New Focus on Military Might

Most discussions of life in China after Deng Xiaoping’s death have focused on potential political and leadership changes. Chances are, however, that continuity, not change, will characterize post-Deng politics.

Yet, there will be important changes with international consequences: Economic growth will slow, and military spending will rise, especially spending on military procurement and military research and development.

In the past two decades, China’s economy has annually grown at extraordinarily high average rates of 9% to 10%. The engines of this expansion have been market reforms (first in agriculture, then in other sectors), high rates of investment, new industries and expanded exports. But these rates are likely to be reduced by half during the next decade, for several reasons:

* China’s economy has more than doubled in size in the last 10 years. It is now the world’s second largest. Any additional percentage growth requires larger absolute increments of gross domestic product. (As a share of GDP, China’s rate of investment is likely to decline because the economy’s marginal savings rate will probably be less than the 30% to 35% average savings rate of the past decade.)

* Inflows of foreign capital, while continuing to be substantial, will probably decline modestly. In recent years, foreign investment has totaled about $35 billion to $40 billion annually, two-thirds of which comes from “overseas” Chinese in Taiwan, Hong Kong and Southeast Asia. This source of foreign capital, and the technology and management associated with it, is likely to diminish because alternative and potentially lucrative investment opportunities will expand elsewhere in Southeast Asia.

* China’s policymakers are embarking on a fiscal policy to reduce the wide income disparities between rapidly growing coastal provinces and rural zones, differences that have been highlighted by recent studies done by China’s own Academy of Sciences. Whatever the social and political merits of this policy, the result is likely to dampen China’s aggregate economic growth if more consumption, rather than investment, is the result.

* Resources are likely to be absorbed by the need to mitigate the environmental damage to urban water supplies and atmospheric pollution caused by rapid industrialization, especially widespread coal burning. Whether reform of inefficient state-owned enterprises might free up sufficient resources to meet these rising environmental needs is doubtful.

* China’s military spending can be expected to rise, in part, at the expense of the rest of the economy. The already announced increase--12.7%--in ’97 military outlays, though comparable to other budgetary increases, is one indication of this trend. Most of China’s spending on military equipment and military research and development is included in the budgets of its technical ministries--aeronautics and astronautics, marine and shipping, transportation, telecommunications--and the State Commission on Science, Technology and Industry, rather than in the official budget of the defense ministry. Consequently, the defense ministry’s budget reflects but a fraction of total military spending.

China’s top leaders stress to outsiders that they should not regard significant increases in defense spending as anything but normal, overdue and nonthreatening. They are keenly aware that their country has a 10,000-mile land border and 3,000-mile coastline to protect. Moreover, military modernization, they point out, ranked fourth on Deng’s “four modernizations” (after agriculture, industry and technology) and actively pursuing it now is simply catch-up investment.

There is a final element that reinforces these views and, in turn, is reinforced by them. In the eyes of China’s policymakers, and many of its intellectuals, peace and stability in the Asia Pacific region will be enhanced by a better balance of power among the United States, Japan and China. Currently, the Chinese believe that this balance is impaired because China is the weakest party in the relationship. Strengthening China’s military power, along with consolidating its economic strength, will contribute to regional stability, rather than disturb it, they contend.

China’s multiplying linkages and broadening engagement in international private investment and trade, as well as its participation in multilateral institutions--it recently attended a G-6 meeting in Tokyo--and prospectively in the World Trade Organization, can help smooth China’s global economic role. Institutions like the Assn. of Southeast Asian Nations Regional Forum, as well as regular bilateral and trilateral interactions among China, the United States and Japan, can facilitate the development of an appropriate role for China in the international security environment.