Extrabudgetary sources and Western criticisms

After Beijing announces its annual defence budget each March, copious Western analysis criticizes China's low transparency and the exclusion of major defence-related spending from its official defence budget. Many analysts claim (implicitly or explicitly) that China intentionally underreports actual military spending. As described in the following paragraphs, major items not included in the official defence budget that become targets of Western censure include: the budget of the 660,000-strong People's Armed Police (PAP); some domestic procurement and research and development (R&D) expenses; overseas purchases of major weapons and platforms; contributions from regional and local governments and extrabudgetary revenues and resources from a limited number of military commercial enterprises (e.g. hotels, hospitals, and strategic infrastructure); and militarily relevant portions of China's space program budget. Other extra-budgetary resources, some of which have attracted less scrutiny, include central and local government defence mobilization funds, one-time entrance bonuses for college students, authorized sales of land or excess food produced by some units, providing personnel for motion pictures, and donations of goods, services, and money by local governments and enterprises to units and demobilized personnel.Footnote ⁸

Perhaps the largest alleged exclusion from the official defence budget is the budget of the PAP. Distinct from the PLA, however, the PAP's primary focus is domestic; its responsibilities include routine guard duties, fire fighting, public emergency response (e.g. natural disaster relief), counterterrorism and border security. In peacetime, the PLA does not routinely support PAP domestic stability operations. In the event of war, the PAP's secondary mission is to support the PLA in local defence. Because of these disparate roles, the PRC government categorizes the PAP budget under expenditures for public security, while the PLA budget is under expenditures for national defence – separate line items in publicly available government statistical yearbooks.

The PRC does not release any information publicly about the specific costs of procuring weapons and equipment built by the domestic defence industry; nor does it publicize how defence-related R&D funds are allocated to PLA armament research institutes and civilian defence contractors. Defence-related R&D funding may come from several parts of the government (e.g. the State Administration for Science, Technology and Industry for National Defense and the Ministry of Science and Technology) or defence firms.

Although most PLA procurement is domestically sourced, a significant percentage (by cost) of its most advanced weapons technology and some weapons platforms are acquired overseas. In addition to purchases of completed systems (e.g. Kilo-class submarines and Sovremenny-class destroyers), many of China's most advanced defence technologies originate from foreign-assisted development (officially authorized or otherwise) and/or licensed production and reverse-engineering of existing foreign platforms. These include the PLA Air Force (PLAAF) Jian-11B fighter, based on Russia's Su-27, and the Jian-15 fighter, based on Russia's Su-33. The money spent on these imports is believed to come from special accounts controlled by the State Council (not the PLA) that are not included in the official defence budget.Footnote ⁹ Although arms imports have declined as China's domestic defence industry has become more capable, continued difficulties developing key technologies, such as mass-producing modern high-performance aero engines, suggest that China will continue to rely on imports from Russia for at least several more years. Meanwhile, the volume of Chinese weapon exports remains relatively small, but is growing rapidly; exports increased a total of 95 per cent between the 2002–2006 period and the 2007–2011 period. China is now the sixth-largest arms exporter by volume.Footnote ¹⁰

China's defence budget is frequently criticized for not including provincial defence-related spending, such as the cost of operating military bases and demobilization and resettlement funds resulting from major force reductions since 1997. These are thought to come from the Ministry of Civil Affairs and local governments.Footnote ¹¹ Local governments also contribute to reserve and militia expenses, including personnel costs for local civilian cadre working in grassroots People's Armed Forces departments. According to 2010 government statistics, only 2.94 per cent of defence expenditures were covered by local governments.Footnote ¹²

