April 23, 2021: In early 2021 China announced the planned defense budget for 2022 and surprised everyone by increasing spending 6.8 percent to $208.6 billion. The current year spending is a 6.6 percent increase over 2020. The Chinese fiscal year is the same as the calendar year (January 1 to December 31) and despite the covid19 and trade war related problems in 2020, 2021 and 2022 saw defense spending increase more than GDP growth.

There are other defense spending trends that are even more alarming. For example, China is now building warships based on Western designs and apparently matching U.S. warship tech in terms of weapons and sensors. China does this in part because they can do it faster and cheaper. That is a side effect of China becoming the largest shipbuilder in the world. This is a status the United States held during World War II and surrendered as European nations and Japan revived their ship building industries. In the last few decades South Korea and China have become the major ship builders. It is no mystery that nations capable of building the most commercial ships can also produce lots of warships and do it quickly and inexpensively.

That’s why it costs so much more and takes longer for American shipyards to build warships. Worse, the decline in American commercial shipbuilding means there is a chronic shortage of skilled shipyard workers and managers for military ship construction. The U.S. currently ranks 19th in terms of ship building and most of that is smaller, coastal shipping plus specialty items like oil rigs. The U.S. has far fewer facilities for repairing its many large warships and a growing backlog in warship maintenance because of that.

China, South Korea and Japan all have more robust warship construction and repair capabilities than the United States. It works both ways. America maintained its primacy as a builder of commercial aircraft since World War II, which also brought primacy in warplane design and construction. Same with the automotive industry, which creates many essential new technologies needed for military vehicles.

China also has some serious problems that are less often discussed. The most damaging shortage is enough Chinese to operate all the new ships as well as the modernized army and air force. Blame it on the “one-child per couple” policy that began in the 1980s to limit population growth. The “one-child” rule was enforced for three decades until population growth was under control and it was time to deal with major labor shortages coming over the next few decades. While you can export a lot of manufacturing jobs to more populous nations, hiring mercenaries was not seen as an option for the modern Chinese military, especially the navy. China soon discovered that while serving in their impressive new army and air force was popular, joining a modern navy where ship crews spent a lot (often half) their time at sea was not attractive at all. While China can build a lot of impressive new warships, they were surprised to encounter growing problems finding enough sailors and officers to take them to sea. This is essential if China is to have effective new warships. That’s a lesson learned by the Western navies that pioneered the development of modern, high seas fleets centuries ago.

There are other problems with the new navy. While you gain a military edge by developing crews that have spent a lot of time at sea, you still don’t know how effective your new warships are in combat. While China is the largest commercial ship builder in terms of tonnage delivered, South Korea and Japan often take the lead in revenue because they are more competitive when it comes to building more complex ships. That includes warships. Among the current major naval powers, China is the one with the least historical experience sending large warships, and commercial ships, to sea. In other words, no “seagoing tradition”. History has shown that this matters. How much it matters for China won’t be known until some of their ships experience some combat against a fleet of modern ships with experienced crew. The nations fitting that description all tend to be allied in opposing Chinese aggressive territorial claims. Pick a fight with one and its many allies are obliged to go after China. War at sea means major unemployment and shortages in China. This causes internal unrest that the communist dictatorship running China wants to avoid. Traditional Chinese strategy uses impressive forces in terms of numbers and possibly quality. China is grabbing territory and seeking to be attacked so they can claim self-defense and fight a brief war to test the abilities of their modernized forces and then play the peacemaker by offering to call a ceasefire and negotiate.

There are other mysteries of Chinese defense policies that are easier to explain. For example, how much is China really spending on defense? Official Chinese spending is about 30 percent of what the U.S. spends. Yet China has a larger, by about 53 percent, number of troops on active duty than the 1.3 million strong American military. The Chinese not only build about three times as many warships each year compared to the United States, but also produce more warplanes and armored vehicles.

The situation with China is similar to what went on during the 1947-1991 Cold War when figuring out how much the Soviet Union (communist Russian empire) was actually spending on defense. Until near the end of the Soviet Union, the Russians never published an accurate defense budget. For most of the Cold War the official budget, the one available to most Russians and all foreigners, showed a number that was less than 25 percent of what the U.S. spent.

In the last few years of the Cold War a reform-minded Russian leader published more accurate defense spending data. This showed annual defense spending that was about 70 percent of what the Americans spent. It was worse than that, something most Russians were unaware of. Russia was actually spending about 20 percent of GDP on the military, a percentage more than three times what the U.S. spent. The government went public with the actual defense spending to explain why the Soviet Union had such a low standard-of-living compared to the West. As long as the defense spending remained so high poverty would increase each year. By the 1980s this was visible with growing food shortages and less spending on infrastructure, housing and things that mattered most to the majority of Russians. The Soviet Union was not defeated militarily but economically. The Soviet Union literally fell apart in 1991, with half the population forming themselves into 14 new nations. The Soviet Union didn’t fight this because it couldn’t rely on the security forces. Most of them were conscripts who knew how bad life was. Even many career officers, especially the younger ones, were not willing to fight to preserve the Soviet Union.

