While China’s defence budget growth for 2021 will be modest, its military modernisation plans are anything but. Fenella McGerty and Meia Nouwens explain what Beijing’s latest policy announcements reveal about the scale of its defence expenditure and ambitions.
PLA and China defence watchers eagerly awaited this year’s ‘Two Sessions’ meeting of China’s National People’s Congress and Chinese People’s Political Consultative Conference for announcements relating to the country’s 2021 defence budget, and other defence-related policy announcements. Though there were few real surprises, the statements at the meeting and details in the accompanying Five-Year Plan documents confirm the current understanding of China’s priorities for the next five years in security, defence and technological innovation.
Slight uptick in China’s 2021 defence budget
The 2021 Chinese defence budget of CNY1.355 trillion (US$202 billion) represents a 6.8% nominal increase over the core 2020 budget of CNY1.268 trillion (US$188bn). In 2020, the government sought to shield the PLA and the defence economy from wider pandemic-driven economic concerns by only marginally slowing the rate of defence budget growth to 6.7%. The slightly stronger nominal growth for 2021 is, therefore, indicative of the sturdier footing that China’s economy is on compared to this time last year. While the rates of growth for 2020 and 2021 are considerably lower than the 12.8% notched up between 2014 and 2019, they are only slightly below the 8.1% average annual growth seen between 2015 and 2019.
In real terms, 2021 defence budget growth is actually slightly lower than in 2020 owing to the 3% annual inflation rate in China. But in value terms, the increase amounts to US$13bn, a figure comparable with the entire Taiwanese defence budget. Similarly in 2020, despite slower real growth in China’s defence budget, the nominal US$12bn increase was greater than the combined defence budget increases of all other Asian states. The 2020 defence budget, including funding for local militias, came to US$193bn, although total expenditure is estimated to be much higher if foreign weapons purchases, military R&D funding, and the People’s Armed Police central budget are included.
To give a sense of where China’s defence spending fits within a regional context, Asian defence spending accounted for 25.0% of the global total in 2020, up from 17.8% in 2010, despite a recent slowdown in defence budget growth. The increase in Asian spending has been largely driven by China, but supported by growth in other key markets including Australia, India and the Republic of Korea. Notwithstanding the significant planned increases in European defence budgets in 2021, with the approved FY21 US Department of Defense budget nominally flat against FY20 levels, the Asian share of global spending will likely grow modestly again in 2021 as most regional defence budgets are expected to increase in 2021.
Boost to technological innovation
Aside from announcing the defence budget for this year, the Two Sessions also provided insight into other defence-related policy measures. Related to defence-industry developments and the role of emerging technologies in the People’s Liberation Army’s (PLA) ambitious modernisation drive, Beijing announced that it would increase expenditure on basic research by 10.6% in 2021 and increase its annual R&D spending by more than 7% every year over the next five years.
Indeed, the 14th Five-Year Plan (FYP, 2021–25) highlighted that China will focus on improving its technological strengths in key areas such as next-generation artificial intelligence, quantum information, semiconductors, deep space, deep sea and polar exploration. To boost innovation, Beijing also aims to establish more national laboratories with a specific focus on AI and quantum information research. China is already conducting defence-related research on the applications of technologies such as quantum information and AI, and the 14th FYP indicates that this remains a core ambition for at least the near term.
PLA to enter second phase of reform
Draft versions of the 14th FYP published by Xinhua also provide insight into the focus areas for the PLA’s next phase of modernisation. The Chinese government had previously intended for the PLA to achieve basic mechanisation and make progress towards informatisation by 2020, but recent statements indicate that this goal has not been fully realised. Achieving full mechanisation and informatisation is thus likely to continue to be an ambition for the next few years.
Nevertheless, 2021 marks a new phase of PLA reform towards the final goal of building a world-class military by mid-century. As the draft FYP states, the PLA’s next goals are centred on army building –strengthening the army through politics, reform, science and technology, talent and rule of law – by 2027 (the centenary of the PLA’s founding), and speeding up and improving efficiency in terms of military modernisation, which it aims to achieve by 2035.
Here, the FYP provides insights into where budget spending might be allocated in the next five years. The document emphasises the modernisation of weapons and equipment, independent and original innovation in national defence science and technology, the development of strategic frontier and disruptive technologies, and accelerating upgrades of and development in intelligent weapons and equipment. But equal attention is given to the modernisation of military theory, personnel and organisation, the creation of new combat forces in new domains, and joint training. Military-civil fusion is again promoted as a way of achieving the PLA’s ambitious reform goals.
Softer language on Taiwan, with the usual caveat
The annual Two Sessions meeting also highlights developments in areas of concern for Beijing, with the possible reunification with Taiwan being a topic of discussion at past meetings. The failure to mention ‘peaceful’ reunification with Taiwan at the 2020 Two Sessions meeting was interpreted as an intentional warning signal to the island’s pro-independence supporters, with some analysts suggesting that it was a further sign that military conflict across the Taiwan Strait was imminent. However, the Chinese government later clarified that omitting the word ‘peaceful’ had been an error.
It avoided the same mistake this year, and both the discussion at the Two Sessions meeting and the text of the 14th FYP referred to ‘peaceful reunification’ with Taiwan. The language on Taiwan is surprisingly soft, focusing less on the threat of force, and instead promoting people-to-people ties, and cross-Strait cooperation and development, and providing benefits to Taiwanese citizens on the mainland.
However, such measures have proved unsuccessful since Taiwan President Tsai Ing-wen’s election in 2016, and are unlikely to result in greater support across the Strait for a ‘One Country, Two Systems’ formula. The plan, therefore, includes China’s usual disclaimer that it will be ‘highly vigilant and resolutely curb separatist activities in “Taiwan Independence”’.
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