JULY 2002 - REPORT TO CONGRESS OF THE U.S. - CHINA SECURITY REVIEW COMMISSION - THE NATIONAL SECURITY IMPLICATIONS OF THE ECONOMIC RELATIONSHIP BETWEEN THE UNITED STATES AND CHINA
Chapter 9 - The Defense Budget and the Military Economy
Key Findings
Introduction
China’s military modernization has enormous significance to the United States and regional countries. Although China has emphasized economic expansion and development, its leaders recognize the benefits for military capabilities that can flow from a growing economy. Opinions differ whether the leadership has chosen to simply modernize the armed forces or undertake a threatening military buildup. There is general agreement that China is a growing military power and is expanding its involvement in regional and global affairs. China has the world’s largest standing military, and its actual defense spending is second highest in the world according to the U.S. Department of Defense.1
While China currently lacks a conventional ability to attack the United States, it is implementing a ten to fifteen year program to build a modern military. The data show that China seeks to gain a tactical superiority over Taiwan, to narrow the gap with the U.S. and the West in certain sectors, including advanced military technology, and to at least reach parity with the United States in some systems.
How much money it will take to accomplish these objectives is unclear. No one outside top leadership circles in China fully understands the Chinese budget or has confidence in the numbers that are published. The published budgets have significance for the United States only insofar as they inform us of China’s official priorities, goals, and needs. Much of China’s defense spending is off-budget and concealed in secret accounts, sometimes in the national budget and sometimes through other means.
This chapter explores the relationship between China’s growing economy and its defense budget, including the relationship between the official and real defense budgets. The officially announced 2002 defense budget is $20 billion; the latest U.S. Department of Defense estimate of actual 2002 defense expenditures is $65 billion.2
China’s Budget
The central government is severely limited by its low tax collections and must resort to deficit financing to meet the country’s burgeoning demands. Testifying before the Commission, Richard N. Cooper stated that two-thirds of China’s budgetary expenditures reside at the state and local levels, and only one-third at the central government level. The budgeted revenues collected at all levels of government amount to roughly 15 percent of GDP, which is low by international standards. The U.S., by comparison, collects 33 percent at all levels of government, and typical European total tax revenues are over 40 percent of GDP. The 15 percent PRC figure excludes so-called "extra-budgetary" revenues (various fees and charges) that are collected at the local levels and are roughly equivalent in amount to one third of the budget. When these extra-budgetary collections are added to the budgeted revenue, China’s total collected revenue approaches 20 percent of GDP. That is the aggregate of central, provincial and local revenue collections. However, the PRC central government collects only one third, roughly the equivalent of about 6 percent of GDP. Cooper refers to a World Bank list of 70 countries which notes that China is seventh from the bottom in central government revenue collection. His conclusion is that "the central government is strapped for funds". By comparison, the U.S. federal government collects 22 percent of GDP.3
Experts conclude that, over the past four years, China has been buying its way out of trouble with deficit financing — staving off signs of deflation, boosting demand, and countering the slowing economy. The result has been rapid, but diminishing, growth at the expense of fast rising deficits and government debt. Premier Zhu argued at the March 2002 National People’s Congress (NPC) that the ratio of national debt to GDP (16.3 percent in 2001) was "still in safe limits" and that there was "still room" for issuing more long-term treasury bonds to finance construction projects. China’s credit is good today, and it is still able to finance the record deficits domestically.
China’s limited central government revenue collections, even though supplemented by its ability to raise additional funds with deficit financing and other means, set limits on government expenditures. If China’s looming debt crisis becomes more severe because its expenditures are consistently exceeding its revenues and because of excessive borrowing, as observers have noted, defense spending will also be constrained.4 Substantial increases in official funding for the PLA would, under such circumstances, indicate a growing prioritization of the military goals and missions; conversely, a decline or stagnant growth rate would reveal a lower or lesser national and party priority. As Cooper noted:
It is in this context that PLA modernization has to be viewed, and in my judgment, the major battles that the PLA will be fighting during the next 10 years will be in Beijing over what it considers its rightful share of the budget. It will not be an easy battle to win.5
The Official Defense Budget
China’s published defense budget is only a part of the real total. Furthermore the published budget contains only three major line items, so it is difficult to learn from the official data how actual expenditures relate to the announced targets and capabilities.