China's general lack of transparency about how its official defence budget is calculated makes judging the validity of these Western criticisms very difficult. However, the potential significance of the above exclusions for assessing the size of China's actual defence budget is suggested in three important studies conducted by the International Institute for Strategic Studies (IISS). In 2006, IISS estimated that including the costs of foreign weapons purchases, subsidies, R&D spending, new product expenditures, arms exports and PAP funding revealed a 72 per cent gap (in RMB terms) between China's FY2005 official defence budget and “actual” (i.e. IISS-estimated) defence spending.Footnote ¹³ In 2010, IISS estimated a roughly 39 per cent difference between the FY2008 official defence budget and “actual” (i.e. IISS-estimated) defence spending.Footnote ¹⁴ In 2012, the estimated gap for the FY2010 budget was 41 per cent.Footnote ¹⁵ It should be noted that, although large, the disparity between the official budget and IISS's estimates declined significantly over the initial three-year period before stabilizing. As argued in the next section, this shrinking gap, which is consistent with similar trends in estimates by the US Department of Defense, suggests that in recent years an increasing percentage of “actual” PLA funding has been placed “on the books”; that is, officially reported figures increasingly reflect actual spending.

The impact of reforms on budget assessments

Longitudinal comparisons of China's defence spending are complicated by a number of factors: (1) prior to 1998 the only information publicly released about China's official defence budget was the single aggregate figure of total spending announced in an annual yearbook; and (2) since 1998 the content of the official defence budget has changed because of various budget reforms. This section focuses on the latter.

One important consequence of defence budget reforms since the mid-1990s has been a substantial reduction in the gap between the PLA's official government-distributed budget and the amount of aggregate funding it actually receives. Major reforms include: (1) divestiture of the PLA's commercial assets, and reimbursement to the PLA (for a few years) of some of the funds that used to come from the businesses; (2) regularization of accounting and auditing; (3) marketization of defence procurement; and (4) the creation of the general armaments department in 1998 to oversee a new procurement bidding system and implement a zero-based budgeting initiative.Footnote ¹⁶ For example, with regard to the first reform, before 1998 various commercial enterprises, in-kind subsidies, and revenue-sharing practices were significant sources of income for PLA entities. However, in the late-1990s the president at the time, Jiang Zemin, ordered the PLA to exit most of its commercial businesses and to “eat imperial grain” (i.e. increasingly rely on state funding). Because of this commercial divestiture, over the past 15 years an increasing percentage of the PLA's total funding has come directly from the central government and is therefore “on the books.” One implication of this development is that a sizable percentage of defence budget increases since 1998 may be attributable to more accurate, systematic and transparent government accounting practices, together with reduced corruption, rather than actual increases in the PLA's funding stream.Footnote ¹⁷ Perhaps the best evidence that recent defence budgets more accurately reflect actual PLA funding is to compare estimates by the US Department of Defense in 2002 (~3.25–4 times China's official defence budget for 2002)Footnote ¹⁸ and 2010 (~2.14 times the announced 2009 budget).Footnote ¹⁹ While in recent years the Pentagon has not itemized publicly what it includes in its calculations, these data show that the department now estimates China's “actual” defence spending to be much closer to the officially announced figure.

Nevertheless, an unwieldy defence economy and budgeting process continues to inhibit both insiders' and outsiders' ability to determine China's actual military spending. As the Department of Defence assesses, “What little public information China releases about defence spending is further clouded by a multitude of funding sources, subsidies, and cut-outs at all levels of government and in multiple ministries. Real spending on the military, therefore, is so disaggregated that even the Chinese leadership may not know the actual top line.”Footnote ²⁰ Even the PLA recognizes problems concerning inefficiencies and coordination stemming from a lack of centralized administration of various funding streams, lack of oversight, lack of competitive bidding, and the absence of departments tasked with analysis of procurement demands.Footnote ²¹

Overlooked inclusions

Although the exclusion of major items from China's official defence budget is undoubtedly an issue of concern, less widely known is that the budget also includes some items that are not included in those of its Western counterparts. For example, the PLA still engages in some infrastructure construction projects, although many are designed to be dual-use and paid for from local and national non-defence funds. It provides some medical help to civilians in remote areas and provides some support to domestic security operations (e.g. during the 2008 Olympics). The PLA also engages in disaster relief, such as the dispatch of over 200,000 personnel in response to the 2008 Wenchuan earthquake – the largest deployment of Chinese armed forces since the 1979 war with Vietnam.Footnote ²² There are legal provisions for it to be reimbursed for these operations, but the processes, delays and extent of such reimbursements remain unclear.Footnote ²³ In Western countries, such tasks are assigned primarily to non-military organizations. The PLA also provides perquisites for retired senior officers (offices, assistants, cars, drivers, cooks, caregivers, and special hospital facilities) that their better-salaried Western counterparts do not receive.

