China’s Military Spending Power Is 87 Percent of America’s: Report

March 28, 2020 Updated: March 28, 2020

Beijing’s military spending power is nearly as high as Washington’s, according to new analysis which tries to iron out differences in labor costs, local purchasing power, and China’s lack of transparency.

By contrast, generally quoted topline comparisons over the past few years typically put China’s military spending at between roughly 30 and 40 percent that of the United States.

But those topline figures are misleading, according to the March 25 Heritage Foundation report, which estimates China’s military spending power was 87 percent that of the United States in 2017.

“I know that a lot has changed in the two or three years since 2017, but these are the best numbers we have,” said Frederico Bartels, author of the report.

China’s military spending data is notoriously opaque and hard to trust.

2017 was the last year that there was enough of a breakdown to identify what went into key categories of spending, Bartels told The Epoch Times.

Bartels’s calculation of spending power uses a different method from the usual topline numbers, which are based on market exchange rate conversions.

His report echoes the work of a handful of other analysts who say that those topline comparisons vastly understate the military power of less developed nations because the market rates do not account for lower local wages and spending—something also raised by the Chairman of the Joint Chiefs of Staff.

Official figures from 2017 put U.S. spending at $600 billion and Chinese spending at $150 billion.

Think tanks such as IISS and SIPRI typically take such data and revise it up a notch by estimating missing Chinese data. For example, their figures for 2017 are $208 and $227 billion respectively.

Epoch Times Photo
(Source: Heritage Foundation)

The Chinese Communist Party has amassed long-range missiles, carriers, warships, and planes as it seeks to build a military to rival the United States.

Nearly every annual set of data shows Chinese military spending has steadily increased over the last couple of decades in the region of eight to tenfold.

Epoch Times Photo
(Source: Heritage Foundation)

But directly comparing those annual data sets across nations in dollar terms is less meaningful, says Bertels.

For defense analysts and U.S. generals, the picture of China’s military prowess comes from the fine-grained knowledge of precise ship numbers, missile ranges, and troop numbers, and they put less stock in such crude comparisons of defense expenditure.

“Defense expenditures are a proxy for the general public and for politicians to understand where they are and how they stack up,” says Bartels. But those topline figures can be very misleading without a detailed discussion, he says.

“You have a lot of false sense of security that comes up when politicians just say, ‘Oh, the United States spends the same as the next eight nations combined, and most of them are our allies,'” he says.

Epoch Times Photo
Chinese military vehicles carrying DF-41 ballistic missiles roll during a parade to commemorate the 70th anniversary of the founding of communist China in Beijing on Oct. 1, 2019. (Mark Schiefelbein/AP Photo)

Like nearly all analysts, Bartels acknowledges that any comparison of military spending does not equate to a direct comparison of military prowess, which depends upon all kinds of factors, including training, strategy, leadership, and equipment quality.

“When bullets start flying, it is irrelevant if each bullet costs $1 or $1,000,” he says. “The important thing is that they will work and hit their targets. By the same token, the price of a fifth-generation fighter is irrelevant in combat.”

Apples to Apples

Bartels says there are several problems with simply stacking up China’s and America’s defense budgets.

The first is that the two sets of budgets don’t contain the same elements. For example, Chinese figures don’t include research and development. The U.S. figures do.

Another problem is that data on Chinese spending is very limited and hard to trust.

A third issue is that comparisons at market exchange rates don’t reflect local purchasing power and the much lower wage costs of troops in China.

For Americans who want to know how their taxes are spent, comparing spending within the U.S. government budget with dollars makes sense, says Bartels.

“Everyone can understand what a dollar is, regardless of whether that dollar is being allocated to social security, to healthcare, or to defense, or whatever else you want. It’s a representation of prioritization that people understand and grasp.”

But that dollar-to-dollar comparison breaks down when comparing spending between nations.

Wages make up a large proportion of any military spending and also affect the cost of production.

One way to compensate is to use something known as power purchasing parity (PPP), which compares what currencies can buy locally by creating indexes for different baskets of goods.

PPP measures have been eschewed so far by many think tanks because there is no standard index for military spending.

Other analysts have crunched the numbers and say that crude PPP calculations, while imperfect, are a superior measure.

A New Comparison

For his calculations, Bartels says he made use of the fact that the Chinese figures for 2017 can be broken down into three categories: equipment; training and sustainment; and personnel.

Bartels used a PPP measure for both training and sustainment and equipment.

Then for personnel he developed an adjustment index using government salaries.

That gave him a total Chinese purchasing power of $467 billion.

Epoch Times Photo
(Source: Heritage Foundation)

But Bartels points out that this still doesn’t give an apples-to-apples comparison with U.S. spending, because the $600 billion U.S. budget includes things that aren’t in the Chinese budget, most notably research and development.

