "You have to give souvenirs to the armed forces."
— with reporting by Jessie Jiang
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