What official documents reveal about China's defence spending

Salutary developments of direct relevance to China's military transparency include China's publication of biannual national defence white papers since 1998 and its annual submission of a “Simplified Reporting Form” to the United Nations (UN) since 2008. This sub-section presents a brief overview of budget-related information included in each of these two types of documents.

China's national defence white papers separate the PLA's official budget into three main categories: personnel, training and maintenance, and equipment; each of these has reportedly been consistently allotted roughly 33 per cent of the defence budget. The first category, personnel expenses, covers salaries, allowances, food, clothing and bedding, insurance, welfare benefits and pensions for officers, non-ranking cadres, enlisted personnel and contracted civilians. It also apparently includes family housing. The second category, training and maintenance expenses, covers troop training, institutional education and the running and development of “daily work and activities.” In contrast to the US budget's operations and maintenance category, the category of “training and maintenance expenses” in China's defence budget includes only the maintenance of facilities; it does not include maintenance, transportation and storage of equipment. Rather, the latter item falls into the Chinese defence budget's final category, equipment, which covers R&D, procurement, maintenance, transportation and storage of weaponry and other hardware. According to one group of US experts who have queried Chinese government officials extensively about China's defence-related spending, China is most transparent about the first category of defence spending and least transparent about the third. For example, very little is known about the costs of weapons and equipment produced by the Chinese defence industry or the amount of money allocated to weapons research and development.Footnote ²⁴

Since 2008, China has submitted the Simplified Reporting Form on military expenditures annually to the UN Secretary General. This form contains previously unreleased information about the relative shares of China's defence budget allocated to its active forces, reserve forces and militia. Although China's submission of this form is a step toward greater transparency, it is important to note that the “Simplified” form contains much less information than the “Standardized Reporting Form” submitted by most advanced industrial democracies.Footnote ²⁵ For example, neither the Simplified Reporting Form nor any other publicly available official document includes a breakdown – even top-line figures – of China's defence budget by branches and services.Footnote ²⁶

In sum, trends in China's defence budget transparency, when examined holistically, are mixed. Recent major budget reforms suggest that more spending is accounted for: the official budget therefore increasingly reflects actual PLA funding. Furthermore, although excluding various major items from China's defence budget limits transparency, and instances of over-reporting do not compare to underreporting in terms of magnitude or importance, China's official budget does include several categories of spending that are not included in Western defence budgets. At the same time, more informative defence white papers and the submission of defence budget data to the UN manifest a gradual, if slow, shift toward greater military transparency; albeit with major gaps, the most basic being lack of information for each service.

Transparency Concerns

Chinese commentators respond to Western criticisms of China's relatively low military transparency in one of three ways: (1) emphasize that there is no universal standard for military transparency; (2) compare the current level of transparency favourably to even greater opacity previously; or (3) contend that “the most fundamental and most important form of transparency” is the transparency of China's strategic intentions, as opposed to the transparency of military capabilities or doctrine.Footnote ²⁷

The first claim is largely accurate – particularly in the case of states with developing economies.Footnote ²⁸ Comparative surveys published in the US and elsewhere make it abundantly clear that the one thing that different countries' defence budgets have in common is the non-uniformity in what governments define as “defence spending.” There are, however, emerging norms among advanced industrial democracies about what should be included in a country's official defence budget; for the most part China's defence budget does not conform to these norms. The second response is also accurate, although as was argued earlier, the gradual improvements to China's military transparency in recent years build off a very low base. The third claim is much more controversial. While theoretically true, the fact remains that, as many scholars and policymakers argue, intentions are notoriously difficult to define and, perhaps more importantly, can change overnight – particularly in the event of a domestic or international crisis.

Concerns about the pace and scale of budget increases

Chinese justifications for the pace and scale of China's military build-up and concomitant defence budget increases appear frequently in official statements, government documents and state-run media. They can be divided into six notional categories.

