Procurement: Mysteries of Chinese Defense Spending


May 26, 2024: A decade ago, in 2014, U.S. Department of Defense intelligence analysts suspected that China was concealing the full extent of their defense spending. This was confirmed for the former Soviet Union, after 1991 when it collapsed. That was two years after the communist governments in eastern Europe were overthrown by an unexpected series of revolutions. All this was triggered by the unexpected fall of the Berlin Wall that separated democratic from communist Russian controlled Berlin. Throughout eastern Europe and major cities of Russia the people were protesting nearly a century of communist mismanagement and Russian domination. Some Western analysts believed that something was going to happen because of the economic problems communist nations in the east were having. This included Russia, which was having very visible economic problem and its mismanaged agricultural system. Russian food production was declining and eventually Russia would be dependent on food imports from Western countries.

While Russia was the largest communist state in terms of size and economic power, communist China had the most people and its economy was then growing at the purported rate of ten percent a year. China was on its way to becoming the second largest economy in the world, after the United States. The Chinese communists made this happen by allowing a partial free market to flourish in the 1980s. The understanding was that Chinese entrepreneurs could get rich as long as they stayed out of politics. The men and some women leading the economic surge adhered to the government rules. Some of their children, students in large city universities, ignored their elders and in 1989 gathered in the capital, Beijing, to protest government corruption and misrule while demanding elections, democracy, and honest government. This was unacceptable to the communist rulers of China and in the capital, Tiananmen Square protesters were attacked, thousands killed and open mention or discussion of what happened was outlawed. Most Chinese accepted free market freedoms and no longer mentioned democracy. Openly referring to Tiananmen could get you arrested. Tiananmen was remembered, but quietly and not in public. People went on with their lives, getting rich in the new market economy and leaving politics to the communist politicians.

The Chinese government wanted more economic growth so it could take more of the new wealth as taxes. By 2014 that amounted to over two trillion dollars a year. At first that money was spent on long overdue infrastructure, especially transportation. New roads, rail lines, bridges, port facilities and airports were constructed. The government also put some of this money into the military, which since the communists took over in 1947 had been a shabby organization with few modern weapons, not many military aircraft or warships. By 2014 Chinese troops had snappy new uniforms and modern weapons, China was still purchasing warplanes and spare parts for them from Russia, but was working to build combat aircraft in China, including the complex technology required to build aircraft engines. The Chinese navy began receiving modern warships, based on Western, not Russian designs.

Currently the actual Chinese defense budget is $700 billion a year, nearly as much as the United States spends. China claims it is spending less but does so by ignoring spending that the Americans include and the Chinese are now matching what the United States spends. Like many communist countries, China tries to exclude essential spending on support functions or military spending on things like Coast Guard ships which are categorized as non-military. When it comes to Chinese and American defense spending, if you compare what each nation is spending on the same items, their annual defense spending is nearly equal.

Some things the Chinese spend a lot of money on have no equivalent in the west. The best example is their vast internet monitoring and censorship operation, called the Great Firewall of China, or Golden Shield, it employs over two million people and tries to monitor all internet conversions and other activities by Chinese citizens. Those making anti-government comments, like criticizing policies that most Chinese find offensive or the government considers disloyal are identified and punished. Chinese cope with this while online by using code words for what they really mean. The censors eventually catch on and Chinese simply adopt new cord words. In this way the Golden Shield system becomes a popular form of entertainment as Chinese stay one step ahead of the censors by using new code words.

Golden Shield is sometimes successful when it supports situations where most Chinese agree that justice has been done. This includes admitting that corruption in the military still exists, despite many offenders, including senior generals and admirals, being punished for it. Other senior officers are praised for criticizing western military forces. This is good for the morale of Chinese troops who are conscious of the bad reputation the Chinese military had until the reformations and budget increases that showed up since the 1990s.

The Chinese are also acutely aware that their military has not had any experience in combat with anyone since the 1950-53 Korean War, and briefly in 1979 against Vietnam. China suffered over half a million dead and wounded while helping out North Korea and preventing the South Koreas and their western allies from uniting Korea and putting a united, democratic, and eventually very wealthy united Korea on their borders. China continues to adopt western military practices, with varying degrees of success.

Chinese propaganda plays down the economic success of South Korea, Taiwan, Singapore, and Hong Kong compared to mainland China. Hong Kong prosperity was made possible by treaties that allowed Britain to administer the area. That turned Hong Kong into an economic success where Chinese lived better lives than Chinese under communist Chinese rule. The treaty with Britain returned Hong Kong to Chinese rule in 1997. China agreed to allow Hong Kong to continue doing business as it had under British administration until 2047 but took complete control in 2021 in violation of the 1997 treaty. The successful Hong Kong economy continued to function for 24 years after China replaced the British as the territory's rulers. There was more corruption because of the mainland Chinese administrators, but Hong Kong continues to be more prosperous than mainland China. The corruption of the Chinese administrators is gradually eroding the Hong Kong economy and many Chinese who prospered under British rule have left for western countries where they can still run their businesses successfully and without the corruption and misrule encountered after the Chinese government took over after 2021. China sent 11,000 soldiers and police to maintain order in Hong Kong after 1997. Chinese in southern China, near Hong Kong had always been more prosperous than Chinese in other parts of the country and that higher level of prosperity continued after 1997. The communist government encouraged other parts of China to emulate what had happened in Hong Kong and adjacent parts of China. The century of British rule in Hong Kong is having a long term impact on the Chinese economy and the Chinese government doesn’t mind at all. Chinese have always been more pragmatic than their Russian neighbors when it came to adopting successful foreign economic policies.




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