Chapter IV Defense Expenditure and Defense Assets

    China manages and uses its defense funds, ensures the procurement and supply of its military equipment and materials, and protects its defense assets in conformity with legal provisions and in accordance with the needs of national defense building and the requirements of the socialist market economy.

    Defense Expenditure

    Pursuant to The National Defense Law, the Chinese government follows the guiding principle of the coordinated development of national defense and economy. Based on the economic development and revenue growth, it has continued to increase its defense expenditure moderately so as to keep up with the changes in the demands of national defense. China's GDP in 2002 and 2003 was 10,517.234 billion yuan and 11,725.194 billion yuan respectively. Its defense expenditure in 2002 and 2003 was 170.778 billion yuan and 190.787 billion yuan respectively. Its defense budget for 2004 is 211.701 billion yuan.

    The increased part of China's defense expenditure has primarily been used for the following purposes: (1) Increase of the salaries and allowances of the military personnel. It is necessary to raise the salaries and allowances of the military personnel in step with the socio-economic development and the per-capita income rise of urban and rural residents. In the light of the unified wage adjustment policy for the personnel of state organs, China has raised the salary rates of officers, civil cadres and non-commissioned officers; the allowances of conscripts and cadets under the supply system; and the pensions of the retired. (2) Further improvement of the social insurance system for servicemen. In December 2003, the Provisional Measures on Social Insurance for Unemployed Accompanying Spouses of PLA Servicemen was formulated, to guarantee their basic living standard and provide them with social insurance subsidies. (3) Support for the structural and organizational reform of the military. China once again downsizes its military by 200,000, and has to increase the expenses on the resettlement of the discharged surplus personnel accordingly. (4) Increased investment in the development of high-caliber talents in the military. The PLA has established and refined an incentive mechanism for talented people, improved conditions in military educational institutions, and entrusted non-military colleges and universities with the education of qualified personnel, so as to ensure the achievement of the PLA's Strategic Project for Talented People. (5) Moderate increase of equipment expenses. This is aimed at promoting the leapfrog development of weaponry and equipment, and stepping up preparations for military struggle. 

    In the past two years, the percentages of China's annual defense expenditure to its GDP and to the state financial expenditure in the same period have remained basically stable. For most of the years since the 1990s, the growth rate of China's defense expenditure has been lower than that of the state financial expenditure.

    The absolute amount of China's defense expenditure has long been lower than those of some major Western countries, and the proportion to the GDP and state financial expenditure has also been relatively low. In 2003, China's defense expenditure amounted to only 5.69 percent of that of the United States, 56.78 percent of that of Japan, 37.07 percent of that of the United Kingdom, and75.94 percent of that of France.

    The management of China's defense funds has become more transparent and standardized, and its cost-effectiveness has been steadily improving. The budgeting reform for defense expenditure has been further deepened, and a new defense budgeting system established, which introduces the zero-base budgeting method and united budgeting system. The budget adjustment and control function has been strengthened, and the input direction and amountof defense funds optimized. The tendering and bidding system for the procurement of defense materials, projects and services has been improved, and the scope of centralized payment extended.