The first category of justifications – catch-up arguments – contend that major investments in military modernization are necessary to compensate for Beijing's relative neglect of the PLA during the first two decades of China's post-1978 “reform and opening up” period. In the late 1970s, Deng Xiaoping, China's paramount leader, called for the nation to prioritize economic reforms and economic growth. Consequently, military modernization was treated as the least urgent of the famous “four modernizations” and, manifest in Deng's request for the PLA to “stay patient,” investment in the military was deemphasized throughout the 1980s. Indeed, as seen in Table 1, defence spending declined in real terms during the 1980s. Chinese officials contend – justifiably – that it was not until rampant inflation was tamed around 1997 that large nominal budget increases began to yield significantly enhanced buying power.Footnote ²⁹

Compensating for the limited investment in the military during the first two decades of the reform period and modernizing the PLA are important objectives of today's leadership. As the vice chairman of the Central Military Commission (CMC) declared in 2009, “China's defense and military development starts from a fairly poor foundation. We are only making early steps in ‘informationization’ of the force, while our plan for mechanization is yet to be accomplished” [sic].Footnote ³⁰ A researcher at the PLA's Academy of Military Science argued similarly in 2010: “The double-digit budget growth in the past years was mainly aimed to make up for the inadequacy of the country's defense development” [sic].Footnote ³¹ China's central government has invested in the comprehensive transformation of the PLA through “leap-frog development” and the pursuit of “an RMA (Revolution in Military Affairs) with Chinese characteristics.”Footnote ³² Achieving leaders' publicly declared goal of catching up militarily with the other major powers by the middle of this century requires cutting-edge technological capabilities whose costs – in the form of continued investments in R&D, manufacturing and weapons procurement – Chinese leaders have “bid up” to extremely high levels through strategic competition. Advanced weapons are much more expensive than previous generations; they also use much more fuel, fire more expensive rounds and cost more to maintain and repair. Modernization also necessitates huge investments, firstly in structural and organizational reform of the PLA, including demobilizing and resettling thousands of (relatively) uneducated servicemen, and second in cultivating a smaller force of “high-calibre” (well-educated and professional) personnel capable of developing and effectively employing these advanced technologies.

A second category of justification consists of inflation-adjustment arguments, which cite surging fuel, water, commodity, electricity and personnel costs (e.g. education, training, social security and salaries), as well as inflation, interest rates and exchange rates, as major drivers of recent defence budget increases.Footnote ³³ For example, the PLA doubled most personnel salaries in 2006Footnote ³⁴ and regularly augments other perquisites in order to improve the quality of life for PLA personnel (from a very low base) and keep pace with salaries in the civilian sector, where wage increases – particularly for well-educated individuals – far outpace official inflation.Footnote ³⁵ Another example is military education, which has been a major target of increased investment in the post-Persian Gulf era of warfare “under high-tech conditions;” this addresses previous leadership concerns that PLA officers' education levels compared unfavourably with key foreign counterparts.Footnote ³⁶

Justifications for China's rapidly increasing budget that fall into the third notional category – the economic-growth-as-priority argument – attempt to mitigate concerns of overseas observers by arguing that China's defence budget is increasing at roughly the same rate as China's GDP and, recently, more slowly than central government expenditures (see our analysis above).Footnote ³⁷ In yet another potential indication that economic development remains a higher priority than military development for China's leadership, military Keynesianism is cited as a justification for increased spending.Footnote ³⁸

The fourth category of justifications – the palliative comparison approach – claims that China's defence spending is still low relative to that of other militaries by some metrics. For example, the 2008 white paper states that “both the total amount and per-service-person share of China's defence expenditure remain lower than those of some major powers.”Footnote ³⁹ Other commentators compare China's official defence spending as a percentage of GDP (~1.4) to that of other states, e.g. the US (~4.5), UK (~2.7), and France (~1.9).Footnote ⁴⁰

Justifications for China's rapidly growing defence expenditures that fall under the fifth category of strategic insecurity arguments contend that China's territorial size, geopolitical environment and international status necessitate greater defence spending than that of many other nations. For example, a common position is that despite double-digit increases for most of the past two decades, China's defence budget is still “comparatively low” when one considers its land borders with 14 nations, including four states with nuclear weapons; its population of 1.3 billion people; its landmass of 9.6 million square kilometres; a maritime territory of more than 3 million square kilometres; a long coastline; and numerous islands and borders.Footnote ⁴¹ (We address this further in the section “China's strategic environment” below.)

