<\/span><\/h2>\nTable 1 provides a PPP comparison of China\u2019s military spending with that of the US. According to the Stockholm International Peace Research Institute (SIPRI) China\u2019s military spending in 2023 was 2.096 trillion yuan. At market exchange rates this converts to $296 billion, much smaller than the US budget of $916 billion.<\/p>\n
Market exchange rates, however, only tell us what China\u2019s budget would procure if it was spent in the US.
\n To get an overall PPP estimate, that factors in local costs, we can divide aggregate spending into three broad categories using self-reported UN data (Column 2).
\n Each component is then converted to dollar equivalents using an appropriate PPP price.<\/p>\n
Column 3 thus reports the World Bank PPP prices for \u201cMachinery and Equipment\u201d, which I use as an indicator of relative military equipment prices.
\n Relative personnel unit costs are calculated from personnel expenditure data and the number of skill-adjusted personnel in each country.
\n For operations spending, I simply use the average price level as indicated by the GDP\u2013PPP exchange rate.<\/p>\n
Although the data lack fidelity, significant price differences across these categories are evident. For example, China\u2019s relative military personnel costs, at 1.9 yuan per dollar, are very low compared to the market exchange rate of 7.08 yuan per dollar, while equipment prices are slightly higher.<\/p>\n
Table 1 <\/strong>Chinese and US military spending compared<\/p>\nThe dollar value of China\u2019s military spending is then given in Column 4 and totals $609 billion, or 67% of US actual spending of $916 billion.<\/p>\n
Note, however, that the same PPP exchange rates imply yuan values for US spending that add to \u00a53,995 billion (Column 5). This implies that China\u2019s actual spending is only 52% of that of the US \u2013 the equivalent of $481 billion.<\/p>\n
Thus, we have a $129 billion gap ($609 versus $481 billion) between two equally valid estimates using the same data.<\/p>\n
The first approach is a Laspeyres quantity index, while the second is a Paasche index. The gap is a reflection of substitution bias, which occurs when quantities are combined using prices from different markets.<\/p>\n
Despite the considerable attention given to this issue in Cold War analyses of Soviet spending, nearly all current studies on China\u2019s military spending have used a Laspeyres index, and so suffer from substitution bias.
\n\u00a0<\/p>\n
To mitigate substitution bias, we can use a Fisher index, which is simply a geometric average of the Paasche and Laspeyres values (Robertson 2024).
\n This puts China\u2019s military spending at 59% of US spending, or $541 billion.<\/p>\n
Figure 1 compares this with market exchange rate estimates, along with an indication of the Paasche-Laspeyres spread. The PPP value is 83% higher than the market exchange rate value of $296 billion and implies a military PPP exchange rate of 3.87 yuan per dollar \u2013 much lower than the market exchange rate of 7.08, and quite similar to GDP\u2013PPP.<\/p>\n
Figure 1<\/strong> Military spending estimates<\/p>\nApplying this method across time then shows how China\u2019s military spending has evolved relative to the US (Figure 2).
\n China caught up rapidly after 2010 when military spending increased from under 40% of the US to around 60% by 2015.<\/p>\n
Figure 2<\/strong> China\u2019s military spending as a fraction of the US, 2000-23 (SIPRI definition)<\/p>\nNevertheless, the gap has been approximately constant in recent years as China\u2019s economic growth has slowed. Hence, China is not currently outpacing the US, but the US is spending twice as much of its GDP to maintain its lead.\n<\/p>\n
<\/span>Modernisation<\/span><\/h2>\nDifferences in the composition of military spending will also affect assessments of China\u2019s relative capabilities, so it is also important to look beyond this headline number.<\/p>\n
Table 1 also shows that China\u2019s real, skill-adjusted, personnel inputs are 1.38 times larger than the those of the USA ($327 versus $238 billion), reflecting its larger personnel strength.
