China’s GDP, military spending, military investment, military capital, (Table 7, Table 8, Figure 9, Figure 10, Figure 11, Figure 12, from “Asian Economic Trends and Their Security Implications,” Rand, MR-1143, 2000)

• estimating method, results, and dollar conversions are controversial
• use of nominal exchange rates(XR), or purchasing power parities (PPP and PI), makes large difference in estimates (5-fold for military spending, 3-fold for military capital)
• what does each conversion rate mean?
• which is preferable?
• alternative growth rates (Scenarios A and B) also make big difference

Trade surpluses, current account surpluses, and China’s military spending

• China’s bilateral surpluses with US either (a) defray deficits with other trading partners, or (b) add to China’s holdings of foreign assets/reserves (mainly US Treasuries), or (c) both
• cumulative current account surpluses have built up China’s reserves to 2nd largest in world (nearly $200 billion)
• contrary to conventional view, trade and CA surpluses reduce rather than add to resources available for domestic allocation to defense or other uses
• bottom line: unlikely that trade/CA surpluses affect military allocations either up or down, because of ample priority accorded to them

US-Chinese military-to-military contacts

• assessment of recent years’ contacts and exchanges is that benefits have been one-sided: US has given much more than has received (e.g. briefings, visits to defense industries and military installations, etc.)
• result is case-by-case scrutiny, general inclination to discourage M-to-M contacts and exchanges
• suggest reconsideration of this stance and its replacement by: (a) encouragement of contacts, subject to (b) strict application of “quid-pro-quo” principle in conduct of exchanges and contacts
• RAND’s experience in 4-years of annual conferences/exchanges with China Reform Forum, alternating between Beijing and Santa Monica, with PLA/CICIR participation, as well as CIA and US military analysts.