A sixth justification – the “new historic missions” argument – highlights the PLA's growing contribution to disaster relief – particularly given China's disproportionate, rising incidence of extreme weather – and other non-traditional security missions, as well as international joint military exercises. Recent (and unprecedented) related PLA missions include on-going counter-piracy operations in the Gulf of Aden and the rescue of PRC nationals from Libya. These missions have imposed new resource demands on the PLA.Footnote ⁴²

The importance of caveats: an estimate is an estimate

Several experts and organizations have attempted to overcome China's relative lack of transparency about its defence budget by estimating independently China's “actual” spending. Although the relative paucity of open-source data makes it difficult to assess the accuracy of specific estimates, it is import to understand some of the reasons why they are inconsistent.

For example, in 2009, the US Department of Defense estimated China's “actual” FY2008 defence budget at US$105–150 billion: 1.8–2.6 times the official figure of US$57.2 billion (RMB417.8 billion) and 2.5–3.6 per cent of GDP.Footnote ⁴³ Meanwhile, the Stockholm International Peace Research Institute (SIPRI)'s estimate that year was much lower: US$84.9 billion – 1.48 times the officially released figure.Footnote ⁴⁴ The difference between SIPRI's estimate and the upper bound of the Department of Defense's estimate was US$65.1 billion, a difference larger than China's entire official defence budget that year.

While significant defence-related spending is undoubtedly excluded from China's official defence budget, some of the items included in foreign estimates of the “actual” figure are controversial. For example, some Western institutions include expenditures for the (domestically focused) PAP in their calculations, labelling it one of the largest extra-budgetary sources of defence spending. But they do so without offering explicit justification.Footnote ⁴⁵ This single line-item can inflate estimates of the budget by as much as one-fifth above the official figure. Take the 2010 figures as an example: adding only official PAP expenditures (RMB93.4 billion) to the official budget (RMB533.4 billion) results in an estimate of “actual” Chinese defence spending 18 per cent higher.Footnote ⁴⁶

It is also important to recognize the challenges inherent in attempting to accurately estimate “actual” spending without reliable data. There are at least three reasons why estimating China's actual defence spending is difficult and, consequently, why wide disparities among estimates persist.

First, and perhaps most importantly, defining “defence spending” is inherently a subjective exercise. Even the definitions used by the US Department of Defense, NATO and SIPRI differ significantly. Consequently, much of the disparity among these organizations' estimates stems from the inclusion of very different categories of spending.Footnote ⁴⁷ One important implication of these differing definitions is that China's exclusion of certain items from its defence budget is at least to some extent an artefact of different metrics.

Second, efforts to estimate China's actual spending power accurately are hampered by the process of converting China's RMB-denominated defence budget into US dollars. First, because of widespread allegations that China is intentionally weakening its currency, some Western organizations do not use official exchange rates in their conversions. What a given organization identifies as the “appropriate” RMB:US dollar exchange rate will have a significant impact on the magnitude of the resulting dollar-denominated estimate. Second, no consensus exists about whether it is appropriate to apply a straightforward purchasing power parity (PPP) rate when converting China's aggregated defence budget figure into US dollars; and, if so, what rate(s) to use for which subcomponent(s).Footnote ⁴⁸ The fact that the spending power in China of a given US dollar will vary depending on what that dollar is used to purchase frustrates attempts to calculate China's defence budget in US dollars accurately. For example, although a direct PPP rate may make sense when converting the cost of personnel and services, e.g. meals in a PLA mess hall – considerably cheaper in China than in the US – it is not appropriate to apply that same conversion rate to the costs of programs involved in developing cutting-edge technology (e.g. China's anti-ship ballistic missile and indigenous new-generation low-observable fighter prototype(s)); or, still more, to weapons and platforms procured from overseas – such as Kilo-class submarines from Russia – which typically must be purchased using hard foreign currency (often US dollars).Footnote ⁴⁹ Third, inflation (discussed above) and the gradual strengthening of the RMB since it was unpegged from the US dollar in 2005 mean that straightforward conversions of the official defence budget into US dollars based only on contemporaneous exchange rates make recent budget increases appear significantly larger than they actually are. For example, a nominal four-fold increase between 2002 and 2012 in the RMB-denominated official budget (from roughly RMB170.8 billion to RMB670.2 billion) appears as more than a five-fold increase (from US$21 billion to US$106 billion) when reported in US dollars instead of RMB. This roughly 25 per cent magnification of the budget increase during the 2002–2012 period (i.e. four-fold vs. five-fold) is due exclusively to the changing RMB–USD exchange rate.