For 2001, the official figure for defense expenditures is $17 billion, about 1.5 percent of GDP, and about one-fourth of central government tax revenue.6 While the military budget has increased in nominal terms during the last two decades, in real terms (adjusted for inflation) such increases have occurred only since 1997. Official annual defense expenditure averaged 16.7 percent of the central budget over the last fifty years, but over the last fifteen years, it amounted to about 8.5 percent of the central budget. The share of official military expenditure as a percentage of GDP has decreased from 6.35 percent for the last fifty years, to 2.3 percent in the 1980’s, and to 1.4 percent in the 1990s.7
The Defense Budget Process
The purpose of the introduction of Zero Base Budgeting (ZBB) reforms in 2001 was to decentralize the system to increase overall accountability, give total discretion to PLA headquarters, and prevent local units from accumulating off-budget revenues. The ZBB reforms left the internal budget bidding process unchanged. Central allocations are still made to all levels of the PLA. The central government’s General Logistics Department (GLD), the Central Military Commission (CMC), and the Ministry of Finance (MOF) together establish aggregate annual expenditure targets. Then a budget bidding process by the military regions and districts begins, and budget requests are submitted to the center. The center sets final district and regional budget amounts and the aggregate military budget.8 ZBB affects the process of PLA budgeting, requiring the unit level to draw up projected expenditures for the coming year from zero up, rather than from the prior year’s expenditure levels.
As with the rest of China’s economy, the military fiscal system is characterized by double accounting, hidden assets, and a variety of off-budget and extra-budgetary expenditures, as well as corruption.9
2000 White Paper
According to "China’s National Defense in 2000", published in October 2000 by the Information Office of the State Council, defense expenditures fall into the following three roughly equal categories: personnel expenses, costs for maintenance of activities, and costs for equipment. Beyond active force expenditures, analysts believe the official budget also includes militia, reserves, and various defense-related social costs. The published defense budget reveals very little about China’s intentions, strategic priorities, directions, or missions.
Figure 9.1
Composition of China’s Defense Expenditures
(2000 White Paper, USD — Billions, $1 = 8.28 Yuan)
|
1998 |
1999 |
2000 |
|
|
Personnel |
$ 3.89 |
$4.21 |
$4.89 |
|
Maintenance |
3.59 |
4.59 |
5.04 |
|
Equipment |
3.79 |
4.20 |
4.70 |
|
Total |
11.28 |
13.00 |
14.64 |
The 24 percent rise in announced equipment expenditures in the three years of published data is significant. It reveals that China’s acquisition of technology and weapons is accelerating to support its military modernization program.
The White Paper compares the size of the official defense budget to those of other countries. At $14.6 billion, the official 2000 defense budget was five percent of U.S. defense spending, 30 percent of Japan’s, 40 percent of UK’s, 48 percent of France’s, and 64 percent of Germany’s. As a percent of the official national budget, the announced defense budget was 9.33 percent in 1995, 9.07 percent in 1996, 8.8 percent in 1997, 8.66 percent in 1998, 8.2 percent in 1999, and 8.29 percent in 2000. As a percentage of GDP, the United States spent three percent on defense, South Korea 2.8 percent, India 2.7 percent, United Kingdom 2.6 percent, France 2.15 percent, while China spent 1.31 percent.
