The Chinese Defense Budget: Myths and Reality

About a month ago, I noticed that Heritage Senior Research Fellow John J. Tkacik, Jr. had argued that China’s defense spending equaled $450 billion, closing in on the U.S. defense spending figure. I thought this was bizarre, but didn’t devote a lot of time to figuring out how Mr. Tkacik had come up with such a figure.

But now I see that Heritage president Ed Feulner has taken to the pages of the Chicago Sun-Times to advance Mr. Tkacik’s claim, so it may merit some debunking at this point.

The claim that China’s defense budget amounts to “about what America spends” is absurd. Dr. Feulner is using a macroeconomic tool that gives a completely erroneous assessment of Chinese military spending.

Purchasing power parity is useful as a heuristic for comparing the overall economies of nations, because it accounts for the fact that one dollar—in U.S. currency—buys a different amount of a fixed basket of goods in one country than in another. Think of attempting to buy, say, one dollar’s worth of rice in the United States and one dollar’s worth in China. One could get more rice for a dollar in China, and PPP is a useful way of observing that fact.

However, as the highly respected International Institute for Strategic Studies warns, PPP’s “use for the purpose of [defense] calculations should be treated with caution.” Dr. Feulner does not heed this warning. He starts by taking the highest available estimate of Chinese defense spending—which is too high to begin with—and then blankets the total figure with the PPP conversion rate, yielding a figure of $450 billion. This ignores the fact that much of Chinese spending is dedicated to foreign military hardware—such as Russian airplanes—and other assets to which PPP should not be applied. Accordingly, IISS has begun, this year, applying PPP only to the personnel and other relevant costs of the Chinese military, since the comparison of “one dollar’s worth of soldier” applies relatively better.

Another problem with the argument that China’s military budget is as large as America’s is the question “Where’s All the Stuff?” If China is spending as much on its military as is the United States, where are the aircraft carriers? (America has 12, China 0.) Where are the many fleets of long-range bombers? What about our thousands of nuclear weapons compared to China’s couple hundred? If Dr. Feulner’s estimate held, the Chinese are being reassuringly wasteful with their money.

The attempt on the part of Mr. Tkacik and Dr. Feulner to inject a figure of $450 billion into the debate over Chinese defense spending does a profound disservice to a rational discussion of U.S. China policy. It is a stunning claim that threatens to create a seriously misleading picture of the People’s Liberation Army.