Finally, as the Department of Defense's 2010 report on China's military notes, accurate and consistent estimates of actual PLA military expenditures are complicated by “the lack of accounting transparency and China's still incomplete transition from a command economy.”Footnote ⁵⁰ Accordingly, estimating China's aggregate defence spending necessarily involves guesswork about both the actual costs of individual items and what specific categories of spending are already captured by the official figure.

In sum, because of differing definitions of defence spending, problems with conversion into foreign currency and limited knowledge of actual costs of items due to lack of accounting transparency, estimating China's “actual” defence budget typically results in estimates based at least partially on assumptions rather than hard data. Given the paucity of reliable open-source data, this outcome is unavoidable to some extent. But the accuracy of these estimates should not be assumed; and the conclusions drawn from these data should be qualified accordingly.

Debates on “military transparency”

Western discussion of China's military transparency often suggests that China consistently violates well-established, widespread global norms. Yet it is important to note four conclusions from a recent study on China's military transparency by researchers at the US National Defense University: first, there is very little international consensus on an explicit definition of what the term “transparency” means, even among Western organizations.Footnote ⁵¹ Second, China's limited military transparency relative to advanced industrial democracies such as the United States and Japan does not make it an exceptional violator of international norms. Rather, China's military transparency is roughly comparable to that found in most ASEAN countries (including several US security partners) and India (the world's most populous democracy).Footnote ⁵² Additionally, the study finds that China's biannual defence white papers are published at least as often as those of most states in the region and significantly more frequently than the following states, each of which has published a white paper or its equivalent only once between the year in parentheses and June 2010: Philippines (1998), Singapore (2000), Thailand (2005), and Laos (2005).Footnote ⁵³ Third, white papers from the Asia-Pacific region do not follow a standard organizational format. Fourth, China's government releases publicly a significant amount of information about its defence spending and doctrine that does not appear in the defence white paper itself.Footnote ⁵⁴

China's military transparency is often compared only to the standards of advanced industrial democracies with historically more advanced militaries, rather than many of its Asian neighbours or states at comparable levels of economic development. Although comparing China to states in the former category has become increasingly appropriate because of its rapid military modernization and the fact that its defence budget is now the world's second largest, it is important to recall that just 15 years ago the PLA's weapons inventory, largely composed of obsolete 1950s-era Soviet platforms, was written off by most foreign analysts. Since that time, China's war-fighting capabilities have progressed significantly faster than its diplomacy has opened up. Until very recently, almost all Chinese leaders considered military transparency to be a weapon for strong states to use against weak states. It is only within the past several years that this view has begun to change.Footnote ⁵⁵

