Why China's Massive Military Buildup Is Doomed

China has made impressive short-term military gains but it does not have the fiscal staying power to compete in the long game of history.

With confrontation looming in the South China Sea, all eyes are turned to China's military expansion. News that China is building massive naval docking facilities and transforming its new South China Sea island into a mid-ocean air force base is scaring the whole region into arming up. The message is clear: after 200 years of western domination, China is back.

Or is it? Contrary to the prognostications of western doomsayers, China is not facing imminent political collapse. Its economic growth is inevitably slowing down but its economy is relatively healthy compared to those of its peers. But claims (or fears) of Chinese global domination are clearly overblown. The budget numbers just don't add up.

The 2015 headline expansion in China's military spending is 10.1 percent, continuing two decades of double-digit growth. Astute economists have pointed out that these figures are rarely adjusted for inflation. Worse, they do not take into account the fact that wages (the PLA's largest expenditure category) are rising much faster than inflation in China. It may still be a lot of money, but 741 billion yuan just doesn't go as far as it used to.

Corruption

And then there's corruption. Though America has had its share of procurement scandals, generalized corruption is not institutionalized in the United States Armed Forces. In China it is integral to the functioning of all state bureaucracies. The military is no exception, as the Chinese government itself admits.

In mid-January the government announced the names of 16 senior military officers who were placed under investigation for corruption in 2014, including a parade of former logistics officers. Then came the bombshell: reported investigations of 4,024 senior officers (including 82 generals) for corruption and other financial irregularities.

No one knows what proportion of China's double-digit military spending increases of the last two decades has been frittered away in corruption. But it is suggestive that the beginning of China's military spending boom roughly coincided with the government's 1998 decision to close down the PLA's civilian business operations.

Denied the opportunity to make a little money on the side, it could be that the PLA's officers shifted their business model from selling widgets to stealing directly from the public coffers. The PLA's bloated command structure is divided into seven military regions, creating a plethora of top officials administering their own budgets. This creates an environment that is positively primed for corruption.

Even low-level bureaucrats in China have been known to siphon off fortunes running into the tens of millions of yuan. Given the scale of corruption in China, it is no surprise that PLA officers routinely pay bribes to secure promotion, in effect purchasing commissions. This may or may not compromise China's military readiness. But it certainly inflates military budgets—and in a big way.

Budgetary trends

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