Modernizing China’s military: opportunities and constraints

298 Pages·2.349 MB·English

by  Crane Keith, Cliff Roger, Medeiros Evan (eds.)

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Modernizing China’s Military
Opportunities and Constraints
Keith Crane • Roger Cliff • Evan Medeiros
James Mulvenon • William Overholt
Prepared for the United States Air Force
Approved for public release; distribution unlimited
The research reported here was sponsored by the United States Air
Force under Contract F49642-01-C-0003. Further information may be
obtained from the Strategic Planning Division, Hq. USAF.
Library of Congress Cataloging-in-Publication Data
Modernizing China’s military : opportunities and constraints / Keith Crane ... [et al.].
p. cm.
“MG-260.”
Includes bibliographical references.
ISBN 0-8330-3698-X (pbk. : alk. paper)
1. China—Armed Forces—Reorganization. 2. China—Military policy. I.
Crane, Keith, 1953–
UA835.M63 2005
355.3'0951—dc22
2004030176
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Preface
This report is designed to help the U.S. Air Force assess the resources
the government of the People’s Republic of China is likely to spend on
its military over the next two decades. The study projects future growth
in government expenditures as a whole and the military in particular,
evaluates the current and likely future capabilities of China’s defense
industries, and compares likely future expenditure levels with recent
expenditures by the United States and the U.S. Air Force.
The research reported here was sponsored by AF/XOX and
PACAF/CC and conducted within the Strategy and Doctrine Program
of RAND Project AIR FORCE. It is part of the RAND Corporation’s
ongoing research on China and China’s military establishment. The
study builds on previous RAND Project AIR FORCE work:
• Roger Cliff, The Military Potential of China’s Commercial Technol-
ogy, MR-1292-AF, 2001
• Mark Burles and Abram Shulsky, Patterns in China’s Use of Force:
Evidence from History and Doctrinal Writings, MR-1160-AF,
2000
• Erica Strecker Downs, China’s Quest for Energy Security, MR-1244-
AF, 2000
• Richard Sokolski, Angel Rabasa, and C. R. Neu, The Role of South-
east Asia in U.S. Strategy Toward China, MR-1170-AF, 2000
• Mark Burles, Chinese Policy Toward Russia and the Central Asian
Republics, MR-1045-AF, 1999
• Daniel L. Byman and Roger Cliff, China’s Arms Sales: Motivations
and Implications, MR-1119-AF, 1999
iii
iv Modernizing China’s Military: Opportunities and Constraints
• Zalmay Khalilzad, Abram N. Shulsky, Daniel Byman, Roger
Cliff, David T. Orletsky, David A. Shlapak, and Ashley J. Tellis,
The United States and a Rising China: Strategic and Military Impli-
cations, MR-1082-AF, 1999
• James C. Mulvenon and R. H. Yang (eds.), The People’s Liberation
Army in the Information Age, CF-145-CAPP/AF, 1999.
RAND Project AIR FORCE
RAND Project AIR FORCE (PAF), a division of the RAND Corpo-
ration, is the U.S. Air Force’s federally funded research and develop-
ment center for studies and analyses. PAF provides the Air Force with
independent analyses of policy alternatives affecting the development,
employment, combat readiness, and support of current and future
aerospace forces. Research is performed in four programs: Aerospace
Force Development; Manpower, Personnel, and Training; Resource
Management; and Strategy and Doctrine.
Additional information about PAF is available on our web site at
http://www.rand.org/paf.
Contents
Preface ...................................................................iii
Figures ...................................................................xi
Tables .................................................................. xiii
Summary ................................................................ xv
Acknowledgments ......................................................xxix
Acronyms and Abbreviations ...........................................xxxi
CHAPTER ONE
Introduction ............................................................. 1
Will China Become a Serious Military Threat in the Western Pacific? ..... 1
Purpose of This Study .................................................... 4
Outline of the Book ...................................................... 5
CHAPTER TWO
The Chinese Economy ................................................... 9
Introduction ............................................................. 9
The Current Size of the Chinese Economy ................................ 9
China’s Economy Compared to That of the United States .............. 9
Dollar Estimates of the Size of the Chinese Economy ..................12
Measures of GDP and Military Spending ..............................16
Chinese Economic Growth ..............................................17
Overall Determinants of Chinese Economic Growth ..................17
Sources of and Constraints on Future Economic Growth:
The Rural Economy ...............................................18
Declining Rates of Growth in Agricultural Output ....................18
Widening Differences Between Rural and Urban Incomes .............20
v
vi Modernizing China’s Military: Opportunities and Constraints
Financial Difficulties of the Town and Village Enterprises ..............21
The Service Sector: Current and Future Source of Employment ........23
Will Industry Remain the Driver of Economic Growth? ...............24
Foreign Direct Investment: A Diminishing Driver of Growth ..........26
Exports Will Become Less of a Factor in Growth ......................29
Balance-of-Payments Pressures Are Unlikely to Constrain
Economic Growth .................................................31
Threats to Growth from the Financial System ..........................33
The Impact of Demographic Changes on the Chinese Economy .........35
Urbanization and Internal Migration ..................................35
The Aging of China ...................................................36
Aging and the Military ................................................38
Future Economic Growth ...............................................39
Biases in Chinese Statistics on Economic Growth ......................39
