What Does China Really Spend on its Military?

What Does China Really Spend on its Military?
What Does China Really Spend on its Military?
What Does China Really Spend on its Military? Top
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    Defense spending is one of the most direct ways of measuring a country’s potential military capability. Comparing defense spending between countries—whether nominally or as a percentage of government expenditure—is a useful gauge of relative military strength. Spending patterns can also reveal key political events that have implications for defense and national security.

    Understanding the connection between China’s military spending and its military power is made difficult by a lack of transparency. Although Beijing provides figures for its defense spending each year, outside estimates of China’s defense budget are often significantly higher than the official numbers. China provides limited information on the distribution of its military spending, which further obscures spending patterns.

    Defense Spending Giants

    This interactive compares China’s defense spending with that of other key countries. Use the filtering options to select other measures of spending or to look at another country grouping. Data provided by the SIPRI Military Expenditure Database.

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    Tracking Chinese Military Spending

    There is no universally accepted standard for reporting military spending. While international mechanisms exist, such as the UN Report on Military Expenditures, participation is voluntary. This allows governments to report their expenditure with varying degrees of detail. China joined the UN instrument in 2007, but it remains less transparent than many countries.

    The Chinese government announces expenditure information annually. In March 2022, China announced a yearly defense budget of RMB 1.45 trillion ($229.6 billion),1 marking a 7.1 percent increase from the 2021 budget of RMB 1.36 trillion ($209.2 billion).2 This continues a recent trend that has seen yearly percentage increases in the upper single digits. However, it is worth noting that the 2022 budget marks the only time in the last decade that the budget’s growth rate has increased two years consecutively.

    While China releases an official defense budget, how much China actually spends on its military is widely debated. The Stockholm International Peace Research Institute (SIPRI) estimates the overall 2021 figure to be $293.4 billion and the International Institute for Strategic Studies (IISS) puts the number at $270 billion.

    Notwithstanding these differences, Beijing’s official figures may now more accurately represent defense expenditures than in the past. In 2002, the U.S. Department of Defense (DoD) reported that China’s actual defense spending may have been upwards of four times larger than its officially announced budget. In 2021, the DoD noted that China’s real military spending may now be around 1.1 to 2 times higher than stated in its official budget.

    Varying levels of transparency from Beijing add challenges for outside efforts to estimate China’s defense budget. The publication of 11 defense white papers since 1995 has provided some insight into the nature of Chinese military spending but with varying degrees of specificity. White papers published between 1998 and 2008 included comparative budget breakdowns between China and countries like Japan and Russia. These comparisons were removed from white papers after 2008 but reappeared in the most recent white paper that was released in July 2019.

    Most defense white papers—except those released in 2013 and 2015—also outline three spending categories: personnel, training and maintenance, and equipment.3 Beijing states that it annually reports categorized military spending information to the UN; however, this information is only available from the UN in short reports for fiscal years 2006, 2007, 2008, 2017, and 2020.4 The reports from the mid-2000s show roughly equal spending between each of these three categories. The 2019 white paper, which includes spending breakdowns between 2010 and 2017, reveals a noticeable shift away from this even distribution, with equipment accounting for just over 41 percent of total spending in 2017. However, the latest figures posted by the UN show a slight reversal of this, with equipment accounting for 37 percent in 2020.

    Please note that the figures in the graph above are based on spending figures provided in the 2019 defense white paper and do not match with figures provided by the Ministry of Finance.

    Official military spending is further complicated by the Chinese government’s inconsistent reporting of figures. The figures provided by the Ministry of Finance, for instance, differ from expenditure reported in the 2019 defense white paper.5 This discrepancy may be the result of the Ministry of Finance excluding the costs associated with militia forces in its defense figures. In 2017, this inconsistency resulted in a difference of $2.9 billion.

    China’s lack of transparency leads to discrepancies between official figures and outside estimates. Official figures do not account for a number of military-related outlays, including some military research and development, aspects of China’s space program, defense mobilization funds, authorized sales of land or excess food produced by some units, recruitment bonuses for college students, and provincial military base operating costs.6

    Official military spending also excludes spending on public security, which includes the People’s Armed Police (PAP). The PAP is a paramilitary police component of China’s armed forces that is charged with internal security, law enforcement, and maritime rights protection. The Central Military Commission maintains direct control of the PAP. Official expenditure at the central level for the PAP stood at RMB 132 billion ($20.5 billion) in 2021, though this figure is widely believed to significantly undercount total spending on the PAP.