The 2002 Budget
The official military budget presented in March 2002 is $3 billion or 17.6 percent larger than last year’s military budget. At the same time, the announced national budget contains a projected deficit equivalent to three percent of GDP, "dangerously close to what the International Monetary Fund considers unsafe levels of debt."10 If, as announced in the White Papers, the priorities behind the military budget are for general defense requirements, it is notable that the defense budget contains such huge increases, especially in fiscally hard times. Added to the 2001 increase, the 17.6 percent 2002 increase will amount to a one-third increase in the acknowledged military expenditures over the last two years. Some of the budgeted increases will pay for increased personnel costs and for losses incurred by the PLA’s divestment from its commercial enterprises, while the rest will be allotted to modernization. According to one account, these substantial increases are more understandable if China’s "goal, according to Pentagon reports, is to become a 'regional hegemon', project Chinese power into every corner of Asia, protect sea lanes for Chinese oil, replace the United States as the preeminent power in the region, and use Chinese power to guarantee reunification with Taiwan." 11
The Real Defense Budget
"China’s published budget substantially understates its total expenditure on national defense, although there is no consensus as to where its ‘hidden resources’ of military financing lie and how large its actual defense spending really is."12 The missing money is either hidden in other budgets or simply not calculated.13 The official budget does not cover several areas, including: indigenously made weapons and equipment production; some Research Development Test and Evaluation (RDT&E) costs; funding the People’s Armed Police (PAP) and reserves; funds for large foreign weapon systems procurement; funds directly allocated to military factories under control of the General Armaments Department (GAD); and foreign military aid.14
Additional resources are provided to the PLA by state and local jurisdictions through cost-sharing arrangements, by profits generated through PLA-run enterprises not yet divested, from the production and sale of products and services, through funding allocations from other ministries, and from receipts generated by foreign military sales and transfers. As a result, the official budget is vastly understated; the range of annual estimated defense funding runs from $20 billion to $140 billion. The most recent Department of Defense estimate puts the real defense budget at about $65 billion, which is roughly three times the official claims15 or just under 5 percent of the GDP.
The PLA complains that the recent budget increases are still not rapid enough. Finance Minister Xiang Huaicheng announced that the 17.6 percent increase in 2002 is for "high technology, to raise our army’s defense and combat capabilities"; but according to General Song Qingwei, one of 250 PLA delegates at the March 2002 National People’s Congress, "many barracks in cold areas don’t have heating, (and the) (t)roops and officers have to eat, live and repair equipment".16 PLA officers are increasingly urging a more accelerated pace of defense spending. Two Chinese military experts conclude that China’s present ‘gradual’ budget increase model is no longer in line with the military’s real needs, and state "the model for defense budget increase should be transformed from a ‘gradual’ to ‘leaping’ pattern."17 These experts believe China is in a military preparatory period and the budget must be significantly increased. Another PLA official says that "China’s defense expenditure has come to a point where it has to expand, and the first ten years into the 21st Century should be grhtmed as the most opportune to increase its defense budget."18 On the assumption that GDP will grow at an average rate of 8 percent and defense spending increase at 20 percent per year, this official holds that China’s official defense budget should reach seven times the 1999 level by 2010, or $100 billion.19
A different way to assess the size and trends of the military budget is to look at expenditure per soldier. Based upon the $65 billion DOD estimate of China’s military spending and the assumption that PLA downsizing from 2,470,000 to 1,970,000 personnel has been completed, the expenditure per soldier in 2002 would be closer to $33,000. The comparable U.S. and Japan's published expenditures are $213,208 for United States and $192,649 for Japan.20 Based upon the $65 billion defense spending estimate, the optimistic projections of sustained average GDP growth of 8 percent and average annual defense budget increases of 20 percent, spending per soldier in the downsized PLA in 2010 would be a respectable $170,220. It should be noted that these static expenditure comparisons ignore what the money is being spent on, for example, how much is for modernization and buildup and how much it buys in the local economy.
The PLA and the Economy
Between 1978 and 1998, the PLA became an important actor in the Chinese economy, controlling a multi-billion dollar international business empire that ran the gamut from large farms to world-class hotels, local airlines, and transnational corporations.
