China’s Defense Budget: Spending What’s Necessary to Beat the Americans

Commentary It’s that time of year when China announces its defense budget. This year, defense spending is set to increase 7.1 percent (1.45 trillion yuan or $230 billion) after last year’s 6.8 percent rise, and a 6.6 percent increase the year before that. But these figures are almost meaningless. Perhaps Beijing only issues them as a favor to the Pentagon and U.S. think tanks. How’s that? In the United States, a defense budget works as follows: Congress authorizes a certain amount of money to be spent on “defense,” say, $728.5 billion. The Department of Defense and the military services then have to live within that amount. If they overspend, they’re “Out of Schlitz,” to borrow an old beer commercial jingle. And they’ll have to wait until next year, or else beg for something extra. It’s not so different from our personal budgets and how we manage our income and expenses. So it sounds familiar to us when China announces that it is spending a certain amount on defense. Analysts will argue over the “true” figure and whether there are “defense-related” expenditures that don’t go into the official figure. And they’ll try to adjust for the fact that things don’t cost the same in China as in the United States. But it’s basically the same idea: The People’s Liberation Army (PLA) gets a certain amount of money and has to live within its means. Just like the U.S. military. Or, so, one might think. But it’s in fact different with China. Here’s how: In America, the secretary of defense goes to the Senate Armed Services Committee and asks: “How big is our budget this year?” The answer: “$728.5 billion.” In China, the top dog in the PLA goes to the Central Military Commission (atop which sits Chinese leader Xi Jinping) and asks: “How big is our budget this year?” The answer: “As big as you want it to be.” Chinese Communist Party military vehicles, which carry hypersonic DF-17 missiles believed capable of breaching all existing anti-missile shields deployed by the U.S. and its allies, participate in a military parade at Tiananmen Square in Beijing on Oct. 1, 2019. (Greg Baker/AFP via Getty Images) In other words, the Chinese regime will spend whatever amount it takes, over as many years as needed, to build a military that can defeat the United States. And Beijing has been clear about its desire to vanquish the Americans for many years, even if too many American experts—civilian and military—have refused to believe them. One Western observer with several decades of experience in China describes how to consider China’s defense spending. He wrote the following in a recent email: “Think of the Chinese Communist Party [CCP] as the national central account holder for all of its departments: agriculture, power, coal, education, PLA. The Party funds what needs to be funded—on an ongoing basis allocating funds to where party policy priorities are during any given period. It is a continuous process, not an annual budget that you spend until next year’s budget kicks in. “Remember, all expenditures in China are in non-convertible yuan. There are 12 regional printing centers that provide whatever funding is needed this week, this month, this year. “Funding the PLA’s domestic expenditures is easy—print yuan when and in the amount needed: Salaries—print yuan; Equipment from Chinese equipment suppliers—print yuan; Bombs, guns, bullets from Chinese suppliers—print yuan; Uniforms, boots, helmets, belts, caps, underwear (South China Sea island forces were just issued a new fabric tropical underwear) made in China—print yuan; Pensions and payments to retirees—print yuan; Whatever the PLA needs that is supplied domestically—print yuan.” Chinese J-15 fighter jets on the deck of the Liaoning aircraft carrier during military drills in the South China Sea on Jan. 2, 2017. (STR/AFP via Getty Images) Defense is the top priority for the CCP—and there are no Chinese Bernie Sanders or Green New Dealer types who will complain about the defense budget, for long. And once the PLA can outmatch the U.S. military, every other nation will fall into line. That is worth almost any price. There is a limit to defense spending, however. Anything that is needed from overseas—say, iron ore to build steel, technology, “dual use” equipment and technology, and landing and stevedoring fees for PLA aircraft and ships stopping off at overseas ports and airfields—all must be paid for in currency that’s convertible (that a foreigner will accept), which the yuan is not. To sum up, while the CCP can print up whatever cash it needs for domestic military expenditures, it needs to obtain convertible currency to pay for overseas expenses. So there are effectively two different defense accounts—one domestic and more or less unlimited; and one overseas and dependent on available foreign exchange. The latter should be a problem for Beijing. The CCP doesn’t have anywhere near the foreign exchange it needs to meet its total expenses—or at least it sh

China’s Defense Budget: Spending What’s Necessary to Beat the Americans

Commentary

It’s that time of year when China announces its defense budget. This year, defense spending is set to increase 7.1 percent (1.45 trillion yuan or $230 billion) after last year’s 6.8 percent rise, and a 6.6 percent increase the year before that.