China was alarmed at the sudden demise of the Soviet Union and learned from it. During the last decade of the Soviet Union China realized that the communist economic model did not work, and devised a new system that retained the communist dictatorship but allowed the economy to operate largely free of tight government control. This was similar to the fascist model that emerged after the first World War. During World War II Germany, Japan, Italy and several other smaller nations had adopted the fascist model. China learned from that as well. The World War II fascists destroyed themselves with overambitious military expansionism. The German fascists called themselves national socialists and that meant the traditional German national anthem, “Deutschland Uber Alles” (“Germany over all others”) was applied literally and with enormous violence and initial success. The Japanese took a similar approach and like the German fascists eventually suffered devastating losses and total defeat. The Chinese fascist state revved up the economy and built a huge and powerful military but used that force to intimidate rather than wage war on a ruinous and potentially self-destructive scale. Slow-motion and more subtle conquest was actually something of a Chinese tradition developed over thousands of years. The ancient imperial governments basically dictatorships presiding over static, pre-industrial, agricultural economies. Five centuries ago the Europeans did something different, they introduced more applied innovation at a faster rate than ever before. Many of these new technologies were invented by Chinese but never integrated into an expanding economy. Ancient empires, especially the Chinese, discouraged this sort of thing as disruptive to the imperial tranquility. These developments in the West were seen as more barbarian foolishness. Then that Western innovation produced technologies China could not ignore, like more efficient sailing ships armed with many very effective cannon. That was bad enough for the Middle Eastern, South Asian and East Asian empires but it kept getting worse. This became clear with the Industrial Revolution. Starting slowly in the 1700s, but the 1800s the innovations and rising GDPs were alarming to the old empires and some, like the Ottoman Turks and few of the Indian monarchies, tried to copy the European model and found that successfully do so the imperial government would have to deal with an increasingly wealthy class of entrepreneurs who did not care much for the nobility or the monarch. Some monarchies adapted, like the British. But most other adaptation efforts and the empires collapsed. Some evolved into democracies but many tried fascism first, often with the military taking over. Fascist rulers found that to survive they had to pay attention of public opinion, at least for that segment of the population supplied the manpower and money needed to keep it all going. Fascism was another form of monarchy without the reverence for ancient customs. Whenever things go wrong in modern China, there is more chatter on the street and the Internet mocking the failures of their hapless “emperor.” Often humor from the deposed (many generations ago) imperial rulers is revived and reused. Current Chines leaders are well aware of the dangers they face, and act accordingly.

A Chinese innovation implemented once the market economy was adopted was to make the enemy pay for the Chinese economic and military buildup. Not in the traditional way, with armies being sent out each year to spend a few months plundering enemy territory, or using the threat of that to extort large payments for “protection” from the plundering. China realized that the most valuable item foreign nations had was technology, especially secret military technology and commercial tech (“trade secrets”) not protected by patents. To use that patented commercial tech you had to pay for it and the trade secrets were even more difficult to obtain legitimately. But if you stole trade secrets and patents and modified it a bit you could get away with calling it Chinese developed. This tech plunder has been a major factor in the rapid growth of the Chinese economy and the military. One way this became clear was when American intelligence agencies and military researchers tried to build an accurate picture of actual Chinese defense spending and its long-term implications.

This meant using an analytical technique called PPP (Purchasing Power Parity). While the United States alone accounts for over a third of the annual defense spending worldwide, this is not as overwhelming as it appears to be. There are several very practical reasons for this misperception. First is purchasing power parity, which is mainly about using the relative cost of common goods in different countries instead of just what things cost in the United States. If you take into account PPP, those nations with lower costs (like China and India), loom larger as defense spenders. They get more bang for their buck, at least on paper.

Without PPP the top five in military spending are the United States, China, Russia, Britain and Japan. Adjust for PPP and India rises into the top five while Japan falls out. That’s because things like local supplies and labor are much cheaper in India than Japan. Applying PPP also makes American defense spending much less effective compared to what China spends. With PPP American defense spending is closer to 20 percent of global spending.

Adjusting for PPP, Chinese defense spending goes from a quarter of what America spends to over 70 percent. Yet American forces deploy many more high-tech weapons than China. That’s because U.S. defense spending has been the highest in the world since the 1940s. Major items of military equipment (ships, aircraft and armored vehicles) have useful lives of over 30 years. America has had plenty of time to accumulate a much larger arsenal of expensive equipment than China. But that changes in the future because Chinese annual defense spending has nearly tripled in the last decade. If China keeps its defense spending high and relative costs low, it will match the U.S. in many areas within two or three decades.

That probably will not happen because of other factors and trends that do not favor China and many other nations. First, there is the fact that not only has the Chinese economy been growing rapidly since the 1980s, but so have wages and the costs of much else besides. Because of this, over time the PPP advantage diminishes. China also has a greater problem with corruption in the military than the United States and most Western nations. This greatly (by 20 percent of more) diminishes the effectiveness of their defense spending. Corruption in defense spending is found everywhere, but it has, for thousands of years, been particularly bad in China. The Chinese government has, since the late 1980s, been making strenuous efforts to reduce corruption but has had limited success.