Initially to compensate for declining central government defense budgets, the defense industry and military-run units branched out into civilian commercial activity. The PLA-run enterprises in the 1990s began to operate under a different set of rules and policies than the rest of the economy. In the mid-1990s, "a loose network of some 20,000 companies operated as an integral part of China’s military establishment and routinely existed above the law. Military units engaged in business enjoyed privileges which often gave them commercial advantages, such as tax breaks and access to state-subsidized raw materials."21
PLA business activity included agribusiness, food processing, electronics, transportation, hotels, construction, real estate, tourist attractions, medical services, karaoke lounges, even smuggling. It first engaged in profit-making activities in 1985. Because of problems of discipline, loss of mission, and corruption, the central government decided to clamp down, and by 1995, 40 percent of these activities had been closed down. In 1998, President Jiang Zemin ordered the PLA and the People’s Armed Police (PAP) to divest themselves of their commercial enterprises and, beginning in 1999, to rely almost entirely on the central government’s budget for their funds.
Total profits from PLA’s domestic commercial activities amounted to about "10 percent of the published defense budget from 1989 to 1991, 15 percent for the two years 1992-93, and 12 percent in the five years 1994-98."22 It is unlikely that the contribution of PLA’s business earnings ever exceeded 20 percent of the official defense budget.23 PLA analyst Tai Ming Cheung estimated the annual revenues of PLA companies to be between $7 billion and $9 billion, with a profit of $480 million to $720 million.24 Profits in this range would have been equivalent to less than two percent of actual defense expenditures.
The PLA’s income from arms export earnings is no longer a significant source of extra-budgetary revenue. China’s arms exports have experienced a severe decline from the peak volume of $3.75 billion in 1988 to $.58 billion in 1996; it is estimated the PLA accounts for only a half of these sales. Finally, when manufacturing and other real costs are subtracted, "(i)t is unlikely that the PLA’s net earnings exceeded 20 per cent of the income from arms exports." It is doubtful that PLA’s arms trade earnings could have financed China’s arms imports.25
Following the 1998 order removing the PLA and PAP from most commercial enterprises, many businesses were privatized or transferred back to the control of a civilian ministry. Some enterprises, however, remain only one step removed from the military. Many former active-duty military officers who ran them were offered the opportunity to return to the military or to stay with the enterprise, and many officers retired to run the companies. Some have been controlled by the so-called "princelings" - the children of influential high officials.
Moreover, the Chinese government decided to allow the PLA to retain a number of production units and enterprises, proving the "notion that the PLA is out of business is not true."26 Observers estimate the PLA has held onto 8,000 to 10,000 such enterprises and units of which "a vast majority were subsistence" units like farms and food-processing units.27 Militarily useful enterprises were retained for national security reasons, most notably telecommunications, space and satellite-launch services, radar technologies and opto-electronics, lasers, civil aviation and railways. Some enterprises that provided cover for intelligence gathering, national security, foreign affairs, and front operations were only partially divested.28
PLA ownership and management of businesses, often referred to as commercialization, has had important indirect effects on the military budget. Commercialization allowed the PLA to use assets from its business enterprises for its own purposes. It has helped fund the construction of military ports, bases, warehouses and channel resources to the state sector. One Commission witness noted that infrastructure and the supply of logistics equipment, and natural resources have been adversely affected, because a good deal of such PLA infrastructure resources is being monopolized for PLA commercial use. The commercial elements of China’s most profitable military conglomerates, such as Xinxing, Songliao, and Sanjiu, were not handed over to local governments, but were placed directly under the control of the State Economic and Trade Commission in Beijing.30 Many PLA headquarters units, such as the General Armament Department (GAD), General Staff Department’s Equipment Department (GSD/ED) and the General Logistics Department (GLD) still control private corporations, which use defense factories to produce weapons for the PLA and goods for export, including weapons
The military-run production units and the Chinese defense industrial complex remain heavily subsidized by the state. They are overstaffed, plagued with overcapacity, poor management, ineffective R&D, and a declining customer and product base. The Chinese have not been able to develop and manufacture military technologies in many key industries. Twenty years of reform efforts aimed at creating state-owned enterprises capable of providing technological support to Chinese military modernization have only met with limited success, notably in the very important sector of missile technology.31 This has forced the military to buy from foreign suppliers and forced defense and PLA-run enterprises to actively pursue foreign technologies and capabilities.32
The PLA command is working to make up for these shortfalls. Military scientific research currently emphasizes smaller-scale products incorporating increasingly advanced levels of technology. By emphasizing the strengthening of key science and technology foundations, China is making progress on revitalizing its military production capability.33 Currently, Chinese companies with deep military ties are producing state-of-the-art or near-state-of-the-art equipment and systems. In some sectors there is no longer a need for China to "steal" advanced technologies from the United States and other Western countries as was allegedly done in the 1980s, because they have achieved cutting edge technology.34
PLA-Run Enterprises in the United States
As part of the larger push by the PLA into civilian goods production, PLA-run companies have sought international markets for their products. Many PLA firms have long had representative offices in the United States, and goods made under subcontract or in joint-ventures are commonly sold in United States.
