Sources: CSIS on Military Spending in Asia

November 13, 2012 7:00 AM

Is some combination of Chinese assertiveness, Japanese anxiety, the American pivot and North Korean loutishness fueling an arms race in Asia? Over at CSIS, a team headed by David Berteau and Guy Ben-Ari has put together a useful summary of recent trends in defense spending for five major players: China, India, Japan, South Korea, and Taiwan.

For each country, the report examines overall defense spending from 2000-2011, as well as spending broken down into functional categories: procurement; personnel; operations and maintenance; and R and D. The data is presented in current and constant dollars and constant local currency as well as spending-per-soldier (on which more below). It is important to triangulate among these measures because countries differ on the share of procurement that is coming from abroad. Moreover, Japan and China have seen substantial appreciation of the yen and yuan over the period, which naturally affects spending reported in dollars. At a conference at UCSD where Berteau presented the report, we had a lively discussion of whether we should be using purchasing power parity exchange rates. And a more standard normalization of defense spending/GDP would have been useful.

But these technical issues do not affect the key findings of the report:

  1. Spending has been increasing since 2001, but the report finds an inflection after 2005. With the exception of South Korea, growth rates in spending (by all measures) were higher between 2005 and 2011 than between 2000 and 2005.
  2. The growth of China’s military spending has outpaced those of other countries, and again on all measures. From 2000-2011, Chinese military spending grew at a compound annual growth rate of 13.4% compared to 4.8% for South Korea, 3.5-3.6% for India and Japan and a more anemic 1.8% for Taiwan, where political pressures on military spending have been intense under both the DPP and KMT governments. These order-of-magnitude differences are truncated somewhat but by no means disappear when looking at spending in constant local currency (and thus controlling for appreciation). Chinese military spending exceeded Japan’s in 2005 and is now the largest in the region.
  3. The CSIS team emphasizes large differences in spending per soldier. To some extent, these reflect wage differences in the military, non-trivial personnel issues such as pension and health care commitments, and large differences in domestic procurement costs; its a lot more expensive to build a ship in Japan than in China. But the differences are clearly driven largely by what might be called “capital per soldier.” As the report concludes the measure “can be used as a proxy variable for the quality potential of armed forces.”  This measure has both a numerator and denominator: the emerging markets in the region appear to have a preference for a large force structure. The question is whether they will gradually move toward leaner force structures with higher per-soldier spending driven by increases in investment and R and D.
  4. But the report might be too sanguine about cross-national differences in this regard. The US and Japan maintain substantial leads in spending per soldier. But even if the report shows that China’s investment share of military spending is not increasing, overall defense spending is rising at a 10%+ clip; that means R and D and investment are too. UCSD’s Tai Ming Cheung has edited a special issues of The Journal of Strategic Studies on China’s emergence as defense technology power. The volume shows a concerted effort to move beyond imitation to innovation, in line with the country’s broader development strategy.

Three further points are worth making. First, there is a lot we don’t know about China’s defense spending. It is almost certain that the numbers in the report underestimate spending. Defense information sharing and increased transparency are crucial for stability.

Second, there may be a disturbing “auto pilot” feature to the observed trends. If budget shares are constant and the size of government is constant, the path of real spending will be determined entirely by the underlying growth rate. China is growing faster than the rest of the region, even if it is poised to slow down. Given the role of the PLA in the Chinese political system, the country may find it harder to re-allocate spending away from the military than in the democracies, where guns vs. butter debates are ongoing. Put starkly, for China real GDP growth = real growth in defense spending.

Finally, spending translates only imperfectly into capabilities. Ultimately, we have to look underneath the lid at what the money is buying, and whether hardware matches strategy; the report will by no means resolve that debate. Nonetheless, Berteau and Ben-Ari have provided a baseline for the conversation.

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Stephan Haggard Senior Research Staff

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