China and US defense spending are heading in opposite directions

Earlier this week, on the occasion of the opening of the National People’s Congress, China announced that its defense budget would increase by 7.2 percent in 2023. The official Chinese figure of 1.55 trillion RMB, or about $240 billion, signals the second consecutive year that Beijing’s defense budget rose by more than 7 percent; it increased by 7.1 percent. from 2021 to 2022. Moreover, it marks the 28th consecutive year of increases in Chinese defense spending.

The official Chinese figure does not incorporate a number of major spending categories that are counted in American defense budgets. China does not include all elements of its ever-expanding space program. Nor does it include all research and development costs, foreign weapons procurement — notably from Russia — or defense mobilization funds. Neither does it include bonuses for college students or provincial base operating costs.

The International Institute for Strategic Studies (IISS) attempts to account for many of the categories that do not appear in the official Chinese budget. It estimates that Beijing’s 2022 budget amounted to $242.4 billion; however, in terms of purchasing power parity (PPP), which compares economies based on differences in countries’ cost of living, the number rises to $360 billion. Thus, the recently announced increase for 2023 would constitute a total of nearly $260 billion, or just over $385 billion in PPP terms.

American spending on defense continues to dwarf Beijing’s budget. The Biden administration has announced a Department of Defense top line of $842 billion, more than double that of China. Yet, the United States does not field forces only to deter China; it also seeks to deter Russian aggression against NATO. Moreover, Secretary of Defense Lloyd Austin this week visited the Middle East to reassure America’s friends in the region that the United States would not abandon them. He even visited Iraq to announce that American units would remain in that country. Maintaining American commitments in Europe and the Middle East, and smaller levels of American military presence elsewhere, reduce the level of expenditure that Washington can apply directly to countering China’s aggression.

In addition, the Biden defense budget includes numerous programs that do not contribute directly to military effectiveness. These range from programs and benefits whose intent is to ensure planned recruitment and retention levels, to expenditures to combat climate change that extend beyond programs such as protection of bases from the effects of hurricanes or flooding.

Of even greater concern is the trajectory of overall American spending on defense compared to that of China. The new Biden budget that calls for a 3.2 percent growth in defense spending represents, at the very most, a tiny real increase over last year’s congressionally approved defense appropriation. That increase presupposes the Office of Management and Budget’s (OMB) assumption that inflation will only increase in 2024 by 2.4 percent. The OMB assumption appears to rest on a long-term average rate of 2.3 percent, which certainly is not the economy’s current rate.

Inflation has slowed over the past several months, but it is still running at a rate above 6 percent — and defense-related inflation tends to be higher than the nation’s overall rate, which reflects the Consumer Price Index.

 It therefore is not very likely that inflation will drop to the OMB-estimated level, even if the Federal Reserve increases interest rates throughout this year. As a result, the Biden budget could be presaging a real decline in defense spending — at a time when China’s budget represents a doubling of defense expenditure over the past decade.

The president’s fiscal year 2024 defense budget request sets as its baseline the $43 billion congressionally-mandated increase over the administration’s FY 2023 $773 billion request. 

It is possible that, as appears to have been the case last year, the administration anticipates another major congressional increase. But that may not necessarily come to pass. The composition of the House has changed and there are more Republican members who are unwilling to countenance large defense spending increases — if any — above the president’s budget. Some even would support a reduction in defense spending. Moreover, the administration plans to request more funds to support Ukraine, which some on Capitol Hill see as simply an expansion of defense spending.

It is, therefore, highly disappointing that — in the face of China’s ongoing military buildup, Russia’s aggression, and Biden’s strong commitment not to abandon the Middle East — the administration essentially has chosen to hold defense spending flat, relative to last year. In particular, it appears that Chinese and American defense spending are heading in opposite directions. 

How America’s enemies — and its friends — will interpret the new budget, in terms of the credibility of America’s worldwide commitments, very much will remain an open and worrisome question.

Dov S. Zakheim is a senior adviser at the Center for Strategic and International Studies and vice chairman of the board for the Foreign Policy Research Institute. He was under secretary of Defense (comptroller) and chief financial officer for the Department of Defense from 2001 to 2004 and a deputy under secretary of Defense from 1985 to 1987.