China’s Defense Budget Keeps Growing While Economy Contracts

In the middle of its spring budgeting season, it’s guns, not butter, for Beijing.

Ahead of its annual “Two Sessions” legislative gatherings on March 5, China unveiled its latest series of planned defense expenditures. These are expected to rise far ahead of projected economic growth for the coming year and primarily target major systems acquisitions and increased investments in training.

The budget announcement highlights Beijing’s efforts to accelerate its initiatives to modernize the People’s Liberation Army (PLA) despite growing official recognition of the country’s economic headwinds.

Defense Spending Hike Set to Significantly Exceed Economic Growth Target

While the official defense budget increase of 7 percent is slightly lower than the past three years — which averaged around 7.2 percent — the top-line figure does not account for significant related expenditures, many of which will likely increase over the coming year. In the same budget document, the State Council pledged greater state investment in quantum computing, brain-computer interfaces, and artificial intelligence (AI), each of which remain key aspects of the PLA’s current modernization efforts. Moreover, Beijing’s new budget also does not account for undeclared expenditures on research, development, and classified programs, which have historically pushed spending nearly one third higher than reported figures. Nor do they account for the country’s ongoing deflationary environment, which further increases the PLA’s spending power.

The budgetary increase is also significantly higher than China’s newly announced economic target for the coming fiscal year. Having lowered its official GDP target to 4.5 percent for the first time in nearly three decades, Beijing is effectively accelerating spending on its military amid a growing recognition of the country’s flagging economy, in a sign of its deepening commitment to its ongoing modernization effort.

Beijing Prioritizes Bridging Gap Between ‘Mechanization’ and ‘Intelligentization’

China’s new defense budget follows the PLA’s efforts to complete its initial modernization efforts by the end of the year, which will coincide with the force’s 100-year anniversary. This effort encompasses reforming its doctrinal theories and service branches to carry out combined arms warfare, modernizing its equipment, and training its officer corps and enlisted troops to execute complex joint maneuvers in a combat environment.

These goals have also underpinned the PLA’s efforts to couple “mechanization,” referring to the delivery of high-end combat capabilities, with “intelligentization,” or the integration of AI into its newly delivered equipment and command systems.

The budget will also likely include greater spending on personnel expenses and training, a growing trend as the PLA seeks to maintain a high operational tempo around Taiwan and develop a professionalized officer corps capable of handling modern combat. These efforts follow growing PLA recruitment drives amongst college students and rising concern amongst senior PLA leaders over officer quality and morale, particularly after reviewing Russia’s poor military performance in Ukraine.

Washington Should Target Beijing’s Military Modernization Ecosystem

China’s defense budget is a powerful signal that Beijing will continue to emphasize its military modernization campaign despite its overall economic trajectory. It is also a sign of trust in the PLA from the ruling Communist Party hierarchy amidst an ongoing purge of senior PLA officers.

In response, the United States should target the underlying research and development ecosystem underpinning the PLA’s modernization effort. This should include expanding enforcement of existing export controls on high-end AI components, strengthening research security measures to prevent intellectual property theft, and increasing science and research spending.

Jack Burnham is a senior research analyst in the China Program at the Foundation for Defense of Democracies (FDD). For more analysis from Jack and FDD, please subscribe HERE. Follow Jack on X @JackBurnham802. Follow FDD on X @FDD. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.