Taiwan’s Defense Budget Dilemma: How Much is Enough in an Era of Improving Cross-Strait Relations?

Publication: China Brief Volume: 8 Issue: 15

Recent improvements in cross-Strait relations, highlighted by the agreement to begin regular weekend cross-Strait charter flights and permit for 3,000 Chinese tourists per day to visit Taiwan, may suggest to some that there is no pressing need for Taiwan to approve further increases in defense spending, especially if it would risk derailing the Ma Ying-jeou administration’s zealous attempts to improve China-Taiwan ties. Moreover, it may be difficult to build support for defense budget increases that could necessitate cutbacks in other parts of the government budget, particularly programs that are more closely tied to the electoral prospects of politicians and legislators, such as social welfare and infrastructure development projects. Yet KMT officials and Taiwanese defense analysts argue that improving Taiwan’s defense capabilities remains vital to the island’s national security and that increasing the defense budget to at least 3 percent of gross domestic product (GDP) is required to underscore the new Kuomintang (KMT) administration’s determination to repair Taiwan’s strained ties with the United States. In the United States, some defense analysts have even suggested that Taiwan’s efforts to move forward with force modernization while completing the transition to an all-volunteer military may require raising the defense budget to an even higher level, perhaps to as much as 4 percent of GDP. These developments raise the issue of “how much is enough” for Taiwan’s defense. In other words, policymakers in Taiwan must consider a difficult question: is the proposed increase to 3 percent of GDP enough—or maybe even more than enough—to meet Taiwan’s defense needs given the reduction in cross-Strait tension that has taken place since President Ma took office following his landslide victory in Taiwan’s 2008 presidential election, or do Taiwan’s legitimate defense needs require even greater increases in defense expenditure, despite warming ties with China?

Melting the Ice

The agreement Beijing and Taipei reached last month on establishing weekend charter flights and admitting thousands of mainland tourists a day to Taiwan marks what many hope will be the beginning a new era in cross-Strait relations, and President Ma has indicated that he aspires to achieve the further normalization of cross-Strait economic relations over the next few years. The further expansion of economic relations is expected to include the lifting of restrictions on Taiwanese investment in China, direct sea and air cargo links between Taiwan and the mainland, and regular cross-Strait passenger flights (International Herald Tribune, June 18). President Ma has stated that he plans to engage China on economic issues first, eventually progressing to discussions about Taiwan’s international space and finally to negotiations aimed at an agreement on a cross-Strait peace treaty. This is to be accomplished on the basis of the “1992 consensus,” under which both sides acknowledge that there is “one China” but each maintains its own interpretation of what that means.

The realities of domestic politics in Taiwan may impose some constraints on the scope and speed of President Ma’s push toward cross-Strait rapprochement, and President Ma continues to regard China’s military posture as an obstacle to realizing the full potential of the current cross-Strait thawing of ties. For example, Ma recently reiterated that China must reduce its military threat to Taiwan before peace talks can be held, specifically calling for China to remove the short-range ballistic missiles it has deployed in the military regions across from Taiwan. In an early June interview with Japanese journalists, Ma said, “Prior to the talks, I would demand the withdrawal of the missiles or some other way to remove the threat” (Yomiuri Shimbun, June 6). Nonetheless, many observers in Taiwan are optimistic about the potential for a more stable and cooperative relationship with the mainland under President Ma’s leadership. In addition, many analysts in the United States have suggested that the possibility of a cross-Strait conflict in the foreseeable future has been greatly diminished by the improving tenor of cross-Strait ties in recent months.

Like many of their counterparts in Taiwan and the United States, many Chinese foreign and security policy analysts are generally upbeat on the prospects for an enduring thaw in cross-Strait relations. For example, Yan Xuetong, a Qinghua University professor previously known for his pessimistic views on Taiwan, recently made a bold forecast that there would be no cross-Strait military conflict for at least the next eight years—which is equivalent to two terms for the president—if President Ma wins the next presidential election in 2012. This relatively optimistic pronouncement stood in sharp contrast to the gloomy assessment he offered after former President Chen Shui-bian of the Democratic Progressive Party (DPP) won Taiwan’s 2000 presidential election, in which he predicted that China would have to use force against Taiwan by 2008 at the latest (Huanqiu shibao [Global Times], June 13). Some analysts in China are going beyond ruling out the possibility of a cross-Strait conflict and calling for a new approach to cross-Strait relations, and a few are even suggesting fundamental changes in China’s policy toward Taiwan. Chinese economist Lu De, a member of the semi-official China Council for Promoting Peaceful Reunification and the eldest son of late Vice Premier Lu Dingyi, for example, has raised the possibility of jettisoning Beijing’s longstanding “one country, two systems” policy in favor of a confederation approach that more appropriately reflects Taiwan’s unique political, economic, and diplomatic status and might be dubbed “one country, two governments” (Yiguo liangfu). According to Lu, “To resolve the cross-Strait problem, (we) must create new concepts and thinking or else it would give rise to contradictions and chaos in policy, thinking, and action” (Reuters, June 14). Although it seems unlikely that the Chinese Communist Party (CCP) leadership would be ready to endorse such a radical departure from longstanding policy anytime soon, and many other Chinese analysts seem reluctant to allow Taiwan to enjoy greater “international space,” Beijing appears to be moving toward a more nuanced and perhaps somewhat more flexible approach toward Taiwan.

