Meia Nouwens & Fenella McGerty
China revealed some of the strains on its military even as Beijing used the 2024 National People's Congress (NPC) to announce a 7.2% defence-budget hike as the economy slows.
While defence is a priority even against that economic backdrop, it competes with spending in other priority areas, such as science and technology (S&T), food security, public security, and debt servicing. And Beijing's decision not to announce traditional personnel appointments at the annual event raises further questions about stability within the Chinese Communist Party (CCP) following corruption allegations that cost senior defence leaders their job in 2023.
Money matters
The 2024 NPC (also known as the Liang Hui or Two Sessions), kicked off on 5 March and will close on the afternoon of 11 March. Premier Li Qiang’s work report, the Ministry of Finance’s draft budget and personnel announcements were high on the watchlist for domestic and foreign observers.
The draft budget revealed that funding for national defence will reach a record RMB1.665 trillion (USD233 billion) this year up from RMB1.554trn (USD219bn) in 2023. The 7.2% nominal uplift matches the rate of growth seen in 2023 and is comparable to the ten-year average of 7.5%. It marks the third year since COVID-19 hit that the budget has grown by above 7% and the 30th consecutive year it will have risen.
As a proportion of GDP, the core defence budget amounts to 1.25%, well below the global average of 1.8% and the 2% target for NATO countries. However, the IISS estimates that total military expenditure – including government-funded research and development, local militia funding and central funding for the People’s Armed Police – comes to RMB2.17trn (USD304bn) in 2024. Other potential additional items include new funding mechanisms for defence investment in R&D that have emerged over the last two decades, including corporate access to capital markets and special investment initiatives. Notwithstanding these additional items, adjusted for purchasing power parity, the core 2024 defence budget would come to USD439bn, while total military expenditure would reach USD574bn.
The Chinese defence budget, irrespective of what figure is used, is still considerably lower than the 2024 US defence budget request of USD911bn. On a real-term basis and accounting for inflation, Beijing’s pace of spending increases is, however, narrowing the gap between itself and Washington. US defence budget increases in recent years have aimed, in some part, to account for rising costs from higher rates of inflation, which peaked at around 8% in 2022. In real terms, the US defence budget has grown by 1.2% on average annually since 2014. Low and stable inflation rates in China mean that real defence budget growth has averaged 6.0% over the same period.
Beijing has not detailed how the increased 2024 budget will be spent, though there is a clear commitment to enhance People’s Liberation Army (PLA) capabilities for a potential Taiwan contingency by 2027 and full military modernisation by 2035 – as dictated by President Xi Jinping.
While China’s defence budget is still far greater than that of its regional neighbours, other countries area also increasing their defence budgets. Australia, Japan, New Zealand, South Korea and Thailand have all made concerted efforts to increase spending over recent years to invest in capabilities while also countering Chinese regional influence. In August 2023, Taiwan proposed its largest ever defence budget of TWD607bn (USD19.7bn) for 2024.
Corruption cloud
Following corruption scandals in 2023 involving the PLA Rocket Force and the Equipment Development Department, reportedly related to its procurement practices, part of the budget may go to resolving problems related to equipment purchases in addition to continued efforts to improve personnel and training.
Premier Li said at the NPC that the priorities for this year’s defence budget include realistic combat training and exercises, refining the defence-industrial system, raising public awareness of national defence, as well as strengthening national defence mobilisation and readiness of reserve forces. He also listed emerging technology investment as a focus, some with defence implications, such as quantum technology.
The absence of personnel appointments at this year’s NPC will impact military decision-making and signal a potential lack of confidence within the bureaucracy after last year’s corruption allegations. This led the CCP to replace Minister of Defence General Li Shangfu with Admiral Dong Jun. But Adm. Dong lacks a seat on the Central Military Commission (CMC) – the defence minister traditionally is the third ranking member – and he has not been given a State Councilor title. This departure from usual practice could signal greater centralisation of defence policy making in the hands of the CCP and, more narrowly, in the hands of those closest to President Xi Jinping, namely first-ranking Vice Chair of the CMC Zhang Youxia and second-ranking Vice Chair of the CMC He Weidong.
Renminbi rivalry
While China still prioritises defence spending, there is competition for the budgetary pie from other national priority areas, including science and technology, education, the armed police, national reserves, as well as government bond issuance and debt interest payments. The largest of these, the bill to service debt, will increase 11.9% in 2024 to reach RMB777bn (USD109bn). Meanwhile, the science and technology budget will rise by 10.0% to RMB371bn (USD51.8bn) and funding for basic research will go up by 13.1% to RMB98bn (USD13.7bn) in 2024. The budget for food security is set to increase by 8.1% to RMB141bn (USD19.7bn).
Other areas related to spending on foreign affairs and national security are also not keeping pace with some non-defence priorities. Diplomatic activity funding is set to increase 6.6% to RMB60.8bn (USD8.5bn, while the public security budget is poised to increase just 1.4% to RMB228bn (USD31.9bn). The growth figure for the latter, though, is somewhat distorted by an overspend in 2023. Compared to the initial public security budget for 2023, the 2024 figure is an 8.9% uplift.
The official announcement of a real GDP growth target of ‘around 5%’ for 2024 represents a cautious approach by the government to not overpromise on economic momentum early in the year. The IMF projected in January that China’s real GDP growth will reach just 4.6% this year.
Real defence budget growth has outpaced that of GDP since 2022. That reality may prove unsustainable in the short term, though, due to economic difficulties and internal budget pressures, not least debt servicing.
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