April 17, 2020: How much is China really spending on defense? Official Chinese spending is about 30 percent of what the U.S. spends. Yet China has a larger, by about 53 percent, number of troops on active duty than the 1.3 million personnel in the American military. And the Chinese build about three times as many warships each year compared to the United States as well as more warplanes and armored vehicles.

The situation is similar to what went on during the 1947-1991 Cold War when figuring out how much the Soviet Union (communist Russian empire) was actually spending. Until near the end of the Soviet Union, the Russians never published an accurate defense budget. For most of the Cold War the official budget, the one available to most Russians and all foreigners, showed a number that was less than 25 percent of what the U.S. spent.

In the last few years of the Cold War a reform minded Russian leader published more accurate defense spending data. This showed annual defense spending that was about 70 percent of what the Americans spent. It was worse than that, something most Russians, in and out of the government, discovered. Russia was spending about 20 percent of GDP on the military, a percentage more than three times what the U.S. spent. This was meant to explain to the Russian people why the nation was poor and becoming more so each year. There were growing food shortages and less spending on infrastructure, housing and things that mattered most to the majority of Russians. The Soviet Union was not defeated militarily but economically. The Soviet Union literally fell apart in 1991, with half the population forming themselves into 14 new nations. The Soviet Union didn’t fight this because it couldn’t rely on the security forces because most of the troops were conscripts who knew how bad life was. Even many career officers, especially the younger ones, were not willing to fight to preserve the Soviet Union.

China was alarmed at the sudden demise of the Soviet Union and learned from it. During the last decade of the Soviet Union China realized that the communist economic model did not work and devised a new system that retained the communist dictatorship but allowed the economy to operate largely free of tight government control. This was similar to the fascist model of World War II that was adopted by Germany, Japan, Italy and several other smaller nations. China learned from that as well. The World War II fascists destroyed themselves with overambitious military expansionism. The German fascists called themselves national socialists and that meant the traditional German national anthem, “Deutschland Uber Alles” (“Germany over all others”) was applied literally and with enormous violence and initial success. The Japanese took a similar approach and like the German fascists eventually suffered enormous losses and total defeat. The Chinese fascist state revved up the economy and built a huge and powerful military but used that force to intimidate rather than wage war on a ruinous and potentially self-destructive scale. Slow-motion and more subtle conquest was actually something of a Chinese tradition developed over thousands of years.

Another Chinese innovation was to make the enemy pay for the Chinese economic and military buildup. Not in the traditional way, with armies being sent out each year to spend a few months plundering enemy territory, or using the threat of that to extort large payments for “protection” from the plundering. China realized that the most valuable item foreign nations had was technology, especially secret military technology and commercial tech (“trade secrets”) not protected by patents. To use that patented commercial tech you had to pay for it and the trade secrets were even more difficult to obtain legitimately. But if you stole trade secrets and patents and modified it a bit you could get away with calling it Chinese developed. This tech plunder has been a major factor in the rapid growth of the Chinese economy and the military. One way this became clear was when American intelligence agencies and military researchers tried to build an accurate picture of actual Chinese defense spending. This soon turned into a déjà vu experience.

During the Cold War the American CIA tried the same thing with the Soviet Union and discovered that the Russians were indeed using far more of their economy for the military than their official military budget indicated. The CIA discovered using an analysis technique called PPP (Purchasing Power Parity). While the United States alone accounts for over a third of the annual defense spending worldwide, this is not as overwhelming as it appears to be. There are several very practical reasons for this misperception. First is purchasing power parity, which is mainly about using the relative cost of common goods in different countries instead of just what things cost in the United States. If you take into account PPP, those nations with lower costs (like China and India), loom larger as defense spenders. They get more bang for their buck, at least on paper.

Without PPP the top five in military spending are the United States, China, Russia, Britain and Japan. Adjust for PPP and India rises into the top five while Japan falls out. That’s because things like local supplies and labor are much cheaper in India than Japan. Applying PPP also makes American defense spending much less effective compared to what China spends. Thus without PPP American defense spending is closer to 20 percent of global spending.

Adjusting for PPP Chinese defense spending goes from a quarter of what America spends to over 70 percent. Yet American forces deploy many more high teach weapons than China. That’s because U.S. defense spending has been the highest in the world since the 1940s. Since major items of military equipment (ships, aircraft and armored vehicles) have useful lives of over 30 years the Americans have had plenty of time to accumulate a much larger arsenal of expensive equipment than China. But that will change in the future because Chinese annual defense spending has nearly tripled in the last decade. Thus if China keeps its defense spending high and relative costs low, it will match the U.S. in many areas within two or three decades.