The Chinese trading offices or representative offices identified in the 1990s may no longer be active or may be operating under different names or in different locations. The Commission heard testimony from one researcher that he had not been able to locate any Chinese military enterprise’s international subsidiary operating in the United States since 1997.35 Efforts by the Commission to obtain data from the Executive Branch on Chinese companies in the United States have not been successful. To date, the Executive Branch has not complied with legislation that requires an official report on Chinese companies operating in the United States. Specifically the legislation requires that the Secretary of Defense "shall make a determination of those persons operating … in the United States … that are Communist Chinese military companies and shall publish a list of those persons in the Federal Register."36
Trade Surplus and the Military Budget
The Commission is required under its Charter to examine "the extent to which the trade surplus of the People's Republic of China with the United States enhances the military budget of the People's Republic of China." The role of international trade in China’s economy and the relationship of U.S.—China bilateral trade to U.S. national security interests are discussed fully in other sections of this Report, particularly Chapter 2. It is difficult to document any direct connection between China’s bilateral trade surplus (over $80 billion in 2000 and in 2001) and the PRC military budget. A few preliminary observations may be useful in clarifying some of the considerations that need to be addressed.
China’s economic reforms and integration into the world trading system have contributed significantly to its economic growth over the last two decades. The expansion of its export industries has boosted employment in some sectors, attracted vast sums of foreign investment, and made millions of people better off than before. This prosperity has also made more resources available for the government to spend for various purposes, including the military. In this broad sense, trade has not only helped make China richer, it has also helped make China stronger.
The accumulation of dollar reserves, which are needed for PLA modernization (specifically but not exclusively for foreign military purchases), is one important htmect of China’s trade surplus with the United States.37 These cumulative foreign exchange reserves have skyrocketed to about $212 billion at the end of 2001. While the hard currency reserves accumulated by China from its trade surplus with the United States may not directly track to the revenue side of the military budget, not least because the published budget is so unreliable, they have made it possible for China to buy foreign weapons, technology and other components for its modernization program, as detailed in Chapter 10 of this Report. Since the early 1990s, China has spent some $10 billion on purchases from Russia, with Israel’s sales to the PLA trailing close behind.38
In a growing, export-driven economy with a positive trade balance, the accumulating foreign currency reserves can be utilized for different national objectives, including defense. China’s huge foreign exchange reserves, now second only to Japan’s, are the result not only of its bilateral trade surplus with the United States, but also of substantial inflows of world foreign direct and portfolio investment. World FDI into China was about $47 billion in 2001, of which nearly $5 billion was from the United States according to Chinese data. World equity investment into state-owned firms has been running at around $7.5 billion (except for the $20 billion spike in 2000) of which the U.S. share has been around a third. Clearly, the major source of China’s foreign exchange reserve accumulation remains its annual trade surplus with the United States. The Commission heard testimony from one expert, who noted that 40 percent of China’s foreign reserves were invested in U.S. Treasury securities, rather than in the Chinese economy. "It is silly for China to be a net capital exporter at this stage in its development," this observer concluded.39 The benefits to China of the growing foreign exchange reserves may be other than economic.
