By Peter E. Robertson
The headline figures showing China’s growing military spending are misleading.
China’s economic rise means that the world’s largest army now also has the resources of the world’s second largest economy. The security implications of this are discussed in the U.S. Department of Defence’s (PDF) latest report, which highlights not only the sheer growth of China’s military, but also its sustainability. Although China still spends less on its military than the United States spends on its own defense forces, China’s far higher economic growth suggests it will be able to catch-up rapidly, with relatively little economic burden. This contrasts with America’s economic malaise and raises questions over the credibility of the U.S. security guarantees to Western Pacific allies and its pivot to Asia.
But the economics of growth are not quite so simple. Though China’s economy is indeed growing rapidly, this doesn’t mean you can get more of everything at the same rate. Some things become much more affordable, but other things may become more expensive. In particular, wages tend to rise rapidly and this affects costs in institutions that employ a lot of labour – like the People’s Liberation Army (PLA).
Thus, China’s military is likely to be suffering from what economists call “cost disease.” Rising wage rates mean it will face increasingly large claims on its budget, just to maintain the same number of personnel. Hence, a greater budget is required to supply the same level of services. If not, then the sector will be squeezed in real terms.
Read the full story at The Diplomat