Predicting the future is always an uncertain exercise. Analysis supported by the most advanced computer systems certainly enhances human predictive capabilities, but it has been shown that scenarios extending more than five years into the future are usually no more reliable than chance, or luck, as one might call it [1]. The exercise is even dangerous when it concerns the dynamics of international relations and the demands of national security [2].

Information about the capabilities and intentions of rival great powers is often limited. Statesmen and policymakers are forced to operate within a narrow range of strategic choices, based on their best forecasts and assessments of the severity and scale of threats [3]: the inevitability of tragedy, as Henry Kissinger would put it.

In the military sphere, beyond the acquisition of concrete operational capabilities, areas such as strategic doctrine, the organisation of the armed forces, training and personnel expenditure require years, or even decades, to adapt to a new strategic course.

Personal experience, education and intuition, together with bureaucratic inertia and political and industrial interests, therefore form the basis of many research-and-development or investment decisions in the defence sector.

1. Beijing’s strategy

From an Atlantic perspective, no other issue demands as much attention as forecasting the threat posed by the modernisation of the People’s Republic of China’s military. This was the purpose behind the report China’s Choices: A new tool for assessing the PLA’s modernisation, produced by the Center for Strategic and Budgetary Assessment (CSBA, 2022), of which a considered overview may be useful.

For years now, Beijing has possessed the economic and other resources to make a series of fundamental strategic choices aimed at deterrence or even victory in wars in the near and more distant future. Yet despite rapid signs of change, Chinese action is undoubtedly also subject to constraints.

Despite the substantial economic growth resulting from the policies of the period that began in 1978, the Communist Party mandarinate must contend with the allocation of limited resources. These constraints could become even tighter over the next decade, as Beijing faces new and growing challenges: slowing economic growth, the higher costs of deploying and sustaining a more modern and diversified military force, and greater public demand for services and welfare. Nor should the major structural problems be forgotten, including high private debt, pollution and rapid population ageing.

President Xi Jinping has articulated these strategic objectives in his “Chinese Dream”, a term promoted by the newly appointed General Secretary from 2013 onwards.

For Xi, the “dream” was described as achieving ambitious goals by two centenaries of great symbolic significance: first, transforming China into a “moderately prosperous society” in 2021, the 100th anniversary of the CCP; and second, modernising the country into a fully developed nation by 2049, the centenary of the founding of the People’s Republic.

Although these programmatic boundaries are ambiguous, two key components emerge from Xi’s speeches and writings from a military perspective: strengthening the Chinese Communist Party’s political hegemony and unification with Taiwan.

According to the CSBA report, strategic ambitions and the rapid modernisation of the armed forces indicate that Beijing has the will and, increasingly, the ability to challenge the US-shaped status quo not only in the Pacific but globally. Indeed, beyond much more urgent domestic and regional concerns, foremost among them tensions in Xinjiang involving Uyghur citizens, a Turkic-speaking Muslim ethnic group, China’s ambitions are increasingly global.

These ambitions have increasingly taken concrete form through both state and business activity. Large Chinese companies are directing enormous volumes of investment overseas, beginning with the “Going Out Policy”, the set of measures adopted by the Chinese government from the late 1990s to encourage Chinese investment abroad, and extending to the more recent “Belt and Road Initiative” [4].

To protect China’s growing global interests, Xi announced a “dream” complementary to the first: a “Military Dream” [5]. In his 2017 address to the National People’s Congress, Xi explained that “building people’s forces that obey the Party’s command, can fight and win, and maintain excellent conduct is strategically important to achieving the centenary goals and national rejuvenation”.

Xi set future benchmarks for the development of the People’s Liberation Army (PLA), decreeing that its modernisation must be achieved by 2035 so that, by 2050, the PLA becomes a military force with global operational capabilities [6]. In 2020, the CCP also announced a new milestone for the PLA in 2027: the creation of a network integrating all weapons systems, for a warfighting capability that brings all domains together.

China’s defence policy aims to safeguard the country’s sovereignty, security and development. The PRC’s military strategy remains based on the concept of “active defence”. In November 2020, the Central Military Commission, the body overseeing the armed forces, published the “Chinese People’s Liberation Army Joint Operations Outline”, a primary source for the PLA’s combat doctrine.

Ultimately, the armed forces must assume an increasingly active role in pursuing foreign-policy objectives: in 2020, a revision of the National Defence Law tasked the PLA with defending “overseas development interests” [7].

2. Budget, industrial base and force structure

Despite Xi’s stated objectives, the CSBA report notes that the precise extent of the PLA’s progress remains unknown. Beijing’s reluctance to release data on its defence expenditure has long hampered analysis of China’s military strategy and the structure of its various services: army, navy and air force.

