A NEW ESTIMATE OF CHINA’S MILITARY EXPENDITURE

China publishes a national defence budget each year. In 2019 it reached 1.2 trillion yuan (US$175 billion), making China the country with the second highest military spending in the world, behind only the United States. However, this figure does not account for all of China’s military spending. Since the late 1990s many Western analysts have argued that major components of Chinese military activities are not reflected in the country’s official defence budget.

While efforts have been made to produce more accurate estimates of China’s military expenditure, the lack of public transparency surrounding the country’s military allocations has been a major obstacle. To provide a more accurate representation of China’s military spending, SIPRI’s estimate—based on an analysis made in 1999—covers other items in addition to the official defence budget. These include appropriations for arms imports; commercial earnings from military-owned businesses; additional funding for military research, development, testing and evaluation; paramilitary expenses for the People’s Armed Police; military demobilization, retirement and pension payments; additional military-related construction spending; and subsidies to loss-making arms companies.

However, given China’s accelerating military modernization and reforms—on top of the changing security dynamics in the country—the existing estimate of China’s military spending deserves a reassessment. This SIPRI report provides a comprehensive assessment of the financial resources China dedicates to military purposes. Using publicly available sources in both English and Chinese, the report presents a new estimate of Chinese military expenditure.

The new estimate—1660 billion yuan ($240 billion) in 2019—is around 142 billion yuan ($21 billion) less than the old SIPRI estimate. A key takeaway from the reassessment is the importance of continuous monitoring of a country’s military spending. Changes in defence and economic policies can have a significant effect on military activities and how they are accounted for. Some expenses that were considered extrabudgetary in the 1990s or 2000s had probably become part of China’s official budget by 2019. In the new estimate of China’s military expenditure, new categories were added and others were removed or revised. For example, spending on military activities by the China Coast Guard is included in the new estimate, while appropriations for arms imports and commercial earnings from military-owned businesses are not. Revisions were made to three categories: spending on the paramilitary People’s Armed Police; military demobilization, retirement and pension payments; and additional military construction expenses.

Although the new approach to estimating Chinese military expenditure improves on the old method, limited public transparency in budgeting on specific categories is still a cause of concern. SIPRI’s estimate of China’s military-related research and development, for instance, remains highly uncertain and there are question marks over some military construction spending and subsidies to the Chinese arms industry. Future research should focus on the wealth of publicly available Chinese-language sources, as there is still scope to improve the precision of the new estimate.

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Dr Nan Tian is a Senior Researcher with the SIPRI Arms and Military Expenditure Programme, where he is responsible for monitoring and managing the SIPRI Military Expenditure Database. His research interests focus on the causes and impact of military expenditure and civil war.

Fei Su is a Researcher with SIPRI’s China and Asia Security Programme. Her research interests focus on regional security issues in East Asia with a special interest in North Korea, China’s foreign and security policy, and maritime affairs.