News analysis

China's slowdown hits defence budget

No double-digit rise in spending as economy is set to grow at slowest pace since 1990

An economy that is larger but slowing down, and more efficient use of military expenses may explain why China's defence spending increase this year is lower than expected, according to observers.

Parliamentary spokesman Fu Ying said yesterday the planned increase of 7 to 8 per cent in the defence budget - the slowest pace since a 7.5 per cent rise in 2010 - was based on factors such as national defence needs, the state of the economy and the performance of China's fiscal revenues.

Beijing-based military expert Song Zhongping said the slump in the world's No. 2 economy, set to grow at its slowest pace since 1990, makes it necessary to adjust defence spending.

"If the economy is down, government revenue is lower, and money for the military is much less," he told The Straits Times.

At the same time, he noted that defence money is being spent more efficiently, with less wastage and corruption, thanks to anti-corruption and austerity drives.

State media and military officials had called for a double-digit rise as the People's Liberation Army (PLA) undergoes reorganisation and modernisation.

With the 2.3 million-strong PLA set to shed 300,000 personnel, Lieutenant-General Wang Hongguang, former deputy commander of the Nanjing Military Region, said a 20 per cent increase was needed to cover retirement pay and lay-off compensation, as well as to help assert China's territorial claims in the South China and East China seas.

What might have prompted expectations of another double-digit increase despite current weak economic conditions is the disconnect between China's economic growth and military spending spikes.

While annual growth has been slowing since 2010, defence spending continued to grow by double digits: 12.7 per cent in 2011, 11.2 per cent in 2012, 10.7 per cent in 2013, 12.2 per cent in 2014, and 10.1 per cent last year to 887 billion yuan (S$188 billion).

Hong Kong-based military expert Liang Guoliang said a growing economy means that the defence budget, which is pegged at between 1.3 and 1.5 per cent of the gross domestic product in the past five years, would still be expanding significantly even if its increase slowed. "Expectations of a 20 per cent increase were unrealistic, as China's military modernisation follows a prescribed pathway that does not provide for fluctuations in spending," he told The Straits Times.

Still, China's defence spending - second only to that of the United States - has been closely watched for signs that its top leadership might sanction a double-digit increase despite the economic challenges. Singapore-based analyst Li Mingjiang said China may not be deliberately trying to assuage the concerns of rival claimant-states in the South China Sea by slowing the expansion of its defence budget. "But the move does send a signal that China is predominantly concerned about domestic affairs and is not trying to increase its budget for military actions in the South China Sea," he told The Straits Times.

A version of this article appeared in the print edition of The Straits Times on March 05, 2016, with the headline 'China's slowdown hits defence budget'. Print Edition | Subscribe