China's Military Spending Rises Should Prompt Regional Budget Responses

China’s defence budget is rising heftily yet again. The 2025 rise will be 7.2 percent, the same as in 2024, the government said on 5 March. But the allocation, officially U.S.$245 billion , is just the public disclosure of what is likely far greater spending within China’s opaque system.

This should push others in the region to spend more on their militaries. Too many nations fear an arms race in the Indo-Pacific and beyond, whereas in fact it is just what’s needed. Beijing will keep building up its offensive power regardless of what the rest of us do. By holding down defence spending, we only put ourselves at risk.

The 7.2 percent rises in China’s defence budget for 2024 and 2025 imply a rising share of the economy going to the military. In 2024 GDP officially grew 5.0 percent (after adjustment for inflation) and is supposed to do so again this year.  Since China’s inflation rate was just 0.2 percent last year and is forecast by the Organization for Economic Cooperation and Development at 0.6 percent this year, the real rises in Beijing’s defence spending are not much below the nominal (unadjusted) budget increases. And they’re faster than GDP growth.

In its latest China Military Power report, the U.S. Department of Defense said China was spending somewhere between 40 and 90 percent more on defence than the public budget figure. That implies 2024 spending of U.S.$330 billion to U.S.$450 billion. According to the International Institute for Strategic Studies, China’s 2024 defence budget rose 7.4 percent, far outstripping the regional average of 3.9 percent.

Despite Asia’s relatively strong economic growth, the region’s share of global military spending fell from 25.9 percent in 2021 to 21.7 percent in 2024, because of wars and associated spending increases in Europe and Middle East. Additions to China’s spending as well as North Korean developments will likely drive up Asia’s share of defence spending, however. According to SIPRI, China in 2023 allocated U.S.$296 billion to defence, 6.0 percent more than in 2022.

China’s relentless build-up has prompted its neighbours to increase their own military spending. An assessment by a few well-known China specialists last year suggested that China’s 2024 was actually U.S.$471 billion (though their accounting methods also assessed U.S. 2024 defence spending at U.S.$1.3 trillion instead of the official U.S.$825 billion).

Even if China’s neighbours accept its implausible claim to be spending less than 1.5 percent of GDP on defence, they can hardly be reassured as the capability of the Chinese armed forces grows and as that military and supposedly civilian agencies act with aggression in the region. Anyway, 1.5 percent of so large an economy would still be alarming.

As China’s economic growth slows, we should expect the defence share of GDP to continue to rise.

China likes to mention that the 2025 defence budget is the 10th in a row to show single-digit percentage growth. Yet these growth rates are still large by international standards and build on the much larger expansions of earlier years. In 2014, China had a 12.2 percent increase in defence spending, declining to 10.1 percent in 2015 and to 7.6 percent in 2016.

The opaqueness of China’s military spending is a particular cause for concern.

China usually attributes the increase in spending to the various military exercises it is engaged in as well as maintenance and upkeep of its military forces. The implication is that the increments are mostly going to salaries and pensions. It is true Chinese military personnel numbers are very large, but its equipment is improving dramatically. Just this last year, China demonstrated two new stealth fighters; a stealth bomber is in the works. And China is building a nuclear-powered aircraft carrier that will rival the latest U.S. carriers in size.

The government’s Xinhua News Agency justifies China’s defence budget as paying for a ‘national defense policy that is defensive in nature, with its military spending mainly focusing on protecting its sovereignty, security and development interests … and the country will never seek hegemony or engage in expansionism no matter what stage of development it reaches.’

But China’s actions do not suggest a purely defensive motivation. Such claims should be no more truthful than Vladimir Putin’s claims that Russia’s military build-ups on the Russian border with Ukraine in 2021 and 2022 were only exercises.

When China sends its naval forces to intimidate neighbours and engages in military exercises that suddenly force rerouting of commercial flights, more regional countries should speak up. And the type of language that Beijing understands is an increase in our own defence spending.

Rajeswari Pillai Rajagopalan is a resident senior fellow at ASPI.

This article appeared originally at The Strategist (ASPI).