China’s 2023 Defense Spending: Figures, Intentions and Concerns

Introduction

In March, at the opening session of the 14th National People’s Congress (NPC), the top legislature of the People’s Republic of China (PRC) announced an annual defense budget of roughly 1.55 trillion yuan (about $224.79 billion) for fiscal year 2023, which is a 7.2 percent increase from last year (State Council Information Office [SCIO], March 6). This year’s increase is the eighth consecutive single-digit uptick in China’s defense spending, with the last double-digit jump of 10.1 percent recorded in 2015. In the interim, the PRC’s estimated yearly military budget increases have been 7.6 percent in 2016, 7 percent in 2017, 8.1 percent in 2018, 7.5 percent in 2019, 6.6 percent in 2020, 6.8 percent in 2021 and 7.1 percent last year, respectively (Huanqiu, March 4). As a result, this year’s defense budget increase aligns with recent spending patterns and confirms the Chinese Communist Party (CCP) leadership’s unwavering commitment to sustaining a rapid pace of military modernization, despite the economic downturn during the COVID-19 pandemic and mounting fiscal challenges.

The PRC’s decision to significantly increase its defense budget again this year is unsurprising given escalating geopolitical tensions with the U.S. and the Russia-Ukraine war. While China’s defense spending remains behind the U.S., the continuous nominal increases are alarming to both Washington and China’s neighbors, given the growing tensions over Taiwan, the South China Sea, the East China Sea and the China-India border dispute in the Himalayas (China Brief, April 29, 2022). A significant contributing factor to anxiety over the PRC’s military modernization is the lack of transparency on defense spending, both in terms of estimates and in classifying areas of spending.

Over time, the PRC has justified its yearly defense spending increases based on the claim that its military expenditures are far less than those of the U.S. According to the official account, the PRC spends only about one-quarter in real terms and one-sixteenth per-capita of the U.S.’s approximately $858 billion defense budget this year (Xinhua, March 5). However, a disparity exists between China’s official figures and external estimates from the U.S. Department of Defense (DOD) and leading international security think tanks, the Stockholm International Peace Research Institute (SIPRI) and the International Institute for Strategic Studies (IISS). For example, in 2017, China’s official defense budget was 1.044 trillion yuan ($151.4 billion), and its 2016 budget was 955 billion yuan ($143.7 billion), which SIPRI estimated to be $228 billion (2017) and $216 billion (2016); while the DoD estimated the 2016 defense budget at more than $180 billion, and IISS estimated the figure at $197 billion. [1] More recently, in 2021, China officially announced a budget of 1.45 trillion yuan (about $229 billion) (Xinhua, March 5, 2022). However, SIPRI estimated that in actuality, China spent an estimated $293 billion on its military in 2021 (SIPRI, April 2022). The second aspect that may impact underreported defense spending is how outlays are categorized. As outlined in the 2019 Defense White Paper, the PRC’s defense spending is broken down by the application of funds under three areas: personnel, training and equipment spending (Xinhua, July 24, 2019). While China is the most transparent about the first category, information on equipment procurement is far less available.

A “Reasonable and Moderate” Increase 

In the PRC’s official narrative, “China’s military modernization will not be a threat to any country. On the contrary, it will only be a positive force for safeguarding regional stability and world peace,” according to Wang Chao, the spokesperson for the first session of the 14th NPC (Xinhua, March 5). In this view, this year’s defense budget increase is “appropriate and reasonable,” to address complex security challenges and in order for China to fulfill its responsibilities as a major country. Besides, from the Chinese perspective, the 7.2 percent increase in defense spending is also “moderate” compared to other countries, as the Global Times argues based on the following grounds (Global Times, March 5). First, the essay cites Chinese military expert Song Zhongping, who claims that this year’s 7.2 percent defense budget increase is only 0.1 percentage point higher than last year’s increase, which is modest when China’s national defense needs and recent economic development are considered. Second, this increase is deemed particularly “reasonable” given China’s deteriorating security environment and the tense global security situation due to the Russia-Ukraine conflict. Moreover, the editorial maintains that China’s increased defense spending is hardly an outlier, as rising military spending is a worldwide trend.  Third, the Global Times contends that China’s military spending in terms of percent of GDP is “significantly lower” than other countries. The article stresses that China’s defense spending has not exceeded 1.5 percent of GDP compared to other countries such as Japan, which plans to raise spending to 2 percent of its GDP within five years; the United States spends 3.5 percent of its GDP on defense; and India’s budget accounted for 2.2 percent of its GDP in 2022.

