China’s Inflation-Adjusted Defense Budget Up 7.5%In public finances, double-digit growth eventually has to stop. Even in China.
The expansion of Beijing's defense spending appears to be moderating in line with the national economy, even though that has not been immediately obvious from the brief announcement this month that the 2013 defense budget would be 10.7% higher than last year's—nor from the international news reports that consistently presented the allocation as underlining Beijing's expanding military capabilities.
China's defense expenditure is not adjusted for inflation, as budget data for developed economies usually is. Since Chinese consumer prices are expected to rise by about 3% between 2012 and 2013, the real rise in the defense budget will be close to 7.5%—or less, if military cost inflation is higher than civilian inflation.
A 7.5% real increase in defense spending would exactly match the government's forecast for economic growth, so the military budget would remain steady as a fraction of gross domestic product. Moreover, expansion of defense spending has slowed from the inflation-adjusted increases averaging 10% a year in 1990-2009. Those historical figures have been calculated by scholars Adam Liff of Princeton University and Andrew Erickson of the U.S. Naval War College for a forthcoming paper to be published in the journal China Quarterly.
The official defense budget, 720 billion yuan ($115 billion) for 2013, does not encompass all of the country's spending on military and other national security activities. But the estimated gap between China's official and full defense spending—a concept hard to define in any country—appears to have shrunk in recent years, say Liff and Erickson. If that gap is still narrowing this year, then Beijing's spending on its military is growing more slowly than the economy, which itself has slowed notably from the average growth rate of 10% a year enjoyed for three decades after economic reforms begun in 1978.
The average 10% rises in defense spending from 1990-2009 were not at all steady (see table). Last decade, real annual rises were routinely well above that rate, making up for parsimony in the 1980s and 1990s. And in the past few years, there have been smaller increases, reinforcing the impression that the trend is moderating. Richard Bitzinger, of Nanyang Technological University in Singapore, cautions against assuming that the trend is permanently lower, though. “Next year, defense spending may roar back up to 15% or so,” he says.
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