But these figures are almost meaningless. Perhaps Beijing only issues them as a favor to the Pentagon and U.S. think tanks.

How’s that?

In the United States, a defense budget works as follows: Congress authorizes a certain amount of money to be spent on “defense,” say, $728.5 billion. The Department of Defense and the military services then have to live within that amount. If they overspend, they’re “Out of Schlitz,” to borrow an old beer commercial jingle. And they’ll have to wait until next year, or else beg for something extra.

It’s not so different from our personal budgets and how we manage our income and expenses.

So it sounds familiar to us when China announces that it is spending a certain amount on defense. Analysts will argue over the “true” figure and whether there are “defense-related” expenditures that don’t go into the official figure. And they’ll try to adjust for the fact that things don’t cost the same in China as in the United States.

But it’s basically the same idea: The People’s Liberation Army (PLA) gets a certain amount of money and has to live within its means. Just like the U.S. military.

Or, so, one might think. But it’s in fact different with China. Here’s how:

In America, the secretary of defense goes to the Senate Armed Services Committee and asks: “How big is our budget this year?” The answer: “$728.5 billion.”

In China, the top dog in the PLA goes to the Central Military Commission (atop which sits Chinese leader Xi Jinping) and asks: “How big is our budget this year?” The answer: “As big as you want it to be.”

Epoch Times Photo
Chinese Communist Party military vehicles, which carry hypersonic DF-17 missiles believed capable of breaching all existing anti-missile shields deployed by the U.S. and its allies, participate in a military parade at Tiananmen Square in Beijing on Oct. 1, 2019. (Greg Baker/AFP via Getty Images)

In other words, the Chinese regime will spend whatever amount it takes, over as many years as needed, to build a military that can defeat the United States. And Beijing has been clear about its desire to vanquish the Americans for many years, even if too many American experts—civilian and military—have refused to believe them.

One Western observer with several decades of experience in China describes how to consider China’s defense spending. He wrote the following in a recent email:

“Think of the Chinese Communist Party [CCP] as the national central account holder for all of its departments: agriculture, power, coal, education, PLA. The Party funds what needs to be funded—on an ongoing basis allocating funds to where party policy priorities are during any given period. It is a continuous process, not an annual budget that you spend until next year’s budget kicks in.

“Remember, all expenditures in China are in non-convertible yuan. There are 12 regional printing centers that provide whatever funding is needed this week, this month, this year.

“Funding the PLA’s domestic expenditures is easy—print yuan when and in the amount needed:

  • Salaries—print yuan;
  • Equipment from Chinese equipment suppliers—print yuan;
  • Bombs, guns, bullets from Chinese suppliers—print yuan;
  • Uniforms, boots, helmets, belts, caps, underwear (South China Sea island forces were just issued a new fabric tropical underwear) made in China—print yuan;
  • Pensions and payments to retirees—print yuan;
  • Whatever the PLA needs that is supplied domestically—print yuan.”
Epoch Times Photo
Chinese J-15 fighter jets on the deck of the Liaoning aircraft carrier during military drills in the South China Sea on Jan. 2, 2017. (STR/AFP via Getty Images)

Defense is the top priority for the CCP—and there are no Chinese Bernie Sanders or Green New Dealer types who will complain about the defense budget, for long. And once the PLA can outmatch the U.S. military, every other nation will fall into line. That is worth almost any price.

There is a limit to defense spending, however. Anything that is needed from overseas—say, iron ore to build steel, technology, “dual use” equipment and technology, and landing and stevedoring fees for PLA aircraft and ships stopping off at overseas ports and airfields—all must be paid for in currency that’s convertible (that a foreigner will accept), which the yuan is not.

