China Defense Budget Rises 7.1%, Fastest Pace in Three Years

(Bloomberg) -- China projected defense spending growth of 7.1% this year, the fastest pace since 2019 as President Joe Biden moves to strengthen the U.S.'s position in the Indo-Pacific region. 

Chinese military expenditures are expected to rise to 1.45 trillion yuan ($229 billion) in the coming year, according the Ministry of Finance's annual report released Saturday at the start of the National People's Congress in Beijing. Spending on the People's Liberation Army has increased by at least 6.6% each year for the past three decades, keeping pace or often exceeding economic growth. 

“The PLA's budget has increased over the past decade, and this year's budget continues the trend,” said Drew Thompson, a former U.S. Defense Department official responsible for China and currently a senior fellow at the Lee Kuan Yew School of Public Policy in Singapore. “The actual figure announced and the percentage increase is less important than the overall trend which is steady growth, expansion, and consistent improvement of the PLA's capabilities.”

The announcement comes after the Biden administration last month unveiled its long-awaited Indo-Pacific strategy to counter China's growing economic and military clout. That document laid out Washington's ambition to build a “balance of influence in the world that is maximally favorable” to the U.S., as it aims to bolster peace across the Taiwan Strait and ties with South Korea and Japan.

Beijing's military spending is closely watched by Washington and policy makers around Asia as a rare piece of official data that helps gauge the PLA's development. Analysts outside China say actual military spending far exceeds the official figure presented every year at the legislative meeting, partly because R&D expenditures are not included.

“Government at all levels must give strong support to the development of national defense and the armed forces, so unity between the military and government and between the military and the people will remain rock solid,” Chinese Premier Li Keqiang said in the government's annual work report. “We will enhance military training and combat readiness,” he added, saying China would be “firm and flexible” in operations and stressing the need to safeguard China's “sovereignty, security and development interests.” 

China also set its lowest economic growth target in more than 30 years on Saturday, a sign the housing slump, stringent Covid controls and global risks will continue to curb demand. Beijing will target gross domestic product expansion of around 5.5% this year.

“Despite a slowing economy, Beijing will be warily eyeing increasing defense budgets in Japan, Taiwan and other U.S. allies, while the U.S. shift to the Indo-Pacific is complicating Chinese defense planning,” said Christian Le Miere, founder of strategic advisory firm Arcipel. “A stronger U.S. military presence dispersed through the region means China needs to spend widely on capabilities and plan for a range of different scenarios.” 

Beijing has military tensions with other major regional economies. It accused Australia of forming anti-China “cliques” last year after it inked a security pact with the U.S. and U.K., while China and India continue to clash over their disputed border, with both sides amassing troops, tanks and artillery. 

President Vladimir Putin's invasion of Ukraine is expected to push other countries, especially in Europe, to raise their military spending. Germany is already setting aside 100 billion euros ($109 billion) in a massive boost to defense budgets. 

Beijing has resisted condemning the invasion, raising concerns Chinese President Xi Jinping could take military action toward Taiwan, the democratically ruled island Beijing claims as its territory. Taiwanese President Tsai Ing-wen has played down worries that the war in Europe could trigger a similar crisis in Asia, saying the two situations were “fundamentally different.”

Li committed to Beijing's “overall policy for resolving the Taiwan question in the new era,” saying that China would “advance the peaceful growth of relations across the Taiwan Strait and the reunification of China.”  

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With assistance from Bloomberg