\n However, China\u2019s aggregate military equipment inputs are only 42% of those of the US ($91 versus $219 billion). Thus, despite the significant growth, China\u2019s military remains much reliant on personnel than the US.<\/p>\n
Figure 3 shows how this composition has changed as China\u2019s military spending has grown. Here, overall military spending is measured in constant 2023 PPP dollars and the share of each spending category reflects the real input quantities in China relative to the US.\n<\/p>\n
Figure 3<\/strong> Chinese and US military spending ($billion PPP)<\/p>\nThe figure highlights the rapid growth of operations and equipment spending in China with equipment spending at only 10% of the in 2000, but rising to over 40%. Real military equipment spending in China thus grew at 9.7% per annum compared to overall military spending of 5.6% per annum. Figure 3 also shows the decline in US spending after 2010 \u2013 mainly due to the drawdown of forces in Iraq and Afghanistan. Thus, cycles in US spending explain some of the apparent rapid catch-up in Figure 2.<\/p>\n
<\/span>Questionable assumptions<\/span><\/h2>\nIt is important to stress that there is enormous data uncertainty in these figures and reasonable alternative results are possible. Early studies on China, perhaps understandably, relied heavily on average GDP\u2013PPP measures. Since then, studies have used civilian and government sector wage ratios, consumption price indices, and military salaries to estimate personnel PPP ratios, and market exchange rates have been used to measure equipment PPP.\n<\/p>\n
However, some of these assumptions are less desirable than others. Specifically, using GDP\u2013PPP likely overstates the dollar value of China\u2019s equipment spending given the World Bank data on \u201cMachinery and Equipment\u201d prices discussed above.<\/p>\n
Conversely, deflating personnel expenditure by a consumption price index understates China\u2019s real military spending because it reflects consumption, not personnel strength, and Chinese personnel consume less per capita than their US counterparts.\n<\/p>\n
Similarly, relying on specific salary scales to estimate personnel PPP can be misleading. For example, a sergeant in the PLA earns seven times the pay of an enlisted recruit, while in the US Army a sergeant only earns 30% more. Relying on sergeants\u2019 salaries, as one study does, therefore likely inflates China\u2019s relative personnel costs.\n<\/p>\n
The impact of these relative price assumptions is substantial. Replacing Eaglan\u2019s (2024) PPP value for equipment PPP and Fravel et al.\u2019s (2024) value for personnel PPP in Table 1 gives estimates of China\u2019s military spending ranging from $454 billion to $732 billion.<\/p>\n
Further discrepancies also stem from differing definitions of military spending. These may be valid since there is no single definition of military spending and the intensity of para-military activity differs across countries. I use SIPRI and IISS data since it is transparent, objective and aims to ensure comparability across countries and consistency across time (Tian and Su 2021, Nouwens and B\u00e9raud-Sudreau 2020).<\/p>\n
However, some studies have reported comparisons that include the US Department of Veterans Affairs budget as part of US defence spending. Such legacy payments make sense when comparing defence burdens but are misleading in the current context of comparing military capabilities (Hartung 2023, Fravel et al. 2024).\n<\/p>\n
<\/span>Conclusion<\/span><\/h2>\nMeasures of comparative military spending play a critical role in defence policy decisions. However, the lack of transparency in China\u2019s defence budget creates uncertainty, sparking concern and speculation.<\/p>\n
This column has shown that the use of appropriate relative prices and unbiased economic measurement techniques greatly reduces the range of reasonable estimates. Collecting detailed price and input data, akin to Cold War programmes, could further reduce this uncertainty and improve military spending comparisons.\n<\/p>\n
Given the data we have, however, China\u2019s military expenditure in PPP terms is estimated to be $541 billion, which is 83% larger than the market exchange rate value.
\n This represents 59% of US military spending, but China\u2019s equipment levels are only 42% of the US levels. Finally, comparing trends over time shows that, despite a period of rapid catch-up, the US has matched China in recent years, albeit at the cost of a much higher defence burden.<\/p>\n
Author\u2019s note: I am grateful to Gilbert Achcar, Fred Bartels, Wilson Beaver, Jordan Becker, Lucie Beraud-Sudreau, Robert Hill, James Laurenceson, Evan Laksmana, Fenella McGerty, Veerle Nouwens, Ron Smith, Nan Tian, and Anand Toprani.<\/em><\/p>\n