By Steve Tsang.

Should we be alarmed at China’s 11% increase in its defence budget this year?  It is a significant increase, particularly since the defence budget, at US$106 billion, does not cover all expenditures in military modernization and upgrading.

To put China’s planned increase in defence spending in context we need to compare it with growth in the previous years, the increase in the rest of the government budget, and how it compares with that of the other great powers.

The average annual growth rate for China’s defence budget since 2006 is 14%, which means that the 11% growth for 2012 is below the recent average trend.  It is also less than the annual increase in overall government spending, which is to increase by 14%.

For comparison with other major powers, it ranks second but trails the US defence budget (US$707 billion) by a large margin.  Within Asia, China outspends Japan, the second biggest spender last year (US$60 billion), and India (US$35 billion), the third, by some distance.

But what does the rise in China’s defence budget tell us? Certainly not the actual amount being spent on defence and national security related expenditures.  But China is not alone in this. Hardly any country’s defence budget covers all such expenditures.  In the Chinese case, most of the expenditures in developing new weapon systems and defence related technologies are excluded, as is that for internal security (US$111 billion), which exceeds the defence budget. If the nominal budget allocation is to be taken at face value, the last point suggests the Chinese government is more concerned about internal security than external defence.

It also does not tell us much about China’s strategic intentions or how fast its military is being modernized or how much more it is posing a threat to regional or global security.  What the defence budget does do is to show how the Chinese government would like to project itself as a growing power.  Here the military budget is meant to project that China is spending more as its economy is expanding fast and can afford to do so but is still doing so at a rate slower than overall growth in government expenditures. The image it prefers to project is that China takes its defence seriously but it is not threatening others.

But the rest of the world, in particular China’s neighbours, is still concerned.  Whether this is justified or not, it reflects their lack of confidence in China’s avowed objective to rise peacefully.  The lack of transparency in China’s defence modernization and policy making is fundamental to this assessment. Was the ex-Soviet carrier Varyag not acquired to be used as an amusement attraction but re-launched as China’s first aircraft carrier? A power like China building a carrier may not be welcomed by its neighbours but it should not be seen as more menacing than the UK or France operating carriers.  But the deception the Chinese authorities employed to acquire the Varyag is another thing.  It raises greater fear about Chinese intentions than a transparent naval modernization programme would have done.

The same applies to the Chinese government’s use of proxy to articulate the claim that the South China Sea is part of its core national interest. The calculated ambiguity may give it maximum diplomatic leverage but it also leaves more to the imagination and raises greater fear.

If the Chinese government really wishes to use its defence budget to project its commitment to rise peacefully, it will need to allow a greater transparency in its policy making process and the actual allocation of the military expenditures.

Steve Tsang is Director of the China Policy Institute and Professor of Contemporary Chinese Studies at the University of Nottingham.

Opinions expressed in the CPI blog do not represent the views of the China Policy Institute or the School of Contemporary Chinese Studies at the University of Nottingham. They are the personal views of the bloggers/authors.

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