China Defense Spending Set to Rise 7.5% as Xi Builds Up Military

(Bloomberg) -- China set a defense budget growth target of 7.5 percent in 2019, slower than last year but still enough to fulfill President Xi Jinping's plans to build a world-class military.

Authorities made the announcement on Tuesday in a statement released ahead of the National People's Congress, the annual gathering of China's legislature in Beijing. In 2018, before the trade war started to affect China's economy, officials predicted an increase of 8.1 percent to 1.11 trillion yuan ($164 billion).

The military spending figure is one of the few pieces of official data available to the U.S. and China's Asian neighbors as they seek to gauge the development of the People's Liberation Army.

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In 2017, Xi pledged to complete the modernization of China's armed forces by 2035, and to build a world-class military capable of winning wars across all theaters by 2050. His success will determine China's ability to mount a serious challenge to U.S. strategic interests in Asia over the coming decades.

China spends considerably more on defense than it officially stated, according to the Stockholm International Peace Research Institute. While China said Monday that military spending accounted for 1.3 percent of GDP in 2018, Sipri estimated that it amounted to 1.9 percent of GDP in 2017 -- the latest year figures were available. U.S. defense spending totaled 3.1 percent of GDP that year, Sipri said.

The Trump administration plans to hold its national security budget at $700 billion, about a 2 percent decrease from $716 billion in the fiscal year 2019. The Office of Management and Budget has projected seeking $733 billion in the fiscal year 2020.

Broader Aims

Beijing on Tuesday lowered its official goal for economic growth in 2019 to a range of 6 to 6.5 percent, seeking to pull off a gradual deceleration while grappling with a debt legacy and the trade standoff with the U.S.

If China's economic slowdown lasts only a year or two, it's unlikely to derail Xi's goals, which are long term and incremental, said Richard Bitzinger, who studies military modernization as a senior fellow at Singapore's S. Rajaratnam School of International Studies. Slower growth over the long term could “force a rethink” of plans including a bigger military, he said.

“China wants nothing less than to push the United States of America from the Western Pacific and attempt to prevent us from coming to the aid of our allies,” Vice President Mike Pence said in October, adding that China now spends as much on its military as the rest of Asia's nations combined.

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Beijing has prioritized the capability to erode America's military advantages on land, at sea, in the air, and in space, Pence said.

Pence took aim at China's regular patrols around disputed Japan administered islands -- known as the Senkakus in Japan and Diaoyus in China -- that are claimed by China. He also noted Beijing's deployment of advanced anti-ship and anti-air missiles atop the archipelago of military bases it has constructed on artificial structures in the South China Sea.

Advancing Systems

The spending is thought to be divided between personnel, training and military exercises. and the purchase and repair of weapons and equipment, according to a high-ranking Chinese military officer cited by the Center for Strategic and International Studies' China Power Project.

“If we assume that there are hidden defense outlays, then China might keep up with priority programs such as missiles, the fifth-generation fighter and stealth bomber and naval modernization,” said Collin Koh Swee Lean, a research fellow at S. Rajaratnam.

--With assistance from Stephen Tan.

To contact the reporter on this story: David Tweed in Hong Kong at dtweed@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net, Karen Leigh

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