Some official data on the PLA’s annual budget, divided into three categories (equipment, training and operations, and personnel), are available only for a limited set of years [8]. Although not an accurate measure of military capability, Chinese defence budgets grew at an average rate of around 10% between 2000 and 2016.

China’s official defence budget amounted to 1.35 trillion yuan (US$212 billion) in 2021. In 2022, the Chinese government announced a budget of CNY 1.45 trillion (US$229.5 billion), a nominal increase of 7.1%. The official top line has historically been considered below actual expenditure.

This criticism has eased in recent years, as many experts believe that China’s defence budget now includes several previously omitted spending categories. Estimates by leading experts, such as those at the Stockholm International Peace Research Institute (SIPRI) and Janes, an open-source intelligence company specialising in military and national-security affairs, suggest on average that the PLA’s budget is 15–40% higher than the official figure [9].

Every military faces resource trade-offs, and policymakers must meet competing demands with limited resources, balancing long-term investment in future warfighting capabilities against short-term spending on combat readiness. Finding the right balance between readiness, force structure and modernisation can be very difficult.

This is particularly true of China, which intends to strengthen its military power while economic growth rates have fallen in recent years because of various structural and cyclical factors, including high levels of Chinese private debt and the slow recovery from the COVID-19 pandemic.

As with the defence budget, the CSBA report stresses that the production processes and characteristics of Chinese industrial conglomerates are also uncertain because of a lack of accessible data. Only in early 2020 did SIPRI first report data on China’s largest defence companies, four giants: Avic, Cetc, Norinco and Csgs.

Identifying the characteristics of a country’s defence industrial base is also essential to understanding its warfighting capabilities. For example, a supply chain’s organisational structure can have a substantial impact on the cost of a product, especially a technologically intensive one such as a fifth-generation fighter or an attack submarine. Similarly, more “horizontal” firms with greater operational autonomy generally incur lower overhead costs than more hierarchical, top-down organisations with multiple management layers, as is typical in China.

The effects of the learning curve for managers and employees, together with the synchronisation of production plans, can also have a considerable impact on procurement costs [10]. A consistent production schedule, in other words, helps rationalise production and reduce costs [11].

Constraints in the defence industrial base therefore limit the number of a particular weapons system that can be produced. These constraints become less binding over the medium to long term if addressed through careful strategic planning. There are, however, sectors in which industrial-base constraints are difficult to remove even over five or ten years, as in submarine production.

Furthermore, in operations and maintenance (O&S), Chinese capabilities could differ considerably from Western ones [12]. Many observers assume that O&S costs for an equivalent weapons system are lower in China than in the United States, but this is not necessarily true.

For example, a lower-quality Chinese aircraft engine, even if produced at a lower unit cost than a Western equivalent, is likely to be more expensive to maintain over its operational lifetime because of poorer fuel efficiency and the need for frequent maintenance, rebuilding and replacement [13].

The blurred contours of the military industry also result from the so-called “civil-military integration” strategy, which China has pursued in some form since at least the early 1980s. Key technologies targeted by this strategy include quantum computing, big data, semiconductors, 5G, advanced nuclear technology, aerospace technology and artificial intelligence.

China specifically seeks to exploit the inherently dual-use nature of many of these technologies and allows a growing number of civilian firms and institutions to undertake military R&D and classified weapons production [14]. Military modernisation is also pursued through CCP initiatives such as “Made in China 2025”, “China Standards 2035” and the “dual circulation development model” of the 14th Five-Year Plan.

The latter emphasises accelerating domestic consumption as a driver of economic growth and pursuing key technologies along critical global supply chains.

In the absence of reliable data, a few key variables are therefore sufficient to produce approximate cost estimates for weapons systems. For example, weight and power density remain the two main cost-related variables in naval shipbuilding [15]. Similarly, weight and speed are effective proxies for estimating the cost of military aircraft [16].

For many PLA military platforms, these characteristics are observable or can be estimated with some degree of reliability.

All things considered, China’s military modernisation objectives appear attainable, at least over the next decade. The PLA can continue to maintain, expand and improve its regional-defence forces, including ballistic and cruise missiles, frigates and diesel-electric submarines.

At the same time, it can continue developing a range of major military platforms serving global power projection, including aircraft carriers, cruisers, destroyers and strategic bombers.

The PLA has been repeatedly downsized since 1985, with a total of around 1.7 million personnel [17]. The army (PLAA) is now below one million personnel for the first time in the PRC’s history. The latest reduction of 300,000 personnel, announced by Xi Jinping in 2015 and primarily affecting the army, concerned support rather than combat units [18]. The PLAA has around 975,000 active-duty personnel.

Yet despite these substantial reductions in the personnel and units of the PLA’s land component, further cuts are estimated to be necessary to free up the funding required to achieve strategic objectives in the maritime domain. China is, in fact, building warships at a record pace.