Prospects for Growth Through 2025 .....................................41
Key Factors Affecting Future Growth in China ........................41
Projections of Growth in GDP ........................................44
CHAPTER THREE
Government Revenues and Expenditures ...............................51
Introduction ............................................................51
Information About China’s Budget ....................................52
China’s Budgetary Policy History ........................................53
The Pre-Reform System ...............................................53
Reform and Taxation ..................................................56
Tax Revenues ............................................................63
Division Between Central and Local Governments ....................63
Detailed Sources of Central Government Revenues ....................64
Local Government Revenues ............................................65
The Large and Vital Role of Extra-Budgetary Revenues ..................68
Government Expenditures ...............................................71
The Central-Local Division of Responsibilities .........................71
Local Expenditures ....................................................75
National-Level Expenditures ..........................................79
Hidden Budgetary Problems .............................................82
Liabilities Not Included in Central Government Debt .................82
Contents vii
Assets ...................................................................85
China’s Government Balance Sheet ......................................88
Broader Conclusions ....................................................88
CHAPTER FOUR
China’s Military Expenditures ...........................................91
Introduction ............................................................91
Why We Should Care .................................................91
Approach .............................................................92
Organization of This Chapter .........................................94
Structure and Process of Chinese Military Budgeting ....................94
Introduction ..........................................................94
Key Budget Organizations .............................................95
The Military Budgeting Process .......................................97
Changes in the Military Budgeting Process ...........................100
The Official PLA Budget: What Can It Tell Us? .........................101
What Do We Know? What Don’t We Know? .........................101
Definitions: What Does the Official Budget Include?
What Is Excluded? ................................................102
The Official Budget Numbers ........................................104
Creative Approaches to the Official Numbers .........................109
Extrabudgetary Revenue, PLA Inc., and Divestiture ....................111
Estimating Actual Chinese Military Expenditure: A Bridge Too Far? ....125
The Empirical Challenge .............................................125
Data Challenges and the PPP Debate .................................125
How Do We Fill in the Gaps? ........................................126
Foreign Arms Purchases ..............................................127
Provincial Spending on National Defense ............................127
Paramilitaries .........................................................129
Revenue from Arms Sales .............................................131
Bounding Other Categories of Indirect Funding ......................132
A Notional Full Budget ..............................................133
CHAPTER FIVE
China’s Defense Industry ..............................................135
Capabilities and Future Prospects .......................................135
viii Modernizing China’s Military: Opportunities and Constraints
The Changing Shape of China’s Defense Industrial Complex,
1980–1998 .......................................................138
Explaining the Defense Industry’s Poor Performance ....................144
Weaknesses of Past Reforms ............................................146
Explaining the Soviet Paradox ..........................................150
New Progress in Defense Reform: The 1998 Defense Industry
Restructuring and Beyond ........................................154
Beijing’s New Strategy for Improving Defense
Industrial Capabilities ............................................154
The Goals of the 1998–1999 Reforms ................................157
Organizational Reforms ..............................................160
Constraints on China’s Defense Industry Reform .....................173
Assessing Defense Industry Capabilities .................................175
Aviation Industry ....................................................176
Shipbuilding Industry ................................................180
Information Technology ..............................................183
Missile Industry ......................................................185
Future Prospects of China’s Defense Industry ...........................187
CHAPTER SIX
PLA Threat Perceptions and Force Planning ...........................191
PLA Threat Perceptions and the International Security Environment ...192
Analyzing and Interpreting PLA Threat Perceptions .....................198
PLA Force Structure and Military Modernization .......................200
CHAPTER SEVEN
Future Expenditures on the Military ...................................205
Introduction ...........................................................205
The Future Composition of Government Expenditures .................206
Future Expenditures on Education and Health .......................207
Future Expenditures on Pensions .....................................210
Future Costs of Servicing Government Debt Stemming from
Unfunded Liabilities ..............................................214
Projections of Government Expenditures on Pensions, Education,
Health, and Government Debt Service ............................215
Other Costs ..........................................................216