China's Defence Budget FY25

Transcript

Hello and welcome to this webinar on China's defence budget 2025. My name is Jon Grevatt and I'm the head of the Asia-Pacific news desk at Janes. In this webinar today, I'll first provide an overview of China's recently announced defence budget for 2025 before looking at the rationale behind the expenditure and some of the budget's priorities in terms of China's military modernisation.

This will take us through to some detailed budget analysis and forecasts. This will provide greater clarity and context to China's defence budget over the coming decade and beyond. So, on the 5th of March, at the Annual National People's Congress in Beijing, the Chinese government announced a 2025 defence budget of 1.78 trillion Chinese yuan. That's equivalent to about 245 US billion dollars at current exchange rates. According to the government the 2025 defence budget is a year-on-year increase of 7.2%, that's before inflation. It also said that the new budget represents the 10th consecutive year of single-digit growth. Beijing also said that the 2025 increase, 7.2%, is the same rate of growth in the defence budget that we saw in 2023 and in 2022. China's official defence budget in 2024 was 1.67 trillion yuan and in 2023 it was 1.55 trillion yuan. In 2022, the defence budget was 1.5 trillion yuan a euro year increase of 7.1%, and in 2021 the defence expenditure increased by 6.8% to 1.35 trillion yuan. But the new defence budget was announced amid continued mixed economic mixed fortunes for China.

The national economy grew by just 5% in 2024. This is lower than the 5.2% growth recorded in 2023. And for 2025 China has set a growth target of another 5%, pointing to possible future challenges for the national defence budget. But it is also worth pointing out that China's official defence budget does not provide the full picture about China's defence spending. There are elements of China's defence spending that the government's official defence budget does not count. However, Janes budget assessments do include these elements in our analysis. Before we get to the Janes forecast though, I just wanted to outline some of the official priorities of the 2025 defence budget and Beijing's rationale behind the continued increases. In announcing the 2025 defence budget the Chinese Ministry of National Defense (MND) said the new expenditure will be focused on four key outcomes, all of which are aligned with the longer-term objectives of the People's Liberation Army (PLA) to enhance capability.

China's current military capability is assessed by Janes in the infographic that you can see on this slide. The first key outcome of the budget increase in 2025, according to the MND, is to support the development of what Beijing describes as ‘new domain forces’, which is reference to the nascent but growing PLA capability in cyber, space, unmanned systems, information warfare, and other new areas of military technologies. Second, Beijing said the budget increase will support the accelerated development of some core, more conventional areas of PLA capability. These comprise areas in which the PLA has suspected weaknesses, and include early warning and reconnaissance, combined warfare and joint strike capability, as well as integrated battlefield support and logistics. Other areas of focus for the defence budget, Beijing said, Include improving military training with an emphasis on combined arms operation and defence and military reforms. The need for reforms is seen as a definitive nod from Beijing in the direction of a continued requirement to root out corruption within the PLA and the national defence industry.

It’s worth noting that these four priorities are all closely aligned with China's wider goals to achieve what it calls integrated military development by 2027, the 100th anniversary of the founding of the PLA, and also to complete military modernisation by 2035. These nearer term goals are firmly aligned with China's bigger target to fully transform the PLA into what it refers to as a world-class military capable of countering any threat by 2049. And that year is a special one for China because it will also mark the country's 100th anniversary of its founding. Among the factors that may explain China's increased military expenditure are programmes that have gained some momentum in recent years.

These include programmes that improve the PLA's ability to project its force into the first and second island chains, and beyond. This emphasis is also seen in several PLA milestone achievements in 2024. They include continued emphasis on new over-the-horizon radars and command-and-control developments. And in the land domain we are seeing a continued push to enhance combined arms operations and long-range fires, including through the advancement of intercontinental ballistic missile capability. At sea, notable developments in 2024 include China's launch of a new aircraft carrier, Fujian.

This vessel is the country's third aircraft carrier, but it is first configured for CATOBAR aircraft operations. In December 2024 China also launched its first Type 076-class amphibious assault ship, which is also equipped with electromagnetic catapult systems. Fujian and the new assault ship are expected to be commissioned in late 2025 and 2026 respectively. In November 2024 China also displayed for the first time its new Shenyang J-35A fifth-generation combat aircraft, suggesting the new twin-engine platform is moving closer to operational deployments.

China's defence industry is expected to start mass producing this aircraft in 2025 or 2026. Other important developments in the air domain in 2024 include the development of a wide number of new unmanned aerial vehicles to support strike and reconnaissance operations, as well as notable developments in aerial refuelling and transport capability. These latter areas of capability will be boosted by further progress in China's efforts that we saw in 2024 to develop and build its new WS20 aero-engine.

This locally produced engine is more efficient and powerful than the existing Russian powerplants that it will replace. So, now we move on to Janes forecasts on China's defence budget, which have been compiled by our Janes Defence Budgets team. So, as we said, China's announced and official 2025 defence budget of 1.78 trillion yuan is 7.2% larger than 2024's expenditure of 1.67 trillion yuan. However, China's actual defence spending is forecast by Janes as higher than the official figure once elements of spending, such as military pensions, have been included in the official figure. Janes estimates, therefore, that China's actual defence budget is about 2.14 trillion yuan or about 295 US billion dollars as you can see in the slide showing figures from Janes Defence Budgets on this slide.

In terms of growth, in nominal terms, growth in the core defence budget has remained static over the past few years at 7.2%. Although, as you can see in the blue line on this slide, the changing rates of inflation have caused real-term increases to vary considerably. 2025's defence budget represented a slight decline in real-term defence spending, and this trend is forecast by Janes to continue as a result of economic pressure. But even as this real-term growth slows, the dollar value of China's annual defence budget increases will remain one of the largest in the world. In 2021 China accounted for about 32.2% of the Asia-Pacific region's defence spending and 5.5% of the world's defence spending. By 2025 these figures had risen to 46.1% and 11.3% respectively. From just under 295 billion dollars. Today, China's defence spending is forecast by Janes to rise to about 360 billion dollars by 2030.