What was not taken into account until recently was the value of technical knowledge China has stolen. Western mass media have long been full of stories about Chinese hackers stealing enormous qualities of Western data and using it to gain an economic advantage. When the value of “military R&D” (Research and Development) is taken into account, and you calculate what it would have cost the Chinese to develop all that military tech it turns out that Chinese defense spending is nearly 90 percent of American defense spending.

The technology angle plays an enormous role in creating military power, something many people fail to take into account. The larger amount of technology and knowledge now used in warfare is why modern weapons are more powerful, and expensive than those of the past. Consider, for example, the differences between a World War II bomber, and a modern one. The principal World War II bomber was the B-17, which weighed 29 tons, had a crew of ten, and could carry three tons of bombs to targets 1,500 kilometers away. In current dollars, each B-17 cost about $2.5 million. But that was because over 12,000 of them were built. If bought in much smaller quantities, as is typical in peacetime, each B-17 would cost over $15 million. Now compare that to a modern bomber of comparable size (or at least weight), the twin-engine F-15E jet. With a max weight of 36 tons, an F-15E can carry up to seven tons of bombs three or four times farther than the B-17. An F-15E has a crew of only two. But this $90 million dollar aircraft is much more than six times as lethal as the B-17. That's because of smart bombs. A B-17 carried a dozen 500-pound (226 kg) bombs, but it took over 300 of these unguided bombs to guarantee a hit on a target below. The smart bombs of the F-15E guarantee a hit with two bombs. Actually, it's not as bad as that but there are occasional system failures with smart bombs. The smart bombs also glide 40 kilometers or more, allowing the F-15E to avoid most anti-aircraft fire.

The big difference between these two aircraft is knowledge, as manifested in more, and better, technology. This tech was expensive to develop, both in terms of time and money. This has been a trend that has been ongoing for over a century and continues. More technology requires putting fewer people in harm’s way to achieve the same results or results that were impossible in the past. Casualties are also lower. The air force is not the only component of the armed services that is undergoing these simultaneous personnel shrinkages, and increased capabilities. China realized the value of tech and the enormous advantages they would obtain if they found ways to steal and apply this tech on the cheap.

There is another complication when comparing defense spending. This big one is the relative cost of defending your nation versus attacking someone somewhere else. It’s much cheaper to defend. Going on the offensive, especially over long distances, is much more expensive. Depending on how far your forces have to travel, equipping an offensive force can be anywhere from a quarter more expensive if you plan to attack a neighbor, to more than twice as expensive if you are prepared to go anywhere in the world.

China does not have global military obligations and, historically, chose not to go that way. Despite the dependence of the modern Chinese economy on imports (oil and ores mainly) from distant places, China still sees itself as a “continental” power concerned mainly with being military superior to the neighbors and not much concerned with waging war halfway around the world. That means Chinese forces have an additional advantage against American forces, but not against local high-tech opponents like Taiwan, Singapore, Australia, South Korea and Japan. These nations muster considerable defense capabilities which, with the addition of some forces from the West and India, keep China on the defensive. Chinese media may play up the power of the modernized forces, but the leadership understand  understand , and say as much in accessible military journals and internal discussions that eventually get leaked, that they understand what the Soviets aptly described as “the correlation of forces.”

Then there is your military leadership. If your generals and admirals know what they are doing and maintain high standards for subordinates and concentrate on training and readiness for combat, the forces at their disposal will be much more effective than when, as is often the case, the military is treated like a jobs program to keep unemployment low and, if there is a lot of corruption, make politicians and senior officers rich. The Chinese military served this purpose for a long time but when modernization got going in a big way back in the 1980s the Chinese military began to shrink while training became more intense and based on proven Western models.

PPP works in other ways. Nations that spend little cash, but have cheap local costs for food, housing and payroll, like Iran and Pakistan, all of a sudden have larger defense spending, Iran is now about six percent of U.S. spending, and Pakistan about four percent. Purchasing Power Parity shows how poor nations can spend only a few billion dollars a year on defense, yet have hundreds of thousands of troops in service. If these soldiers have good leadership and train regularly, they can be a formidable foe even to a high-tech force from the West or China. Most of the poor nations don't have high quality officers and NCOs, and their troops fade quickly when confronted with a well-equipped and well-trained force. Unfortunately, the media is not very keen on examining the quality of training and leadership in anyone's armed forces. Yet, time and again, these two factors have proved to be the most critical ones. And that will remain the case in the future.

All this explains how China was able to become a worldwide military threat in such a short period of time. From the Chinese perspective, this is simply returning China to the status of the world’s most powerful and prosperous nation. This was the status China enjoyed for most of the last three thousand years. China lost that status several centuries ago when the West had the Industrial Revolution and China did not. For China, the good old days have returned. How long that will last under a fascist form of government is as yet unknown.