The People’s Liberation Army Navy (PLAN) is numerically the world’s largest, with an overall force of around 355 ships and submarines, including more than 145 major surface combatants. An IISS study concluded that between 2014 and 2018, China added warships to its fleet with a combined tonnage equivalent to that of the entire Royal Navy [19].

One possible course of action will be the retirement of weapons systems from the Air Force (PLAAF) and Naval Aviation (PLANAF, which falls under the navy, PLAN). The PLAAF and PLANAF constitute the region’s largest air force and the world’s third largest, with more than 2,800 aircraft in total, including around 2,250 combat aircraft.

Such a downsizing and restructuring of the air force would indicate that China intends to accelerate procurement of new-generation aircraft, both combat and support, required for power projection on a larger scale.

The People’s Liberation Army Rocket Force (PLARF) organises, operates, trains and equips the land-based nuclear and conventional strategic missile forces, as well as their associated support forces and missile bases. The PLA is estimated to possess more than 1,250 ground-launched ballistic missiles (GLBMs) and ground-launched cruise missiles (GLCMs), with ranges of between 500 and 5,500 kilometres.

China also possesses one of the world’s largest forces of long-range surface-to-air systems, including Russian-made S-400s, S-300s and domestically produced systems [20]. Overall, China’s conventional military power far exceeds that of any other state in the Indo-Pacific theatre of operations.

The Strategic Support Force (SSF) is a theatre-command-level organisation established to centralise strategic space, cyber, electronic and information-warfare missions and capabilities.

The SSF oversees two theatre-command-level departments: the Space Systems Department, responsible for military space operations, and the Network Systems Department, responsible for information operations (IO), which include technical reconnaissance, electronic warfare, cyber warfare and psychological operations.

In its strategy for employing its nuclear arsenal, China has historically adopted a defensive posture focused on responding to an adversary’s nuclear attack, the so-called “second-strike capability”. This position stems from Beijing’s past belief that nuclear weapons had limited utility in a conflict, while also reflecting the technological limitations of China’s nuclear capability.

China also possesses around ninety-eight nuclear-armed intercontinental ballistic missiles (ICBMs) with ranges capable of reaching Europe, as well as four nuclear-powered ballistic-missile submarines (SSBNs) [21]. Today, modernisation extends to the nuclear arsenal too: China has developed ballistic missiles, including the DF-17, DF-21 and DF-26, capable of penetrating modern air defences and striking moving targets.

Although the PLA has traditionally lacked the necessary precision-guidance technologies, these limitations are rapidly disappearing. In October 2019, the PLAAF unveiled the H-6N, its first bomber with nuclear capability and air-to-air refuelling.

The PLA is also a fundamental instrument for preserving and strengthening the Chinese Communist Party’s domestic political hegemony, making it a more complex political and institutional actor than its Western counterparts. Although the People’s Armed Police (PAP) has grown rapidly since the 1989 Tiananmen Square protests, the PLA must nevertheless be ready to serve as the ultimate guarantor of the Party’s survival.

The army today comprises around one million personnel, but in a country of almost one and a half billion people even this force can be severely stretched. Reducing its numbers further would therefore be risky.

In the land domain, relations with Russia are now very solid, or at least appeared so until the Russian invasion of Ukraine last February. In any case, China’s continental-security concerns persist. To address them, Beijing needs a large ground force capable of operating in environments as varied as Central Asia, the Sino-Indian border, Southeast Asia and the Korean Peninsula.

3. Strategic implications

In its conclusions, the CSBA report seeks to provide policy options that the United States, together with allies and partners, could pursue to contain Chinese military modernisation.

First, pursuing cost-imposition strategies against China will become increasingly important. Allies should seek to weaken the willingness to downsize the land component of the armed forces further, and thus increase China’s perceived continental threats. Support for the modernisation of the Indian and South Korean armed forces could force PLA leaders to invest substantial resources in the land domain.

Although it currently seems a lost cause, the possibility of increasing friction in Sino-Russian relations should also remain open, potentially over issues such as influence in Central Asia, nuclear arms control, ballistic-missile proliferation and access to the Arctic.

Indirect action to reduce the army’s influence within the state bureaucracy and the Communist Party could also be considered. Although difficult, operations such as the selective disclosure of unlawful practices, for example corruption, by the other branches of the armed forces could weaken their legitimacy, thereby strengthening that of the PLA.

Criminal activity in the navy and air force could increase with new modernisation programmes involving ever more expensive weapons systems, including when these result from agreements involving developing countries [22].

The West must also try to curb China’s technological progress, both in the strictly military sphere and in dual-use technologies, primarily by limiting China’s continuing absorption of Western technology and know-how.