To sum up, while the CCP can print up whatever cash it needs for domestic military expenditures, it needs to obtain convertible currency to pay for overseas expenses.

So there are effectively two different defense accounts—one domestic and more or less unlimited; and one overseas and dependent on available foreign exchange.

The latter should be a problem for Beijing. The CCP doesn’t have anywhere near the foreign exchange it needs to meet its total expenses—or at least it shouldn’t.

But with U.S. and foreign financial firms pouring billions of convertible currency (somebody else’s) into China every year, and foreign business investing in the country and chasing their own “China dream,” the CCP has enough to pay for defense.

Thus, the United States’ defense spending versus China’s is something like: “You’ll spend what you’re allocated” versus “We will spend what we need” to defeat the Americans.

And there’s more to worry about.

Retired U.S. Navy Capt. James Fanell, former head of intelligence at U.S. Pacific Fleet, says that regardless of the amount China actually spends, it’s essential to consider what China is actually producing with its defense spending.

“In 2021, despite a reduced PRC [People’s Republic of China] GDP growth rate due to the lasting effects of the virus from Wuhan, the CCP’s priorities were again focused on the PLA, which saw an increase of 6.8% from 2020,” he wrote in an email on March 11.

By comparison in fiscal year 2022, Fannell continued, the United States spent 3.1 percent of its GDP on defense, while China (according to Beijing’s figures) spent a scant 1.7 percent of its GDP. Yet the CCP’s propaganda continues to beguile Western defense experts who “keep talking about everything but the one metric that matters: the actual military hardware that is produced.”

CHINA-MILITARY-POLITICS
Sailors stand on the deck of the new type 055 guided-missile destroyer Nanchang of the Chinese People’s Liberation Army (PLA) Navy as it participates in a naval parade to commemorate the 70th anniversary of the founding of China’s PLA Navy in the sea near Qingdao, in eastern China’s Shandong Province, on April 23, 2019. (Mark Schiefelbein/AFP via Getty Images)

Fanell added: “For instance, in 2021 the PRC commissioned seven times as many warships and submarines than did the US (22 to 3)—despite (the Americans supposedly) spending three times as much money.

“So not only does the PRC get more return on investment (ROI) in overall defense spending, we have a Biden administration that has effectively cut the growth of the defense department spending when inflation is taken into account. While the administration is long on rhetoric about the PRC being a pacing-threat, the fact is that resources to build a credible deterrent force are unable to keep pace with the PLA that Beijing has been churning out for over 20 years.

“The ROI mismatch isn’t just about dollars spent, but is also about serious DoD [Department of Defense] acquisition reform. In that regard, we have a Secretary of Defense that spends more time talking about the existential threat from climate change and the integration of transgender members [rather] than systematically cleaning up the past three decades of a defense industry designed and funded for killing terrorists in the deserts of the Middle East.

“Instead of building the force that can take on and defeat a peer adversary like the PLA, DoD leaders are rudderless when it comes to restructuring the Pentagon and getting more bang for the buck. Instead, the current crop of political appointees and careerists spend more time and energy on non-warfighting domestic political rhetoric. As I noted last year, America needs supersonic and long-range ASCMs [anti-ship cruise missiles] that will sink the PLA Navy invasion Fleet. Where are they? The Pacific Fleet has been pleading for them in large numbers for almost two decades.”

Meanwhile, China keeps spending whatever it takes to defeat America. And they won’t run out of yuan. And Wall Street and industry appear willing to make sure they have the U.S. dollars they need to round things out.

Now that’s a defense budget with Chinese characteristics.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.


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Grant Newsham is a retired U.S. Marine officer and a former U.S. diplomat and business executive who lived and worked for many years in the Asia/Pacific region. He served as a reserve head of intelligence for Marine Forces Pacific, and was the U.S. Marine attaché, U.S. Embassy Tokyo on two occasions. He is a senior fellow with the Center for Security Policy.