China Defends Budget Transparency After Military Outlays Omitted

(Bloomberg) -- Finance Minister Xiao Jie affirmed China's commitment to transparency in its 19.5 trillion yuan ($2.8 trillion) budget, after excluding defense expenditures and other big items from a key fiscal report for the first time in almost four decades.

Xiao told a news conference on the sidelines of the National People's Congress on Tuesday the spending items were omitted because they were included in another budget document that hasn't yet been released publicly. The recently appointed finance chief said the change was made after “suggestions we received from multiple parties” and noted additional spending information was added elsewhere.

“There is no such thing as the so-called lack of transparency problem that you're concerned about,” Xiao said, responding to a question from Bloomberg News. “It's just that there have been new approaches taken toward the drafting process.”

China's fiscal report -- including the world's second-largest defense budget -- is among the most closely watched documents released during the annual legislative gathering in Beijing. The decision to omit defense spending from the one released Sunday highlighted the dearth of information about China's military, an issue that has fueled suspicion about the country's strategic intentions among defense officials in the U.S. and Asia. 

Read: China's finance minister indicates room for more government debt

Defense spending had been disclosed in the report since 1980, when China started giving regular financial updates in the aftermath of the Cultural Revolution. Expenditures on public security and foreign affairs were also excluded from the latest report.

A ministry information official said later Sunday that overall defense spending, including local expenditures, would increase 7 percent this year to 1.044 trillion yuan. That would be the slowest increase since at least 1991, tracking a general slowdown in economic growth.

Outside estimates of China's defense budget are significantly higher, with the Stockholm International Peace Research Institute putting the number at about 55 percent above official figures. The group's $215 billion estimate for 2015 includes military research and development, arms imports, some military construction projects and PLA pension costs.

China, which lags far behind the U.S.'s estimated $596 billion defense expenditures in 2015, is in the midst of its biggest military overhaul since the aftermath of the Korean War. President Xi Jinping has called for cutting 300,000 personnel from the 2.3-million-member People's Liberation Army and updating its Soviet-inspired command structure.

In his remarks, Xiao also highlighted policies ensuring that the country's fiscal deficit grows in line with the economy, saying the spending would tax reduction and other initiatives. The country's budget deficit ratio was projected to remain at 3 percent this year.

--With assistance from Peter Martin

To contact Bloomberg News staff for this story: Ken Wills in Beijing at kwills3@bloomberg.net, Xiaoqing Pi in Beijing at xpi1@bloomberg.net.

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net, Brendan Scott, Ken Wills

With assistance from Ken Wills, Xiaoqing Pi