Chinese defence budget will grow to $238bn in 2015

China’s defence budget is expected to almost double by 2015 as Beijing accelerates its spending on fighter jets and other military equipment, according to defence forecasts.

The country’s official military spending has increased at a double-digit rate for all but one of the past 23 years. This has raised concerns about its ambitions among its Asian neighbours and the US, especially because China’s official numbers are generally viewed as underplaying the full extent of its military spending. China is expected to unveil another double-digit increase when it releases its defence budget for 2012 in the coming weeks.

Beijing has always justified increases by arguing they are in line with the pace of its economic growth.

But in a forecast due to be released this week, analysts at IHS Jane’s Defence said they expected China’s defence spending to accelerate substantially in the next three years, testing the argument that the defence budget was linked to growth.

IHS Jane’s analysts said they believe China will spend $120bn on defence this year and that will grow to $238bn in 2015 – a combined annual increase of 18.75 per cent and more than the joint total of Nato’s top eight members, bar the US. China’s economy grew at an annual rate of 9.2 per cent in 2011.

Such an increase would see defence spending rise to 2.18 per cent of China’s gross domestic product by 2015, from 1.51 per cent in 2011, according to IHS Jane’s.

Beijing puts its 2011 defence budget at $91.5bn. Like most analysts and the US defence department, IHS Jane’s believe official figures understate actual defence spending.

Paul Burton, an IHS Jane’s analyst, said increased investment in several large Chinese equipment programmes, including the development of jet fighters such as the Chengdu J-10B, were helping to drive the anticipated increase in spending. “Rapid growth in this sector is supported by huge investments in resources,” he said.

Beijing continues to improve its space capabilities, having launched the Shenzhou-8 unmanned spacecraft last November and docking it with the Tiangong-1 space laboratory, said Mr Burton.

IHS Jane’s forecasts global military spending, using analysis of equipment programmes, economic growth, inflation, and official data to compile its results.

When the pace of military spending growth rebounded to 12.7 per cent last year, Major General Peng Guangqian, a military analyst in Beijing, said a single-digit rate in 2010 had occurred in response to slower GDP growth in 2009, following the global economic crisis. The higher growth expected in 2011 reflected a return to faster GDP growth. “China’s military budget is co-ordinated with economic growth,” he said.

Kerry Brown, head of the Asia programme at Chatham House, said the IHS Jane’s forecast appeared reasonable. “When you think of the reach China has got and the resources, it is not surprising. Why wouldn’t it desire to have such military kit?”

Other analysts raised questions about whether China was ready to increase its spending on defence as aggressively as forecasts anticipated. “For quite a long time, their military expenditure has tracked the trend of economic growth. That appears to be a pretty consistent policy,” said Sam Perlo-Freeman, a military expenditure expert at the Stockholm International Peace Research Institute.

There is no doubt, however, that China’s increasing defence budget is fuelling growth in other Asian countries.

Asia has more defence budgets that are growing faster than 8 per cent annually than any region in the world, including the rapidly expanding Middle East, said IHS Jane’s.

Vietnam, which has turned to Russia for a string of military procurement packages, will see combined annual growth of almost 9 per cent in the coming years, boosting its defence budget to 2.5 per cent of GDP by 2015.

India is expecting to see growth of 6.14 per cent, having this month chosen France’s Rafale jet fighter as its preferred bidder for a $20bn contract of 126 jet fighters.

China’s spending is beginning to close the gap with the US, which until recently had accounted for almost 50 per cent of the world’s defence spending. In the coming years, IHS Jane’s expects the US military budget to shrink, but remain three times as large as that of China in 2015.

Financial Times