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Product Details
| ISBN-13: | 9780833036988 |
|---|---|
| Publisher: | RAND Corporation |
| Publication date: | 03/15/2005 |
| Pages: | 296 |
| Product dimensions: | 6.10(w) x 8.96(h) x 0.77(d) |
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Modernizing China's Military
Opportunities and ConstraintsBy Keith Crane Roger Cliff Evan Medeiros James Mulvenon William Overholt
Rand Corporation
Copyright © 2005 RAND CorporationAll right reserved.
Chapter One
Introduction
Will China Become a Serious Military Threat in the Western Pacific?
A number of U.S. analysts and policymakers have raised concerns about the potential for China to mount a serious strategic challenge to the United States in Asia, especially in the western Pacific, sometime in the course of the next two decades. These concerns are based on China's expanding economy: The rapid economic growth of the past three decades has dramatically increased the resources the Chinese government has available to devote to military spending. Recent double-digit percentage increases in officially reported defense budgets indicate the degree to which China's growing economic base has permitted the Chinese government to increase the resources it expends on the military.
For these concerns to become a reality, a number of intervening events must take place. First, the economy will have to continue to grow. Second, the government will have to be able to extract revenues from the economy for military expenditures either through taxation, by borrowing at home or abroad, or by printing money. Third, the government will have to balance competing pressures for higher expenditures on pensions, health care, education, and more public investment in infrastructure against increased military spending.And fourth, China's defense industries will have to be able to produce the sophisticated weaponry that China would need to seriously challenge U.S. forces.
Some factors suggest that China will have the ability to fund and build a modern military. Continued strong growth in the economy and the budget is likely. Chinese industry may develop the technological wherewithal, at least in some industrial branches, to produce modern weaponry. Signs of increasing technological sophistication in Chinese industry abound. The economy has not only enjoyed very rapid rates of growth over the past few decades, it has been transformed. Large inflows of direct foreign investment, massive imports of modern equipment and machinery, and dramatic increases in human capital stemming from improvements in China's educational system and the return of Chinese students from studying abroad have contributed to the creation of a number of modern industrial sectors, especially in information technology. Some of these industries produce key components for modern military technologies, especially aviation, aerospace, and command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR). If China's economy continues to modernize over the coming decades, military equipment and weapons producers are likely to have access to domestically produced components to construct the military equipment and systems needed to narrow the capabilities gap with the United States.
However, a number of factors may prevent the Chinese government from making the expenditures that would be needed to field armed forces that could present a serious challenge. Some economists have concluded that Chinese growth slowed in the second half of the 1990s, in some years very sharply, because of financial problems in state-owned enterprises and state-controlled banks. More modest growth in GDP would constrain increases in Chinese military spending. Demographic changes are likely to have a major impact on budget expenditures. China's population is aging rapidly, and failure to pay pensions is one of the major sources of protest and unrest in Chinese society today. More public pressure for the provision of state-financed pension schemes could divert budgetary funds from the military to social programs. The government also faces demands for increased spending on health and, to a lesser extent, education.
The Chinese government has not been extraordinarily adept at collecting taxes. Most of China's citizens operate in a cash economy and actively seek to avoid paying taxes, often quite successfully. Small businesses, in particular, are good at tax evasion. Because the government has difficulty in taxing flows in the private sector (sales of goods and services and incomes), it has had to continue to rely on taxing the remaining state-owned sector, especially large state-owned enterprises and banks, or physical assets such as property for a substantial share of revenues. As a consequence, the tax burden often falls most heavily on those the state can compel to pay rather than on those who can most easily afford to pay. The burden on peasants, who pay taxes on physical assets like land and livestock, is proportionally higher than on entrepreneurs in urban areas who do not have substantial physical assets. Endemic corruption and the rapidly growing private sector may make it difficult for the Chinese government to effectively raise the tax revenues needed to increase spending to the levels necessary to fund a much more capable military.