But he didn’t try to estimate the missing figure for China’s research and development. Instead, he took the U.S. data, for which there is a highly detailed breakdown, and removed the research and development part. That pulled the U.S. numbers down to $534 billion.

Epoch Times Photo
(Source: Heritage Foundation)

Like other analysts, Bartels admits that there are limitations to any calculation. But he says that what really matters is to get into the habit of drilling down into the details of how any figure is arrived at—to understand what’s really going on.

Since the end of 2017, the U.S. military has been modernizing itself, refitting its counter-insurgency force armed with Cold War equipment with a modernized force able to counter great power competition with Russia and China.

But despite that shift information and discussion on the Chinese budget is missing, says Bartels.

He notes that during the Cold War there was a whole book dedicated to breaking down and discussing Soviet defense spending.

In comparison, last year’s U.S.-China Economic and Security Review Commission’s annual report (pdf) and the Defense Intelligence Agency’s China Military Power (pdf) analysis on Beijing’s defense budget came to a total of five pages.

“Honestly, that’s the debate that is lacking right now,” he says.

He says that the public could be forgiven for not being up to speed with the military’s shift to tackling renewed great power competition in the last couple of years.

“But there are a lot of areas of the U.S. government that have spent plenty of time looking at China before there was a national security strategy that named China and Russia as peer competitors.”

Russia and Iran Too

A handful of other analysts have also said that policymakers and the public should be wary of the topline budget comparisons as a whole.

Professor Peter Robertson, Dean and Head of the Business School at the University of Western Australia, is convinced that exchange rate-based spending figures are misleading and the PPP-based figures are a better option.

According to his analysis, China’s defense sector is about twice as large as the exchange rates measure.

Richard Connolly, director of the Center for Russian, European, and Eurasian Studies at the University of Birmingham in the UK, has done PPP-based estimates for many countries.

Epoch Times Photo
Military expenditure in selected countries (USD billion) at market exchange rates. Source: SIPRI. (Richard Connolly)
Epoch Times Photo
Military expenditure of selected powers at PPP exchange rates, 2005-2018 (USD billion)
Source: SIPRI; IMF WEO; calculations by Richard Connolly. (Richard Connolly)

His figures put Russian military spending at $159 billion 2018 last year, instead of the $61 billion from the exchange rate figure.

He says that the exchange rate fluctuations and the higher cost of wages vastly understate the military spending in developing nations. According to Connolly’s PPP calculation, Iran’s spending would be nearly $50 billion last year, as opposed to the $13 billion exchange rate figure, which he points out is quoted in the U.S. Defense Intelligence Agency Report last year.

Chairman of the Joint Chiefs of Staff General Mark Milley picked up on the issue when challenged in a 2018 senate hearing.

“We’re the best-paid military in the world by a long shot. The cost of Russian soldiers or Chinese soldiers is a tiny fraction,” he said.

“I think you’ll find that Chinese and Russian investments, modernization, new weapons systems etc., their [research and development]—which is all government-owned and also is much cheaper—I think you’d find a much closer comparison,” concluded Milley.

No Common Formula

But some analysts say that while exchange rate comparisons are imperfect, they have their advantages.

The problem with PPP is that there is no commonly agreed-upon formula for military spending, says Richard Bitzinger, Visiting Senior Fellow, Military Transformations Program at the S. Rajaratnam School of International Studies. “So it is natural that most analyses of military spending would use the standard exchange rates.”

He says that the argument about whether to use PPP has been around for a while.

“The main advantage is that a PPP, if done right, can provide a more accurate and comparable figure of defense spending, reflecting true spending power,” Bitzinger told The Epoch Times. “The disadvantages are that it can overstate spending power, and fail to take into account intangibles like training, leadership, morale, quality of equipment etc.”

Even if you can figure out what a spending figure is, most military analysts say it is only a broad indication of military power, and even further from any analysis of how any two adversaries would fare on each other’s turf or in any other given context.

“While most analysts and governments understand that China’s published military spending figures are stark fiction, they are used to provide at least one kind of ‘official’ indicator of the growth of China’s military spending,” Rick Fisher, Senior Fellow at the International Assessment and Strategy Center previously told The Epoch Times.

Adding to the problem of assessing China’s military spending is the increasingly blurred line between military and civilian spending, says Fisher.

“Under Civil-Military Fusion, you now have a broader requirement for the economy to serve the military. In essence, anything under the control of the Chinese Communist Party that it deems is necessary for military power construction can be diverted to that end. So it is possible to ask: is it now essentially impossible for anyone, even Chinese, to tell you a real number for Chinese military expenditures?”

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