Implications for Taiwan’s Defense Budget Debate

This may suggest that spending 3 percent of GDP on defense is plenty for Taiwan—maybe even too much considering that it would likely impinge on some of the government’s other budgetary priorities. But other experts argue that Taiwan still needs a strong defense because China’s growing military capabilities pose an imminent threat to Taiwan’s security [1]. Indeed, China is continuing to modernize its military and develop more credible options to use force against Taiwan and deter or at least complicate U.S. military intervention in a cross-Strait conflict [2]. Recent statements by Chinese military officers about the necessity of making even greater progress in military modernization underscore the PRC’s commitment to enhancing the People’s Liberation Army’s (PLA) professionalism and operational capacity. For example, Lieutenant General Ma Xiaotian, deputy chief of the general staff of the PLA, recently stated that China’s armed forces must keep pace with global military developments. Furthermore, General Ma argued, “China’s growing economy and fiscal revenue make the defense budget increase both a logical and imperative reality” (Los Angeles Times, June 1) [4].

Such arguments are unsurprising given that some Chinese analysts appear convinced that China’s increasing military power, especially its growing arsenal of short-range ballistic missiles (SRBMs), has been the key to deterring Taiwan from taking further steps toward formal independence. According to one recent assessment by Senior Colonel Yang Chengjun, a researcher with the Second Artillery Force of the (PLA), “In recent years, the mainland’s missiles have clearly played a very important role (qi le hen zhongyao de zuoyong) in the struggle to deter ‘Taiwan independence’” (Huanqiu shibao [Global Times], June 5). The same assessment implies a need for China to continue modernizing its military so that it will be fully capable of deterring “Taiwan independence,” even as China and Taiwan continue working toward a more stable and constructive cross-Strait relationship. “Because there is still a certain market for ‘Taiwan independence’ on the island, at the same time that the mainland expresses goodwill toward Taiwan, it must also continue to maintain sufficient strategic deterrence” (Huanqiu shibao [Global Times], June 5).

Nevertheless, some in Taiwan have suggested that China’s growing military power does not really pose an imminent threat to Taiwan’s security, because China would only use force in response to a move toward formal independence that crosses one of Beijing’s “red lines,” and President Ma will refrain from any such missteps since he is committed to a stable and constructive relationship with the mainland. Yet others argue that even if the possibility of war with China appears to be declining, Taiwan must still make the investments required to strengthen its defense. For example, Taiwanese Defense Minister Chen Chao-min stated in early June that Taiwan’s defense buildup “is still necessary” despite Beijing’s recent goodwill gestures (China Post, June 5). Moreover, President Ma has stated that Taiwan still needs to purchase defensive weapons from the United States even though cross-Strait ties are warming: “Our stance will definitely not change just because we have improved relations with the mainland,” Ma pledged (China Post, July 13). Observers from both ends of the political spectrum in Taiwan have pointed to at least three reasons why Taiwan must continue to strengthen its defense capabilities: first, raising the defense budget reflects Taiwan’s commitment to its security, which will help improve the strained relationship with the United States that the new KMT administration has inherited from President Chen; second, in the short term, a formidable defense posture is required to bolster Taiwan’s desire for greater “international space” and participation in international bodies; and third, in the longer term, if cross-Strait relations continue to improve to the point that political talks become a more realistic possibility, Taiwan needs to be able to negotiate from a position of strength. The third point would appear to be especially important, given that at the very least Taiwan must ensure that it avoids negotiating from an unnecessarily weak security position in any future negotiations on a mutually acceptable resolution of its relationship with the mainland.

Force Modernization and Military Transformation in Taiwan

In its role as the opposition party during President Chen’s eight years in office, the KMT opposed many of the government’s requests to increase Taiwan’s defense budget and used its control of the legislature to frustrate the ruling DPP’s attempts to purchase several big-ticket weapon systems from the United States. During the most recent presidential campaign, however, Ma Ying-jeou and the KMT pledged to raise defense spending to at least 3 percent of GDP if elected and the Ma administration’s defense policy calls for simultaneously attempting to move forward with force modernization and force transformation.

