Business News

Chinese Defense Budget Set to Double by 2015

Carola Hoyos in London and Kathrin Hille in Beijing

China’s defense budget is expected to almost double by 2015 as Beijing accelerates its spending on fighter jets and other military equipment, according to defense forecasts.

Chinese tanks rumble pass Tiananmen Square during a massive parade to celebrate the 60th anniversary of the founding of the People's Republic of China.
Getty Images

The country’s official military spending has increased at a double-digit rate for all but one of the past 23 years. This has raised concerns about its ambitions among its Asian neighbors and the U.S., especially because China’s official numbers are generally viewed as underplaying the full extent of its military spending. China is expected to unveil another double-digit increase when it releases its defense budget for 2012 in the coming weeks.

Beijing has always justified increases by arguing they are in line with the pace of its economic growth.

But in a forecast due to be released this week, analysts at IHS Jane’s Defence said they expected China’s defense spending to accelerate substantially in the next three years, testing the argument that the defense budget was linked to growth.

IHS Jane’s analysts said they believe China will spend $120 billion on defense this year and that will grow to $238 billion in 2015 — a combined annual increase of 18.75 percent and more than the joint total of Nato’s top eight members, bar the U.S.. China’s economy grew at an annual rate of 9.2 percent in 2011.

Such an increase would see defense spending rise to 2.18 percent of China’s gross domestic product by 2015, from 1.51 percent in 2011, according to IHS Jane’s.

Beijing puts its 2011 defense budget at $91.5 billion. Like most analysts and the U.S. defense department, IHS Jane’s believe official figures understate actual defense spending.

Paul Burton, an IHS Jane’s analyst, said increased investment in several large Chinese equipment programs, including the development of jet fighters such as the Chengdu J-10B, were helping to drive the anticipated increase in spending. “Rapid growth in this sector is supported by huge investments in resources,” he said.

Beijing continues to improve its space capabilities, having launched the Shenzhou-8 unmanned spacecraft last November and docking it with the Tiangong-1 space laboratory, said Mr Burton.

IHS Jane’s forecasts global military spending, using analysis of equipment programs, economic growth, inflation, and official data to compile its results.

When the pace of military spending growth rebounded to 12.7 percent last year, Major General Peng Guangqian, a military analyst in Beijing, said a single-digit rate in 2010 had occurred in response to slower GDP growth in 2009, following the global economic crisis. The higher growth expected in 2011 reflected a return to faster GDP growth. “China’s military budget is co-ordinated with economic growth,” he said.

Kerry Brown, head of the Asia program at Chatham House, said the IHS Jane’s forecast appeared reasonable. “When you think of the reach China has got and the resources, it is not surprising. Why wouldn’t it desire to have such military kit?”

Other analysts raised questions about whether China was ready to increase its spending on defense as aggressively as forecasts anticipated. “For quite a long time, their military expenditure has tracked the trend of economic growth. That appears to be a pretty consistent policy,” said Sam Perlo-Freeman, a military expenditure expert at the Stockholm International Peace Research Institute.

There is no doubt, however, that China’s increasing defense budget is fuelling growth in other Asian countries.

Asia has more defense budgets that are growing faster than 8 percent annually than any region in the world, including the rapidly expanding Middle East, said IHS Jane’s.

Vietnam, which has turned to Russia for a string of military procurement packages, will see combined annual growth of almost 9 percent in the coming years, boosting its defense budget to 2.5 percent of GDP by 2015.

India is expecting to see growth of 6.14 percent, having this month chosen France’s Rafale jet fighter as its preferred bidder for a $20 billion contract of 126 jet fighters.

China’s spending is beginning to close the gap with the U.S., which until recently had accounted for almost 50 percent of the world’s defense spending. In the coming years, IHS Jane’s expects the US military budget to shrink, but remain three times as large as that of China in 2015.