China’s defence expenditure has been quite controversial. Conservative figures by Beijing in the past had little takers. Washington has traditionally alleged that China’s actual defence expenditure is at least three times its official figures. Think tanks like SIPRI adopted a moderate assessment. However, the Pentagon’s recent report on China’s military preparedness shows an excess of only US$30 billion over China’s official defence expenditure. Concurrently, China’s latest white paper on defence simply does not trumpet defence expenditure figures as was the practice in past white papers. Does this sound an end to the long reigning debate on China’s defence expenditure? It seems so.

Several factors could have led to this new development. First, while the accounting and budgetary administration of China’s defence expenditure is still opaque and confusing, Beijing has taken some steps in the last couple of years for better transparency. It has adhered to the UN Register since 2008 and provides budgetary information in a simplified, abridged version. Past white papers also highlighted budgetary allocation to many segments of the PLA. Beijing though still does not reveal many segments of its defence expenditure since there is no internationally agreed definition of defence expenditure or its components.

Second, while Beijing was initially coy about the actual amount; there has been a sustained double-digit growth in its defence expenditure. This has narrowed the gap between Western estimates and Chinese official figures. Today, China’s official defence budget is US$145 billion, making it the second largest spender after the US. The teleology behind China’s exaggerated defence expenditure vis-à-vis its other Asian neighbours seems to be lost since China is much further ahead than all of them. A comparative assessment simply serves no purpose.

Third, China has substantially reduced its arms imports, both on a gross level as well as from Russia, its leading exporter. Gradually, the West has lost a major tool of monitoring a key area of expenditure by China. Instead, China has increasingly consolidated and expanded its domestic military industrial complex. The amount of hidden subsidy and fiscal protection being provided to these companies is not known.

Fourth, there is increasing consensus that monetary figures of defence expenditures do not convey the correct military balance since the purchasing power of dollars differ from country to country, and further, local circumstances may create internal imbalances in budget allocation. For example, many Asian countries including China still spend a substantial portion of their defence budget on the revenue side. This is quite in contrast to the US where capital budgeting consumes as much as 60 per cent of the defence budget.

From the US perspective, Chinese defence expenditure, which has grown more than six times in the last two decades, has been threatening its supremacy in the Asia-Pacific region. A liberal dose of money allowed Beijing to invest in men, materials, and weaponry, and narrow the gap with the US. Washington perhaps harped on high defence expenditure in the past to slow down the pace of China’s military modernisation. It could also have been a part of its cost-effective posture in the Asia-Pacific region since its own defence expenditure has undergone cuts. Apart from its official publications, Washington used all bilateral and multilateral dialogue platforms to highlight the lack of transparency in Chinese defence expenditure. Concurrently, it also encouraged universities and think-tanks to publish on Chinese defence expenditure and probe its lack of transparency. However, after two decades of this failed campaign, Washington has perhaps realised the futility of further fuelling China’s defence expenditure debate. It now prefers to hypothesise that “China has the fiscal strength and political will to support continued defence spending increases, which will support PLA modernisation towards a more professional force.” This is also true of Japan, Taiwan and Southeast Asian countries that were once quite alarmed over the ‘actual’ figures. Contemporary criticism is no more than a ritual as was evident in their response to the Chinese defence budget in March this year.  

With defence expenditure losing salience in evaluating force modernisation, will the US stop talking of Chinese military modernisation? Perhaps not. Washington is picking up physical outcomes (like new generation fighters, aircraft carriers etc) and strategic posture as key areas of scrutiny in Chinese military preparedness. For example, Washington has been harping for decades that Taiwan is the main driving force behind China’s military modernisation. Pentagon’s 2015 report on China has again ‘reemphasised’ this hypothesis. This could be true, but perhaps China is already confident about handling Taiwan and is looking beyond to a larger geopolitical platform to expand its military influence. It also shows that Washington is losing this debate, as with the one on defence expenditure, and is being proved wrong on other counts too.

China certainly spends more than it shows as is evident from its infrastructure upgradation near its peripheries, force modernisation, and shifting its aggressive strategic posture from continental to marine platforms. It is unlikely that it will take rapid steps to ameliorate external concerns on its hidden aspects of defence expenditure and induce complete transparency in its defence accounting. Still, the acrimonious debate about its actual expenditure on defence is unlikely to be an issue in future. Instead, we may see China competing with the US in the same manner as the former Soviet Union did during the Cold War days, where relative asymmetries in their defence budget was inconsequential.

Views are expressed are author’s own.