$115.7 billion defence budget now thrice the size of India’s; GDP target set at 7.5 per cent; ; rise in spending on internal stability andenvironment

China on Tuesday said it would increase its annual defence budget by 10.7 per cent in the coming year to 720.168 billion yuan ($115.7 billion), even as officials defended the increased outlay as “good for regional stability” despite recent tensions with several neighbours.

The new defence budget — the first under the new leadership that will take over this month, completing a once-in-ten year transition that began in November — is expected to be approved by the National People’s Congress (NPC) or Parliament, which opened its annual session on Tuesday morning.

China's military budget is now more than three times India’s defence spending, which was, last week, increased by a less than expected 5 per cent to $37 billion (or Rs. 2 lakh crore). China’s defence budget last year rose 11 per cent to $ 106 billion.

The crucial week-long NPC session will formalise the appointment of new Communist Party of China (CPC) general secretary Xi Jinping as the country’s next President. Second-ranked Polit Bureau Standing Committee member Li Keqiang is also expected to replace Wen Jiabao as Premier.

7.5 per cent growth target

The planned defence budget for the coming year was announced in a draft budget plan released in Beijing on Tuesday morning, when Mr. Wen presented, for the last time, the work report of the government to mark the start of the session.

The report said the government would set the coming year’s growth target at a lower 7.5 per cent, with an aim to “accelerating the change of the growth model, adjusting the economic structure and improving the quality and performance of economic growth”.

Stress on stability, environment

The draft budget also hiked internal public security spending — which is directed towards police forces and to maintain stability — by 8.7 percent, to 769.1 billion yuan ($ 123.65 billion). Underscoring the seriousness with which the CPC views the maintenance of public stability, internal security spending has exceeded the external defence outlay for the second straight year.

The draft budget allocated substantial increases in spending towards the environment, education and social security, in an indication of the government's particular focus on addressing the pollution problem and income inequality.

The budget proposed a 9.3 per cent increase in education spending to 413.245 billion yuan ($ 66.44 billion). Social security spending will be increased by 13.9 per cent to 655.081 billion yuan ($ 105.32 billion), as the governments looks to bridge a widening income cap, strengthen the social safety net and enable increased domestic consumption as a driver of growth.

Among the biggest increases in allocations was for environmental protection, with spending set to be raised by 18.8 per cent to 210.127 billion yuan ($ 33.78 billion yuan). Mr. Wen, in the work report, said the government would “resolve to solve the problems of serious air, water and soil pollution that affect the people’s vital interests”.

Defence hike in focus

Defence spending was, however, the focus of attention for foreign analysts and diplomats ahead of Tuesday’s opening, seen as an indicator of the new leadership under Mr. Xi plans to manage the country’s vast and influential military.

After taking over as General Secretary of the CPC in November, Mr. Xi has appeared to court the People’s Liberation Army (PLA) more actively than his predecessor Hu Jintao. Unlike Mr. Hu, the new general secretary has close ties with the military, having served as an aide to a senior general early on in his career. In his first three months in charge, Mr. Xi has already made more than half a dozen visits to PLA units.

A day ahead of the start of the NPC session, officials had appeared to set the stage for a substantial hike in defence spending. NPC spokesperson and outgoing Vice-Foreign Minister Fu Ying said China, as “a big country”, required a proportionately sizeable outlay “to ensure security”.

Neighbours’ concerns

The 10.7 per cent hike was, however, in the same range as last year’s 11.2 per cent rise, when the budget was increased to $ 106.4 billion.

While Chinese analysts point out that this year’s $ 115.7 billion budget is still dwarfed by the $531 billion U.S. defence budget, the hike in spending is likely to worry China’s neighbours. For instance, the outlay is now more than three times India’s defence spending, which was last week, hiked by 5 per cent to $37 billion, and more than double Japan’s $ 52 billion budget.

Asked about concerns voiced by China’s neighbours, Ms. Fu, the NPC spokesperson, told reporters on Monday China strengthening its defence “is good for stability in this region and for peace in the world”.

“Our foreign policy for peace and our defensive policy have contributed to peace in this region,” she said. “We have upheld this policy for decades and we have never wavered in this commitment... If we look back at history at the end of the Cold War were tensions, conflicts, instability and even wars, but Asia on the whole has been quite tranquil. This is why all countries in Asia can stay focused on their countries’ development.”

Transparency

China’s rise in defence spending has been cited by some countries in the region, such as Japan, as a reason for their own recent hikes in military outlay. While foreign observers have questioned the opacity in China’s accounting and pointed out that certain allocations — such as the military components of the space programme and the domestic People's Armed Police Force - are excluded, analysts say transparency is improving.

“While China’s official defence budget does not capture all defence-relevant spending, it is not exceptional in this regard,” argued Andrew S. Erickson, an Associate Professor in the Strategic Research Department at the U.S. Naval War College, and Adam Liff, a scholar at Princeton University, in a recent paper on China’s defence spending.

“Despite perennial limitations in China’s budgetary transparency, the information currently available about China’s priorities and investment is sufficient to develop a good sense of its broader military trajectory,” the paper said, also pointing out that contrary to widely held perceptions, the official defence budget “has decreased (near-monotonically) from 9.5 per cent of total state financial expenditures in 1994 to 5.5 per cent in 2011.” The paper said China’s military focus, in the short term, would be aimed at “maintaining domestic stability, preventing Taiwan from declaring independence, and asserting China’s claims in the contested Near Seas by asymmetric means”.

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