Some thoughts on China's recent military budget and carrier announcements

In case you guys have missed it, two of the big announcements out of the National People's Congress this past week are the call for Aircraft Carrier by Admiral Hu Yanlin and the 14.9% increase in military budget.
I'd first like to address the aircraft carrier issue, since we've been talking about this for a while now. I think China's aircraft carrier ambition can go all the way back in the 80s and you can read about it in Scott Cooper's work on this. Just to list some of the very reasons for China wanting carriers:

• Prestige - It's humiliating to a lot of Chinese people that countries like Thailand, India and Brazil have carriers and China does not. It also doesn't help that Japan and South Korea are both basically completing attack helos that can operate STOL aircraft.
  
• National Power - This point is very similar to prestige. At current time, China is part of the permanent 5 in UNSC, the world's 3rd largest economy and the world's largest creditor nation. It is already a superpower in economical and political terms, but its military still lags behind the other two. It really needs a few carriers to show its military strength. India, the other growing Asian power, is looking to have 3 carriers by the end of the next decade, shouldn't China be looking for something greater than that?
  
• Maritime/Energy Interest - China is very dependent on the shipping line from Africa/Middle East to its ports. If these shipping lines get cut off, the Chinese economy will be in deep trouble. At the moment, China doesn't have the projection capability to even protect its commercial fleet from countries like Malaysia, Singapore and Australia. The Chinese navy would have no way of winning a conflict around the Malacca Straits against any of these countries. In addition, Indian navy can probably cut off Chinese shipping lines at the moment. That really is an extremely scary proposition for Chinese military planners if we think about how easily their ally Pakistan is to get in a conflict with India.
  
• Future strategic needs - China is not likely to have an aircraft carrier commissioned with an air wing until at least late next decade. Even if it fast track through building carriers, building a naval air wing and learning about carrier operations, it still probably would not establish any kind of competence until 2030. For a country that is already dependent on global maritime trade and have commercial interest in all corners of the world, I think it's very likely China will have even more urgent needs for aircraft carriers in the next 20 years.
  

Having mentioned all of that, I think it has become clear in the last 2 years that China is definitely going to start work on a carrier. As early as 2005, they had discussions with Russians about Su-33 after Peace Mission 2005. There were also rumours in 2006 that they bought 50 Su-33s, although that has turned out to be a premature announcement. A couple of years ago, they basically unofficially told Admiral Keatings that they are going to build carriers. We have also seen a model of an aircraft carrier in the model for the new JiangNan shipyard. There have been other evidences here and there in the past few years. I think at this point, the work for the carrier has already started for a couple of years and we will start seeing pictures of it in the JiangNan shipyard by 2010-2011. The decision had already been made when they first brought up the possibility of aircraft carrier. All the announcement since have been to prepare the world for the inevitability.

As for what the carrier group will look like, I found this photo yesterday which contained basically the crown jewel of the South Sea Fleet (with 052B, 052C, 054A, 094 and 071).

I would imagine when the first aircraft carrier gets commissioned, it will join the South Sea Fleet with these ships as the escorts. It provides a nice snapshot of what a future carrier group would look like. Without a question, SSF is being prepared as the first fleet to have an aircraft carrier amongst the 3 major fleets. It has 5 of the 8 major replenishment ships, 4 of the most modern destroyers (168-171), 2 054A (will become 4 in probably a year and half), a nuclear submarine flotilla with 093s and 094s, the 071 LPD and many modern diesel submarines too. A lot of the recently added ships into the fleet seemed to be part of this planned escort group for a force projection fleet. In addition, it seems that the newly constructed Sanya base will be the home base for a new Ocean going fleet that will be sprung out of South Sea Fleet and operate to protect Chinese commercial interest in the shipping line, South Asia, Middle East and Africa.

For the second part, there was an interview a while back that addressed this. This is probably the most important part.

SPIEGEL: Many experts believe that the official budget figures are vastly understated. Do they include the costs of military research and of the People's Armed Police and the space program?

Chen: They do include the costs of research, but not for the People's Armed Police. Only the military portion of our space program is paid for under the defense budget.

Western governments have long expressed doubt about the accuracy of the officially announced budget and the pace of increase. The Pentagon often states it to be 2 or 3 times the official figure. I think a lot of that is based on past figures when imports from Russia constituted a much larger portion of the real military spending. Back then, they might import $3 billion from Russia in just the hardware and probably more on servicing/training when the official military budget was less than $20 billion. Now, they barely import anything from Russia and the official budget is $70 billion. I would think that the real military budget is higher if they include PAP and some other stuff, but there is no way that it would be even twice as much as the official one. RAND did a report on this in 2005 and I think the figure they came up with was somewhere between 1.5 to 2 times the official budget. With the current condition as I mentioned, the ratio of real to official budget must have dropped further. The other big issue that many countries have raised recently is in dramatic increase in military budget. In fact, South Korea and Australia sort of made a joint call for concern and greater transparency after the budget was announced. Now, I can see that a lot of governments like South Korea and Japan, that are traditional competitors in East Asia, would feel this way in this economical depression. But even through this tough time, the Chinese economy still grew 9% last year and is probably going to grow somewhere between 7 and 8% this year. The % of gov't budget spent on the military actually decreased this year from last year. Last year's increase was very high at 17%, but it was supported by a 13% GDP growth from the year before. It really isn't like China is increasing military expenditures excessively when it's citizens are starving. Back in the 80s when the economic liberalization first started, they had consecutive years of double digit cuts in military budget even when the economy was growing at over 10%. So, I think these complaints about increased military expenditures from numerous countries to be very hypocritical. One of the common notions that I heard is that Chinese military budget should increase at the pace of the economic growth. In the Bush years, the American military budget went up by an average of 7% a year even as its economic growth was much less than that. Instead of balancing its budget, its excessive spending for different gov't programs including military expenditure helped cause the current economic depression. Even this year, when the 4th quarter GDP dropped by 6%, they are still increasing the military budget by 4%. If we compare that to China, they have a very low budget deficit and public sector debt even with the increases in gov't size and military expenditure. Of course, China needs to be more transparent about how its money is spent, but I think it is slowly moving toward that direction. The recent white paper is part of that process.