That probably will not happen because of other factors and trends that do not favor China and many other nations. First, there is the fact that not only has the Chinese economy been growing rapidly since the 1980s, but so have wages and the costs of much else besides. Thus over time the PPP advantage diminishes. China also has a greater problem with corruption in the military than the United States and most Western nations. This greatly (by 20 percent of more) diminishes the effectiveness of their defense spending. Corruption in defense spending is found everywhere, but it has, for thousands of years, been particularly bad in China. The Chinese government has, since the late 1980s, been making strenuous efforts to reduce corruption but has had limited success.

What was not taken into account until recently was the value of technical knowledge China has stolen. Western mass media have long been full of stories about Chinese hackers stealing enormous qualities of Western data and using to gain an economic advantage. When the value of “military R&D” (Research and Development) is taken into account, and you calculate what it would have cost the Chinese to develop all that military tech it turns out that Chinese defense spending is nearly 90 percent of American defense spending.

The technology angle plays an enormous role in creating military power, something many people fail to take into account. The larger amount of technology and knowledge now used in warfare is why modern weapons are more powerful, and expensive than those of the past. Consider, for example, the differences between a World War II bomber, and a modern one. The principal World War II bomber was the B-17, which weighed 29 tons, had a crew of ten, and could carry three tons of bombs to targets 1,500 kilometers away. In current dollars, each B-17 cost about $2.5 million. But that was because over 12,000 of them were built. If bought in much smaller quantities, as is typical in peacetime, each B-17 would cost over $15 million. Now compare that to a modern bomber of comparable size (or at least weight), the F-15E. With a max weight of 36 tons, an F-15E can carry up to seven tons of bombs three or four times farther than the B-17. An F-15E has a crew of only two. But this $90 million dollar aircraft is much more than six times as lethal as the B-17. That's because of smart bombs. A B-17 carried a dozen 500 pound bombs, but it took over 300 of these unguided bombs to guarantee a hit on a target below. The smart bombs of the F-15E guarantee a hit with two bombs. Actually, it's 1.something, because there are occasional system failures with smart bombs. The smart bombs also glide 40 kilometers or more, allowing the F-15E to avoid most anti-aircraft fire.

Thus the big difference between these two aircraft is knowledge, as manifested in more, and better, technology. This tech was expensive to develop, both in terms of time and money. This has been a trend that has been ongoing for over a century and continues. More technology requires fewer people in harm’s way to achieve the same results or results that were impossible in the past. Casualties are also lower. The air force is not the only component of the armed services that is undergoing these simultaneous personnel shrinkages, and increased capabilities. China realized the value of tech and the enormous advantages they would obtain if they found ways to steal and apply this tech.

There is another complication when comparing defense spending. This big one is the relative cost of defending your nation versus attacking someone somewhere else. It’s much cheaper to defend. Going on the offensive, especially over long distances, is much more expensive. Depending on how far your forces have to travel, equipping an offensive force can be anywhere from a quarter more expensive if you plan to attack a neighbor, to more than twice as expensive if you are prepared to go anywhere in the world.

China does not have global military obligations and, historically, chose not to go that way. Despite the dependence of the modern Chinese economy on imports (oil and ores mainly) from distant places, China still sees itself as a “continental” power concerned mainly with being military superior to the neighbors and not much concerned with waging war halfway around the world.

Then there is your military leadership. If your generals and admirals know what they are doing and maintain high standards for subordinates and concentrate on training and readiness for combat, the forces at their disposal will be much more effective than when, as is often the case, the military is treated like a jobs program to keep unemployment low and, if there is a lot of corruption, make politicians and senior officers rich. The Chinese military served this purpose for a long time but when modernization got going in a big way back in the 1980s the Chinese military began to shrink while training became more intense and based on proven Western models.

PPP works in other ways. Nations that spend little cash, but have cheap local costs for food, housing and payroll, like Iran and Pakistan, all of a sudden have larger defense spending, Iran is now about six percent of U.S. spending, and Pakistan about four percent. Purchasing Power Parity shows how poor nations can spend only a few billion dollars a year on defense, yet have hundreds of thousands of troops in service. If these soldiers have good leadership and train regularly, they can be a formidable foe even to a high tech force from the West. But most of the poor nations don't have high quality officers and NCOs, and their troops fade quickly when confronted with a well-equipped and well trained force. Unfortunately, the media is not very keen on examining the quality of training and leadership in anyone's armed forces. Yet, time and again, these two factors have proved to be the most critical ones. And that will remain the case in the future.

All this explains how China was able to become a worldwide military threat in such a short period of time. From the Chinese perspective, this is simply returning China to the status of the world’s most powerful and prosperous nation. This was the status China enjoyed for most of the last three thousand years. China lost that status several centuries ago when the West had the Industrial Revolution and China did not. For China, the good old days have returned.