National Security Implications
China’s strong and steady economic growth has enabled it to implement an ambitious military modernization program that, if successful, will catapult China forward as the leading military power in East Asia and a rival to U.S. interests in the region. It has been able to allocate increased resources to its defense budget to achieve this status because of increased revenues generated from its unprecedented economic expansion, access to international capital markets, substantial financial inflows, including foreign direct investment, and accumulated foreign exchange holdings, most of which have been derived from its very favorable trade balance with the United States.
The implications of China’s military modernization for the United States and regional states are enormous. We need to know more about China’s national budget and its defense budget because miscomprehension, whether due to underestimation or overestimation of the size and purpose of China’s defense budget, could be dangerous and lead to miscalculation. Although China’s defense budget is small in the aggregate when compared to that of the United States, China allocates significant funds to its missile buildup opposite Taiwan, to preparing for possible conflict in the Taiwan Strait, to modernizing its nuclear-capable ballistic missiles, and to developing capabilities for conducting electronic information and other forms of asymmetrical warfare against the United States and other technologically superior forces.
Given the disparities in the PRC and U.S. military budgets, the question remains: does China’s growing military budget reflect a hostile buildup inimical to U.S. and allied interests or is it merely a normal upgrading? The decade of the 1990s was generally peaceful for China, yet its defense spending rose sharply. Some observers conclude that the "PLA is undertaking a complex and long-needed process of modernization", not a hostile buildup.40 The Commission heard testimony that the pace of this military modernization may be "moderate" and "deliberate". According to that view for China to undertake a hostile buildup, the pace of military modernization would have to be "rapid" and "massive", and the military expenditure would have to increase to hundreds of billions per year. ,41,42
Others disagree and cite China’s military spending as one of fastest expanding defense budgets in the world. According to the DoD, it is the "second largest defense spender in the world…and the largest defense spender in Asia."43 They further point to the increasing allocation of resources devoted to military programs and missions which affect U.S. interests in Asia, prominent among which are to threaten and intimidate Taiwan and project China’s growing power.
The latest DoD estimate of China’s 2002 actual defense spending at about $65 billion is clearly above a "moderate" level while not yet explosive in size. The allocation of just a moderate part of the $65 billion to a narrow objective could result in the deployment of large forces and other assets on specific targets. That could challenge U.S. interests in the region. It is not simply the issue of how much China is spending, but what China is buying, what it plans to achieve, and how doing so affects its economic growth rate.
Recommendations
ENDNOTES:
1. U.S.
Department of Defense, Annual Report on the Military Power of the People’s
Republic of China, 1 May 2002, 28.
2. Ibid.
3. U.S.-China Security Review Commission, Hearing on Chinese Budget Issues
and the Role of the PLA in the Economy, Oral Testimony of Richard N. Cooper,
7 December 2001, 26.
4. Gordon Chang L.L.C, China’s Capital Needs, section 1(8 May 2002),
3.
5. Cooper, Oral Testimony, 31.
6. U.S.-China Security Review Commission, Hearing on Chinese Budget Issues
and the Role of the PLA in the Economy, Oral Testimony of Cheng Xiaonong,
7 December 2001, 46.
7. U.S.-China Security Review Commission, Hearing on Chinese Budget Issues
and the Role of the PLA in the Economy, Written Testimony of David Shambaugh,
7 December 2001, 4.
8. Ibid., 13-15.
9. Ibid., 3.
10. Winston Yau, "China Faces Record Budget Deficit", South China
Morning Post, 4 March 2002
11. John Pomfret, "China Raises Defense Budget Again," Washington
Post, 5 March 2002, sec. A , p.10.
12. Wang Shaoguang, "The Military Expenditure of China, 1989-98,"
SIPRI Yearbook 1999, Appendix 7D, 334.
13. U.S.-China Security Review Commission, Hearing on Chinese Budget Issues
and the Role of the PLA in the Economy, Written Testimony of Cheng Xiaonong,
7 December 2001, 2.
14. Ibid., 7.
15. Defense Department, Annual Report on Military Power of China, 28.
16. Taiwan Security Research, "China’s Military Grumble Over 17.6
Percent Budget Increase," Associated Press, 7 March 2002.