The Chinese government also faces the challenge of ensuring that decisions about resource allocation made by policymakers are implemented. Graft is endemic to the Chinese system. At all government levels, a substantial share of tax revenues is siphoned off by government employees. The prevalence of graft both reduces the resources available to the Chinese government and discourages citizens from paying taxes.
The military also faces constraints in terms of its ability to acquire the goods and services it desires. The Chinese military has to contend with competitive markets for management and leadership talent, restricted sources of supply for advanced weaponry, and institutional weaknesses in integrating weapons systems. Although money is helpful in solving these problems, it is a necessary but not sufficient resource for creating a modern military. The Chinese military faces an enormous challenge in the coming decade to transform itself from a massive conscript army focused on defending Chinese territory to an institution capable of projecting power outside China's borders. If China's leadership wishes to accomplish this objective, its military will have to attract and retain a dedicated, innovative officer corps that functions far differently than the current cadre. The Chinese military will have to compete for these individuals with a private sector that has been growing very rapidly and has made a number of entrepreneurs and managers quite wealthy in the process.
On the supply side, China's ability to acquire the full range of equipment and systems needed by a modern military could well be constrained by the defficiencies of China's defense industry and by external restrictions on imports of more capable equipment from foreign suppliers. Currently, the domestic arms industry either is not able or finds it very difficult to produce modern equipment and integrate it into effective weapons systems. The Chinese military will have to revise its procurement processes to induce the defense industry to develop more sophisticated weaponry and to integrate these weapons into highly capable weapon systems. In addition, despite recent improvements in the professionalism of the People's Liberation Army (PLA) and the People's Liberation Army Air Force (PLAAF), both institutions will have to make substantial changes in their operating procedures to be able to use more technologically sophisticated military equipment in an effective manner.
Purpose of This Study
This book assesses future resource constraints on and potential domestic economic and industrial contributions to the ability of the Chinese military to become a significant threat to U.S. forces in the western Pacific by 2025. It addresses the following key questions:
1. What will be the likely shape and size of the Chinese economy over the next two decades? 2. What types of constraints will the Chinese government face in terms of drawing on increased economic output for spending on the military? 3. What problems will the military face, and what possibilities will it have in terms of purchasing the goods and services it desires from the Chinese defense industry? 4. How does the PLA perceive the military challenges facing China? What types of forces and capabilities does it wish to field to respond to these challenges? 5. Faced with these desires, constraints, and opportunities, what resources will the Chinese armed forces likely have at their disposal over the next two decades?
In addition to supplying answers to these questions, we identify indicators that USAF intelligence analysts may wish to track to determine whether the Chinese leadership is channeling greater or fewer resources than expected to creating a military capability that could mount an effective challenge to U.S. forces in the coming decades.
Outline of the Book
Following this introduction, Chapter Two evaluates recent trends in Chinese economic growth, describes the current structure of the Chinese economy, and forecasts likely future economic trends. As part of this analysis, we examine potential constraints on future economic growth, including incipient problems in the banking system, problems in the rural economy, a slowdown in trade and foreign investment, and the rapid aging of China's population. The chapter concludes with a discussion of likely structural changes in the Chinese economy over the coming two decades with a specific focus on changes that would contribute to the development of future military capabilities.
Chapter Three describes and assesses the composition of current and recent Chinese government expenditures and sources of budgetary revenues at the national and provincial levels. We describe changes over time in terms of expenditure patterns and levels by key categories. We also dissect the roles of various levels of government in overall government spending and look at recent and likely future changes in the roles of these different levels in providing various government services. We evaluate recent and likely future changes in taxes and tax revenues. As noted above, the Chinese government has not been extraordinarily adept at collecting taxes. Therefore we identify areas where the Chinese government may be able to extract additional taxes and areas where the tax burden is already contributing to popular discontent and opposition to the government. We also evaluate constraints on the ability of the Chinese government to raise revenues through public borrowing.