Taiwan’s ambitious force modernization goals include procurement of P-3C maritime patrol aircraft, army attack helicopters, army utility helicopters, PAC-3 missile defense systems, F-16C/D fighters, and diesel-electric submarines, and upgrading Taiwan’s existing PAC-2+ systems. Importantly, as proponents of higher defense spending point out, strengthening Taiwan’s defense entails more than force modernization alone. The transformation of the military is an equally important component of Taiwan’s defense modernization program. Indeed, beyond its plans to purchase new weapons and equipment, Taiwan is also trying to move toward a professional, all-volunteer military, and this has important implications for the island’s defense budget because the transition to an all-volunteer military will result in further and perhaps quite substantial increases in personnel costs, which are already high as a share of overall defense spending. Taiwan’s efforts to streamline its military may help offset this to some extent. The Taiwanese Ministry of National Defense (MND) plans to reduce the size of the military from its current 270,000 members to about 250,000, and then gradually reduce the size of the armed forces further to 200,000 troops (China Post, May 22; China Brief, July 3). Even as Taiwan continues to reduce the overall size of its military, however, it will likely need to spend more money on salaries, benefits, and quality of life improvements to recruit and retain the people it needs, especially highly skilled officers and non-commissioned officers (NCOs). In a recent testimony before the Foreign Affairs and National Defense Committee of the Legislative Yuan (LY)—Taiwan’s legislature, Defense Minister Chen Chao-min acknowledged that a defense budget equivalent to 3 percent of GDP would not be enough to complete the transition to an all-volunteer military (Taipei Times, May 22). The transition to an all-volunteer military will also increase the costs of benefits for retired military personnel, including education, welfare, and medical care expenses, as Kua Hua-chu, the head of Taiwan’s Veterans Affairs Commission, recently pointed out in testimony before the LY (China Post, June 3).

Rising personnel costs could thus squeeze out some of the money required for the acquisition of new weapons and equipment and the maintenance and operation of existing systems in the absence of further increases in defense spending. This could be a problem, especially given that personnel expenses have taken up a very large share of the island’s defense budget in recent years. In 2007, for example, personnel expenditure accounted for about 45.4 percent of Taiwan’s total defense budget, down from an all-time high of 57 percent in 2006. This left about 28.5 percent of the 2007 budget for military investment and approximately 24.6 percent for operations and maintenance. The share devoted to personnel expenditure is expected to decline to about 39.2 percent in 2008, enabling the MND to increase military investment to about 35.2 percent of its total budget. The allocation for operations and maintenance will drop very slightly, to about 24.3 percent of defense spending [3]. Even though the share of Taiwan’s defense budget that is taken up by personnel costs has declined over the past two years, it is still relatively high and the transition to an all-volunteer military will likely pose further challenges.


The KMT’s landslide victories in the 2008 legislative and presidential elections should enable President Ma to implement his preferred defense policy and the KMT appears committed to raising defense spending to at least 3 percent of GDP. These efforts are in no small part due to its desire to demonstrate its commitment to enhancing Taiwan’s security and improving its relationship with the United States, which became strained in recent years as former President Chen took a series of political and diplomatic steps that risked provoking a determined response from Beijing while at the same time failing to win approval from the KMT dominated LY for the several of the key components of the arms sales package Washington offered to Taipei in April 2001. President Ma’s commitment to “rationalize” Taiwan’s defense budget and “acquire necessary defensive weaponry,” which he made in his May 20 inaugural address [4], appears to reflect the KMT’s calculus in this regard, but it seems doubtful that 3 percent of GDP will be enough to enable Taiwan to achieve all of the main goals of its defense reform and modernization programs. Indeed, it seems likely that simultaneously moving ahead with planned major procurement programs and completing the transition to an all-volunteer military will require even greater increases in defense spending. Even if relations with China continue to improve in the coming months, this is nonetheless a necessity, since protecting Taiwan’s long term security requires a strong defense posture as well as a stable and productive relationship with China.


1. See, for example, Mark Stokes, “Taiwan Must Review Security Risks,” Taipei Times, March 12, 2008, p. 8, https://www.taipeitimes.com/News/editorials/archives/2008/03/12/2003405191.

2. For a recent assessment, see M. Taylor Fravel, “China’s Search for Military Power,” The Washington Quarterly 31:3, pp. 125-141.

3. Ministry of National Defense, National Defense Report, The Republic of China (Taiwan), 2008, Taipei, Taiwan: Ministry of National Defense, 2008, https://report.mnd.gov.tw/english/a7_3b.html.

4. For the full text, see Office of the President, “Inaugural Address: Taiwan’s Rennaissance,” https://www.president.gov.tw/en/20080520_PRESIDENT_INAUGURAL/e_speech.html.