Editor's Foreword

392 THE MILITARY BALANCE 2010
Table 34 China – Estimated Total Military-Related Funding 2008
specific mention of defence spending, emphasising
instead demographic developments, the environment
and rural development, funds allocated to the PLA
continue to grow at a significant pace. The official
���� state budget included yet another hefty increase
in defence spending, up ��% from the previous year
to RMB���bn (US$��.�bn at market exchange rates).
As pointed out in the essay ‘Calculating China’s
Defence Expenditure’ in The Military Balance ���� (pp.
���–��), the official defence budget, although the best
indicator of the overall trend in military spending,
does not reflect the true level of resources devoted to
the PLA.
According to the ���� White Paper on China’s
National Defence published by the Chinese authorities,
the official defence budget is broadly distributed
in three equal shares: personnel, operations
and equipment. However, it is widely believed that
the official budget takes no account of other militaryrelated
expenditures, including weapons purchased
from overseas or research and development (R&D)
funding. In addition, a�empts to calculate China’s
true military burden should include funds allocated
to the People’s Armed Police (PAP). For many years
analysts suggested that calculations of Chinese military
spending should include reference to substantial
government subsidies provided to the state’s
loss-making defence enterprises. While China’s
defence companies operated at a significant loss and
required considerable financial support from central
government during the ����s and the early part
of this century, in ���� the Chinese defence sector
moved into profit and is now one of the most profitable
sectors of the Chinese economy. Furthermore,
A B C
RMB bn US$bn at market
exchange rates
O�cial PLA budget (Including local militia funding) 417 60.1 83.5 b
Foreign weapons purchase (2001–2008 average) 13.9 2.0 2.0
Defence Industry Subsidies See text (p. 392)
R&D 46.1 6.6 6.64
Government funded science and technology 34.5 4.9 4.97
People’s Armed Police
Central funding 50.2 7.2 12.9
Local funding 16.1 2.3 4.1
Total 577.8 83.1 114.1
% of GDP 1.88
US$bn incl. PPP
estimates a
Sources: China Statistical Yearbook 2009 and ‘Conventional Arms Transfers to Developing Nations 2001–2008’, Congressional Research Service.
a Where appropriate.
b Arms Includes PPP estimate.
the nature of the state’s role in the sector is changing
rapidly as Chinese defence companies now raise
investment funds in capital markets through bond
issues, stock-market listings and private investment.
Meanwhile, changes in the procurement system
mean the state is finally paying closer to the market
rate for weapons systems. As such, the level of state
subsidies to the defence industry is now unlikely to
be significant and is no longer taken into account by
The Military Balance.
Table �� includes estimates for additional
military-related elements. Column A includes figures
for the ���� official budget plus estimates of foreignweapons
purchases, R&D and new product expenditure,
and outlays on the PAP. These figures are all in
local currency and when combined suggest that total
military-related spending amounted to RMB���.�bn
(US$��.�bn), about �.� times greater than the official
budget figure. However, in a�empting to determine
the level of total Chinese defence expenditure, there
is also the problem of exchange rates to consider. In
����, for example, when converted at the average
market exchange rate for the year, China’s GDP
measured US$�.� trillion. However, the World Bank
calculated that using PPP rates China’s ���� GDP
was the equivalent of US$�.� trillion. (In the case
of countries at different stages of economic development
it is conventional to use Purchasing Power
Parity (PPP) to help compare macroeconomic data.)
In consideration of these variables, Table ��
includes data using two alternative methodologies
for calculating Chinese military spending. Column
B uses the data from column A and converts it to US
dollars using the market exchange rate for ����. In