China has rapidly expanded its spending on defence over the past decade, at a pace that has closely mirrored its economic growth. Between 2001 and 2011, the average annual increase was 10.3% in real terms. Defence spending exceeded $100 billion for the first time in 2012, and the 2013 defence budget announced in March stands at $112.6bn, a 10.7% nominal increase over the previous year. However, a slowdown in economic growth over the past year has raised new questions over the implications for defence spending. Long-standing questions about Beijing's lack of transparency on budgetary issues, meanwhile, remain unresolved.
For 20 years after economic reforms were initiated by Deng Xiaoping in 1978, defence was not the top priority. The economy boomed as production was de-collectivised, price controls were lifted and some state industries privatised. Intensive investment in infrastructure led to large-scale migration of the rural population to the cities. According to Adam Liff and Andrew Erickson, 'military modernization was treated as the least urgent of the famous "four modernizations" and, manifest in Deng’s request for the [People's Liberation Army] [PLA] to "stay patient", investment in the military was deemphasized throughout the 1980s.'
However, with export-led industrialisation firmly entrenched and membership of the World Trade Organization secured in 2001, the leadership began to prioritise military reform and modernisation. Between 2001 and 2011, real annual increases in the defence budget averaged 10.3% (or 15.6% in nominal terms) – the average growth rate of the economy was 10.4%. Defence expenditure in 2013 will be 3.1 times higher than 2001 levels after adjustment for inflation, and 5.1 times higher in nominal terms (see Figure 1). In dollar terms, defence spending has risen more than six times over the period, from around $17bn in 2001 to $112.6bn in 2013. China has become the world’s second-largest defence spender after the United States, spending more on defence than Japan, South Korea and Taiwan combined.