For the past decade, reaping the benefits of the dynamic Chineseeconomy has dominated Asia's China strategies. This is hardlysurprising. While China's real GDP in 2004 was well below the GDPsof the United States and Japan, if one uses purchasing power parityfigures, China became the world's second-largest economy with a$6.4 trillion GDP in 2003, according to recent data published bythe World Bank. Of course, China still confronts a litany ofeconomic problems such as endemic corruption, mismanagement ofstate-run firms and banks, widening underemployment and theprospect of colossal environmental disasters. But this has notprevented Japan and South Korea from becoming China's first- andfourth-largest export markets and its first- and fourth-largestimporting partners. Meanwhile, since 1999, trade with thePhilippines has grown by 565 percent, with Malaysia by 258 percentand with Vietnam by 281 percent.
Yet the more ominous face of China cannot be ignored. Beijingcontinues to downplay its increasingly sophisticated forcestructure and insists that its defense budget of $30 billion palesin comparison to the Pentagon's $420 billion budget. But externalestimates, including U.S. intelligence assessments, place China'sactual defense budget in the range of $50 billion to $80 billion.Over the past decade, China's official defense budget has increasedat an average of around 11 percent per year. The People'sLiberation Army's (PLA) emphasis on key force modernizations,including more robust submarine forces, a new generation of fighteraircraft and an array of asymmetrical capabilities, means that overthe next two to three decades it will come close to becoming aso-called "theater peer" of the United States.