    China is not alone in excluding elements of defense-related spending from its official defense budget. India’s paramilitary forces, which make up the Central Armed Police Forces, fall under the Ministry of Home Affairs, not the Ministry of Defense. India is also not forthcoming about space and nuclear weapons expenditures. The United States funds its nuclear weapons through the Department of Energy and does not include these details in its defense budget. However, the US government maintains a high level of budgetary transparency, which enables analysts to readily account for discrepancies.

    Estimates of China’s military spending are further complicated by the reporting of costs not typically included in the defense budgets of many other countries. For instance, disaster relief in China is funded through the defense budget and is to be reimbursed by non-defense agencies. Likewise, perquisites for retired senior officers—including offices, assistants, and special access to hospital facilities—are all funded through China’s defense budget. In many other countries, these functions and associated costs are typically incurred by nonmilitary organizations.

    The inconsistencies in estimates are compounded by a lack of pricing information. Beijing does not release accurate cost data for military goods and services, making it difficult to make calculations based on purchasing power parity (PPP). Some of the chief challenges are uncertainty over which goods to place in China’s defense spending basket and which goods to compare between China and other countries. Independent organizations, such as the IISS, caveat their PPP estimates, noting that no specific PPP rate applies to the Chinese military sector and that there is no definitive means through which elements of military spending can be calculated using PPP rates.

    Comparing Chinese Military Spending

    Calculations in this section are derived from the SIPRI Military Expenditure Database and are in constant 2020 US dollars.

    China’s defense spending has grown five-fold over the past two decades, jumping from $50 billion in 2001 to $270 billion in 2021. This has had a significant impact on the balance of military power globally, but especially within China’s neighborhood. In 2000, China was the second-largest defense spender in the Indo-Pacific, behind Japan. In 2021, China spent more on defense than the next 13 Indo-Pacific economies combined.

    China’s rising defense spending corresponds with over two decades of modernization efforts. China began military modernization in earnest after the 1995–1996 Taiwan Strait crisis, which exposed fundamental weaknesses in China’s ability to deter foreign intervention in sovereignty disputes. The increase in China’s defense spending in recent decades was, in part, also a response to domestic policies that left China’s defense budget relatively stagnant prior to the 2000s.

    Aggregate spending increases have corresponded with several high-profile procurement programs, military reforms, and doctrinal and strategic shifts within the People’s Liberation Army. These shifts have facilitated China playing a larger role in regional and international security. Some of these efforts, such as China’s participation in UN peacekeeping operations, antipiracy efforts, and humanitarian assistance and disaster relief (HA/DR) are welcome contributions to global governance. On the other hand, defending China’s growing security interests in the East and South China Seas has strained relations with other regional actors.

    Despite significant increases over the last two decades, China’s military spending pales in comparison to that of the United States, which spent nearly three times as much as China in 2021, at $767.8 billion. Even when accounting for reporting discrepancies, China would have to raise its spending considerably to match the United States. However, it is worth noting that the United States maintains a global military presence while China remains primarily focused on security issues within the Indo-Pacific.

    China’s rising defense spending is closely linked to its burgeoning gross domestic product (GDP). Since 2000, China’s defense expenditures as a share of its GDP has hovered at or below 2 percent. In comparison, US military spending has averaged about 3.9 percent of GDP since 2000. Japan’s military spending has remained set at approximately 1 percent of its GDP, but this is changing. In January 2022, Japanese Defense Minister Nobuo Kishi said that 2021 defense spending reached 1.24 percent of GDP, and in April, Japan’s ruling Liberal Democratic Party drafted a proposal to increase defense spending to 2 percent of GDP within five years.

    Measuring defense spending as a percentage of government expenditure provides additional insight. The United States saw a marked increase in defense spending as a percentage of total government expenditure during its conflicts in the Middle East. U.S. military spending has since decreased and returned to pre-September 11 levels (9.6 percent in 2001 and 8.3 percent in 2021). Russia’s military spending has likewise fluctuated with its military interventions. Russian defense spending reached a peak of 14.8 percent of government spending in 2016 before falling to 10.8 percent in 2021. However, Russia’s war in Ukraine will likely cause another sharp rise in Russian defense spending.

    In comparison, Chinese military spending has shrunken considerably as a percent of total government spending. However, China’s military spending as a share of government expenditure increased slightly in 2021 to 5 percent—up from 4.8 percent the previous year. While a small change, this marks the first year-over-year uptick in two decades.ChinaPower