It is also important to note that many, if not most, nations (including the US) also fund military-related goods and services using sources outside their “defence” budgets. For example, the US 051 (Department of Defense) budget excludes a significant amount of defence-related spending. In fact, one analysis of US “total defence-related spending” based on similar metrics to those regularly used by Western organizations to estimate China's “actual” defence budget found a US$187 billion gap between the United States' official FY2006 defence budget and what this group of American PLA experts calculated as “actual” US defence-related spending that year.Footnote ⁵⁶ The parallels they draw are intriguing: China is criticized for excluding some funding for officer pensions from its official defence budget, yet the Department of Veterans Affairs' entire budget, retirement costs paid by the Department of Treasury, and veterans' reemployment and training programs paid by the Department of Labor are not included in Department of Defense's budget. China is criticized for excluding funding for its nuclear and strategic rocket programs from its official defence budget, yet atomic energy activities related to defence are funded by the Department of Energy and fall outside the Department of Defense's budget. Finally, China is criticized for excluding the PAP's budget and various defence activities that are paid for by local governments from its official defence budget, yet neither the Department of Homeland Security budget nor state funding for some US National Guard functions is included in the Department of Defense's budget. The above points from Blasko et al.'s seminal analysis are well-taken, although it is important to also stress that while “actual” US defence spending is larger than the official figure, most other relevant spending is relatively transparent, and can be assembled by a knowledgeable analyst.Footnote ⁵⁷ This is significantly less true of China's defence spending.

The analysis in this section is in no way intended to present an “excuse” for China's lack of transparency relative to many countries at a similar level of military development. But when placed in an appropriate context, it becomes clear that China's limited military transparency to date may be largely attributable to factors categorically different from any nefarious desire on the part of its leaders to obfuscate its short-, medium-, or long-term strategic intentions. Comparisons to China's neighbours at a similar level of economic development, including similarly sized and rapidly growing India, show that the PRC's level of military transparency may be the norm rather than the exception, both among Asian states and among countries at a similar level of overall economic development. When examined in tandem with the glacial pace of political reform (despite China's rapid economic integration with the outside world), it is unsurprising that the PLA – a Party army and institution two decades older than the PRC itself – might also be slow to adjust to the rapidly changing expectations of China held by the US and its advanced industrial allies. Finally, all countries – even advanced industrial states – exclude large amounts of “defence-related spending” from their official defence budgets. The important question is whether those data are made available elsewhere, and whether they are necessary to determine China's larger strategic direction.

China's strategic environment

Criticisms of China's surging military development often fail to mention the strategic context in which it is occurring. Chinese analysts cite China's surrounding environmentFootnote ⁵⁸ and military budgets of other countriesFootnote ⁵⁹ as major defence spending drivers. First, in Beijing's view China faces numerous internal threats to stability ranging from secessionist movements in Tibet and Xinjiang to widespread – if localized – “mass incidents,” i.e. anti-government protests. While there is no open-source evidence of PLA involvement in PAP operations other than the March 2008 suppression in Lhasa, continued domestic security concerns necessarily affect military prioritization. Second, China has land borders with 14 nations – including four nuclear weapons states – and territorial disputes with two of them (primarily India, also Bhutan). Third, China retains maritime boundary or island disputes with all its maritime neighbours. Thus, Beijing's political relations with all major military powers in its neighbourhood are, at best, tepid. Combined with Taiwan's unresolved status, this makes the Near Seas and their immediate approaches a critical area of strategic contention and assertion for China. Fourth, for these and other reasons, China has tense, albeit not unstable, political and military relations with the world's sole superpower (the US), whose leaders will probably remain suspicious of China's intentions as long as it retains an authoritarian political system. Despite increasingly global security interests of the kind often used to justify US defence policy (e.g. secure sea lanes of communication for safe passage of the resources and commerce) and sincere concerns about its external environment, China's defence budget increases remain focused on irredentist but regional concerns, however controversial the means and desired ends of that approach may be to other states with interests in the region.

In sum, while they contain insufficient operational and tactical information to determine whether capabilities match intentions, China's official statements clarify near-term strategic intentions in many respects. Before drawing overly broad conclusions about China's strategic intentions based on its (limited) military transparency – especially with regard to defence spending – and the pace and scale of its military build-up, it is important to (1) be explicit about what remains unknown; (2) avoid assuming that what the US and other advanced democracies do constitutes “the international norm” rather than the exception, however desirable normatively; (3) understand the importance of putting China's transparency in an appropriate international context; (4) appreciate that some criticisms could also apply to the US and its allies and friends; and (5) understand Chinese leaders' perceptions of what they see as China's unfavourable strategic environment.