China has announced that its defence budget will increase by 10.1 per cent to CNY886.9 billion (USD141.6 billion) for 2015.
The 10.1 per cent nominal terms increase is slowest rate of growth since 2010. However, slowing inflation means that real terms growth is maintained at around 9 per cent in line with recent years.
China’s defence budget continues its gradual increase as a percentage of GDP rising from 1.31 per cent to 1.34 per cent. Growth in military spending has, therefore, outpaced economic growth in each of the four years since 2011.
Defence expenditure, meanwhile, remains low as a share of GDP compared to the global average of 2 per cent or to the US at 3.1 per cent.
China’s defence budget excludes some elements of spending, but we estimate total defence expenditure to reach USD190.9 billion or 1.77 per cent of GDP.
While this is the slowest rate of growth announced for a number of years, the defence budget is still growing at a robust pace. In real terms, the budget is growing by around 9 per cent, meaning only Russia’s military budget will grow faster this year out of the top 20 defence spenders.
While growth in spending on the military has generally been in line with economic growth, we are starting to see signs that the increases in defence spending are starting to creep ahead. The last time we saw four years in a row where defence spending increased as a share of GDP was in 2002.
The remarkable thing about the increases we see in China is that they have been sustained over a number of decades. The defence budget has more than doubled since 2008 alone.
Despite the increases, it’s important to remember that Chinese defence spending remains relatively low compared to the size of its economy, particularly when you consider the country’s position in the world. The France, the UK and the US all spend considerably more on defence as a proportion of GDP.
IHS experts will provide insight into the security, economic, energy and defence industrial implications of the changing situation in Asia Pacific at the IHS Executive Briefing in Canberra, Australia on 25 March 2015. Learn more and register to attend at http://bit.ly/IHSCanberra