Setting the Record Straight on Beijing’s Actual Military Spending

Popularly floating around the internet is some version of this flawed figure about the United States’ military spending versus the rest of the world. They all tell a similar story that the United States’ defense budget dwarfs the next ten nations combined, even when including our rivals like China and Russia.

Despite our supposed massive budgetary edge, the Defense Department has reported that China has become the “pacing challenge” and “…has already achieved parity with—or even exceeded—the United States in several military modernization areas.” Why are Pentagon leaders so worried if we’re apparently outspending Beijing by a factor of 4-to-1?

As it turns out, China’s real military budget is a whole lot bigger than it looks. A few months ago, Sen. Dan Sullivan (R-AK) took to the Senate floor to reveal that in classified settings, “They [intelligence officials] came out and said the real Chinese budget, in terms of military, is probably close to about $700 billion dollars.”

When we account for this new $700 billion figure, the Pentagon’s assessment starts to make a little more sense.

What accounts for this half-trillion-dollar gap? Due to the sensitive nature, it’s hard to know for sure, but there are a variety of compounding factors we can calculate confidently.

Firstly, it’s flawed to take self-reported military budgets at face value, especially from a Communist Party from which there is so little transparency into China’s budget processes. Official reports are extraordinarily narrow in detail, dividing spending across the three simple categories of personnel, training and maintenance, and equipment.  When compared to the thousands of pages of public Pentagon budget documentation, it’s clear that the American military budget is far easier to openly corroborate.

Furthermore the lines of funding are blurred by China’s obfuscation of its total military spending through military-civil fusion, where Beijing’s investments in dual-purpose enterprises blur the lines between what is classified as military versus civilian hardware (with the point being that many civilian items can easily be used for military purposes). These investments are focused in shipbuilding, information technology, and the aerospace industry, all areas where China is rapidly modernizing its military capability.

This is all to say nothing of China’s hard power investments counted off the “defense budget” books. Some of China’s regional muscle, namely the China Coast Guard and People’s Armed Forces Maritime Militia, are funded entirely separately from the rest of the Chinese military, despite directly supporting China’s military goals.

The comparison is further flawed by blankly accepting a one-to-one conversion between Chinese yuan to US dollars. Research has shown that the US-China military gap narrows even further when purchasing power parity (PPP) is properly considered.  For example, China can afford to pay its soldiers roughly sixteen times less than the salary of their American counterparts. Where Beijing saves on compensation, it can make up for in ships, planes, missiles and other armaments. The evidence is clear – while China churns out new warships, we’re struggling to keep shipyards open.

Of course, none of this shows up in a chart which takes the Chinese Communist Party word at face value. While America’s defense spending is the largest nominal military budget in the world, a simple glance at the topline doesn’t tell the whole story—not even close.

China’s military budget has been increasing consistently for the past 28 consecutive years. According to public data from the Stockholm International Peace Research Institute, in the last decade alone, China’s military budget increased annually by an average of 9 percent. Meanwhile, the Pentagon’s budget, having been saddled by budget cuts, spending caps, and unstable funding for key programs, has fluctuated up and down. Our military budget continues to shrink as a percentage of national GDP, with projected spending in Fiscal Year 2025 likely taking the budget under 3 percent of GDP for the first time in over 20 years. In 2022, military spending accounted for only 10 percent of the federal budget – the lowest since WWII.

This has all culminated in a US defense budget which has failed to have any real growth under record inflation. Our troops are expected to do the same or more with less, and as the years have dragged on, the cracks are starting to show, leading to a shrinking and increasingly hollow force which is declining in capability.

With all these trends considered, it’s no wonder Pentagon leaders are worried. Reversing these trends will require real growth in America’s military budget. If we want to correct these trends and adequately deter an increasingly belligerent China, we’ll first need to make up for lost time and fully fund the military.