Paper Tiger? Think Again.

On April 25, David Kang argued in Foreign Policy that the rest of Asia has not been matching China’s growth in their military capabilities, measured by the share of gross domestic product (GDP) dedicated to military spending.

Kang should be commended for making a serious effort at assessing the empirical reality in Asia, especially as rhetoric heats up on the Korean peninsula and claims about China’s military ambitions become common wisdom. Nevertheless, there are a few reasons to doubt Kang’s analysis. Using the same dataset as Kang (the Stockholm International Peace Research Institute’s military expenditure database), I suggest that the evidence that the rest of Asia (and certain countries in particular) are not matching China’s military spending is not as clear-cut as Kang suggests.

The first issue at hand is: does military expenditure as a share of GDP accurately reflect a government’s worries about external aggression? After all, military budgets are not set solely according to specific threats from other states. Geography, territory, and population matter too. Hypothetically, Vietnam would be able to control its coastline and exclusive economic zone with a 100-ship navy better than China would, since China’s coast is around 4.5 times longer than Vietnam’s. Armed forces also monitor borders and conduct disaster relief operations. For all these reasons (and more) we should expect China to spend more of its economy on its military.

Second, what does Chinese military spending consist of? SIPRI’s database includes spending on internal security services such as the People’s Armed Police (PAP) in its estimate of China’s military spending. Weeding out how much of China’s military budget is dedicated to internal security, rather than power projection capabilities is difficult, but evidence suggests domestic security spending is substantial. One estimate of the PAP’s budget (excluding equipment and procurement) put it at 24 billion yuan in 2003.[1] This would be about 8% of China’s military spending in 2003, according to SIPRI. Researchers at Tsinghua University report that China spent 514 billion yuan on internal security in 2010 (compared to total military spending of 836 billion yuan). How much China’s overall military expenditures overlap with its internal security costs matters. We should expect China’s neighbours to discriminate between Beijing spending on paramilitaries that exert control within its own borders and spending on blue water naval equipment, combat aircraft, and missile systems designed to project power. The latter is threatening to other countries, the former less so. Without a clear idea of how much China is spending on offensive military capabilities, it is premature to conclude that the rest of Asia is not responding to China’s military growth.

The third challenge for using annual military expenditure to measure how insecure a country feels today is that military spending tends to exhibit momentum. Expenditures made in one year (say for a submarine) mean that now the country has new hardware in its arsenal, so the benefit of past expenditures are often felt today. While governments try to amortize their expenditures, we should be careful when analyzing time series data. Investments can carry forward, while other items such as pensions for retired soldiers or maintenance for equipment can increase costs, but not capabilities.

Fourth, and most importantly, Kang measures military growth in two different ways. On one hand, he argues that in Asia and elsewhere we see evidence of a decline in military spending as a share of GDP since the end of the Cold War. This is undoubtedly true. However, Kang also asserts that China is the exception to this rule, by pointing out that China’s absolute military expenditure has grown from $18 billion in 1989 to $157 billion in 2012. But this is comparing apples to oranges. If we look at China’s military expenditures as a share of GDP, we can see they follow the same trend: falling/flat since the Cold War.

Simon fig 1

In fact, as Figure 1 shows, Southeast Asian defence spending and Chinese spending, as a share of GDP have converged since the end of the Cold War, rather than diverging, as Kang’s narrative suggests. Does this mean that China is spending more in absolute terms? Of course it does. China’s economy, according to the World Bank, has grown an average of 9.9% per year since 1988, so even if the share of China’s economy devoted to the military shrinks, China’s armed forces will grow. But there is no evidence that Southeast Asia has dramatically cut its military spending compared to China.

This is also true if you compare China with its East Asian peers. Figure 2 shows that the average of Japanese, South Korean, and Taiwanese military spending has been about on par with China’s since 2000. If we remove Japan from the analysis (since Japanese defence spending has been flat in both real and relative terms since the Cold War), we see in Figure 3 that South Korea and Taiwan still spend a larger share of their economy on the military than China does.

Simon fig 2

Simon fig 3

Where Kang is on more solid ground is in reference to absolute real spending levels (Figure 2 in his piece). China is indeed spending much more than other countries in the region. After all, its economy is by far the largest in Asia. But by focusing on spending levels, rather than the rate of change in spending, an important part of what has been happening in Asia gets overlooked. If we standardize the scale of measurement (so that defence budgets are measured in constant dollars using 1988 as a base year), as in Figure 4 below, we see that while growth in absolute spending in Indonesia and Vietnam looks insignificant in Kang’s piece, both these countries are increasing spending on their armed forces at a rapid rate. China’s absolute expenditures are still around eight times larger than they were in 1989, but Singapore’s are 3 times larger, Vietnam’s 3.75 times larger, and Indonesia’s have grown more than four-fold since 1988. Furthermore, the lion’s share of the growth in these latter two countries has happened since the beginning of the 2000s, while China began spending at a faster rate before then.

Simon fig 4

Finally, if we look at the years just before and after America’s Pacific Pivot, we see that since 2010, China’s military budget has grown at an average of 7% a year, while Vietnam’s has grown at 10.4% annually, and Indonesia’s at 17.7%. These countries are catching up, if not exceeding China in year-over-year military spending growth.

The bottom line is that the military spending data does not conclusively show that China’s neighbours are sitting idle while China arms itself to the teeth. Instead, we see that Chinese military spending has grown only by virtue of its exceptional economic growth. China dedicates no more of its economy to the military now than it did a decade ago. On the other hand, we can see rapid increases in military spending in a select group of Asian nations in recent years, a pattern consistent with the belief that at least some of Asia is concerned with China’s military posture.

Simply because the rest of Asia is not spending an overwhelming share of national wealth on their military does not mean China’s neighbours are not concerned. The evidence presented above should temper sanguine hopes and in fact, suggests that at least some of Asia is worried about China’s military spending.

Simon Palamar


[1] Shaoguang Wang, “China’s Expenditure for the People’s Armed Police and Militia,” in Chinese Civil-Military Relations: The Transformation of the People’s Liberation Army, edited by Nan Li (New York: Routledge, 2006): 138-147.

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