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Are the Defense Policy and Military Expenditure in China Economically or Politically Driven?

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Abstract

This study employs the time-varying parameter/stochastic volatility vector autoregression model to investigate the determinants of China’s military expenditure. The results indicate that China’s military expenditure is influenced by both economic and political factors, adapting to the evolving times and international environment. However, economic growth may not be an important determinant. Further, the primary function of China’s military expenditure is as a countermeasure to inflation-induced price rises. Military and nondefense expenditures are complementary, with no crowding-out effect. Moreover, domestic political risks and bilateral political relations positively affect military expenditure, mainly because China has invested several military resources to counter terrorism, engaging in joint military exercises and acquiring weapons. The influence of geopolitical risk on military expenditure is unstable, with the relationship shifting from positive to negative post 2008. Moreover, the military expenditure of other countries has minimal impact on China, implying the nonexistence of the arms race. This conclusion aligns with China’s defensive national defense policy. Our study underscores the significance of national security and the international environment, offering valuable policy references for China to reasonably allocate military expenditure, safeguard national security, and prevent invasion by hostile countries.

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Notes

  1. Data update for SIPRI and IISS until 2022.

  2. The “China Threat Theory” has taken several forms and can be categorized as ideological, economic, and military (Broomfield, 2003). In essence, the “China Military Threat Theory” originates from the “China Threat Theory,” and specifically, it discusses China’s relative military power (Al-Rodhan, 2007). Proponents of the “China Military Threat Theory” argue that China’s military modernization is a potential threat to U.S. security (Roy, 1996), and communist China poses an extraordinary military threat to the U.S. and the rest of the world (Timperlake and Triplett, 2002). China has the greatest potential to compete militarily with the U.S. and field disruptive military technologies that could over time offset traditional U.S. military advantages (DoD, 2006).

  3. Although China has officially announced its defense budget for 2023, the data for SIPRI and IISS have only been updated until 2022. In addition, other variables included in this study, such as economic development, fiscal deficit ratio, inflation, cannot obtain data for 2023.

  4. These 12 land neighboring countries are Russia, Mongolia, North Korea, Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, Pakistan, Nepal, Myanmar, Laos, and Vietnam.

  5. These six maritime neighboring countries are South Korea, Japan, the Philippines, Malaysia, Brunei, and Indonesia.

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Funding

This paper is supported by Strategic Economy Interdisciplinarity (Beijing Universities Advanced Disciplines Initiative, No. GJJ2019163).

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  1. Institute of Defense Economics and Management, Central University of Finance and Economics, 39 Xueyuan South Road, Haidian District, Beijing, China

    Yu Song & Bo Chen

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Song, Y., Chen, B. Are the Defense Policy and Military Expenditure in China Economically or Politically Driven?. J OF CHIN POLIT SCI (2024). https://doi.org/10.1007/s11366-024-09884-4

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