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Economic Crisis: Impact on Chinese Military Modernization

On April 8, 2009, the Center for National Policy hosted a discussion entitled "Economic Crisis: Impact on Chinese Military Modernization", featuring Dr. Jacqueline Newmyer, president and CEO of the Long Term Strategy Group and Kristen Gunness, a China advisor for the U.S. Department of the Navy, as keynote speakers.  Before running Long Term Strategy, Dr. Newmyer worked on projects related to East Asia for the Department of Defense Office of Net Assessment, has held postdoctoral fellowships at Harvard and has published articles on energy security.  Ms. Gunness has spent significant time working in the private sector as a business consultant focusing on China issues, and has spent time studying in China. 

Jacqueline Newmyer began the discussion by forecasting two potential scenarios that China could face as a result of the recent economic downturn:  The first is that the crisis, while difficult, does not ultimately disrupt China's strong economic growth and thus does not lead to major changes in Chinese policy. The second is that the crisis leads both to a dramatic downturn of the Chinese economy and thus a drastic change in Chinese domestic and foreign policies.  The point Newmyer ultimately makes, however, is that in both scenarios China would be likely to increase defense spending and undertake a more assertive stance in its foreign policy, leading to complications for the United States and its regional allies. 

Observe China's past actions: Depending on which analysis is used, China has doubled its defense spending in recent years; a feat un-replicated by other industrialized nations for many decades.  Although the generally accepted rationale for such increases is to secure it's position vis-à-vis Taiwan, its investment in hi-tech weaponry and a green-to-blue water navy suggests that its aims are much broader than the simple maintenance of a military balance in the Taiwan Strait.  Pursuant to this expanded geopolitical role, China announced plans to develop three aircraft carriers by 2020, and has made significant advances in long-range logistics and air-to-air refueling.  China has also upgraded its space-based reconnaissance program, anti-satellite capabilities, anti-ship missiles, anti-ship ballistic missiles, and new submarines which are capable of launching sea-based ballistic missiles. 

Even more worrisome is notion that the US presence in Asia is on the relative decline.  The current US fleet is half the size it was under Regan, giving China the largest combat fleet by numbers in the region.  Although the Chinese fleet is technologically inferior to its American counterpart, this emerging trend is not lost on United States' allies in the region.  Thus, countries such as Japan and India are becoming increasingly worried about the effects of Chinese arms exports on their own national interests.  Although Chinese hi-tech arms exports were once almost nonexistent, they are now poised to create a defense conglomerate that could rival British Aerospace by 2017.  . 

Elaborating more on the economic picture and the first scenario, Newmyer explored the possibility that the economic downturn would have little effect on China's defense policy.  This scenario is plausible, given China's substantial treasury reserves, its insulation from the global economy relative to the United States, and its quick enactment of a government stimulus package.  Nevertheless, however, Newmyer raises serious questions about the efficacy of China's stimulus program, given its focus on short-term infrastructure projects, and prevalent use of state-owned banks with a history of inefficient resource allocation.  Although Western analysts argue that China should place more emphasis on domestic consumption over foreign exports, such dramatic political and structural changes are extraordinarily difficult to make. Thus, Newmyer predicts that China would continue to focus on exports, including a further increase in arms sales to buyers in the Middle East.  Along the same lines, increases in defense spending could be seen as an expedient way for the CCP to stimulate the economy without relinquishing party control. 

If the second scenario came about, however, the economic crisis would have a severe effect on the Chinese economy.  Because the basis of the Chinese government's legitimacy has been its ability to facilitate rapid economic growth, a sharp and prolonged downturn could trigger widespread social and political unrest.  Indeed, the number of incidents of social unrest have increased five-fold from 2005 to 2006, and doubled for the second time in three years in 2008.  Newmyer argues that the natural interest of the government would be to look for external enemies to blame the crisis on (be they an interventionalist America, and emerging India, or a historically cantankerous Japan), and embark on a more belligerent foreign policy as a result.  Either way, she concludes, there is an increased likelihood that the economic downturn will lead China to adopt a more assertive defense and foreign policy, causing friction with its neighbors and with the major powers in the region. 

Kristen Gunness continued the conversation by discussing the impact of the economic crisis on the PLA and the Chinese defense budget.  On a superficial level, Gunness notes that the economic crisis appears to have had little effect on the PLA's funding.  China issued an official 17.6 percent increase in its defense budget in 2008, and is announcing an additional 14.9 percent increase in 2009.  Although China's official defense budget stands at $70.3 billion, a 2009 DoD report put the figure somewhere between $105 to $150 billion.  Much of these increases are going towards a substantial modernization program designed to transform he PLA from a primarily "personnel intensive" force to one that is increasingly "technology intensive."  This transformation not only requires a complete overhaul of the PLA's activities, institutions, military doctrines, and officer corps, it also requires that PLA to take-on missions outside of its comfort zone of defending the Chinese mainland.  To this end, the PLA has contributed troops to peacekeeping missions, sent ships to the Horn of Africa to combat piracy, and has engaged in disaster relief missions such as those surrounding the Sichuan earthquake in spring 2008. 

Although the PLA is making great strides in terms of readiness and operational capabilities, Gunness notes two areas which could be vulnerable to the economic crisis.  The first regards issues of internal stability.  Because the CCP mandates that the PLA has a responsibility to ensure domestic stability, significant domestic unrest could have the potential to divert PLA attention and resources.  While China maintains a domestic paramilitary force, the Peoples Armed Police, recent lackluster performance has called into question its competency and effectiveness.  Although the PLA has managed to avoid entanglement in domestic issues in recent years, increasing social unrest coupled with the Tibet incident will challenge this arrangement. 

The second area of potential impact of the economic crisis is in civil-military relations.  First, the economic downturn could exacerbate the PLA's already strained ability to attract the well-educated and tech-savvy youth it needs for its emerging officer corps.  Although the downturn has made the army a more attractive option for many, educated candidates are often being crowded out by less educated rural youth, which are not suited for China's technology-centric officer corps.  Second, the PLA is having increased difficulty persuading local officials to bear the cost of its civil defense and national defense mobilization programs.  Since local officials already balk at providing resources for the PLA, while losing money for themselves in the process, these relations can only worsen if the economy deteriorates.  Finally, the economic crisis may inflame tensions between the PLA and the Communist Party.  Although the PLA currently enjoys Party support, a severe economic downturn coupled with a rise in social unrest could force a "guns-versus-butter" debate where the PLA loses out to a greater focus on social services. 

Gunness concluded by outlining the future implications for the PLA.  First, she argues that the PLA must work to take advantage of the rapidly changing political and economic situation wherever it can.  Second, the PLA should continue to expand its efforts at playing a larger role in common security issues such as counter-piracy, both to build its compatibilities and enhance its reputation. What does this mean for the United States?  While the PLA has made extraordinary strides in its modernization efforts, its continued modernization is by no means assured.  Although a modernized PLA can have the ability to project Chinese influence in Asia and the Middle East, the United States must be careful to create an economic, diplomatic and military environment to ensure that China's increased influence does not unduly harm US interests.

• China has made extraordinary gains in both its economy and military, and is poised to increase its influence in both Asia and the Middle East. 

• Problems loom on the horizon, however, including increased domestic unrest stoked by an aggravated economic downturn.  While Chinese influence can be constructive, such as with its support to counter-piracy efforts, it also has the potential to turn belligerent and aggressive.

• Consequently, the United States must play a careful balancing game when dealing with China.  While it must be ready to deal with potential Chinese aggression, whether it be in the Taiwan Strait or elsewhere, it must be equally careful not to provoke that aggression by enacting an overly confrontational foreign policy.