17. Liu Yang and Wang Cong, "Military Preparation and Possible Models
for Defense Budget Increase," Military Economics Study (PLA Institute
of Economics, November 2001).
18. Xia Jiren, "Circumstances Affecting China’s Defense Budget Increases,"
Military Economics Study (PLA Institute of Economics, December 2000).
19. Ibid.
20. U.S.-China Security Review Commission, Hearing on Chinese Budget Issues
and the Role of the PLA in the Economy, Written Testimony of Luke Colton,
7 December 2001, 3,4.
21. Tai Ming Cheung; "Can PLA Inc. be Tamed?," Institutional Investor
(July 1996): 41.
22. Wang, "The Military Expenditure of China," 345.
23. Cheng, Written Testimony, 3.
24. Banking, Housing and Urban Affairs Committee, Hearing on S.1315 - "The
U.S. Markets Security Act of 1997," Written Testimony of Richard Fisher,
5 November 1997, quoting Tai Ming Cheung, "The Chinese Army's New Marching
Orders: Winning On The Economic Battlefield," in Jorn Bromelhorster and
John Frankenstein, eds. Mixed Motives, Uncertain Outcomes, Defense Conversion
In China. (Boulder: Lynne Rienner, 1997), 195.
25. Wang, "The Military Expenditure of China," 347.
26. U.S.-China Security Review Commission Hearing on U.S.-China Current Trade
and Investment Policies and Their Impact on the U.S. Economy, Oral Testimony
of Charlene Barshefsky, 14 June 2001, 207.
27. U.S.-China Security Review Commission, Hearing on China’s Budget
Issues and the Role of the PLA in the Economy, Oral Testimony of James Mulvenon,
7 December 2001, 111.
28. Ibid., 112.
29. U.S.-China Security Review Commission, Hearing on Chinese Budget Issues
and the Role of the PLA in the Economy, Oral Testimony of Andrew Marble, 7
December 2001, 165.
30. U.S.-China Security Review Commission, Hearing on Chinese Budget Issues
and the Role of the PLA in the Economy, Written Testimony of James Mulvenon,
7 December 2001, 15.
31. U.S.-China Security Review Commission, Hearing on Chinese Budget Issues
and the Role of the PLA in the Economy, Oral Testimony of Colonel John Corbett,
7 December 2001, 149.
32. U.S.-China Security Review Commission, Hearing on Chinese Budget Issues
and the Role of the PLA in the Economy, Oral Testimony of John Frankenstein,
7 December 2001, 144.
33. Marble, Oral Testimony, 168.
34. Mulvenon, Oral Testimony, 117.
35. Ibid., 115.
36. Strom Thurmond National Defense Authorization Act for Fiscal Year 1999,
Public Law 261, 105th Cong., 2nd sess. (17 October 1998), sec 1237.
37. U.S.-China Security Review Commission, Hearing on Chinese Budget Issues
and the Role of the PLA in the Economy, Oral Testimony of Charles Wolf, 7
December 2002, 72-4.
38. Fisher, Written Testimony, Hearing on S.135, 1997.
39. U.S.-China Security Review Commission, Hearing on China’s Capital
Requirements and U.S. Capital Markets, Oral Testimony of James A. Dorn, 06
December 2001, 322.
40. U.S.-China Security Review Commission, Hearing on Chinese Budget Issues
and the Role of the PLA in the Economy, Oral Testimony of David Shambaugh,
7 December 2001, 194-205.
41. Colton, Written Testimony, 4.
42. During the Commission’s 7 December 2001 hearing on the Chinese budget
an exchange between the Commission and Dr. Shambaugh (194-205) about what
constitutes a military build-up prompted this response from Dr. Shambaugh:
"Well, it would be, in terms of external purchases of arms, in the range
of probably five to seven times what they are buying now per year from Russia.
It would be probably a quadrupling of the internal allocation for procurement
of equipment and indeed, investment into R & D. It would be procurement
particularly of ships to acquire "blue water" capability, a submarine
force as well, and in other categories of conventional equipment."
43. Defense Department, Annual Report on Military Power of China, 28