Chinese-US defence spending projectionsPosted: 19/03/2013
By Giri Rajendran, Research Associate for Defence and Economics
In preparing the latest edition of the Military Balance, launched last week in London and this week in the United States, the IISS team behind the book decided to try an experiment. Since the United States and China are the world’s biggest spenders on defence, and China a distant second, we wanted to see when both countries’ defence spending might converge.
We based our projections on several hypothetical scenarios, including one in which the trend rates of defence-spending growth over the past decade in the US and China were to continue, and another in which Chinese defence-spending growth was constrained by an economic slowdown. (Looking at past examples, particularly the 1980s Latin American debt crisis, we assumed that China’s economy would start booming again by 2031.) The US budget sequester was another variable we had to factor in.
The bright red line in our finished graphic suggests that China might begin to spend as much as the US on defence as early as 2025 – provided the 15.6% average annual growth in China’s defence budget since 2001 continues into the medium term, while US defence-spending growth at average rates faces sequestration. However, should annual growth be held at the 10.7% increase officially announced by the Chinese for 2013, convergence might be expected to occur slightly later, perhaps around the mid-2030s.
How would these numbers change if the US rescinded sequestration and reverted to the FY13 budget plan submitted to Congress last year? Our graphic suggests this would delay convergence by around two or three years in each of our Chinese spending scenarios.
If one believes that the 15.6% increases of the last decade are indicative of the Chinese government’s intent, and the current lower levels of spending are necessitated only by the slowdown in general economic activity, then it might be plausible that rapid defence spending growth resumes after 2031, so that convergence could occur before 2050, as depicted here in the other two series of curves included in the graph.
Our graph does not cover the situation where the average annual growth in China’s defence budget fails to return to 15.6% growth after 2031, although this may well happen as the country wrestles with the higher retirement and healthcare costs required by its unusual demographic crisis and the Communist Party faces increasing demands for democratic freedoms from a growing middle class. To plot this scenario, you would need to pivot the relevant red line at its 2031 level, thereby lowering its slope to conclude that convergence is more likely to occur around the mid-2040s or beyond.
Of course, what the graph cannot tell us is when convergence is really going to occur. As one of dozens of graphics in the Military Balance 2013, it is merely a reference tool to provide a degree of insight over when convergence might reasonably be projected to happen. None of its conclusions is inherently right or wrong; they are all based on assumptions. As we say in the book, it features ‘indicative projections based on current trends; and on the balance of probabilities, any convergence is more likely to occur after 2028 rather than before, should it occur at all’.