Context for Concern

In Beijing’s view, when compared to other countries, China’s increasing military spending “adheres to its own pace, does not engage in horizontal comparison, and does not engage in an arms race” (Global Times, March 5). However, what China fails to consider is that, unlike other countries its increases in military spending are generating international unease. The lack of transparency in China’s defense spending raises concern over its strategic intentions.  The U.S. Department of Defense’s  2002 report on Chinese Military Power predicted that the PRC’s annual spending could increase over three- to four-fold in real terms by 2020. In the past two decades, China’s defense spending has grown five-fold—from $50 billion in 2001 to $270 billion in 2021 (U.S. Department of Defense, July 12, 2002).

Several trends render China’s military spending particularly worrisome for countries in the region and beyond. First, China’s defense spending has exhibited an ascending trend, ranking second only to the United States for years now. For instance, until 2021, China’s defense budget has grown for 27 consecutive years, while Japan’s spending rose by 7.3 percent to $54.1 billion in 2021—the highest annual increase since 1972 (SIPRI, April 2022).  Although, according to official numbers, China’s defense spending has not exceeded 1.5 percent of its GDP, China’s defense spending is still higher than the combined defense spending of its neighbors, Japan and India.

Moreover, the upward swing in China’s defense expenditure is also linked to China’s growing military production capacity. This is reflected by the PRC’s shifting status from arms importer to exporter (ranked fourth after the United States, Russia, and France)—accounting for 4.6 percent of total global arms imports and 5.2 percent of exports in 2018-2022 (SIPRI, March 2023). Most of China’s regional rivals, including India and Japan are arms importers accounting for 11 percent and 3.2 percent of global arms imports, respectively. This reflects a major gap between China and all of its Asian neighbors in terms of defense industrial base capacity. Specifically, the biggest recipient of Chinese arms is Pakistan, which is a concern for India.

Furthermore, eight Chinese arms companies rank in the top 100 arms sellers—with aggregate sales accounting for $109 billion in 2021. Notably, three Chinese companies are ranked in top 20: China North Industries Group Corporation (NORINCO) [ranked 7th], a land systems specialist; while Aviation Industry Corporation of China (AVIC) [ranked 8th], China Aerospace Science and Technology Corporation (CASC) [ranked 9th] and China Aerospace Science and Industry Corporation (CASIC) [ranked 11th]—are the three most prominent Chinese arms companies operating in the aircraft, missile, and space sectors (SIPRI, December 2022). Japanese arms manufacturers in the Top 100 include Mitsubishi Heavy Industries (ranked 35th), Kawasaki Heavy Industries (ranked 54th), Fujitsu (ranked 77th), and IHI Corporation (ranked 89th). Iin case of India, the two companies in the Top 100 included Hindustan Aeronautics (ranked 42nd) and Bharat Electronics (ranked 63rd). Hence, unlike the United States, there is a huge disparity in the defense industrial bases of China and those of Japan and India.

Conclusion

Unlike other countries, China’s defense spending stands out as an indicator of its increasing military capabilities and expanding ambitions. One of the key targets of the 14th Five-Year Plan (2021-2025) is to make major strides in strengthening national defense and modernizing the armed forces (Xinhuanet, May 13, 2021). Furthermore, years and years of sustained defense spending increases underscore the PRC’s uncompromising commitment to achieving the three key milestones: meeting the centenary benchmark of ensuring the PLA is on track with its military modernization program in 2027, achieving the basic realization of PLA modernization by 2035 and completing the development of a world-class military by mid-century. Hence, China’s defense spending is not just about the numbers but the intentions that lie hidden behind these figures.

Amrita Jash is an Assistant Professor at the Department of Geopolitics and International Relations, Manipal Academy of Higher Education (Institution of Eminence), India. She was a Pavate Fellow at the Department of POLIS, University of Cambridge. Dr. Jash is the author of The Concept of Active Defence in China’s Military Strategy (2021).

Notes 

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