Chapter Four evaluates current levels and trends in resources expended on the Chinese military. Chinese military expenditures, like expenditures in the former Soviet Union, are difficult to track. Aside from the official defense budget, various ministries provide additional funds and subsidies. Provincial and local governments chip in through various programs, including paying conscripts to work on local construction projects. In this chapter, we dissect current military spending, using financial and economic statistics. We also employ recent data on provincial spending on the military that have not been previously available. Drawing on these sources, we provide best estimates of expenditures on the Chinese military, broken down by major expenditure categories and major sources of funds.
In Chapter Five, we evaluate likely changes in the capabilities of China's defense industries to provide more-advanced weaponry by 2025 and in the PLA's ability to effectively contract for these products. We assess four branches of the defense industry:
1. Information technology and defense electronics 2. Aviation 3. Aerospace, with an emphasis on missiles and avionics 4. Shipbuilding.
Our assessments of the domestic industries focus on general capabilities, challenges, and opportunities to create a more modern arms industry. Key issues include organization, systems integration, the quality of the component and subsystem industries, the challenges of generating sufficient revenues to make the industry profitable, and purchases and integration of imported components and technologies. This chapter does not include detailed engineering evaluations of particular technologies of importance to the manufacture of military equipment.
Not only will China's defense industries have to create the capacity to build modern weapons, but the PLA will also have to create the institutions and mechanisms to successfully contract for those weapons. To do so, the PLA will have to revise its procurement processes and its operations. In this chapter, drawing on current Chinese and foreign language sources, we assess the challenges the PLA faces in procuring and integrating weapons and command and control systems, either domestically produced or imported from abroad. We conclude by discussing potential changes in operating procedures that would significantly improve the ability of the PLA to contract for and absorb new systems and assessing the likelihood that such changes will be introduced.
Threat perceptions play a key role in decisions on expenditures on the military. Chapter Six briefly reviews the Chinese military's perceptions of the strategic threats and objectives that face the country. Subsequently, we discuss the types of forces that the Chinese military believes will be needed to fulfill its future missions. Our analysis employs Chinese and foreign writings on these subjects.
In Chapter Seven we project likely future levels of Chinese government spending on the military from the point of view of the budget. We approach this task by first projecting overall budget revenues and expenditures. Based on the experiences of other developing Asian countries, we evaluate potential or likely future changes in taxation, including measures to improve taxpayer compliance with the tax code, and the implications for future tax revenues. We then project likely future demands for major nonmilitary spending, including health care, education, state-supported pensions for China's aging population, and investments in public infrastructure, thereby bounding likely funds available for military expenditures. Subsequently, we project two series of likely future military expenditures based on expected growth in GDP and the expected future share of military spending within the total budget. We complete the chapter by comparing projected expenditures in dollars with past expenditure by the U.S. Department of Defense and the U.S. Air Force.
The book concludes with a set of indicators for USAF intelligence analysts designed to indicate whether the Chinese leadership is making a concerted effort to significantly improve the capabilities of the PLA, i.e., whether the Chinese government is attempting to "break out" by dramatically increasing resources devoted to the military and corresponding improvements in capabilities. In contrast to the 1960s and 1970s, when China was a closed society and information was very limited, U.S. military planners now face the difficult task of absorbing and interpreting a flood of information concerning the Chinese military and Chinese society. Much of this information suggests divergent trends, making it difficult for analysts to accurately assess future developments in the PLA. This is especially true when discussing future rates of military equipment procurement. For example, based on plans reported earlier by the Chinese government, a number of analysts had projected more rapid rates of procurement of new aircraft than the PLAAF eventually fielded. In this final chapter we assemble a set of leading indicators that, based on past performance, have foreshadowed future increases in defense spending, future acquisitions of weapon systems, and improvements in the capabilities of the PLA. We have drawn the bulk of these indicators from the data gathered in the course of conducting the research for the book. They constitute a partial checklist for USAF analysts, a checklist that should indicate likely future trends in Chinese military expenditures and improvements in capabilities.
(Continues...)
Excerpted from Modernizing China's Military by Keith Crane Roger Cliff Evan Medeiros James Mulvenon William Overholt Copyright © 2005 by RAND Corporation. Excerpted by permission.
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