It is interesting to recall the origins of modern Chinese thinking on science policy: a series of catastrophic defeats in the Opium Wars in the mid-19th century showed Chinese leaders the terrible consequences of failing to pay attention to the development of science and technology.

In the Illustrated Treatise on the Maritime Kingdoms, perhaps the first significant Chinese work on the West, the scholar Wei Yuan advanced the idea of “learning skills from foreigners in order to master them” [23].

This utilitarian outlook has important implications for research and development. The emphasis falls on development at the expense of spending on basic and applied science, which is fundamental to innovation and scientific discovery. For example, in recent years, basic and applied research accounted for 36% of US R&D expenditure, compared with 17% in China [24].

China’s aerospace industry is still struggling to produce the jet engines and avionics needed for new-generation military aircraft. Measures can therefore be adopted to maintain this status quo: expanding and strengthening controls on exports and inward and outward foreign investment; restricting study and research abroad by individuals close to China’s military and defence industry; and intelligence operations that interfere with China’s research-and-development efforts [25].

More generally, it is clear that strategic competition with “the Dragon” extends well beyond the military domain into the broader technological, commercial and financial spheres. A joint Western effort can impose very substantial costs on Chinese defence, slowing its military modernisation as it becomes squeezed between economic, technological and strategic constraints.

To return, in closing, to mythology: in the Western tradition, dragons are formidable, seemingly invincible beings found in many different legends. Yet in traditional European narratives and folklore, the great heroes who tame them are more formidable still.

Article based on the document China’s Choices: A new tool for assessing the PLA’s modernisation, published by the Center for Strategic and Budgetary Assessment (2022).

Notes:

[1] Tetlock P. E. (2017) Expert Political Judgment: How Good Is It?

[2] Rescher N. (1998) Predicting the Future: An Introduction to the Theory of Forecasting.

[3] The concept of “minimum (avoidable) regrets” is of interest here. See Colin S. Gray (2010), Strategic Thoughts for Defense Planners.

[4] China’s stock of outward direct investment increased eightfold over the last ten years (and sixtyfold in 2018 compared with 2003), reaching US$2.4 trillion in 2020, according to the OECD. See OECD (2021), China’s outward direct investment and its impact on the domestic economy.

[5] Full English text of Xi Jinping’s report to the 19th National Congress of the CCP: https://www.chinadaily.com.cn/china/19thcpcnationalcongress/2017-11/04/content_34115212.htm

[6] Two of the remaining milestones outlined in the 2016 Innovation-Driven Development Strategy should also be remembered: joining the front ranks of innovative countries by 2035 and becoming a “global scientific great power” by 2050.

[7] Office Of The Secretary Of Defense (2021) Annual Report to Congress: Military and Security Developments Involving the People’s Republic of China.

[8] The most recent breakdown is available in the white paper issued by China’s State Council, entitled China’s National Defense in the New Era (2019): https://english.www.gov.cn/archive/whitepaper/201907/24/content_WS5d3941ddc6d08408f502283d.html

[9] Janes (2018) China Defence Budget.

[10] Deloitte (2022) Building and managing supply chain resilience in aerospace and defense.

[11] United States Government Accountability Office (2020) Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs. https://www.gao.gov/assets/gao-20-195g.pdf.

[12] Operations and sustainment (O&S) is a life-cycle cost category for a weapons system, whereas operations and maintenance (O&M) is a budget appropriation category. O&S costs are distributed across the procurement, operations and maintenance, and military personnel appropriation categories.

[13] Pomfret J. (2010) Military Strength Is Eluding China.

[14] Center for a New American Security (2021) Myths and Realities of China’s Military-Civil Fusion Strategy.

[15] RAND (2006) Why Has the Cost of Navy Ships Risen?

[16] RAND (2008) Why Has the Cost of Fixed-Wing Aircraft Risen? A Macroscopic Examination of the Trends in U.S. Military Aircraft Costs over the Past Several Decades.

[17] Adam Ni (2017) Why China is Trimming Its Army.

[18] David M. Finkelstein (2017) Get Ready for the Second Phase of Chinese Military Reform.

[19] Childs N., Waldwyn T. (2018) China’s Naval Shipbuilding: delivering on its ambition in a big way.

[20] International Institute for Strategic Studies (2021) Military Balance

[21] International Institute for Strategic Studies (2021) Military Balance

[22] Teddy Ng (2020) Former Boss of China Aircraft Carrier Programme in Corruption Probe.

[23] Mitchell P. M. (1972) The Limits of Reformism: Wei Yüan’s Reaction to Western Intrusion.

[24] Defense One (2022) China’s Roadblocks to Becoming A Science Superpower.

[25] For an overview of a potential strategy by the United States and its allies to impose technological costs on China, see Jack Bianchi (2020), Fear Not Technological Disengagement and Competition with China.